<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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BINGHAM FINANCIAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
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MICHIGAN 6141 38-3313951
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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RONALD A. KLEIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
260 EAST BROWN STREET 260 EAST BROWN STREET
SUITE 200 SUITE 200
BIRMINGHAM, MICHIGAN 48009 BIRMINGHAM, MICHIGAN 48009
(248) 644-8838 (248) 644-8838
(Address, Including Zip Code, and Telephone (Name, Address, Including Zip Code, and Telephone
Number, Number, Including Area Code, of Agent for Service)
Including Area Code, of Registrant's Principal
Executive Offices)
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Copies to:
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PETER SUGAR, ESQ. DAVID F. SIMON LAURENCE B. DEITCH, ESQ.
JOEL M. ALAM, ESQ. CHAIRMAN OF THE BOARD FRED B. GREEN, ESQ.
MATTHEW MURPHY, ESQ. FRANKLIN BANK, N.A. FORREST O. DILLON, ESQ.
JAFFE, RAITT, HEUER & WEISS 24275 W. 12 MILE ROAD BODMAN LONGLEY & DAHLING LLP
PROFESSIONAL CORPORATION SOUTHFIELD, MICHIGAN 48034 100 RENAISSANCE CENTER
ONE WOODWARD AVENUE (248) 358-4710 34TH FLOOR
SUITE NO. 2400 DETROIT, MICHIGAN 48243
DETROIT, MICHIGAN 48226 (313) 259-7777
(313) 961-8380
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
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If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE PRICE(2) REGISTRATION FEE
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Common Stock, no par value........... 5,772,230 shares N/A $49,695,437 $13,120
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(1) Based upon the maximum number of shares of common stock, $1.00 par value per
share, of Franklin Bank, N.A. that may be outstanding immediately prior to
the merger described herein, assuming the exercise of all options to acquire
Franklin common stock that are exercisable prior to the effective time
(421,232 shares) and excluding 145,700 shares owned by the registrant,
multiplied by the exchange ratio of 1.525 shares of the registrant's common
stock for each share of Franklin common stock.
(2) Estimated solely for the purposes of calculating the registration fee
pursuant to Section 6(b) of the Securities Act of 1933, as amended (the
"Securities Act"), and computed pursuant to Rule 457(f)(1) promulgated under
the Securities Act by multiplying (i) $8.6094, the average of the high and
low sales price of a share of Franklin common stock quoted on the Nasdaq
National Market System on May 30, 2000, and (ii) the maximum number of
outstanding shares of Franklin common stock, assuming the exercise of all
options to acquire Franklin common stock which are exercisable prior to the
effective time of the merger.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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[BINGHAM LOGO] [FRANKLIN LOGO]
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MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
We are writing to you about the most significant opportunity in our
respective histories. We are proposing a "merger of equals" between Bingham
Financial Services Corporation and Franklin Bank, N.A. We are very excited by
the opportunities we envision for the combined company. We believe the combined
company will have enhanced potential for revenue and earnings growth resulting
from the combination of Bingham's ability to originate a high volume of
higher-yielding loans and Franklin's historical ability to attract lower-cost
deposits. In addition, we believe the combined company will benefit from a
strengthened management team drawn from both companies, as well as the ability
to attract new experienced industry personnel. For example, contingent upon the
completion of the merger, Joseph G. Horonzy, a 25-year veteran of the commercial
banking industry, has agreed to join the board of directors of the combined
company and to serve as Franklin's Chief Executive Officer. Both of our boards
of directors have approved the merger and believe the merger is in the best
interests of the stockholders of the companies. Accordingly, both of our boards
of directors recommend that you vote for the merger.
If Bingham and Franklin merge, Bingham will issue to Franklin's stockholders
1.525 shares of Bingham common stock for each share of Franklin common stock
that they own. Approximately 5.1 million shares of Bingham common stock will be
issued to Franklin stockholders in the merger, based on the number of shares of
Franklin common stock outstanding on , 2000. Fractional shares will be
paid in cash. Franklin stockholders who properly dissent from the merger will
receive cash instead of shares if the merger is approved. If the merger occurs,
Franklin's stockholders will own approximately 66% of the combined company and
Bingham's stockholders will own the remainder. As a result, Franklin will be
deemed to be the acquiring company for accounting purposes. We expect that there
will be no goodwill recorded by the combined company as a result of the merger.
The absence of goodwill will benefit the combined company because we will not be
required to reduce earnings by amortizing goodwill.
In connection with the merger, Franklin will convert from a national bank to
a federally-chartered savings association and Bingham will become a thrift
holding company. We believe a thrift holding company structure provides numerous
advantages to the combined company.
Bingham common stock trades on the Nasdaq SmallCap Market under the symbol
"BFSC." On , 2000 Bingham common stock traded at $ per share, so
the value of 1.525 shares was approximately $ on that date. The trading price
of Bingham common stock will fluctuate, however, so the value of the Bingham
common stock to be received by Franklin stockholders will change. After the
merger, Bingham's shares will be listed on the Nasdaq National Market System.
We cannot complete the merger unless the stockholders of both of our
companies and the regulatory authorities approve it. Each of us will hold a
meeting of our stockholders to vote on this merger proposal. YOUR VOTE IS VERY
IMPORTANT. For the merger to occur, Franklin stockholders owning TWO-THIRDS of
Franklin common stock and Bingham stockholders owning A MAJORITY of Bingham
common stock must vote for it. Whether or not you plan to attend your
stockholder meeting, please take the time to vote by completing and mailing the
enclosed proxy card. If you sign, date and mail your proxy card without
indicating how you want to vote, your proxy will be counted as a vote in favor
of the merger. FRANKLIN AND BINGHAM STOCKHOLDERS WHO DO NOT RETURN THEIR PROXY
CARDS OR DO NOT INSTRUCT THEIR BROKERS HOW TO VOTE SHARES HELD BY THEM IN
"STREET NAME" WILL BE COUNTED AS A VOTE AGAINST THE MERGER.
The annual meeting of Bingham stockholders will be held
, 2000
a.m., local time
BINGHAM'S BOARD OF DIRECTORS RECOMMENDS THAT BINGHAM STOCKHOLDERS VOTE FOR THE
PROPOSALS AND NOMINEES.
Ronald A. Klein
President and Chief Executive Officer
Bingham Financial Services Corporation
The special meeting of Franklin stockholders will be held
, 2000
p.m., local time
FRANKLIN'S BOARD OF DIRECTORS RECOMMENDS THAT FRANKLIN'S STOCKHOLDERS VOTE FOR
THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
David F. Simon
Chairman of the Board
Franklin Bank, N.A.
SEE "RISK FACTORS" ON PAGE 14 FOR A DISCUSSION OF CERTAIN INFORMATION RELEVANT
TO THE DECISION TO APPROVE THE MERGER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER GOVERNMENTAL
AGENCY HAS APPROVED OF THE BINGHAM COMMON STOCK TO BE ISSUED UNDER THIS DOCUMENT
IN THE MERGER OR DETERMINED IF THIS DOCUMENT IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE BINGHAM COMMON STOCK OFFERED HEREBY IS NOT A SAVINGS ACCOUNT, DEPOSIT OR
OTHER OBLIGATION OF ANY BANK OR SAVINGS ASSOCIATION AND IS NOT INSURED BY ANY
GOVERNMENTAL AGENCY.
Joint proxy statement/prospectus dated , 2000 and first
mailed to stockholders of Bingham and Franklin on or about , 2000.
<PAGE> 3
THE MOST IMPORTANT THING FOR YOU TO DO IS VOTE
HOW TO VOTE
Franklin stockholders of record
- By telephone: Call ______________
- By Internet: __________________
- By mail: Mark, sign, date and mail your proxy card.
Bingham stockholders of record
- By telephone: Call ______________
- By Internet: __________________
- By mail: Mark, sign, date and mail your proxy card.
Other stockholders
If your shares are held in the name of a bank, broker or other holder of
record, follow the voting instructions you receive from the holder of record.
Telephone and Internet voting also will be offered to shareholders owning stock
through certain banks and brokers.
PLEASE VOTE YOUR SHARES. IF YOU VOTE BY TELEPHONE OR THE
INTERNET, YOU DO NOT NEED TO RETURN YOUR PROXY CARD.
FRANKLIN SPECIAL MEETING
The Franklin special meeting is open only to Franklin stockholders bearing
an admission card or other proof of ownership of Franklin stock.
To obtain an admission card:
Franklin stockholders of record: An admission card is attached to your
proxy card.
Other Franklin stockholders: Call ______________
BINGHAM ANNUAL MEETING
The Bingham annual meeting is open only to Bingham stockholders bearing an
admission card or other proof of ownership of Bingham stock.
To obtain an admission card:
Bingham stockholders of record: An admission card is attached to your proxy
card.
Other Bingham stockholders: Call ______________
STOCKHOLDER QUESTIONS
Franklin stockholders should call Regan & Associates, Inc. at
1-800-737-3426.
Bingham stockholders should call D.F. King & Co., Inc. at 1-800-207-3156.
<PAGE> 4
BINGHAM FINANCIAL SERVICES CORPORATION
260 EAST BROWN STREET
SUITE 200
BIRMINGHAM, MICHIGAN 48009
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD , 2000
The annual meeting of stockholders of Bingham Financial Services
Corporation, a Michigan corporation, will be held at 10:00 a.m., local time, on
, 2000, at , for the following purposes:
1. To consider and vote upon a proposal to approve the Amended and
Restated Agreement and Plan of Merger, dated May 16, 2000, by and between
Bingham and Franklin Bank, N.A. and the transactions it contemplates,
including:
- the issuance of shares of Bingham common stock to Franklin
stockholders in the merger, the conversion of Franklin stock options
into Bingham stock options and the assumption of the Franklin stock
option plans; and
- the reconfiguration of Bingham's board of directors.
2. To consider and vote upon a proposal to approve an amendment to
Bingham's 1997 stock option plan to increase the number of shares of common
stock that can be issued under the plan from 10% of the total number of
issued and outstanding shares of Bingham common stock to the greater of
415,000 shares of Bingham common stock or 10% of the total number of issued
and outstanding shares of Bingham common stock.
3. To approve an amendment to Bingham's restated articles of
incorporation to increase the number of authorized shares of common stock
from 10,000,000 to 50,000,000.
4. To elect three nominees to the Bingham board of directors to serve
until the earlier of the expiration of their term or the consummation of
the merger.
5. To transact such other business as may properly come before the
Bingham annual meeting or any adjournments or postponements thereof.
Bingham's board of directors is not aware of any other business to come
before the annual meeting. The amendments to the option plan and restated
articles of incorporation, if approved, will be implemented even if the merger
is not approved. The approval of the amendment to the stock option plan is a
condition to the consummation of the merger. Bingham and Franklin may elect to
waive this condition under the terms of the merger agreement.
Only holders of record of shares of Bingham common stock at the close of
business on , 2000 are entitled to notice of the Bingham annual
meeting and to vote at the annual meeting or at any and all adjournments or
postponements thereof. A list of Bingham stockholders entitled to vote at the
annual meeting will be available to and subject to inspection by any stockholder
during the meeting.
<PAGE> 5
If you have any questions, please call D.F. King & Co., Inc., which is
assisting us with the meeting, at 1-800-207-3156.
BY ORDER OF THE BOARD OF DIRECTORS
Gary A. Shiffman
Chairman of the Board and
Secretary
Birmingham, Michigan
, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE BINGHAM ANNUAL MEETING, PLEASE
COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN
THIS DOCUMENT AT ANY TIME BEFORE THE PROXY HAS BEEN VOTED AT THE BINGHAM ANNUAL
MEETING.
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FRANKLIN BANK, N.A.
24275 W. 12 MILE RD.
SOUTHFIELD, MICHIGAN 48034
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 2000
A special meeting of stockholders of Franklin Bank, N.A., a national
banking association, will be held at a.m., local time, on
, 2000, at , for the following purposes:
1. To consider and vote upon a proposal to approve the Amended and
Restated Agreement and Plan of Merger, dated May 16, 2000, by and between
Franklin and Bingham Financial Services Corporation pursuant to which:
- Franklin will be merged with and into a newly-formed
federally-chartered savings association subsidiary of Bingham,
resulting in Franklin becoming a federally-chartered savings
association and a wholly-owned subsidiary of Bingham; and
- all issued and outstanding shares of common stock of Franklin (other
than shares owned by Bingham) will be cancelled and converted
automatically into the right to receive, upon the surrender of the
certificate formerly representing such shares, 1.525 fully paid and
nonassessable shares of Bingham common stock.
2. To transact such other business as may properly come before the
special meeting or any adjournments or postponements thereof.
Franklin's board of directors is not aware of any other business to come
before the special meeting.
Only holders of record of shares of Franklin common stock at the close of
business on , 2000 are entitled to notice of the special meeting and
to vote at the special meeting or at any and all adjournments or postponements
thereof.
If you have any questions, please call Regan & Associates, Inc., which is
assisting us with the meeting, at 1-800-737-3426.
BY ORDER OF THE BOARD OF DIRECTORS
David F. Simon
Chairman of the Board
Southfield, Michigan
, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE FRANKLIN SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN
THIS DOCUMENT AT ANY TIME BEFORE THE PROXY HAS BEEN VOTED AT THE FRANKLIN
SPECIAL MEETING.
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TABLE OF CONTENTS
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Questions and Answers about the
Merger and Meetings................ 1
Summary.............................. 3
Summary Consolidated Historical
Financial and Operating Data of
Bingham............................ 10
Summary Consolidated Historical
Financial and Operating Data of
Franklin........................... 11
Comparative Per Share Data........... 12
Historical and Pro Forma Per Share
Data of Bingham and Franklin....... 13
Risk Factors......................... 14
Risks Related to the Merger........ 14
Risks Related to Our Business after
the Merger...................... 15
Forward-Looking Statements........... 19
Comparative Market Prices and
Dividends.......................... 20
The Merger........................... 22
Overview of the Merger............. 22
Background of the Merger........... 22
Reasons for the Merger............. 26
Factors Considered by the Boards of
Directors....................... 29
Recommendations of the Franklin and
Bingham Boards of Directors..... 30
Merger Consideration............... 30
Treatment of Franklin Stock
Options......................... 31
Opinion of Franklin's Financial
Advisor......................... 31
Opinion of Bingham's Financial
Advisor......................... 35
Dissenters' Rights................. 37
Fractional Shares.................. 38
Exchange of Certificates........... 38
Management and Boards of Directors
after the Merger................ 39
Interests of Directors and Officers
in the Merger................... 43
Representations and Warranties..... 45
What We Must Do to Complete the
Merger.......................... 46
Regulatory Approvals............... 47
Waiver and Amendment............... 48
Termination of the Merger
Agreement....................... 48
Termination Fees................... 48
Covenants Pending Closing.......... 49
Expenses........................... 51
Accounting Treatment............... 51
Resales of Bingham Common Stock by
Affiliates of Franklin.......... 51
Federal Income Tax Consequences of
the Merger...................... 51
Arbitration........................ 53
Nasdaq Listing..................... 53
Corporate Structure after the
Merger.......................... 53
Franklin Special Meeting............. 54
Meeting Date....................... 54
Record Date........................ 54
Matters to be Considered........... 54
Vote Required...................... 54
Proxies............................ 54
Share Ownership of Management...... 55
Quorum............................. 55
Solicitation of Proxies............ 55
Other Matters...................... 56
Bingham Annual Meeting............... 57
Meeting Date....................... 57
Record Date........................ 57
Matters to be Considered........... 57
Vote Required...................... 57
Proxies............................ 58
Share Ownership of Management...... 58
Quorum............................. 59
Solicitation of Proxies............ 59
Independent Public Accountants..... 59
Stockholders' Proposals............ 59
Other Matters...................... 60
Unaudited Pro Forma Combined
Financial Information.............. 61
Description of Bingham Capital
Stock.............................. 66
Bingham Common Stock............... 66
Bingham Preferred Stock............ 66
Michigan Business Corporation
Act............................. 67
Anti-Takeover Provisions........... 67
Classification of the Board of
Directors....................... 68
Removal of Directors............... 68
Transfer Agent and Registrar....... 68
Comparison of Stockholder Rights..... 69
Additional Proposals for the Bingham
Annual Meeting..................... 73
Election of Directors.............. 73
Authorization of Additional Shares
of Common Stock................. 73
Amendment to Amended and Restated
1997 Stock Option Plan.......... 75
Additional Information about
Bingham............................ 79
Business of Bingham................ 79
Board of Directors and
Committees...................... 87
Management and Compensation........ 89
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Stockholder Return Performance
Presentation............................. 95
Section 16(a) Beneficial Ownership Reporting
Compliance............................... 96
Security Ownership of Certain Beneficial
Owners and Management.................... 96
Certain Relationships and Related
Transactions............................. 98
Additional Information About Franklin......... 99
Business of Franklin........................ 99
Security Ownership of Certain Beneficial
Owners and Management.................... 111
Bingham's Management's Discussion and Analysis
of Financial Condition and Results of
Operations.................................. 113
Franklin's Management's Discussion and
Analysis of Financial Condition and Results
of Operations............................... 125
Where You Can Find More Information........... 141
Experts....................................... 141
Legal Opinions................................ 142
Index to Financial Statements................. F-1
APPENDICES
Appendix A Amended and Restated Agreement and
Plan of Merger.................... A-1
Appendix B Opinion of Raymond James &
Associates, Inc. dated March 19,
2000.............................. B-1
Appendix C Opinion of Keefe, Bruyette &
Woods, Inc. dated March 19,
2000.............................. C-1
Appendix D Text of 12 U.S.C. sec.215a
(dissenters' rights).............. D-1
Appendix E Second Amended and Restated 1997
Stock Option Plan................. E-1
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND MEETINGS
Q. WHY ARE THE TWO COMPANIES PROPOSING TO
MERGE?
A. Our companies are proposing to merge because
we believe that combining will create a stronger and more diversified
company that will provide significant benefits to both Franklin and Bingham
stockholders. We believe the combined company will be able to create
substantially more stockholder value than could be achieved by either
company individually.
Q. WHO WILL OWN THE COMBINED COMPANY AFTER THE
MERGER?
A. While we are proposing a "merger of equals,"
Franklin will be deemed to be the acquiring company for accounting
purposes. After the merger, Franklin stockholders will own approximately
66% of the common stock of the combined company and Bingham stockholders
will own the remainder.
Q. WHY SHOULD I VOTE MY FRANKLIN SHARES FOR THE
MERGER?
A. The Franklin board of directors has concluded
that the merger will, among other things, permit Franklin to:
- enhance the potential for revenue and earnings growth by combining
Bingham's ability to originate a high volume of higher-yielding loans and
Franklin's historical ability to attract lower-cost deposits, while being
supported by an expanded capital base;
- use its equity capital more efficiently;
- diversify its overall revenue mix by adding fee-based non-interest income
from Bingham's over $2 billion loan servicing portfolio and fees from the
origination, placement and sale of loans;
- increase its growth opportunities by operating in a holding company
structure;
- access Bingham's capital markets experience to better service and expand
the product range available to Franklin's business customers;
- realize the competitive, financial and operational advantages of
increased scale;
- benefit from a stronger management team;
- realize cost savings by eliminating redundant operations and expenses;
- access Bingham's customer base to market its products and services to
Bingham's customers; and
- increase stockholder liquidity.
Q. WHY SHOULD I VOTE MY BINGHAM SHARES FOR THE
MERGER?
A. The Bingham board of directors has concluded
that the merger will, among other things, permit Bingham to:
- enhance the potential for revenue and earnings growth by reducing its
reliance on its higher-cost funding sources through the use of Franklin's
lower-cost deposits and borrowings;
- use its equity capital more efficiently;
- realize the competitive, financial and operational advantages of
increased scale;
- benefit from a stronger management team;
- realize cost savings by eliminating redundant operations and expenses;
- access Franklin's customer base to market its products and services to
Franklin's customers; and
- increase stockholder liquidity.
Q. WHAT AM I BEING ASKED TO VOTE ON?
A. You are being asked to approve the proposed
merger of Franklin and Bingham. If you are a Bingham stockholder, your vote
for the merger also authorizes the issuance of Bingham common stock to
Franklin stockholders, the conversion of Franklin stock options into
Bingham stock options, the assumption of the Franklin stock option plans
and the reconfiguration of the Bingham board.
If you are a Bingham stockholder you are also being asked to approve three
other proposals:
- An amendment to Bingham's 1997 stock option plan to increase the number
of
1
<PAGE> 10
shares available for issuance under the plan from 10% of the total number
of issued and outstanding shares of Bingham common stock to the greater
of 415,000 shares or 10% of the outstanding shares of Bingham common
stock.
- An amendment to the Bingham articles of incorporation to increase the
number of authorized shares of common stock from 10,000,000 to
50,000,000.
- The election of three nominees to the Bingham board of directors to serve
until the earlier of the expiration of their terms or the consummation of
the merger.
Q. WHAT WILL I RECEIVE IN THE MERGER?
A. Franklin stockholders will receive 1.525 shares
of Bingham common stock for each share of Franklin common stock they own.
Raymond James & Associates, Inc. has issued an opinion that, as of March
19, 2000, the exchange ratio is fair from a financial point of view to
Franklin's stockholders. Bingham stockholders will not change their
ownership of Bingham common shares in the merger.
Q. WILL I HAVE APPRAISAL RIGHTS IN CONNECTION WITH
THE MERGER?
A. If you are a Franklin stockholder, you may
dissent from the merger. If you properly dissent and the merger is
completed, the fair value of your stock will be appraised and paid to you
in cash and you will not receive any stock. The cash you receive for your
shares could result in income to you for federal and state income tax
purposes. Bingham stockholders will not have dissenters' rights in
connection with the merger.
Q. WHAT SHOULD I DO NOW?
A. You should read this document and complete,
sign and date the proxy card and mail it to us in the enclosed return
envelope as soon as possible. If you sign and send the proxy card and do
not indicate how you want to vote, we will count your proxy card as a vote
for the merger, and, if you are a Bingham stockholder, for the other
Bingham proposals. The boards of directors of Bingham and Franklin
recommend voting FOR the merger proposal. The board of directors of Bingham
also recommends voting FOR the other Bingham proposals.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY
A BROKER, WILL THE BROKER VOTE THE SHARES FOR ME?
A. Your broker cannot vote your shares on the
merger proposal without your instructions. Your failure to instruct your
broker on the merger proposal will be equivalent to voting against the
merger.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. Franklin stockholders will be sent written
instructions for exchanging stock certificates at a later date. Bingham
stockholders will keep their current stock certificates.
Q. CAN I CHANGE MY VOTE AFTER SUBMITTING MY
PROXY CARD?
A. Yes. You can change your vote at any time
before the meeting by submitting a revocation notice or a later-dated
signed proxy card or by attending the meeting and voting in person.
Q. WHEN DO YOU EXPECT THE MERGER TO BE
COMPLETED?
A. We hope to complete the merger in the third
quarter of 2000.
Q. WHAT SHOULD I DO IF I HAVE QUESTIONS?
A. Franklin stockholders may call Regan &
Associates, Inc. at 1-800-737-3426. Bingham stockholders may call D.F. King &
Co., Inc. at 1-800-207-3156.
2
<PAGE> 11
SUMMARY
This summary highlights selected information from this document, and may
not contain all the information that is important to you. To understand the
merger fully, and for more complete descriptions of the legal terms of the
merger, you should carefully read this entire document and the documents we
refer you to. See "Where You Can Find More Information".
THE COMPANIES
FRANKLIN BANK, N.A.
24275 W. 12 Mile Road
Southfield, Michigan 48034
(248) 358-4710
Franklin is a bank that operates from four regional banking offices in the
metropolitan Detroit area with a focus on servicing the deposit and credit needs
of small and medium-sized businesses and their owners. At March 31, 2000,
Franklin had assets of $544.6 million, deposits of $410.8 million and
stockholders' equity of $33.4 million. Assets included $201.9 million of
securities available for sale and deposits included $184.5 million of
non-interest-bearing business checking accounts.
BINGHAM FINANCIAL SERVICES CORPORATION
260 East Brown Street, Suite 200
Birmingham, Michigan 48009
(248) 644-8838
Bingham is a specialized financial services company that provides and
services loans used to finance commercial real estate and manufactured homes.
During 1999, Bingham originated approximately $327 million of commercial real
estate loans and approximately $91 million of manufactured home loans. During
the quarter ended March 31, 2000, Bingham originated approximately $38.8 million
of commercial real estate loans and $35.1 million of manufactured home loans. At
March 31, 2000, Bingham had assets of $216.5 million, including loans receivable
of $178.3 million; liabilities of $192.7 million, including $180.3 million of
interest-bearing debt; and stockholders' equity of $23.7 million. At March 31,
2000, Bingham provided servicing for approximately $2.1 billion of commercial
real estate and manufactured home loans.
THE MERGER
We propose a "merger of equals" transaction, under which Franklin's
stockholders would own approximately 66% of the combined company and Bingham's
stockholders the remainder. The exact allocation of ownership will depend upon
the number of shares of Bingham and Franklin common stock that are outstanding
at the close of the merger. We hope to complete this transaction in the third
quarter of 2000. Franklin will merge into a federally-chartered savings
association subsidiary of Bingham. This means that after the merger, Franklin
will operate as a federally-chartered savings association.
We have attached the merger agreement to this document as Appendix A.
Please read the merger agreement. It is the legal document that governs the
merger.
REASONS FOR THE MERGER (SEE PAGE 26)
The board of directors of Bingham and the board of directors of Franklin
believe that the merger is fair to, and in the best interests of, the
stockholders of Bingham and Franklin, respectively. We believe
3
<PAGE> 12
that the combined company will be able to create greater stockholder value than
could be achieved by the companies individually. Specifically, we believe that
the combined company would be positioned to realize:
- enhanced potential for revenue and earnings growth by combining Bingham's
ability to originate a high volume of higher-yielding loans and
Franklin's historical ability to attract lower-cost deposits, while being
supported by an expanded capital base;
- a more efficient use of equity capital;
- diversification of its overall revenue mix by adding fee-based
non-interest income from Bingham's over $2 billion loan servicing
portfolio and fees from the origination, placement and sale of loans;
- the benefits of Bingham's capital markets experience;
- the competitive, financial and operational benefits of increased scale;
- increased growth opportunities by operating in a holding company
structure;
- the benefits of a strong management team drawn from both companies as
well as the ability to attract new experienced industry personnel;
- cost savings by eliminating, redundant operations and expenses;
- the benefits of cross-selling opportunities; and
- increased liquidity in the stock of the combined company.
RECOMMENDATIONS OF THE FRANKLIN AND BINGHAM BOARDS OF DIRECTORS (SEE PAGE 30)
THE FRANKLIN BOARD BELIEVES THE MERGER IS ADVISABLE, FAIR TO AND IN THE
BEST INTERESTS OF FRANKLIN'S STOCKHOLDERS AND RECOMMENDS THAT THEY VOTE FOR THE
MERGER AGREEMENT.
THE BINGHAM BOARD BELIEVES THE MERGER IS ADVISABLE, FAIR TO AND IN THE BEST
INTERESTS OF BINGHAM'S STOCKHOLDERS, AND RECOMMENDS THAT THEY VOTE FOR THE
BINGHAM MERGER PROPOSAL AND THE OTHER BINGHAM PROPOSALS.
MERGER CONSIDERATION (SEE PAGE 30)
As a result of the merger, Franklin stockholders will receive 1.525 shares
of Bingham common stock for each share of Franklin common stock. Bingham will
not issue fractional shares in the merger. Instead, Franklin stockholders will
receive the value of any fractional share in cash, based on the closing price of
Bingham's common stock on the last trading day before the merger. Following the
merger, Franklin stockholders will need to exchange their certificates of
Franklin common stock for certificates of Bingham common stock. We will send
Franklin stockholders the forms to do this.
Based on the closing price for Bingham common stock on , 2000
($ per share), the value of 1.525 shares of Bingham common stock would have
been $ . The value of Bingham common stock, however, will fluctuate.
Fluctuations will result in an increase or decrease in the value of the Bingham
common stock to be received by Franklin stockholders.
If you are a Bingham stockholder, you will not need to exchange your shares
of Bingham common stock.
TREATMENT OF FRANKLIN STOCK OPTIONS (SEE PAGE 31)
The options to purchase Franklin common stock under Franklin's stock option
plans will be converted into options to purchase Bingham common stock with
appropriate adjustments to the number of shares subject to the options and to
the exercise price to reflect the merger exchange ratio.
4
<PAGE> 13
OPINIONS OF FINANCIAL ADVISORS (SEE PAGES 31 AND 35)
Raymond James & Associates, Inc. has delivered its opinion to the Franklin
board of directors that the merger exchange ratio is fair from a financial point
of view to holders of shares of Franklin common stock as of March 19, 2000.
Keefe, Bruyette & Woods, Inc. has delivered its opinion to the Bingham board of
directors that the merger consideration is fair from a financial point of view
to Bingham's stockholders as of March 19, 2000. A copy of Raymond James' opinion
is attached to this document as Appendix B and a copy of Keefe, Bruyette's
opinion is attached to this document as Appendix C. You should read the opinions
completely to understand the assumptions made, matters considered and
limitations of the review made by Raymond James and Keefe, Bruyette in providing
their opinions.
DISSENTERS' RIGHTS (SEE PAGE 37)
If you are a Franklin stockholder, you may dissent from the merger. If you
properly dissent and the merger is completed, the fair value of your stock will
be appraised and paid to you in cash. To do this, you must follow certain
procedures, including giving Franklin certain notices and not voting your shares
in favor of the merger. You will not receive any stock in Bingham if you dissent
and follow all of the required procedures. Instead, you will only receive the
appraised value of your Franklin stock in cash. The appraised value of the
Franklin shares may be more or less than the value of the merger consideration.
The cash you receive for your shares if you properly dissent could result in
income to you for federal and state income tax purposes. The relevant provisions
governing this process are attached to this document as Appendix D.
Bingham stockholders do not have dissenters' rights in connection with the
merger.
MANAGEMENT AND BOARDS OF DIRECTORS AFTER THE MERGER (SEE PAGE 39)
If the merger is completed, Joseph G. Horonzy will become the Chief
Executive Officer of Franklin and David F. Simon will become an Executive Vice
President of Bingham. Mr. Simon will continue to serve as Franklin's Chairman of
the Board. Gary A. Shiffman will continue to serve as Bingham's Chairman of the
Board and Ronald A. Klein will continue to serve as Bingham's President and
Chief Executive Officer.
In addition, the boards of directors of Bingham and Franklin will be
reconfigured as follows when the merger is completed:
Bingham Board of Directors
<TABLE>
<CAPTION>
BEFORE THE MERGER
-----------------
TERM
DIRECTOR EXPIRES
-------- -------
<S> <C>
Daniel E. Bober...................... 2000
Robert H. Orley...................... 2000
Gary A. Shiffman (Chairman).......... 2000
Mark A. Gordon(1).................... 2001
Brian M. Hermelin.................... 2001
James Raiskin(1)..................... 2001
Ronald A. Klein...................... 2002
Creighton J. Weber(1)................ 2002
Arthur A. Weiss...................... 2002
</TABLE>
<TABLE>
<CAPTION>
AFTER THE MERGER
----------------
TERM
DIRECTOR EXPIRES
-------- -------
<S> <C>
Daniel E. Bober...................... 2001
Edgar M. Fenton(2)................... 2001
Joseph G. Horonzy.................... 2001
David F. Simon(2).................... 2001
Dean A. Friedman(2).................. 2002
Brian M. Hermelin.................... 2002
George M. Nyman(2)................... 2002
Robert H. Orley...................... 2002
Ronald A. Klein...................... 2003
William E. Murcko(2)................. 2003
Gary A. Shiffman (Chairman).......... 2003
Arthur A. Weiss...................... 2003
</TABLE>
---------------
(1) Will not serve as a Bingham director after the merger.
(2) Current Franklin director.
5
<PAGE> 14
Franklin Board of Directors*
<TABLE>
<CAPTION>
BEFORE THE MERGER AFTER THE MERGER
----------------- ----------------
<S> <C>
Rebecca David Daniel E. Bober(3)
Edgar M. Fenton Rebecca David
Dean A. Friedman(1) Edgar M. Fenton
Herbert N. Glass Herbert N. Glass
William E. Murcko(1) Mark A. Gordon (Vice Chairman)(3)
George M. Nyman(1) Brian M. Hermelin(3)
Joseph A. Pick(2) Joseph G. Horonzy
David F. Simon (Chairman) Ronald A. Klein(3)
James R. Wechsler(1) Robert H. Orley(3)
David F. Simon (Chairman)
Creighton J. Weber(3)
Joseph A. Pick(2)
</TABLE>
---------------
* Franklin directors are elected to one-year terms.
(1) Will not serve as a Franklin director after the merger.
(2) Non-voting advisory director serving at the discretion of the Franklin
board.
(3) Current Bingham director.
Non-employee directors of Franklin who serve on the Bingham or Franklin
board of directors after the merger will relinquish their rights to certain
current benefits and perquisites and will agree to forfeit certain current
severance benefits if they serve as directors of Bingham for two years after the
merger or directors of Franklin for three years after the merger.
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER (SEE PAGE 43)
When you consider our boards of directors' recommendations that you vote in
favor of the relevant proposals, you should be aware that a number of Franklin's
officers and directors will be entitled to receive certain benefits if the
merger occurs that they will not be entitled to receive if the merger does not
occur.
WHAT WE MUST DO TO COMPLETE THE MERGER (SEE PAGE 46)
A number of conditions must be met for the merger to be completed,
including the following:
- Approval of the merger proposals by both the Franklin stockholders and
Bingham stockholders.
- Approval of the merger by federal banking regulators.
- Receipt of opinions of tax counsel to Bingham and Franklin that the
merger will qualify as a tax-free reorganization for United States
federal income tax consequences.
- The absence of any injunction or legal restraint prohibiting consummation
of the merger.
- Authorization for listing the Bingham common stock to be issued in the
merger on the Nasdaq National Market System.
- Approval of the amendment to Bingham's stock option plan.
The merger agreement contains other conditions.
Where law permits, Bingham or Franklin could decide to complete the merger
even though one or more of these conditions has not been met. We cannot be
certain when (or if) the conditions to the merger will be satisfied or waived,
or that the merger will be completed.
REGULATORY APPROVALS (SEE PAGE 47)
The merger and related transactions must be approved by the Office of
Thrift Supervision and the Federal Deposit Insurance Corporation. We have filed
the applications and notices required to obtain these regulatory approvals.
6
<PAGE> 15
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 48)
We can agree at any time to terminate the merger agreement without
completing the merger, even if the stockholders of both our companies have
approved it. Also, either of us can decide, without the consent of the other, to
terminate the merger agreement if:
- Our stockholders do not approve the merger proposals.
- The other party materially breaches the merger agreement.
- The approval of any regulatory authority is denied by final nonappealable
action.
- The merger has not been completed by December 31, 2000.
- The board of the other company withdraws or materially adversely changes
its recommendation to approve its merger proposal before its stockholder
meeting.
- Certain other conditions to closing of the merger have not been
satisfied.
In addition, Franklin has the right to terminate the merger agreement, if,
during any 20-consecutive-trading-day period between March 19, 2000 and the date
Franklin's stockholders approve the merger, Bingham's common stock does not
trade or close at or above $8.00 per share at least once during such
20-consecutive-trading-day period.
TERMINATION FEES (SEE PAGE 48)
If either Bingham or Franklin enters into negotiations with a third party
to sell its business, stock or assets and abandons or terminates the merger as a
result of the negotiations, it will be obligated to pay a termination fee of
$3,000,000 to the other party.
COVENANTS PENDING CLOSING (SEE PAGE 49)
Bingham and Franklin have agreed to conduct their businesses in certain
ways until the merger is completed.
ACCOUNTING TREATMENT (SEE PAGE 51)
The merger will be accounted for under the purchase method of accounting
under generally accepted accounting principles.
COMPARATIVE MARKET PRICES AND DIVIDENDS (SEE PAGE 20)
Shares of Bingham common stock are listed on the Nasdaq SmallCap Market and
shares of Franklin common stock are listed on the Nasdaq National Market System.
On March 17, 2000, the last full trading day before the public announcement that
the companies had entered into the merger agreement, shares of Bingham common
stock closed at $8.063 per share and shares of Franklin common stock closed at
$9.125 per share. On , 2000, the last full trading day for which
information was available before this document was printed and mailed, shares of
Bingham common stock closed at $ per share and shares of Franklin common
stock closed at $ per share.
Franklin has historically paid quarterly cash dividends on its common
stock. Although it has never done so, Bingham intends to pay quarterly cash
dividends on its common stock, after the merger, subject to the discretion of
its board of directors. After the merger, Bingham intends to pay dividends in an
amount so that each Franklin shareholder will receive the same aggregate dollar
amount in dividends as he or she would have received before the merger, assuming
retention of the same number of shares of Franklin common stock. Bingham's
ability to pay dividends may be limited by regulatory limits on Franklin's
ability to pay dividends to Bingham and by certain covenants Bingham may agree
to in connection with its financing arrangements. There can be no assurance
Bingham will pay any dividends.
7
<PAGE> 16
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 51)
A Franklin stockholder's receipt of Bingham common stock in the merger
generally will be tax-free for United States federal income tax purposes, except
for tax resulting from the receipt of cash instead of any fractional share of
Bingham common stock. The companies themselves, as well as Bingham stockholders,
will not recognize gain or loss for United States federal income tax purposes as
a result of the merger.
THE STOCKHOLDER MEETINGS
FRANKLIN STOCKHOLDERS (SEE PAGE 54)
Meeting Date.
The Franklin special meeting will be held on , 2000, at
, at 10:00 a.m., local time.
Record Date.
You can vote at the Franklin special meeting if you owned Franklin common
stock at the close of business on , 2000.
Matters to be Considered.
At the Franklin special meeting, the Franklin stockholders will be asked:
1. To approve the merger agreement; and
2. To transact such other business as may properly come before the Franklin
special meeting or any adjournments or postponements thereof.
Vote Required.
The proposal to adopt the merger agreement requires the approval of
Franklin stockholders owning two-thirds of the outstanding shares of Franklin
common stock. Abstentions and broker non-votes will have the same effect as
votes cast against approval and adoption of the merger agreement. At the close
of business on the record date, directors and executive officers of Franklin and
their affiliates beneficially owned an aggregate of shares
(approximately %) of the Franklin common stock then outstanding.
Proxies.
You can revoke your proxy before it is voted either by sending to Franklin
a revocation notice or a new proxy or by attending the Franklin special meeting
and voting in person. You will not revoke your proxy simply by attending the
Franklin special meeting.
BINGHAM STOCKHOLDERS (SEE PAGE 57)
Meeting Date.
The Bingham annual meeting will be held on , 2000, at
, at a.m., local time.
Record Date.
You can vote at the Bingham annual meeting if you owned Bingham common
stock at the close of business on , 2000.
8
<PAGE> 17
Matters to be Considered.
At the Bingham annual meeting, Bingham stockholders will be asked:
1. To approve the merger agreement and the transactions it
contemplates, including:
- the issuance of shares of Bingham common stock in the merger, the
conversion of Franklin stock options into Bingham stock options and
the assumption of the Franklin stock option plans; and
- the reconfiguration of Bingham's board of directors.
We sometimes refer to this proposal in this document as the Bingham
merger proposal.
2. To approve an amendment to Bingham's 1997 stock option plan to
increase the number of shares of common stock that can be issued under the
plan from 10% of the total number of issued and outstanding shares of
Bingham common stock to the greater of 415,000 shares of Bingham common
stock or 10% of the total number of issued and outstanding shares of
Bingham common stock.
3. To approve an amendment to Bingham's restated articles of
incorporation to increase the number of authorized shares of common stock
from 10,000,000 to 50,000,000.
4. To elect three nominees the Bingham board of the directors to serve
until the earlier of the expiration of their term or the consummation of
the merger.
5. To transact such other business as may properly come before the
annual meeting or any adjournments or postponements thereof.
The amendments to the option plan and articles of incorporation, if
approved, will be implemented even if the merger is not approved. The approval
of the amendment to the stock option plan is a condition to the consummation of
the merger. Bingham and Franklin may elect to waive this condition under the
terms of the merger agreement.
Vote Required.
The Bingham merger proposal and the proposal to amend the restated articles
of incorporation requires the approval of Bingham stockholders owning a majority
of the outstanding shares of Bingham common stock. The proposal to amend the
stock option plan requires the approval of Bingham stockholders owning a
majority of the shares of common stock present, in person or by proxy, at the
annual meeting. Directors will be elected by a plurality of the votes cast at
the annual meeting, meaning the three nominees receiving the most votes will be
elected directors. At the close of business on the record date, directors and
executive officers of Bingham and their affiliates beneficially owned an
aggregate of shares (approximately %) of the Bingham common stock
then outstanding.
Abstentions will have the same effect as votes cast against the proposals.
Broker non-votes will have no effect on the proposal to amend the stock option
plan, but will have the same effect as votes cast against the Bingham merger
proposal and the proposal to amend the restated articles of incorporation. For
the election of directors, abstentions, broker non-votes and instructions to
withhold authority to vote for one or more of the nominees will result in those
nominees receiving fewer votes.
Proxies.
You can revoke your proxy before it is voted either by sending to Bingham a
revocation notice or a new proxy or by attending the Bingham annual meeting and
voting in person. You will not revoke your proxy simply by attending the Bingham
annual meeting.
9
<PAGE> 18
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL AND
OPERATING DATA OF BINGHAM
We are providing the following financial information to help you analyze
the merger. The following financial information is derived from Bingham's
unaudited financial statements for the three months ended December 31, 1998 and
1999 and the three months ended March 31, 1999 and 2000 and Bingham's audited
financial statements for the years ended September 30, 1999, 1998 and 1997. The
results of operations for the three month periods ended December 31, 1999 and
March 31, 2000 are not necessarily indicative of results that may be expected
for the full fiscal year. Because Bingham began operations in January 1997, the
following table does not include information for periods before the year ended
September 30, 1997. In February 2000, Bingham's board of directors approved the
change in its fiscal year end from September 30 to December 31. As a result, we
have included information for the three month period ended December 31, 1999 as
a transitional period and information for the three month period ended December
31, 1998 for comparative purposes. The information in this table is only a
summary and should be read in conjunction with "Bingham's Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Bingham's consolidated financial statements and related notes contained
elsewhere in this document.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31, SEPTEMBER 30, PERIOD ENDED
------------------- ------------------- ------------------ SEPTEMBER 30,
2000 1999 1999 1998 1999 1998 1997
-------- -------- -------- -------- -------- ------- -------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue.......................... $ 6,575 $ 4,288 $ 7,066 $ 4,056 $ 16,277 $ 6,141 $ 280
Earnings (loss) before income
taxes and cumulative effect of
change in accounting
principle...................... (4,353) 748 576 1,073 1,217 (793) (110)
Net earnings (loss).............. (2,897) 480 (185) 764 776 (574) (110)
Earnings (loss) per common share,
diluted........................ (1.12) .26 (.07) .40 .36 (.46) --
BALANCE SHEET DATA (AT PERIOD END):
Total assets..................... $216,476 $144,743 $168,499 $124,650 $132,698 $94,859 $9,652
Total loans...................... 178,311 136,002 141,153 112,937 117,887 86,075 9,541
Total debt....................... 180,251 125,600 124,802 106,524 101,070 78,230 9,747
Stockholders' equity
(deficiency)................... 23,724 14,744 26,139 14,243 26,068 13,457 (110)
SELECTED RATIOS:
Annual return on average
assets......................... (5.84)% 1.44% (.44)% 2.80% .85% (1.23)% (2.28)%
Annual return on average equity
(deficiency)................... (48.55) 13.58 (2.88) 22.08 5.36 (4.13) --
Average equity (deficiency) to
average assets................. 12.02 10.59 15.61 12.62 15.87 29.77 (1.14)
Net interest margin.............. 1.54 2.55 3.20 1.79 2.35 2.00 4.12
Net interest spread.............. .99 2.09 2.11 1.16 1.99 .74 3.85
Nonperforming assets to total
assets......................... 1.70 .94 2.03 .33 2.00 .38 0
Net charge-offs to average
loans.......................... .41 .02 .23 0 .52 .08 0
</TABLE>
10
<PAGE> 19
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL AND
OPERATING DATA OF FRANKLIN
We are providing the following financial information to help you analyze
the merger. This financial information is derived from Franklin's unaudited
financial statements for the three months ended March 31, 2000 and 1999 and
Franklin's audited financial statements for the years ended December 31, 1995
through December 31, 1999. The results of operations for the three months ended
March 31, 2000 are not necessarily indicative of results that may be expected
for the full fiscal year. This information is only a summary and should be read
in conjunction with "Franklin's Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Franklin's consolidated
financial statements and related notes contained elsewhere in this document.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................. $ 10,839 $ 9,937 $ 40,805 $ 43,976 $ 44,700 $ 43,428 $ 39,993
Income before income taxes and
preferred dividends of
subsidiary........................ 1,648 1,415 5,965 5,479 2,774 1,296 4,795
Net income.......................... 838 696 2,956 2,628 2,042 906 3,356
Net income per common share,
basic............................. .24 .20 .84 .75 .59 .26 .97
Net income per common share,
diluted........................... .24 .20 .83 .72 .56 .25 .95
Cash dividends per common share..... .07 .07 .28 .21 .24 .24 .23
Dividend pay out ratio -- common
stock(1)(2)....................... 29.3% 35.3% 33.2% 28.8% 39.1% 83.3% 16.1%
STATEMENT OF FINANCIAL CONDITION DATA
(AT PERIOD END):
Total assets........................ $544,643 $507,597 $516,646 $503,262 $503,467 $495,793 $487,137
Total loans......................... 288,927 283,401 275,621 322,833 377,269 396,137 353,861
Total deposits...................... 410,835 443,634 400,365 441,539 440,758 401,890 399,866
Total debt.......................... 79,011 7,475 62,521 7,475 7,475 61,088 52,750
Shareholders' equity................ 33,423 33,782 33,066 33,284 31,571 30,336 30,391
SELECTED RATIOS:
Return on average assets............ .63% .56% .58% .52% .43% .19% .77%
Return on average common
shareholders' equity.............. 10.17 8.30 8.76 8.09 6.56 2.93 11.96
Net interest margin................. 5.46 5.62 5.58 5.92 5.48 4.89 4.48
Net interest spread................. 3.78 3.94 3.94 4.10 4.08 3.75 3.45
Operating expenses to average
assets............................ 4.60 4.70 4.51 4.21 4.00 4.52 3.65
Nonperforming assets to total
assets............................ 1.01 1.25 1.06 0.88 2.07 3.08 2.42
Net charge-offs to average loans.... .42 1.64 0.78 0.84 1.71 0.58 0.49
</TABLE>
---------------
(1) Adjusted for the 5% common stock dividends declared January 30, 1998, and
paid March 2, 1998, declared December 17, 1996 and paid January 24, 1997,
declared December 19, 1995 and paid January 16, 1996, declared December 15,
1994 and paid January 17, 1995 and declared December 16, 1993 and paid
February 1, 1994 and the 7% common stock dividend declared January 27, 1992
and paid February 24, 1992.
(2) Cash dividends were paid on the common shares for 20 consecutive quarters
beginning with the first quarter of 1993 through the fourth quarter of 1997.
However, unlike prior years, the fourth quarter 1995 dividend was declared
in January 1996 and causes the cash dividends declared and the dividend pay
out ratios to vary in year to year comparisons.
11
<PAGE> 20
COMPARATIVE PER SHARE DATA
The table below presents the high and low sales prices per share of Bingham
common stock on the Nasdaq SmallCap Market and Franklin common stock on the
Nasdaq National Market System on March 17, 2000, the last full trading day
immediately preceding the public announcement of the proposed merger, and on
, 2000, the most recent practicable date before this document was
printed and mailed, as well as the "equivalent stock price" of shares of
Franklin common stock on those dates. The "equivalent stock price" of shares of
Franklin common stock represents the per share sales price for Bingham's common
stock on the Nasdaq SmallCap Market at the specified date, multiplied by the
exchange ratio of 1.525, which is the number of shares of Bingham common stock
that a Franklin stockholder would receive for each share of Franklin common
stock. Keep in mind that because of market price fluctuations the "equivalent
stock price" may be greater than or less than the value of the Bingham common
stock and cash in lieu of fractional shares that a Franklin stockholder will
receive for each share of Franklin common stock in connection with the merger.
Stockholders should obtain current market quotations for shares of Bingham
common stock and Franklin common stock before making any decision with respect
to the merger.
<TABLE>
<CAPTION>
BINGHAM COMMON FRANKLIN COMMON FRANKLIN EQUIVALENT
STOCK STOCK STOCK PRICE
(PRICE PER SHARE) (PRICE PER SHARE) (PRICE PER SHARE)
----------------- ----------------- -------------------
HIGH LOW HIGH LOW HIGH LOW
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
March 17, 2000.................... $8.4375 $8.0625 $9.1875 $8.6250 $12.8672 $12.2953
, 2000................
</TABLE>
Following consummation of the merger, shares of Franklin common stock will cease
to be traded on the Nasdaq National Market System. An application has been filed
with Nasdaq to list the shares of Bingham common stock on the Nasdaq National
Market System.
12
<PAGE> 21
HISTORICAL AND PRO FORMA PER SHARE DATA
OF BINGHAM AND FRANKLIN
The following table shows information about net income per share of common
stock and book value per share of common stock of Franklin and Bingham. The
unaudited pro forma data below is for illustrative purposes only. The pro forma
net income per common share information has been prepared as if the merger had
taken place on January 1, 1999. The pro forma book value per share information
has been prepared as if the merger had taken place on December 31, 1999.
Information identified as "Equivalent pro forma amount of Franklin" was obtained
by multiplying the related pro forma amounts by the exchange ratio of 1.525.
This information is presented to reflect the fact that Franklin stockholders
will receive 1.525 shares of Bingham common stock for each share of Franklin
common stock after the merger. You should read the information below together
with our historical financial statements and related notes thereto contained
elsewhere in this document. You should also read the information contained in
"Unaudited Pro Forma Condensed Combined Financial Information" contained
elsewhere in this document. You should not rely on this information as being
indicative of the historical results that would have been achieved had the
companies always been combined. In addition, this information only reflects the
operations of Dynex Financial since Bingham acquired it on December 17, 1999.
See Note 7 to Bingham's unaudited consolidated financial statements for more
information on the acquisition of Dynex Financial.
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR
THREE MONTHS ENDED THE YEAR ENDED
MARCH 31, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
NET INCOME PER COMMON SHARE(1)
Bingham, Historical
Basic..................................................... $(1.12) $ .17
Diluted................................................... (1.12) .16
Franklin, Historical
Basic..................................................... .24 .84
Diluted................................................... .24 .83
Pro Forma Combined
Basic..................................................... (.26) .45
Diluted................................................... (.26) .44
Equivalent Pro Forma Amount for Franklin
Basic..................................................... (.40) .69
Diluted................................................... (.40) .67
BOOK VALUE PER COMMON SHARE
Bingham, Historical....................................... $ 8.95 $10.29
Franklin, Historical...................................... 9.50 9.42
Pro Forma Combined........................................ 6.84 6.77
Equivalent Pro Forma Amount for Franklin.................. 10.43 10.33
DIVIDENDS PER COMMON SHARE
Bingham, Historical....................................... $ 0.00 $ 0.00
Franklin, Historical...................................... 0.07 0.28
Pro Forma Combined........................................ 0.05 0.18
Equivalent Pro Forma Amount for Franklin.................. 0.07 0.28
</TABLE>
---------------
(1) Before cumulative effect of a change in accounting principle as a result of
the adoption of Statement of Position 98-5. See Note A to Bingham's audited
consolidated financial statements.
13
<PAGE> 22
RISK FACTORS
You should consider the following risk factors in determining how to vote.
RISKS RELATED TO THE MERGER
FLUCTUATIONS IN THE MARKET PRICE OF BINGHAM COMMON STOCK WILL AFFECT THE VALUE
OF THE CONSIDERATION FRANKLIN STOCKHOLDERS RECEIVE IN THE MERGER.
The value of the consideration that Franklin stockholders will receive in
the merger will depend on the market price of Bingham common stock. There will
be no adjustment in the exchange ratio based on fluctuations in the market price
of Bingham common stock.
On the day of the merger, the market price of Bingham common stock may be
higher or lower than the market price on the date the merger agreement was
signed, on the date this document was mailed to you or on the date of the
Franklin special meeting. Therefore, you cannot be assured of receiving any
specific market value of shares of Bingham common stock on the date of the
merger and we encourage you to consider the market price of Bingham common stock
before you make your voting decision regarding the merger. See "The
Merger -- Merger Consideration."
HISTORICALLY LOW TRADING IN BINGHAM AND FRANKLIN COMMON STOCK MAY AFFECT
STOCKHOLDER LIQUIDITY.
The trading volume of Bingham common stock on the Nasdaq SmallCap Market
and the trading volume of Franklin common stock on the Nasdaq National Market
System has been low historically. In the merger, Bingham will be issuing
approximately 5.1 million shares to Franklin stockholders. After the merger,
approximately 7.5 million shares of Bingham common stock will be issued and
outstanding. However, there can be no assurance that the increased "float" will
allow stockholders to sell shares of Bingham common stock at the times and at
the prices they desire.
THE PRICE OF BINGHAM COMMON STOCK HAS FLUCTUATED WIDELY.
Historically, the market price of Bingham common stock has fluctuated
widely. Since Bingham's initial public offering in November 1997, the market
price has ranged from a low of $5.93 per share to a high of $28.50 per share.
Fluctuations may occur, among other reasons, in response to:
- operating results;
- announcements by competitors;
- regulatory changes;
- economic changes;
- market valuation of financial service firms;
- general market conditions; and
- legislative changes.
The trading price of Bingham common stock could continue to be subject to wide
fluctuations after the merger in response to these or other factors, many of
which are beyond our control. If the market price of Bingham common stock
decreases, stockholders may not be able to sell their Bingham stock at a profit.
See "Comparative Market Prices and Dividends."
THE SALE OF A SUBSTANTIAL AMOUNT OF BINGHAM COMMON STOCK AFTER THE MERGER COULD
ADVERSELY AFFECT THE MARKET PRICE OF BINGHAM COMMON STOCK.
All of the shares of Bingham common stock that Franklin stockholders
receive in the merger may be sold immediately, except for those shares received
by affiliates of Franklin within the meaning of Rule 145
14
<PAGE> 23
of the Securities Act of 1933, as amended. The sale of a substantial amount of
Bingham common stock after the merger could adversely affect its market price.
It could also impair the combined company's ability to raise money through the
sale of more stock or other forms of capital.
WE MAY BE UNABLE TO SUCCESSFULLY INTEGRATE OUR OPERATIONS.
The merger involves the integration of two companies that have previously
operated independently. The difficulties of combining the companies' operations
include integrating personnel with diverse business backgrounds and combining
different corporate cultures. Bingham has historically operated in a less
regulated industry and has a more entrepreneurial culture than Franklin. While
Bingham has had an announced strategy of growth through acquisitions, Franklin
has pursued a strategy of gradual internal growth focused on developing
service-oriented banking relationships with small and mid-size business
customers. The process of integrating operations could cause an interruption of,
or loss of momentum in, the activities of one or more of the combined company's
businesses and the loss of key personnel. The diversion of management's
attention and any delays or difficulties encountered in connection with the
merger and the integration of the two companies' operations could have an
adverse effect on the combined company's ability to realize the expected
benefits of the merger.
WE WILL INCUR SIGNIFICANT MERGER-RELATED AND INTEGRATION-RELATED EXPENSES.
A non-recurring charge for direct incremental merger-related transaction
costs will be recorded in the quarter in which the merger is consummated. The
direct incremental merger-related transaction costs consist principally of
charges related to investment banking fees, professional services, registration
and other regulatory costs of approximately $ million. In addition, we
expect to incur pre-tax charges to operations to reflect costs associated with
combining the operations of the two companies. These charges will be determined
and recorded after the merger. Additional unanticipated expenses may be incurred
in the integration of our businesses. Although we expect that the elimination of
duplicative expenses as well as the realization of other efficiencies related to
the integration of the businesses may result in cost savings, we cannot assure
you that these benefits will be achieved in the near term or at all.
RISKS RELATED TO OUR BUSINESS AFTER THE MERGER
FRANKLIN WILL BE SUBJECT TO FEDERAL STATUTES AND REGULATIONS.
Franklin and its operating subsidiaries (including Bingham's operating
subsidiaries that will become subsidiaries of Franklin after the merger) are and
will continue to be subject to extensive regulation, supervision and licensing
under various federal statutes and regulations. These regulations and the
directives promulgated by the governmental authorities responsible for
administering them could require the combined company to take or refrain from
taking certain actions, the effect of which could adversely affect the combined
company. Federal regulatory authorities have extensive discretion in carrying
out their supervisory and enforcement responsibilities. In the past, these
authorities have implemented regulations that have increased capital
requirements, increased insurance premiums and resulted in increased
administrative, professional and compensation expenses. Implementation of
regulations that would require the combined company to increase its regulatory
capital or increase or reduce the concentration level of certain types of loans,
including manufactured home loans, could force the combined company to take
actions (such as selling loans) when it would not otherwise choose to do so,
which could have a material adverse effect on the combined company. See
"Additional Information about Franklin -- Business of Franklin -- Regulation."
15
<PAGE> 24
WE HAVE GENERAL RISKS ASSOCIATED WITH ALL THE LOANS WE MAKE.
Bingham and Franklin are in the business of making loans. Factors that
could affect the value of the assets held by the combined company include the
following:
Geographic Concentration. A substantial portion of the loans in the
combined company's portfolio will be secured by property located in the State of
Michigan, or will be made to individuals or businesses doing business in the
State of Michigan. These loans may be subject to a greater risk of default than
other comparable loans in the event of adverse economic, political or business
developments or natural hazards that may affect this region and the ability of
the borrowers in this region to make payments of principal and interest on the
underlying loans.
Commercial Business Lending. Franklin currently is, and the combined
company will be, engaged in commercial business lending. These types of loans
typically involve a higher degree of risk than other types of lending as they
are made on the basis of the borrower's ability to make repayment from the cash
flow of the borrower's business. As a result, the availability of funds for the
repayment of commercial business loans may be substantially dependent on the
success of the business itself. Commercial business loans are usually secured by
business assets and personal guarantees. However, the collateral securing the
loans may depreciate over time, may be difficult to appraise and may fluctuate
in value based on the success of the business.
Manufactured Home Lending. The combined company is expected eventually to
concentrate a significant portion of its loan portfolio in manufactured home
loans. Manufactured home loan borrowers may be deemed to be relatively high
credit risks due to various factors, including, among other things, the poor
manner in which they have handled previous credit, the absence or limited extent
of their prior credit history or limited financial resources. Consequently, the
manufactured home loans originated by the combined company will bear a higher
rate of interest, have a higher probability of default and may involve higher
delinquency rates and greater servicing costs relative to loans to more
creditworthy borrowers. The combined company's profitability will depend upon
its ability to properly evaluate the creditworthiness of borrowers and price
each loan accordingly, limit its default rates and foreclosure costs and to
efficiently service the contracts. To the extent that a repossession and resale
of the collateral results in losses which were not anticipated by the interest
rates charged on loans, there would be an adverse effect on profitability.
In addition, because the combined company is expected to concentrate a
significant portion of its loan portfolio in manufactured home loans, it will be
subject to the vagaries of business cycles and to seasonality. The manufactured
housing industry historically has been cyclical and is generally subject to many
of the same national and regional economic and demographic factors that affect
the housing industry generally. These factors include consumer confidence,
inflation, interest rates, regional population and employment trends,
availability of and cost of alternative housing, weather conditions and general
economic conditions. In addition, sales typically peak during the spring and
summer seasons and decline to lower levels from mid-November through January.
Commercial Real Estate Lending. The combined company's portfolio of
mortgage assets will contain commercial real estate loans. Commercial real
estate loans have distinct risk characteristics. Commercial real estate
properties themselves tend to be unique and difficult to value. Commercial real
estate loans also tend to have short maturities and may not be fully amortizing,
meaning that they may have a significant principal balance or "balloon" payment
due on maturity. In addition, commercial real estate properties, particularly
industrial and warehouse properties, are generally subject to environmental
risks and to the corresponding burdens and costs of compliance with
environmental laws and regulations. Also, there may be costs and delays involved
in enforcing rights of a property owner against tenants in default under the
terms of leases with respect to commercial properties. For example, tenants may
seek the protection of the bankruptcy laws, which could result in termination of
lease contracts.
16
<PAGE> 25
OUR PROFITABILITY MAY BE AFFECTED IF WE ARE UNABLE TO EFFECTIVELY MANAGE
INTEREST RATE RISK.
We derive our income mainly from the difference or "spread" between the
interest earned on loans, securities and other interest-earning assets, and
interest paid on deposits, borrowings and other interest-bearing liabilities. In
general, the wider the spread, the more we earn. When market rates of interest
change, the interest we receive on our assets and the interest we pay on our
liabilities will fluctuate. This can cause decreases in our spread and can
affect our income. In addition, interest rates affect how much money we can
lend. For example, when interest rates rise, loan originations tend to decrease.
Factors such as inflation, recession, unemployment, money supply, international
disorders, instability in domestic and foreign financial markets and other
factors beyond our control may affect interest rates.
While the combined company will employ an interest rate management strategy
to control its risk from changes in market interest rates, an effective interest
rate risk management strategy is complex and no such strategy can completely
insulate us from interest rate changes.
After the merger we may use interest rate risk management strategies other
than or in addition to those Bingham or Franklin have used in the past. These
strategies could include interest rate caps, floors and swaps, mandatory forward
sales, mandatory or optional sales of futures and other financial futures
transactions including U.S. Treasury obligations. We will determine the nature
and quantity of future hedging transactions based on various factors, including
market conditions and the expected duration and exit strategy of the loans.
The nature and timing of interest rate risk management strategies may
impact their effectiveness. Poorly designed strategies may increase rather than
mitigate risk and may adversely affect our profitability.
THE VALUE OF OUR SERVICING RIGHTS MAY BE ADVERSELY AFFECTED BY VARIOUS
CONDITIONS.
The combined company's servicing rights will be treated as an asset, in
accordance with generally accepted accounting principles. The fair value of the
servicing rights may be adversely affected by factors such as:
- increases in prepayments, which tend to shorten the life of the servicing
asset;
- higher than expected rate of loan defaults; and
- the underlying loans' average custodial balances, the amount deposited by
borrowers for taxes, deposits and replacement reserves.
We may also incur losses if any servicing contracts are terminated.
WE MAY NOT BE ABLE TO DISPOSE OF LOANS IN THE SECONDARY MARKET ON FAVORABLE
TERMS.
We expect the combined company to either broker, sell or securitize
(meaning it will pool closed loans and sell them to a trust for a cash purchase
price and in some cases an interest in the loans), a substantial portion of the
manufactured home loans and commercial real estate loans it originates. Any
impairment in our ability to dispose of loans could have a material adverse
effect on the combined company's business. Factors affecting our ability to
dispose of loans include:
- conditions in the securities markets generally;
- conditions in the asset-backed and commercial mortgage-backed securities
markets specifically;
- the performance of the securities issued in connection with the combined
company's securitizations;
- the price and credit quality of the combined company's loans;
- our relationship with our correspondent investors;
- compliance of the combined company's loans with the eligibility
requirements for a particular securitization;
17
<PAGE> 26
- the combined company's ability to adequately service its loans; and
- any material negative rating agency action pertaining to certificates
issued in the combined company's securitizations.
The "gain on sale" from the sale of loans is expected to be a significant
component of the combined company's revenues, and retained interests in loan
securitizations will be established as balance sheet assets in connection with
securitizations, based in part upon estimates of future credit losses. The
combined company may retain subordinated securities issued in connection with
its securitization program. If actual credit losses on securitized loans exceed
the estimates made at the time of the securitizations, we could be required to
record an expense to reduce the carrying value of the retained interests and
securities classified as available-for-sale, if any, on our balance sheet. Any
expense of this type could be material to our earnings if the credit performance
of securitized loans deteriorates significantly.
WE MAY BE UNABLE TO SUCCESSFULLY INTEGRATE DYNEX FINANCIAL'S OPERATIONS.
Bingham acquired Dynex Financial, Inc., a manufactured home loan lender and
servicer, in December 1999. Bingham now conducts all of its manufactured home
lending and servicing operations through Dynex Financial. Bingham is still
integrating the operations of Dynex Financial into its business. Bingham faces
the same risks and difficulties with respect to integrating Dynex Financial into
its business as are described in the discussion of integration risks related to
the merger in "Risk Factors -- Risks Related to the Merger."
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE DO NOT MAINTAIN OUR RELATIONSHIP
WITH SUN.
Bingham has a business relationship with Sun Communities, Inc., a
manufactured home community owner and operator. Bingham is currently the
preferred financing source offered to purchasers and homeowners in the
approximately 115 communities owned and operated by Sun. We expect manufactured
home loans to continue to be an important source of revenue for the combined
company. Although Bingham has achieved success in diversifying its sources of
manufactured home lending outside of Sun's manufactured home communities, those
communities remain an important source for new manufactured home loans. Our
business could be adversely affected if our relationship with Sun is terminated.
BINGHAM HAS A HISTORY OF LOSSES AND THE COMBINED COMPANY MAY NOT BE PROFITABLE
IN THE FUTURE.
Bingham has experienced net losses while growing its loan origination
platforms and business, including net losses of $110,000 and $574,000 for the
fiscal years ended September 30, 1997 and 1998, respectively. Although Bingham
had net income of $776,000 for the fiscal year ended September 30, 1999, Bingham
had a net loss of $2.9 million for the three months ended March 31, 2000. This
loss was primarily a result of costs related to the acquisition of Dynex
Financial in December 1999, non-recurring costs related to the sale of MHFC,
Inc., Bingham's previous manufactured home loan origination subsidiary, and
Bingham's decision not to sell any portion of its manufactured home loan
portfolio during that period. This loss resulted in a pro forma combined loss of
$1.5 million for Bingham and Franklin for the quarter. The combined company may
generate net losses in the future.
THE COMPETITION WE FACE COULD ADVERSELY AFFECT OUR PROFITABILITY.
The combined company will face competition both in originating loans and in
attracting deposits. This competition could adversely affect our profitability.
Competition in originating manufactured home loans comes primarily from
non-traditional consumer finance sources and some of the manufactured housing
industry's larger manufacturers. Competition in originating commercial real
estate mortgage loans comes primarily from savings institutions, commercial
banks, mortgage bankers and insurance companies. We will compete for these loans
based on interest rates, types of products, loan fees charged and the quality of
customer service that we provide to borrowers. Competition in attracting
deposits comes primarily from savings institutions, commercial banks, brokerage
firms, mutual funds, credit unions and various types of investment companies.
Due to their size, some of our competitors have significantly greater resources
and more experience and offer a broader range of products and services than we
will.
18
<PAGE> 27
FORWARD-LOOKING STATEMENTS
This document, including "Summary," "Risk Factors," "The Merger -- Reasons
for the Merger" "The Merger -- Recommendations of the Bingham and Franklin
Boards", contains certain statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements include certain statements regarding
intent, belief or current expectations about matters (including statements as to
"beliefs," "expectations," "anticipations," "intentions" or similar words).
Forward-looking statements are also statements that are not statements of
historical fact. Because these statements are based on factors that involve
risks and uncertainties, actual results may differ materially from those
expressed or implied by the forward-looking statements. These factors include,
among others:
- trends for the continued growth of the business of Bingham and Franklin;
- our ability to enhance and diversify revenue and earnings growth by
combining Bingham's ability to originate a high volume of higher-yielding
loans and Franklin's historical ability to attract lower-cost deposits;
- our ability to continue to successfully market existing products and
services, which may be adversely impacted by competition;
- our ability to integrate the two businesses and the timing, impact and
other uncertainties of future acquisitions and our ability to
successfully integrate their operations;
- adverse changes occurring in the securities markets;
- inflation and changes in prevailing interest rates that reduce our
margins or the fair value of the financial instruments we hold;
- legislative or regulatory changes that adversely affect our combined
business;
- increases in delinquencies and defaults by our borrowers;
- increases in the combined company's provision for loan losses;
- credit and other risks of lending and investment activities;
- our ability to successfully develop and market new products and services;
- our ability to expand our market for existing products and services;
- the effects of our accounting policies and general changes in generally
accepted accounting practices;
- general economic and business conditions that are worse than we expect;
and
- other risks and uncertainties, included in the section titled "Risk
Factors."
19
<PAGE> 28
COMPARATIVE MARKET PRICES AND DIVIDENDS
BINGHAM
Bingham common stock is traded on the Nasdaq SmallCap Market under the
symbol "BFSC." The following table presents the per share historical high and
low sale prices of Bingham common stock for the calendar quarters indicated. The
stock prices do not include retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal Year Ended September 30, 1998:
First Quarter............................................. $10.359 $ 9.000
Second Quarter............................................ 16.000 9.359
Third Quarter............................................. 22.750 15.500
Fourth Quarter............................................ 28.500 13.250
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal Year Ended September 30, 1999:
First Quarter............................................. $18.000 $ 9.000
Second Quarter............................................ 18.500 13.625
Third Quarter............................................. 16.500 12.000
Fourth Quarter............................................ 14.500 8.438
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
Fiscal Year Ending December 31, 2000:
October 1, 1999 through December 31, 1999................. $11.250 $7.000
First Quarter............................................. 10.500 6.000
Second Quarter (through May 30, 2000)..................... 8.125 5.938
</TABLE>
Although it has never done so, Bingham intends to pay quarterly cash
dividends on its common stock after the merger, subject to the discretion of its
board of directors. After the merger, Bingham intends to pay dividends in an
amount so that each Franklin stockholder will receive the same aggregate dollar
amount in dividends after the merger as he or she would have received before the
merger, assuming retention of the same number of shares of Franklin common
stock. Bingham's ability to pay dividends may be limited by regulatory limits on
Franklin's ability to pay dividends to Bingham and by certain covenants Bingham
may agree to in connection with its financing arrangements. There can be no
assurance Bingham will pay any dividends.
On March 17, 2000, the last full trading day before the execution of the
merger agreement was publicly announced, the reported closing sales price of
Bingham common stock on the Nasdaq SmallCap Market was $8.063 per share. On
, 2000, the last full trading day for which information was
available before this document was printed and mailed, the reported closing
sales price for Bingham common stock on the Nasdaq SmallCap Market was $ per
share.
On , 2000, there were holders of Bingham common
stock.
20
<PAGE> 29
FRANKLIN
Franklin common stock is traded on the Nasdaq National Market System under
the symbol "FSVB." The following table presents the per share historical high
and low sale prices of Franklin common stock for the calendar quarters
indicated. The stock prices do not include retail mark-ups, mark-downs or
commissions.
<TABLE>
<CAPTION>
CASH DIVIDEND
HIGH LOW PER SHARE
------- ------- -------------
<S> <C> <C> <C>
Fiscal Year Ended December 31, 1998:
First Quarter...................................... $18.500 $16.000 .07
Second Quarter..................................... 17.250 16.000 .07
Third Quarter...................................... 16.500 9.500 None
Fourth Quarter..................................... 11.500 8.125 .07
</TABLE>
<TABLE>
<CAPTION>
CASH DIVIDEND
HIGH LOW PER SHARE
------- ------- -------------
<S> <C> <C> <C>
Fiscal Year Ended December 31, 1999:
First Quarter...................................... $11.750 $ 8.750 .07
Second Quarter..................................... 11.875 10.000 .07
Third Quarter...................................... 10.750 7.000 .07
Fourth Quarter..................................... 10.937 7.125 .07
</TABLE>
<TABLE>
<CAPTION>
CASH DIVIDEND
HIGH LOW PER SHARE
------- ------ -------------
<S> <C> <C> <C>
Fiscal Year Ending December 31, 2000:
First Quarter....................................... $10.875 $7.875 .07
Second Quarter (through May 30, 2000)............... 9.125 6.688 N/A
</TABLE>
On March 17, 2000, the last full trading day before the execution of the
merger agreement was publicly announced, the reported closing sales price of
Franklin common stock on the Nasdaq National Market System was $9.125 per share.
On , 2000, the last full trading day for which information was
available before this document was printed and mailed, the reported closing
sales price for of Franklin common stock on the Nasdaq National Market System
was $ per share.
On , 2000, there were holders of Franklin common
stock.
21
<PAGE> 30
THE MERGER
The information in this document concerning the terms of the merger is
qualified in its entirety by reference to the full text of the merger agreement,
which is attached to this document as Appendix A. All stockholders are urged to
read the merger agreement in its entirety.
OVERVIEW OF THE MERGER
Our companies are proposing to merge because we believe that combining will
create a stronger, more diversified company that will provide significant
benefits to both Franklin stockholders and Bingham stockholders. We believe that
the combined company will be in a position to realize substantially more
shareholder value than could be achieved by either company individually. See
"-- Reasons for the Merger."
Under the merger agreement, Franklin will be merged with and into Bingham
Bank, a federally-chartered savings association to be formed as a wholly-owned
subsidiary of Bingham. Bingham Bank will be the surviving entity of the merger,
but its name will be changed to "Franklin Bank." We sometimes use "Franklin" in
this document to refer to the surviving subsidiary. After the merger, Franklin
will be regulated by the Office of Thrift Supervision. See "Additional
Information about Franklin -- Business of Franklin -- Regulation."
After this "merger of equals," Franklin's stockholders will own
approximately 66% of the combined company and the current Bingham stockholders
will own the remainder. As a result, Franklin will be deemed to be the acquiring
company for accounting purposes. See "-- Accounting Treatment." The percentages
of the combined company to be initially owned by the Franklin and Bingham
stockholders will depend on the number of shares of Bingham common stock and
Franklin common stock that are outstanding at the close of the merger.
Upon the merger, each outstanding share of Franklin common stock (other
than any shares subject to dissenters' rights) will be converted into the right
to receive 1.525 shares of Bingham common stock and each stockholder of Franklin
will cease to be a stockholder of Franklin.
BACKGROUND OF THE MERGER
The respective management groups of Bingham and Franklin review, on a
continuing basis, the strategic focus of their companies in light of the
changing competitive environment of the financial services and banking industry.
An objective of these strategic reviews is to identify alternative strategies to
enhance stockholder value. Franklin has pursued a strategy of gradual internal
growth focused on developing service-oriented banking relationships with small
and mid-size business customers and their owners within its market place.
Bingham has pursued a strategy of growing its commercial and consumer real
estate lending businesses through acquisitions and internal growth.
In June 1998, Franklin's board of directors held a corporate planning
retreat to consider, among other matters, the strategic alternatives available
to Franklin. At this retreat, the board reviewed various strategic alternatives
including a possible sale, merger, acquisition or pursuing a course of
independence. Based on the alternatives available to Franklin at that time, the
board concluded that it was in the best interests of Franklin and its
stockholders to remain independent and enhance quality loan generation as a
means of maximizing stockholder value as an ongoing business entity rather than
to sell to a larger financial institution.
In late 1998 and early 1999, Bingham considered the possibilities of
forming or acquiring a financial institution to give it access to a more stable,
lower-cost funding base, as well as the ability to hold loans in portfolio,
thereby minimizing sales risk and gaining spread income on loans. At a board
meeting on February 12, 1999, Bingham's board of directors discussed filing an
application with the Office of Thrift Supervision and how various banking
regulations would affect Bingham's business if the application was approved. In
March 1999, Bingham filed an application with the OTS to establish a unitary
thrift holding company and a federally-chartered savings bank subsidiary.
22
<PAGE> 31
At approximately the same time, Bingham representatives contacted David F.
Simon, Franklin's Chairman, and another Franklin board member to inquire whether
Franklin would be interested in pursuing a transaction with Bingham. At several
meetings during March, Gary A. Shiffman, Bingham's Chairman, and Mr. Simon
discussed the general nature of a possible transaction between the parties, a
range of potential prices and other possible business alliance opportunities.
At a meeting on April 14, 1999, Bingham's board discussed the merits of
exploring a transaction with Franklin and continuing to pursue its OTS
application. The board decided to simultaneously go forward with the OTS
application and to continue to discuss a possible transaction with Franklin.
Preliminary meetings continued in April and May 1999, including meetings
between senior Franklin and Bingham executives to exchange certain public
information. During these discussions, Bingham disclosed to Franklin that it had
acquired approximately 4% of Franklin's outstanding common stock.
On May 16, 1999, Franklin's board of directors held a special board meeting
to consider the initial Bingham proposal. The initial proposal included an
exchange ratio of one share of Bingham common stock for each share of Franklin
common stock and for a new board of directors consisting of seven directors
designated by Bingham and two directors designated by Franklin. Franklin's board
rejected the initial proposal as being inadequate and authorized the engagement
of an investment banking firm to advise Franklin in evaluating its intrinsic
value and exploring strategic alternatives.
In May and June 1999, Bingham considered various other potential
transactions. On June 30, 1999, Bingham completed the acquisition of Hartger &
Willard Mortgage Associates, Inc., which provides mortgage banking services and
arranges permanent mortgage financing on a variety of commercial and industrial
properties.
On June 11, 1999, Bingham's board of directors held a meeting at which Mr.
Shiffman provided an update to the board on discussions with Franklin. The board
had a general discussion regarding a possible business combination with
Franklin.
From June through August 1999, Bingham performed internal modeling and
analysis of the potential combined company on a going-forward basis. Bingham's
models included an analysis of potential cost savings realizable from
integrating operations of Bingham and Franklin, potential increased rates of
return on Bingham's assets and the potential resulting enhancement of
stockholder value. Bingham also had discussions with representatives of Keefe,
Bruyette & Woods, Inc., Bingham's financial advisor, during this time. Keefe,
Bruyette assisted Bingham in its preliminary modeling and analysis.
In June 1999, upon the recommendation of Franklin's then-Chief Executive
Officer and its President, Franklin engaged a regional investment banking firm.
From early June through early November 1999, senior executives of Franklin met
with this financial advisor on various occasions. Franklin's financial advisors
also met with representatives of Bingham and its financial advisors to learn
more about Bingham's business and to develop financial models. In addition,
Franklin's financial advisors met with Franklin's board of directors on three
occasions in July, September and November 1999 to discuss strategic alternatives
and review the proposed Bingham transaction.
During the week of August 16, 1999, a privately-owned financial institution
based in southeast Michigan contacted Franklin to indicate its interest in
investigating the possibility of a strategic merger with Franklin. On August 17,
1999, Franklin's board decided to continue discussions with both Bingham and
this other institution. During the following two weeks, Franklin's financial
advisors met with representatives of this institution to exchange additional
business and financial information. On September 1, 1999, Franklin's board met
with the senior executives of the other institution to discuss the advantages of
a possible transaction and an outline of proposed terms.
At the meeting of Bingham's board of directors on August 4, 1999, the board
discussed the status of discussions with Franklin. The board decided that
Bingham should continue to concentrate in the short term on its OTS application
and pursuing other strategic alternatives. In late August 1999, Bingham began
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contacting potential candidates to serve as Chief Executive Officer of its
planned banking subsidiary, whether it be Franklin after a business combination
or a newly-chartered federal thrift institution.
On September 3, 1999, Franklin's board of directors met with senior
executives of Bingham to preliminarily discuss the benefits of a proposed
merger. On September 21, 1999, the Franklin board reviewed the status of the
discussions with Bingham and the other local financial institution. The Franklin
board authorized continued discussions with Bingham and termination of
discussion with the privately-owned financial institution because the board
concluded that a transaction with that institution would not meet its strategic
objectives or enhance long-term shareholder value. It also authorized the
execution of a formal engagement letter with Franklin's financial advisors.
There were a series of meetings from September 3 through November 3, 1999 among
representatives of Franklin, Bingham, Franklin's financial advisors and
Bingham's financial advisors, to negotiate the proposed transaction structure
and discuss the business plans and financial forecasts of the proposed combined
entity.
Bingham formally engaged Keefe, Bruyette on October 13, 1999 to advise it
in connection with the proposed transaction with Franklin.
Beginning in early October 1999, Bingham pursued the acquisition of Dynex
Financial, a manufactured home lender and loan servicer. Bingham completed the
acquisition on December 17, 1999. The acquisition of Dynex Financial provided
Bingham with an improved loan origination platform. Bingham's board and
management believed that its increased loan origination capabilities after the
Dynex Financial acquisition better positioned Bingham for a business combination
with Franklin. Dynex Financial originated approximately $500 million of loans in
calendar year 1999. Additionally, Dynex Financial provided Bingham with improved
software systems and a manufactured home loan servicing portfolio of
approximately $1 billion.
On November 4, 1999, Franklin's board convened a special meeting to receive
the report of Franklin's financial advisors on the revised Bingham proposal and
discuss strategic alternatives. The revised Bingham proposal consisted of an
exchange of 1.2 shares of Bingham common stock for each share of Franklin common
stock and a new board of directors of the resulting holding company consisting
of seven directors designated by Bingham and two directors designated by
Franklin. At this meeting, Franklin's board, with the concurrence of its
financial advisors, rejected the revised Bingham proposal because it deemed the
proposed exchange ratio and corporate governance provisions inadequate. In
addition, Franklin's financial advisor verbally indicated that it would not
issue a fairness opinion with respect to the proposed transaction with Bingham
at the time, primarily due to the financial terms and structure of the proposed
transaction existing at the time and the relative newness of Bingham, which
began conducting business in January 1997. The board adjourned the meeting to a
future date to develop a response to the Bingham offer.
On November 10, 1999, Franklin's board decided to engage a new financial
advisor, Raymond James & Associates, Inc., to advise Franklin generally on
future strategic direction, including an evaluation of a possible merger with
Bingham on terms acceptable to Franklin, and specifically to focus on the
exchange ratio and board control issues. On November 26, 1999, Franklin's former
financial advisor resigned.
On November 16, 1999, Bingham's board held a meeting at which it discussed,
among other matters, the status of its OTS application and the status of
negotiations with Franklin for a possible merger. Mr. Shiffman reported to the
board on the meetings that management of Bingham had had with representatives of
Franklin and that he expected several more meetings to occur. The board reviewed
and discussed financial projections for the combined company.
From November 10, 1999 until December 8, 1999, representatives of Franklin,
Bingham, Raymond James, Keefe, Bruyette and both parties' legal counsel and
accountants discussed Bingham's announced acquisition of Dynex Financial, the
revised terms of the proposed merger, tax and accounting considerations relating
to the proposed merger and corporate governance issues.
On December 2, 1999, the chairman of a large out-of-state regional bank
with operations in southeast Michigan contacted Franklin's President regarding
the possibility of an affiliation, including the possibility
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of a sale of Franklin. Raymond James, at the direction of Franklin's board,
contacted this institution, provided it with publicly-available information on
Franklin and held informal discussions with its representatives. On December 17,
1999, a senior vice president of this institution advised Raymond James that,
based on its review of Franklin, it had no interest in proceeding further and
would not be interested in submitting an offer to Franklin.
On December 8, 1999, representatives of Raymond James addressed a special
meeting of Franklin's board and updated the board members on a summary of the
Bingham transaction, historical Bingham financial information, preliminary
operating forecasts (including the impact of the Dynex acquisition), comparable
company acquisition analysis and discounted cash flow analysis. At that time,
the transaction contemplated a variable exchange ratio, depending on the market
price of Bingham common stock. The board decided to continue to negotiate with
Bingham and to seek to improve corporate governance matters.
Following the direction of Franklin's board, Mr. Simon, together with
representatives of Raymond James and Franklin's legal counsel, met on various
occasions with Bingham and its legal counsel to discuss the specific terms of
the transaction, including the exchange ratio. At a special meeting of
Franklin's board on December 21, 1999, representatives of Raymond James
presented an overview of Bingham's business, the revised terms of the proposed
merger, the rationale for and advantages of the merger, a shareholder dilution
analysis, a discounted cash flow analysis and certain legal matters and tax
considerations relating to the proposed transaction. The Franklin board members
discussed the strategic alternatives available to Franklin, including the risks
and benefits of remaining independent and Franklin's ability to compete
effectively for loans in the southeast Michigan market area. Franklin's board
reviewed in detail the terms and conditions of the proposed merger, including
the exchange ratio and corporate governance provisions, and by a vote of 7 to 1
(James R. Wechsler dissenting) determined that the transaction was in the best
interests of Franklin's stockholders, and that Mr. Simon, on behalf of Franklin,
should proceed to negotiate and enter into a definitive agreement to merge the
two entities as outlined in the Raymond James presentation.
From December 22, 1999 until December 30, 1999 the parties negotiated a
term sheet summarizing the principal terms of the proposed merger.
Bingham's board held a meeting on December 24, 1999, at which its directors
discussed the terms of a proposed term sheet for the merger, including the
proposed exchange ratio. The board authorized Bingham's executive officers to
continue to negotiate and to execute the term sheet.
On December 30, 1999, the parties signed a confidentiality agreement and a
non-binding term sheet outlining the basic economic terms and conditions of the
proposed merger.
On February 18, 2000, Bingham's board held a meeting to discuss the status
of merger negotiations and to receive an informal report on preliminary
conclusions from Bingham's due diligence investigation of Franklin.
Raymond James, in the ordinary course of its business, contacted a regional
multi-bank holding company in February 1999 with an inquiry as to its interest
in a possible acquisition of Franklin. Raymond James provided the regional
multi-bank holding company with publicly-available information about Franklin.
Subsequently, in March 2000, the holding company informed Raymond James that it
had no interest in pursuing an acquisition of Franklin.
Through March 17, 2000, Franklin, Bingham, Raymond James, Keefe, Bruyette
and the parties' respective legal advisors engaged in negotiations concerning
the final terms of the transaction, and each party performed extensive due
diligence on the other. During this time, the parties agreed to each designate
six directors to the post-merger board and to fix the exchange ratio at 1.525
Bingham shares for each outstanding Franklin share.
Franklin's board met on March 19, 2000 to consider the final terms of the
transaction. At the meeting, presentations were made by Raymond James and
Franklin's legal advisors and independent
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accountants, including, but not limited to, summaries of financial and valuation
analyses presented on historical, projected and pro forma bases, the stockholder
values likely obtainable from the proposed transaction compared to stand-alone
values, Raymond James' written fairness opinion on the exchange ratio, the
enhanced terms for Franklin's stockholders of the proposed merger, regulatory
matters, tax matters and the due diligence findings of Franklin's advisors.
Bodman, Longley & Dahling, counsel to Franklin, discussed with the board an
analysis of the legal and regulatory aspects of the proposed transaction.
Bodman, Longley also reviewed the fiduciary obligations of the Franklin
directors and described the definitive documentation and its effect. The
directors discussed their views of the presentations and the transaction. Each
of three Franklin directors, Herbert N. Glass, James R. Wechsler and Rebecca J.
David, expressed concern over one or more of the following: (i) the combined
company's ability to meet the returns and results of the pro forma business
plan, and in particular the gain on sale assumptions, prepared by the management
teams of Bingham and Franklin; (ii) the adequacy of the economic terms of the
Bingham proposal; and (iii) the adequacy of the time and information given to
the directors for deliberation on the proposal. The remaining majority directors
expressed confidence in the pro forma business plan and projections and noted
that the Franklin board had been discussing and deliberating a merger with
Bingham for over one year. They noted that management and Franklin's advisors
had participated in lengthy negotiations with representatives of Bingham, the
outcome of which were significantly improved terms for Franklin's stockholders,
including improved corporate governance provisions providing for a board of
directors consisting of six Bingham directors and six Franklin directors, as
opposed to the initial proposal of seven Bingham directors and two Franklin
directors and an improved exchange ratio of 1.525 shares of Bingham common stock
for each share of Franklin common stock as opposed to one share of Bingham
common stock for each share of Franklin common stock. The majority directors
also noted the significance on future operations and forecasted profitability of
Bingham's December 1999 acquisition of Dynex Financial, as well as the addition
of a new, well-respected chief executive officer to Franklin's management team
as a result of the merger. After discussion, Franklin's board by a vote of five
to three (Messrs. Glass and Wechsler and Ms. David, dissenting) authorized the
execution of the merger agreement
Bingham's board also met on March 19, 2000 to discuss the merger. At the
meeting, Bingham's legal advisors and its independent accountants made
presentations to the Board including, but not limited to, financial information
of the combined company on a pro forma basis, regulatory matters, tax matters,
accounting treatment and due diligence reports. Bingham's board also considered
and discussed Keefe, Bruyette's written fairness opinion on the merger
consideration. The board also discussed the likelihood that, if completed, the
proposed transaction would give Bingham access to lower-cost funds that would
offset its increasing funding cost due to the general rising interest rate
environment. In addition, the board believed that the merger would allow Bingham
to have a banking or thrift subsidiary in a relatively short time. Jaffe, Raitt,
Heuer & Weiss, counsel to Bingham, reviewed the fiduciary obligations of the
Bingham directors and described the definitive documentation and its effect. The
directors discussed their views of the presentations and the transaction.
Bingham's board authorized the execution of the merger agreement and the
transactions it contemplated.
The parties executed the merger agreement on March 19, 2000 and the
transaction was publicly announced on March 20, 2000.
Bingham's board of directors held a special meeting on May 8, 2000 at which
it considered, discussed and authorized the execution and delivery of the
amended and restated agreement and plan of merger attached as Appendix A to this
document. At a special meeting on May 16, 2000, Franklin's board of directors
considered, discussed and authorized the execution and delivery of the amended
and restated merger agreement. The amended and restated merger agreement
contains certain non-material changes to the original merger agreement that were
necessary to reflect a change in the transaction structure.
REASONS FOR THE MERGER
The board of directors of Bingham and the board of directors of Franklin
believe that the merger is fair to, and in the best interests of, the
stockholders of Bingham and Franklin, respectively. We believe
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that the combined company will be able to create greater stockholder value than
could be achieved by the companies individually. Specifically, we believe that
the combined company would be positioned to realize:
- an enhanced potential for revenue and earnings growth;
- a more efficient use of capital;
- diversification of its overall revenue mix;
- the benefits of Bingham's capital markets experiences;
- the competitive, financial and operation benefits of increased scale;
- increased growth opportunities by operating in a holding company
structure;
- the benefits of a strong management team drawn from both companies as
well as the ability to attract new experienced industry personnel;
- cost savings by eliminating redundant operations and expenses;
- the benefits of cross-selling opportunities; and
- increased liquidity in the stock of the combined company.
Enhanced potential for revenue and earnings growth. We believe the combined
company has the enhanced potential to realize revenue and earnings growth by
combining a lower cost of funds with a high quality loan origination platform.
Bingham historically has had a higher cost of funds than has Franklin. Bingham
has relied primarily on a warehouse line of credit with Lehman Commercial Paper
Inc. and credit facilities with Sun Communities, Inc. as its primary sources of
funds. Although Bingham has historically been able to originate a high volume of
higher-yielding loans, its higher cost of funds has limited Bingham's
profitability and its ability to grow loan originations to maximum capacity.
Unlike Bingham, Franklin has had the ability to access customers' deposits
and borrowings from the Federal Home Loan Bank as its primary sources of funds.
As a result, Franklin's historical cost of funds has been lower than Bingham's.
However, Franklin has not had the same capability as Bingham to generate a high
volume of higher-yielding commercial real estate and manufactured home loans.
We believe that combining Bingham's high-quality loan origination platform
with Franklin's lower cost of funds can enhance potential for revenue and
earnings growth. For example, promptly after the merger we expect to liquidate a
portion of Franklin's $200 million lower-yielding investment securities
portfolio and use the proceeds to pay off a substantial portion of Bingham's
higher-cost debt.
More efficient use of capital. We expect the balance sheet of the combined
company will initially show excess regulatory capital that does not exist with
Bingham and Franklin as separate companies. We expect to be able to use the
excess regulatory capital to leverage significant growth.
Diversification of overall revenue mix. Bingham contributes to the combined
company its ability to originate, portfolio, place and sell a high volume of
commercial real estate and manufactured home loans. Additionally, Bingham's over
$2 billion loan servicing portfolio adds predictable fee-based non-interest
income to the combined company. Franklin contributes to the combined company its
ability to originate small business and commercial real estate loans and provide
deposit services to local businesses. As such, the combined company will have
more diversified revenue and funding sources as well as a more diversified loan
portfolio. This diversification will also mitigate against the credit risk of
concentrating a substantial portion of the combined company's portfolio in loans
with similar credit profiles.
Bingham's capital markets experience. Bingham has experience in brokering,
selling and securitizing loans. This experience will allow the combined company
to offer a wider array of loan products with different maturities and terms than
Franklin currently offers.
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Increased scale. We believe that increased scale will provide the combined
company with competitive, financial and operational advantages, including
increased:
- financial strength;
- regulatory capital;
- ability to attract high-quality, experienced personnel;
- ability to consolidate certain administrative and operational activities;
- ability to better compete and grow in the combined companies' markets;
and
- technological efficiency.
Advantages of operating as a holding company. The merger is structured so
that Bingham will be a holding company. Franklin will merge with a wholly-owned
thrift subsidiary of Bingham, with that thrift subsidiary being the surviving
entity under the name "Franklin Bank." We believe the holding company structure
will benefit the combined company for the following reasons:
- there are no regulatory capital requirements for the holding company;
- the holding company has greater access to the capital markets in raising
debt or equity;
- the holding company may infuse the proceeds of raising debt capital to
its thrift subsidiary in the form of core equity capital;
- the holding company has greater corporate flexibility than Franklin has
alone; and
- there is increased flexibility to enter new markets and lines of business
at the holding company level.
Strong management team. The combined company will have a strong management
team with broad experience in commercial banking, real estate lending and
capital markets. In addition, we believe this team will permit us to attract
similar high-quality individuals to join the combined company. As an example,
Joseph G. Horonzy, a former Executive Vice President for both the Retail Banking
Division and the Corporate Banking Division of Comerica Bank, will become Chief
Executive Officer of Franklin. During Mr. Horonzy's tenure as Executive Vice
President of Comerica's Corporate Banking Division, Comerica's commercial loan
portfolio increased from $2.3 billion to $4.6 billion. As Executive Vice
President of Comerica's Retail Banking Division, Mr. Horonzy had responsibility
for nearly 1 million customers, $13 billion of consumer loans and 350 branch
offices and over 5,000 employees. W. Anderson Geater, former Chief Financial
Officer and Chief Administrative Officer of UFS Holdings, LLC and Central Park
Capital, LLC, and Executive Vice President and Chief Financial Officer of Leader
Federal Bank for Savings, has joined Bingham as Chief Financial Officer and
Treasurer in anticipation of the consummation of the merger. During Mr. Geater's
13 year tenure with Leader Federal Bank, its assets increased from approximately
$500 million to approximately $4 billion. During Mr. Geater's six year tenure
with UFS Holdings and Central Park Capital, UFS Holdings securitized over $4
billion of commercial real estate loans and Central Park Capital originated and
securitized over $1 billion of commercial real estate loans.
Increased cost savings. We expect that the combined company will realize
cost savings by consolidating operations performed by both Franklin and Bingham
before the merger.
Cross-selling opportunities. We believe that after the merger each of
Franklin and Bingham will be better able to market its products and services to
the other's current customers by building on the relationship the other has
already established with those customers. Customers who previously looked
elsewhere for certain financial products not offered by the company with which
it does business will be able to purchase those products from the combined
company.
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Increased stockholders' liquidity. The trading volume of Bingham common
stock and Franklin common stock has been low historically. In the merger,
Bingham will be issuing approximately 5.1 million shares to Franklin
stockholders. After the merger, approximately 7.5 million shares will be
outstanding. We believe the combined company's increased market capitalization
may make it more likely that financial analysts will follow the combined
company's stock. We believe the combination of a greater "float" and increased
flow of information about the combined company resulting from analysts' coverage
coupled with enhanced revenue and earnings potential will provide the
stockholders of the combined company with increased liquidity.
While we expect that we will be able to realize these benefits, no
assurance can be given that we will actually be able to do so.
FACTORS CONSIDERED BY THE BOARDS OF DIRECTORS
Each of our boards of directors, in reaching its decision on the merger
also considered a number of other factors, which are set forth below:
- the potential benefits to be derived from a combination of the two
companies described under "-- Reasons for the Merger" and the risks
described under "Risk Factors";
- the strategic and financial alternatives available to each of us in the
rapidly consolidating financial services industry;
- the terms of the merger agreement;
- the current and prospective economic, competitive and regulatory
environment facing each company and other financial institutions;
- the fact that the transaction was structured as a merger of equals with
shared corporate governance for the combined company, including
representation of Bingham and Franklin designees on each company's board
of directors, thus enabling each of Bingham and Franklin to provide
substantial input into the policies and operation of the combined
businesses and effect the long-term goals of each company;
- the opinions of our respective financial advisors that, as of March 19,
2000, and subject to the assumptions and limitations set forth in the
opinions, the merger consideration or the exchange ratio was fair from a
financial point of view, and the financial presentations made by our
respective financial advisors to our respective boards of directors in
connection with the delivery of their opinions;
- the likely impact of the merger on each company's employees and
customers;
- the interests of officers and directors of each company in the merger, as
described under "--Interests of Directors and Officers in the Merger";
- the fact that each of us is permitted to terminate the merger agreement
upon receipt of a superior acquisition proposal, subject to the payment
of specified termination fees;
- our respective obligations to pay termination fees under the
circumstances described in the merger agreement and the impact that the
termination fees may have on potential third-party acquirors;
- the qualification of the merger as a tax-free transaction for United
States federal income tax purposes (except for tax resulting from any
cash received for fractional shares by the holders of Franklin common
stock) and the expected accounting treatment as a purchase, without
creating any goodwill for financial accounting purposes;
- our review, based in part on presentations by our respective financial
advisors and the due diligence review of each other, of the financial
condition, results of operation, businesses and prospects of each of the
companies before and after giving effect to the merger transaction and
the determination of the merger transaction effect on stockholder value;
and
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- the current market conditions for financial institution stocks,
historical market prices of Franklin and Bingham common stock, price
volatility and trading information.
Franklin's board of directors also considered the improvement in Bingham's
loan origination platform and servicing portfolio resulting from Bingham's
acquisition of Dynex Financial. In addition, Franklin's board also considered
other strategic alternatives, including the alternative of continuing to remain
independent. In this regard, the Franklin board considered, based in part on
analyses of its financial advisor, the range of possible values to Franklin
stockholders that could potentially be obtained as an independent entity given
the earnings projections developed by management. Based upon this analysis, the
range of values indicated for the stand-alone entity were below the range of
values implied by the stock price trading range of Bingham multiplied by the
merger exchange ratio. In this regard, the Franklin board was aware of certain
risks of remaining independent, including, among other things, the ability to
compete effectively for loans in the southeast Michigan market area and the
costs and operational risks associated with additional technology enhancements
which would be necessary in order for Franklin to maintain its competitiveness.
Bingham's board of directors also considered the possibility of continuing
to pursue its application to establish a unitary thrift holding company and a
federally-chartered savings bank subsidiary without acquiring a financial
institution.
This discussion of the information and factors considered by our boards of
directors is not intended to be exhaustive. In view of the wide variety of the
material factors considered in connection with their respective evaluations of
the merger and the complexity of these matters, our boards of directors did not
find it practicable to, and did not, quantify or otherwise attempt to assign any
relative weight to the various factors considered. In addition, our boards of
directors did not undertake to make any specific determination as to whether any
particular factor, or any aspect of any particular factor, was favorable or
unfavorable to their ultimate determination, but rather each board conducted an
overall analysis of the factors described above, including discussions with and
questioning of our respective management and legal and financial advisors. In
considering the factors described above, individual members of our boards of
directors may have given different weight to different factors.
There can be no assurance that any of the potential savings, synergies or
opportunities considered by our boards of directors or an increase in
stockholder value actually will be achieved through consummation of the merger.
See "Risk Factors."
RECOMMENDATIONS OF THE FRANKLIN AND BINGHAM BOARDS OF DIRECTORS
Franklin
FRANKLIN'S BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF FRANKLIN
COMMON STOCK VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
Bingham
BINGHAM'S BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF BINGHAM COMMON
STOCK VOTE "FOR" APPROVAL OF THE BINGHAM MERGER PROPOSAL.
MERGER CONSIDERATION
Upon the merger, each share of Franklin common stock issued and outstanding
immediately before the merger (other than shares subject to dissenters' rights)
will be converted into the right to receive 1.525 shares of Bingham common
stock. This exchange ratio was determined through arm's-length negotiations
between Bingham and Franklin. See " -- Background of the Merger."
Each share of Bingham common stock issued and outstanding at the effective
time of the merger will remain outstanding and unchanged as a result of the
merger.
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Based on the last reported sale price for Bingham common stock on
, 2000 ($ per share), the value of 1.525 shares of Bingham
common stock as of that date would have been approximately $ and the
aggregate market value of the merger consideration would have been approximately
$ . The market value of Bingham common stock to be received in the
merger may change, however. Fluctuations in the market price of Bingham common
stock will result in an increase or decrease in the value of the consideration
to be received by Franklin stockholders in the merger. An increase in the market
value of Bingham common stock would increase the market value of the
consideration to be paid in the merger. A decrease in the market value of
Bingham common stock would have the opposite effect. The market value of the
merger consideration at the time of the merger will depend on various factors,
including the market value of a share of Bingham common stock at that time and
any effect of the merger itself.
TREATMENT OF FRANKLIN STOCK OPTIONS
On the record date, there were options for shares outstanding under
Franklin's stock option plans. At the effective time of the merger, each
Franklin stock option will be converted to an option to purchase the number of
shares of Bingham common stock that would have been received by the holder of
the Franklin option in the merger had the option been exercised in full for
shares of Franklin common stock immediately before the effective time. Any
fractional shares will be rounded down to the nearest whole share. Franklin
stock options converted to Bingham stock options will be on the same terms and
conditions as were applicable immediately before the effective time of the
merger, except the exercise price per share will be ratably adjusted by the
exchange ratio and rounded down to the nearest cent. Bingham will at all times
after the merger reserve for issuance a sufficient number of shares of its
common stock to be issued upon the exercise of Franklin options. Promptly after
the merger, Bingham will make all filings required under federal and state
securities laws to permit the exercise of the Franklin options.
OPINION OF FRANKLIN'S FINANCIAL ADVISOR
Franklin retained Raymond James & Associates, Inc. on December 20, 1999 to
be its financial advisor in connection with the merger and related matters based
upon Raymond James' qualifications, expertise and reputation, as well as Raymond
James' prior investment banking relationship and general familiarity with
Franklin.
Raymond James has delivered to the Franklin board its opinion that, based
upon and subject to the various considerations set forth in its written opinion
dated March 19, 2000, the exchange ratio is fair from a financial point of view
to holders of shares of Franklin common stock as of that date. In requesting
Raymond James' advice and opinion, no limitations were imposed by Franklin upon
Raymond James with respect to the investigations made or procedures followed by
it in rendering its opinion.
Franklin retained Raymond James to express an opinion as to the fairness,
from a financial point of view, to holders of shares of Franklin common stock of
the exchange ratio. Raymond James did not address Franklin's underlying business
decision to proceed with the merger and did not make any recommendation to the
Franklin board or to Franklin's stockholders with respect to any approval of the
merger.
The full text of Raymond James' opinion, which sets forth, among other
things, the assumptions made, procedures followed, matters considered and limits
on the review undertaken by Raymond James, is attached as Appendix B to this
document. Franklin stockholders are urged to read the opinion in its entirety.
RAYMOND JAMES' OPINION IS DIRECTED ONLY TO THE EXCHANGE RATIO IN THE MERGER AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY FRANKLIN STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE FRANKLIN MEETING. THE SUMMARY SET FORTH IN THIS
DOCUMENT OF RAYMOND JAMES' OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCES TO
THE FULL TEXT OF THE OPINION ATTACHED TO THIS DOCUMENT AS APPENDIX B.
During the course of its engagement, and as a basis for arriving at its
opinion, Raymond James reviewed and analyzed material bearing upon the financial
and operating condition of Franklin and
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Bingham and material prepared in connection with the merger, including, among
other things, the following:
- the financial terms and conditions as stated in the merger agreement;
- certain publicly available information for Franklin, including each of
the Annual Reports of Franklin filed on Form 10-K for each of the years
ended December 31, 1996, 1997 and 1998, and each of the Quarterly Reports
of Franklin filed on Form 10-Q for each of the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999;
- certain publicly available information for Bingham, including each of the
Annual Reports of Bingham filed on Form 10-K for each of the years ended
September 30, 1998 and 1999, and each of the Quarterly Reports of Bingham
filed on Form 10-Q for each of the quarters ended December 31, 1998,
March 31, 1999, June 30, 1999 and December 31, 1999;
- certain internal financial analyses, financial forecasts, reports and
other information concerning Franklin and Bingham prepared by the
respective managements of Franklin and Bingham;
- certain third party analysts' estimates as to the future financial
performance of Franklin;
- discussions it has had with certain members of the respective managements
of Franklin and Bingham concerning the historical and current business
operations, financial conditions and prospects of Franklin and Bingham
and such other matters it deemed relevant;
- the reported price and trading histories of the shares of the common
stock of Franklin and Bingham as compared to the reported price and
trading histories of certain publicly traded companies it deemed
relevant;
- the respective financial conditions of Franklin and Bingham as compared
to the financial conditions of certain other companies it deemed
relevant;
- certain financial terms of the merger as compared to the financial terms
of selected other business combinations it deemed relevant; and
- such other information, financial studies, analyses and investigations
and such other factors that it deemed relevant for the purposes of the
opinion.
In conducting its review and arriving at its opinion, as contemplated under
the terms of its engagement by Franklin, Raymond James, with the consent of
Franklin, relied, without independent investigation, upon the accuracy and
completeness of all financial and other information provided to it by Franklin
and Bingham, or publicly available. Raymond James did not undertake any
responsibility for the accuracy, completeness or reasonableness of, or any
obligation independently to verify such information.
The material financial information provided to Raymond James by the senior
management of each of Franklin and Bingham and discussed during due diligence
conversations related primarily to projected earnings for 2000 and, to a lesser
extent, the potential cost savings to be generated by the merger.
The earnings projections of management constitute forward-looking
statements and are subject to risks and uncertainties. They were based on
assumptions concerning various factors, including the regulatory environment,
economic conditions, and unanticipated changes in business conditions, the
interest rate environment and inflation, all of which are difficult or
impossible to predict and many of which are beyond the control of Franklin,
Bingham, or the combined company. Consequently, there can be no assurances that
Franklin, Bingham, or the combined company will achieve such results.
Raymond James assumed that all information, including the earnings
projections of management and the potential cost savings, furnished to or
discussed with Raymond James by Franklin or Bingham, was reasonably prepared and
reflected the best currently available estimates and judgments of the senior
management of Franklin and Bingham as to the future financial performance of
Franklin, Bingham, or the combined entity, as the case may be. Franklin informed
Raymond James, and Raymond James further
32
<PAGE> 41
assumed, that the merger would receive purchase accounting treatment and will
qualify as a tax-free reorganization under generally accepted accounting
principles. Raymond James did not make or obtain any independent evaluations,
valuations or appraisals of the assets or liabilities of Franklin or Bingham,
nor was Raymond James furnished with such materials. Raymond James assumed,
without independent verification, that the aggregate allowances for credit
losses for Franklin and Bingham were adequate to cover such losses. Raymond
James' opinion was necessarily based upon economic and markets conditions and
other circumstances as they existed and could be evaluated by Raymond James on
the date of its opinion. Raymond James does not have any obligation to update
its opinion, unless requested by Franklin in writing to do so, and Raymond James
expressly disclaimed any responsibility to do so in the absence of any such
request.
The summary set forth below does not purport to be a complete description
of either the analyses underlying Raymond James' opinion or the presentation
made by Raymond James to the Franklin board, but it does summarize all of the
material analyses performed and presented by Raymond James. The preparation of a
fairness opinion is a complex process involving subjective judgments.
Accordingly, Raymond James believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered by
it, without consideration of all factors and analyses, could create a misleading
view of the analyses and the processes underlying Raymond James' opinion.
Raymond James arrived at its opinion based on the results of all the analyses it
undertook assessed as a whole and did not draw conclusions from or with regard
to any one method of analysis. With respect to the comparable company analysis
summarized below, no public company utilized as a comparison is identical to
Bingham. Such analyses necessarily involve complex considerations and judgments
concerning the differences in financial and operating characteristics of the
companies and other factors that could affect the acquisition or public trading
values of the companies concerned.
Implied offer value analysis based on Bingham historical trading valuation.
Raymond James reviewed the implied offer value per share to holders of
Franklin common stock based on the price of Bingham common stock over different
intervals during the period commencing 180 trading days prior to March 17, 2000,
using the 30-day, 60-day, 90-day, and 180-day average closing price of Bingham
common stock during such period. Using such average closing prices, Raymond
James observed that the implied value per share to holders of Franklin common
stock was as follows:
<TABLE>
<CAPTION>
IMPLIED VALUE IMPLIED VALUE
BINGHAM IMPLIED VALUE PER SHARE/ PER SHARE/
AVERAGE PER SHARE TO FRANKLIN FRANKLIN
CLOSING PRICE FRANKLIN STOCKHOLDERS 12/31/99 BOOK VALUE 12/31/99 EPS
------------- --------------------- ------------------- -------------
<S> <C> <C> <C> <C>
March 17, 2000......... $ 8.06 $12.30 130.5% 14.8x
30 Trading Days........ 7.67 11.70 124.1 14.1
60 Trading Days........ 8.16 12.45 132.1 15.0
90 Trading Days........ 8.59 13.10 139.0 15.8
180 Trading Days....... 10.60 16.16 171.5 19.5
</TABLE>
Raymond James advised Franklin's board of directors of the infrequent
trading activity that had been occurring in Bingham's common stock preceding the
announcement of the transaction; as such, it was Raymond James' opinion that
although Franklin's board of directors should be aware of what an approximate
announced transaction value would be for Franklin, it was more appropriate to
analyze an approximate transaction value based on the average of Bingham common
stock over a period of 30 to 180 days.
Implied premium analysis based on Franklin historical trading valuation.
Raymond James reviewed the implied premium to holders of Franklin common
stock based on the implied offer value per share to holders of Franklin common
stock and the average closing price of Franklin common stock at different
intervals during the period commencing 180 trading days prior to
33
<PAGE> 42
March 17, 2000. Using such average closing prices, Raymond James observed that
the implied premium to holders of Franklin common stock was as follows:
<TABLE>
<CAPTION>
FRANKLIN IMPLIED VALUE
AVERAGE PER SHARE TO IMPLIED
CLOSING PRICE FRANKLIN STOCKHOLDERS PREMIUM
------------- --------------------- -------
<S> <C> <C> <C>
March 17, 2000............................... $9.13 $12.30 34.7%
30 Trading Days.............................. 9.85 11.70 18.8
60 Trading Days.............................. 9.80 12.45 27.0
90 Trading Days.............................. 9.40 13.10 39.3
180 Trading Days............................. 9.15 16.16 76.5
</TABLE>
Financial implications to Franklin stockholders.
Raymond James prepared an analysis of the financial implications of the
Bingham offer to a holder of Franklin common stock. This analysis indicated that
on a pro forma basis, assuming the merger was completed at the exchange ratio of
1.525 and Franklin stockholders owned approximately 68.1% of the pro forma
shares outstanding, a stockholder of Franklin would achieve approximately a
61.1% accretion in earnings per share, no increase in dividends per share and an
increase in book value per share of approximately 13.1% in 2000 as a result of
the consummation of the merger. Assuming that the projected earnings per share
and dividends per share do not materially change from historical growth rate
levels, a stockholder of Franklin would achieve approximately a 109.6% accretion
in earnings per share, no increase in dividends per share and an increase in
book value per share of approximately 51.3% in 2004 as a result of the
consummation of the merger. The table below summarizes the results discussed
above:
<TABLE>
<CAPTION>
EARNINGS DIVIDENDS BOOK VALUE
PER SHARE PER SHARE PER SHARE
-------------- ------------- ---------------
2000 2004 2000 2004 2000 2004
----- ------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Franklin stand alone................. $1.12 $ 1.76 $0.34 $0.53 $10.22 $14.47
Pro Forma............................ $1.80 $ 3.69 $0.34 $0.53 $11.55 $21.88
% Accretion.......................... 61.1% 109.6% 0.0% 0.0% 13.1% 51.3%
</TABLE>
Comparative stockholder returns.
Raymond James presented an analysis of comparative theoretical stockholder
returns in two scenarios, including (i) Franklin remaining independent and being
acquired in 2004; and (ii) Franklin being acquired by Bingham through the merger
with Bingham in turn being acquired in 2004. This analysis, which was based on
the net present value of projected dividend streams and projected common stock
valuations, using historical acquisition price-to-book multiples and management
earnings per share projections for each of the five years ended December 31,
2000 through December 31 2004, indicated total stockholder returns of 16.3% for
Franklin remaining independent and being acquired in 2004, and 31.3% based on
the acceptance of the offer from Bingham at the exchange ratio of 1.525 Bingham
shares of common stock per Franklin share of common stock and Bingham in turn
being acquired in 2004.
Comparison of selected specialty finance companies.
Raymond James compared selected operating and stock market characteristics
of Bingham to the publicly-available corresponding data of certain specialty
finance companies that Raymond James deemed to be relevant, including Associates
First Capital Corporation, Conseco, Inc., FINOVA Group, Inc., GreenPoint
Financial Corp., and Heller Financial, Inc. (collectively, the "Peer Group").
Based on financial data as of December 31, 1999, the 20 trading-day average
market prices as of March 17, 2000 for each company included in the Peer Group,
the 90 trading-day average market price as of March 17, 2000 for Bingham,
consensus 2000 earnings per share estimates for the Peer Group as of March 17,
2000 from
34
<PAGE> 43
First Call Corporation, and Bingham's management estimate of 2000 earnings per
share, this comparison showed with regard to stock trading multiples, the
following:
<TABLE>
<CAPTION>
PEER GROUP
----------------------------------
MARKET PRICE AS A MULTIPLE OF BINGHAM MEDIAN AVERAGE HIGH LOW
----------------------------- ------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Book Value Per Share...................... 83.4% 94.9% 98.3% 135.1% 77.5%
2000E Earnings Per Share.................. 4.37x 6.89x 6.64x 7.84x 5.04x
</TABLE>
Peer Group Stock Return Analysis.
Raymond James analyzed the compound annual growth rates of the stock prices
(excluding dividend reinvestments) of the companies in the Peer Group as
compared to Bingham, based on one-year and two-year growth rates. This analysis
showed the following:
<TABLE>
<CAPTION>
PEER GROUP
----------------
GROWTH RATE BINGHAM MEDIAN AVERAGE
----------- ------- ------ -------
<S> <C> <C> <C>
One year................................................... (46.3)% (49.2)% (45.2)%
Two year................................................... (27.0)% (30.9)% (35.0)%
</TABLE>
Franklin's board retained Raymond James based upon the recognized
experience and expertise of Raymond James' financial institutions group. Raymond
James is a recognized investment banking and advisory firm. Raymond James, as a
part of its investment banking and advisory business, is continually engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Franklin selected Raymond
James as its financial advisor because of its reputation and because of its
substantial experience in transactions such as the merger. In the ordinary
course of business, Raymond James may trade in the equity securities of Franklin
and/or Bingham for its own account or for the accounts of its customers and,
accordingly, at any time may hold a long or short position in such securities.
Franklin and Raymond James have entered into a letter agreement, dated
December 20, 1999, relating to the services to be provided by Raymond James in
connection with the merger. Raymond James will receive a transaction fee upon
the completion of the merger equal to $250,000 for the first $56 million in
aggregate consideration to be received by Franklin's stockholders plus an amount
equal to 1.40% of the difference in the total market value of the transaction
over $56 million. Raymond James was paid an initial retainer fee of $15,000 upon
execution of the engagement letter, $85,000 of the transaction fee after the
execution of the merger agreement for the pending transaction with Bingham, and
will be paid the remainder of the transaction fee balance (less a credit for the
initial retainer fee) as described above upon the completion of the transaction
with Bingham. Raymond James will also receive a fee of $150,000 from Franklin
contingent upon the delivery of the fairness opinion. Raymond James was paid a
portion of this fee in an amount equal to $65,000 upon delivery of the written
opinion on March 19, 2000, and will be paid the remainder of the balance upon
consummation of the transaction with Bingham. Based on the average closing price
of Bingham's common stock for the 20 consecutive trading days prior to signing
the merger agreement on March 19, 2000, the total fee would be approximately
$400,000, and Raymond James has received approximately $165,000 of such fee.
Franklin also has agreed to reimburse Raymond James for reasonable out-of-pocket
expenses of up to $10,000, and to indemnify Raymond James against certain
liabilities, including liabilities under the federal securities laws.
OPINION OF BINGHAM'S FINANCIAL ADVISOR
On October 13, 1999, Bingham retained Keefe, Bruyette & Woods, Inc. to
evaluate Bingham's potential strategic alliance with Franklin and to issue a
fairness opinion to Bingham's stockholders as to the fairness of the transaction
from a financial point of view. Keefe, Bruyette, as part of its investment
banking business, is regularly engaged in the evaluation of businesses and
securities in connection with mergers and acquisitions, negotiated underwritings
and distributions of listed and unlisted securities. Keefe, Bruyette is familiar
with the market for common stocks of publicly traded banks, thrifts, bank
holding
35
<PAGE> 44
companies and other financial institutions. The Bingham board selected Keefe,
Bruyette on the basis of the firm's reputation and its experience and expertise
in transactions similar to the merger with Franklin.
In connection with its engagement, Keefe, Bruyette was asked to render an
opinion as to the fairness, from a financial point of view, of the merger
consideration to stockholders of Bingham. Keefe, Bruyette delivered its opinion
to the Bingham board that, as of March 19, 2000, the merger consideration is
fair from a financial point of view, to the stockholders of Bingham. No
limitations were imposed by the Bingham board upon Keefe, Bruyette with respect
to the investigations made or procedures followed by it in rendering its
opinion. Keefe, Bruyette has consented to the inclusion in this document of the
summary of its opinion to the Bingham board and to the reference to the entire
opinion attached hereto as Appendix C.
The full text of the opinion of Keefe, Bruyette, includes certain
assumptions made, matters considered and limitations on the review undertaken by
Keefe, Bruyette, and should be read in its entirety. The summary of the opinion
of Keefe, Bruyette in this document is qualified in its entirety by reference to
the opinion.
In rendering its opinion, Keefe, Bruyette:
- reviewed the merger agreement;
- reviewed Bingham's annual reports, proxy statements, Form 10-Ks and Form
10-Qs since its initial public offering and Franklin's annual reports,
proxy statements, Form 10-Ks and Form 10-Qs for the prior three years and
certain other information considered relevant, including internal
reports, such as board reports, asset-liability reports, asset-quality
reports and loan files;
- discussed with senior management and the boards of directors of Bingham
and Franklin, the current position and prospective outlook for each
company;
- considered historical quotations, levels of activity and prices of
recorded transactions in Bingham's and Franklin's common stock;
- reviewed financial and stock market data of other financial services
companies in a comparable asset range and asset composition as Bingham
and Franklin;
- reviewed certain recent business combinations with banks as the merger
partner, which Keefe, Bruyette deemed comparable in whole or in part; and
- performed other analyses that Keefe, Bruyette considered appropriate.
In rendering its opinion, Keefe, Bruyette assumed and relied upon the
accuracy and completeness of the financial information provided to it by Bingham
and Franklin. In its review, with the consent of the Bingham board, Keefe,
Bruyette did not undertake any independent verification of the assets or
liabilities and potential or contingent liabilities of Bingham.
In rendering its opinion, Keefe, Bruyette analyzed the merger consideration
offered by Bingham in relation to the following:
- the returns and results of the pro forma business plan developed by the
combined management teams assuming a strategic alliance focusing on asset
generation and liability funding strategies; and
- certain comparable merger and acquisition transactions of pending bank
deals, comparing merger consideration relative to tangible book value,
last 12 months earnings, total assets, total deposits and premium to core
deposits. Keefe, Bruyette analyzed this data with a heightened view of
the trend of Franklin's historical earnings (return on average assets of
0.58%, 0.52%, 0.43% for the prior three year-end periods, substantially
below median levels of all publicly-traded banks for the same period) and
potential for future earnings enhancements. Pending bank deals consist of
all bank acquisitions announced but not yet closed as of March 8, 2000.
The information in the following table summarizes all pending merger and
acquisition transactions where the seller was a bank institution. The summary
does not purport to be a complete description of the analysis performed by
Keefe, Bruyette and should not be construed independently of the other
information
36
<PAGE> 45
considered by Keefe, Bruyette in rendering its opinion. Selecting portions of
Keefe, Bruyette's analysis or isolating certain aspects of the comparable
transactions without considering all analysis and factors could create an
incomplete or potentially misleading view of the evaluation process.
<TABLE>
<CAPTION>
PRICE TO
----------------------------------------------
LAST 12 MONTHS
TANGIBLE BOOK VALUE(1) EARNINGS PER SHARE(2)
---------------------- ---------------------
<S> <C> <C>
Consideration to Franklin's stockholders............... 121.0% 13.6x
All pending deals(3)
Median of pending deals................................ 230.0 21.2
High of pending deals.................................. 440.0 45.5
Low of pending deals................................... 100.0 10.0
</TABLE>
---------------
(1) Assumes Franklin fully diluted tangible book value of $9.28.
(2) Last 12 months ended December 31, 1999 earnings per fully diluted share of
Franklin common stock of $0.84.
(3) 77 deals total
Based on the above information, Keefe, Bruyette concluded that the above
analysis of the transaction is fair from a financial point of view to the
stockholders of Bingham. Further, the fairness opinion considered the expected
performance of the combined strategic alliance of Bingham and Franklin with
additional considerations such as the business plan, asset mix, funding sources
and growth potential, net interest margin and net interest spread.
In preparing its analysis, Keefe, Bruyette made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Keefe, Bruyette and Bingham.
The analyses performed by Keefe, Bruyette are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by those analyses and do not purport to be appraisals
or reflect the prices at which a business may be sold.
Keefe, Bruyette will receive a fee of approximately $150,000 for services
rendered in connection with advising and issuing a fairness opinion regarding
this matter. As of the date of the document, Keefe, Bruyette has received
$60,000 of its fee, and the remainder of the fee is due upon closing of the
merger.
DISSENTERS' RIGHTS
Under 12 U.S.C. Section 215a, Franklin stockholders have the right to
dissent from the merger. This means stockholders have the right to elect to have
the fair value of their shares appraised and paid in cash. A stockholder will
only receive a cash payment in lieu of Bingham stock if the merger is completed
and if he or she complies with the provisions of Section 215a. Under Section
215a, a dissenting stockholder must meet two conditions to properly dissent:
- the stockholder must either vote against the merger or give written
notice to Franklin (see address below) of his or her dissent at or before
the special meeting; and
- the stockholder must make a written request to Bingham for the value of
his or her Franklin shares and surrender his or her stock certificates
before 30 days after consummation of the merger.
Subsection (c) of Section 215a provides for the selection of three
appraisers who will determine the value of the dissenting shares. If the
stockholder appeals the appraisers' decision to the Comptroller of the Currency
within five days after being notified of the appraised value of his or her
shares or if the appraisers have not reached a decision within 90 days after the
consummation of the merger, the Comptroller of the Currency will cause a binding
appraisal to be made.
Dissenting stockholders will receive the greater of
- the appraised value of their Franklin shares, or
- the price paid at a public auction of the Bingham shares that they would
have received in the merger.
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<PAGE> 46
The appraised value of the Franklin shares may be more or less than the
value of the merger consideration. The cash you receive for your shares if you
properly dissent could result in income to you for federal and state income tax
purposes.
All notices of dissent should be addressed to:
Franklin Bank, N.A.
24725 W. 12 Mile Road
Southfield, MI 48034
Attn: David F. Simon
THIS SUMMARY OF DISSENTERS' RIGHTS MAY NOT CONTAIN ALL THE INFORMATION THAT
IS IMPORTANT TO YOU. IF YOU THINK YOU MAY WANT TO DISSENT FROM THE MERGER, YOU
SHOULD CAREFULLY READ THE RELEVANT SECTIONS OF THE STATUTE GOVERNING THIS
PROCESS THAT ARE ATTACHED TO THIS DOCUMENT AS APPENDIX D.
Bingham stockholders do not have dissenters' rights in connection with the
merger.
FRACTIONAL SHARES
No fractional shares of Bingham common stock will be issued to Franklin
stockholders in the merger. Instead, Bingham will pay to each Franklin
stockholder who would otherwise be entitled to a fractional share of Bingham
common stock an amount in cash (without interest) determined by multiplying the
fraction by the closing per share sale price of Bingham common stock on the
Nasdaq SmallCap Market for the last trading day before the merger.
EXCHANGE OF CERTIFICATES
Before the merger, Bingham will deposit certificates representing Bingham
common stock to be issued in the merger and an amount of cash sufficient to
cover payments for fractional shares with an exchange agent mutually selected by
Bingham and Franklin.
Within 15 days of the merger, the exchange agent will deliver to each
Franklin stockholder of record immediately before the merger transmittal
materials for use in exchanging certificates representing Franklin common stock
for Bingham certificates. FRANKLIN STOCKHOLDERS SHOULD NOT FORWARD THEIR
FRANKLIN CERTIFICATES UNTIL THEY RECEIVE THE TRANSMITTAL MATERIALS. The exchange
agent will deliver Bingham certificates of Bingham common stock into which
shares of a stockholder's Franklin common stock are converted in the merger (or
any cash payable for fractional shares) to be delivered to each Franklin
stockholder upon delivery to the exchange agent of Franklin certificates (or
indemnity reasonably satisfactory to Bingham and the exchange agent, if any of
the certificates are lost, stolen or destroyed). No interest will be paid on
cash paid in lieu of a fractional share or on dividends or distributions that
any Franklin stockholder is entitled to receive.
Until they are surrendered, and subject to applicable law, the Franklin
certificates will as of the merger represent ownership of the number of shares
of Bingham common stock into which the Franklin shares were converted in the
merger. The holders will be entitled to all rights and privileges of holders of
Bingham common stock, except that holders of Franklin certificates will not be
entitled to receive dividends or any other distributions declared by Bingham
until the Franklin certificates are surrendered. After the Franklin certificates
are surrendered, the holders of newly issued Bingham certificates will be paid,
without interest, any dividends or other distributions with respect to the
shares of Bingham common stock the record date for which is after the merger.
Any portion of the exchange fund that is not claimed by former Franklin
stockholders within 12 months of the merger will be returned to Bingham. Any
former Franklin stockholder who has not complied with the exchange procedures
after that 12-month period may look only to Bingham for payment of merger
consideration, without interest.
38
<PAGE> 47
After the merger, there will be no further transfers on the records of
Franklin of the Franklin certificates. If the Franklin certificates are
presented to Bingham for transfer, they will be cancelled against delivery of
Bingham certificates.
MANAGEMENT AND BOARDS OF DIRECTORS AFTER THE MERGER
Management
If the merger is completed, Joseph G. Horonzy will become the Chief
Executive Officer of Franklin, and David F. Simon will become an Executive Vice
President of Bingham. Mr. Simon will continue to serve as Franklin's Chairman of
the Board. Gary A. Shiffman will continue to serve as Bingham's Chairman of the
Board and Ronald A. Klein will continue to serve as Bingham's President and
Chief Executive Officer. See below for biographical information for Messrs.
Horonzy, Simon, Shiffman and Klein.
Director Compensation
The following table sets forth the fees, benefits and perquisites available
to non-employee directors of Franklin and Bingham both before and after the
merger:
<TABLE>
<CAPTION>
BEFORE THE MERGER AFTER THE MERGER
------------------------------------------- --------------------
FRANKLIN BINGHAM FRANKLIN AND BINGHAM
-------- ------- --------------------
<S> <C> <C> <C>
Board fees......................... $12,000 per year plus $3,000 per quarter $3,000 per quarter
$1,000 per meeting
Committee fees..................... $400 per Loan None None(1)
Committee meeting;
$600 per meeting of
all other committees
Stock options...................... Eligible for grants Eligible for Eligible for grants
under stock option grants under stock under stock option
plans option plan plan
Health care coverage............... Provided None None
Payment of health club dues........ Provided None None
Severance payments................. Accrue at a rate of None None
$15,000 per year(2)
</TABLE>
-------------------------
(1) The Bingham and Franklin boards may agree to pay a reasonable fee to members
of committees of the boards after the merger.
(2) The amount of severance payments accrued for each of Franklin's non-employee
directors is approximately $250,000.
Upon the merger, the fees, benefits and perquisites provided by Franklin to
non-employee directors prior to the merger will be immediately reduced or
eliminated altogether. Non-employee directors of Franklin who become
non-employee directors of Bingham or Franklin after the merger will be
compensated like other non-employee directors of Bingham. In addition, it is a
condition to the merger that these individuals terminate their current severance
agreements with Franklin and enter into new severance agreements with Bingham
that, among other things, provide that severance amounts will cease to accrue
after the merger and will remain fixed at the levels provided under the current
severance agreements. The new agreements will terminate two years after the
merger for non-employee directors who become directors of Bingham and three
years after the merger for non-employee directors who become directors of
Franklin. As a result, any Franklin non-employee director who remains on the
Bingham board for more than two years after the merger or the Franklin board for
more than three years after the merger will forfeit his accrued severance
payment of approximately $250,000 under his existing severance agreement with
Franklin. Any forfeited payments will be returned to the combined company. See
"-- Interests of Directors and Officers in the Merger--Franklin Severance
Agreements."
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<PAGE> 48
Bingham Board of Directors
If the merger is approved, at the time of the merger the Bingham board of
directors will be increased to 12 directors and reconfigured as follows:
BEFORE THE MERGER
<TABLE>
<CAPTION>
TERM
DIRECTOR EXPIRES
-------- -------
<S> <C>
Daniel E. Bober...................... 2000
Robert H. Orley...................... 2000
Gary A. Shiffman (Chairman).......... 2000
Mark A. Gordon(1).................... 2001
Brian M. Hermelin.................... 2001
James Raiskin(1)..................... 2001
Ronald A. Klein...................... 2002
Creighton J. Weber(1)................ 2002
Arthur A. Weiss...................... 2000
</TABLE>
AFTER THE MERGER
<TABLE>
<CAPTION>
TERM
DIRECTOR EXPIRES
-------- -------
<S> <C>
Daniel E. Bober...................... 2001
Edgar M. Fenton(2)................... 2001
Joseph G. Horonzy.................... 2001
David F. Simon(2).................... 2001
Dean A. Friedman(2).................. 2002
Brian M. Hermelin.................... 2002
George M. Nyman(2)................... 2002
Robert H. Orley...................... 2002
Ronald A. Klein...................... 2003
William E. Murcko(2)................. 2003
Gary A. Shiffman (Chairman).......... 2003
Arthur A. Weiss...................... 2003
</TABLE>
---------------
(1) Will not serve as a Bingham director after the merger.
(2) Current Franklin director. Messrs. Fenton, Friedman and Nyman are
non-employee directors.
There are no material relationships between Bingham or its directors and
officers and Franklin or its directors and officers except as contemplated by
the merger agreement or as described in this document. In the ordinary course of
business and from time to time Bingham, Franklin and their affiliates and
subsidiaries may do business with each other.
To the best of Bingham's knowledge, (i) there are no material proceedings
to which any prospective director of Bingham is a party, or has a material
interest, adverse to Bingham, and (ii) there have been no events under any
bankruptcy act, no criminal proceedings and no judgments or injunctions that are
material to the evaluation of the ability or integrity of any of these people
during the past five years.
Biographies of Bingham Directors after the Merger
DANIEL E. BOBER, 41, has been a director and Vice President of Bingham
since March 1998. Since 1994, Mr. Bober has been the President of Bloomfield
Acceptance Company, L.L.C. and Executive Vice President of Bloomfield Servicing
Company, L.L.C., wholly-owned subsidiaries of Bingham engaged in the business of
commercial mortgage lending and servicing, respectively. Mr. Bober has been
actively involved in commercial real estate lending since 1984, first as Vice
President of the Martin Rom Company and then as Vice President of Westpointe
Financial Corporation.
EDGAR M. FENTON, 78, has been a director of Franklin since 1983. He is a
member of Franklin's Loan and Investments Committee. Mr. Fenton is the Chairman
of the Board and Chief Executive Officer of Cadroy Management Company and the
Fenton Company, real estate development, investment and management companies
located in Farmington Hills, Michigan, and has been affiliated with both
companies since 1952. Mr. Fenton was the President of the Apartment Association
of Michigan from 1985 to 1989. Mr. Fenton is Mr. Simon's father-in-law.
DEAN A. FRIEDMAN, 49, has been a director and the Secretary of Franklin
since 1983. He is a member of Franklin's Audit and Compliance Committee and
Strategic Planning Committee. Since 1992, Mr. Friedman has been principally
employed as the President and Chief Executive Officer of Solomon Friedman
Advertising, an advertising agency located in Bloomfield Hills, Michigan.
BRIAN M. HERMELIN, 34, has been a director of Bingham since October 1997.
He is a member of Bingham's Audit Committee and Compensation Committee. Since
1997, Mr. Hermelin has been Chief Operating Officer and a director of USA Jet
Airlines Inc., a cargo airline that also operates Active Aero Charter, an air
charter broker and logistics provider. From 1992 to 1997, Mr. Hermelin provided
40
<PAGE> 49
acquisition analysis, strategic planning and business development services
through various consulting arrangements. Mr. Hermelin is Mr. Orley's
brother-in-law.
JOSEPH G. HORONZY, 52, has been an Executive Vice President of Bingham
since May 2000. It is expected that he will become the Chief Executive Officer
of Franklin upon the merger. From 1993 through April 2000, Mr. Horonzy was a
Manager for Strategic Planning and Financing Services with the public accounting
firm of Plante & Moran, LLP. From 1968 to 1993, he held several positions with
Comerica Bank, including Executive Vice President for the Retail Banking
Division and Executive Vice President for the Corporate Banking Division.
RONALD A. KLEIN, 42, has been a director and the Chief Executive Officer of
Bingham since February 1999. He was named Bingham's President in June 1999. He
is a member of Bingham's Nominating Committee. Since 1994, he has been the
Managing Director of Equity Growth L.L.C., a private real estate investment
company. From 1990 to 1994, Mr. Klein served as Executive Vice President of
Alaron Inc., an international distributor of consumer electronics. From 1985 to
1990, Mr. Klein was a member of the Chicago Board Options Exchange. Mr. Klein
has also served as the Managing Director of a financial derivatives trading firm
and, before 1985, he was in the private practice of law.
WILLIAM E. MURCKO, 53, has been a director of Franklin since 1983. He is a
member of Franklin's Audit and Compliance Committee, Compensation Committee,
Search Committee and Strategic Planning Committee. Mr. Murcko has been the
President and Chief Operating Officer of Communication Associates, Inc., an
advertising agency located in Birmingham, Michigan, since 1990.
GEORGE M. NYMAN, 53, has been a director of Franklin since 1983. He is a
member of Franklin's Audit and Compliance Committee and Loan and Investments
Committee. Mr. Nyman has been the President of Professional Property Management
Co. of Michigan, Inc., a real estate management firm located in Troy, Michigan
since 1975. He is currently the Vice President of the Apartment Association of
Michigan 1990.
ROBERT H. ORLEY, 44, has been a director of Bingham since October 1997. He
is a member of Bingham's Audit Committee and Compensation Committee. Mr. Orley
is the Executive Vice President of the Oxford Investment Group, Inc., where
since 1985, he has supervised the legal, administrative, taxation and financial
reporting aspects of Oxford's business portfolio and acquisition searches. Since
1984, Mr. Orley has also been Vice President and a director of Real Estate
Interests, Inc., a real estate development and management company affiliated
with Oxford. Mr. Orley is Mr. Hermelin's brother-in-law.
GARY A. SHIFFMAN, 46, has been the Chairman of the Board of Bingham since
August 1996. He is a member of Bingham's Nominating Committee. Mr. Shiffman has
been the Secretary of Bingham since 1997. Since 1994, Mr. Shiffman has been the
Chief Executive Officer and a director of Sun Communities, Inc., a publicly held
REIT with its stock traded on the New York Stock Exchange. Since March 2000, Mr.
Shiffman has served as Chairman of the Board of Sun. He has been actively
involved in the management, acquisition, financing, construction and development
of manufactured housing communities over the past 14 years. He has overseen the
land acquisition, rezoning, development and marketing of numerous manufactured
home expansion projects. In addition, Mr. Shiffman has extensive experience in
the debt and capital markets and retains significant interests in a diverse
portfolio of real estate assets.
DAVID F. SIMON, 53, has been the Chairman of the Board of Franklin since
1983. He is a member of Franklin's Loan and Investments Committee, Search
Committee, and Strategic Planning Committee. Mr. Simon was an attorney in
private practice specializing in securities and financial institutions law from
1971 to 1991. Mr. Simon is Mr. Fenton's son-in-law.
ARTHUR A. WEISS, 51, has been a director of Bingham since February 1998. He
is a member of Bingham's Nominating Committee and Compensation Committee. Since
1976, Mr. Weiss has practiced law with, and is currently a stockholder of, the
law firm of Jaffe, Raitt, Heuer & Weiss, Professional Corporation, which
represents Bingham in various matters. Mr. Weiss is also a director of Sun.
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<PAGE> 50
Franklin Board of Directors
When the merger is completed, Franklin will become a wholly-owned
subsidiary of Bingham and the Franklin board of directors will be increased to
eleven directors and reconfigured as follows. All directors on Franklin's board
have one year terms.
<TABLE>
<CAPTION>
BEFORE THE MERGER AFTER THE MERGER
----------------- ----------------
<S> <C>
Rebecca David Daniel E. Bober(3)
Edgar M. Fenton Rebecca David
Dean A. Friedman(1) Edgar M. Fenton
Herbert N. Glass Herbert N. Glass
William E. Murcko(1) Mark A. Gordon (Vice Chairman)(3)
George M. Nyman(1) Brian M. Hermelin(3)
Joseph A. Pick(2) Joseph G. Horonzy
David F. Simon (Chairman) Ronald A. Klein(3)
James R. Wechsler(1) Robert H. Orley(3)
David F. Simon (Chairman)
Creighton J. Weber(3)
Joseph A. Pick(2)
</TABLE>
---------------
(1) Will not serve as a Franklin director after the merger.
(2) Non-voting advisory director serving at the discretion of the Franklin
board.
(3) Current Bingham director.
Biographies of Franklin Directors after the Merger
The biographies of Messrs. Bober, Fenton, Hermelin, Horonzy, Klein, Orley
and Simon, who will also be directors of Bingham after the merger, are set forth
above.
REBECCA DAVID, 46, has been a director of Franklin since 1997 and has been
the President of Franklin since 1999. She is a member of Franklin's Loan
Committee and Strategic Planning Committee. Before being appointed President of
Franklin, Ms. David was Franklin's Senior Vice President, Marketing from 1991 to
1999.
HERBERT N. GLASS, 52, has been a director of Franklin since 1983. He is a
member of Franklin's Audit and Compliance Committee, Compensation Committee,
Search Committee and Strategic Planning Committee. Mr. Glass has been the
President of The Glass Freedman Company, a registered investment advisor that
provides pension, life insurance and investment consulting, actuarial and
administrative services to corporations and retirement programs, located in
Bingham Farms, Michigan since 1976. Mr. Glass is a Certified Pension Consultant,
a Certified Financial Planner, a Chartered Life Underwriter, a Chartered
Financial Consultant and a Licensed Insurance Counselor.
MARK A. GORDON, 54, has been a director of Bingham since February 1999. He
is currently a member of Bingham's Audit Committee. Mr. Gordon has been with The
Budd Company, an automotive parts manufacturer, since 1976 and currently holds
the position of Assistant General Counsel. Previously, he was President of Budd
Financial Corporation, a financial services affiliate of The Budd Company. Mr.
Gordon is a certified public accountant and an attorney. Before his employment
with The Budd Company, Mr. Gordon was a tax specialist with the public
accounting firms KPMG Peat Marwick and Coopers & Lybrand.
CREIGHTON J. WEBER, 45, has been a director and Vice President of Bingham
since March 1998. Mr. Weber has been an Executive Vice President of Bloomfield
Acceptance and Bloomfield Servicing since 1994. Mr. Weber has extensive
experience in real estate finance and managing investments in real estate,
having worked in the industry since 1984. Before his employment with Bloomfield
Acceptance and Bloomfield Servicing, he was Senior Vice President of a private
investment and commercial mortgage banking firm.
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<PAGE> 51
JOSEPH A. PICK, 64, has been a non-voting advisory director of Franklin
since 1991. He is currently a member of Franklin's Compensation Committee and
Strategic Planning Committee. During the past five years, Mr. Pick has been the
President of ServiceForce, Inc., a satellite installation service company, and
President of Pick Monetary Group, Inc., a business consulting service.
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER
Some of the Franklin directors and officers have interests in the merger
that are different from, or in addition to, their interests as stockholders in
Franklin. The members of the boards of directors of Franklin and Bingham were
aware of these additional interests, and considered them, among other matters,
when they approved the merger agreement.
Simon Employment Agreement
Mr. Simon currently serves as Chairman of the Board of Franklin. Following
the merger, he will continue in that role and will take on additional duties as
Executive Vice President of Bingham. His current contract is for one year with
automatic renewals for one year unless notice is timely given. After the merger,
his contract will be for a term of three years, unless renewed in the discretion
of Bingham's board of directors. Under Mr. Simon's current agreement, his base
salary is $270,400 per year and he is eligible to receive an annual bonus of up
to 50% of his base salary. Under his new agreement, Mr. Simon's base salary will
be reduced to and fixed at $250,000 per year and he will be eligible for an
annual bonus of up to 50% of his base salary based on performance criteria to be
established by Bingham's Compensation Committee. The new contract will provide
for the grant to Mr. Simon of options to purchase 5,000, 7,500 and 10,000 shares
of Bingham common stock in 2000, 2001 and 2002, respectively, at an exercise
price equal to the closing sales price of a share of Bingham's common stock on
the trading day immediately preceding the respective grant dates. In lieu of any
other retirement benefits, upon the completion of his service with Bingham, the
new contract will provide for a severance payment of $500,000 payable over a
19-month period. In the event of a future change in control of Bingham, Mr.
Simon can elect to receive that severance payment plus the balance of the
remaining compensation due him under the new contract or the amount payable
under his existing severance agreement (see discussion below).
Horonzy Employment Agreement
Joseph G. Horonzy is currently employed as an Executive Vice President of
Bingham. When the merger is completed, Mr. Horonzy is expected to enter into an
employment agreement with Bingham, under which he will serve as the Chief
Executive Officer of Franklin. The term of the agreement will be three years
from May 1, 2000. Mr. Horonzy's annual base salary will be $250,000 for the
first year and will be subject to review each year by Bingham's Compensation
Committee. Upon his employment with Bingham, Mr. Horonzy received a $65,000
signing bonus and will receive an annual incentive bonus of up to 25% of his
base salary. The agreement will also provide for an annual bonus based on the
performance of Bingham's stock of up to (i) two times Mr. Horonzy's base salary
minus (ii) the sum of his base salary and his annual incentive bonus. In March
2000, Bingham granted Mr. Horonzy an option to purchase 10,000 shares of its
common stock at an exercise price of $8.0625 per share. Bingham will grant Mr.
Horonzy options to purchase 10,000 shares of its stock in each of 2001 and 2002
at an exercise price equal to the closing sales price of a share of Bingham's
common stock on the trading day immediately preceding the respective grant
dates. If there is a change of control in Bingham, Mr. Horonzy will receive a
payment equal to two times the sum of (a) his base salary for the current year,
plus (b) the amount of his annual incentive bonus for the previous year.
Franklin Severance Agreements
In 1993, Franklin adopted a policy of entering into severance agreements
with its directors and senior officers. Franklin has entered into severance
agreements with 29 of its senior officers and six of its non-employee directors
(including a non-voting advisory director). The severance agreements with the
senior officers provide that if a change in control of Franklin occurs while the
officer is still an employee of
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<PAGE> 52
Franklin and the officer is terminated (including termination by the senior
officer for good reason or termination or non-renewal of employment by Franklin
under any employment agreement with the officer but excluding termination for
cause, death or disability) within three years following the change in control,
the officer is entitled to a multiple of the officer's gross compensation
(salary and bonus) for any 12-month period yielding the highest dollar amount
during the three years before the termination date; reimbursement for any excise
tax payments payable by the officer under his or her compensation arrangements
with Franklin; in lieu of exercising the officer's stock options, surrender the
options for cash in an amount equal to the difference between the value of the
stock subject to the option and its exercise price; and to participate in, for
three years after the date of termination (or to have benefits substantially
similar to), the benefit plans the officer was entitled to participate during
the three years before the termination date.
The multiple of compensation is generally 2.99 for the chief executive
officer, president and chairman, 2.0 for executive vice presidents and 1.5 for
senior vice presidents. Vice presidents are entitled to six months gross
compensation. If after the merger there is an occurrence of a termination of the
senior officer satisfying the requirements for payment of severance, the amount
of severance payable (assuming gross compensation is determined as of December
31, 1999) for each of Mr. Simon, Rebecca David (Franklin's President), David L.
Shelp (Franklin's Chief Financial Officer) and Edward J. Shehab (Franklin's
Treasurer) would be approximately $974,000, $667,000, $265,000 and $209,000,
respectively. As a result of the execution of the merger agreement, a change of
control event has occurred under the severance agreements. Severance payments
payable to the senior officers under the severance agreements in the event of
termination have been paid into a trust. If the senior officers, however, are
not terminated pursuant to the terms of the severance agreements, all unexpended
funds will revert to Franklin.
The severance agreements with non-employee directors provide that a
non-employee director is entitled to $15,000 for each year of service (plus
participation in Franklin's benefit plans for three years following
termination), if within three years following a change in control of Franklin
the non-employee director is no longer a director of Franklin because of failure
to nominate or re-elect the non-employee director, because of a termination for
good reason by the non-employee director or because of a termination of the
non-employee director by the board of directors or stockholders (but not
including termination of the non-employee director as a result of the
non-employee director's death, disability or resignation for other than good
reason). As a result of the execution of the merger agreement, a change of
control event has occurred under the severance agreements. Severance payments
payable to the non-employee directors under the severance agreements in the
event of termination have been paid into a trust. However, if the directors are
not terminated pursuant to the terms of the severance agreements, all unexpended
funds will revert to the combined company.
It is a condition to the merger that the five non-employee directors of
Franklin (and one non-voting advisory director) enter into new severance
agreements effective upon the completion of the merger. The new severance
agreements for non-employee directors will terminate the current severance
agreements, freeze the accrual of severance benefits and have a term from the
effective date of the merger to (i) the second anniversary date of the effective
date of the merger for non-employee directors elected to the board of directors
of Bingham; and (ii) the third anniversary date of the effective date of the
merger for non-employee directors elected to the board of directors of Franklin.
The new severance agreements will provide that if, during the term of the
agreement, the director dies, fails to be re-elected to, or resigns or fails to
be nominated or is removed from, the board of directors of Franklin or Bingham,
he or she will be entitled to an amount fixed at $15,000 for each year of
service (plus a prorated amount for any partial year) prior to the date of the
merger. In addition, Franklin or Bingham, as applicable, may require the
non-employee director to surrender his or her stock options for cash in an
amount equal to the difference between the value of the stock subject to the
option and its exercise price.
Franklin Director Transaction with Bingham
During the years ended December 31, 1998 and December 31, 1999, Bingham in
the ordinary course of its business engaged Communication Associates, Inc. to
provide advertising and printing services.
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<PAGE> 53
William E. Murcko, a director of Franklin, is President, Chief Operating Officer
and a minority shareholder of Communication Associates. For the years ended
December 31, 1998 and December 31, 1999, Bingham paid $55,454 and $11,690,
respectively, to Communication Associates for its services. This amount
represented less than 1.5% and less than 1% of Communication Associates' gross
revenues for the years ended December 31, 1998 and December 31, 1999,
respectively.
Franklin Stock Options
Stock options awarded to Franklin's officers and directors under Franklin's
stock option plans will be converted into options to acquire shares of Bingham
common stock. Under Franklin's 1994 Key Employee Incentive Stock Option Plan,
the unvested options became vested upon the announcement of the merger. The
following table indicates the number of Franklin stock options that have
accelerated as a result of the announcement of the merger and the value of such
options. The value of the accelerated Franklin stock options was calculated
based on the difference between the per share exercise price and the closing
price of Franklin common stock on the Nasdaq National Market System on
, 2000, the last full trading day on which information was available
before this document was printed and mailed ($ ) and using the exchange
ratio of 1.525:
<TABLE>
<CAPTION>
VALUE OF
ACCELERATED ACCELERATED
NAME FRANKLIN OPTIONS OPTIONS
---- ---------------- -----------
<S> <C> <C>
David F. Simon............................................. 10,200 $
Rebecca J. David........................................... 6,375
David L. Shelp............................................. 6,375
Edward J. Shehab........................................... 5,850
All other Franklin executive officers as a group (6
persons)................................................. 9,870
</TABLE>
Indemnification of Franklin Officers and Directors
For six years after the merger is completed, to the extent commercially
available and reasonable, Franklin will maintain directors and officers
liability insurance comparable to that which it currently maintains. After the
merger, Bingham has agreed to provide the Franklin director designees the same
protection against claims and liabilities arising from service on the Bingham
and Franklin boards as it provides to Bingham director designees. In addition,
after the merger, Franklin will take no action that would diminish the
indemnification rights under Franklin's governing documents of the officers and
directors of Franklin serving before the merger.
REPRESENTATIONS AND WARRANTIES
In the merger agreement each of Franklin and Bingham has made
representations and warranties relating to, among other things:
- the parties' respective organization, capitalization and ownership of
subsidiaries;
- accuracy of financial statements;
- the absence of material adverse changes in its business, financial
condition, operations or properties;
- the truth and accuracy of information prepared and provided by them in
connection with this document;
- the absence of certain legal proceedings;
- compliance with laws, regulations and other requirements;
- corporate actions in connection with the approval and execution of the
merger agreement and related documents;
- authority relative to the merger agreement;
- employment arrangements;
- employee benefit plans;
- the accuracy of information furnished to the other party;
- their respective properties and assets;
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<PAGE> 54
- material agreements and contracts;
- tax matters;
- environmental matters; and
- loan portfolios.
For detailed information on these representations and warranties, see the
merger agreement attached to this document as Appendix A.
WHAT WE MUST DO TO COMPLETE THE MERGER
Mutual conditions
The respective obligations of Franklin and Bingham to consummate the merger
are subject to the following conditions:
- Franklin's stockholders must have approved the merger agreement and
Bingham's stockholders must have approved the Bingham merger proposal and
approved the amendment to Bingham's 1997 stock option plan;
- all necessary regulatory consents and approvals must have been obtained
and no such approval may contain (i) any conditions that would either
before or after the merger have a Bingham Material Adverse Effect or a
Bank Material Adverse Effect (as each is defined below) or (ii) any
conditions that are not customary and usual and would be unduly
burdensome;
- no governmental authority shall have acted to prohibit the merger;
- all authorizations under federal and state securities laws necessary to
consummate the merger and to issue the shares of Bingham common stock
must have been received;
- the shares of Bingham common stock to be issued in the merger must have
been approved for listing on the Nasdaq National Market System;
- there must not be any litigation or proceeding that could prevent the
consummation of the merger or cause any of the transactions contemplated
in the merger agreement to be rescinded;
- there must not have been a material change to Franklin's business plan,
without the approval of the Bingham and Franklin boards of directors; and
- the Bingham and Franklin boards of directors must have been reconfigured
as provided in the merger agreement. See "-- Management and Boards of
Directors after the Merger".
Franklin's Conditions
Franklin's obligation to consummate the merger is subject to the following
conditions, any of which Franklin may waive:
- all representations and warranties made by Bingham in the merger
agreement must have been true and correct in all material respects on the
date of the merger agreement and as of the merger with the same force and
effect as if they had been made on and as of the date of the merger;
- Bingham must have performed in all material respects all of its
obligations required under the merger agreement;
- Bingham must have obtained, performed or given all of the consents and
approvals required under the merger agreement;
- Bingham must have updated all of the schedules to the merger agreement
and must have promptly notified Franklin of any changes or events that
may cause any material change or addition to any of the schedules or in
any representation or warranty made by Bingham;
- Bingham must have executed and delivered all of the documents required
under the merger agreement;
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<PAGE> 55
- Bingham and its subsidiaries must have continued to operate their
businesses in the ordinary course through the merger; and
- since the date of the merger agreement, no change shall have occurred
which could have a Bingham Material Adverse Effect.
Bingham's Conditions
Bingham's obligation to consummate the merger is subject to the following
conditions, any of which Bingham may waive:
- all representations and warranties made by Franklin in the merger
agreement must have been true and correct in all material respects on the
date of the merger agreement and as of the merger with the same force and
effect as if they had been made on and as of the date of the merger;
- Franklin must have performed in all material respects all its obligations
required under the merger agreement;
- Franklin must have obtained, performed or given all of the consents and
approvals required under the merger agreement;
- Franklin must have updated all of the schedules to the merger agreement
and shall have promptly notified Bingham of any changes or events that
may cause any material change or addition to any of the schedules or in
any representation or warranty made by Franklin;
- Franklin must have executed and delivered all of the documents required
under the merger agreement;
- Franklin and its subsidiaries must have continued to operate their
businesses in the ordinary course through the merger;
- since the date of the merger agreement, no change shall have occurred
which could have a Bank Material Adverse Effect;
- the trustee of Franklin's employee stock ownership plan must have
complied with all provisions of the ESOP's governing documents and all
provisions of applicable law necessary to complete the merger; and
- Franklin's non-employee directors who will serve as directors of Franklin
or Bingham after the merger must have entered into new severance
agreements to replace their current severance agreements. See
"-- Interests of Directors and Officers in the Merger."
For purposes of the merger agreement, a "Bingham Material Adverse Effect"
or a "Bank Material Adverse Effect" means an effect which, with limited
exceptions:
- is material and adverse to the financial position, results of operations,
business, or operations of Bingham or Franklin (as applicable) and its
subsidiaries taken as a whole; or
- would materially impair the ability of Bingham or Franklin (as
applicable) to perform its obligations under the merger agreement or
otherwise materially impede the consummation of the merger.
There can be no assurance that the conditions to consummation of the merger
will be satisfied or waived. If the conditions to either party's obligations are
not satisfied in any material respect, the other party may terminate the merger
agreement. See "-- Termination of the Merger Agreement."
REGULATORY APPROVALS
The Office of Thrift Supervision must approve the establishment of Bingham
as a registered savings and loan holding company. The OTS must also approve the
establishment of Bingham Bank and the
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<PAGE> 56
merger of Franklin into Bingham Bank. The Federal Deposit Insurance Corporation
must grant federal deposit insurance to Bingham Bank.
WAIVER AND AMENDMENT
Before the merger, either Bingham or Franklin may waive in writing any
provision of the merger agreement if it is the party benefited by the provision.
The waiver of any breach of any provision of the merger agreement will not act
to waive any subsequent or similar breach.
Bingham and Franklin may amend the merger agreement, but after Franklin's
special meeting, the merger consideration to be received by Franklin's
stockholders cannot be decreased.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated:
- at any time before the merger by the mutual consent of Bingham and
Franklin;
- at any time before the merger by Franklin (i) if any of the conditions to
its obligations to close have not been satisfied or waived by December
31, 2000, or (ii) if Bingham materially breaches the merger agreement;
- at any time before the merger by Bingham (i) if any of the conditions to
their obligations to close have not been satisfied or waived by December
31, 2000, or (ii) if Franklin materially breaches the merger agreement;
- by either Franklin or Bingham if (i) the approval of any required
governmental authority has been denied by final nonappealable action or
(ii) any required stockholder approval is not obtained at Bingham's
annual meeting or Franklin's special meeting;
- by Bingham, at any time before Franklin's special meeting, if Franklin's
board of directors has withdrawn its recommendation to the Franklin's
stockholders to approve the merger agreement or modified or changed its
recommendation in a manner adverse in any respect to the interests of
Bingham;
- by Franklin, at any time before Bingham's annual meeting, if Bingham's
board of directors has withdrawn its recommendation to Bingham's
stockholders to approve the issuance of the Bingham common stock in the
merger or modified or changed its recommendation in a manner adverse in
any respect to the interests of Franklin; or
- by Franklin, if during any 20-consecutive-trading-day period between
March 19, 2000 and the date Franklin's stockholders approve the merger,
Bingham's common stock does not trade or close at or above $8.00 per
share at least once during such 20-consecutive-trading-day period.
The representations and warranties and most of the covenants in the merger
agreement will terminate upon the merger. The agreements surviving the merger
deal primarily with Bingham's obligations with respect to exchange procedures
for Franklin's common stock and options, representations made in this document
and management of Bingham and Franklin after the merger. After the merger,
neither of the parties will have any liability to the other because of any
breach of the merger agreement, except with respect to agreements of the parties
which by their terms are intended to be performed after the merger.
For additional information, see Sections, 8.01, 8.02 and 9.13 of the merger
agreement.
TERMINATION FEES
Each of Bingham and Franklin has agreed not to offer to sell its business,
stock or assets to, or carry on negotiations with respect to the sale of its
business, stock or assets with, any third party. Either of Bingham and Franklin
may consider unsolicited bona fide third-party offers to purchase its business,
stock
48
<PAGE> 57
or assets if its board determines in good faith that the offer must be
considered for the board to act in a manner consistent with fiduciary duties
under applicable law.
Because either Bingham or Franklin would be materially harmed if the other
abandoned the merger, each has agreed to pay to the other $3,000,000 if it makes
an offer to a third party or enters into negotiations with respect to a
third-party offer and the merger is abandoned or terminated by it as a result of
considering that offer. Because damages would be difficult to calculate, Bingham
and Franklin agreed that the amount of the termination fee is a reasonable
estimate of the damages either might incur if the other terminates the merger
agreement in such a manner.
COVENANTS PENDING CLOSING
Bingham and Franklin have agreed to use reasonable efforts in good faith to
take all actions and to do all things necessary, proper, desirable or advisable
to complete the merger and the other transactions contemplated by the merger
agreement as soon as practicable.
Covenants Made by Bingham and Franklin
With limited exceptions, Bingham and Franklin have each agreed not to offer
to sell to third parties, or negotiate with third parties for the sale of, its
business, stock or assets. See "-- Termination Fees." In addition, each of
Bingham and Franklin has agreed that it and its subsidiaries, except as
otherwise contemplated by the merger agreement and subject to limited
exceptions, will not, without the prior written approval of the other party:
- conduct its business other than in the ordinary course, fail to use
reasonable efforts to preserve its business or take any action that would
materially impair its ability to perform its obligations under the merger
agreement;
- other than pursuant to stock options outstanding as of March 19, 2000 or
issued to officers, employees or directors in the ordinary course of
business, issue, sell or otherwise permit to become outstanding, or
authorize the creation of, any additional shares of capital stock or
rights convertible into or exercisable for capital stock;
- issue any other capital securities, capital stock, debentures, or
subordinated notes of any subsidiary other than in the ordinary course of
business;
- except for dividends in the ordinary course of business, make, declare,
pay or set aside for payment any dividend (including stock dividends) or
distribution; or adjust, split, combine, redeem, reclassify, purchase or
otherwise acquire, any shares of its capital stock;
- except in the ordinary course of business or as contemplated by the
merger agreement, enter into or amend any employment, consulting,
severance or similar agreements with any director, officer or employee,
or grant any salary increase or increase any employee benefit;
- except in the ordinary course of business to provide incentive to
directors, officers or employees, establish or amend any employee benefit
plans or take any action to accelerate the vesting or exercisability of
stock options or other compensation or benefits payable under benefit
plans;
- sell, encumber or otherwise dispose of any of its material assets,
deposits, business or properties except in the ordinary course of
business for fair value;
- except in the ordinary course of business, acquire all or any portion of,
the assets, business, deposits or properties of any entity;
- except as contemplated in the merger agreement, amend its or any of its
subsidiaries' governing documents;
- implement any change in its accounting principles, practices or methods,
other than as may be required by generally accepted accounting
principles;
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<PAGE> 58
- enter into, terminate, or amend any material contract in any material
respect;
- except in the ordinary course of business or involving an amount not in
excess of $100,000, settle any claim, action or proceeding;
- foreclose upon or otherwise take title to or possession or control of any
real property without first having an environmental report;
- except as contemplated in its existing strategic plan and budget, or as
required for technology or facility upgrades, open, close, expand or
relocate any offices or facilities;
- enter into any material securities transaction for its own account or
purchase or otherwise acquire any material amount of investment
securities for its own account except purchases and sales of securities
consistent with past practice to maintain investment portfolios that have
risk and asset mix characteristics substantially similar to those of
their current respective investment portfolios;
- purchase or lease fixed assets where the amount paid or committed is
greater than $50,000 individually or $250,000 in the aggregate;
- materially change any loan underwriting policies or change which persons
may approve loans, make or commit to make any new loan or discretionary
advance under any existing loan or letter of credit, or restructure any
existing loan in a manner inconsistent with past practice or customary
standards;
- except in the ordinary course of business and consistent with current
policies and guidelines, purchase any loan, loan participation or other
interest in any loan;
- take or fail to take any action while knowing that the action or inaction
would cause the merger not to qualify as a reorganization within the
meaning of Section 368(a) of the tax code;
- take any action that is intended or is reasonably likely to result in (i)
any of its representations and warranties being or becoming untrue in any
material respect, (ii) any of the conditions to the merger not being
satisfied; or (iii) a material violation of any provision of the merger
agreement except, in each case, as may be required by applicable law;
- implement any material change in, or fail to follow, its interest rate
and other risk management policies, or fail to use commercially
reasonable means to avoid any material increase in its aggregate exposure
to interest rate risk;
- incur any indebtedness not in the ordinary course of business; or
- agree or commit to do any of the foregoing actions.
Additional Covenants Made by Franklin
In addition, Franklin has agreed not to:
- voluntarily make any material changes in or to its deposit mix;
- increase or decrease the rate of interest paid on time deposits or on
certificates of deposit, except in a manner consistent with prevailing
banking practice or its existing strategic plan and budget; or
- incur any liability relating to retail banking and branch merchandising,
marketing and advertising activities and initiatives materially in excess
of the amounts previously disclosed to Bingham.
Additional Information Regarding Covenants
For additional information, see Sections 5.01, 5.02, 5.03 and 5.08 of the
merger agreement.
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EXPENSES
All expenses incurred in connection with the merger agreement and the
transactions it contemplates will be paid by the party incurring them, except
that Bingham and Franklin will split:
- all printing and mailing expenses associated with this document;
- all regulatory filing fees;
- all costs, expenses and fees of proxy solicitors; and
- all other costs and expenses (other than those of accountants and
attorneys) incurred in a collaborative effort to complete the merger.
If the merger is not closed, Franklin will also reimburse Bingham for one-half
of all compensation Bingham has paid to Joseph G. Horonzy, who is expected to
become the Chief Executive Officer of Franklin if the merger occurs.
ACCOUNTING TREATMENT
The merger will be treated as a purchase under generally accepted
accounting principles. Because the Franklin stockholders will own approximately
66% of the combined company, the transaction will be accounted for as a reverse
acquisition with Franklin being the acquiring company for accounting purposes.
Accordingly, the purchase price of $38.973 million (which was for accounting
purposes established based on the average bid and asked price of Bingham common
stock of $7.58 per share for the 10 trading days before and 10 trading days
after March 20, 2000, the merger announcement date) will be allocated based upon
the relative fair values of Bingham's assets and liabilities acquired. In
addition, the post-merger financial statements of the combined company will
reflect Franklin as the acquiring company for accounting purposes. We expect
there will be no goodwill recorded by the combined company as a result of the
merger. The absence of goodwill will benefit the combined company because we
will not be required to reduce earnings by amortizing goodwill.
The unaudited pro forma combined consolidated financial information
contained in this document has been prepared using the purchase method of
accounting. See "Unaudited Pro Forma Combined Consolidated Financial
Information."
RESALES OF BINGHAM COMMON STOCK BY AFFILIATES OF FRANKLIN
The shares of Bingham common stock to be issued in the merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to any stockholder who may be deemed to
be an "affiliate" of Franklin for purposes of Rule 145 under the Securities Act
as of the date of Franklin's special meeting. Affiliates of Franklin may not
sell their shares of Bingham common stock acquired in the merger except pursuant
to an effective registration statement under the Securities Act covering those
shares or in compliance with Rule 145 or another applicable exemption from the
registration requirements of the Securities Act. Persons who may be deemed to be
affiliates of Franklin generally include individuals or entities that control,
are controlled by or are under common control with Franklin, and may include
certain officers and directors of Franklin as well as certain principal
stockholders of Franklin.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
TO BINGHAM, BINGHAM STOCKHOLDERS, FRANKLIN AND FRANKLIN STOCKHOLDERS WHO ARE
CITIZENS OR RESIDENTS OF THE UNITED STATES DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER
TO VOTE IN FAVOR OF APPROVAL OF THE MERGER AGREEMENT. NOR DOES THIS DISCUSSION
ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR BINGHAM OR
FRANKLIN STOCKHOLDER SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME
TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE
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COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS AND STOCKHOLDERS
WHO ACQUIRED THEIR SHARES AS COMPENSATION, NOR ANY CONSEQUENCES ARISING UNDER
THE LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION. THE DISCUSSION IS BASED
UPON THE INTERNAL REVENUE CODE, TREASURY REGULATIONS AND ADMINISTRATIVE RULINGS
AND COURT DECISIONS AS OF THE DATE OF THIS DOCUMENT. ALL OF THE FOREGOING ARE
SUBJECT TO CHANGE, AND ANY CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS
DISCUSSION.
WE URGE FRANKLIN STOCKHOLDERS TO CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR EFFECT OF THEIR OWN PARTICULAR FACTS AND CIRCUMSTANCES ON THE FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO THEM, AND ALSO AS TO THE EFFECT OF ANY
STATE, LOCAL, FOREIGN AND OTHER FEDERAL TAX LAWS.
Under current federal income tax law, and based upon assumptions and
representations to be made by Bingham and Franklin, and assuming that the merger
is consummated in the manner set forth in the merger agreement, it is
anticipated that the following federal income tax consequences would result:
- the merger will qualify as a reorganization under Section 368(a) of the
tax code;
- no gain or loss will be recognized by Bingham or Franklin as a result of
the merger;
- no gain or loss will be recognized by any Franklin stockholder upon the
exchange of Franklin common stock solely for Bingham common stock in the
merger;
- the aggregate tax basis of the Bingham common stock received by each
Franklin stockholder who exchanges Franklin common stock for Bingham
common stock in the merger will be the same as the stockholder's basis in
the Franklin common stock surrendered in exchange (subject to any
adjustments required as the result of receipt of cash in lieu of a
fractional share interest in Bingham common stock);
- the holding period of the shares of Bingham common stock received by each
Franklin stockholder in the merger will include the holding period of the
Franklin common stock surrendered in exchange, provided that the
surrendered shares of Franklin common stock were held as a capital asset
by the stockholder at the time of the merger; and
- cash received in the merger by each Franklin stockholder in lieu of a
fractional share interest of Bingham common stock will be treated as
having been received as a distribution in full payment in exchange for
the fractional share interest of Bingham common stock that the
stockholder would otherwise be entitled to receive, and will qualify as
capital gain or loss (assuming the Franklin common stock surrendered in
exchange was held as a capital asset by the stockholder at the time of
the merger).
Based upon representations to be made by Bingham and Franklin as of the
effective time of the merger, Jaffe, Raitt, Heuer & Weiss, Professional
Corporation, counsel to Bingham, and Bodman Longley & Dahling LLP, counsel to
Franklin, will each render an opinion, dated as of the date of the merger, that
the merger will qualify as a reorganization under the tax code with the
consequences set forth above. Each opinion also would be subject to the
assumptions that the merger is consummated in the manner and in accordance with
the terms of the merger agreement and that the merger will qualify as a merger
under federal banking statutes. Both opinions would be based entirely upon the
tax code, regulations then in effect or proposed under the tax code,
then-current administrative rulings and practice and judicial authority, all of
which would be subject to change, possibly with retroactive effect. Consummation
of the merger is conditioned upon the receipt by Bingham of the opinion of
Jaffe, Raitt, Heuer & Weiss and the receipt by Franklin of the opinion of Bodman
Longley & Dahling. See "-- What We Must Do to Complete the Merger."
No ruling has been or will be requested from the IRS, including any ruling
as to federal income tax consequences of the merger to Bingham, Franklin or
Franklin stockholders. Unlike a ruling from the IRS, the opinions of counsel are
not binding on the IRS. There can be no assurance that the IRS will not take a
position contrary to the positions reflected in such opinions or that such
opinions would be upheld by the courts if challenged.
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ARBITRATION
Bingham and Franklin have agreed to resolve any dispute arising out of the
merger agreement by arbitration, except that either of them may seek a
preliminary injunction if necessary to avoid irreparable damage. Each party will
pay its own costs of arbitration and Bingham and Franklin will split the
arbitrators' expenses equally. However, the arbitrators can assess all of the
costs of arbitration and the other party's attorneys fees to any party that
raises an unreasonable claim, defense or objection.
NASDAQ LISTING
Bingham common stock is currently quoted on the Nasdaq SmallCap Market
under the symbol "BFSC." It is a condition to consummation of the merger that
the Bingham common stock to be issued to the stockholders of Franklin pursuant
to the merger agreement will be quoted on the Nasdaq National Market System. See
"-- What We Must do to Complete the Merger."
CORPORATE STRUCTURE AFTER THE MERGER
At the time of the merger, Franklin will become a federally-chartered
savings association and a wholly-owned subsidiary of Bingham. See "The
Merger -- Reasons for the Merger" and "Additional Information about
Franklin -- Business of Franklin -- Regulation."
At the time of the merger, it is anticipated that Bingham's current
financial services subsidiaries will become subsidiaries of Franklin. These
subsidiaries are Bloomfield Acceptance Company, L.L.C., Bloomfield Servicing
Company, L.L.C., Dynex Financial, Inc. and Hartger & Willard Mortgage
Associates, Inc. In addition, Bingham may form one or more financial services
subsidiaries after the merger to conduct business as direct subsidiaries of
Bingham.
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FRANKLIN SPECIAL MEETING
MEETING DATE
The Franklin special meeting will be held on , 2000, at
, at 10:00 a.m., local time.
RECORD DATE
You can vote at the Franklin special meeting if you owned Franklin common
stock at the close of business on , 2000.
MATTERS TO BE CONSIDERED
At the Franklin special meeting, the Franklin stockholders will be asked:
1. To approve the merger agreement; and
2. To transact such other business as may properly come before the Franklin
special meeting or any adjournments or postponements thereof.
VOTE REQUIRED
Each holder of record of shares of Franklin common stock on the record date
will be entitled to cast one vote per share on each of the proposals considered
at the special meeting. The proposal to adopt the merger agreement requires the
approval of Franklin stockholders owning two-thirds of the outstanding shares of
Franklin common stock. Abstentions and broker non-votes (i.e., proxies from
brokers or nominees indicating that such persons have not received instructions
from the beneficial owners or other persons as to certain proposals on which
such beneficial owners or persons are entitled to vote their shares but with
respect to which the brokers or nominees have no discretionary power to vote
without such instructions) will have the same effect as votes cast against the
adoption of the merger agreement.
PROXIES
All shares of Franklin common stock represented by properly executed
proxies in the enclosed form that we receive in time for the special meeting and
have not been revoked will be voted in accordance with the instructions
indicated in the proxies. IF YOU SUBMIT A PROXY WITHOUT DIRECTIONS, YOUR SHARES
WILL BE VOTED FOR THE ADOPTION OF THE MERGER AGREEMENT. In addition, the persons
designated in the proxy will have discretion to vote your shares upon any
procedural matter relating to the special meeting, including the right to vote
for any adjournment or postponement thereof proposed by the Franklin board of
directors, including a postponement and adjournment to solicit additional
proxies. You may submit your proxy by telephone or through the Internet, in
accordance with the instructions set forth on the accompanying proxy card.
However, submission of proxies with voting instructions by telephone or through
the Internet may not be available to you if you hold your shares through a
broker, nominee, fiduciary or other custodian. You should contact such person to
determine whether they may submit your proxy by telephone or through the
Internet.
Submitting Proxies by Mail. To submit a written proxy by mail, you should
complete, sign, date and mail the proxy card provided with this document in
accordance with the instructions set forth on such card.
Submitting Proxies by Telephone or Internet. You may also submit proxies
with voting instructions by telephone by calling (800) - , or through the
Internet at http://www. . In each case, you should follow the
instructions that are set forth on the reverse side of the accompanying proxy
card. Each Franklin stockholder has been assigned a unique control number which
has been printed on each holder's proxy card. If you submit proxies by telephone
or through the Internet you will be required to provide your assigned control
number before your proxy will be accepted. In addition to the instructions that
appear on
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the proxy card, step-by-step instructions will be provided by a recorded
telephone message for those stockholders submitting proxies by telephone, or at
the designated Web site for those stockholders submitting proxies through the
Internet. If you submit your proxy with voting instructions by telephone or
through the Internet you will receive confirmation on the telephone or through
the Internet, as applicable, that your proxy has been successfully submitted.
Your vote is confidential, whether you submit your proxy by mail, by
telephone or through the Internet. The tabulator and inspectors of election are
not employees of Franklin, nor are they affiliated with Franklin in any way.
However, Franklin may be advised of whether you have voted. Also, your vote may
be disclosed to Franklin if a contested proxy solicitation occurs or if a
disclosure is required by law.
Revocation. Any person who submits a proxy may revoke it any time before it
is voted:
- by giving written notice of revocation to Franklin, addressed to Dean A.
Friedman, Corporate Secretary, 24725 West Twelve Mile Road, Southfield,
Michigan 48034;
- by submitting a later-dated proxy with voting instructions by mail, by
telephone or through the Internet, if the proxy is received by Franklin
prior to the Franklin special meeting; or
- by VOTING in person at the Franklin special meeting; a proxy is not
revoked by simply ATTENDING the Franklin special meeting.
Franklin stockholders who have instructed a broker to vote their shares
must follow directions received from their broker to change or revoke their
proxy.
SHARE OWNERSHIP OF MANAGEMENT
At the close of business on the record date, directors and executive
officers of Franklin and their affiliates beneficially owned an aggregate of
shares (approximately %) of Franklin common stock then outstanding. As of
the record date, the directors and executive officers of Bingham and their
affiliates beneficially owned shares of Franklin common stock.
QUORUM
The holders of a majority of the shares of Franklin common stock issued and
outstanding and entitled to vote must be present in person or represented by
proxy at the special meeting in order for a quorum to be present. Abstentions
and broker non-votes will be treated as shares present at the special meeting
for purposes of determining a quorum. If a quorum is not present at the special
meeting, it is expected that the meeting will be adjourned or postponed to
solicit additional proxies.
SOLICITATION OF PROXIES
Proxies are being solicited on behalf of the Franklin board of directors.
In addition to the use of the mail, solicitation may be made in person or by
telephone or otherwise by our directors, officers and employees. Brokerage
houses, nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for their
reasonable expenses incurred in sending proxy materials to beneficial owners. In
addition, we have engaged Regan & Associates, Inc. to assist us in distributing
proxy materials and contacting record and beneficial owners of Franklin common
stock. We have agreed to pay Regan & Associates up to approximately $20,000 plus
out-of-pocket expenses for its services to be rendered on our behalf. Our
directors, officers and employees will not be additionally compensated for their
solicitation, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. We have agreed to share equally with Bingham the expenses
incurred in connection with the solicitation of proxies for the special meeting,
including printing and mailing expenses associated with this document. See "The
Merger -- Expenses."
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OTHER MATTERS
Management knows of no matters which will be presented for consideration at
the special meeting other than those stated in the notice of meeting. However,
if any other matters do properly come before the special meeting, the person or
persons named in the accompanying proxy form will vote the proxy in accordance
with their best judgment regarding such matters, should an emergency or
unexpected occurrence make the use of such discretionary authority necessary,
and also regarding matters incident to the conduct of the meeting, including any
decision to adjourn the meeting.
WE REQUEST THAT FRANKLIN STOCKHOLDERS COMPLETE, DATE AND SIGN THE
ACCOMPANYING FORM OF PROXY AND RETURN IT PROMPTLY TO FRANKLIN IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. FRANKLIN STOCKHOLDERS SHOULD NOT FORWARD STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
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<PAGE> 65
BINGHAM ANNUAL MEETING
MEETING DATE
The Bingham annual meeting will be held on , 2000, at
, at 10:00 a.m., local time.
RECORD DATE
You can vote at the Bingham annual meeting if you owned Bingham common
stock at the close of business on , 2000.
MATTERS TO BE CONSIDERED
At the Bingham annual meeting, Bingham stockholders will be asked:
1. To approve the Bingham merger proposal;
2. To approve an amendment to Bingham's 1997 stock option plan to increase
the number of shares of common stock that can be issued under the plan
from 10% of the total number of issued and outstanding shares of Bingham
common stock to the greater of 415,000 shares of Bingham common stock or
10% of the total number of issued and outstanding shares of Bingham
common stock;
3. To approve an amendment to Bingham's restated articles of incorporation
to increase the number of authorized shares of common stock from
10,000,000 to 50,000,000;
4. To elect three nominees to the Bingham board of directors to serve until
the earlier of the expiration of their terms or the consummation of the
merger; and
5. To transact such other business as may properly come before the annual
meeting or any adjournments or postponements thereof.
The amendments to the option plan and restated articles of incorporation,
if approved, will be implemented even if the merger is not approved. The
approval of the amendment to the stock option plan is a condition to the
consummation of the merger. Bingham and Franklin may elect to waive this
condition under the terms of the merger agreement. See "The Merger -- What We
Must Do To Complete the Merger" and "The Merger -- Waiver and Amendment."
VOTE REQUIRED
Each holder of record of shares of Bingham common stock on the record date
will be entitled to cast one vote per share on each of the proposals considered
at the annual meeting. The Bingham merger proposal and the proposal to amend the
restated articles of incorporation to increase the number of authorized shares
of common stock from 10,000,000 to 50,000,000 requires the approval of Bingham
stockholders owning a majority of the outstanding shares of Bingham common
stock. The proposal to amend the stock option plan requires the approval of
Bingham stockholders owning a majority of the shares of common stock present, in
person or by proxy, at the annual meeting. Directors will be elected by a
plurality of the votes cast at the annual meeting, meaning the three nominees
receiving the most votes will be elected directors.
Abstentions have the same effect as votes cast against the approval of the
proposals. Broker non-votes (i.e., proxies from brokers or nominees indicating
that those persons have not received instructions from the beneficial owners or
other persons as to certain proposals on which the beneficial owners or persons
are entitled to vote their shares but with respect to which the brokers or
nominees have no discretionary power to vote without instructions) will have no
effect on the proposal to amend the stock option plan, but will have the same
effect as votes cast against the Bingham merger proposal and the proposal to
amend the restated articles of incorporation. For the election of directors,
abstentions, broker non-votes and
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instructions to withhold authority to vote for one or more of the nominees will
result in those nominees receiving fewer votes.
PROXIES
All shares of Bingham common stock represented by properly executed proxies
in the enclosed form that we receive in time for the annual meeting and have not
been revoked will be voted in accordance with the instructions indicated in the
proxies. IF YOU SUBMIT A PROXY WITHOUT DIRECTIONS, YOUR SHARES WILL BE VOTED FOR
THE APPROVAL OF THE PROPOSALS AND THE ELECTION OF THE NOMINEES. In addition, the
persons designated in the proxy will have discretion to vote your shares upon
any procedural matter relating to the annual meeting, including the right to
vote for any adjournment or postponement thereof proposed by the Bingham board
of directors, including a postponement and adjournment to solicit additional
proxies. You may submit your proxy by telephone or through the Internet, in
accordance with the instructions set forth on the accompanying proxy card.
However, submission of proxies with voting instructions by telephone or through
the Internet may not be available to you if you hold your shares through a
broker, nominee, fiduciary or other custodian. You should contact such person to
determine whether they may submit your proxy by telephone or through the
Internet.
Submitting Proxies by Mail. To submit a written proxy by mail, you should
complete, sign, date and mail the proxy card provided with this document in
accordance with the instructions set forth on such card.
Submitting Proxies by Telephone or Internet. You may also submit proxies
with voting instructions by telephone by calling (800) - , or through the
Internet at http://www. . In each case, you should follow the
instructions that are set forth on the reverse side of the accompanying proxy
card. Each Bingham stockholder has been assigned a unique control number which
has been printed on each holder's proxy card. If you submit proxies by telephone
or through the Internet you will be required to provide your assigned control
number before your proxy will be accepted. In addition to the instructions that
appear on the proxy card, step-by-step instructions will be provided by a
recorded telephone message for those stockholders submitting proxies by
telephone, or at the designated Web site for those stockholders submitting
proxies through the Internet. If you submit your proxy with voting instructions
by telephone or through the Internet you will receive confirmation on the
telephone or through the Internet, as applicable, that your proxy has been
successfully submitted.
Your vote is confidential, whether you submit your proxy by mail, by
telephone or through the Internet. The tabulator and inspectors of election are
not employees of Bingham, nor are they affiliated with Bingham in any way.
However, Bingham may be advised of whether you have voted. Also, your vote may
be disclosed to Bingham if a contested proxy solicitation occurs or if a
disclosure is required by law.
Revocation. Any person who submits a proxy may revoke it any time before it
is voted:
- By giving written notice of revocation to Bingham, addressed to Gary A.
Shiffman, Corporate Secretary, 260 East Brown Street, Suite 200,
Birmingham, Michigan 48009;
- By submitting a later-dated proxy with voting instructions by mail, by
telephone or through the Internet, if the proxy is received by Bingham
prior to the Bingham annual meeting; or
- By VOTING in person at the Bingham annual meeting; a proxy is not revoked
by simply ATTENDING the Bingham annual meeting.
Bingham stockholders who have instructed a broker to vote their shares must
follow directions received from their broker to change or revoke their proxy.
SHARE OWNERSHIP OF MANAGEMENT
At the close of business on the record date, directors and executive
officers of Bingham and their affiliates beneficially owned an aggregate of
shares (approximately %) of Bingham common stock
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then outstanding. As of the record date, the directors and executive officers of
Franklin and their affiliates beneficially owned shares of Bingham common
stock.
QUORUM
The holders of a majority of the shares of Bingham common stock issued and
outstanding and entitled to vote must be present in person or represented by
proxy at the annual meeting in order for a quorum to be present. Abstentions and
broker non-votes will be treated as shares present at the annual meeting for
purposes of determining a quorum. If a quorum is not present at the annual
meeting, it is expected that the meeting will be adjourned or postponed to
solicit additional proxies.
SOLICITATION OF PROXIES
Proxies are being solicited on behalf of the Bingham board of directors. In
addition to the use of the mail, solicitation may be made in person or by
telephone or otherwise by our directors, officers and employees. Brokerage
houses, nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for their
reasonable expenses incurred in sending proxy materials to beneficial owners. In
addition, we have engaged D.F. King & Co., Inc. to assist us in distributing
proxy materials and contacting record and beneficial owners of Bingham common
stock. We have agreed to pay D.F. King approximately $4,000 plus out-of-pocket
expenses for its services to be rendered on our behalf. Our directors, officers
and employees will not be additionally compensated for their solicitation, but
may be reimbursed for their out-of-pocket expenses. We have agreed to share
equally with Franklin the expenses incurred in connection with the solicitation
of proxies for the annual meeting, including printing and mailing expenses
associated with this proxy statement/prospective. See "The Merger -- Expenses."
INDEPENDENT PUBLIC ACCOUNTANTS
Bingham's board of directors selected Plante & Moran, LLP, as its
independent public accountants for the fiscal year ending December 31, 2000.
Representatives of Plante & Moran are expected to be present at the annual
meeting, and will have the opportunity to make a statement if they desire to do
so and to respond to appropriate questions.
STOCKHOLDERS' PROPOSALS
Any and all stockholder proposals for inclusion in the proxy materials for
Bingham's next annual meeting of stockholders to be held in 2001 must comply
with the rules and regulations promulgated under the Securities Exchange Act of
1934 and must be received by Bingham, at its offices at 260 East Brown Street,
Suite 200, Birmingham, Michigan 48009, not later than , 2001.
Proposals should be addressed to Bingham's Secretary.
Bingham's bylaws also contain certain provisions that affect stockholder
proposals. Bingham's bylaws provide that: (a) with respect to an annual meeting
of stockholders, nominations of persons for election to the board of directors
and the proposal of business to be considered by stockholders may be made only
(i) pursuant to Bingham's notice of the meeting, (ii) by the board of directors,
or (iii) by a stockholder who is entitled to vote at the meeting and has
complied with the advance notice procedures set forth in the bylaws; and (b)
with respect to special meetings of stockholders, only the business specified in
Bingham's notice of meeting may be brought before the meeting of stockholders,
and nominations of persons for election to the board of directors may be made
only (i) by the board of directors, or (ii) provided that the board of directors
has determined that directors shall be elected at such meeting, by a stockholder
who is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the bylaws. See "Description of Bingham Capital
Stock -- Anti-Takeover Provisions."
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OTHER MATTERS
Management knows of no matters which will be presented for consideration at
the annual meeting other than those stated in the notice of meeting. However, if
any other matters do properly come before the annual meeting, the person or
persons named in the accompanying proxy form will vote the proxy in accordance
with their best judgment regarding such matters, should an emergency or
unexpected occurrence make the use of such discretionary authority necessary,
and also regarding matters incident to the conduct of the meeting, including any
decisions to adjourn the meeting.
WE REQUEST THAT BINGHAM STOCKHOLDERS COMPLETE, DATE AND SIGN THE
ACCOMPANYING FORM OF PROXY AND RETURN IT PROMPTLY TO BINGHAM IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information is
presented for informational purposes only. The unaudited pro forma combined
balance sheet as of March 31, 2000 has been prepared as if the merger had
occurred on that date. The unaudited pro forma combined statements of operations
for the quarter ended March 31, 2000 and the year ended December 31, 1999 have
been prepared as if the merger had occurred as of January 1, 1999. You should
not rely on this information as being indicative of the historical results that
would have been achieved had the companies always been combined. In addition,
this information only reflects the operations of Dynex Financial since Bingham
acquired it on December 17, 1999. See Note 7 to Bingham's unaudited consolidated
financial statements for more information on the acquisition of Dynex Financial.
Minor differences may result from rounding. The following information should be
read in conjunction with the other financial information of Bingham and Franklin
presented in this document, including the historical financial statements of
Bingham and Franklin and the notes thereto. See "Index to Financial Statements".
The merger will be accounted for under the purchase method of accounting.
Under the purchase method of accounting, assets acquired and liabilities assumed
are recorded at their estimated fair values. Goodwill is generated to the extent
that the merger consideration, including certain acquisition and closing costs,
exceeds the fair value of net assets acquired. Because the Franklin stockholders
will own approximately 66% of the shares of Bingham common stock after the
merger, Franklin is deemed to be the acquiring company for accounting purposes
and the merger will be accounted for as a reverse purchase business combination
in accordance with generally accepted accounting principles. Accordingly, the
assets acquired and liabilities assumed will be deemed to be those of Bingham.
Based on the information currently available, the merger is not expected to
generate goodwill. For accounting purposes, the merger is expected to generate
negative goodwill, which will reduce the book value of Bingham's intangible
assets.
For purposes of preparing the pro forma information, the fair value of the
merger consideration was based on the average bid and asked price for Bingham
common stock of $7.58 per share for the 10 trading days before and the 10
trading days after March 20, 2000, the merger announcement date, for an
aggregate transaction value of $38,973,421.
The unaudited pro forma combined financial information does not reflect the
non-recurring costs and expenses associated with integrating the operations of
the two companies, nor any of the anticipated recurring expense savings arising
from the integration. Costs of integration may result in significant non-
recurring charges to the combined results of operations after completion of the
merger; however, the actual amount of such charges cannot be determined until
the transition plan relating to the integration of operations is completed.
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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENT
INCREASE
BINGHAM FRANKLIN (DECREASE) PRO FORMA
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents............................ $ 1,669 $ 33,565 -- $ 35,234
Investment securities -- available for sale..... 1,249 201,915 (1,249)(d) 201,915
Investment securities -- held to maturity....... -- 7,166 -- 7,166
Loans receivable held for sale.................. 179,106 -- -- 179,106
Loans held for investment....................... -- 288,927 -- 288,927
Allowance for loan losses....................... (795) (3,845) -- (4,640)
Servicing advance............................... 7,419 -- -- 7,419
Property and equipment, net..................... 2,965 4,250 -- 7,215
Foreclosed assets............................... 1,527 1,219 -- 2,746
Loan servicing rights, net...................... 8,713 -- (1,868)(b) 6,845
Goodwill........................................ 770 -- (770)(c) --
Other assets.................................... 13,853 11,466 38,973(a) 25,299
(38,973)(c)
-------- -------- -------- --------
Total assets............................... $216,476 $544,643 $ (3,887) $757,232
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits........................................ $ -- $410,835 -- $410,835
Short term borrowings........................... 176,645 71,541 -- 248,186
Subordinated debt............................... 3,606 7,470 -- 11,076
Accrued restructuring costs..................... 1,258 -- -- 1,258
Other liabilities............................... 11,192 1,874 -- 13,066
-------- -------- -------- --------
Total liabilities.......................... $192,701 $491,720 $ -- $684,421
Minority interest............................... $ 51 $ -- $ -- $ 51
Preferred stock of subsidiary................... -- 19,500 -- 19,500
Common Stock.................................... 27,635 3,517 38,973(a) 51,983
(1,868)(b)
(14,841)(c)
(1,433)(d)
Additional paid-in capital...................... 663 27,229 (27,892)(c)
Retained earnings............................... (2,990) 5,345 2,990(c) 5,345
Unearned stock compensation..................... (1,400) -- -- (1,400)
Accumulated other comprehensive income.......... (184) (2,668) 184(d) (2,668)
-------- -------- -------- --------
Total stockholders equity.................. 23,724 33,423 (3,887) 53,260
-------- -------- -------- --------
Total liabilities and stockholders'
equity................................... $216,476 $544,643 $ (3,887) $757,232
======== ======== ======== ========
</TABLE>
See accompanying notes to pro forma information.
62
<PAGE> 71
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENT
INCREASE
BINGHAM FRANKLIN (DECREASE) PRO FORMA
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans......................... $ 4,118 $ 6,580 -- $ 10,698
Interest on securities.................... -- 2,323 -- 2,323
Other interest and dividend income........ -- 935 -- 935
---------- --------- ---------- ----------
Total interest income.................. 4,118 9,838 -- 13,956
INTEREST EXPENSE
Interest on deposits...................... -- 1,828 -- 1,828
Interest on other borrowings.............. 3,538 1,179 -- 4,717
---------- --------- ---------- ----------
Total interest expense................. 3,538 3,007 -- 6,545
---------- --------- ---------- ----------
Net interest income.................... 580 6,831 -- 7,411
Provision for loan and credit losses........ 1,200 555 -- 1,755
---------- --------- ---------- ----------
Net interest income (loss) after provision
for loan and credit losses................ (620) 6,276 -- 5,656
OTHER INCOME
Mortgage origination and servicing fees... 2,100 -- 67(e) 2,167
Gain (loss) on sale of loans.............. 30 (148) -- (118)
Deposit account service charges........... -- 938 -- 938
Other income.............................. 327 211 -- 538
---------- --------- ---------- ----------
Total other income..................... 2,457 1,001 67 3,525
OPERATING EXPENSES
Compensation and benefits................. 3,784 2,860 -- 6,644
Premises and equipment.................... 575 817 -- 1,392
Defaulted loan expenses................... -- 285 -- 285
Other operating expenses.................. 1,035 1,668 -- 2,703
Restructuring costs....................... 796 -- -- 796
Subsidiary preferred stock dividends...... -- 450 -- 450
---------- --------- ---------- ----------
Total operating expenses............... 6,190 6,080 -- 12,270
---------- --------- ---------- ----------
Income (loss) before income taxes...... (4,353) 1,197 67 (3,089)
Provision (benefit) for income taxes...... (1,456) 359 -- (1,097)
---------- --------- ---------- ----------
Income (loss) before cumulative effect of
change in accounting principle......... $ (2,897) $ 838 $ 67 $ (1,992)
========== ========= ========== ==========
Weighted average common shares
outstanding:
Basic.................................. 2,581,501 3,512,108 -- 7,715,273
Diluted................................ 2,581,501 3,564,632 -- 7,795,372
Income (loss) per share before cumulative
effect of change in accounting
principle:
Basic.................................. $ (1.12) $ .24 -- $ (.26)
Diluted................................ (1.12) .24 -- (.26)
</TABLE>
See accompanying notes to pro forma information.
63
<PAGE> 72
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENT
INCREASE
BINGHAM FRANKLIN (DECREASE) PRO FORMA
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans.......................... $ 11,428 $ 26,153 -- $ 37,581
Interest on securities..................... -- 6,820 -- 6,820
Other interest and dividend income......... 60 3,678 -- 3,738
---------- --------- -- ----------
Total interest income................... 11,488 36,651 -- 48,139
INTEREST EXPENSE
Interest on deposits....................... -- 8,998 -- 8,998
Interest on other borrowings............... 7,989 1,495 -- 9,484
---------- --------- -- ----------
Total interest expense.................. 7,989 10,493 -- 18,482
---------- --------- -- ----------
Net interest income..................... 3,499 26,158 -- 29,657
Provision for Loan and Credit Losses......... 918 1,226 -- 2,144
---------- --------- -- ----------
Net Interest Income After Provision for Loan
and Credit Losses.......................... 2,581 24,932 -- 27,513
OTHER INCOME
Mortgage origination and servicing fees.... 3,036 -- 8(e) 3,044
Gain (loss) on sale of loans............... 4,463 (37) -- 4,426
Deposit account service charges............ 3,177 -- 3,177
Net gain on sale of investment
securities.............................. 203 -- 203
Other income............................... 300 811 -- 1,111
---------- --------- -- ----------
Total other income...................... 7,799 4,154 8 11,961
OPERATING EXPENSES
Compensation and benefits.................. 3,280 11,202 -- 11,202
Premises and equipment..................... 1,446 3,441 -- 3,441
Defaulted loan expenses.................... -- 1,440 -- 1,440
Other operating expenses................... 4,934 7,038 -- 16,698
Subsidiary preferred stock dividends....... -- 1,801 -- 1,801
---------- --------- -- ----------
Total operating expenses................ 9,660 24,922 -- 34,582
---------- --------- -- ----------
Income before income taxes.............. 720 4,164 8 4,892
Provision for income taxes................. 330 1,208 -- 1,538
---------- --------- -- ----------
Income before cumulative effect of change
in accounting principle................. $ 390 $ 2,956 $8 $ 3,354
========== ========= == ==========
Weighted average common shares outstanding:
Basic................................... 2,209,298 3,508,789 -- 7,411,697
Diluted................................. 2,350,362 3,558,874 -- 7,629,140
Income per share before cumulative effect
of change in accounting principle:
Basic................................... $ .18 $ .84 -- $ .45
Diluted................................. .17 .83 -- .44
</TABLE>
See accompanying notes to pro forma information.
64
<PAGE> 73
NOTES TO PRO FORMA INFORMATION
The pro forma adjustments made in preparing the above pro forma combined
balance sheet and statement of operations are as follows:
(a) Issuance of 5,141,612 shares of Bingham common stock in exchange for
outstanding Franklin shares. The actual number of shares of Bingham common
stock (based on the exchange ratio of 1.525) to be issued in the merger
will be based on the number shares of Franklin common stock issued and
outstanding at the closing.
(b) Adjustment of Bingham servicing rights to estimated fair value less the
excess of fair value over the value of Bingham shares issued in the
business combination as follows:
<TABLE>
<S> <C> <C>
Historical Equity of Bingham............................... $23,724
Elimination of existing goodwill........................... (770)
-------
Total Fair Value......................................... $22,954
Value attributed to Bingham in reverse purchase............ 20,086
Estimated acquisition costs................................ 1,000 21,086
------ -------
Excess of Fair Value Over Cost (negative goodwill)......... $ 1,868
=======
</TABLE>
(c) Elimination of Franklin common stock and additional paid-in capital,
elimination of Bingham retained earnings and adjustment of Bingham common
stock to revalued amount.
(d) Elimination of Franklin common stock owned by Bingham.
(e) Adjustment of intangible asset amortization. The effect of this adjustment
on future periods is expected to increase earnings as follows:
<TABLE>
<CAPTION>
YEAR INCREASE IN EARNINGS
---- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
1999.............................................. $ 8
2000.............................................. 268
2001.............................................. 268
2002.............................................. 268
2003.............................................. 268
2004.............................................. 268
</TABLE>
65
<PAGE> 74
DESCRIPTION OF BINGHAM CAPITAL STOCK
The following statements regarding the Michigan Business Corporation Act,
Bingham's restated articles of incorporation, and Bingham's bylaws are brief
summaries, and may not contain all the information important to you. For a more
complete description of Bingham's capital stock, you should carefully read the
detailed provisions of the Michigan Business Corporation Act, Bingham's restated
articles of incorporation and Bingham's bylaws. See "Where You Can Find More
Information".
BINGHAM COMMON STOCK
Under Bingham's restated articles of incorporation, it has 10,000,000
shares of common stock, without par value, authorized. If approved at Bingham's
annual meeting, the number of shares of Bingham's authorized common stock will
be increased to 50,000,000.
There were 2,643,074 shares of Bingham common stock issued and outstanding
as of May 1, 2000. In addition, Bingham has reserved 415,000 shares of Bingham
common stock for issuance upon exercise of warrants and options granted or to be
granted under Bingham's 1997 stock option plan (subject to stockholder approval
of the amendment to the stock option plan) and 730,000 shares for issuance upon
exercise of warrants and options granted to Sun. Upon the merger, Bingham will
issue approximately 5,140,000 shares of Bingham common stock to Franklin
stockholders, reserve an additional 642,379 shares for issuance upon exercise of
options granted under Franklin's stock option plans and reserve approximately an
additional 355,000 shares for future grants under the Bingham stock option plan
in accordance with the terms of the plan.
The holders of Bingham common stock:
- have equal ratable rights to dividends from funds legally available for
dividends, when, as and if declared by the board of directors;
- are entitled to share ratably in all of Bingham's assets available for
distribution to holders of common stock upon liquidation, dissolution or
winding up of the affairs of Bingham;
- do not have preemptive, subscription or conversion rights and there are
no redemption provisions applicable to common stock; and
- are entitled to one vote per share on all matters on which stockholders
may vote. All shares of Bingham common stock now outstanding are fully
paid and nonassessable.
The holders of Bingham common stock do not have cumulative voting rights,
which means that the holders of more than 50% of outstanding shares voting for
the election of directors can elect all of the directors of Bingham to be
elected, if they so choose. In that event, the holders of the remaining shares
will not be able to elect any directors.
BINGHAM PREFERRED STOCK
Under Bingham's restated articles of incorporation, it has 10,000,000
shares of preferred stock, without par value, authorized. No shares of preferred
stock are currently outstanding and Bingham has no present plan to issue any
shares of preferred stock.
Bingham's board of directors is authorized, without further stockholder
action, to issue preferred stock in one or more series and to fix the voting
rights, liquidation preferences, dividend rights, repurchase rights, conversion
rights, redemption rights and terms and certain other rights and preferences, of
the preferred stock. Although they do not currently plan to do so, the board of
directors may, without stockholder approval, issue shares of a class or series
of preferred stock with voting and conversion rights that could adversely affect
the voting power of the holders of common stock and may have the effect of
delaying, deferring or preventing a change in control of Bingham. In addition,
shares of preferred stock could have other rights, including economic rights,
senior to shares of common stock, and, as a result, the issuance of preferred
stock could have a material adverse effect on the market value of shares of
common stock.
66
<PAGE> 75
MICHIGAN BUSINESS CORPORATION ACT
Chapters 7A and 7B of the Michigan Business Corporation Act may affect
attempts to acquire control of Bingham. In general, under Chapter 7A of the
MBCA, "business combinations" between covered Michigan business corporations or
their subsidiaries and an "interested shareholder" must be approved by a vote of
stockholders owning at least 90% of the shares of each class of voting stock and
at least two-thirds of voting shares not held by the interested shareholder or
its affiliates, unless five years have elapsed after the stockholder involved
became an interested shareholder and unless certain price and other conditions
are satisfied. The board of directors may exempt business combinations with a
particular interested shareholder by resolution adopted before the interested
shareholder attained that status. "Business combinations" are defined to
include, among other transactions, certain mergers, dispositions of assets or
shares and recapitalizations. "Interested shareholder" is defined as the direct
or indirect beneficial owner of at least 10% of the voting power of a
corporation's shares entitled to vote.
In general, under Chapter 7B of the MBCA, an entity that acquires "control
shares" of Bingham may vote the control shares on any matter only if a majority
of all shares, and of all non-"interested shares," of each class of shares
entitled to vote as a class, approve the voting rights of the control shares.
"Control shares" are shares that, when added to shares already owned by an
entity, would give the entity voting power in the election of directors over any
of three thresholds: one-fifth, one-third and a majority. "Interested shares"
are shares owned by officers of Bingham, employee-directors of Bingham and the
entity making the control share acquisition. The board of directors may amend
the bylaws before a control share acquisition to provide that Chapter 7B does
not apply to Bingham.
ANTI-TAKEOVER PROVISIONS
Under Bingham's restated articles of incorporation it is a proper corporate
purpose, reasonably calculated to benefit stockholders, for the board of
directors to base the response of Bingham to any "acquisition proposal," on the
board of directors' evaluation of what is in the best interests of Bingham. An
"acquisition proposal" is any proposal for a tender offer or exchange offer for
any equity security of Bingham, any proposal to merge or consolidate with
another corporation, or any proposal to purchase or otherwise acquire all or
substantially all of Bingham's properties and assets. In evaluating an
acquisition proposal, the board will consider:
- the best interests of Bingham stockholders;
- the relationship of the consideration offered in the acquisition proposal
to the then current market price of Bingham's stock;
- the current value of Bingham in a freely negotiated transaction and the
estimate of the future value of Bingham as an independent entity;
- the business and financial conditions and earnings prospects of the
acquiring person or persons;
- the competence, experience and integrity of the acquiring person or
persons and its or their management; and
- any other factors the board deems relevant, including the social, legal
and economic effects of the acquisition proposal on employees, suppliers,
customers, Bingham's business and the general community in which Bingham
does business.
Bingham's bylaws also contain certain anti-takeover provisions. The bylaws
require that notice in writing of proposed stockholder nominations for the
election of directors be timely given to Bingham's Secretary before the meeting.
The notice must contain certain information about the non-incumbent nominee,
including name, age, business and residence addresses, principal occupation, the
class and number of shares of Bingham stock beneficially owned by the nominee
and other information that would be required to be included in a proxy statement
soliciting proxies for election of the nominee, as well as certain information
about the nominating stockholder. Bingham may require any nominee to furnish
other
67
<PAGE> 76
information reasonably required to determine the nominee's eligibility to serve
as a director. If the presiding officer of any stockholders' meeting determines
that a person was not nominated in accordance with these procedures, that person
cannot be elected as a director.
In addition, the bylaws require that notice in writing from any stockholder
who proposes to bring business before any stockholder meeting must be timely
given to the Secretary before the meeting. The notice must contain a brief
description of the business proposed to be brought before the meeting, the
reasons for conducting the business at the meeting, the class and number of
shares of Bingham beneficially owned by the proposing stockholder and any
supporting stockholders and any material interest of the proposing stockholder
in the business proposed. If the presiding officer of any stockholders' meeting
determines that any business was not properly brought before the meeting in
accordance with these procedures, the business will not be conducted at the
meeting. Nothing in the bylaws prevents any stockholder from discussing any
business properly brought before the meeting.
To be timely, Bingham must receive stockholder notice of a nomination to
elect a director or to bring business before any stockholders' meeting between
thirty and sixty days before the meeting (or, if fewer than forty days' notice
or prior public disclosure of the meeting date is given or made to stockholders,
not later than the tenth day following the day the notice is mailed or the
meeting date is publicly disclosed).
CLASSIFICATION OF THE BOARD OF DIRECTORS
Bingham's board of directors has been divided into three classes. Directors
for each class are chosen for a three-year term upon the expiration of its term,
and the directors in the other two classes will continue in office. The
staggered terms for directors may affect the stockholders' ability to change
control of Bingham even if a change in control is desired by the stockholders
and was in the stockholders' interest. If its articles of incorporation or
bylaws did not classify Bingham's board, all of the directors would be elected
each year.
REMOVAL OF DIRECTORS
Under the MBCA, unless a corporation's articles of incorporation provide
otherwise, stockholders may remove a director or the entire board of directors
with or without cause. Under Bingham's articles of incorporation, a director may
be removed only for cause and only by the affirmative vote of the holders of
two-thirds of the voting power of all the shares entitled to vote generally in
the election of directors.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer and Trust Company is the transfer agent and
registrar for Bingham common stock.
68
<PAGE> 77
COMPARISON OF STOCKHOLDER RIGHTS
The rights of Franklin stockholders are governed by Franklin's articles of
association, its bylaws and applicable federal law. After the merger, the rights
of Franklin stockholders will be governed by Bingham's restated articles of
incorporation, its bylaws and the laws of the State of Michigan. The following
is a summary of the material differences between the current rights of Franklin
stockholders and those of Bingham stockholders. This summary may not contain all
of the information that is important to you. For a full description of the
rights of Bingham and Franklin stockholders, you must refer to the governing
laws and documents listed below. We will send you a copy of the Bingham and
Franklin articles and bylaws without charge at your request.
GOVERNING LAW
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
United States Code, Title 12 Michigan Business Corporation Act
</TABLE>
GOVERNING DOCUMENTS
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
Franklin articles of association Bingham restated articles of incorporation
Franklin bylaws Bingham bylaws
</TABLE>
AUTHORIZED CAPITAL STOCK
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
Common stock, par value $1.00, Common stock, no par value,
6,000,000 shares authorized; 10,000,000 shares authorized;
3,509,537 shares outstanding 2,643,074 shares outstanding
Preferred stock, par value $1.00, Preferred stock, no par value,
3,000,000 shares authorized; 10,000,000 shares authorized;
no shares outstanding no shares outstanding
Bingham stockholders are being asked at the Bingham
meeting to increase the number of authorized common
shares to 50,000,000.
</TABLE>
ISSUANCE OF PREFERRED STOCK
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
Without stockholder approval, the board of directors Without stockholder approval, the board of directors
may: may:
- Set the rights and preferences of various series of - Set the rights and preferences of various series of
preferred stock. preferred stock.
- Issue preferred stock - Issue preferred stock.
</TABLE>
69
<PAGE> 78
NUMBER OF DIRECTORS
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
Not less than five nor more than 25 as determined by Not less than three nor more than 15, as determined
a meeting of the common stockholders or by a majority by a resolution of a majority of the board. There are
of the number of directors currently authorized. currently nine directors, but if the merger is
Creation of new directorships between stockholder completed, there will be 12 directors. See "The
meetings by the board is limited. There are currently Merger -- Management and Boards of Directors after
seven directors, but if the merger is completed, the Merger."
there will be 11 directors. See "The
Merger -- Management and Boards of Directors after
the Merger."
</TABLE>
CLASSIFICATION OF DIRECTORS
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
None. Directors are divided into three classes as nearly
equal in number as possible, with each class serving
a staggered three-year term.
</TABLE>
ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
Directors are elected by a plurality of the votes Directors are elected by a plurality of the votes
cast. Cumulative voting is permitted. cast. Cumulative voting is not permitted.
</TABLE>
REMOVAL OF DIRECTORS
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
A director may be removed only for cause by a A director may be removed only for cause by two-
majority of the shares voted, unless the number of thirds of the outstanding shares of voting stock.
shares voted against removal would be sufficient to
elect him under cumulative voting.
</TABLE>
FILLING VACANCIES
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
A vacancy may be filled by a majority of the Vacancies resulting from newly created
remaining directors. directorships may be filled by a majority of
remaining directors, even if less than a
quorum.
</TABLE>
70
<PAGE> 79
SPECIAL MEETING OF STOCKHOLDERS
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
Special meetings may be called by either: Special meetings may be called by any of:
- the board, or - the chairman of the board, president or chief
- three or more stockholders owning at least 20% of executive officer,
the outstanding shares - the board by action at a meeting or a majority of
the directors acting without a meeting, or
- by stockholders holding shares representing 50% or
more of the outstanding voting power.
</TABLE>
CONSENT TO ACTION WITHOUT A STOCKHOLDER MEETING
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
Not permitted. Action may be taken without a meeting if consents in
writing are signed by the holders of enough shares to
take the action at a meeting at which all outstanding
shares were present and voted.
</TABLE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
Directors and officers must be indemnified if they Directors and officers must be indemnified if they
acted in good faith and in a manner they reasonably acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interest believed to be in or not opposed to the best interest
of the organization. In a criminal proceeding the of the organization. In a criminal proceeding the
director or officer must also have had no reasonable director or officer must also have had no reasonable
cause to believe the conduct unlawful. Additional cause to believe the conduct unlawful. Additional
indemnification by contract or insurance is indemnification by contract or insurance is
permitted. permitted.
Franklin directors and officers may not be
indemnified if they are found liable in an action
initiated by a bank regulatory agency.
</TABLE>
LIMITATION OF LIABILITY
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
None. A director is not personally liable for a breach of
fiduciary duty to the extent that the breach does not
involve:
- a breach of the director's duty of loyalty;
- acts not in good faith, intentional misconduct or a
knowing violation of law;
- a transaction from which the director derived an
improper personal benefit; or
- an illegal dividend, distribution or loan.
</TABLE>
71
<PAGE> 80
AMENDMENTS TO ARTICLES
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
Amendment requires approval of a majority of the Amendment of the material provisions requires
outstanding shares. approval of either:
- two-thirds of the outstanding shares of voting
stock; or
- both a majority of the board and a majority of the
outstanding shares of voting stock.
</TABLE>
AMENDMENT TO BYLAWS
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
Amendment requires approval of either: Amendment requires approval of any of:
- a majority of the shares outstanding, or - two-thirds of the directors then in
- a majority of the total number of office,
directors. - two-thirds of the outstanding shares of
voting stock, or
- both a majority of the board and a
majority of the outstanding shares of voting
stock.
</TABLE>
CHANGE OF CONTROL PROVISIONS
<TABLE>
<CAPTION>
FRANKLIN BINGHAM
-------- -------
<S> <C>
The acquisition of 10% or more of the Any business combination with the holder of
outstanding shares by any person must 10% or more of the outstanding shares must
receive the advance written approval of the be approved by both:
appropriate federal banking regulator.
- 90% of the outstanding shares of voting
stock, and
- two-thirds of the non-interested shares of
voting stock.
Shares acquired in excess of 20%, 33 1/3%
and 50% of the voting power may lose their
voting rights unless the acquisition is
approved by both:
- a majority of all outstanding shares of
voting stock, and
- a majority of the non-interested
outstanding shares of voting stock.
</TABLE>
72
<PAGE> 81
ADDITIONAL PROPOSALS FOR THE BINGHAM ANNUAL MEETING
ELECTION OF DIRECTORS
Three directors will be elected at the Bingham annual meeting to serve for
three-year terms beginning at the annual meeting and expiring at the 2003 annual
stockholders meeting. However, if the merger is completed, Bingham's board of
directors will be reconfigured and some of the nominees will serve terms
expiring in years other than 2003. See "The Merger -- Management and Boards of
Directors after the Merger."
It is proposed that these positions be filled by persons nominated to the
board of directors by management. Each director will be elected by the
affirmative vote of a plurality of the votes cast at the annual meeting.
Therefore, if a quorum is present, abstentions and broker non-votes will have no
effect on the election of directors. Proxies will be tabulated by Bingham's
transfer agent. The inspector of elections appointed at the annual meeting will
then combine the proxy votes with the votes cast at the annual meeting.
If any of the nominees are unavailable to serve for any reason, then a
valid proxy may be voted for the election of such other persons as the person or
persons voting the proxy may deem advisable in their best judgment. Management
has no present knowledge that any of the persons named will be unavailable to
serve. In any event, the enclosed proxy can be voted for only the three nominees
named in this document or their substitutes.
BINGHAM'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES
NAMED BELOW. Proxies solicited by the board will be voted "for" the nominees
unless instructions to withhold or to the contrary are given.
Nominees for director for three year terms ending in 2003:
<TABLE>
<CAPTION>
NOMINEE AGE CURRENT OFFICE(S)
------- --- -----------------
<S> <C> <C>
Daniel E. Bober............................. 41 Director and Vice President
Robert H. Orley............................. 44 Director
Gary A. Shiffman............................ 46 Chairman of the Board and Secretary
</TABLE>
See "The Merger -- Management and Boards of Directors after the Merger" for
background information for Messrs. Bober, Orley and Shiffman. See also
"Additional Information about Bingham -- Board of Directors and Committees" and
"Additional Information about Bingham -- Management and Compensation."
AUTHORIZATION OF ADDITIONAL SHARES OF COMMON STOCK
AMENDMENT TO RESTATED ARTICLES OF INCORPORATION
By resolution adopted on May 8, 2000, the Bingham board of directors
proposed the adoption by the stockholders of an amendment to Bingham's restated
articles of incorporation pursuant to which the number of authorized shares of
common stock of Bingham, no par value, would be increased from 10,000,000 shares
to 50,000,000 shares.
If the stockholders approve the amendment, Bingham's restated articles of
incorporation will be amended and the number of authorized shares of common
stock will be increased to 50,000,000. Pursuant to the proposed amendment, the
first paragraph of Article III of Bingham's restated articles of incorporation
will be amended to read as follows:
"1. Common Shares: 50,000,000."
Of the 10,000,000 currently authorized shares of common stock, as of May 1,
2000, 2,643,074 shares were outstanding. Bingham will issue approximately
5,140,000 shares of its common stock to Franklin
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stockholders in the merger (assuming none of the options to acquire Franklin
common stock that are exercisable before the merger are exercised). As of May 1,
2000, 264,307 shares were reserved for issuance under Bingham's stock option
plan and 730,000 shares were reserved for issuance under options and warrants
granted to Sun. Upon completion of the merger, and assuming stockholders approve
the amendment to the stock option plan described below, approximately 777,000
shares will be reserved for issuance under Bingham's stock option plan and
642,379 shares will be reserved for issuance upon exercise of options granted
under Franklin's stock option plans (assuming no option holders exercise any of
the options to acquire Franklin common stock that are exercisable before the
merger).
Of the 10,000,000 currently authorized shares of preferred stock, as of
April 17, 2000, none were outstanding or reserved for issuance.
The board of directors believes that the authorization of additional shares
of common stock will enable Bingham to meet possible future developments without
the expense and delay of holding a meeting of stockholders to secure their
authorization when a specific need for the shares may arise. If the Bingham and
Franklin stockholders approve the merger, approximately 70,000 authorized shares
of Bingham common stock will remain unissued or not reserved for issuance after
the merger. The board of directors believes that it is desirable that Bingham
have the flexibility to issue a substantial number of shares of common stock
without further stockholder action, except as otherwise provided by law. The
availability of additional shares will enhance our flexibility in connection
with possible future actions, such as stock splits, stock dividends, financings,
employee benefit programs, corporate mergers and acquisitions, asset purchases,
the possible funding of new product programs or businesses or other corporate
purposes. The board of directors will determine whether, when, and on what terms
the issuance of shares of common stock may be warranted in connection with any
of the foregoing purposes. We do not have any current planned use of the
proposed additional shares of common stock.
The availability for issuance of additional shares of common stock or
rights to purchase such shares could enable the board of directors to render
more difficult or discourage an attempt to obtain control of Bingham. For
example, the issuance of shares of common stock in a public or private sale,
merger or similar transaction would increase the number of outstanding shares,
thereby possibly diluting the interest of a party attempting to obtain control
of Bingham. We are not aware of any pending or threatened efforts to obtain
control of Bingham and the board of directors has no present intent to authorize
the issuance of additional shares of common stock to discourage such efforts.
The issuance of common stock otherwise than on a pro rata basis to all
current stockholders could have the effect of diluting the earnings per share,
book value per share and voting power of current stockholders. If approved, the
amendment to the restated articles of incorporation will be implemented even if
the merger is not approved.
APPROVAL BY STOCKHOLDERS
The amendment will be approved if Bingham stockholders owning a majority of
the outstanding shares of Bingham common stock vote in favor of it. Abstentions
and broker non-votes will have the same effect as a vote against the proposal.
If the proposed amendment is adopted by the stockholders, it will become
effective upon the filing and recording of a Certificate of Amendment as
required by the Michigan Business Corporation Act.
APPROVAL OF THE AMENDMENT
BINGHAM'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED AMENDMENT
TO THE RESTATED ARTICLES OF INCORPORATION. Proxies solicited by the board will
be voted "for" the amendment to the restated articles of incorporation unless
instructions to the contrary are given.
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AMENDMENT TO AMENDED AND
RESTATED 1997 STOCK OPTION PLAN
AMENDMENT
We are asking Bingham's stockholders to approve an amendment to the Bingham
Financial Services Corporation First Amended and Restated 1997 Stock Option
Plan. On May 8, 2000, our board of directors adopted and approved, subject to
stockholder approval, an amendment to the plan that increases the number of
shares of common stock that may be issued under the plan from 10% of the
aggregate number of shares of common stock outstanding (264,307 shares of common
stock as of the date of this document) to the greater of 415,000 shares
(approximately 13.5% of the aggregate number of shares of common stock
outstanding as of the date of this document, including as shares outstanding all
shares issuable upon exercise of all options granted and available for grant) or
10% of the aggregate number of shares of common stock outstanding. No other
provisions of the plan were amended. A copy of the plan as amended is attached
to this document as Appendix E. If approved by the stockholders, the amendment
to the plan will be effective as of May 8, 2000.
REASONS FOR AMENDMENT
Since inception, we have sought to link compensation of our directors,
employees and consultants to stockholder value by paying a large portion of that
compensation in the form of stock incentive awards. We believe such awards
provide strong incentives for the recipient to focus on stockholder value,
because most stock awards are of value only if the stock price increases. Also,
stock options are cost-effective because they do not result in compensation
expense for financial reporting purposes to Bingham when they are granted or
exercised. We believe that the availability of stock incentive awards is
critical to our ability to attract and retain the highest quality individuals,
which we believe is critical to our success.
Of the 264,307 shares currently available for awards under the plan, awards
covering 243,651 shares have been granted as of May 1, 2000. The 20,656 shares
remaining under the plan are not sufficient to permit us to maintain a
competitive pay program. The board has amended the plan to increase the number
of shares available for awards upon the recommendation of the Compensation
Committee. Subsequent to the amendment, and subject to stockholders' approval of
the amendment, the Compensation Committee granted to each of Messrs. Shiffman
and Klein options to purchase 75,000 shares of our common stock as part of their
overall compensation packages. These options vest one third on the grant date
and one third on each of the first two anniversaries of the grant date and have
an exercise price of $7.00 per share. We have also agreed to grant to Mr.
Horonzy options to purchase 10,000 shares of our common stock in each of the
next two years and Mr. Simon options to purchase 5,000 shares of our common
stock upon the consummation of the merger and options to purchase 7,500 shares
and 10,000 shares of our common stock on the first anniversary and second
anniversary of the merger, respectively. The options will vest ratably over a
period of three years from the grant date and will have an exercise price equal
to the fair market value of the common stock on the grant date.
If the merger is consummated, the number of shares of our common stock
available for awards under the plan will be 10% of the aggregate number of
shares of common stock outstanding, or approximately 770,000 shares immediately
after the merger. In addition, after the merger, we will have approximately
642,000 shares of our common stock reserved for issuance upon exercise of
outstanding options granted under the Franklin stock option plans. There will be
no additional option grants made under the Franklin stock option plans after the
merger.
VOTE REQUIRED
The affirmative vote of holders of a majority of the shares of common stock
represented and entitled to vote at the annual meeting is needed to approve the
amendment to the stock option plan. Abstentions have the practical effect of a
"no" vote. Broker non-votes are neither counted towards the base number (a
majority of which is required for passage) nor as a vote either affirmatively or
negatively.
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BINGHAM'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED AMENDMENT
TO THE PLAN. Proxies solicited by the board will be voted "for" the amendment to
the plan unless instruction to the contrary are given.
SUMMARY OF THE AMENDED PLAN
We adopted our stock option plan to enable officers, key employees and
consultants of Bingham or any subsidiary to participate in our possible growth
and profitability, and to encourage their continuation as officers, employees or
consultants for the benefit of Bingham and our stockholders. Under the plan, we
may award incentive and non-qualified stock options, stock appreciation rights,
restricted stock, performance stock and other stock awards which are valued by
reference to our common stock. The plan is administered by either the board of
directors or the Compensation Committee (the "Administrator") which determines,
subject to the provisions of the plan, who shall receive awards, the types of
awards to be made and the terms and conditions of each award.
The exercise price of non-qualified stock options may not be less than 85%
of the fair market value at the time the option is granted. Options that are
intended to qualify as incentive stock options may not be exercisable for more
than ten years after the date the option is granted and may not be granted at an
exercise price of less than the fair market value of the common stock at the
time the option is granted. In the case of incentive stock options granted to
holders of more than 10% of our common stock, the options may not be granted at
an exercise price less than 110% of the fair market value of the common stock at
the time the options are granted.
Awards granted under the plan generally expire three months after the
termination of the recipient's service to Bingham or any subsidiary, except in
the case of death, in which case awards generally may be exercised up to 12
months following the date of death. Awards generally expire immediately upon
termination of employment for cause.
The Administrator may make appropriate adjustments in the number of shares
of common stock subject to each award and the exercise price per share of each
award if there is any change in the common stock as a result of a stock
dividend, stock split, recapitalization or otherwise. The Administrator also has
the authority to accelerate award exercise rights or make other adjustments if
Bingham is merged or consolidated, the property or stock of Bingham is acquired
by another corporation or Bingham is reorganized, liquidated or impacted by an
extraordinary transaction.
The plan terminates when no further shares of common stock are available
for issuance upon the exercise of awards and all outstanding awards have expired
or have been exercised. The board of directors may at any time terminate the
plan, but termination will not affect awards previously granted. Any awards
which were granted prior to termination remain exercisable by the holder in
accordance with the terms of the applicable award agreement. In addition, the
board of directors may at any time amend the plan without stockholder approval,
except where required by applicable law.
FEDERAL INCOME TAX CONSEQUENCES OF AWARDS
The following discussion of certain federal income tax considerations with
respect to options, stock appreciation rights and restricted stock is a summary
for general purposes only The plan is not qualified under Section 401(a) of the
Internal Revenue Code and is not subject to the Employee Retirement Income
Security Act of 1974.
Incentive Stock Options ("ISOs"). The grant of an ISO has no income tax
consequences for either Bingham or the participant. Subject to the discussion
below, there will be no regular income tax liability when the ISO is exercised;
however, upon the exercise of an ISO, the excess of the fair market value of the
common stock purchased over the exercise price will be an item of tax preference
of the participant for purposes of the application of the alternative minimum
tax. If payment of the purchase price of an ISO consists of shares of common
stock, the participant's basis for an equal number of shares of the common
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stock received will be equal to his basis for the shares exchanged. Any
additional shares received will have a basis of zero.
If the common stock acquired by exercising an ISO is sold, exchanged
(except in some tax-free exchanges) or otherwise disposed of (even if by the
exercise of another ISO) within either one year of the exercise of the ISO or
two years of the granting of the ISO, the participant will recognize ordinary
income at that time and Bingham will be entitled to a deduction at that time in
an amount equal to the excess of the fair market value of the common stock at
the time of exercise over the exercise price. The participant will also
recognize capital gain or loss to the extent the amount realized from a sale or
exchange differs from the fair market value of the common stock at the time of
exercise.
If the common stock acquired by exercising an ISO is sold or exchanged
after one year after the exercise of the ISO and two years after the granting of
the ISO, the participant will recognize long-term capital gain or loss measured
by the difference between the amount realized on the sale or exchange and the
exercise price, and Bingham will not be entitled to any deduction.
Nonqualified Options ("NQOs") and Performance Based Options ("PBOs"). The
grant of an NQO or a PBO has no income tax consequences for either Bingham or
the participant (unless the NQO or PBO is freely transferable and has a readily
ascertainable market value). When an NQO or PBO is exercised, the participant
will recognize ordinary income and Bingham will be entitled to a deduction in an
amount equal to the excess of the fair market value of the common stock
purchased over the exercise price. This ordinary income is subject to
withholding of tax by Bingham. The basis of the common stock received upon
exercise will equal the sum of the exercise price plus the amount included in
income by the participant. If payment of the purchase price of an NQO or PBO is
made by delivering shares of common stock, no additional gain or loss will be
recognized by the participant because of that exchange, and the participant's
basis for an equal number of shares of the common stock received will be equal
to his basis for the shares exchanged. Any additional shares received will have
a basis equal to the amount of ordinary income includible with respect to the
purchase. The subsequent sale or exchange of the common stock would generally
give rise to capital gain or loss.
Stock Appreciation Rights. The grant of stock appreciation rights has no
income tax consequences for either Bingham or the participant. When a stock
appreciation right is exercised by a participant who receives cash, the
participant will recognize ordinary income and Bingham will be entitled to a
deduction in an amount equal to the amount of cash received. When a stock
appreciation right is exercised by a participant who receives common stock, the
participant will recognize ordinary income and Bingham will be entitled to a
deduction in an amount equal to the fair market value of the common stock
received. The ordinary income described in the two preceding sentences is
subject to withholding of tax by Bingham. The subsequent sale or exchange of the
common stock acquired pursuant to the exercise of a stock appreciation right
would generally give rise to capital gain or loss.
Restricted Shares. If a participant does not make an special election under
the tax code, as explained below, the grant of shares by a restricted stock
award does not result in taxable income to the participant or a deduction to
Bingham in the year of the grant. The value of the shares is taxable to a
participant in the year in which the restrictions lapse. Alternatively, under
Section 83(b) of the tax code, a participant may elect to treat as income in the
year of grant the fair market value of the shares on the date of grant, provided
the participant makes the election within 30 days after the date of grant. If
the participant makes an election, he would not be allowed to deduct at a later
date the amount included as taxable income if he forfeits the shares to Bingham.
The amount of ordinary income a participant recognizes is deductible by Bingham
in the year the participant recognizes the income, provided that amount
constitutes reasonable compensation to the participant. Without a Section 83(b)
election, before any restrictions lapse, distributions paid on the shares
subject to the restrictions will be taxable to the participant as additional
compensation, and Bingham will be allowed a corresponding deduction. Where a
Section 83(b) election has been made, those distributions would be treated as
dividend income to the participant.
Limitation on Compensation Deductions. In general, Bingham is entitled to a
compensation deduction equal to the income recognized by the participant with
respect to a NQO, PBO, stock
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appreciation right or restricted share right at the time that the participant
recognizes the income. But Section 162(m) of the tax code limits the deduction
that a publicly held corporation, such as Bingham, may take for compensation
paid to "covered employees" to $1 million. Generally, the Chief Executive
Officer and Bingham's four other highest compensated officers are considered
covered employees. However, this rule limiting the deduction does not apply to
performance-based compensation. In general, compensation resulting from the
exercise of a stock option is treated as performance-based compensation if the
option price was equal to or in excess of the fair market value of stock subject
to the option at the time of the grant of the option and if certain other
requirements are met. PBOs granted by Bingham are intended to meet these rules
so that the compensation resulting from exercising PBOs will be treated as
performance-based compensation. In addition, income resulting from the exercise
of NQOs and stock appreciation rights where the exercise price is equal or in
excess of the fair market value of the stock subject to the option at the time
of the grant of the option may also be treated as performance-based
compensation. Income resulting from restricted share rights will probably not be
treated as performance-based compensation and so the deduction limitation
described above may become applicable.
Withholding of Tax. Bingham is entitled to withhold, or secure payment from
the participant in lieu of withholding, the amount of any tax required by law to
be withheld or paid by Bingham with respect to any amount payable or shares
issuable under a participant's award. At the election of the participant, with
respect to the exercise of an NQO, PBO or a stock appreciation right where
shares of common stock are to be delivered to the participant, Bingham may also
withhold shares of common stock sufficient to meet those requirements.
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ADDITIONAL INFORMATION ABOUT BINGHAM
BUSINESS OF BINGHAM
OVERVIEW
Bingham is a specialized financial services company that provides and
services loans used to finance commercial real estate and manufactured homes.
During 1999, we originated approximately $327 million of commercial real estate
loans and approximately $91 million of manufactured home loans. During the
quarter ended March 31, 2000, we originated approximately $38.8 million of
commercial real estate loans and $35.1 million of manufactured home loans. At
March 31, 2000, Bingham had assets of $216.5 million, including loans receivable
of $178.3 million; liabilities of $192.7 million, including $180.3 million of
interest-bearing debt; and stockholders' equity of $23.7 million. At March 31,
2000, Bingham provided servicing for approximately $2.1 billion of commercial
real estate and manufactured home loans.
Our operations are carried on through our subsidiaries, including
Bloomfield Acceptance, Bloomfield Servicing, Dynex Financial, Dynex Insurance
Agency, Inc. and Hartger & Willard Mortgage Associates, Inc.
Our executive office is located at 260 East Brown Street, Suite 200,
Birmingham, Michigan 48009 and its telephone number is (248) 644-8858. Bingham,
which is a Michigan corporation, employed approximately 220 people as of March
31, 2000.
HISTORY OF BINGHAM
Bingham was incorporated in August 1996 by Sun Communities, Inc., a
fully-integrated publicly held real estate investment trust traded on the New
York Stock Exchange under the symbol "SUI", and began transacting business in
January 1997. When Bingham completed its initial public offering in November
1997, our business was focused primarily on providing financing for new and
previously owned manufactured homes by making conventional loans under
installment loan contracts secured by borrowers' manufactured homes, primarily
to residents in manufactured home communities owned and managed by Sun. In
addition to providing financing to residents in Sun's manufactured home
communities, we have expanded our manufactured home lending business to
originate loans through manufactured home dealers and loan originators and have
expanded our business into the commercial lending and mortgage servicing
industry. Sun does not currently own any shares of our common stock.
Proceeds from our initial public offering were used to repay in full a
demand note payable to Sun, which we used to fund our original manufactured home
loan contracts. In connection with the subordinated debt facility described
below, we issued warrants to Sun to purchase up to 400,000 shares of common
stock at the initial public offering price of $10 per share. In exchange for
offering us as a preferred financing service to potential home buyers in Sun's
communities we granted Sun options to purchase 330,000 shares of our common
stock. These options vest in eight equal annual amounts beginning in January
2001. In April 1999, like other dealers, Sun began to receive a 1% origination
fee. For the three months ended March 31, 2000, Sun received $8,000 under this
arrangement. We paid Sun a fee of $75,000 for the year ended September 30, 1999
as reimbursement for general and administrative expenses. Since September 30,
1999, we have not paid, and in the future do not expect to pay, Sun a fee for
general and administrative expenses.
In March 1998, we acquired Bloomfield Acceptance Company, L.L.C. and its
mortgage servicing affiliate Bloomfield Servicing Company, L.L.C., expanding our
business into commercial real estate lending and servicing. As consideration for
the Bloomfield transaction, we issued 272,727 shares of our common stock to the
members of Bloomfield Acceptance and Bloomfield Servicing with an additional
66,005 shares issuable based on the performance of Bloomfield Acceptance and
Bloomfield Servicing. We issued an additional 9,091 shares of our common stock
to certain members of Bloomfield and Bloomfield Servicing to be held in escrow,
of which 6,061 shares remain in escrow. On March 1, 2000, we issued the
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66,005 shares as additional earn-out consideration. Bloomfield Acceptance
originated $38.8 million in commercial real estate loans in the three month
period ended March 31, 2000.
In June 1999, we acquired Hartger & Willard Mortgage Associates, Inc. from
DMR Financial Services, Inc., an affiliate of Detroit Mortgage and Realty
Company. We issued 66,667 shares of our common stock to DMR Financial as
consideration for the transaction. In addition, we loaned $1.5 million to DMR
Financial under a promissory note dated July 31, 1999. The loan is guaranteed by
Detroit Mortgage and Realty and secured by the pledge of our common stock that
DMR Financial received in the acquisition. DMR Financial is in default under the
note, and we are foreclosing on the pledged shares. Hartger & Willard, which has
been in business over 50 years, provides mortgage banking services and arranges
permanent mortgage financing on a variety of commercial and industrial
properties. The acquisition of Hartger & Willard strengthened our origination
capabilities and loan servicing portfolio as well as adding several important
correspondent relationships to our existing commercial real estate lending
business. Hartger & Willard and Bloomfield Acceptance together comprise one of
the largest commercial mortgage banking operations in Michigan.
In December 1999, we acquired Dynex Financial, Inc., which specializes in
manufactured home loan lending and servicing, from Dynex Holding, Inc. The
purchase price was $4,001,000 in cash. When fully integrated, Dynex Financial's
loan origination, servicing and software systems are expected to be much more
efficient and effective than our former systems. Dynex Financial originated
approximately $500 million in manufactured home loans in the year ended December
31, 1999. While we believe Dynex Financial is capable of originating $1 billion
in loans per year, we have decided to scale back originations to no more than
$250 million for the fiscal year ending December 31, 2000 as we integrate the
operations of Dynex Financial into the operations of our other subsidiaries.
With the acquisition of Dynex Financial, our subsidiaries now service over $2
billion in loans and, in addition to offering a wide variety of commercial
mortgage products and services, are able to provide a vast range of financial
services to the manufactured housing market, including construction financing,
floorplan loans, retail lending, permanent financing, bridge financing, earn-out
financing and equity financing.
In connection with the integration of the operations of Dynex Financial,
Dynex Financial has closed certain of its district and regional offices. When we
acquired Dynex Financial, Dynex Financial had regional offices in Dallas, TX,
Atlanta, GA, Cincinnati, OH, Charlotte, NC, and Vancouver, WA; district offices
in Troy, MI, Columbia, SC, Houston, TX and Phoenix, AZ; a national business
center office in Richmond, VA; and a national servicing center office in Fort
Worth, TX. We have closed the Charlotte, Vancouver, Troy, Columbia, Houston and
Phoenix offices.
As part of our plan to conduct all of our manufactured home loan
origination operations through Dynex Financial, in March 2000 Dynex Financial
purchased $66.9 million of loans from MHFC, Inc., a subsidiary of Bingham
specializing in manufactured home lending, and we sold MHFC to Gwenuc, LLC, a
limited liability company owned by Gary A. Shiffman, Chairman of Bingham. Gwenuc
paid us $400,000 in cash and assumed $2.7 million of debt to us. The cash
portion of the purchase price may be adjusted upward or downward pursuant to a
fairness opinion as to the fair market value of MHFC to be rendered by a third
party appraiser. We now conduct all of our manufactured home loan origination
activities through Dynex Financial.
OTHER EVENTS
OTS Application
In March 1999, we filed an application with the Office of Thrift
Supervision of the U.S. Treasury Department to establish a unitary thrift
holding company and a federally-chartered savings bank subsidiary. At this time,
our application is still on file with the OTS. We expect that the thrift charter
will be approved and that Franklin will operate under the charter after the
merger.
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Private Equity Raise
In April 1999, we sold 800,330 shares of our common stock in a private
placement to accredited investors at a price per share of $15 for a total of
approximately $12 million. Purchasers in the private placement included some of
our directors and stockholders and their families as well as several new
investors. We raised the capital to fund existing operations and to provide
increased capital for our planned operations.
FINANCING
Through its operating subsidiary, Sun Communities Operating Limited
Partnership, Sun currently provides us financing under a $4 million term loan
and $10 million and $50 million demand lines of credit.
The $4 million term loan matures on September 30, 2004 and interest on the
unpaid principal balance of the term note accrues at the rate of 9.75% per
annum. Anytime after the third anniversary of the $4 million term note, it may
be paid in full or in part without premium or penalty subject to approval of our
non-employee directors.
Each demand line of credit from Sun is evidenced by a demand note that
provides that the unpaid principal balance bears interest at a rate of LIBOR
plus 235 basis points. The entire unpaid principal balance of each demand note,
together with all accrued and unpaid interest, will be due and payable in full
within ten days after the date of demand. The Sun operating partnership in its
sole discretion may refuse to make advances under the $50 million line of
credit. The aggregate outstanding principal balance on the two demand lines of
credit as of March 31, 2000 was approximately $43 million. As security for both
the $10 million demand line of credit and the $50 million line of credit, the
Sun operating partnership has a security interest in substantially all of
Bingham's assets.
In March 2000, Dynex Financial and Bloomfield Acceptance entered into an
amended and restated repurchase arrangement with Lehman Commercial Paper Inc.
Under this agreement, Dynex Financial and Bloomfield Acceptance may transfer
loans from time to time to Lehman against the transfer of funds from Lehman. As
of March 31, 2000, the aggregate amount advanced by Lehman under the repurchase
agreement was approximately $128 million.
Our subsidiaries have also sold a significant number of commercial real
estate and manufactured home loan contracts to unrelated financial institutions.
Our subsidiaries may sell these contracts with or without retaining servicing,
in some cases with full or limited recourse to us or our subsidiaries in the
event of a default by the borrower.
In March 2000, Bingham and Dynex Financial entered into a revolving credit
facility with Michigan National Bank. Under this facility, Bingham and Dynex
Financial may borrow up to $11 million. Interest at a rate of LIBOR plus 2% per
year is payable on the outstanding balance. The outstanding principal balance on
this credit facility as of March 31, 2000 was approximately $6 million.
In April 2000, Bloomfield Acceptance and Bloomfield Servicing entered into
a warehousing credit agreement with Residential Funding Corporation. Under the
credit agreement, Bloomfield Acceptance and Bloomfield Servicing may borrow up
to $50 million to fund the acquisition and origination of FNMA loans, FHLMC
loans, bridge mortgage loans and similar mortgage loans. Interest at an annual
rate of up to LIBOR plus 250 basis points is payable on the outstanding balance
of advances used to make bridge mortgage loans. Interest at an annual rate of
LIBOR plus 125 basis points is payable on the outstanding balance of advances
used to make all other loans made under the agreement. As of the date of this
document, Bloomfield Acceptance and Bloomfield Servicing had not incurred any
indebtedness under this agreement.
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MANUFACTURED HOME LENDING AND SERVICING
Overview
We conducted our manufactured home loan business through our MHFC, Inc.
subsidiary until we acquired Dynex Financial in December 1999. In March 2000, we
consolidated our manufactured home loan business when Dynex Financial purchased
substantially all of MHFC's manufactured home loans and we sold MHFC. See
"-- History of Bingham." Dynex Financial originates loans that generally range
in size from $10,000 to $100,000 and have a term of 7-30 years. We initially
focused our marketing efforts principally through manufactured home community
owners and operators, specifically targeting Sun's manufactured home
communities, where MHFC's services were, and Dynex Financial's services continue
to be, offered as the preferred source of financing. Dynex Financial currently
originates the majority of its manufactured home loans through dealers.
Dealers
Each loan submitted to Dynex Financial by a dealer is subject to criteria
established by Dynex Financial relating to loan terms, advance amounts, down
payment requirements and other pertinent program parameters. Dynex Financial
performs annual reviews of dealers with which it does business to ensure that
these dealers are in good financial standing. Dealers are provided a rate and
term schedule that establishes a customer buy rate for each particular loan
being submitted.
Reports are continuously generated and analyzed to track dealer
performance. Performance factors tracked include loan approval rates, booking
rates, dealer delinquency, dealer chargeoff activity and volume of loans booked.
Dealer performance goals established by Dynex Financial are then monitored and
relationships with non-performing dealers are terminated.
Underwriting
Dynex Financial underwrites loans based upon its review of credit
applications to insure loans will comply with internal company guidelines as
well as industry standards. All loans secured by mortgages on both manufactured
homes and the underlying real estate, or "land/home" loans, are underwritten
using Dynex Financial's Internal Credit Rating grid, a traditional underwriting
method that primarily takes into account the applicant's credit history. In
September 1999, Dynex Financial began underwriting retail installment loans
secured only by manufactured homes, or "home only" loans, using Portal(TM), its
internally-developed proprietary credit scoring system. Portal was developed to
predict defaults using empirical modeling techniques and takes into account
information from applicants' credit applications as well as their credit
reports. Each applicant's credit history, stability, capacity, down payment and
security type are taken into account by the Portal model. The Portal model is
integrated into our origination system and is based on Dynex Financial's
historical lending experience. Because the land/home and home only business
lines have different characteristics, and because we have not experienced
significant losses or defaults on land/home loans (a necessary component of a
successful predictive model), predictive modeling was only possible for the home
only applications, which make up approximately 90% of our total manufactured
home loan applications.
Loan Collateral
Dynex Financial retains a security interest in each manufactured home it
finances. Procedures for perfecting security interests vary by state.
Servicing
From April 1999 to February 2000, manufactured home loan contracts owned by
MHFC were serviced by Bloomfield Servicing. Beginning in February 2000, MHFC's
manufactured home loan contracts
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were serviced by Dynex Financial, which has serviced its own loan contracts
since we acquired it in December 1999. We sold MHFC in March 2000, and since
then all of our manufactured home loan contracts have been serviced by Dynex
Financial. Dynex Financial collects principal and interest payments from
borrowers and remits them to investors as required under the relevant servicing
contract. Dynex Financial also processes collections on delinquent accounts. As
of March 31, 2000, Dynex Financial's servicing portfolio totaled over $1
billion.
Delinquency and Repossession
Dynex Financial is responsible for the servicing of each manufactured home
loan contract from the time of funding until the loan is paid in full. This
servicing includes processing payments and issuing delinquent notices between 15
and 18 days after a payment is past due, and a default letter sent between 30
and 90 days after a payment is past due. Dynex Financial is responsible for
collecting loans that are over 30 days delinquent and it hires a local attorney
after the expiration of the default letter. Next, a 30-day demand letter is
issued, at which time full payment must be made on all arrearages including late
fees and attorney fees. Dynex Financial generally repossesses the manufactured
home after payments have become 60 to 90 days delinquent if it is not able to
work out a satisfactory arrangement with the borrower. For those loans
originated in Sun's manufactured home communities, Sun and an affiliate of Sun
may assist with foreclosure and the sale of the manufactured home after
repossession.
Bingham maintains a reserve for estimated credit losses on manufactured
home loan contracts owned by it and a separate liability to absorb potential
losses on loans that have been periodically sold to third parties with recourse.
At March 31, 2000, the aggregate principal balance of manufactured home loan
contracts in Bingham's portfolio was approximately $107.9 million and the
aggregate principal balance of manufactured home loan contracts sold to third
parties with recourse was approximately $40.0 million. Bingham provides for
losses on credit sales in amounts necessary to maintain the reserve and separate
liability at levels it believes are sufficient to provide for future losses
based on historical loss experience, current economic conditions and portfolio
performance measures. For fiscal 1999 and 1998, as a result of expenses incurred
due to defaults and repossessions, $162,000 and $39,000, respectively, was
charged to the reserve for losses on credit sales. For the three months ended
March 31, 2000, $679,000 was charged to the reserve for losses on credit sales,
as compared to $27,000 for the three months ended March 31, 1999. As of March
31, 2000, there have been no charges to the separate liability set up for
estimated losses on loans sold with recourse, which totaled approximately
$375,000 as of that date. Bingham's reserve for losses on credit sales at March
31, 2000 was $795,000 as compared to $284,000 at March 31, 1999.
Bingham's inventory of repossessed homes was 55 homes at March 31, 2000 as
compared to seven homes at March 31, 1999. The estimated net realizable value of
the repossessed homes in Bingham's inventory at March 31, 2000 was approximately
$1.5 million and at March 31, 1999, was approximately $69,000. The net losses
resulting from repossessions on Bingham-originated loans as a percentage of the
average principal amount of such loans outstanding for the six months ended
March 31, 2000 and 1999 was 50% and 36%, respectively.
See "Bingham's Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note C to Bingham's audited consolidated
financial statements for more information on the delinquency of Bingham's
manufactured home loan contracts.
COMMERCIAL MORTGAGE BANKING
Overview
Through Bloomfield Acceptance, Bloomfield Servicing and Hartger & Willard,
we participate in and are active in all aspects of commercial real estate
mortgage banking, including originating, underwriting, placing, securitizing,
and servicing commercial real estate loans. Bloomfield Acceptance, which is one
of the largest commercial banking firms in Michigan, acts as both a direct
lender, making commercial real estate loans for its own portfolio as well as for
accumulation and securitization, and as a traditional mortgage banker, placing
commercial real estate loans with 16 institutional investors. Bloomfield
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Acceptance has placed collateral in over 12 commercial mortgage backed
securitizations. Bloomfield Acceptance is an approved seller/servicer under the
Federal National Mortgage Association's pilot Aggregation program for
manufactured home communities, under which FNMA purchases manufactured home
loans on a non-recourse basis. Bloomfield Acceptance is also an approved
seller/servicer under the Federal Home Loan Mortgage Corporation's Program Plus
program, under which FHLMC purchases multi-family mortgages from lenders meeting
certain loan origination and servicing standards.
Portions of Bloomfield Acceptance's activities are focused on the
manufactured home community industry and Bingham believes that Bloomfield
Acceptance is one of the largest originators of loans to manufactured home
community owners in the country. For the six-month period ended March 31, 2000,
Bloomfield Acceptance originated approximately $69 million of loans to
manufactured home community owners.
Lending
Bloomfield Acceptance sources lending opportunities on a nationwide basis
from direct borrower inquiry as well as from mortgage bankers and brokers. Loan
applications are processed at our offices in Birmingham, Michigan where we
perform due diligence, including an analysis of property operating history,
appraisal report, environmental report, borrower creditworthiness, credit
history and experience. Bloomfield Acceptance performs on-site property
inspection and local market analysis.
Bloomfield Acceptance currently funds originations for securitization
primarily through a repurchase agreement with Lehman Commercial Paper Inc. It
also originates loans for securitization under various mortgage loan purchase
agreements and funds loans under various loan participation arrangements with
third party investors. It is expected that after the merger Bloomfield
Acceptance will also originate loans for portfolio using Franklin's lower-cost
funding sources.
As of March 31, 2000, Bloomfield Acceptance maintained a portfolio of
approximately $75 million of loans.
Traditional Mortgage Banking
Bloomfield Acceptance places commercial real estate mortgage loans with 16
institutional investors, primarily life insurance companies that it represents
on an exclusive or semi-exclusive basis. The bulk of these activities take place
in Michigan. The acquisition of Hartger & Willard has enhanced Bingham's
commercial mortgage banking business by adding two new offices, loan officers
and new investors.
Servicing
Bloomfield Servicing services loans that Bloomfield Acceptance and Hartger
& Willard originate. Historically, the majority of the loans made on a direct
lending basis were serviced until the loan was securitized, at which time
Bloomfield Servicing received a servicing termination fee. In May 1998,
Bloomfield Servicing began retaining the servicing of its direct loans and it is
expected that the size of Bloomfield Servicing's servicing portfolio will
increase.
In addition to servicing loans for Bloomfield Acceptance and Hartger &
Willard, Bloomfield Servicing services commercial real estate loans on behalf of
twenty-seven institutional investors. The majority of these loans are in
Michigan.
As of March 31, 2000, Bloomfield Servicing's servicing portfolio totaled
approximately $963 million. The entire commercial loan portfolio was current as
of March 31, 2000.
Delinquency and Repossession
Bloomfield Servicing is responsible for the servicing of each commercial
mortgage loan from the time of funding until the loan is paid in full. No
commercial mortgage serviced by Bloomfield Servicing was delinquent as of March
31, 2000. If a commercial mortgage loan becomes delinquent, the borrower is
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contacted by late notice letter and by telephone. If the loan continues to be
delinquent for more than 30 days, a default and acceleration letter is sent,
specifying the legal period to cure the default. During the cure period every
attempt would be made to obtain payment or to modify and workout the loan terms
to a payment plan that was satisfactory to the lender and borrower and would
bring the loan current. If the borrower and lender do not agree to a workout
arrangement during the cure period, Bloomfield Servicing retains local counsel
to institute foreclosure proceedings and the property is offered at a
foreclosure sale. Bloomfield Servicing or its representative must make a bid at
the foreclosure sale to insure an appropriate upset price is obtained upon
foreclosure. If the lender is the successful bidder, the property is turned over
to the lender to liquidate against the loan balance. If the successful bidder is
a third party, the proceeds of the sale are applied to the outstanding balance
of the loan. All costs of foreclosure are the responsibility of the lender and
the lender absorbs any losses.
INSURANCE
Dynex Insurance Agency, Inc., a subsidiary of Dynex Financial, is a
licensed agent placing property and casualty, life and warranty insurance,
primarily for Dynex Financial's manufactured home loans.
COMPETITION
The manufactured housing finance industry is very fragmented and highly
competitive. There are numerous non-traditional consumer finance sources serving
this market. Several of these financing sources are larger than Bingham and have
greater financial resources. In addition, some of the manufactured housing
industry's larger manufacturers maintain their own finance subsidiaries to
provide financing for purchasers of their manufactured homes. Historically,
traditional financing sources (commercial banks, savings and loans, credit
unions and other consumer lenders), many of which have significantly greater
resources than Bingham and may be able to offer more attractive terms to
potential customers, have not consistently served this market.
We believe that our relationship with Sun, our focus on community owners
and operators, our prompt and consistent review of credit applications and our
emphasis on providing a high level of service enable us to compete effectively
for the purchase price financing and refinancing of manufactured homes. However,
to the extent that traditional and non-traditional lenders significantly expand
their activity in this market, we may be adversely affected. There is no
assurance that we will be able to effectively compete against our existing
competitors or any future competitors.
Our manufactured home finance business is generally subject to seasonal
trends, reflecting the general pattern of sales of manufactured homes peaking
during the spring and summer months and declining to lower levels from
mid-November through January.
Our commercial real estate lending business is highly competitive and
Bloomfield Acceptance and Hartger & Willard operate on a nationwide basis
against a host of local, regional and national lenders. Many of their
competitors are larger and have greater financial resources than we do.
Traditionally, our competitors included banks and thrifts, life insurance
companies, mortgage bankers and credit companies. More recently, the competition
has expanded to encompass Wall Street brokerage houses, either directly or
through proxies or "conduits." We believe that the industry is in a state of
transition and rapid consolidation, and while we believe that we are
well-positioned to compete effectively in this environment, there can be no
assurances that we will do so.
REGULATION AND SUPERVISION
Bingham and its subsidiaries are currently subject to regulation and
licensing under various federal and state statutes and regulations. After the
merger, Bingham and its subsidiaries will be subject to different regulations
and licensing requirements. See "Additional Information about
Franklin -- Business of Franklin -- Regulation."
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Our manufactured home finance business encompasses both consumer lending
(manufactured homes only) and residential mortgage lending (land-home
transactions) as well as loan servicing, typically for loans originated by
manufactured housing dealers and loan origination companies. Currently, Bingham,
through its subsidiaries, conducts consumer lending and servicing in the states
of Alabama, Arizona, Arkansas, California, Florida, Georgia, Idaho, Indiana,
Kentucky, Michigan, Mississippi, North Carolina, Ohio, Oklahoma, Oregon, South
Carolina, Tennessee, Texas, Virginia, Washington and West Virginia. In some
states, we conduct only manufactured home lending and not land-home lending.
Most states where our subsidiaries operate:
- require compliance with state guidelines concerning qualifying to do
business, licensing, and lending and finance activities and other
consumer protection measures and fair trade practices (including laws
prohibiting discrimination based on race, color, national origin, gender,
age, disability, marital status, or other bases);
- limit the interest rate and other charges that may be imposed related to
the loan, or prescribe certain other terms of the loan contracts,
including requirement of specific notice provisions, loan terms, or other
items (some of these state laws are preempted by federal laws applicable
to Bingham and its subsidiaries);
- regulate the sale and type of insurance products that our subsidiaries
may offer and the insurers for which they will act as agent; and
- define our subsidiaries' rights to collect loan payments, and foreclose
and/or repossess and sell collateral.
Our subsidiaries are licensed to conduct consumer finance operations in most
states where they do business. In a limited number of states, our subsidiaries
are not required to hold a specific license to conduct their business
activities. Bloomfield Acceptance and Dynex Financial are each a HUD-approved
Investing Mortgagee.
In addition to state laws regulating their conduct, the consumer lending
and servicing activities of Bingham and its subsidiaries are subject to numerous
federal laws and the rules and regulations promulgated thereunder, including the
Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, and, in some instances, the Fair Debt Collections Practices Act
and the Home Mortgage Disclosure Act, as well as certain rules of the Federal
Trade Commission. These laws require that certain disclosures be made to
applicants, prohibit misleading advertising and protect against discriminatory
financing or unfair credit practices. The Truth in Lending Act and Regulation Z
promulgated thereunder require disclosure of, among other things, the terms of
repayment, the final maturity, the amount financed, the total finance charge and
the annual percentage rate charged on each manufactured home loan contract. The
Equal Credit Opportunity Act prohibits creditors from discriminating against
loan applicants (including retail installment contract obligors) on the basis of
race, color, national origin, gender, age, marital status, reliance upon public
assistance income or the consumer's exercise of rights under the Consumer Credit
Protection Act. Under the Equal Credit Opportunity Act, creditors are required
to make certain disclosures to consumers regarding their rights, and to provide
certain notices of adverse credit decisions to consumers who have applied for
credit. The rules of the Federal Trade Commission limit the types of property a
creditor may accept as collateral to secure a consumer loan, and its "holder in
due course" rules provide for the preservation of a consumer's claims and
defenses when a consumer obligation is sold or assigned to third party.
The sale of insurance products by Dynex Insurance Agency, Inc., our
insurance subsidiary, is subject to various state insurance laws (including
licensure requirements) and regulations which govern allowable charges and other
practices.
Our commercial mortgage lending activities do not usually require
state-by-state licensure. However, our commercial mortgage loans are required to
comply with parts of the Equal Credit Opportunity Act, certain civil rights
laws, and a number of state laws and regulations related to required or
prohibited loan
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terms, interest rate limits, permitted collateral and related terms, servicing
and collection, and similar issues.
The regulatory procedures discussed above are subject to changes by the
regulatory authorities. There are no assurances that future regulatory changes
will not occur. These regulatory changes could place additional burdens on us
and our subsidiaries.
PROPERTIES
Our corporate headquarters is located in approximately 14,800 square feet
of leased space in Birmingham, Michigan. The lease, which terminates on October
31, 2001, currently provides for monthly rent of $35,000, including base rent
and a pro rata share of operating expenses and real estate taxes. We have an
option to renew the lease for an additional three years.
Hartger & Willard leases space in Grand Rapids, Michigan for a portion of
its commercial mortgage servicing and origination operations. The lease covers
approximately 4,300 square feet with a monthly rent of $5,300. Hartger & Willard
also subleases space to a tenant in Bloomfield Hills, Michigan. The sublease
covers a space of approximately 2,100 square feet with a monthly rent of $3,900.
The lease agreement expires in August 2000.
Dynex Financial leases office space for its various offices throughout the
country. It currently has a lease expiring in July 2003 for approximately 9,700
square feet of office space in Glen Allen, Virginia with a current monthly rent
of approximately $13,000; a lease expiring in September 2003 for approximately
6,100 square feet of office space in Duluth, Georgia with a current monthly rent
of approximately $8,000; a lease expiring in December 2002 for approximately
4,700 square feet of office space in Loveland, Ohio with a current monthly rent
of approximately $4,000; a lease expiring in October 2000 for approximately
4,700 square feet of office space in Bedford, Texas with a current monthly rent
of approximately $6,000; and a lease expiring in August 2004 for approximately
21,000 square feet of office space in Fort Worth, Texas with a current monthly
rent of approximately $27,000. Dynex Financial is also a party to several leases
for space in which it formerly operated offices and is in the process of
negotiating subleases or terminations of these leases.
LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to our business and the business of our
subsidiaries, or proceedings known by us to be contemplated by governmental
authorities, to which we or our subsidiaries are a party or to which any of our
or their property is subject.
BOARD OF DIRECTORS AND COMMITTEES
Our board of directors is divided into three classes, as equal in number as
possible. At each annual meeting, the successors to the class of directors whose
terms expire at that meeting will be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their election.
Messrs. Shiffman, Orley and Bober have terms expiring at the annual meeting
and are nominees for the class to hold office for a term expiring at the annual
meeting of stockholders to be held in 2003. Messrs. Gordon, Raiskin and Hermelin
have terms expiring at the annual meeting of stockholders to be held in 2001 and
Messrs. Klein, Weiss and Weber have terms expiring at the annual meeting of
stockholders to be held in 2002. However, if the merger is completed, Bingham's
board of directors will be reconfigured and certain of the current directors
will serve in classes other than their current classes. See "The
Merger -- Management and Boards of Directors after the Merger."
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The board of directors met five times during the year ended September 30,
1999 and took various actions by written consent without a meeting. All
directors attended at least 75% of the meetings of the board and of each
committee on which they served.
Committees made up of members of the board perform several important
functions of the board of directors. Our bylaws authorize the formation of
committees and grant the board the authority to prescribe the functions and
standards for membership of each committee. In addition, the board appoints the
members of each committee. The board currently has three standing committees: an
Audit Committee, a Compensation Committee and a Nominating Committee. The
composition of each of these committees is likely to change after the merger to
include Franklin designees to the board of directors. The board of directors
recently disbanded its Executive Committee.
AUDIT COMMITTEE
The Audit Committee:
- annually recommends a firm of independent public accountants to the board
of directors to act as auditors of Bingham;
- reviews the scope of the annual audit with the auditors in advance of the
audit;
- generally reviews the results of the audit and the adequacy of our
accounting, financial and operating controls;
- reviews our accounting and reporting principles, policies and practices;
and
- performs such other duties as may be delegated to it by the board.
The members of the Audit Committee as of September 30, 1999 were Robert H. Orley
and Mark A. Gordon. Currently, the Audit Committee is comprised of Messrs.
Orley, Gordon and Brian M. Hermelin. The Audit Committee held three formal
meetings during the fiscal year ended September 30, 1999.
COMPENSATION COMMITTEE
The Compensation Committee:
- reviews and modifies the compensation (including salaries and bonuses) of
our officers as initially set by our President;
- administers our stock option plan; and
- performs such other duties as may be delegated to it by the board.
The members of the Compensation Committee as of September 30, 1999 were Mr.
Hermelin, Arthur A. Weiss and James Raiskin. Currently, the Compensation
Committee is comprised of Messrs. Hermelin, Weiss, Raiskin and Orley. During the
fiscal year ended September 30, 1999, the Compensation Committee did not hold
any formal meetings but took various actions by written consent without a
meeting. See "-- Report of the Compensation Committee on Executive
Compensation".
NOMINATING COMMITTEE
During the fiscal year ended September 30, 1999, the board of directors did
not have a standing committee responsible for nominating individuals to become
directors. The entire board of directors performed the function of such a
committee.
The board recently established a Nominating Committee to:
- nominate persons for election or appointment to the office of director of
Bingham; and
- perform such other duties as may be delegated to it by the board.
Currently, the Nominating Committee is comprised of Messrs. Shiffman, Weiss and
Klein. The Nominating Committee will consider nominees recommended by
stockholders upon submission in writing
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to Bingham's Secretary of the names of the nominees, together with their
qualifications for service as a director of Bingham.
EXECUTIVE COMMITTEE
The board established an Executive Committee to generally manage the
day-to-day business and affairs of Bingham between regular board meetings. As of
September 30, 1999, the members of the Executive Committee were Messrs.
Shiffman, Klein and Bober. The Executive Committee did not hold any formal
meetings during the fiscal year ended September 30, 1999. The board recently
disbanded the Executive Committee and all of the functions of the Executive
Committee are now performed by the entire board.
MANAGEMENT AND COMPENSATION
EXECUTIVE OFFICERS OF BINGHAM
The following table contains information about executive officers and other
key employees of Bingham.
<TABLE>
<CAPTION>
NAME AGE OFFICE(S)
---- --- ---------
<S> <C> <C>
Daniel E. Bober........................... 41 Vice President
W. Anderson Geater........................ 51 Chief Financial Officer and Treasurer
Ronald A. Klein........................... 42 President and Chief Executive Officer
J. Peter Scherer.......................... 50 Chief Operating Officer
Gary A. Shiffman.......................... 46 Chairman of the Board and Secretary
Creighton J. Weber........................ 45 Vice President
</TABLE>
See "The Merger -- Management and Boards of Directors after the Merger" for
background information for Messrs. Shiffman, Klein, Bober and Weber.
W. ANDERSON GEATER, 51, has been Bingham's Chief Financial Officer and
Treasurer since May 2000. From 1994 through April 2000, Mr. Geater was the Chief
Financial Officer and Chief Administrative Officer of UFS Holdings, LLC and
Central Park Capital, LLC. UFS Holdings provides a wide range of support
services to financial institutions related to mortgage products. Central Park
Capital originates commercial real estate mortgage loans. From 1991 to 1993, Mr.
Geater was the Chief Operating Officer of First Mortgage Strategies Group, Inc.,
which provides support services related to mortgage products. From 1990 to 1991,
he was the director of financial services for Pannell Kerr Forster, a public
accounting firm. From 1975 to 1990, he was Executive Vice President and Chief
Financial Officer of Leader Federal Bank for Savings, a national savings bank.
Before joining Leader Federal Bank, Mr. Geater was an audit supervisor with the
public accounting firm of KPMG Peat Marwick.
J. PETER SCHERER, 50, has been Bingham's Chief Operating Officer since
October 1999. From 1984 through 1998 he served in various capacities at The
Taubman Company, a publicly-traded company engaged in the ownership, management,
leasing, acquisition, development, and expansion of regional shopping centers.
Mr. Scherer was most recently Senior Vice President and chairman of the asset
management group at Taubman. From 1976 to 1980 and from 1980 to 1984 Mr. Scherer
was an attorney with American Motors Corporation and Volkswagen of America,
Inc., respectively.
To the best of Bingham's knowledge, there have been no events under any
bankruptcy act, no criminal proceedings and no judgments or injunctions that are
material to the evaluation of the ability or integrity of any executive officer
during the past five years.
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EXECUTIVE COMPENSATION
The following table shows all compensation paid to our Chief Executive
Officer and each executive officer whose compensation from Bingham exceeded
$100,000 during the fiscal year ended September 30, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-----------------------
SECURITIES
YEAR ANNUAL COMPENSATION RESTRICTED UNDERLYING ALL OTHER
ENDED -------------------- STOCK OPTIONS/ COMPENSA-
NAME AND PRINCIPAL POSITION 9/30 SALARY($) BONUS($) BONUS($) SARS(#) TION($)
--------------------------- ----- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ronald A. Klein.................... 1999 105,500 50,000 145,000(2) 5,000 --
President and Chief Executive
Officer(1)
Jeffrey P. Jorissen................ 1999 -- -- -- -- --
Chief Financial Officer and 1998 -- 15,000 -- 10,000 --
Treasurer(3)
Daniel E. Bober.................... 1999 155,625 150,000(4) -- -- 25,000(5)
Vice President 1998 87,500 -- -- -- 14,583(5)
Creighton J. Weber................. 1999 155,625 150,000(6) -- -- 25,000(7)
Vice President 1998 87,500 -- -- -- 14,583(7)
</TABLE>
---------------
(1) Mr. Klein was appointed Bingham's Chief Executive Officer in February 1999.
(2) On April 14, 1999, Bingham granted Mr. Klein 10,000 shares of restricted
stock of which 5% vest on April 14, of 2000 and 2001 and 25% vest on April
14, 2002, and 2003 and the balance vests on April 14, 2004. As of September
30, 1999, the value of these restricted shares (as determined in accordance
with the rules promulgated by the Securities and Exchange Commission) was
$100,000. If dividends on Bingham's common stock are paid, Mr. Klein has the
right to receive any dividends paid on these restricted shares.
(3) Mr. Jorissen served as Bingham's Chief Executive Officer until he resigned
in February 1999 and as Chief Financial Officer and Treasurer until he
resigned in April 2000.
(4) Mr. Bober earned this bonus for services rendered to Bingham for the period
from March of 1998 through March of 1999. Mr. Bober and Bingham have agreed
that the bonus will be paid in equal installments over a period of seventeen
months, beginning September 1, 1999.
(5) Represents contribution to an annuity plan of Mr. Bober's choice.
(6) Mr. Weber earned this bonus for services rendered to Bingham for the period
from March of 1998 through March of 1999. Mr. Weber and Bingham have agreed
that the bonus will be paid in equal installments over a period of seventeen
months, beginning September 1, 1999.
(7) Represents contribution to an annuity plan of Mr. Weber's choice.
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OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING /SARS EXERCISE PRICE APPRECIATION FOR
OPTIONS/ GRANTED TO OR BASE OPTION TERM(1)
SARS EMPLOYEES PRICE EXPIRATION -----------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SH.) DATE 5%($) 10%($)
---- ---------- -------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ronald A. Klein............... 5,000 15.27% 14.50 4/14/09 45,595 115,546
Jeffrey P. Jorissen........... -- N/A N/A N/A N/A N/A
Daniel E. Bober............... -- N/A N/A N/A N/A N/A
Creighton J. Weber............ -- N/A N/A N/A N/A N/A
</TABLE>
---------------
(1) The dollar amounts in this table are the result of calculations at stock
appreciation rates specified by the Securities and Exchange Commission and
are not intended to forecast actual future appreciation rates of Bingham's
stock price.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS OPTIONS/SARS AT
AT FISCAL YEAR END(#)(1) FISCAL YEAR END($)(2)
SHARES ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE(#) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Ronald A. Klein(3)................... -- -- 5,000 N/A N/A
Jeffrey P. Jorissen(4)............... -- 6,666 3,334 N/A N/A
Daniel E. Bober...................... -- -- -- N/A N/A
Creighton J. Weber................... -- -- -- N/A N/A
</TABLE>
---------------
(1) All options granted under the 1997 option plan must be exercised within ten
years of the date of grant.
(2) None of the options included in this table were in the money as of September
30, 1999.
(3) Stock options granted April 14, 1999 under the 1997 option plan. Mr. Klein's
options have an exercise price of $14.50 per share.
(4) Stock options granted November 13, 1997 under the 1997 option plan. Mr.
Jorissen's options have an exercise price of $10 per share.
COMPENSATION OF DIRECTORS
Directors who are not employees of Bingham are entitled to an annual
retainer fee of $12,000, payable $3,000 per calendar quarter. For services
during the fiscal year ended September 30, 1999, Mr. Hermelin and Mr. Orley each
earned directors' fees of $12,000 and James Raiskin and Mark A. Gordon each
earned directors' fees of $7,000. Mr. Weiss declined director's fees of $12,000
earned for services during the fiscal year ended September 30, 1999.
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EMPLOYMENT AGREEMENTS
Ronald A. Klein
We have entered into an employment agreement with Ronald A. Klein under
which Mr. Klein serves as Bingham's Chief Executive Officer and President. Mr.
Klein's employment agreement is for an initial term of three years ending
December 31, 2002. The term is automatically renewed for successive one year
periods unless either party terminates the agreement. Mr. Klein's annual base
salary in the first, second and third year of the agreement is $250,000,
$275,000 and $300,000, respectively. After the third year, the base salary will
be increased by 5% or more per year as determined by our board. Mr. Klein will
be paid an annual bonus under the terms of an executive bonus plan to be agreed
upon by us and Mr. Klein. The agreement provides for a cash payment of up to
2.99 times Mr. Klein's base salary if there is a change in control of Bingham.
Mr. Klein's employment agreement precludes him for the term of the agreement
plus 18 months, from diverting business from Bingham or its subsidiaries or
inducing anyone to leave the employment of Bingham or its subsidiaries.
Daniel E. Bober
Bingham, Bloomfield Acceptance Company, L.L.C., and Bloomfield Servicing
Company, L.L.C. have entered into an employment agreement with Daniel E. Bober
under which Mr. Bober serves as President of Bloomfield Acceptance and as
Executive Vice President of Bloomfield Servicing. Mr. Bober's employment
agreement is for an initial term of three years ending March 4, 2001. In
consideration for his services, Mr. Bober will be paid an annual base salary of
$150,000, which will be increased by five percent per year. In addition to this
base salary, Bingham will contribute premiums to an annuity plan not to exceed
$25,000 annually and Mr. Bober is entitled to an annual bonus in accordance with
the terms of an executive bonus plan to be agreed upon by Bingham and Mr. Bober.
Mr. Bober's employment agreement precludes him, (a) for the term of the
agreement plus two years, from diverting business from Bingham or its
subsidiaries, and (b) for the term of the agreement plus one year, diverting
business from Bingham or its subsidiaries or inducing anyone to leave the
employment of Bingham or its subsidiaries.
Creighton J. Weber
Bingham, Bloomfield Acceptance and Bloomfield Servicing have entered into
an employment agreement with Creighton J. Weber under which Mr. Weber serves as
Executive Vice President of Bloomfield Acceptance and Bloomfield Servicing. Mr.
Weber's employment agreement is for an initial term of three years ending March
4, 2001. In consideration for his services, Mr. Weber will be paid an annual
base salary of $150,000, which will be increased by five percent per year. In
addition to this base salary, Bingham will contribute premiums to an annuity
plan not to exceed $25,000 annually and Mr. Weber is entitled to an annual bonus
in accordance with the terms of an executive bonus plan to be agreed upon by
Bingham and Mr. Weber. Mr. Weber's employment agreement precludes him, (a) for
the term of the agreement plus two years, from diverting business from Bingham
or its subsidiaries, and (b) for the term of the agreement plus one year,
diverting business from Bingham or its subsidiaries or inducing anyone to leave
the employment of Bingham or its subsidiaries.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Compensation Committee:
- sets, reviews and modifies the compensation (including salaries and
bonuses) of our officers
- administers our 1997 stock option plan; and
- performs such other duties as may be delegated to it by the board of
directors.
The members of the Compensation Committee from October 1, 1998 to December 3,
1998 were Messrs. Shiffman, Orley and Hermelin. Mr. Shiffman is Bingham's
Chairman of the Board and Secretary. The members from December 3, 1998 to June
11, 1999 were Messrs. Hermelin and Weiss. From June 11,
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<PAGE> 101
1999 to March 19, 2000, the members were Messrs. Hermelin, Weiss and Raiskin.
Since March 19, 2000, the members have been Messrs. Hermelin, Weiss, Raiskin and
Orley.
Mr. Shiffman, is also a director and executive officer of Sun. Mr. Weiss'
law firm provided services to Bingham in fiscal year ended September 30, 1999.
See "-- Certain Relationships and Related Transactions".
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Policy of Executive Officer Compensation
The Compensation Committee of the board of directors, which is comprised of
non-employee directors, Messrs. Hermelin, Raiskin, Orley and Weiss, administers
the executive compensation program. The program supports our commitment to
providing superior stockholder value. It is designed to attract and retain
high-quality executives, to encourage them to make career commitments to us, and
to accomplish our short and long term objectives. The Compensation Committee
attempts to structure a compensation program for us that will reward our top
executives with bonuses and stock and option awards upon attainment of specified
goals and objectives while striving to maintain salaries at reasonably
competitive levels. The Compensation Committee did not hold any formal meetings
during the fiscal year ended September 30, 1999 but took various actions by
written consent without a meeting.
In reviewing the compensation to be paid to our executive officers during
the fiscal year ended September 30, 1999, the Compensation Committee sought to
ensure that executive officers were rewarded for long-term strategic management,
for increasing Bingham's value for our stockholders, and for achieving internal
goals established by the board of directors.
The key components of executive officer compensation are salary, bonuses
and stock option awards. Salary is generally based on factors such as an
individual officer's level of responsibility, prior years' compensation,
comparison to compensation of other Bingham officers, and compensation provided
at competitive companies and companies of similar size. Bonuses and stock option
awards are intended to reward exceptional performances. Benchmarks for
determining base salary and bonus levels include performance of Bingham's
operations, strength of the balance sheet and creation of stockholder value.
Stock option awards are also intended to increase an officer's interest in our
long-term success as measured by the market and book value of its common stock.
Stock awards may be granted to our and our subsidiaries' officers, employees,
directors and consultants under our stock option plan. Stock awards may be stock
options, stock appreciation rights, restricted share rights or any variation
thereof. Four executive officers and directors and 27 other employees and
consultants received stock options or restricted stock awards under the 1997
option plan for services rendered during the fiscal year ended September 30,
1999.
CEO Compensation
Jeffrey P. Jorissen served as Chief Executive Officer until he resigned on
February 21, 1999 and as Chief Financial Officer and Treasurer until he resigned
on April 17, 2000. Mr. Jorissen is also the Senior Vice President, Treasurer,
Chief Financial Officer and Secretary of Sun Communities, Inc., our former
parent company. In consideration of their past relationship and in an effort to
ensure that the transition of Bingham from a wholly-owned subsidiary of Sun to a
publicly held company was successful, Mr. Jorissen agreed to serve as our Chief
Executive Officer on an interim basis during the transitional period.
Mr. Jorissen did not receive any compensation from us for the year ended
September 30, 1999. However, Mr. Jorissen is compensated by Sun separately for
serving as an executive officer of Sun on a full-time basis. See "-- Certain
Relationships and Related Transactions."
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<PAGE> 102
Ronald A. Klein served as Chief Executive Officer for the remainder of the
year ending September 30, 1999. Mr. Klein was paid a salary of $105,500 and an
incentive-based bonus of $50,000 during the last fiscal year. In addition, Mr.
Klein received a restricted stock award of 10,000 shares of common stock and
stock options to purchase 5,000 shares of common stock on April 14, 1999. The
Compensation Committee believes that Mr. Klein's total compensation for the year
ended September 30, 1999 was appropriate for his position, particularly in view
of his performance. Bingham and Mr. Klein entered into an employment agreement
as of January 1, 2000. See "-- Employment Agreements."
Respectfully submitted,
Brian M. Hermelin
Robert H. Orley
James A. Raiskin
Arthur A. Weiss
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<PAGE> 103
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The line graph below compares the yearly percentage change in the
cumulative total stockholder return on Bingham's common stock against the
cumulative total return of a broad market index composed of all issuers listed
on the Nasdaq SmallCap Market, the SNL Mortgage Company Index (an industry index
composed of 60 publicly-traded residential mortgage companies) and the SNL
Commercial Lenders Index (and industry index composed of 34 publicly-traded
commercial mortgage companies), for the period starting on November 13, 1997
(the date of Bingham's initial public offering) and ending on September 30,
1999. This line graph assumes a $100 investment on November 13, 1997, a
reinvestment of dividends and actual increase of the market value of Bingham's
common stock relative to an initial investment of $100. The comparisons in this
table are required by the SEC and are not intended to predict future performance
of Bingham's common stock.
TOTAL RETURN PERFORMANCE
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Period Ending
-------------
Index 11/13/1997 03/31/1998 09/30/1998 03/31/1999 09/30/1999
----- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Bingham Financial
Services Corporation 100.00 153.85 135.90 157.69 102.56
NASDAQ -- Total US 100.00 118.39 109.85 159.47 178.39
SNL Mortgage Company
Index 100.00 106.68 67.15 62.52 49.87
SNL Commercial Lenders
Index 100.00 127.19 87.27 87.66 75.37
</TABLE>
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<PAGE> 104
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors, executive officers and beneficial owners of more than 10% of our
capital stock to file reports of ownership and changes of ownership with the SEC
and Nasdaq. Based solely on its review of the copies of such reports received by
it, and written representations from certain reporting persons, we believe that
during the year ended September 30, 1999, our directors, executive officers and
beneficial owners of more than 10% of our common stock timely filed all required
reports, except that:
- Gary A. Shiffman, the Chairman of the Board and the Secretary of Bingham,
filed one late report on Form 4 regarding one transaction and filed a
Form 5 reporting one late Form 4 transaction;
- Daniel E. Bober, a director and Vice President of Bingham, filed a Form 5
reporting one late Form 4 transaction;
- Creighton J. Weber, a director and Vice President of Bingham, filed a
Form 5 reporting one late Form 4 transaction; and
- Milton M. Shiffman, a beneficial owner of more than 10% of Bingham's
common stock, failed to file one Form 4 for eight transactions.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based upon information available to us, the following table shows, as of
April 17, 2000, the shareholdings of:
- each person known to us to be the beneficial owner of more than 5% of our
common stock;
- each of our directors;
- each executive officer listed in the Summary Compensation Table; and
- all of our executive officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING SHARES(1)
------------------- -------------------- ---------------------
<S> <C> <C>
Gary A. Shiffman...................................... 83,666(2) 3.16 %
31700 Middlebelt Road, Suite 145
Farmington Hills, MI 48334
Ronald A. Klein....................................... 18,666(3) *
260 E. Brown Street, Suite 200
Birmingham, MI 48009
Robert H. Orley....................................... 92,500(4) 3.49
2000 North Woodward, Suite 130
Bloomfield Hills, MI 48304
Brian M. Hermelin..................................... 135,000(5) 5.10
2064 D Street
Belleville, MI 48111
Arthur A. Weiss....................................... 8,000(6) *
One Woodward Avenue, Suite 2400
Detroit, MI 48226
Daniel E. Bober....................................... 113,584(7) 4.29
260 E. Brown Street, Suite 200
Birmingham, MI 48009
Creighton J. Weber.................................... 113,584 4.29
260 E. Brown Street, Suite 200
Birmingham, MI 48009
</TABLE>
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<PAGE> 105
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING SHARES(1)
------------------- -------------------- ---------------------
<S> <C> <C>
James Raiskin......................................... 1,000 *
300 Nantucket
Bloomfield Hills, Michigan 48304
Mark A. Gordon........................................ 0 *
3155 W. Big Beaver Rd.
Troy, Michigan 48084
Jeffrey P. Jorissen................................... 19,500(8) *
31700 Middlebelt Road, Suite 145
Farmington Hills, MI 48334
Estate of Milton M. Shiffman.......................... 295,134(9) 11.15
31700 Middlebelt Road, Suite 145
Farmington Hills, MI 48334
All current executive officers and.................... 562,253 21.60
directors as a group (11 persons)(10)
</TABLE>
---------------
* Less than 1% of the outstanding shares.
(1) In accordance with SEC regulations, the percentage calculations are based
on 2,643,074 shares of common stock issued and outstanding as of April 17,
2000 plus shares of common stock which may be acquired pursuant to options
exercisable within 60 days of April 17, 2000 by each individual or group
listed.
(2) Includes 5,000 shares of common stock which may be acquired pursuant to
options exercisable within 60 days of April 17, 2000.
(3) Includes 1,666 shares of common stock which may be acquired pursuant to
options exercisable within 60 days of April 17, 2000 and 1,000 shares of
common stock held by a trust for the benefit of Mr. Klein's wife.
(4) Includes 5,000 shares of common stock which may be acquired pursuant to
options exercisable within 60 days of April 17, 2000. Includes 60,000
shares held by the Four O Group, L.L.C., a Michigan limited liability
company, which are attributable to Mr. Orley because he is the manager of
the limited liability company. Includes 7,500 shares held by Mr. Orley's
wife which are attributable to him.
(5) Includes 5,000 shares of common stock which may be acquired pursuant to
options exercisable within 60 days of April 17, 2000. Includes 70,000
shares of common stock held by Kamar J. Fabri, a Michigan limited
partnership, and 18,000 shares of common stock held by Lamm Investments, a
Michigan limited partnership, which are attributable to Mr. Hermelin
because he is the President of Gamm, Inc. a Michigan corporation and the
general partner of the partnerships.
(6) Includes 5,000 shares of common stock which may be acquired pursuant to
options exercisable within 60 days of April 17, 2000. Does not include
22,500 shares of common stock held by a trust of which Mr. Weiss is the
trustee. Mr. Weiss disclaims beneficial ownership to the shares owned by
that trust. Mr. Weiss is also the co-personal representative of the estate
of Milton M. Shiffman and may be deemed to beneficially own the shares in
Mr. Shiffman's estate. Mr. Weiss disclaims beneficial ownership of such
shares.
(7) Does not include 200 shares of common stock held by two trusts for the
benefit of Mr. Bober's children, as to which beneficial ownership is
disclaimed.
(8) Includes 10,000 shares of common stock which may be acquired pursuant to
options exercisable within 60 days of April 17, 2000. Does not include
1,000 shares of common stock held by a family member as to which beneficial
ownership is disclaimed.
(9) Includes 5,000 shares of common stock which may be acquired pursuant to
options exercisable within 60 days of April 17, 2000. Includes 54,300
shares of common stock held by the late Mr. Shiffman's wife.
(10) Does not include Mr. Jorissen, who is not currently one of our executive
officers.
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<PAGE> 106
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended September 30, 1999, the law firm of Jaffe,
Raitt, Heuer & Weiss, Professional Corporation, acted as our general counsel and
represented us in various matters. Arthur A. Weiss, one of our directors, is a
shareholder of Jaffe, Raitt. We paid fees of approximately $492,000 to Jaffe,
Raitt for the fiscal year ended September 30, 1999.
During the fiscal year ended September 30, 1999, the accounting firm of
Plante & Moran, LLP acted as consultants to us. On September 30, 1999, we
engaged Plante & Moran as our independent accountants. Joseph G. Horonzy, our
Executive Vice President, was employed by Plante & Moran until April 2000. We
paid fees to Plante & Moran of approximately $385,000 for the fiscal year ended
September 30, 1999.
On April 28, 1999 we completed a private placement of our common stock. In
the private placement, Gary A. Shiffman purchased 51,334 shares; Robert H. Orley
purchased 10,000 shares; Four O Group, L.L.C. purchased 30,000 shares; Brian M.
Hermelin purchased 12,000 shares; Kamar J. Fabri purchased 70,000 shares; Lamm
Investments purchased 18,000 shares; and Milton M. Shiffman purchased 148,334
shares. Gary A. Shiffman is our Chairman of the Board and Secretary. Mr. Orley
is one of our directors and the manager of Four O Group, L.L.C. Mr. Hermelin is
one of our directors and the president of Gamm, Inc., which is the general
partner of both Kamar J. Fabri and Lamm Investments. Milton M. Shiffman was Gary
A. Shiffman's father and his estate is a beneficial owner of more than 5% of our
common stock. The private placement was for a total of 800,330 shares. All
shares were purchased at $15 per share.
Mr. Shiffman is a director and executive officer, Mr. Weiss is a director,
and Mr. Jorissen is an executive officer of Sun. Sun through its operating
subsidiary, Sun Communities Operating Limited Partnership, provides financial
assistance to us under a $4 million term loan, a $10 million line of credit and
a $50 million demand line of credit. See "Additional Information about
Bingham -- Business of Bingham -- Financing."
In connection with the $4 million term loan from Sun in 1997, we issued
warrants to Sun to purchase up to 400,000 shares of common stock at our initial
public offering price of $10 per share. In exchange for offering us as a
preferred financing source to potential home buyers in Sun's communities we
granted Sun options to purchase 330,000 shares of our common stock. These
options vest in eight equal annual amounts beginning in January 2001. In April
1999, like other dealers, Sun began to receive a 1% origination fee. Before
April 1999, Sun received an annual fee based on average loan balances. For the
year ended September 30, 1999, we paid Sun $217,000 for its services under this
prior arrangement. We paid Sun a fee of $75,000 for the year ended September 30,
1999 as reimbursement for general and administrative expenses. We will no longer
pay Sun a fee for these expenses.
As part of our plan to conduct all of our manufactured home loan
origination operations through Dynex Financial, in March 2000, Dynex Financial
purchased $66.9 million of loans from MHFC, Inc., our subsidiary specializing in
manufactured home lending, and we sold MHFC to Gwenuc, LLC, a limited liability
company owned by Gary A. Shiffman, our Chairman. Gwenuc paid us $400,000 in cash
and assumed $2.7 million of debt to us. The cash portion of the purchase price
may be adjusted upward or downward pursuant to a fairness opinion as to the fair
market value of MHFC to be rendered by a third party appraiser. Bingham now
conducts all of its manufactured home loan origination activities through Dynex
Financial.
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<PAGE> 107
ADDITIONAL INFORMATION ABOUT FRANKLIN
BUSINESS OF FRANKLIN
HISTORY OF FRANKLIN
Franklin was incorporated in 1983. Its business strategy has been focused
on low cost deposit gathering and niche lending activities designed to serve
small to medium-sized businesses, the business owners and, to a lesser extent,
individual customers found in Franklin's principal markets. While Franklin
offers many standard lending and deposit products, it promotes its deposit
products and services through a non-traditional delivery platform which
emphasizes courier deposit pick-up services, lockbox remittance services and
free ATMs, all of which do not require significant branch facilities.
Franklin maintains its principal office and a business center in
Southfield, Michigan and three full service regional branches located in
Southfield, Birmingham and Grosse Pointe Woods, Michigan. At March 31, 2000,
Franklin had three subsidiaries, Franklin Home Lending Group, Inc. (see
discussion below), Franklin Finance Corporation (a REIT formed to provide an
additional means to raise capital which counts toward Franklin's required levels
of capital for regulatory purposes) and Ben Properties, Inc., (a company formed
to hold Franklin's repossessed assets), all Michigan corporations.
LENDING ACTIVITIES
In recent years, Franklin's lending activities have focused on originating
commercial mortgage loans, other non-real estate commercial loans, residential
construction loans and, to a lesser extent, consumer loans. Since 1998, Franklin
has ceased making lease loans and has aggressively reduced the size of its lease
portfolio.
Commercial Real Estate Lending. Franklin has historically originated
permanent loans secured by commercial real estate and, to a significantly lesser
extent, land development loans. Essentially all commercial real estate loans
originated by Franklin to date have been secured by real property located in
Michigan.
Franklin's commercial real estate loans generally are for terms of five to
ten years with 25-year amortization periods, generally have loan-to-value ratios
of up to 80% of the appraised value of the secured property, and are typically
secured by full or partial personal guarantees of the borrowers. At March 31,
2000, approximately 39% of Franklin's commercial real estate loan portfolio had
adjustable rates. Of these, 100% are tied to prime.
At March 31, 2000, Franklin's largest commercial real estate loan was a
$4.1 million loan secured by a multi-family project located in Haslett, Michigan
Franklin had only five other commercial real estate loans in excess of $2.5
million at such date. At March 31, 2000, all of these loans were performing in
accordance with their payment terms.
Commercial real estate lending entails potential risks which are not
inherent in other types of lending. These potential risks include the
concentration of principal in a limited number of loans and borrowers, the
effects of a decline in commercial real estate values on property
collateralizing the loan, and the effects of a decline in general economic
conditions on income producing properties. Furthermore, the repayment of loans
secured by commercial real estate is typically dependent upon the successful
operation of the related real estate project. If the cash flow from the project
is reduced (for example, if leases are not obtained or renewed, or a bankruptcy
court modifies a lease term, or a major tenant is unable to fulfill its lease
obligations), the borrower's ability to repay the loan may be impaired.
Commercial Lending. To a lesser extent, Franklin originates both secured
and unsecured commercial loans to small and medium-sized businesses located in
Southeast Michigan. The loans include term loans, lines of credit, documentary
and standby letters of credit and a proprietary unsecured line of credit
product. Loans originated on a secured basis generally have interest rates tied
to the prevailing prime interest rate. Collateral consists of accounts
receivable, inventory, specific equipment and other designated
99
<PAGE> 108
business assets. All such loans typically are wholly or partially personally
guaranteed by the business owner or related parties.
An unsecured small business line of credit is available to Franklin's
qualified business checking account customers in amounts up to $150,000. These
loans are structured at higher rates than are charged other types of business
borrowers. Franklin guarantees each customer a 24-hour loan review process.
Commercial loans involve significant risk and typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment of
commercial business loans may be substantially dependent on the success of the
business itself. Further, the collateral securing the loans may depreciate over
time, may be difficult to appraise and may fluctuate in value based on the
success of the business.
Residential Construction Lending. Through its subsidiary, Franklin Home
Lending Group, Inc., Franklin makes construction loans to builders and
developers for the construction of one-to-four family residences in its lending
market area. To a lesser extent, Franklin also makes construction loans on
single-family residences to individuals who will ultimately be the
owner-occupier of the house. Substantially all of Franklin's construction loans
have been originated with adjustable rates of interest and have terms of
eighteen months or less.
Franklin's risk of loss on a construction loan is dependent largely upon
the accuracy of the initial estimate of the property's value upon completion of
the project and the estimated cost (including interest) of the project. If the
estimate of construction cost proves to be inaccurate, Franklin may be required
to advance funds beyond the amount originally committed in order to permit
completion of the project. If the estimate of value proves to be inaccurate,
Franklin may be confronted, at or prior to the maturity of the loan, with a
project having a value which is insufficient to assure full repayment. When loan
payments become due, borrowers may experience cash flow from the property which
is not adequate to service total debt. In such cases, Franklin may be required
to modify the terms of the loan.
Consumer Lending. Franklin originates directly and through various dealers
a limited number of consumer loans, which are offered at fixed and adjustable
rates of interest. In late 1999, Franklin entered into an agreement with
MichCon, a large Michigan utility company, from which Franklin expects to
significantly increase its consumer home improvement loan portfolio.
Consumer loans generally entail greater risk than do mortgage loans, since
many consumer loans are typically unsecured or secured by rapidly depreciating
assets such as automobiles and home improvement collateral. In such cases, any
repossessed collateral for defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. The remaining deficiency often does
not warrant further substantial collection efforts against the borrower beyond
obtaining a deficiency judgment. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability, and thus are more
likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy. Furthermore, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans.
LOANS TO ONE BORROWER
Under federal law, the aggregate amount of loans that Franklin is permitted
to make to any one borrower is generally limited to 15% of unimpaired capital
and surplus, plus an additional 10% for consumer installment loans. At March 31,
2000, Franklin's loans to one borrower limit was approximately $8.3 million at
the 15% level and $13.9 million including additional consumer installment loans.
At March 31, 2000, Franklin had no loans to one borrower in excess of its
lending limit.
NONPERFORMING ASSETS AND RISK ELEMENTS
When, in the opinion of management, reasonable doubt exists as to the full
and timely collection of interest or principal on Franklin's outstanding loans,
Franklin will put such loans on nonaccrual status.
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<PAGE> 109
Generally loans are placed on nonaccrual status when either principal or
interest is 90 days or more past due. Franklin generally places these loans on a
nonaccrual status unless some payments on the loan are being made, management
believes the loan will be brought current in the near term and such loans are
well secured and in the process of collection. Interest on loans is generally
accrued daily based on the principal balance outstanding. However, when a loan
is placed on nonaccrual status, the accrual of interest income is discontinued
and uncollected accrued interest is charged against current income.
ALLOWANCE FOR LOAN LOSSES
Based on management's judgment of potential losses in the loan portfolio,
Franklin establishes an allowance for loan losses at levels considered
appropriate. The loan portfolio is reviewed at least quarterly for changes in
performance, collateral value and overall quality. Franklin has engaged a
third-party lending expert to perform quarterly loan reviews. Allocated
allowances are established for unidentified potential losses. Regulatory
agencies, as an integral part of their examination process, periodically review
Franklin's allowance for loan losses. Such agencies may require Franklin to
recognize additions to the allowance based upon their judgment of the
information available to them at the time of their examination. Management's
judgment in determining the level of the allowance for loan losses is influenced
by several factors during the quarterly reviews. These factors include, but are
not limited to, past loan performance and loss experience, current economic and
market conditions, collateral location and market values and delinquency
statistics and ratios. In addition, management considers the level of
non-performing assets and classified assets, the level of lending activity and
the overall size of the loan. Should actual circumstances and losses differ
substantially from management's assumptions or estimates, such allowance for
loan losses may not be sufficient to absorb all future losses, and net loans
could be significantly and adversely affected.
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<PAGE> 110
The following table summarizes the allocation of the allowance for loan
losses by major categories at the dates indicated:
<TABLE>
<CAPTION>
AT MARCH 31,
-----------------------------------------------------------------------------
2000 1999
------------------------------------- -------------------------------------
PERCENT OF PERCENT OF
ALLOCATED ALLOCATED
RESERVE TO PERCENT OF RESERVE TO PERCENT OF
TOTAL ALLOCATED TOTAL ALLOCATED
LOANS RESERVE TO LOANS RESERVE TO
AMOUNT OUTSTANDING TOTAL RESERVE AMOUNT OUTSTANDING TOTAL RESERVE
------- ----------- ------------- ------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial Real Estate Loans...................... $ -- 0.00% 0% $ 63 0.02% 2%
Commercial Non Real Estate Loans.................. 3,239 1.11 84 2,717 0.97 73
Lease Loans....................................... 271 0.09 7 817 0.29 22
Residential Loans................................. 39 0.01 1 60 0.02 2
Consumer Loans.................................... 109 0.04 3 91 0.03 2
Unallocated....................................... 187 0.06 5 -- -- --
------ ------
Total..................................... $3,845 1.32% 100% $3,746 1.33% 100%
====== ======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998
------------------------------------- -------------------------------------
PERCENT OF PERCENT OF
ALLOCATED ALLOCATED
RESERVE TO PERCENT OF RESERVE TO PERCENT OF
TOTAL ALLOCATED TOTAL ALLOCATED
LOANS RESERVE TO LOANS RESERVE TO
AMOUNT OUTSTANDING TOTAL RESERVE AMOUNT OUTSTANDING TOTAL RESERVE
------- ----------- ------------- ------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial Real Estate Loans...................... $ 29 0.01% 1% $ 129 0.04% 3%
Commercial Non Real Estate Loans.................. 2,796 1.01 78 2,709 0.84 60
Lease Loans....................................... 576 0.21 16 1,619 0.50 36
Residential Loans................................. 69 0.02 2 2 0.00 0
Consumer Loans.................................... 114 0.04 3 75 0.02 2
Unallocated....................................... -- -- -- -- -- --
------ ------
Total..................................... $3,584 1.30% 100% $4,533 1.40% 100%
====== ======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------- ------------------------------------- -------
PERCENT OF PERCENT OF
ALLOCATED ALLOCATED
RESERVE TO PERCENT OF RESERVE TO PERCENT OF
TOTAL ALLOCATED TOTAL ALLOCATED
LOANS RESERVE TO LOANS RESERVE TO
AMOUNT OUTSTANDING TOTAL RESERVE AMOUNT OUTSTANDING TOTAL RESERVE AMOUNT
------- ----------- ------------- ------- ----------- ------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial Real
Estate Loans....... $ 48 0.01% 2% $ 180 0.05% 6% $ 454
Commercial Non Real
Estate Loans....... 1,942 0.51 61 1,622 0.41 51 910
Lease Loans.......... 742 0.20 23 1,177 0.30 37 1,308
Residential Loans.... 3 0.00 0 50 0.01 2 78
Consumer Loans....... 446 0.12 14 171 0.04 5 180
Unallocated.......... -- -- -- -- -- -- --
------ ------ ------
Total........ $3,181 0.84% 100% $3,200 0.81% 100% $2,930
====== ====== ======
<CAPTION>
AT DECEMBER 31,
---------------------------
1995
---------------------------
PERCENT OF
ALLOCATED
RESERVE TO PERCENT OF
TOTAL ALLOCATED
LOANS RESERVE TO
OUTSTANDING TOTAL RESERVE
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial Real
Estate Loans....... 0.13% 15%
Commercial Non Real
Estate Loans....... 0.26 31
Lease Loans.......... 0.37 45
Residential Loans.... 0.02 3
Consumer Loans....... 0.05 6
Unallocated.......... -- --
Total........ 0.83% 100%
</TABLE>
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<PAGE> 111
See "Franklin's Management's Discussion and Analysis of Financial Condition and
Results of Operations" relating to the allowance for loan losses, the loan
portfolio composition, loan commitments, loan maturity schedule and
nonperforming assets.
SOURCE OF FUNDS
Deposits are Franklin's primary source of funds for use in lending and for
other general business purposes. In addition to deposits, Franklin derives funds
from loan repayments, advances from the FHLB of Indianapolis and other
borrowings, and at times has derived funds from reverse repurchase agreements
and loan and securities sales. Scheduled loan repayments are a relatively stable
source of funds, while loan prepayments and interest-bearing deposit inflows and
outflows are significantly influenced by general interest rates and money market
conditions. Borrowings may be used to compensate for reductions in normal
sources of funds, such as deposit inflows at less than projected levels or
deposit outflows, or to support expanded activities. Historically, Franklin has
borrowed primarily from the FHLB of Indianapolis and through institutional
reverse repurchase agreements.
Since 1992, Franklin has emphasized its no interest business checking and
money market savings accounts in order to reduce its cost of funds and provide a
more stable, long-term source of deposits than would be available from
certificate of deposits. Its ability to attract and maintain deposits, and its
cost of funds, have been, and will continue to be, significantly affected by
general economic and business conditions.
INVESTMENT ACTIVITIES
Franklin invests in various securities which are acquired in the capital
markets. These investments may consist of mortgage, government, agency,
municipal and corporate debt securities. See "Franklin's Management's Discussion
and Analysis of Financial Condition and Results of Operations" relating to the
securities maturity schedule.
COMPETITION
Franklin competes aggressively for business through a systematic program of
direct calling on both customers and referral sources such as attorneys,
accountants and business people. This program is enhanced by Franklin's
well-established network of existing relationships, which it has created over
the years in the business community, and because of the years of banking
experience and community involvement of its senior personnel. Franklin's
programs and services are further enhanced by its distinctive marketing focus,
including its radio advertising campaign, and by referrals from the growing base
of existing business customers.
Generally, Franklin believes that it should attempt to compete in areas in
which it can truly develop niche products and services to avoid direct
face-to-face competition with larger financial institutions. The larger banks
tend to need very large homogeneous markets in order to support high levels of
automation and systems development. This leaves smaller product markets and
heterogeneous product lines under-served. The larger banks also tend to have
rigid structures which adapt very slowly to changing market environments, which
provides opportunities for smaller institutions that can react more quickly.
Finally, competitive pressures and relaxation of anti-trust policies by the
Justice Department and other regulatory agencies in the past decade, have caused
a rapid increase in the merger and acquisition activity among the larger banks.
This activity has frequently diverted the larger banks' attention away from
their smaller customers in local markets resulting in big-bank customer
dissatisfaction and creating marketing opportunities for many smaller
institutions, such as Franklin.
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<PAGE> 112
REGULATION
Overview
Franklin is a federally chartered national banking association, the
deposits of which are federally insured and backed by the full faith and credit
of the United States Government. Accordingly, Franklin is subject to broad
federal regulation and oversight extending to all its operations by the OCC.
Franklin is a member of the Federal Home Loan Bank ("FHLB") of Chicago and is
subject to certain limited regulation by the Federal Deposit Insurance
Corporation ("FDIC"). Franklin is a member of the Savings Association Insurance
Fund ("SAIF") and its deposits are insured by the FDIC. As a result, the FDIC
has certain regulatory authority over Franklin.
Upon consummation of the merger, Franklin will be a federally-chartered
savings bank and its deposit accounts will continue to be insured by the SAIF.
As a federal savings bank, Franklin will be subject to the supervision,
examination and regulation by the OTS (rather than the OCC) and to OTS
regulations governing such matters as capital standards, mergers, establishment
of branch offices, subsidiary investments and activities and general investment
authority, and it will remain subject to the FDIC's authority to conduct special
examinations. Franklin will be required to file reports with the OTS concerning
its activities and financial condition and will be required to obtain regulatory
approvals prior to entering into certain transactions, including mergers with,
or acquisitions of, other depository institutions.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, after the merger Franklin will be
required to file periodic reports with the OTS and will be subject to periodic
examinations by the OTS and the FDIC. When these examinations are conducted by
the OTS and the FDIC, the examiners may require Franklin to provide for higher
general or specific loan loss reserves. All savings associations are subject to
a semi-annual assessment, based upon the savings association's total assets, to
fund the operations of the OTS.
The OTS also has extensive enforcement authority over all savings
institutions, which will include Franklin. This enforcement authority includes,
among other things, the ability to assess civil money penalties, to issue
cease-and-desist or removal orders and to initiate injunctive actions. In
general, these enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound practices. Other actions or inactions may
provide the basis for enforcement action, including misleading or untimely
reports filed with the OTS. Except under certain circumstances, public
disclosure of final enforcement actions by the OTS is required.
In addition, the investment, lending and branching authority of federal
savings banks are prescribed by federal laws and Franklin will be prohibited
from engaging in any activities not permitted by such laws. For instance, no
savings institution may invest in non-investment grade corporate debt
securities. In addition, the permissible level of investment by federal
associations in loans secured by non-residential real property may not exceed
400% of total capital, except with approval of the OTS. Federal savings
associations are also generally authorized to branch nationwide. Following the
merger, Franklin will be able to branch throughout the State of Michigan, and
its interstate branching authority will be unrestricted.
As a federal savings bank, Franklin's general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At March 31, 2000, Franklin's lending limit
under this restriction was $8.3 million.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit
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<PAGE> 113
systems, asset quality, earnings standards, interest rate risk exposure and
compensation and other employee benefits. Any institution which fails to comply
with these standards must submit a compliance plan. A failure to submit a plan
or to comply with an approved plan will subject the institution to further
enforcement action. No assurance can be given as to whether or in what form the
proposed regulations will be adopted. As a national bank, Franklin is currently
subject to substantially similar guidelines adopted by the OCC.
Insurance of Accounts and Regulation by the FDIC
Franklin is currently a member of the SAIF, which is administered by the
FDIC. Following consummation of the merger, Franklin will continue to be a
member of the SAIF. Deposits are insured up to applicable limits by the FDIC and
such insurance is backed by the full faith and credit of the United States
Government. As insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examinations of and to require reporting by FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious risk
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings associations, after giving the OTS an opportunity to take such
action, and may terminate the deposit insurance if it determines that the
institution has engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well-capitalized (i.e., those with a core capital ratio of at least 5%, a ratio
of Tier 1 or core capital to risk-weighted assets ("Tier 1 risk-based capital")
of at least 6% and a risk-based capital ratio of at least 10%) and considered
healthy pay the lowest premium while institutions that are less than adequately
capitalized (i.e., those with core or Tier 1 risk-based capital ratios of less
than 4% or a risk-based capital ratio of less than 8%) and considered of
substantial supervisory concern pay the highest premium. Risk classification of
all insured institutions will be made by the FDIC for each semi-annual
assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual basis,
if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
Regulatory Capital Requirements
National Banks. As a national bank, Franklin is subject to the OCC capital
regulations. The OCC's regulations establish two capital standards for national
banks: a leverage requirement and a risk-based capital requirement. In addition,
the OCC may, on a case-by-case basis, establish individual minimum capital
requirements for a national bank that vary from the requirements which would
otherwise apply under OCC regulations. A national bank that fails to satisfy the
capital requirements established under the OCC's regulations will be subject to
such administrative action or sanctions as the OCC deems appropriate.
The leverage ratio adopted by the OCC requires a minimum ratio of "Tier 1
capital" to adjusted total assets of 3% for national banks rated composite 1
under the CAMEL rating system for banks. National banks not rated composite 1
under the CAMEL rating system for banks are required to maintain a minimum ratio
of Tier 1 capital to adjusted total assets of 4% to 5%, depending upon the level
and nature of risks of their operations. For purposes of the OCC's leverage
requirement, Tier 1 capital generally consists of the same components as core
capital under the OTS's capital regulations, except that no intangibles except
certain purchased mortgage servicing rights ("PMSRs") and purchased credit card
relationships ("PCCRs") may be included in capital.
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<PAGE> 114
The risk-based capital requirements established by the OCC's regulations
require national banks to maintain "total capital" equal to at least 8% of total
risk-weighted assets. For purposes of the risk-based capital requirement, "total
capital" means Tier 1 capital (as described above) plus "Tier 2 capital" (as
described below), provided that the amount of Tier 2 capital may not exceed the
amount of Tier 1 capital, less certain assets. The components of Tier 2 capital
under the OCC's regulations generally correspond to the components of
supplementary capital under OTS regulations. Total risk-weighted assets
generally are determined under the OCC's regulations in the same manner as under
the OTS's regulations. The OCC is also authorized to require higher levels of
capital for an institution in light of its interest rate risk.
Federal Savings Associations. Following the merger, Franklin will be a
federal savings bank subject to the regulatory capital requirements of the OTS.
The OTS has established capital standards, including a tangible capital
requirement, a leverage ratio (or core capital) requirement and a risk-based
capital requirement applicable to such savings associations. These capital
requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights PMSRs, must be deducted from tangible capital for calculating compliance
with the requirement. At March 31, 2000, Franklin had intangible assets
(goodwill) of $37,000.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital. Franklin had no such subsidiaries at March 31, 2000.
At March 31, 2000, Franklin had tangible regulatory capital of $55.6
million, or 11.3% of adjusted total assets, which is approximately $48.2 million
above the minimum requirement of 1.5% of adjusted total assets in effect on that
date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of PCCRs. As a result of
the prompt corrective action provisions discussed below, however, a savings
association must maintain a core capital ratio of at least 4% to be considered
adequately capitalized unless its supervisory condition is such to allow it to
maintain a 3% ratio. At March 31, 2000, Franklin had no intangibles which were
subject to these tests.
At March 31, 2000, Franklin had core capital equal to $48.7 million, or
9.9% of adjusted total assets, which is $34.1 million above the minimum leverage
ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires savings associations to have total
capital of at least 8% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At March 31, 2000, Franklin had no
capital instruments that qualify as supplementary capital and $3.8 million of
general loss reserves, which was less than 1.25% of risk-weighted assets.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight, ranging
from 0% to 100%, based on the risk inherent in the type of asset. For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
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one- to four-family first lien mortgage loans not more than 90 days delinquent
and having a loan to value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by the FNMA or FHLMC.
The OTS has adopted a final rule that requires every savings association
with more than normal interest rate risk exposure to deduct from its total
capital, for purposes of determining compliance with such requirement, an amount
equal to 50% of its interest-rate risk exposure multiplied by the present value
of its assets. This exposure is a measure of the potential decline in the net
portfolio value of a savings association, greater than 2% of the present value
of its assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The rule provides for a two quarter lag between
calculating interest rate risk and recognizing any deduction from capital. The
rule will not become effective until the OTS evaluates the process by which
savings associations may appeal an interest rate risk deduction determination.
On March 31, 2000, Franklin had total regulatory capital of $55.6 million
and risk-weighted assets of $379.1 million; or total capital of 14.7% of
risk-weighted assets. This amount was $25.3 million above the 8% requirement in
effect on that date.
Prompt Corrective Action. The OCC is authorized and, under certain
circumstances required, to take certain actions against national banks that fail
to meet their capital requirements. The OCC is generally required to take action
to restrict the activities of an "undercapitalized association" (generally
defined to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such national
bank must submit a capital restoration plan and, until such plan is approved by
the OCC, may not increase its assets, acquire another institution, establish a
branch or engage in any new activities, and generally may not make capital
distributions. The OCC is authorized to impose the additional restrictions that
are applicable to significantly undercapitalized associations.
Any national bank that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the bank. Any national bank that becomes "critically
undercapitalized" (i.e., a tangible capital ratio of 2% or less) is subject to
further mandatory restrictions on its activities in addition to those applicable
to significantly undercapitalized associations. In addition, the OCC must
appoint a receiver (or conservator with the concurrence of the FDIC) for a
national bank, with certain limited exceptions, within 90 days after it becomes
critically undercapitalized. Any undercapitalized association is also subject to
the general enforcement authority of the OCC, including the appointment of a
conservator or a receiver.
The OCC is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
Following completion of the merger, the OTS and the FDIC will have the
authority to enforce such requirements against the Franklin.
Limitations on Dividends and Other Capital Distributions
As a national bank, Franklin's ability to pay dividends is governed by the
National Bank Act and OCC regulations. Under such statute and regulations, all
dividends by a national bank must be paid out of current or retained net
profits, after deducting reserves for losses and bad debts. The National Bank
Act further restricts the payment of dividends out of net profits by prohibiting
a national bank from declaring a dividend on its shares of common stock until
the surplus fund equals the amount of capital stock or, if the surplus fund does
not equal the amount of capital stock, until one-tenth of the national bank's
net profits for the preceding half year in the case of quarterly or semi-annual
dividends, or the preceding two half-year periods in the case of annual
dividends, are transferred to the surplus fund. In addition, the prior
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<PAGE> 116
approval of the OCC is required for the payment of a dividend if the total of
all dividends declared by a national bank in any calendar year would exceed the
total of its net profits for the year combined with its net profits for the two
preceding years, less any required transfers to surplus or a fund for the
retirement of any preferred stock.
The OCC has the authority to prohibit the payment of dividends by a
national bank when it determines such payment to be an unsafe and unsound
banking practice. In addition, Franklin would be prohibited by federal statute
and the OCC's prompt corrective action regulations from making any capital
distribution if, after giving effect to the distribution, the it would be
classified as "undercapitalized" under the OCC's regulations. See "-- Regulatory
Capital Requirements -- Prompt Corrective Action."
Following consummation of the merger, Franklin, as a federal savings bank,
will be subject to virtually identical rules established by the OTS.
Liquidity
National banks are not subject to any specific liquidity regulations.
However, all savings associations are required to maintain an average daily
balance of liquid assets equal to a certain percentage of the sum of its average
daily balance of net withdrawable deposit accounts and borrowings payable in one
year or less. This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 5%.
At March 31, 2000, Franklin's liquid asset ratio was 43.2%. At March 31, 2000,
Franklin's liquid asset ratio under OTS regulations was 32.1%.
Qualified Thrift Lender Test
As a national bank, Franklin is not subject to the qualified thrift lender
("QTL") test described below.
Following the merger, Franklin, like all savings associations, will be
required to meet the QTL test to avoid certain restrictions on its operations.
This test requires a savings association to have at least 65% of its portfolio
assets (as defined by regulation) in qualified thrift investments on a monthly
average for nine out of every 12 months on a continuous basis. Such assets
primarily consist of residential housing related loans and investments. The OTS
will allow Franklin up to two years from the consummation of the merger to meet
the test.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the Bank Insurance Fund. If such an association has not yet requalified or
converted to a national bank, its new investments and activities are limited to
those permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. Further, if such
association has not requalified or converted to a national bank within three
years after the failure, it must divest of all investments and cease all
activities not permissible for a national bank.
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC-insured
institution, including federal savings banks and national banks, has a
continuing and affirmative obligation, consistent with safe and sound banking
practices, to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OCC, in connection with the examination of Franklin, to
assess its record of meeting the credit needs of its community and to take such
record into account in its evaluation of certain applications,
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such as a merger or the establishment of a branch, by Franklin. An
unsatisfactory rating may be used as the basis for the denial of an application
by the OCC.
Due to the heightened attention being given to the CRA in the past few
years, Franklin may be required to devote additional funds for investment and
lending in its local community. Franklin was examined for CRA compliance in 1999
and received a rating of satisfactory. Following completion of the merger,
Franklin's compliance with the CRA will be enforced by the OTS.
Transactions with Affiliates and Insiders
Generally, transactions between a depository institution or its
subsidiaries and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates. In addition, certain of these
transactions, such as loans to an affiliate, are restricted to a percentage of
the association's capital. Following the merger, affiliates of Franklin will
include any company which is under common control with the Franklin. In
addition, as savings association, Franklin may not lend to any affiliate engaged
in activities not permissible for a bank holding company or acquire the
securities of most affiliates. Subsidiaries of Franklin are not deemed
affiliates. However, the OTS has the discretion to treat subsidiaries of savings
associations as affiliates on a case by case basis.
As a national bank, certain transactions between Franklin and its
directors, officers or controlling persons are also subject to conflict of
interest regulations enforced by the OCC. These conflict of interest regulations
and other statutes also impose restrictions on loans to such persons and their
related interests, unless the loans are made pursuant to an employee benefit
program. Among other things, such loans must be made on terms substantially the
same as loans to unaffiliated individuals. Following completion of the merger,
Franklin will be subject to virtually identical rules on transactions with
affiliates and loans to insiders administered by the OTS.
Federal Reserve System
As a national bank, Franklin is required to become a member of the Federal
Reserve System and subscribe for stock in the FRB of Indianapolis in an amount
equal to 6% of its paid in capital and surplus (payment for one-half is
initially required with the remainder subject to call by the FRB of
Indianapolis). As a federal savings bank, Franklin is not required to be a
member of the Federal Reserve System.
The FRB, however, requires all depository institutions to maintain
non-interest bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At March 31,
2000, Franklin was in compliance with these reserve requirements. The balances
maintained to meet the reserve requirements imposed by the FRB may be used to
satisfy liquidity requirements that may be imposed by the OTS. See
"-- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but FRB regulations require associations to exhaust other
reasonable alternative sources of funds, including FHLB borrowings, before
borrowing from the Federal Reserve Bank.
Holding Company Regulation
Bingham applied to the OTS to become a unitary savings and loan holding
company before May 4, 1999. As such, the OTS may determine that Bingham
qualifies as a grandfathered unitary savings and loan holding company under the
recently enacted Gramm-Leach-Bliley Act. As a grandfathered unitary savings and
loan holding company, Bingham generally is not subject to any activity
restrictions. However, if the OTS determines that Bingham does not qualify as a
grandfathered unitary savings and loan holding company due to the merger or it
acquires control of another savings association as a separate subsidiary, its
activities would be limited to those permissible for a financial holding company
under the Bank Holding Company Act of 1956, as amended (i.e., generally,
banking, securities, insurance and merchant banking activities).
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In either event, as a savings and loan holding company, Bingham will be
required to register and file reports with the OTS and will be subject to the
regulation and examination by the OTS. In addition, the OTS has enforcement
authority over Bingham and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association.
Federal Home Loan Bank System
Franklin is currently a member of the FHLB of Chicago, which is one of 12
regional FHLBs that administer the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB which are subject to the oversight of the
Federal Housing Finance Board. All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to provide funds for residential home
financing.
As a member, Franklin is required to purchase and maintain stock in the
FHLB of Indianapolis. At March 31, 2000, Franklin had $5.9 million in FHLB
stock, which was in compliance with this requirement. In past years, Franklin
has received substantial dividends on its FHLB stock. Over the past five
calendar years such dividends have averaged 7.95% and were 8.0% for calendar
year 1999. Franklin will remain a member of the FHLB of Chicago following
completion of the merger.
EMPLOYEES
At December 31, 1999, Franklin had a total of 242 full-time equivalent
employees, none of whom were employed pursuant to collective bargaining
agreements. Franklin considers its relations with its employees to be
satisfactory.
PROPERTIES
Franklin lease space for its executive offices located at 24725 West Twelve
Mile Road, Southfield, Michigan 48034. The term of the lease expires on January
11, 2003. Rental adjustments began to accrue January 11, 1994, and will continue
each year until the lease expires. Franklin has the option to extend the lease
for one additional period of five years.
Franklin also leases its Southfield branch office located at 26336 West
Twelve Mile Road, Southfield, Michigan 48034.
Franklin owns its approximately 2,200 square-foot Grosse Pointe Woods
branch office located at 20247 Mack Avenue. This property had a net book value
of $356,669 at December 31, 1999.
Franklin leases its Birmingham branch office located at 479 South Woodward
Avenue. The building's lease expires May 1, 2007, but carries an option to renew
the lease for an additional 20-year term.
LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to businesses of Franklin and its subsidiaries, or
proceedings known by Franklin to be contemplated by governmental authorities, to
which Franklin or its subsidiaries is a party or to which any of their property
is subject.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based upon information available to Franklin, the following table shows, as
of March 20, 2000, the shareholdings of:
- each person known to Franklin to be the beneficial owner of more than 5%
of Franklin's common stock;
- each of Franklin's directors;
- each executive officer named in the Summary Compensation Table in
Franklin's proxy statement dated April 14, 2000; and
- all of Franklin's executive officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OUTSTANDING SHARES(2)
------------------------ ----------------------- ---------------------
<S> <C> <C>
David F. Simon........................................ 103,565(3) 2.9%
Rebecca J. David...................................... 33,376 *
David L. Shelp........................................ 32,348 *
Edward J. Shehab...................................... 14,165 *
Dean A. Friedman...................................... 48,552 1.4%
Edgar M. Fenton....................................... 58,684 1.7%
William E. Murcko..................................... 16,564 *
Herbert N. Glass...................................... 30,883(4) *
George M. Nyman....................................... 50,080(5) 1.4%
Kevin P. Scott........................................ 0 *
Elizabeth E. Ziph..................................... 13,929 *
Thomas J. Pesha....................................... 10,386 *
Marjorie K. Duncanson................................. 13,051 *
Lawrence W. Voelpel................................... 22,189 *
Douglas W. Mires...................................... 13,000 *
Heartland Advisors, Inc.(6)........................... 286,542 8.2%
Financial Institution Partners, II L.P.(7)............ 255,900 7.3%
Dimensional Fund Advisors Inc.(8)..................... 186,440 5.3%
All current executive officers and directors as a
group (15 persons)(9)............................... 460,772 10.9%
</TABLE>
---------------
* Less than 1.0% of the outstanding shares.
(1) Includes the following shares which may be acquired pursuant to stock
options exercisable within 60 days of March 20, 2000: Mr. Simon -- 72,477
shares; Ms. David 27,272 shares; Mr. Shelp -- 28,795 shares; Mr.
Shehab -- 12,177 shares; Ms. Ziph -- 13,465 shares; Mr. Pesha -- 8,687
shares; Ms. Duncanson -- 11,418 shares; Mr. Voelpel -- 17,978 shares; Mr.
Friedman -- 14,328 shares; Mr. Fenton -- 15,012 shares; Mr. Murcko -- 15,068
shares; Mr. Glass -- 14,986 shares; Mr. Nyman -- 15,011 shares. This
information also includes common shares which have been allocated to any
principal stockholders who are participants in Franklin's ESOP Plan.
(2) Calculated based on the number of shares outstanding at March 20, 2000 plus,
for each person, the number of shares which such person has the right to
acquire within 60 days of March 20, 2000 pursuant to options.
(3) Includes 7,499 shares held by a group in which Mr. Simon exercises voting
control.
(4) Includes 2,046 shares owned by The Glass Freedman Company, of which Mr.
Glass owns 50% of the voting stock, and 5,460 shares owned by The Glass
Freedman 401(k) Plan, of which Mr. Glass is the co-trustee.
(5) Includes 10,643 shares owned by the Devon Park Property Management Co.
401(k) Plan, of which Mr. Nyman is the trustee.
111
<PAGE> 120
(6) The principal business address of Heartland Advisors, Inc. is 789 N. Water
Street, Milwaukee, WI 53202.
(7) The principal business address of Financial Institution Partners II, L.P. is
1024 Jefferson Place, N.W., Washington, D.C. 20036.
(8) The principal business address of Dimensional Fund Advisors, Inc. is located
in Santa Monica, CA 90401.
(9) Excludes Mr. Joseph A. Pick, who, serves solely as an advisory director. At
March 20, 2000, Mr. Pick owned 56,695 shares of Franklin common stock and
held options currently exercisable to acquire 14,957 shares of Franklin
common stock.
112
<PAGE> 121
BINGHAM'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Bingham began operations in January 1997, for the primary purpose of
originating loans on manufactured home contracts located within the communities
owned by Sun. Bingham was formed by Sun in response to the growing need to
provide timely and competitive financing to residents in manufactured home
communities. Bingham has expanded its manufactured home lending activities
through the use of "dealer networks" to communities not owned and operated by
Sun to the extent that now the majority of manufactured home lending is done
outside the Sun owned and operated communities. Bingham provides financing for
new and previously owned manufactured homes to borrowers whose credit needs may
or may not be met by traditional financial institutions due to credit
expectations or other factors. Bingham through one of its subsidiaries also
provides warranty, credit life and disability insurance on the contracts it
finances.
Through acquisitions Bingham's business has expanded to include commercial
lending and mortgage servicing for income producing properties. Bingham expects
to extend its business to include other types of installment loans, expand its
mortgage servicing operations and engage in other related businesses through the
initiation of new businesses or through the acquisition of existing ones.
RESULTS OF OPERATIONS
In February 2000, Bingham's board of directors approved the change in its
fiscal year end from September 30 to December 31. As a result, Bingham's results
of operations for the three month period ended December 31, 1999 are presented
as a transitional period and for comparative purposes.
Three months ended March 31, 2000 compared to three months ended March 31,
1999.
Bingham reported a net loss of $2.9 million for the quarter ended March 31,
1999 compared to net income of $480,000 for the quarter ended March 31, 1998.
The loss for the current quarter was due primarily to the significant increase
in personnel and general and administrative costs associated with the
acquisition of Dynex Financial in December 1999. For the current quarter Bingham
also incurred approximately $796,000 in nonrecurring costs related to the
shutdown and sale of MHFC, its previous manufactured home loan origination
subsidiary. Also, during the quarter ended March 31, 2000 Bingham did not sell
any portion of its manufactured home loan portfolios. In the comparable period
ended March 31, 1999 Bingham recognized a gain on sale of loans of $1.4 million.
The gain included a recovery of $1.2 million related to the valuation of the
loan portfolio and related hedge positions.
Interest income on loans increased to $4.1 million for the period ended
March 31, 2000, or approximately 57.7% over interest income of $2.6 million in
the comparable period in 1999. The increase is primarily due to an increase in
the average outstanding loan receivable balance of $163.9 million for the three
months ended March 31, 2000 versus $122.8 million for the three months ended
March 31, 1999, an increase of 33.5%. The increase in interest income was also
the result of an increase in the average yield on the loan receivable portfolio
of 10.1% for the period in 2000 versus 8.5% in 1999. This was due to a larger
percentage of the loan portfolio consisting of higher yielding manufactured home
loans versus lower yielding commercial mortgage loans.
Interest expense for the three months ended March 31, 2000 was $3.5 million
compared to $1.8 million for the comparable period ended March 31, 1999, an
increase of 94%. The increase in interest expense is primarily a result of the
increase in the average outstanding balance of debt used to finance the loan
receivables and fund operations. Average outstanding debt increased to $159.2
million for the period ended March 31, 2000 versus $117.9 million in the
comparable period in 1999, an increase of 35%. The average borrowing rate also
increased to 8.9% for the quarter ended March 31, 2000 compared to 6.3% for the
quarter ended March 31, 1999.
113
<PAGE> 122
The following table sets forth the extent to which Bingham's net interest
income has been affected by changes in average interest rates and average
balances of interest earning assets and interest bearing liabilities.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------------
AVERAGE BALANCE AVERAGE RATE INTEREST VARIANCE DUE TO:
------------------- ------------- --------------- INCREASE -----------------
2000 1999 2000 1999 2000 1999 (DECREASE) VOLUME RATE
-------- -------- ----- ----- ------ ------ ---------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans......................... $163,955 $122,872 10.05% 8.52% $4,118 $2,617 $1,501 $875 $ 626
Cash and equivalents.......... 5,759 4,367 3.56 3.32 73 36 37 12 25
-------- -------- ------ ------ ------ ---- ------
169,714 127,239 9.88 8.34 4,191 2,653 1,538 887 651
-------- -------- ------ ------ ------ ---- ------
Interest-bearing liabilities:
Term loan..................... 4,000 4,000 11.68 11.68 117 117 -- -- --
Revolving line of credit...... 42,500 21,014 8.32 6.54 920 344 576 351 225
Loans sold under repurchase... 122,691 92,878 8.48 5.95 2,501 1,381 1,120 295 825
-------- -------- ------ ------ ------ ---- ------
159,191 117,892 8.89 6.25 3,538 1,842 1,696 646 1,050
-------- -------- ------ ------ ------ ---- ------
Interest rate spread............ -- -- 0.99 2.09 -- -- -- -- --
Excess average earning assets... 10,523 9,347 9.88 8.34 -- -- -- -- --
======== ========
Net interest margin............. -- -- 1.54 2.55 $ 653 $ 811 $ (158) $241 $ (399)
====== ====== ====== ==== ======
</TABLE>
Mortgage origination fees earned on commercial mortgage loans originated
and placed with outside investors increased 49.2% to $191,000 for the three
months ended March 31, 2000 versus $128,000 for the comparable three month
period in 1999. This is a result of an increase in the amount of commercial
loans originated and placed with outside investors to $21.1 million for the
current quarter ended from $12.1 million for the same period in 1999.
Servicing fees collected for the period ended March 31, 2000 increased to
$1.9 million from $73,000 in the same period in 1999. This was primarily the
result of an increase in the average principal balance of manufactured home
loans serviced for others of approximately $1.1 billion and an increase in the
average principal of commercial mortgage loans serviced for outside investors of
approximately $450 million. The increases were primarily the result of the
acquisitions of Dynex Financial in December 1999, which had a servicing
portfolio balance of $980 million and Hartger & Willard, an originator and
servicer of commercial mortgage loans, in June 1999 which had a servicing
portfolio of $440 million. Bingham also sold approximately $100 million of its
manufactured home loan portfolio in December 1999 and retained the servicing
rights.
Gain on sale of loans represents the difference between the proceeds from
the sale of loans and the allocated carrying cost of the loans sold. The gain is
also net of required reserves for the potential loss due to repossession and
ultimate charge-off of loans sold with recourse that are required to be
repurchased. There were no significant sales of loans held in either Bingham's
manufactured home loan or commercial mortgage loan portfolios in the quarter
ended March 31, 2000. In the three month period ended March 31, 1999 Bingham
sold approximately $5.4 million of its manufactured home loan portfolio,
recognizing gain on sale of loans of $274,000.
Provision for credit losses is recorded in amounts sufficient to maintain
an allowance at a level considered adequate to cover losses from liquidating
manufactured home loans and loans sold with recourse. Provision for credit
losses increased to $1.2 million for the period ended March 31, 2000 compared to
$63,000 for the same period in 1999. The large increase is primarily related to
a 208% increase in average outstanding principal balance of manufactured home
loans, which was $87.9 million for the period ended March 31, 2000 as compared
to $28.6 million for the period ended March 31, 1999. The provision increase is
also affected by the increase in non-performing manufactured home loans, which
were 1.46% of the manufactured home loan outstanding principal balance at March
31, 2000 versus .32% of the outstanding principal balance for the comparable
period in 1999.
114
<PAGE> 123
General and administrative and other operating expenses totaled
approximately $6.2 million for the current quarter. This was an increase of $4.6
million over general and administrative expenses in the comparable quarter in
1999 of $1.6 million. The largest portion of the increase is directly
attributable to personnel costs related to the acquisition of Dynex Financial.
The acquisition increased the number of full time employees to 214 and personnel
costs of $3.8 million for the current quarter as compared to 52 full time
employees and $971,000 for the quarter ended March 31,1999, an increase in
personnel costs of 291%. The acquisition also increased the number of leased
locations for the origination and servicing of manufactured home loans to six at
March 31, 2000 as compared to one at March 31, 1999.
As part of Bingham's plan to conduct all of its manufactured home loan
origination operations through Dynex Financial, in March 2000 Dynex Financial
purchased $66.9 million of loans from MHFC and Bingham sold MHFC to Gwenuc, LLC,
a limited liability company owned by Gary A. Shiffman, Chairman of Bingham.
Gwenuc paid Bingham $400,000 in cash and assumed $2.7 million of debt to
Bingham. The cash portion of the purchase price may be adjusted upward or
downward pursuant to a fairness opinion as to the fair market value of MHFC to
be rendered by a third party appraiser. Bingham now conducts all of its
manufactured home loan origination activities through Dynex Financial.
As a result of the consolidation of Bingham's manufactured home loan
operations, for the quarter ended March 31, 2000 Bingham incurred approximately
$396,000 in non-recurring costs to shut down the operations of MHFC. These costs
include approximately $322,000 in salaries and severance pay to terminated
employees and $74,000 of general and administrative costs. Bingham also
recognized a $400,000 loss on the ultimate disposition of MHFC's net assets.
Three months ended December 31, 1999 compared to three months ended December
31, 1998.
Bingham reported a net loss of $185,000 for the quarter ended December 31,
1999 compared to net income of $764,000 in the quarter ended December 31, 1998.
The decrease in net income is due primarily to the cumulative effect of a change
in accounting principle of $853,000 and an increase in general and
administrative expenses of approximately $1.8 million. The change in accounting
principle relates to start up costs that were previously capitalized and
amortized over five years but are now required to be expensed as incurred. The
change is retroactive and Bingham was required to expense currently all
previously capitalized start up costs. The significant increase in general and
administrative expenses is the result of the continued growth in the size of
Bingham, including the acquisition of Dynex Financial.
Interest income on loans increased to $4.0 million for the period, or
approximately 92% over interest income of $2.1 million in the comparable period
in 1998. The large increase is primarily due to an increase in the average
outstanding loan receivable balance of $153.8 million for the three months ended
December 31,1999 versus $97.6 million for the three months ended December 31,
1998, an increase of 57.6%. The increase in interest income was also the result
of an increase in the average yield on the loan receivable portfolio of 10.6%
for the period in 1999 versus 8.7% in 1998. This was due to a larger percentage
of the loan portfolio being made up of higher yielding manufactured home loans
versus commercial mortgage loans.
Interest expense for the three months ended December 31, 1999 was $2.8
million as compared to $1.7 million for the comparable period ended December 31,
1998, an increase of 65%. The increase in interest expense is driven by the
increase in the average outstanding balance of debt used to finance the loan
receivables and fund operations. Average outstanding debt increased to $137.9
million, or 47.2% for the period in 1999 versus $93.0 million in the comparable
period in 1998. Adding to the increase in interest expense was an increase in
the cost of borrowings to 8.3% for the quarter ended December 31, 1999 compared
to 7.3% in the same period in 1998.
115
<PAGE> 124
The following table sets forth the extent to which Bingham's net interest
income has been affected by changes in average interest rates and average
balances of interest earning assets and interest bearing liabilities.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
-------------------------------------------------------------------------------------------
AVERAGE BALANCE AVERAGE RATE INTEREST VARIANCE DUE TO:
------------------- -------------- ---------------- INCREASE ----------------
1999 1998 1999 1998 1999 1998 (DECREASE) VOLUME RATE
-------- ------- ----- ----- ------ ------ ---------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.......................... $153,758 $97,550 10.59% 8.68% $4,069 $2,118 $1,951 $1,485 466
Cash and equivalents........... 3,923 4,331 2.44 3.42 24 37 (13) (2) (11)
-------- ------- ------ ------ ------ ------ ---
157,681 101,881 10.38 8.46 4,093 2,155 1,938 1,483 455
-------- ------- ------ ------ ------ ------ ---
Interest-bearing liabilities:
Term loan...................... 4,000 4,000 11.68 11.68 117 117 -- -- --
Revolving line of credit....... 41,881 20,262 7.88 8.13 825 412 413 426 (13)
Loans sold under repurchase.... 91,066 68,797 8.30 6.81 1,890 1,170 720 464 256
-------- ------- ------ ------ ------ ------ ---
136,947 93,059 8.27 7.30 2,832 1,699 1,133 889 244
-------- ------- ------ ------ ------ ------ ---
Interest rate spread............. -- -- 2.11 1.16 -- -- -- -- --
Excess average earning assets.... 20,734 8,822 10.38 8.46 -- -- -- -- --
======== =======
Net interest margin.............. -- -- 3.20 1.79 $1,261 $ 456 $ 805 $ 593 212
====== ====== ====== ====== ===
</TABLE>
Mortgage origination fees are related to commercial mortgage loans
originated and placed with outside investors. Placement fees increased 173% to
$762,000 on placed commercial mortgage loans of $105.9 million for three months
ended December 31, 1999 compared to $279,000 in fees on placed commercial
mortgage loans of $24.5 million in the comparable period in 1998.
Gain on sale of loans represents the difference between the proceeds from
sale and the allocated carrying cost of the loans sold. The gain is also net of
required reserves for the potential loss due to repossession and ultimate
charge-off of loans sold with recourse that are required to be repurchased. For
the quarter ended December 31, 1999 Bingham sold approximately $100 million of
its manufactured home loan receivables resulting in a net gain of $1.6 million
as compared to sales of $5 million of manufactured home loan receivables
resulting in gains of $289,000 for the comparable period in 1998. The quarter
ended December 31, 1998 also included a recovery of $1.25 million related to the
valuation of the loan portfolio and related hedge positions.
Provision for credit losses is recorded in amounts sufficient to maintain
an allowance at a level considered adequate to cover losses from liquidating
manufactured home loans and loans sold with recourse. Provision for credit
losses increased approximately 273% to $362,000 for the three months ended
December 31, 1999 compared to $97,000 for the same period in 1998. The large
increase is primarily related to a 274% increase in average outstanding
principal balance of manufactured home loans which was $95.7 million for the
three month period ended December 31, 1999 as compared to $25.6 million for the
three month period ended December 31, 1998. The provision increase is also
affected by the increase in non-performing manufactured home loans which were
2.95% of the manufactured home loan outstanding principal balance at December
31, 1999 versus .25% of the outstanding principal balance at December 31, 1998.
General and administrative and other operating expenses totaled
approximately $3.3 million for the quarter ended December 31, 1999. This was an
increase of $2.1 million or 175% over general and administrative expenses in the
comparable quarter in 1998 of $1.2 million. The largest part of the increase is
directly related to personnel costs. Bingham increased its number of existing
full time employees to 95 and also added approximately 200 full time employees
with its acquisition of Dynex Financial in mid-December 1999 resulting in
personnel costs of $2.2 million for the quarter or an increase of 277%. This is
compared to 40 full time employees with personnel costs of $583,000 for the
quarter ended December 31, 1998. These increases reflect the costs of Bingham's
expanding its manufactured home lending operations to communities outside those
owned and operated by Sun and the expansion of its commercial mortgage
116
<PAGE> 125
lending business through the acquisition of Hartger & Willard in the fourth
quarter of 1999. The increase in personnel resulted in an increase in occupancy
and office expenses to $470,000 for the period ended December 31, 1999 or 123%
increase over the comparable period in 1998 of $211,000.
Fiscal year 1999 compared to fiscal year 1998.
For the year ended September 30, 1999, Bingham had income before federal
income tax of $1.2 million on gross revenues of $16.3 million and expenses of
$15.1 million compared to a loss before federal income tax benefit of $793,000
for the year ended September 30, 1998 on gross revenues of $6.1 million and
expenses of $6.9 million. The large increase in gross revenues was primarily
related to the significant increase in interest income and the gain on sale of
loans. The large increase in gross expenses relates to increased interest
expense and a large increase in personnel costs.
Interest income on loans increased to $9.5 million for the year ended
September 30, 1999, or approximately 188% over interest income of $3.3 million
in 1998. The large increase was primarily due to an increase in the average
outstanding loan receivable balance of $111.7 million in 1999 versus $51.5
million in 1998, an increase of 116.9%. The increase in interest income as a
result of the higher average outstanding receivable balance was slightly offset
by a decrease in the average yield on the loan receivable portfolio of 8.48% in
1999 versus 8.60% in 1998.
Interest expense for the year ended September 30, 1999 was $6.9 million as
compared to $1.9 million for the comparable period ended September 30, 1998, an
increase of 263%. The increase in interest expense for the year was also driven
by the increase in the average outstanding balance of debt used to finance the
loan receivables and fund operations. Average outstanding debt increased to
$100.6 million in 1999 versus $46.1 million 1998, an increase of 118.2%.
Offsetting some of the increase in average outstanding debt was a decrease in
the cost of borrowings to 6.81% in 1999 compared to 7.52% in 1998.
The following table shows the extent to which Bingham's net interest income
has been affected by changes in average interest rates and average balances of
interest-earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------------------
AVERAGE BALANCE AVERAGE RATE INTEREST VARIANCE DUE TO:
------------------- -------------- ---------------- INCREASE -----------------
1999 1998 1999 1998 1999 1998 (DECREASE) VOLUME RATE
-------- ------- ----- ----- ------ ------ ---------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans......................... $111,715 $51,480 8.48% 8.60% $9,477 $3,296 $6,181 $6,315 $(134)
Cash and equivalents.......... 4,283 3,839 2.33 3.75 100 84 16 77 (61)
-------- ------- ------ ------ ------ ------ -----
115,998 55,319 8.80 8.26 9,577 3,380 6,197 6,392 (195)
-------- ------- ------ ------ ------ ------ -----
Interest-bearing liabilities
Term loan..................... 4,000 4,000 11.68 11.75 467 392 75 -- 75
Revolving line of credit...... 20,879 9,540 7.62 7.00 1,591 668 923 794 129
Loans sold under repurchase... 75,784 32,549 6.33 7.15 4,797 873 3,924 4,545 (621)
-------- ------- ------ ------ ------ ------ -----
100,663 46,089 6.81 7.52 6,855 1,933 4,922 5,339 (417)
-------- ------- ------ ------ ------ ------ -----
Interest rate spread............ -- -- 1.99 .74 -- -- -- -- --
Excess average earning assets... 15,335 9,230 8.80 8.26 -- -- -- -- --
======== =======
Net interest margin............. -- -- 2.35 2.00 $2,722 $1,447 $1,275 $1,053 $ 222
====== ====== ====== ====== =====
</TABLE>
Mortgage origination fees are related to commercial mortgage loans
originated and placed with outside investors. Placement fees increased 32% to
$1.6 million on placed commercial mortgage loans of $155 million for the period
ended September 30, 1999 compared to $1.2 million in fees on placed commercial
mortgage loans of $140 million in 1998. Origination of commercial mortgage loans
and related placement fees for 1998 cover the period from March 1, 1998, the
date of the acquisition of Bloomfield Acceptance and Bloomfield Servicing,
through September 30, 1998.
117
<PAGE> 126
Gain on sale of loans represents the difference between the proceeds from
sale and the allocated carrying cost of the loans sold. The gain is also net of
required reserves for the potential loss due to repossession and ultimate
charge-off of loans sold with recourse that are required to be repurchased. As
of September 30, 1999 and September 30, 1998, the total amount of loans sold
with recourse was approximately $27.6 million and $11.3 million, respectively.
In the year ended September 30, 1999, Bingham sold approximately $20.4
million of manufactured home loans and securitized and sold approximately $80.3
million of commercial mortgage loans resulting in gains of $4.4 million as
compared to sales of $11.6 million of manufactured home loans resulting in gains
of $.7 million for the comparable period in 1998. For the year ended September
30, 1999, the gain on sale of loans also included a recovery of $2.4 million
related to the valuation of the loan portfolio and related hedge positions.
Provision for credit losses is recorded in amounts sufficient to maintain
an allowance at a level considered adequate to cover losses from liquidating
manufactured home loans and loans sold with recourse. Provision for credit
losses increased approximately 344% to $653,000 for the year ended September 30,
1999, compared to $147,000 for the same period in 1998. The large increase was
primarily related to a 184% increase in outstanding principal balance of
manufactured home loans, which was $64.5 million at September 30, 1999, as
compared to $22.7 at September 30, 1998. An increase in nonperforming
manufactured home loans to 2.59% of the manufactured home loan outstanding
principal balance at September 30, 1999 versus .85% of the outstanding principal
balance for the comparable period in 1998 also contributed to the increase.
For the year ended September 30, 1999, general and administrative and other
operating expenses totaled approximately $7.6 million. This was an increase of
$5.1 million or 204% over general and administrative expenses in 1998 of $2.5
million. The largest part of the increase was a result of Bingham increasing its
number of full time employees to 90 resulting in personnel costs of $3.9 million
for the year or an increase of 179%. This was compared to 25 full time employees
with personnel costs of $1.4 million for the year ended September 30, 1998. The
increase in personnel resulted in a 233% increase in occupancy and office
expenses to $817,000 for 1999 as compared to $245,000 the comparable period in
1998.
Fiscal year 1998 compared to fiscal year 1997.
For the year ended September 30, 1998, Bingham had a loss before federal
income tax benefit of $793,000 on gross revenues of $6.1 million and expenses of
$6.9 million. This was compared to a loss of $110,000 on gross revenues of
$280,000 and expenses of $390,000 for the period January 2, 1997 (date of
inception) through September 30, 1997. Net loss for Bingham increased to
$464,000 versus the $110,000 loss for the period ended September 30, 1997.
For the year ended September 30, 1998, a large increase in the number of
loans originated in the manufactured home loan portfolio and through the
acquisition of Bloomfield Acceptance in March 1998 resulted in an increase in
interest income on manufactured home loans to $2.2 million from $280,000 for the
period ended September 30, 1997. Interest income on the commercial mortgage loan
portfolio for the period March 1, 1998 through September 30, 1998 was $1.1
million.
For the year ended September 30, 1998, interest expense was $1.9 million
versus $195,000 for the period ended September 30, 1997. Bingham maintained a
significantly higher level of borrowings to fund its increased manufactured home
loan originations and commercial mortgage portfolio.
118
<PAGE> 127
The following table sets forth the extent to which Bingham's net interest
income has been affected by changes in average interest rates and average
balances of interest-earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998 AND 1997
--------------------------------------------------------------------------------
AVERAGE BALANCE AVERAGE RATE INTEREST VARIANCE DUE TO:
---------------- ------------- ------------- INCREASE ----------------
1998 1997 1998 1997 1998 1997 (DECREASE) VOLUME RATE
------- ------ ----- ----- ------ ---- ---------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.............................. $51,480 $3,879 8.60% 10.83% $3,296 $280 $3,016 $2,991 $ 25
Cash and equivalents............... 3,839 -- 3.75 -- 84 -- 84 84 --
------- ------ ------ ---- ------ ------ -----
55,319 3,879 8.26 10.83 3,380 280 3,100 3,075 25
------- ------ ------ ---- ------ ------ -----
Interest-bearing liabilities
Term loan.......................... 4,000 3,727 11.75 6.98 392 195 197 20 177
Revolving line of credit........... 9,540 -- 7.00 -- 668 -- 668 668 --
Loans sold under agreement to
repurchase....................... 32,549 -- 7.15 -- 873 -- 873 873 --
------- ------ ------ ---- ------ ------ -----
46,089 3,727 7.52 6.98 1,933 195 1,738 1,561 177
------- ------ ------ ---- ------ ------ -----
Interest rate spread................. -- -- 0.74 3.85 -- -- -- -- --
Excess average earning assets........ 9,230 152 8.26 10.83 -- -- -- -- --
======= ======
Net interest margin.................. -- -- 2.00 4.12 $1,447 $ 85 $1,362 $1,514 (152)
====== ==== ====== ====== =====
</TABLE>
Mortgage origination and servicing fees are related to the commercial
mortgage loans originated and simultaneously sold with the servicing retained by
Bloomfield Acceptance. For the fiscal year ended September 30, 1998, mortgage
origination and refinance fees totaled $1.2 million on the placed commercial
mortgage loans. The sale of mortgage servicing rights in connection with the
commercial mortgage loans originated and serviced resulted in gross revenues of
approximately $600,000 in 1998. No comparable is reported for fiscal 1997, as
this was the first year of commercial mortgage origination for Bingham.
Gain on sale of loans represents the difference between the proceeds from
sale and the allocated carrying cost of the loans sold. The gain is also net of
required reserve for the potential refund of any premium paid for loans that
prepay in the first twelve months after the date of the sale. For the twelve
months ended September 30, 1998, Bingham recorded gain on sale of loans of
$738,000 from the sale of approximately $11.2 million of manufactured home loans
on a servicing released basis. This was the first year in which Bingham had sold
a portion of its manufactured home loan portfolio.
During the latter part of the fourth quarter of 1998, Bingham incurred
losses due to unprecedented market conditions related to commercial mortgage
backed securities and related instruments. Bingham recorded $2.4 million of
losses related to mark-to-market valuations of commercial mortgage loans held
for sale and the related hedge positions.
Provision for loan losses is recorded in amounts sufficient to maintain an
allowance at a level considered adequate to cover losses from liquidating
manufactured home loans and loans sold with recourse. For the year ended
September 30, 1998, provision for credit losses increased to $147,000 or 153%
from $58,000 in the period ended September 30, 1997. This was also due to the
continued growth of the manufactured home loan portfolio.
General and administrative and other operating expenses increased to $2.5
million in fiscal 1998 as compared to $137,000 for the period ended September
30, 1997. The large increase was the result of underwriting and originating
significantly higher volumes of manufactured home loans in fiscal 1998,
operations for the full year rather than the shorter period from inception to
September 30, 1997, and the acquisition of Bloomfield Acceptance and Bloomfield
Servicing with the related underwriting, originating and servicing of commercial
mortgage loans. The largest increase in general and administrative expenses
related to the increase in the number of employees from four to 25, including
the increase through acquisition.
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<PAGE> 128
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the measurement of Bingham's ability to have adequate cash or
access to cash at all times in order to meet financial obligations when due as
well as to fund corporate expansion or other activities. Bingham expects to meet
its liquidity requirements through a combination of working capital provided by
operating activities, draws on its revolving lines of credit, advances under its
master repurchase agreement, whole loan sales and possible future periodic
securitization of its loan portfolio. Bingham may also issue additional shares
of capital stock when it believes existing stockholders are likely to benefit
from such offerings.
During the year ended September 30, 1999, Bingham issued 800,330 shares of
its common stock in private equity raises. The stock issuance resulted in
proceeds of approximately $12 million.
In connection with its initial public offering Bingham entered into a
subordinated debt facility with Sun, which is subordinated to all senior debt of
Bingham. In accordance with the subordinated loan agreement Bingham issued
detachable warrants to Sun covering 400,000 shares of common stock at a price of
$10.00 per warrant share. The detachable warrants have a term of seven years and
may be exercised at any time after the fourth anniversary of the issuance. The
subordinated debt facility consists of a $4 million term loan with an annual
interest rate of 9.75%.
Bingham also has two demand lines of credit with Sun, each of which
provides for an annual interest rate equal to the one month "LIBOR" rate plus a
spread. During the period ended March 31, 2000, Bingham increased its available
borrowings under its demand lines of credit to a total of $60 million.
In March 2000, Dynex Financial and Bloomfield Acceptance entered into an
amended and restated repurchase arrangement with Lehman Commercial Paper Inc.
Under this agreement, Dynex Financial and Bloomfield Acceptance may transfer
loans from time to time to Lehman against the transfer of funds from Lehman. At
March 31, 2000, the maximum financing limits on the facility were $50 million
for commercial mortgage and bridge loans and $200 million for manufactured home
and floor plan loans and the aggregate amount advanced by Lehman was
approximately $128 million. The annual interest rate on the facility is a
variable rate of interest equal to "LIBOR" plus a spread, dependent on the
advance rate and the asset class.
In March 2000, Bingham and Dynex Financial entered into a revolving credit
facility with Michigan National Bank. Under this facility, Bingham and Dynex
Financial may borrow up to $11 million. Interest at a rate of LIBOR plus 2% per
year is payable on the outstanding balance. The outstanding principal balance on
this credit facility as of March 31, 2000 was approximately $6 million.
In April 2000, Bloomfield Acceptance and Bloomfield Servicing entered into
a warehousing credit agreement with Residential Funding Corporation. Under the
credit agreement, Bloomfield Acceptance and Bloomfield Servicing may borrow up
to $50 million to fund the acquisition and origination of FNMA loans, FHLMC
loans, bridge mortgage loans and similar mortgage loans. Interest at an annual
rate of up to LIBOR plus 250 basis points is payable on the outstanding balance
of advances used to make bridge mortgage loans. Interest at an annual rate of
LIBOR plus 125 basis points is payable on the outstanding balance of advances
used to make all other loans made under the agreement. As of the date of this
document, Bloomfield Acceptance and Bloomfield Servicing had not incurred any
indebtedness under this agreement.
During the six month period ended March 31, 2000, total borrowings
increased to $180.2 million from $101.1 million at September 30, 1999. The
increased borrowings are net of approximately $100.9 million in proceeds from
the sale of a portion of Bingham's manufactured home loan portfolio that were
used to pay down its demand lines of credit and repurchase facility. The
increased borrowings were primarily for the funding of new loan originations and
the acquisition of Dynex Financial.
For the year ended September 30, 1999, total borrowings increased to $101.1
million from $78.2 million at September 30, 1998. The increased borrowings were
also primarily for the funding of new loan originations and the acquisition of
Hartger & Willard. During fiscal 1999 Bingham also completed the
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<PAGE> 129
sale of approximately $20.4 million in outstanding principal balance of loans
from its manufactured home loan portfolio. These sales resulted in approximate
proceeds to Bingham of $21.6 million. Bingham also securitized and sold
approximately $80.3 million of outstanding principal balance of its commercial
mortgage loan portfolio. The securitization and sale resulted in proceeds to
Bingham of $80.2 million. The proceeds from both the manufactured home loan
sales and the commercial mortgage securitization were used to pay down Bingham's
demand line of credit and repurchase facility.
MARKET RISK
Market risk is the risk of loss arising from adverse changes in market
prices and interest rates. Bingham's market risk arises from interest rate risk
inherent in its financial instruments. Bingham is not currently subject to
foreign currency exchange rate risk or commodity price risk.
In the normal course of business, Bingham also faces risks that are either
nonfinancial or nonquantifiable. Such risks principally include credit risk and
legal risk and are not included in the following tables.
The following tables show Bingham's expected maturity dates of its assets
and liabilities. For each maturity category in the tables the difference between
interest-earning assets and interest-bearing liabilities reflects an imbalance
between repricing opportunities for the two sides of the balance sheet. The
consequences of a negative cumulative gap at the end of one year suggests that,
if interest rates were to rise, liability costs would increase more quickly than
asset yields, placing negative pressure on earnings.
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------------------------------------------
MATURITY
--------------------------------------------------
0 TO 3 4 TO 12 1 TO 5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and equivalents.................... $ 1,669 $ -- $ -- $ -- $ 1,669
Restricted cash......................... 1,350 4,082 -- -- 5,432
Loans receivable........................ 6,823 19,418 96,658 55,412 178,311
Servicing rights........................ 510 1,406 5,380 1,417 8,713
Servicing advances...................... 6,580 839 -- -- 7,419
Other assets............................ 2,894 5,472 4,318 1,848 14,532
------- -------- -------- ------- --------
Total assets.................... $19,826 $ 31,217 $106,356 $58,677 $216,076
======= ======== ======== ======= ========
Liabilities:
Advances by mortgagors.................. $ 1,339 $ 4,015 $ -- $ -- $ 5,354
Accounts payable and accrued expenses... 796 2,179 1,824 -- 4,799
Deferred revenue........................ 65 206 1,904 523 2,698
Advances under repurchase agreement..... 1,945 12,798 73,336 41,190 129,269
Subordinated debt....................... (19) (57) 3,682 -- 3,606
Notes Payable........................... 18,144 29,232 -- -- 47,376
Other liabilities....................... 26 25 -- -- 51
------- -------- -------- ------- --------
Total liabilities............... $22,296 $ 48,398 $ 80,746 $41,713 $193,153
------- -------- -------- ------- --------
Stockholders' Equity:
Common stock............................ -- -- -- 27,635 27,635
Paid-in-capital......................... -- -- -- (137) (137)
Accumulated other comprehensive loss.... -- -- (185) -- (185)
Unearned stock compensation............. (70) (210) (885) (235) (1,400)
Retained deficit........................ -- -- -- (2,990) (2,990)
------- -------- -------- ------- --------
Total liabilities and equity.... $22,226 $ 48,188 $ 79,676 $65,986 $216,076
======= ======== ======== ======= ========
Reprice difference...................... $(2,400) $(16,971) $ 26,680 $(7,309) --
Cumulative gap.......................... $(2,400) $(19,371) $ 7,309 $ -- --
Percent of total assets................. (-1.11)% (-8.96)% 3.38% -- --
</TABLE>
121
<PAGE> 130
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------------------------
MATURITY
---------------------------------------------------
0 TO 3 4 TO 12 1 TO 5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
-------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and equivalents................... $ 730 $ -- $ -- $ -- $ 730
Restricted cash........................ 975 2,926 -- -- 3,901
Loans receivable....................... 3,683 9,253 49,659 55,292 117,887
Servicing rights....................... 93 280 1,135 612 2,120
Other assets........................... 3,048 2,109 1,232 1,671 8,060
-------- -------- -------- ------- --------
Total assets................... $ 8,529 $ 14,568 $ 52,026 $57,575 $132,698
======== ======== ======== ======= ========
Liabilities:
Advances by mortgagors................. $ 971 $ 2,911 $ -- $ -- $ 3,882
Accounts payable and accrued
expenses............................ 1,216 258 -- -- 1,474
Advances under repurchase agreement.... 35,892 33,134 -- -- 69,026
Subordinated debt...................... (19) (57) 3,643 -- 3,567
Notes Payable.......................... -- 28,477 -- -- 28,477
Other liabilities...................... -- -- -- 204 204
-------- -------- -------- ------- --------
Total liabilities.............. $ 38,060 $ 64,723 $ 3,643 $ 204 $106,630
======== ======== ======== ======= ========
Stockholders' Equity:
Common stock........................... -- -- -- 25,576 25,576
Paid-in-capital........................ -- -- -- 704 704
Accumulated other comprehensive
income.............................. -- -- (304) -- (304)
Retained earnings...................... -- -- -- 92 92
-------- -------- -------- ------- --------
Total liabilities and equity... $ 38,060 $ 64,723 $ 3,339 $26,576 $132,698
======== ======== ======== ======= ========
Reprice difference..................... $(29,531) $(50,155) $ 48,687 $30,999 --
Cumulative gap......................... $(29,531) $(79,686) $(30,999) $ -- --
Percent of total assets................ (22.25)% (60.05)% (23.36)% -- --
</TABLE>
Management believes the negative effect of a rise in interest rates is
reduced by the anticipated short duration of Bingham's loan receivables.
Management intends that the loan receivables will be securitized or sold as part
of a whole loan sale before the end of fiscal 2000. Proceeds from the
securitization or whole loan sales would be used to pay down the corresponding
debt. If Bingham were unable to securitize or sell the loans it would be
necessary to renegotiate its master repurchase agreement to extend the maturity
date of the advances under repurchase. The instruments held by Bingham are held
for purposes other than trading.
Bingham also manages interest rate risk through the use of forward sales of
U.S. Treasury securities, Treasury security rate locks and forward interest rate
swaps to hedge a portion of the fixed rate loans in the commercial loan
portfolio. Bingham uses these instruments in an attempt to reduce risk by
essentially creating offsetting market exposures.
In a forward sale Bingham has agreed to sell a Treasury security at a
future date with a predetermined price. If interest rates on Treasury securities
drop, the price to Bingham to purchase the security in order to meet its
settlement obligation will have risen, and thus Bingham will have suffered an
unrealized loss on the hedge transaction. Conversely, if interest rates rise,
the price to Bingham to purchase Treasury securities will have fallen and there
will be an unrealized gain. The unrealized gain or loss on the hedge transaction
should be offset by the decrease or increase in value of the underlying hedged
loans since they are fixed rate loans that have an annual interest rate equal to
a spread over U.S. Treasuries.
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<PAGE> 131
To effect a Treasury rate lock, Bingham has entered into an agreement with
a counter-party whereby a "locked in" Treasury rate is established, usually the
yield to maturity rate on an U.S. Treasury security. If the current yield to
maturity is greater than the locked in yield to maturity, a situation that would
indicate rising interest rates, the rate lock will have increased in value and
Bingham will have an unrealized gain. The unrealized gain will help offset the
decrease in value of the fixed rate loans caused by rising interest rates. In a
declining interest rate environment the current yield to maturity on the
treasury security would be less than the locked in rate creating an unrealized
loss on the hedge position. The declining interest rate environment should
increase the value of the loans thereby off-setting the loss on the hedge.
A forward interest rate swap is an obligation to enter into a swap or cash
settlement on a future date for the difference between the market rate on that
date and an agreed upon swap rate. This transaction is similar to a Treasury
rate lock in that it allows you to lock in a rate starting in the future. The
difference is that you will be locking in a future swap rate, not a forward
treasury yield. A forward interest rate swap allows the positive or negative
effect of a change in the value of the underlying loans to be offset by the
positive or negative payment on the settlement of the hedging transaction. If
interest rates rise the value of the loan portfolio will have decreased but the
decrease will be offset by an increase in the value of the hedge equal to
approximately the present value of decrease in value of the hedged loan
portfolio. If interest rates were declining the reverse would hold true. The
value of the loan portfolio will increase and be offset by a decrease in the
value of the swap approximately equal to the present value of the hedged loan
portfolio increase.
The following tables show Bingham's financial instruments and derivative
instruments that are sensitive to changes in interest rates, categorized by
expected maturity, and the instruments' fair values.
<TABLE>
<CAPTION>
MARCH 31, 2000
-------------------------------------------------------------------------
CONTRACTUAL MATURITY
-------------------------------------------------------------------------
TOTAL
2000 2001 2002 2003 2004 THEREAFTER FAIR VALUE
------- ------- ------- ------- ------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest sensitive assets:
Loans receivable......... $22,195 $23,268 $19,267 $12,176 $16,390 $ 85,246 $178,542
Average interest rate.... 9.84% 9.66% 10.33% 11.29% 10.90% 9.80% 10.04%
Interest bearing
deposits............... $ 5,759 -- -- -- -- -- $ 5,759
Average interest rates... 3.56% -- -- -- -- -- 3.56%
Interest rate swaps...... -- -- -- -- -- $ 35,787 $ 35,787
Average interest rate.... -- -- -- -- -- 7.30% 7.30%
------- ------- ------- ------- ------- -------- --------
Total interest sensitive
assets...................... $27,954 $23,268 $19,267 $12,176 $16,390 $121,033 $220,088
======= ======= ======= ======= ======= ======== ========
Interest sensitive
liabilities:
Borrowings:
Advances under repurchase
agreements............. $16,070 $16,847 $13,950 $ 8,816 $11,867 $ 61,720 $129,269
Average interest rate.... 8.48% 8.48% 8.48% 8.48% 8.48% 8.48% 8.48%
Subordinated debt........ -- -- -- -- -- $ 3,606 $ 3,606
Average interest rate.... -- -- -- -- -- 11.68% 11.68%
Note payable............. $11,406 $ 5,353 $ 4,433 $ 2,801 $ 3,771 $ 19,612 $ 47,376
Average interest rate.... 8.32% 8.32% 8.32% 8.32% 8.32% 8.32% 8.32%
------- ------- ------- ------- ------- -------- --------
Total interest sensitive
liabilities................. $27,476 $22,200 $18,382 $11,617 $15,638 $ 84,938 $180,251
======= ======= ======= ======= ======= ======== ========
</TABLE>
123
<PAGE> 132
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------------------------------------------
CONTRACTUAL MATURITY
-----------------------------------------------------------------------
TOTAL
2000 2001 2002 2003 2004 THEREAFTER FAIR VALUE
------- ------- ------ ------ ------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest sensitive assets:
Loans receivable............ $13,119 $10,762 $8,631 $9,603 $10,681 $66,753 $119,549
Average interest rate....... 8.80% 8.80% 8.80% 8.80% 8.80% 8.80% 8.80%
Interest bearing deposits... $ 4,283 -- -- -- -- -- $ 4,283
Average interest rates...... 2.33% -- -- -- -- -- 2.33%
Hedging transactions........ -- -- -- -- -- $22,639 $ 22,639
Average interest rate....... -- -- -- -- -- 6.31% 6.31%
------- ------- ------ ------ ------- ------- --------
Total interest sensitive
assets......................... $17,402 $10,762 $8,631 $9,603 $10,681 $89,392 $146,471
======= ======= ====== ====== ======= ======= ========
Interest sensitive liabilities:
Borrowings:
Advances under repurchase... $69,026 $ -- $ -- $ -- $ -- $ -- $ 69,026
Average interest rate....... 6.33% -- -- -- -- -- 6.33%
Subordinated debt........... -- -- -- -- -- $ 3,567 $ 3,567
Average interest rate....... -- -- -- -- -- 11.68% 11.68%
Note payable................ $28,477 -- -- -- -- -- $ 28,477
Average interest rate....... 7.62% -- -- -- -- -- 7.62%
------- ------- ------ ------ ------- ------- --------
Total interest sensitive
liabilities.................... $97,503 $ -- $ -- $ -- $ -- $ 3,567 $101,070
======= ======= ====== ====== ======= ======= ========
</TABLE>
YEAR 2000 READINESS
No disruptions in Bingham's systems, service to customers or operations
were experienced as a result of the year 2000, referring to the date rollover
from December 31, 1999 to January 1, 2000. The year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the computer programs used by Bingham that have
time-sensitive software could have recognized a date using "00" as the year 1900
rather than the year 2000. This could have resulted in system failure or
miscalculations, had management not made the year 2000 preparations disclosed
previously in its filings with the Securities and Exchange Commission. Bingham
expensed all costs associated with its preparations for the year 2000. The total
cost of the year 2000 project since it was begun in 1998 was approximately
$45,000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
133 requires all derivative instruments to be recorded on the balance sheet at
estimated fair value. Changes in the fair value of derivative instruments are to
be recorded each period either in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, on the type of hedge transaction. SFAS 133 is
effective for the year 2000; Bingham does not believe it will have a material
effect on the consolidated financial position or results of operations.
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<PAGE> 133
FRANKLIN'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
Financial Condition at March 31, 2000
Total assets were $544.6 million at March 31, 2000 compared to $516.6
million at December 31, 1999. At March 31, 2000 and December 31, 1999, cash and
cash equivalents plus securities available for sale increased $14.4 million and
represented 43.2% and 42.8%, respectively, of total assets. Net loan balances
increased $13.0 million or 4.8% from December 31, 1999 to March 31, 2000.
At March 31, 2000, Franklin had loan commitments outstanding for loans that
have not been accepted by borrowers or closed of approximately $11.3 million.
These include commitments for commercial business loans, consumer loans,
residential mortgages and home equity loans.
Under loan agreements for transactions which had closed, Franklin had
commitments to fund commercial lines of credit, construction and home equity
loans of approximately $69.8 million at March 31, 2000. Franklin had commitments
to fund construction loans and home equity loans that had not closed of
approximately $1.5 million at March 31, 2000. As certain commitments to make
loans and fund full lines of credit expire without being used, the amount does
not necessarily represent future cash commitments.
The level of nonperforming assets remained substantially unchanged at
approximately $5.5 million at December 31, 1999 and at March 31, 2000.
Non-performing loans increased by approximately $2.2 million or 104.2% from
December 31, 1999 to March 31, 2000 due to an increase in three commercial non
real estate loans and four residential mortgage loans that were over 90 days
past due at March 31, 2000 but still accruing interest. Sales of approximately
$2.1 million of foreclosed real estate occurred during the three months ended
March 31, 2000 which generated a loss of approximately $148,000.
At March 31, 2000, Franklin's allowance for loan and lease losses (ALLL) as
a percentage of loans was 1.33% compared to 1.30% at December 31, 1999. Franklin
increased its provision for the three months ended March 31, 2000 to $555,000
compared to $400,000 for the three months ended March 31, 1999. Management
reviews the adequacy of the ALLL monthly and believes the current level of ALLL
is adequate.
Liquidity
Franklin competes aggressively for business, demand and money market
deposits in southeastern Michigan and also offers a limited number of
non-affiliated, non-deposit investment products. Historically, Franklin's
principal sources of funds for its lending and investment activities have
consisted of deposits, principal repayment on loans, and, to a lesser extent,
Federal Home Loan Bank advances and repurchase agreements. Principal uses of
funds for Franklin include the origination of loans and the repayment of
maturing deposit accounts and other borrowings. Franklin anticipates it will
have sufficient funds available to meet current loan commitments, as well as its
other future liquidity needs.
During the three month period ended March 31, 2000, Franklin had an
increase in deposits of $10.5 million. Franklin also had an increase in short
term borrowings during the three months ended March 31, 2000 of $16.5 million.
During this same time period, there was an increase of $13.0 million in loans
and an increase of $14.4 million in cash and securities, which increased
Franklin's liquid assets to 43.2% of total assets at March 31, 2000 from 42.8%
at December 31, 1999.
Balances of certificates of deposit accounts decreased by $8.8 million
during the three months ended March 31, 2000. There were increases in deposits
of commercial demand and business money market accounts of $14.7 million during
the three months ended March 31, 2000.
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<PAGE> 134
Regulatory Capital
The following table compares Franklin's regulatory capital requirements and
ratios at March 31, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
TIER 1 LEVERAGE TIER 1 RISK-BASED TOTAL RISK-BASED
RATIO RATIO RATIO
--------------- ----------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Regulatory capital balances at March 31, 2000.... $48,743 $48,743 $55,613
Required regulatory capital (well capitalized)... 26,520 22,724 37,909
------- ------- -------
Capital in excess of well capitalized............ $22,223 $26,019 $17,704
======= ======= =======
Capital ratios at March 31, 2000................. 9.19% 12.87% 14.67%
Capital ratios at December 31, 1999.............. 8.97 13.36 15.61
Regulatory capital ratios (well capitalized)..... 5.00 6.00 10.00
</TABLE>
The increase in the Tier 1 Leverage Ratio from December 31, 1999 to March
31, 2000 of 2.45% was the result of an increase in the quarterly income.
The decline in the Tier 1 and Total Risk-based Ratios of 3.67% and 6.02%,
respectively, was the result of an increase in net income, as well as the result
of an increase in risk weighted assets of $20.1 million, when comparing total
risk weighted assets at December 31, 1999 to March 31, 2000. This increase in
the risk weighted assets is due to the shift in the earning assets to loans
which carry a 100% risk weighting from investment securities which carry a lower
20% or 50% risk weighting, as well as a decrease in the first quarter in the
amount of qualifying subordinated capital notes that can be used for the Total
Risk-based capital ratio from 60% to 40% eligibility.
Results of operations for the three months ended March 31, 2000 compared to
the three months ended March 31, 1999
Interest income increased by $1.0 million or 11.7%, while interest expense
increased by $394,895 or 15.1%, increasing net interest income by $632,980. Net
interest margin was 5.46% and 5.62%, respectively, for the three months ended
March 31, 2000 and 1999. The largest increase in interest income was in the
securities investments, an increase of $1.3 million or 119.8%. Interest income
on loans and other investments decreased by $238,001. This shift in interest
income was the result of an increase in the average balance of investment
securities of $103.6 million or 99.5% when comparing the quarter ended March 31,
2000 to March 31, 1999. Although outstanding loans increased during the first
quarter of 2000, average outstanding loan balances were $10.0 million lower, a
decline of 3.5%, for the quarter ended March 31, 2000 compared to March 31,
1999. However, increased loan commitments and closings are expected for the
remainder of the year 2000. Increases, if any, in the loan portfolio, may result
in decreases in the investment portfolio.
The shift in interest expense from deposits to the Federal Home Loan Bank
and other short-term borrowings was the result of a decrease in the outstanding
balances of interest paying deposits of $42.1 million or 16.4% and an increase
in Federal Home Loan Bank advances and repurchase agreements of $69.5 million
for the quarter ended March 31, 2000 compared to March 31, 1999. The use of
funds borrowed from the Federal Home Loan Bank or through the use of repurchase
agreements is expected to continue through the remainder of the year 2000.
However it is expected that any additional deposits will be used to fund
additional loan originations and/or to pay down the outstanding funds borrowed
from the Federal Home Loan Bank and short-term borrowings.
Total non-interest income decreased by $125,517 or 11.1% for the quarter
ended March 31, 2000 when compared to the quarter ended March 31, 1999. There
was a decrease in loan fees of $121,388 or 68.0%, a decrease in the net gains on
the sale of assets of $211,886, and an increase in deposit account service
charges of $199,081 or 26.9% when comparing the quarter ended March 31, 2000 to
the quarter ended March 31, 1999.
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<PAGE> 135
Non-interest expense increased $120,127 or 2.2% during the quarter ended
March 31, 2000. This increase reflects an increase in compensation and benefits
of $63,047 or 2.3%, an increase in defaulted loan expense of $33,023 or 13.1%,
an increase in outside service expense of $248,956 or 67.9% offset by decreases
in advertising of $50,756 or 25.6%, Federal insurance premiums of $45,415 or
46.3% and other expenses of $71,783 or 9.4% as compared to the quarter ended
March 31, 1999. Approximately 50.2% or $125,000 of this increase in outside
services was for the final payment to an outside consultant that was hired
during 1999 to help Franklin increase its non interest income. Additional legal
fees totaling $52,865 and outside audit costs of $17,075 were also incurred
during the quarter ended March 31, 2000 compared to March 31, 1999.
FISCAL YEARS 1999, 1998 AND 1997
Net Interest Income
Franklin has, for several years, greatly benefited from a relatively high
net interest margin compared to other banks. Net interest income is simply
interest earned on loans and investments less interest paid for deposits and
other borrowed funds. That net result, plus the impact of net non
interest-bearing funds, expressed as a percentage of average earning assets, is
Franklin's net interest margin.
Two primary dynamics drive these results:
- Volume of growth or decrease of both asset and liability products; and
- Interest rates earned or paid on those respective products.
Net interest income for 1999, 1998 and 1997, respectively, was $26.2
million, $27.0 million and $24.7 million. Franklin's net interest spread was
3.94%, 4.10% and 4.08% for 1999, 1998 and 1997, respectively. Net interest
margin for those same periods was 5.58%, 5.92% and 5.48%, respectively.
During 1999, Franklin continued its planned exit from lease financing.
Average balances in this portfolio, which had grown from $101.1 million in 1997
to their highest peak of $105.2 million in 1998, were reduced to $35.7 million
at year-end 1999. Although a much smaller percentage of the total loan
portfolio, consumer loans, which averaged $18.4 million and $18.3 million in
1997 and 1998, respectively, fell to $13.5 million in 1999. This was largely the
result of the sale of a local, large originator and seller of installment
contracts to an out of state entity and the discontinuation of Franklin's
relationship.
Much of this excess liquidity was re-deployed into investment securities.
This volume increase in investment securities coupled with increasing levels of
securities sold under agreements to repurchase greatly increased interest income
in this portfolio to $6.8 million in 1999 compared to $2.5 million for both 1998
and 1997.
Franklin sacrificed a measure of yield for commercial and residential
construction loans in 1999 in order to remain competitive and attract quality
borrowers. Furthermore, there was a 49 basis point reduction in rates paid for
interest-bearing deposits at other banks. Consequently, the average yield on
interest earning assets for 1999 was 7.82% compared to 8.72% and 8.99% for 1998
and 1997, respectively.
Liability strategy was focused, simple and consistent with recent years
and, as expected, contributed positively to interest expense reduction. Higher
interest cost deposits (certificates) continued to decline and lower cost
deposits (primarily money market and personal checking) continued to rise. A 78
basis point reduction in interest rates paid on interest-bearing deposits in
1999 was achieved despite a rising rate environment. Average rates paid on
interest-bearing liabilities in 1999, 1998 and 1997 were 3.88%, 4.62% and 4.91%,
respectively.
Zero interest expense business checking balance growth has been a critical
strategic element in Franklin's business plan for over eight years. For the past
two years, zero cost checking (the majority of which are business accounts)
comprised the single largest deposit category. Average balances for business and
personal checking in 1999 increased to $186.9 million compared to $171.1 million
in 1998 and $129.5 million in 1997.
127
<PAGE> 136
By any measure, net interest income is an area of strength for Franklin.
Although average net interest margin declined slightly in 1999 compared to 1998
(5.58% vs. 5.92%), several initiatives underway in 2000 are expected to improve
net interest margin. For just the month of December 1999, net interest margin
was 5.70%.
The following tables set forth information regarding the components of, and
changes in, Franklin's net interest income.
<TABLE>
<CAPTION>
1999/1998 1998/1997
------------------------------ ------------------------------
INCREASE/(DECREASE)(1) IN INCREASE/(DECREASE)(1) IN
------------------------------ ------------------------------
VOLUME RATE/YIELD NET VOLUME RATE/YIELD NET
------- ---------- ------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans............................ $(7,056) $ (902) $(7,958) $(3,102) $ 485 $(2,617)
Investment securities:
U.S. treasuries and mortgage-
backed securities........... 6,363 (24) 6,339 465 (393) 72
Interest-bearing deposits with
banks....................... (1,051) (207) (1,258) 1,603 29 1,632
Other.......................... (344) 72 (272) 163 9 172
------- ------- ------- ------- ------- -------
Total interest income............ (2,088) (1,061) (3,149) (871) 130 (741)
------- ------- ------- ------- ------- -------
INTEREST EXPENSE
Deposits......................... (1,089) (1,796) (2,885) (742) (945) (1,687)
FHLB advances.................... 44 44 (277) (278) (555) --
Subordinated debt................ -- (288) (288) -- 230 230
Other borrowings................. 816 -- 816 (950) (52) (1,002)
------- ------- ------- ------- ------- -------
Total interest expense........... (229) (2,084) (2,313) (1,969) (1,045) (3,014)
------- ------- ------- ------- ------- -------
Net interest income.............. $(1,859) $ 1,023 $ (836) $ 1,098 $ 1,175 $ 2,273
======= ======= ======= ======= ======= =======
</TABLE>
---------------
(1) The change in interest due to both volume and rate has been allocated
between the factors in proportion to the relationship of the absolute dollar
amounts of the change in each.
128
<PAGE> 137
AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------- ---------------------------- ----------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------ -------- -------- ------ -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans:
Commercial.............. $163,152 $15,260 9.35% $167,683 $16,358 9.76% $194,649 $18,801 9.66%
Residential............. 67,615 5,888 8.71 64,041 5,763 9.00 73,270 6,640 9.06
Consumer................ 13,499 1,475 0.93 18,314 1,893 10.34 18,392 1,817 9.88
Lease financing......... 35,731 3,529 9.88 105,154 10,096 9.60 101,106 9,469 9.37
-------- ------- ---- -------- ------- ----- -------- ------- ----
Total loans............... 279,997 26,152 9.34 355,192 34,110 9.60 387,417 36,727 9.48
U.S. treasuries and
mortgage-backed
securities.............. 114,804 6,427 5.60 41,956 2,367 5.64 38,684 2,422 6.26
Interest-bearing deposits
with banks.............. 23,566 1,121 4.76 45,317 2,379 5.25 14,759 747 5.06
Other..................... 50,185 2,951 5.88 13,712 944 6.88 10,130 645 6.37
-------- ------- ---- -------- ------- ----- -------- ------- ----
Total interest-earning
assets/ interest
income.................. 468,552 36,651 7.82 456,177 39,800 8.72 450,990 40,541 8.99
-------- ------- ---- -------- ------- ----- -------- ------- ----
Cash and due from banks... 26,079 25,140 26,012
All other assets.......... 21,856 26,764 13,220
Allowance for loan
losses.................. (3,844) (3,892) (2,798)
-------- -------- --------
Total assets.............. $512,643 $504,189 $487,424
======== ======== ========
Liabilities
Money markets............. $159,316 $ 5,213 3.27% $148,052 $ 5,627 3.80% $141,088 $ 5,546 3.93%
Savings accounts.......... 305 8 2.62 293 7 2.39 349 9 2.58
Now checking.............. 11,423 83 0.73 8,445 71 0.84 7,542 71 0.94
Certificates.............. 35,557 1,686 4.74 48,666 2,657 5.46 63,477 3,662 5.77
Jumbo certificates........ 41,059 2,008 4.89 64,155 3,521 5.49 74,338 4,282 5.76
-------- ------- ---- -------- ------- ----- -------- ------- ----
Total interest-bearing
deposits................ 247,660 8,998 3.63 269,611 11,883 4.41 286,794 13,570 4.73
FHLB advances............. 774 44 5.68 9,785 555 5.67 -- -- --
Subordinated capital
notes................... 7,475 635 8.49 7,475 923 12.35 7,475 693 9.27
Other..................... 14,865 816 5.48 -- -- -- 18,187 1,002 5.51
-------- ------- ---- -------- ------- ----- -------- ------- ----
Total interest-bearing
liabilities/interest
expense................. 270,774 10,493 3.88 277,086 12,806 4.62 322,241 15,820 4.91
-------- ------- ---- -------- ------- ----- -------- ------- ----
Business/personal
checking................ 186,905 171,074 129,530
Preferred stock........... 19,500 19,509
Other liabilities......... 1,701 4,039 3,779
Shareholders' equity...... 33,763 32,481 31,874
-------- -------- --------
Total liabilities and
shareholders' equity.... $512,643 $504,189 $487,424
======== ======== ========
Net interest income....... $26,158 $26,994 $24,721
======= ======= =======
Net interest spread....... 3.94% 4.10% 4.08%
Impact of net non
interest-bearing source
of funds................ 1.64% 1.82% 1.40%
---- ----- ----
Net interest margin....... 5.58% 5.92% 5.48%
==== ===== ====
</TABLE>
Interest and principal balances pertaining to nonaccrual loans are not
included for this analysis.
129
<PAGE> 138
Non Interest Income
Total non interest income has remained relatively constant at $4.2 million
for 1999, 1998 and 1997. The flatness of the total amount obscures a 26.6%
improvement in deposit fee income in 1999 compared to 1998, which follows an
8.5% decrease from 1997 to 1998.
Approximately mid-year, Franklin engaged the services of an internationally
recognized firm that specializes in assisting banks to enhance various yields
and realize greater operating efficiencies. The first phase of its
recommendations was implemented in the fourth quarter of 1999. As a result of
implementing the recommendations, deposit fee income for 1999 was $3.2 million,
an increase of 26.6% from $2.5 million in 1998 and an increase of 16.0% from
$2.7 million in 1997, which had been the previous historical high.
This significant increase in the largest component of non interest income
was, however, offset by a large decline in loan processing and servicing fee
income. The 73.4% reduction from 1998 to 1999, compared to a 6.2% increase from
1997 to 1998, resulted from adjustments and charge-offs of accrued fees on
delinquent loans. Gains on sales of securities and loans is incidental to
Franklin's strategic plan of building income through core bank activities.
Nevertheless, the 56.6% decline in this area compared to 1998, which followed an
18.4% increase in 1998 compared to 1997, had an additional negative offset to
the improvement in deposit service charges.
Income from sales of investment products improved 15.2% in 1999 compared to
1998. Because the absolute dollar income from this area is relatively low, in
percentage growth, the improvement from 1997 to 1998 was much higher at 45.3%.
Other areas that contributed to non interest income consisted of ACH, ATM and
Lockbox fees and our International Department.
The following table sets forth information regarding Franklin's
non-interest income.
<TABLE>
<CAPTION>
YEARS ENDED PERCENT CHANGE
------------------------ -----------------
1999 1998 1997 1998-99 1997-98
------ ------ ------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposit service charges........................... $3,177 $2,509 $2,741 26.6% (8.5)%
Loan processing and servicing fees................ 202 759 715 (73.4) 6.2
Security and loan gains........................... 165 380 321 (56.6) 18.4
Investment product income......................... 159 138 95 15.2 45.3
Other............................................. 451 390 287 15.6 35.9
------ ------ ------
Total non interest income......................... $4,154 $4,176 $4,159 (0.5) 0.4
====== ====== ======
</TABLE>
Non Interest Expense
Total non interest expense was $23.1 million for 1999, $21.4 million for
1998 and $19.5 million for 1997. Total compensation increased 8.5% in 1999 and
7.8% in 1998. Increases over these two years resulted from normal merit
increases and adjustments in some salary ranges in order to remain competitive
with the most challenging job market experienced in the history of Franklin. In
addition, several seasoned professionals joined the senior management team to
rebuild and refine systems to originate, underwrite and monitor higher quality
loan growth and to more effectively work out problem assets.
Occupancy and equipment expense in 1999 was flat compared to 1998, however
this follows a 19.2% increase in occupancy and equipment expense in 1998
compared to 1997. This increase is a combination of normal rent increases,
equipment purchases and upgrades.
In absolute dollars, professional fees, taxes and supervisory fees and
defaulted loan expense were the other areas of most significant increase in
1999. Of these three areas, taxes and supervisory fees are largely beyond
management's control. Professional fees increased resulting primarily from
several consulting engagements. Increased defaulted loan expenses were the
result of efforts to more quickly and decisively dispose of problem assets.
130
<PAGE> 139
The following table sets forth information regarding Franklin's
non-interest expense.
<TABLE>
<CAPTION>
YEARS ENDED PERCENT CHANGE
--------------------------- -----------------
1999 1998 1997 1998-99 1997-98
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries....................................... $ 8,970 $ 8,061 $ 7,343 11.3% 9.8%
Employee benefits.............................. 2,232 2,261 2,231 (1.3) 1.3
------- ------- -------
Total compensation expense..................... 11,202 10,322 9,574 8.5 7.8
Occupancy and equipment........................ 3,441 3,451 2,894 (0.3) 19.2
Advertising.................................... 828 789 841 4.9 (6.2)
Professional fees.............................. 387 184 165 110.3 11.3
Federal insurance.............................. 383 386 370 (0.8) 4.3
Taxes and supervisory fees..................... 506 328 409 54.3 (19.8)
Supplies and printing.......................... 695 600 487 15.8 23.1
Communication expense.......................... 708 700 636 1.1 10.1
Defaulted loan expense......................... 1,440 1,280 1,004 12.5 27.5
Other.......................................... 3,531 3,316 3,126 6.5 6.1
------- ------- -------
Total non interest expense..................... $23,121 $21,356 $19,506 8.3 9.5
======= ======= =======
</TABLE>
Allowance For Loan Losses
At year-end 1999 the allowance for loan losses was $3.6 million compared to
$4.5 million at year-end 1998 and $3.2 million at year-end 1997. Several
positive trends, including a 79.7% reduction in the highest loss producing lease
financing portfolio and a 24.3% reduction in total charge-offs compared to 1998
(48.7% reduction compared to 1997), justified a lower provision in 1999 ($1.2
million) compared to 1998 and 1997 ($4.3 million and $6.6 million,
respectively). Franklin recovered over $1.0 million in formerly charged-off
leases in 1999 compared to $697,088 and $570,743 in 1998 and 1997, respectively.
Total recoveries were $1.7 million, $2.1 million and $894,462 for 1999, 1998 and
1997, respectively.
As a percentage of total loans, the allowance at year-end 1999, 1998 and
1997 was 1.30%, 1.40% and 0.84%, respectively. Management believes the current
level of the allowance for loan losses is adequate to provide for losses
inherent in the existing loan portfolio. Management reviews the adequacy of the
allowance monthly and establishes appropriate levels of allowance based on
current loan portfolio delinquencies, charge-offs and peer group experience.
Regulatory agencies, as an integral part of their examination process,
periodically review Franklin's allowance for loan losses. Such agencies may
require Franklin to recognize additions to the allowance based upon their
judgment of the information available to them at the time of their examination.
131
<PAGE> 140
The following table sets forth information regarding Franklin's allowance
for loan losses.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year..... $4,532,756 $3,180,810 $3,199,549 $2,930,392 $3,452,583
Provision for loan losses........ 1,226,000 4,335,000 6,600,000 2,409,614 1,051,191
Charge-offs:
Commercial..................... 1,088,866 2,210,799 2,302,191 953,199 217,471
Commercial mortgage............ 42,075 172,078 -- -- --
Residential.................... 139,379 9,293 -- -- --
Overdrafts..................... 325,000 502,488 2,956,478 423,620 181,071
Consumer....................... 235,340 153,738 190,751 129,317 62,291
Lease financing................ 2,205,254 2,082,039 2,063,781 876,513 1,125,961
---------- ---------- ---------- ---------- ----------
Total charge-offs................ 3,854,460 5,088,443 7,513,201 2,434,017 1,758,872
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial..................... 190,751 110,272 107,827 59,895 37,095
Commercial mortgage............ 9,105 16,900 -- -- --
Residential.................... 1,500 12,736 1,327 1,000 --
Overdrafts..................... 391,202 1,196,947 142,515 37,056 15,620
Consumer....................... 85,626 88,346 72,050 25,151 94,850
Lease financing................ 1,010,926 697,088 570,743 162,353 20,025
---------- ---------- ---------- ---------- ----------
Total recoveries................. 1,680,005 2,105,389 894,462 293,560 185,490
---------- ---------- ---------- ---------- ----------
Net charge-offs.................. 2,174,455 2,983,054 6,618,739 2,140,457 1,573,382
---------- ---------- ---------- ---------- ----------
Balance at end of year........... $3,584,301 $4,532,756 $3,180,810 $3,199,549 $2,930,392
========== ========== ========== ========== ==========
Allowance as a percentage of:
Loans.......................... 1.30% 1.40% 0.84% 0.81% 0.83%
Nonperforming assets........... 65.64 102.54 30.56 20.94 24.81
Net charge-offs................ 164.84 151.95 48.06 149.48 186.25
Net charge-offs to:
Average loans outstanding...... 0.78 0.84 1.71 0.58 0.49
</TABLE>
Earning Assets
At year-end 1999, total loans were $275.6 million compared to $322.8
million at year-end 1998. As planned, Franklin materially reduced its lease
financing portfolio in 1999. Combining both lease financing and lease financing
held for sale at year-end 1998, this product totaled $81.3 million compared to
$16.5 million at year-end 1999, a 79.7% decrease.
Notwithstanding the overall decrease in loans, Franklin experienced it's
strongest year in new commercial and construction loan originations.
Commercial mortgage balances were $96.7 million at year end 1999 compared
to $83.6 million at year-end 1998. Real estate construction stood at $41.4
million at year-end 1999, an increase of 49.7% from the year-end 1998 balance of
$27.6 million. Commercial business (lines of credit and term) remained
relatively flat at $72.8 million at year-end 1999, a 4.0% reduction from $75.8
million at year-end 1998. However, with improved underwriting, extensive
training and additional marketing support, these essential products desired by
business clients are expected to grow.
A new partnership in the consumer lending area began in late 1999. Franklin
consummated a partnership with MichCon, one of Michigan's largest utility
companies, to provide financing for a variety of home improvement consumer
loans, originated through qualified, approved dealers. Each loan is stringently
credit scored by Franklin prior to approval.
132
<PAGE> 141
Over half (54.3%) of Franklin's total disbursed loans mature within five
years and 37.5% have a floating rate within that time frame. Franklin's total
floating rate portfolio, including loans maturing after five years, is 52.6% of
the total loan portfolio.
Excess liquidity from the lease portfolio run-off and other loan payoffs
were used to purchase investment securities in 1999. At year-end, Franklin's
investment securities portfolio was the largest single earning asset with a
balance of $199.9 million, compared to $87.2 million at year-end 1998. As in
recent years, the entire investment securities portfolio at year-end 1999 was
classified available for sale. At year-end 1999, the investment securities
portfolio had a weighted average maturity of 3.13 years.
The following tables set forth information regarding Franklin's loan
portfolio.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ---------------- ---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 72,792 26.4% $ 75,821 23.5% $ 83,553 22.2% $ 82,480 20.8% $ 69,859 19.7%
Commercial mortgage..... 96,697 35.1 83,571 25.9 97,121 25.7 138,950 35.1 152,237 43.0
Residential mortgage and
home equity........... 34,238 12.4 35,939 11.1 43,826 11.6 48,031 12.1 45,833 13.0
Real estate
construction.......... 41,369 15.0 27,642 8.6 23,643 6.3 24,808 6.3 20,436 5.8
Consumer................ 14,031 5.1 18,528 5.7 18,550 4.9 18,688 4.7 12,422 3.5
Lease financing......... 16,494 6.0 51,810 16.0 110,576 29.3 83,180 21.0 53,074 15.0
Lease financing -- held
for sale.............. -- -- 29,522 9.2 -- -- -- -- -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Loans................... $275,621 100.0% $322,833 100.0% $377,269 100.0% $396,137 100.0% $353,861 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Outstanding loan commitments................................ $ 3,700 $ 3,200 $10,000
Unused commercial line of credit commitments................ 46,400 52,400 48,500
Unused home equity commitments.............................. 6,700 7,200 9,700
Undisbursed construction loans.............................. 14,900 9,800 7,900
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
---------------------------------------------
WITHIN ONE TO AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial.................................................. $ 7,114 $36,168 $ 29,510 $ 72,792
Commercial mortgage......................................... 3,571 38,932 54,194 96,697
Residential mortgage and home equity........................ 1,983 13,844 18,411 34,238
Real estate construction.................................... 33,474 117 7,778 41,369
Consumer.................................................... 1,351 3,557 9,123 14,031
Lease financing............................................. 4,810 4,808 6,876 16,494
------- ------- -------- --------
Loans....................................................... $52,303 $97,426 $125,892 $275,621
======= ======= ======== ========
Loans above with:
Fixed rates................................................. $17,213 $29,124 $ 84,398 $130,735
Floating rates.............................................. 35,090 68,302 41,494 144,886
------- ------- -------- --------
Loans....................................................... $52,303 $97,426 $125,892 $275,621
======= ======= ======== ========
</TABLE>
133
<PAGE> 142
The following table sets forth information regarding Franklin's investment
securities, all of which are classified by Franklin as available for sale.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
--------------------------------------------------------------------------------------------------------
MATURING
--------------------------------------------------------------------------------------------------------
WITHIN 1 YEAR 1-5 YEARS 5-10 YEARS +10 YEARS
--------------- ---------------- -------------- -------------- AMORTIZED FAIR WTD. AVG
COST YIELD COST YIELD COST YIELD COST YIELD COST VALUE MAT.(YRS.)
------- ----- -------- ----- ------ ----- ------ ----- --------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities......... $ 7,031 6.67% $ 89,131 5.95% $ 625 6.53% $1,727 6.47% $ 98,514 $ 96,157 3.12
U.S. Government and
agency
securities......... 10,061 5.34 38,052 5.90 7,767 7.13 -- -- 55,880 55,092 3.67
Corporate bonds...... 21,111 5.51 27,998 6.24 -- -- -- -- 49,109 48,622 2.58
------- -------- ------ ------ -------- --------
Total................ $38,203 5.68% $155,181 5.99% $8,392 7.09% $1,727 6.47% $203,503 $199,871 3.13
======= ======== ====== ====== ======== ========
</TABLE>
Other Earning Assets
Interest-earning deposits at the Federal Home Loan Bank ("FHLB") and other
banks, FHLB stock and Federal Reserve Bank ("FRB") stock comprise Franklin's
other earning assets. At year-end 1999 these amounts totaled $7.2 million
compared to $60.6 million at year-end 1998.
Bank deposits, by their inherent nature, are the lowest yielding asset
compared to alternative investments. The average yield on interest-bearing bank
deposits for 1999 was 4.76% compared to 5.25% for 1998. Franklin greatly reduced
its level of bank deposits during 1999 and more profitably allocated the funds
primarily to its investment security portfolio.
As a member of both the FHLB and the FRB, stock ownership is required. At
year-end 1999 and 1998, Franklin's FHLB stock position remained at $5.9 million.
FRB stock held at year-end 1999 was $1.3 million, substantially unchanged from
Franklin's position at year-end 1998.
Nonperforming Assets
Total nonperforming assets at year-end 1999 were $5.5 million compared to
$4.4 million at year-end 1998. One large residential property, added to real
estate owned during the fourth quarter, was the primary cause of the increase in
year to year comparisons. Franklin expects to sell this property early in 2000.
Nonaccrual loans totaled $871,106 at year-end 1999, which also contributed
to the increase in total nonperforming assets at year-end 1999 compared to 1998.
Accruing loans past due 90 days or more dropped by 21.2% at year-end 1999
compared to the prior year. The greatest area of improvement in accruing loans
past due 90 or more days was in lease financing, which were $357,639 at December
31, 1999 compared to $753,269 at year-end 1998.
As a percentage of total assets, nonperforming assets were 1.06% and 0.88%
at year-end 1999 and 1998, respectively. With the anticipated sale of the above
mentioned residential property, potential sales of other real estate owned
properties and aggressive management of other nonperforming assets, Franklin
expects these ratios to improve by mid-year 2000.
134
<PAGE> 143
The following table sets forth information regarding Franklin's non-accrual
loans and real estate owned.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NONACCRUAL LOANS
Commercial.................... $ 63,393 $ -- $ 461,196 $ 1,894,352 $ 3,744,169
Commercial mortgage........... 807,713 -- -- 309,246 4,393,318
Residential mortgage.......... -- -- -- -- 714,872
Consumer...................... -- -- -- -- 135,294
Lease financing............... -- -- -- -- 360,217
---------- ---------- ----------- ----------- -----------
Total nonaccrual loans........ 871,106 -- 461,196 2,203,598 9,347,870
---------- ---------- ----------- ----------- -----------
ACCRUING LOANS PAST DUE 90
DAYS OR MORE
Commercial.................... 141,029 211,162 3,034,507 2,685,522 742,080
Commercial mortgage........... -- 365,312 31,603 6,386,841 1,182,395
Residential mortgage.......... 469,080 43,057 -- 905,176 141,190
Home equity................... -- 35,690 333,635 24,237 --
Consumer...................... 257,868 147,392 11,100 353,876 72,875
Lease financing............... 357,639 753,269 405,442 1,239,622 119,877
---------- ---------- ----------- ----------- -----------
Total......................... 1,225,616 1,555,882 3,816,287 11,595,274 2,258,417
---------- ---------- ----------- ----------- -----------
Total nonperforming loans..... 2,096,722 1,555,882 4,277,483 13,798,872 11,606,287
---------- ---------- ----------- ----------- -----------
REAL ESTATE OWNED
Commercial.................... -- -- 109,583 -- --
Commercial mortgage........... 891,000 1,129,005 4,711,821 929,063 --
Residential mortgage.......... 2,458,516 1,434,098 1,204,493 442,506 --
---------- ---------- ----------- ----------- -----------
Total real estate owned....... 3,349,516 2,563,103 6,025,897 1,371,569 --
Other repossessed assets...... 14,580 301,300 104,720 107,743 205,790
---------- ---------- ----------- ----------- -----------
Total nonperforming assets.... $5,460,818 $4,420,285 $10,408,100 $15,278,184 $11,812,077
========== ========== =========== =========== ===========
TOTAL NONACCRUAL LOANS AND
REAL ESTATE AS A PERCENTAGE
OF:
Total assets................ 0.82% 0.51% 1.29% 0.72% 1.91%
Loans and real estate
owned.................... 1.51 0.79 1.69 0.90 2.64
TOTAL NONPERFORMING ASSETS AS
A PERCENTAGE OF:
Total assets................ 1.06% 0.88% 2.07% 3.08% 2.42%
Loans and real estate
owned.................... 1.96 1.36 2.72 3.84 3.34
</TABLE>
Income Taxes
The provision for federal income taxes for 1999, 1998 and 1997 was $1.2
million, $1.0 million and $682,941, respectively. The differences reflect
fluctuations in pre-tax earnings. The effective tax rates, computed by dividing
the income tax provision by income before taxes for 1999, 1998 and 1997 were
28.0%, 28.5% and 25.1%, respectively.
Deposits And Other Borrowed Funds
Deposits at year-end 1999 and 1998 were $400.4 million and $441.5 million,
respectively. Franklin continued its plan to allow relatively expensive
certificates of deposit to leave by not competitively bidding to retain the
funds at maturity. The combined balance of both retail and jumbo certificates at
year-end 1999 was $55.4 million, as compared to $89.4 million at year-end 1998.
135
<PAGE> 144
Day to day fluctuations in the highly liquid business checking and money
market portfolios can skew an analysis based on only a date certain snapshot
review. At year-end 1999, business checking balances were $173.2 million
compared to $178.2 million at year-end 1998. Similarly, money market savings at
year-end 1999 and 1998 were $149.1 million and $153.7 million, respectively.
Customer cash needs, especially business customers, are always volatile at
year-end with holiday expenditures and company bonus pay-outs. Concerns over Y2K
may have further contributed to customers controlling larger amounts of cash
over regular, year-end cash needs.
Average business checking and money market account balances throughout the
year, however, reached historical highs. Business checking accounts averaged
$186.9 million for 1999 compared to $171.1 million in 1998, a 9.2% improvement.
Similarly, the money market balances averaged $159.3 million in 1999 compared to
$148.1 million in 1998, an increase of 7.6%.
To supplement liquidity fluctuations and to also meet the potential needs
of Y2K, Franklin had short-term borrowings of $55.0 million at December 31,
1999. There were no such short-term borrowings at year-end 1998.
The following tables set forth information regarding Franklin's deposits.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Business checking...................... $173,177 38.0% $178,197 40.4% $153,986 34.9%
Money market savings................... 149,127 32.7 153,710 34.8 142,379 32.3
Personal checking and savings.......... 22,657 5.0 20,217 4.6 15,941 3.6
Jumbo certificates..................... 27,731 6.1 48,765 11.0 74,692 17.0
Retail certificates.................... 27,673 6.1 40,650 9.2 53,760 12.2
-------- ----- -------- ----- -------- -----
Total deposits......................... 400,365 87.9 441,539 100.0 440,758 100.0
-------- ----- -------- ----- -------- -----
Short-term borrowings.................. 55,046 12.1 -- -- -- --
-------- ----- -------- ----- -------- -----
Total sources of funds................. $455,411 100.0% $441,539 100.0% $440,758 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
------------------------------------
LESS THAN GREATER THAN OR EQUAL TO
$100,000 $100,000
--------- ------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Three months or less........................................ $ 8,112 $20,116
Over three months to six months............................. 6,145 5,585
Over six months to twelve months............................ 7,589 3,004
Over twelve months.......................................... 3,732 1,121
------- -------
Total....................................................... $25,578 $29,826
======= =======
</TABLE>
Liquidity
Liquidity allows Franklin to meet both the expected and unanticipated cash
needs of depositors, borrowers and creditors. Cash for daily, on-going
operations must also be supplied from readily available funding sources.
Multiple sources from which to acquire auxiliary funding enhance a bank's
liquidity position. Presently, a highly marketable securities portfolio,
customer deposits, bank deposits at the FHLB and FRB, loan repayments,
maturities and sales, FHLB advances, repurchase agreements and subordinated
capital notes are the primary sources of liquidity for Franklin.
Liquidity is carefully monitored daily by the Treasury/Finance area.
Prospective funding needs are anticipated and compared to cash levels and
available borrowing capacity. Franklin manages liquidity according to both a
Liquidity Policy and a Liquidity Crisis Contingency Plan. The Policy and Plan
dictate
136
<PAGE> 145
acceptable liquidity levels, identify all alternative sources for additional
liquidity and articulate certain "triggering events" that would accelerate the
acquisition of liquid reserves.
Liquid assets at year-end 1999 were $221.1 million compared to $159.8
million at year-end 1998. Liability sources of liquidity were $433.1 million at
year-end 1999 compared to $396.2 million at year-end 1998. This provided
Franklin with total liquidity of $654.2 million and $556.0 million at year-end
1999 and 1998, respectively. At year-end 1999, Franklin also had additional
unused borrowing capacity from the FHLB of $62.6 million.
Regulatory Capital
Franklin has consistently exceeded the capital levels established by the
Office of the Comptroller of the Currency.
During 1999, Franklin's capital levels remained above the OCC's "well
capitalized" classification and were, in fact, strengthened even further. It is
Franklin's objective to maintain this highest classification level, which both
ensures compliance with regulatory requirements and allows for greater potential
growth.
The OCC measures regulatory capital three ways:
- Tier 1 capital to average assets (the "Tier 1 leverage" ratio),
- Tier 1 capital to risk weighted assets; and
- Total capital to risk weighted assets.
Minimum accepted ratios for these three levels are 4.00%, 4.00% and 8.00%. "Well
capitalized" institutions must meet OCC established minimums of 5.00%, 6.00% and
10.00% for the three tiers, respectively.
At year-end 1999, Franklin's Tier 1 leverage ratio, Tier 1 risk weighted
ratio and total risked-based capital ratios were 8.97%, 13.36% and 15.61%,
respectively. At year-end 1998, the same ratios were 8.72%, 11.76% and 14.59%,
respectively.
Total shareholders' equity at year-end 1999 and 1998 was $33.1 million and
$33.3 million, respectively. The year to year change in total shareholders'
equity is the net result of retained earnings and the accounting treatment of
the change in value of available for sale securities.
Capital levels mandated by federal banking agencies are presented under
Regulatory Accounting Principles ("RAP"). For determination of capital adequacy,
the accounting treatment of loan interest accruals, unrealized gains and losses
on securities and other issues, are not identical under generally accepted
accounting principles. Under RAP, total shareholders' equity was $31.9 million
at year-end 1999 compared to $31.4 million at year-end 1998.
During 1999, four quarterly cash dividends were declared and paid totaling
$0.28 per common share.
137
<PAGE> 146
The following table sets forth information regarding Franklin's regulatory
capital.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
TIER 1
Common equity............................................... $31,867 $31,374 $30,272
Eligible preferred equity................................... 13,731 13,052 12,425
Unrealized (gain)/loss on securities available for sale, net
of tax.................................................... 2,397 186 (78)
------- ------- -------
Adjusted common and eligible preferred equity............... 47,995 44,612 42,619
Less Disallowed intangibles................................. (40) (52) (64)
------- ------- -------
Total tier 1 capital........................................ 47,955 44,560 42,555
------- ------- -------
TIER 2
Qualifying subordinated capital notes....................... 4,485 5,980 7,475
Eligible allowance for loan losses.......................... 3,584 4,743 3,677
------- ------- -------
Total tier 2 capital........................................ 8,069 10,723 11,152
------- ------- -------
Total risk-based capital.................................... $56,024 $55,283 $53,707
======= ======= =======
</TABLE>
Once Franklin merges with Bingham Bank and becomes a federal savings bank,
it will be regulated by the Office of Thrift Supervision. The OTS has regulatory
capital requirements similar to those of the OCC.
Interest Rate Sensitivity
Banks measure interest rate sensitivity or risk largely by monitoring the
repricing difference between their asset and liability portfolios.
Realistically, the repricing opportunities of these portfolios are never in
perfect sync. Banks typically set a percentage of total assets tolerance for
this difference, within various time intervals, and manage their "gap" between
repricing assets and liabilities within that range.
This measurement assists Franklin in asset liability management and can
help mitigate the negative impact of interest rate swings. Simplistically, in a
rising rate environment, if liabilities (primarily deposits) subject to
immediate repricing (such as money market accounts) excessively exceeded an
institution's repricing opportunities for assets (primarily loans), net interest
income could be negatively affected. Conversely, in a falling rate environment,
if more loans were floating rate and subject to reprice lower, but were funded
primarily with long term, high rate certificates of deposit, the impact on net
interest income could be just as negative.
Other factors affect the interest rate sensitivity of an institution,
including the speed at which assets and liabilities reprice in response to
market rate changes and the actual index to which they might be tied. However
banks must recognize that assets and liabilities are not acquired in a static
environment; interest rates and the volume and repricing characteristics of
those portfolios will affect their net profitability.
At December 31, 1999, based on portfolio repricing characteristics,
Franklin had a negative gap of 10.2% at one year. Specifically, repricing
liabilities exceed repricing assets, within 12 months, by 10.2% of total rate
sensitive assets.
Franklin monitors its interest rate gap through rate stock analysis.
Positioned as it is, management believes Franklin's exposure to a negative
effect caused by either rising or falling interest rates within twelve months is
minimal.
138
<PAGE> 147
The following table sets forth information regarding Franklin's interest
rate sensitivity.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
----------------------------------------------------------------
0-3 3-6 6-12 1-5 OVER 5
MONTHS MONTHS MONTHS YEARS YEARS TOTAL
--------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits..... $ 83 $ -- $ -- $ -- $ -- $ 83
Securities, at cost........... 1,966 7,522 22,369 156,496 15,150 203,503
Federal Home Loan Bank and
Federal Reserve Bank
stock....................... 7,157 -- -- -- -- 7,157
Loans......................... 121,121 20,237 26,179 86,515 5,075 259,127
Lease financing............... 6,158 4,798 2,240 3,298 -- 16,494
--------- -------- -------- -------- -------- --------
Total rate sensitive assets... $ 136,485 $ 32,557 $ 50,788 $246,309 $ 20,225 $486,364
LIABILITIES
Savings, NOW and time
deposits.................... $ 42,820 $ 11,731 $ 10,593 $ 4,570 $ 283 $ 69,997
Money market deposits......... 149,127 -- -- -- -- 149,127
Short-term borrowings......... 55,046 -- -- -- -- 55,046
Subordinated capital notes.... 7,475 -- -- -- -- 7,475
--------- -------- -------- -------- -------- --------
Total rate sensitive
liabilities................. $ 246,993 $ 11,731 $ 10,593 $ 12,045 $ 283 $281,645
--------- -------- -------- -------- -------- --------
Interest sensitivity gap...... (110,508) 20,826 40,195 234,264 19,942 204,719
--------- -------- -------- -------- -------- --------
Cumulative interest
sensitivity gap............. (110,508) (89,682) (49,487) 184,777 204,719
========= ======== ======== ======== ========
Cumulative interest
sensitivity gap to total
rate sensitive assets....... (22.7)% (18.4)% (10.2)% 38.0% 42.1%
</TABLE>
139
<PAGE> 148
The following table reflects Franklin's interest rate gap position at
December 31, 1999 based upon maturity dates rather than repricing dates. This
table represents a static point in time and does not consider other variables
such as changing relationships or interest rate levels.
<TABLE>
<CAPTION>
CONTRACTUAL MATURITY DATES AT DECEMBER 31,
---------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
-------- ------- ------- -------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned
income.................. $ 51,916 $33,254 $36,334 $ 30,152 $ 29,977 $ 93,988 $275,621 $277,619
Weighted average rate..... -- 9.49% 9.58% 9.74% 9.65% 9.42% 9.06% 9.39%
Investment securities..... $ 25,988 $16,257 $14,458 $ 26,792 $ 11,409 $104,967 $199,871 $199,871
Weighted average rate..... -- 6.91% 6.40% 5.82% 6.50% 6.31% 6.65% 6.56%
FHLB and FRB stock........ $ 7,157 -- -- -- -- -- $ 7,157 $ 7,157
Weighted average rate..... 7.64% -- -- -- -- -- 7.64% --
Deposits.................. $ 83 -- -- -- -- -- $ 83 $ 83
Weighted average rate..... 5.40% -- -- -- -- -- 5.40% --
-------- ------- ------- -------- -------- -------- -------- --------
Total interest-earning
assets.................... $ 85,144 $49,511 $50,792 $ 56,944 $ 41,386 $198,955 $482,732 $484,730
======== ======= ======= ======== ======== ======== ======== ========
Interest-bearing
liabilities:
Savings and time
deposits................ $ 50,822 $ 3,696 $ 658 $ 111 $ 106 $ 283 $ 55,676 $ 56,084
Weighted average rate..... 4.54% 5.84% 5.19% 5.09% 6.19% 6.33% 4.65% --
Money market and
transaction accounts.... -- -- -- -- -- $163,448 $163,448 $163,448
Weighted average rate..... -- -- -- -- -- 2.98% 2.98% --
Borrowings and subordinated
capital notes............. $ 55,046 -- -- $ 7,475 -- -- $ 62,521 $ 63,298
Weighted average rate..... 5.53% -- -- 8.5% -- -- 5.88% --
-------- ------- ------- -------- -------- -------- -------- --------
Total interest-bearing
Liabilities............... $105,868 $ 3,696 $ 658 $ 7,586 $ 106 $163,731 $281,645 $282,830
-------- ------- ------- -------- -------- -------- -------- --------
Interest sensitivity gap.... (20,724) 45,815 50,134 49,358 41,280 35,224 201,087 --
-------- ------- ------- -------- -------- -------- -------- --------
Cumulative interest
Sensitivity gap........... $(20,724) $25,091 $75,225 $124,583 $165,863 $201,087
======== ======= ======= ======== ======== ========
Interest sensitivity gap to
total assets.............. (4.29)% 9.49% 10.39% 10.22% 8.55% 7.30%
======== ======= ======= ======== ======== ========
Cumulative interest
Sensitivity gap to
interest-earning total
assets.................... (4.29)% 5.20% 15.58% 25.81% 34.36% 41.66%
======== ======= ======= ======== ======== ========
</TABLE>
140
<PAGE> 149
WHERE YOU CAN FIND MORE INFORMATION
Bingham and Franklin are subject to the informational requirements of the
Securities Exchange Act of 1934 and file annual, quarterly and current reports,
proxy statements and other information with the SEC and the OCC, respectively.
The reports, proxy statements and other information filed by Bingham may be
inspected and copied at the Public Reference Room maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the SEC: 7 World Trade Center, Thirteenth Floor, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of these materials may also be obtained by mail, upon payment of the
SEC's customary fees, by writing to the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference facilities. These
materials may also be accessed electronically by means of the SEC's web site on
the Internet at http://www.sec.gov. Franklin's reports, proxy statements and
other information may be inspected and copied at the Public Reference Room
maintained by the OCC at 250 E Street, S.W., Washington, D.C. 20219.
Bingham common stock is listed on the Nasdaq SmallCap Market and Franklin's
common stock is traded on the Nasdaq National Market System. Reports, proxy
statements and other information filed by Bingham and Franklin may also be
inspected at the offices of Nasdaq, located at 1735 K Street, N.W., Washington,
D.C. 20006.
Bingham has filed with the SEC a registration statement on Form S-4 under
the Securities Act, relating to the shares of Bingham common stock offered by
this document. This document does not contain all of the information set forth
in the registration statement and the exhibits thereto filed by Bingham, certain
portions of which have been omitted under the rules and regulations of the SEC.
The registration statement and its exhibits may be inspected without charge at
the offices of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies may be obtained from the SEC at prescribed rates. This document may also
be accessed electronically as discussed above.
Franklin has furnished all information in this document with respect to
Franklin and Bingham has furnished all information in this document with respect
to Bingham.
This document does not cover any resale of the securities to be received by
stockholders of Franklin upon consummation of the merger, and no person is
authorized to make any use of this document in connection with any such resale.
EXPERTS
The consolidated financial statements of Bingham included in this document
at September 30, 1998 and September 30, 1997 and for the periods then ended,
have been audited by PricewaterhouseCoopers LLP, independent accountants, as set
forth in their report and are included herein in reliance upon the authority of
such firm as experts in accounting and auditing. The consolidated financial
statements of Bingham included in this document at September 30, 1999 and for
the year then ended, have been audited by Plante & Moran, LLP, independent
certified public accountants, as set forth in their report and are included
herein in reliance upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Franklin at December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999,
appearing in this document have been audited by Grant Thornton LLP, independent
certified public accountants, as set forth in their report and are included
herein in reliance upon the authority of such firm as experts in accounting and
auditing.
141
<PAGE> 150
LEGAL OPINIONS
Jaffe, Raitt, Heuer & Weiss, Professional Corporation, will pass upon the
validity of the shares of Bingham common stock to be issued in connection with
the merger and certain of the tax consequences of the merger. As of the date
hereof, certain shareholders of Jaffe, Raitt beneficially own approximately
shares of Bingham common stock and shares of Franklin common
stock.
Bodman Longley & Dahling LLP will pass upon certain of the tax consequences
of the merger. As of the date hereof, certain partners of Bodman Longley
beneficially own approximately shares of Franklin common stock and
shares of Bingham common stock. See "The Merger -- Certain Federal
Income Tax Consequences."
142
<PAGE> 151
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BINGHAM FINANCIAL SERVICES CORPORATION
Consolidated Balance Sheets (unaudited) as of March 31, 2000
and December 31, 1999..................................... F-2
Consolidated Statements of Operations (unaudited) for the
Three Months Ended March 31, 2000 and 1999................ F-3
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 2000 and 1999................ F-4
Notes to Consolidated Financial Statements (unaudited)...... F-5
Consolidated Balance Sheets (unaudited) as of December 31,
1999 and September 30, 1999............................... F-9
Consolidated Statements of Operations (unaudited) for the
Three Months Ended December 31, 1999 and 1998............. F-10
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended December 31, 1999 and 1998............. F-11
Notes to Consolidated Financial Statements (unaudited)...... F-12
Independent Auditor's Report................................ F-16
Report of Independent Accountants........................... F-17
Consolidated Balance Sheets as of September 30, 1999 and
1998...................................................... F-18
Consolidated Income Statements for the Years and Period
Ended September 30, 1999, 1998 and 1997................... F-19
Consolidated Statement of Changes in Stockholders' Equity
for the Years and Period Ended September 30, 1999, 1998
and 1997.................................................. F-20
Consolidated Statement of Cash Flows for the Years and
Period Ended September 30, 1999, 1998 and 1997............ F-21
Notes to Consolidated Financial Statements.................. F-22
FRANKLIN BANK, N.A.
Consolidated Statements of Financial Condition at March 31,
2000 (unaudited) and December 31, 1999.................... F-37
Consolidated Statements of Income for the Three Months Ended
March 31, 2000 and March 31, 1999 (unaudited)............. F-38
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 2000 and March 31, 1999
(unaudited)............................................... F-39
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and March 31, 1999 (unaudited)....... F-40
Notes to Consolidated Financial Statements (unaudited)...... F-41
Report of Independent Certified Public Accountants.......... F-44
Consolidated Statements of Financial Condition at December
31, 1999 and 1998......................................... F-45
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998, and 1997......................... F-46
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1999, 1998 and 1997.............. F-47
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997.............. F-48
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................... F-49
Notes to Consolidated Financial Statements.................. F-50
</TABLE>
F-1
<PAGE> 152
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Cash and equivalents........................................ $ 1,669 $ --
Restricted cash............................................. 5,432 4,275
Loans receivable............................................ 178,311 141,453
Servicing rights............................................ 8,713 9,736
Servicing advances.......................................... 7,419 --
Property and equipment, net................................. 2,965 3,029
Other assets................................................ 11,967 10,006
-------- --------
Total assets................................................ $216,476 $168,499
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Advances by mortgagors...................................... $ 5,354 $ 4,228
Accounts payable and accrued expenses....................... 4,398 11,810
Deferred revenue............................................ 2,698 1,398
Advances under repurchase agreements........................ 129,269 80,469
Subordinated debt, net of debt discount of $394 and $414,
respectively.............................................. 3,606 3,586
Note payable................................................ 47,376 40,747
-------- --------
Total liabilities........................................... 192,701 142,238
-------- --------
Minority Interest........................................... 51 122
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000 shares authorized;
no shares issued and outstanding.......................... -- --
-------- --------
Common Stock, no par value, 10,000,000 shares authorized;
2,649,859 and 2,539,716 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively........ 27,635 26,799
Paid-in capital............................................. 663 641
Accumulated other comprehensive loss........................ (184) (106)
Unearned stock compensation................................. (1,400) (1,102)
Retained deficit............................................ (2,990) (93)
-------- --------
Total stockholders equity................................... 23,724 26,139
-------- --------
Total liabilities and stockholders' equity.................. $216,476 $168,499
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 153
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
--------- ---------
(IN THOUSANDS EXCEPT
SHARE DATA)
<S> <C> <C>
REVENUES
Interest income on loans.................................... $ 4,118 $ 2,617
Mortgage origination and servicing fees..................... 2,100 201
Gain on sale of loans....................................... 30 1,424
Other income................................................ 327 46
--------- ---------
Total revenues....................................... 6,575 4,288
--------- ---------
COSTS AND EXPENSES
Interest expense............................................ 3,538 1,841
Provision for credit losses................................. 1,200 63
General and administrative.................................. 4,168 899
Restructuring costs......................................... 796 --
Other operating expenses.................................... 1,226 737
--------- ---------
Total costs and expenses............................. 10,928 3,540
--------- ---------
Income (loss) before income tax expense..................... (4,353) 748
Federal income tax expense........................... (1,456) 268
--------- ---------
Net Income (loss)........................................... $ (2,897) $ 480
========= =========
Weighted average common shares outstanding,
Basic..................................................... 2,581,501 1,576,818
Diluted................................................... 2,581,501 1,862,578
Earnings (loss) per share
Basic..................................................... $ (1.12) $ .30
Diluted................................................... $ (1.12) $ .26
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 154
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities..................... $(53,626) $(19,468)
-------- --------
Cash flows from investing activities:
Capital expenditures...................................... (153) (87)
-------- --------
Net cash used in investing activities................ (153) (87)
-------- --------
Cash flows from financing activities:
Advances under repurchase agreements...................... 53,174 9,697
Repayment of advances under repurchase agreements......... (4,374) (7,271)
Advances on note payable.................................. 61,171 27,968
Repayment of note payable................................. (54,523) (11,868)
-------- --------
Net cash provided by financing activities............ 55,448 18,526
-------- --------
Net change in cash and cash equivalents..................... 1,669 (1,029)
Cash and cash equivalents, beginning of period.............. -- 1,029
-------- --------
Cash and cash equivalents, end of period.................... $ 1,669 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 155
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited consolidated financial statements reflect all adjustments,
consisting only of normal recurring items, which are necessary to present fairly
Bingham Financial Services Corporation's ("Bingham" or "the Company") financial
condition and results of operations on a basis consistent with that of the
Company's prior audited consolidated financial statements. On February 4, 2000
the Board of Directors of Bingham approved the change in its fiscal year end
from September 30 to December 31. As a result, Bingham's December 31, 1999
consolidated balance sheet is presented as its previous year end for comparative
purposes. Pursuant to rules and regulations of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles ("GAAP") have been condensed or
omitted. These unaudited consolidated financial statements should be read in
conjunction with the audited Consolidated Financial Statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1999. Results for interim periods are not necessarily indicative
of the results that may be expected for a full year.
2. EARNINGS PER SHARE:
Basic earnings per share are computed by dividing net income available to
common shareholders by the weighted average common shares outstanding. At March
31, 2000 there were potential dilutive shares of common stock from outstanding
stock options and warrants. Had these stock options and warrants been exercised
they would have had an anti-dilutive effect on the net loss per share
calculation. The effect of the anti-dilutive shares is not included in the
earnings per share calculation for the period ended March 31, 2000.
The following table presents a reconciliation of the numerator (income
applicable to common shareholders) and denominator (weighted average common
shares outstanding) for the basic income (loss) per share calculation:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------------------------------------
2000 1999
------------------------ ------------------------
EARNINGS (LOSS) EARNINGS (LOSS)
SHARES PER SHARE SHARES PER SHARE
------ --------------- ------ ---------------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
Basic earnings (loss) per share................ 2,582 $(1.12) 1,577 $ 0.30
Net dilutive effect of:
Options...................................... -- -- 21 (0.01)
Warrants..................................... -- -- 148 (0.03)
----- ------ ----- ------
Diluted earnings (loss) per share.............. 2,582 $(1.12) 1,746 $ 0.26
===== ====== ===== ======
</TABLE>
3. OTHER COMPREHENSIVE INCOME:
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income," establishes standards for reporting
comprehensive income. Other comprehensive income refers to
F-5
<PAGE> 156
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
revenues, expenses, gains and losses that under GAAP have previously been
reported as separate components of equity in the Company's consolidated
financial statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- ----
(IN THOUSANDS)
<S> <C> <C>
Net loss.................................................... $(2,897) $--
Other comprehensive income net of tax:
Unrealized loss on securities:
Unrealized holding loss during period.................. (78) --
------- --
Comprehensive loss.......................................... $(2,975) $--
======= ==
</TABLE>
4. ALLOWANCE FOR LOAN LOSSES:
The allowance for possible losses on loans is maintained at a level
believed adequate by management to absorb potential losses from impaired loans
as well as the remainder of the loan portfolio. The allowance for loan losses is
based upon periodic analysis of the portfolio, economic conditions and trends,
historical credit loss experience, borrowers' ability to repay and collateral
values.
Changes in allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
------- -----
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period.............................. $ 274 $248
Provision for loan losses................................... 1,200 63
Net losses.................................................. (679) (27)
------ ----
Balance at end of period............................... $ 795 $284
====== ====
</TABLE>
The Company periodically sells portions of its manufactured home loan
portfolio with recourse whereby it is required to repurchase loans that meet
certain delinquency or default criteria. The Company maintains a separate
liability to absorb potential losses on these loans. There were no charges
against that liability in the current quarter and the balance of that liability
was approximately $375,000 at March 31, 2000.
5. DEBT:
At the time of its initial public offering the Company entered into a
subordinated loan agreement that currently provides for a subordinated debt
facility, which consists of a $4 million term loan, a $50 million demand line of
credit and a $10 million demand line of credit which indebtedness shall be
subordinated to all senior debt of the Company. The $4 million term loan has an
annual interest rate of 9.75% and the demand line of credit has an annual
interest rate equal to the one month "LIBOR" rate plus a spread. In accordance
with the subordinated loan agreement the Company issued detachable warrants
covering 400,000 shares of common stock at a price of $10.00 per warrant share.
The detachable warrants have a term of seven years and may be exercised at any
time after the fourth anniversary of the issuance.
In March 1998, the Company's commercial mortgage originating subsidiary
entered into a one-year master repurchase agreement with a lender to finance
fixed rate commercial loans secured by real estate. In September of 1998 that
agreement was amended to include financing of manufactured home, floor plan and
bridge loans. The terms of the repurchase agreement have been renewed annually
and at March 31, 2000
F-6
<PAGE> 157
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
the available financing amount under the agreement was $250 million and Dynex
Financial, Inc. was added as a party to the agreement. The annual interest rate
on the facility is a variable rate of interest equal to "LIBOR" plus a spread,
dependent on the advance rate and the asset class. The repurchase transactions
are for 30 days. The commercial mortgage loan transactions may be rolled over
for up to nine months. The manufactured home loan transactions may be rolled
over for 90-180 days at which point if the loans are still financed under the
facility the advance rate is reduced.
In March 2000, the Company has entered into a demand line of credit
agreement for the purpose of funding required principal, interest, taxes and
insurance advances on manufactured home loans that are serviced for outside
investors. The available borrowing limit under this facility is $10 million and
the facility has an annual interest rate equal to LIBOR plus a spread.
At March 31, 2000 and December 31, 1999 debt outstanding was as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Loans sold under repurchase................................. $129,269 $ 80,469
Demand line of credit....................................... 41,706 40,747
Servicing advance line of credit............................ 6,300 --
Term loan, net of discount.................................. 3,606 3,586
-------- --------
$180,881 $124,802
======== ========
</TABLE>
6. FINANCIAL INSTRUMENTS:
The Company hedges a portion of its loan portfolio as part of its interest
rate risk management strategy and as a condition of the related repurchase
agreement, which finances the portfolio. The Company attempts to hedge the
interest rate risk on its portfolio by entering into Treasury rate locks and
forward interest rate swaps. The Company classifies these transactions as hedges
on specific loan receivables. Any gross unrealized gains or losses on these
hedge positions are an adjustment to the basis of the mortgage loan portfolio
and are used in the lower of cost or market valuation to establish a valuation
allowance.
The following table identifies the gross unrealized gains/losses of the
interest rate swaps and Treasury rate locks as of March 31, 2000 and December
31, 1999:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------------- ---------------
GROSS GROSS
TYPE REFERENCE RATE UNREALIZED GAIN UNREALIZED GAIN
---- -------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest Rate Swap....................... 5 Year Swap $769 $ --
Interest Rate Swap....................... 10 Year Swap -- 609
</TABLE>
7. ACQUISITIONS:
In December 1999, the Company completed the acquisition of Dynex Financial,
Inc. (DFI) from Dynex Holding, Inc. (DHI), a subsidiary of Dynex Capital, Inc
(DCI). The Company acquired certain manufactured home loans from DFI all of the
issued and outstanding stock of DFI and all of the rights to DCI's manufactured
home lending business for approximately $4.0 million in cash funded by
borrowings on the Company's demand lines of credit. DFI specializes in lending
to buyers of manufactured homes and has regional and district offices in nine
states. In addition DFI provides servicing for manufactured home and land/home
loans.
F-7
<PAGE> 158
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The DFI acquisition was accounted for using the purchase method. The
consideration and acquisition costs for the DFI acquisition were allocated to
the acquired assets and assumed liabilities, resulting in excess of the fair
value of the acquired net assets over the purchase price of approximately $3.2
million which was recognized as a reduction in the amount allocated to purchased
loan servicing rights. During the quarter ended March 31, 2000 the Company has
revised its initial estimates of the fair value of the assets acquired,
specifically the manufactured home loan portfolio associated with the
transaction, effectively reducing the excess of fair value of acquired net
assets by $2.0 million. Accordingly the Company has recognized the revised
estimate by retroactively adjusting the purchase price allocation increase to
the amount previously allocated to purchased loan servicing rights.
In connection with the DFI acquisition, the Company recognized accrued
liabilities of $5.0 million related to its plans to close certain of DFI's
regional and district offices and terminate or relocate certain of its
employees. For the quarter ended March 31, 2000 there were approximately $1.2
million of costs paid related to these liabilities, $880,000 for severance
payments and personnel costs and $348,000 in costs connected with closed
locations incurred subsequent to the cessation of operations.
As of the quarter ended March 31 the Company has revised its estimate of
the costs to implement its plan and as a result has made an adjustment to the
purchase price allocation. The change in estimate has resulted in an increase of
$2.5 million in the excess of fair value over the assets acquired. The Company
has recognized this increase as an adjustment to the amount previously allocated
to purchased loan servicing rights. The Company continues to finalize its
assessment of the offices and employees that will be affected and any
adjustments resulting from the completion of the assessment and the resulting
actions will result in an additional adjustment to the purchase price
allocation.
The following table summarizes pro forma unaudited results of operations
for the acquisition completed during 1999 as if it had occurred at the beginning
of each year presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999
------------------
(IN THOUSANDS)
<S> <C>
Revenues.................................................... $9,877
Income before income taxes.................................. 1,487
Net Income.................................................. 968
Basic earnings per share.................................... 0.61
Diluted earnings per share.................................. 0.52
</TABLE>
8. MHFC, INC. RESTRUCTURING AND SALE:
Effective January 15, 2000, the Company committed to an exit plan for MHFC,
Inc.'s manufacturing home loan origination operations as part of the Company's
plan to conduct all of its manufactured home loan origination operations through
DFI. The exit plan involves termination of MHFC, Inc. employees, sale of
substantially all MHFC, Inc. portfolio loans to DFI and sale of MHFC, Inc. The
Company has accrued a restructuring charge of $796,000, including $396,000 for
severance payments and other shut down costs and a $400,000 loss on the sale of
MHFC, Inc. As of March 31, 2000 substantially all of the exit costs accrued,
including $186,000 for involuntary termination benefits, have been incurred and
paid. In March 2000 DFI purchased $66.9 million of loans from MHFC, Inc., a
subsidiary of Bingham specializing in manufactured home lending and Bingham sold
MHFC to Gwenuc, LLC, a limited liability company owned by Gary A. Shiffman,
Chairman of Bingham. Gwenuc paid Bingham $400,000 in cash and assumed $2.7
million of debt to DFI. The cash portion of the purchase price may be adjusted
upward or downward pursuant to a fairness opinion as to the fair market value of
MHFC to be rendered by a third party appraiser.
F-8
<PAGE> 159
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, 1999 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
-------------- ---------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARES)
<S> <C> <C>
ASSETS
Cash and equivalents........................................ $ -- $ 730
Restricted cash........................................... 4,275 3,901
Loans receivable.......................................... 141,453 117,887
Servicing rights.......................................... 9,736 2,120
Property and equipment, net............................... 3,029 1,100
Other assets.............................................. 10,006 6,960
-------- --------
Total assets......................................... $168,499 $132,698
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Advances by mortgagors.................................... $ 4,228 $ 3,882
Accounts payable and accrued expenses..................... 11,810 1,131
Deferred revenue.......................................... 1,398 343
Advances under repurchase agreements...................... 80,469 69,026
Subordinated debt, net of debt discount of $414 and $433,
respectively........................................... 3,586 3,567
Note payable.............................................. 40,747 28,477
-------- --------
Total liabilities.................................... 142,238 106,426
-------- --------
Minority Interest......................................... 122 204
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000 shares
Authorized; no shares issued and outstanding........... -- --
Common Stock, no par value, 10,000,000 shares
Authorized; 2,539,716 and 2,528,473 shares issued and
outstanding at December 31, 1999 and September 30,
1999, respectively
Paid-in capital........................................... 26,799 26,696
Accumulated other comprehensive loss...................... 641 619
Unearned stock compensation............................... (106) (304)
Retained earnings (deficit)............................... (1,102) (1,035)
Total stockholders equity............................ (93) 92
-------- --------
Total liabilities and stockholders' equity........... 26,139 26,068
-------- --------
$168,499 $132,698
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE> 160
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(IN THOUSANDS,
EXCEPT FOR SHARES)
<S> <C> <C>
REVENUES
Interest income on loans.................................... 4,069 2,118
Mortgage origination and servicing fees..................... 1,319 352
Gain on sale of loans....................................... 1,603 1,539
Other income................................................ 75 47
--------- ---------
Total revenues.................................... 7,066 4,056
--------- ---------
COSTS AND EXPENSES
Interest expense............................................ 2,832 1,699
Provision for credit losses................................. 362 97
General and administrative.................................. 2,352 563
Other operating expenses.................................... 944 624
--------- ---------
Total costs and expenses.......................... 6,490 2,983
--------- ---------
Income (loss) before income tax expense..................... 576 1,073
Federal income tax expense........................ 198 309
--------- ---------
Income (loss) before cumulative effect of change in
accounting principle...................................... 378 764
Cumulative effect of change in accounting principle, net of
tax....................................................... (563) --
--------- ---------
Net Income (Loss)................................. (185) 764
========= =========
Weighted average common shares outstanding,
Basic..................................................... 2,539,716 1,576,818
Diluted................................................... 2,539,716 1,917,915
Earnings (loss) per share before cumulative effect of change
in accounting principle:
Basic..................................................... $ 0.15 $ 0.48
Diluted................................................... $ 0.15 $ 0.40
Cumulative effect of change in accounting principle:
Basic..................................................... $ (0.22) $ --
Diluted................................................... $ (0.22) $ --
Net income
Basic..................................................... $ (0.07) $ 0.48
Diluted................................................... $ (0.07) $ 0.40
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE> 161
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities..................... $(26,965) $(28,563)
-------- --------
Cash flows from investing activities:
Purchase of Dynex Financial, Inc.......................... (4,001) --
Capital expenditures...................................... (99) (167)
-------- --------
Net cash used in investing activities................ (4,100) (167)
-------- --------
Cash flows from financing activities:
Advances under repurchase agreements...................... 102,876 36,395
Repayment of advances under repurchase agreements......... (91,434) (1,045)
Advances on note payable.................................. 104,634 15,715
Repayment of note payable................................. (85,741) (23,285)
-------- --------
Net cash provided by financing activities............ 30,335 27,780
-------- --------
Net change in cash and cash equivalents..................... (730) (950)
Cash and cash equivalents, beginning of period.............. 730 1,979
-------- --------
Cash and cash equivalents, end of period.................... $ -- $ 1,029
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE> 162
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited consolidated financial statements reflect all adjustments,
consisting only of normal recurring items, which are necessary to present fairly
Bingham Financial Services Corporation's ("the Company") financial condition and
results of operations on a basis consistent with that of the Company's prior
audited consolidated financial statements. Pursuant to rules and regulations of
the Securities and Exchange Commission applicable to quarterly reports on Form
10-Q, certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
("GAAP") have been condensed or omitted. These unaudited consolidated financial
statements should be read in conjunction with the audited Consolidated Financial
Statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1999. Results for interim periods
are not necessarily indicative of the results that may be expected for a full
year.
2. EARNINGS PER SHARE:
Basic earnings per share are computed by dividing net income available to
common shareholders by the weighted average common shares outstanding. At
December 31, 1999 there were potential shares of common stock from stock options
and warrants outstanding. Had these stock options and warrants been exercised
they would have had an anti-dilutive effect on the net loss per share
calculation. The effect of the anti-dilutive shares is not included in the
earnings per share calculation for the period ended December 31, 1999.
The following table presents a reconciliation of the numerator (income
applicable to common shareholders) and denominator (weighted average common
shares outstanding) for the basic income (loss) per share calculation:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
------------------------------------------------------
1999 1998
------------------------- -------------------------
EARNINGS (LOSS) EARNINGS (LOSS)
SHARES PER SHARE SHARES PER SHARE
------ --------------- ------ ---------------
(IN THOUSANDS EXCEPT EARNINGS (LOSS) PER SHARE)
<S> <C> <C> <C> <C>
Basic earnings (loss) per share before
Cumulative effect of change in accounting
principle............................. 2,540 $ 0.15 1,577 $ 0.48
Cumulative effect of change in accounting
principle............................. -- (0.22) -- --
Net dilutive effect of:
Options and awards....................... -- -- 25 (0.01)
Warrants................................. -- -- 171 (0.04)
----- ------ ----- ------
Diluted earnings (loss) per share.......... 2,540 $(0.07) 1,773 $ 0.43
===== ====== ===== ======
</TABLE>
3. OTHER COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income," establishes standards for reporting
comprehensive income. Other comprehensive income refers to
F-12
<PAGE> 163
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
revenues, expenses, gains and losses that under generally accepted accounting
principles have previously been reported as separate components of equity in the
Company's consolidated financial statements.
<TABLE>
<S> <C>
Net loss.................................................... $(185,000)
Other comprehensive income net of tax:
Unrealized gains on securities:
Unrealized holding gains during period................. 198,000
---------
Comprehensive income........................................ $ 13,000
=========
</TABLE>
4. ALLOWANCE FOR LOAN LOSSES:
The allowance for possible losses on loans is maintained at a level
believed adequate by management to absorb potential losses from impaired loans
as well as the remainder of the loan portfolio. The allowance for loan losses is
based upon periodic analysis of the portfolio, economic conditions and trends,
historical credit loss experience, borrowers' ability to repay and collateral
values.
Changes in allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
DECEMBER 31,
---------------
1999 1998
------ -----
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period.............................. $ 258 $58
Provision for loan losses................................... 362 21
Net losses.................................................. (346) --
----- ---
Balance at end of period............................... $ 274 $79
===== ===
</TABLE>
The Company periodically sells portions of its manufactured home loan
portfolio with recourse whereby it is required to repurchase loans that meet
certain delinquency and default criteria. The Company recognizes estimated
recourse obligations to absorb potential losses on these loans. The balance of
that recourse obligation was approximately $375,000 at December 31, 1999.
5. DEBT:
At the time of its initial public offering the Company entered into a
subordinated loan agreement that currently provides for a subordinated debt
facility which consists of a $4 million term loan. The Company also has a $10
million demand line of credit and a $50 million demand line of credit which
indebtedness shall be subordinated to all senior debt of the Company. The $4
million term loan has an annual interest rate of 9.75% and the demand lines of
credit have an annual interest rate equal to the one month "LIBOR" rate plus a
spread. In accordance with the subordinated loan agreement the Company issued
detachable warrants covering 400,000 shares of common stock at a price of $10.00
per warrant share. The detachable warrants have a term of seven years and may be
exercised at any time after the fourth anniversary of the issuance.
In March 1998 the Company's commercial mortgage originating subsidiary
entered into a one-year master repurchase agreement with a lender to finance
fixed rate commercial loans secured by real estate. In September of 1998 that
agreement was amended to include financing of manufactured home, floor plan and
bridge loans and has been periodically renewed. At December 31,1999 the Company
was renegotiating the maximum financing limits on the facility. The annual
interest rate on the facility is a variable rate of interest equal to "LIBOR"
plus a spread, dependent on the advance rate and the asset class. The loans are
F-13
<PAGE> 164
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
sold at 82-92% of the then current face value, depending on the asset class and
certain concentration constraints. The repurchase transactions are for 30 days
and may be rolled over for up to nine months.
At December 31, 1999 and September 30, 1999 debt outstanding was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Loans sold under repurchase................................. $ 80,469 $ 69,026
Demand line of credit....................................... 40,747 28,477
Term loan, net of discount.................................. 3,586 3,567
-------- --------
$124,802 $101,070
======== ========
</TABLE>
6. FINANCIAL INSTRUMENTS:
The Company hedges a portion of its commercial mortgage loan portfolio as
part of its interest rate risk management strategy and as a condition of the
related repurchase agreement, which finances the portfolio. The Company attempts
to hedge the interest rate risk on its portfolio by entering into Treasury
security rate locks and forward interest rate swaps. The Company classifies
these transactions as hedges on specific loan receivables. Any gross unrealized
gains or losses on these hedge positions are an adjustment to the basis of the
mortgage loan portfolio and are used in the lower of cost or market valuation to
establish a valuation allowance.
The following table identifies the gross unrealized gains/losses of the
interest rate swaps and Treasury rate locks as of December 31, 1999 and
September 30, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------- --------------
1999 1999
-------------- --------------
GROSS GROSS
UNREALIZED UNREALIZED
TYPE REFERENCE RATE/TREASURY GAINS (LOSSES) GAINS (LOSSES)
---- ----------------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Treasury Lock U.S. Treasury 4.750% - 11/08........... $ -- $ 126
Treasury Lock U.S. Treasury 5.625% - 5/08............ -- 115
Treasury Lock U.S. Treasury 5.500% - 5/09............ -- 6
Treasury Lock 10 Year Treasury....................... -- 2
Interest Rate Swap 10 Year Swap........................... 609 (146)
</TABLE>
7. ACQUISITIONS:
In December 1999, the Company completed the acquisition of Dynex Financial,
Inc. (DFI) from Dynex Holding, Inc. (DHI), a subsidiary of Dynex Capital, Inc
(DCI). The Company acquired all of the issued and outstanding stock of DFI and
all of the rights to DCI's manufactured home lending business for approximately
$4.0 million in cash funded by borrowings on the Company's demand lines of
credit. DFI specializes in lending to buyers of manufactured homes and has
regional and district offices in nine states. In addition DFI provides servicing
for manufactured home and land/home loans.
The DFI acquisition was accounted for using the purchase method. The
consideration and acquisition costs for the DFI acquisition have been allocated
to the acquired assets and assumed liabilities, resulting in excess of the fair
value of the acquired net assets over the purchase price of approximately $3.2
million which has been recognized as a reduction in the amount allocated to
purchased loan servicing rights. As discussed below, the Company is in the
process of finalizing its plan to exit certain of DFI's activities and the
related purchase price allocation will be adjusted when those plans are
finalized in 2000.
F-14
<PAGE> 165
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
In connection with the DFI acquisition, the Company recognized accrued
liabilities of $5.0 million related to its plans to close certain of DFI's
regional and district offices and terminate or relocate certain of its
employees. The Company is in the process of finalizing its assessment of the
offices and employees that will be affected and any adjustments resulting from
the completion of the assessment and the resulting actions will result in an
adjustment to the purchase price allocation. There were no amounts paid related
to theses liabilities in the period ended December 31, 1999.
The following table summarizes pro forma unaudited results of operations as
if the acquisition completed during 1999 had occurred at the beginning of each
year presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
----------------------
1999 1998
-------- -------
(IN THOUSANDS, EXCEPT
EARNINGS PER SHARE)
<S> <C> <C>
Revenues.................................................... $ 9,114 $8,838
Income before cumulative effect of change in accounting
principle................................................. (3,438) 1,390
Cumulative effect of change in accounting principle, net of
tax....................................................... (576) --
Net Income.................................................. (2,704) 1,177
Basic earnings (loss) per share............................. (1.06) 0.93
Diluted earnings (loss) per share........................... (1.06) 0.77
</TABLE>
8. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE:
In April 1998 the Financial Accounting Standards Board issued Statement of
Position Number 98-5 (SOP 98-5) "Reporting on the Cost of Start-Up Activities".
This statement, which is required to be adopted for fiscal years beginning after
December 15, 1998 establishes guidance for the accounting of start-up
activities. It states that the cost of start-up activities, including
organizational costs, should be expensed as incurred. The Company has deferred
organizational costs related to the formation of its manufactured home lending
subsidiary and the filing of its application to become a unitary thrift holding
company and for the formation of a federally chartered savings bank. In the
period ended December 31, 1999 the Company expensed, approximately $563,000 net
of federal income tax benefit of $290,000 for previously capitalized
organization costs.
F-15
<PAGE> 166
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Bingham Financial Services Corporation
We have audited the accompanying consolidated balance sheet of Bingham
Financial Services Corporation as of September 30, 1999 and the related
consolidated statements of changes in stockholders' equity, income and cash
flows for the year ended September 30, 1999. These consolidated financial
statements are the responsibility of the corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Bingham Financial Services Corporation as of September 30, 1999 and the
consolidated results of their operations and their cash flows for the year ended
September 30, 1999, in conformity with generally accepted accounting principles.
PLANTE & MORAN, LLP
Southfield, Michigan
December 22, 1999
F-16
<PAGE> 167
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Bingham Financial Services Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and changes in stockholders' equity and of
cash flows, as included in the Registration Statement on Form S-4 to be filed
the week of May 22, 2000, present fairly, in all material respects, the
financial position of Bingham Financial Services Corporation and its
subsidiaries at September 30, 1998 and 1997 and the results of their operations
and their cash flows for the year ended September 30, 1998 and for the period
from January 2, 1997 (date of inception) through September 30, 1997, in
conformity with accounting principles generally accepted in the United States.
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 of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Detroit, Michigan
December 18, 1998
F-17
<PAGE> 168
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- -------
<S> <C> <C>
ASSETS
Cash and equivalents........................................ $ 730 $ 1,979
Restricted cash........................................... 3,901 2,253
Loans receivable.......................................... 117,887 86,075
Servicing rights.......................................... 2,120 156
Property and equipment, net............................... 1,100 655
Other assets.............................................. 6,960 3,741
-------- -------
Total assets........................................... $132,698 $94,859
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Advances by mortgagors.................................... $ 3,882 $ 2,238
Accounts payable and accrued expenses..................... 1,474 636
Advances under repurchase agreements...................... 69,026 56,892
Subordinated debt, net of debt discount of $433........... 3,567 3,490
Note payable.............................................. 28,477 17,848
-------- -------
Total liabilities...................................... 106,426 81,104
-------- -------
Minority Interest
204 298
-------- -------
Stockholders' equity:
Preferred stock, no par value, 10,000,000 shares
Authorized; no shares issued and outstanding
Common Stock, no par value, 10,000,000 shares
Authorized; 2,528,473 and 1,576,818 shares issued and
outstanding at 1999 and 1998, respectively............. 26,696 13,608
Paid-in capital........................................... 619 533
Accumulated other comprehensive loss...................... (304) --
Unearned stock compensation............................... (1,035) --
Retained earnings (deficit)............................... 92 (684)
-------- -------
Total stockholders equity.............................. 26,068 13,457
-------- -------
Total liabilities and stockholders' equity............. $132,698 $94,859
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 169
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS AND PERIOD ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
SEPTEMBER 30, JANUARY 2 TO
---------------------- SEPTEMBER 30,
1999 1998 1997
--------- --------- -------------
<S> <C> <C> <C>
REVENUES
Interest income on loans................................... $ 9,477 $ 3,296 $ 280
Mortgage origination and servicing fees.................... 2,069 1,361 --
Gain on sale of loans...................................... 4,399 738 --
Sale of servicing rights................................... -- 618 --
Other income............................................... 332 128 --
--------- --------- -----
Total revenues...................................... 16,277 6,141 280
--------- --------- -----
COSTS AND EXPENSES
Interest expense........................................... 6,856 1,933 195
Provision for credit losses................................ 653 147 58
Provision for unrealized hedge loss........................ -- 2,400 --
General and administrative................................. 5,215 1,250 --
Other operating expenses................................... 2,336 1,204 137
--------- --------- -----
Total costs and expenses............................ 15,060 6,934 390
--------- --------- -----
Income (loss) before income tax expense (benefit).......... 1,217 (793) (110)
Federal income tax expense (benefit)....................... 441 (219) --
--------- --------- -----
Net income (loss)................................... $ 776 $ (574) $(110)
========= ========= =====
Weighted average common shares outstanding................. 1,966,288 1,261,031 --
Weighted average common shares outstanding,
Diluted.................................................. 2,145,939 -- --
Earnings (loss) per share:
Basic.................................................... $ 0.39 $ (0.46) --
Diluted.................................................. $ 0.36 $ (0.46) --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 170
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS AND PERIOD ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER UNEARNED RETAINED TOTAL
COMMON PAID-IN COMPREHENSIVE STOCK EARNINGS STOCKHOLDER'S
STOCK CAPITAL LOSS COMPENSATION (DEFICIT) EQUITY
------- ------- ------------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 2, 1997.......... $ -- $ -- $ -- $ -- $ -- $ --
Issuance of 100 shares of common
stock
Comprehensive loss:
Net loss.................. -- -- -- -- (110) (110)
------- ----- ----- ------- ----- -------
Balance, October 1, 1997......... -- -- -- -- (110) (110)
Issuance of 1,295,000 shares of
common stock................... 11,583 -- -- -- -- 11,583
Issuance of 281,818 shares of
common stock in conjunction
with acquisition............... 2,025 (119) -- -- -- 1,906
Issuance of 400,000 warrants with
subordinated debt.............. -- 577 -- -- -- 577
Option amortization.............. -- 75 -- -- -- 75
Comprehensive loss:
Net loss.................. -- -- -- -- (574) (574)
------- ----- ----- ------- ----- -------
Balance, September 30, 1998...... 13,608 533 -- -- (684) 13,457
Issuance of 867,001 shares of
common stock................... 11,968 -- -- -- -- 11,968
Issuance of 84,658 restricted
stock awards................... 1,120 -- -- (1,120) -- --
Restricted stock award
amortization................... -- -- -- 85 -- 85
Option amortization.............. -- 86 -- -- -- 86
Net income....................... -- -- -- -- 776 776
Comprehensive income:
Unrealized loss on securities
available for sale, net of
tax......................... -- -- (304) -- -- (304)
-------
Total comprehensive
income................. -- -- -- -- -- 472
------- ----- ----- ------- ----- -------
Balance, September 30, 1999...... $26,696 $ 619 $(304) $(1,035) $ 92 $26,068
======= ===== ===== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 171
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS AND PERIOD ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
SEPTEMBER 30, JANUARY 2 TO
--------------------- SEPTEMBER 30,
1999 1998 1997
--------- -------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 776 $ (574) $ (110)
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Provision for unrealized hedge (gain) loss............... (2,400) 2,400 --
Provision for credit losses.............................. 653 147 58
Depreciation and amortization............................ 1,135 516 18
Originations of loans held for sale...................... (144,344) (92,806) (9,844)
Principal collections on loans held for sale............. 3,256 2,191 244
Proceeds from sale of loans held for sale................ 113,494 12,513 --
Gain on sale of investment securities.................... (3) (13) --
Gain on sale of loans.................................... (1,999) (738) --
Increase in other assets................................. (5,320) (2,386) (129)
Increase in other liabilities............................ 3,860 115 210
--------- -------- -------
Net cash provided (used) by operating activities.... (30,892) (78,635) (9,553)
--------- -------- -------
Cash flows from investing activities:
Purchase of Hartger & Willard............................ (1,900) -- --
Purchase of investment securities........................ (1,529) -- --
Proceeds from the sale of investment securities.......... 369 71 --
Capital expenditures..................................... (486) (27) --
--------- -------- -------
Net cash used in investing activities............... (3,545) 44 --
--------- -------- -------
Cash flows from financing activities:
Issuance of common stock................................. 11,968 11,582 --
Issuance of subordinated debt, including discount........ -- 4,000 --
Advances under repurchase agreements..................... 98,990 56,892 --
Repayment of advances under repurchase agreements........ (86,855) -- --
Advances on note payable................................. 109,164 30,117 9,553
Repayment of note payable................................ (100,079) (22,021) --
--------- -------- -------
Net cash provided by financing activities........... 33,188 80,570 9,553
--------- -------- -------
Net change in cash and cash equivalents.................... (1,249) 1,979 --
Cash and cash equivalents, beginning of period............. 1,979 -- --
--------- -------- -------
Cash and cash equivalents, end of period................... $ 730 $ 1,979 $ --
========= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 172
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: The Company was incorporated for the purpose of
providing financing to residents living in manufactured housing communities for
the purchase of new and used manufactured homes. The Company originates
conventional loans that generally range in size from $4,500 to $90,000 and have
a term of 5-25 years. The Company has focused its marketing efforts principally
through manufactured home community owners and operators. This effort has
traditionally been targeted at Sun Communities, where the Company's services are
offered as the preferred source of financing. However, the Company has expanded
its manufactured home lending activities through the use of "dealer networks" to
communities not owned and operated by Sun to the extent that now 75% of
manufactured home lending is done outside the Sun owned and operated
communities. The Company continues to take the steps necessary to capture a
greater share of the loans generated by home purchasers and owners in Sun
Communities as well as dealer generated loans.
The Company also participates and is active in all aspects of commercial
real estate mortgage banking, including originating, underwriting, placing,
securitizing, and servicing commercial real estate loans through Bloomfield and
Bloomfield Servicing. Bloomfield acts as both a direct lender, making commercial
real estate loans for its own portfolio as well as for accumulation and
securitization, and as a traditional mortgage banker, placing commercial real
estate loans with institutional investors.
Principles of Consolidation: The consolidated financial statements include
the accounts and transactions of the Company and its subsidiaries. Significant
intercompany accounts and transactions have been eliminated in consolidation.
For purposes of income statement and cashflow comparison, the Company does
not have a period covering the twelve months ended September 30, 1997.
Information presented covers the period from January 2, 1997 (date of inception)
through September 30, 1997. The Company's initial public offering of common
stock did not take place until the quarter ended December 31, 1997.
Use of Estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash and cash equivalents represent short-term
highly liquid investments with original maturities of three months or less and
include cash and interest bearing deposits at banks. The Company has restricted
cash related to serviced loans held by others that is held in trust for
subsequent payment to the owners of those loans.
Loans Receivable: Loans receivable consist of commercial real estate loans
and manufactured home loans. The commercial loans primarily consist of fixed
rate loans collateralized by mortgages on commercial property. Commercial loans
originated are either sold immediately to permanent investors or held for sale.
Manufactured home loans are conventional fixed rate loans under contracts
collateralized by the borrowers' manufactured homes. Manufactured home loans are
also held for sale.
Loans receivable are carried at the lower of cost or market value
determined on an aggregate basis. Loans receivable include accrued interest and
are net of deferred hedging gains or losses and an allowance for expected
losses.
Derivative Financial Instruments: The Company uses forward sales of U.S.
Treasury securities, Treasury rate locks and forward interest rate swaps to
hedge a portion its commercial mortgage loan portfolio. These instruments are
used as a means to hedge interest rate risk connected to anticipated sales or
securitizations of the commercial mortgage loans. The Company's accounting for
derivative financial
F-22
<PAGE> 173
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
instruments that are used to manage risk is in accordance with the concepts
established in SFAS No. 80, "Accounting for Futures Contracts".
Deferral (hedge) accounting is applied if the derivative reduces the risk
of the underlying hedged item and is designated at inception as a hedge with
respect to the hedged item. Additionally, the derivative must result in payoffs
that are expected to be inversely correlated to the hedged item. Derivatives are
measured for effectiveness both at inception and on an ongoing basis. If a
derivative instrument ceases to meet the criteria for deferral accounting, any
subsequent gains and losses are currently recognized in income.
Allowance for Loan Losses: The allowance for possible losses on loans is
maintained at a level believed adequate by management to absorb potential losses
from impaired loans, loans sold with recourse and the remainder of the loan
portfolio. The allowance for loan losses is based upon periodic analysis of the
portfolio, economic conditions and trends, historical credit loss experience,
borrowers' ability to repay and collateral values.
Servicing Rights: The Company accounts for servicing rights in accordance
with SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities" ("SFAS 125"). SFAS 125 requires that a
separate asset or liability be recorded representing the right or obligation to
service loans for others. A servicing asset or liability is determined by
allocating the loans' previous carrying amount between the servicing asset and
the loans that were sold, based on their relative fair values at the date of
sale. The fair value of the servicing asset or liability is based on an analysis
of discounted cash flows that incorporates estimates of market servicing costs,
projected ancillary servicing revenue, projected prepayment rates and market
profit margins.
Servicing rights are periodically assessed for impairment based on the fair
value of those rights calculated on a discounted basis. This assessment is
performed on a disaggregated basis, stratified by mortgage type and term.
Identified impairments are recognized through a valuation allowance.
Interest on Loans: Interest on loans is credited to income when earned. An
allowance for interest on loans is provided when a loan becomes more than 75
days past due as the collection of these loans is considered doubtful.
Loan Fees: Loan origination fees and certain direct loan origination costs
are deferred and recognized over the expected lives of the related loans as an
adjustment of the yields using a level-yield method.
Repossessed Homes: Manufactured homes acquired through foreclosure or
similar proceedings are recorded at the lower of the related loan balance plus
any operating expenses of such homes or the estimated fair value of the home at
acquisition date.
Other Comprehensive Income: The Company adopted SFAS No. 130, "Reporting
Comprehensive Income," as of January 1, 1998. Accounting principles generally
require that recognized revenue, expenses, gains and losses be included in net
income. Certain changes in assets and liabilities, however, such as unrealized
gains and losses on available-for-sale securities, are reported as a direct
adjustment to the equity section of the balance sheet. Such items, along with
net income, are considered components of comprehensive income under the new
standard.
Accumulated other comprehensive income at September 30, 1999 is comprised
solely of unrealized losses on available-for-sale securities, net of tax benefit
of $158,000.
Other Assets: Other assets is comprised of margin deposits with brokers,
organization and licensing costs, prepaid expenses, investment securities
deferred financing costs, goodwill and other miscellaneous receivables.
Organization and licensing costs are amortized on a straight-line basis over a
five-year life. Deferred financing costs are capitalized and amortized over the
life of the corresponding line of credit.
F-23
<PAGE> 174
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loans Sold Under Agreements to Repurchase: The Company enters into sales of
loans under agreements to repurchase the loans. The agreements are short-term
and are accounted for as secured borrowings. The obligations to repurchase the
loans sold are reflected as a liability, and the loans that collateralize the
agreements are reflected as assets in the balance sheet.
Depreciation: Provisions for depreciation are computed using the
straight-line method over the estimated useful lives of office properties and
equipment, as follows: leasehold improvements -- life of the lease; furniture
and fixtures -- seven years; capitalized software -- five years;
computers -- five years.
Income Taxes: The Company uses the liability method in accounting for
income taxes. Under this method, deferred income taxes result from temporary
differences between the tax bases of assets and liabilities and the bases
reported in consolidated financial statements. The deferred taxes are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
Goodwill: Goodwill, which represents the excess of purchase price over the
fair value of net assets acquired, is amortized on a straight-line basis over
the expected periods to be benefited, generally 25 years.
Per Share Data: Basic earnings per share are computed by dividing net
income available to common shareholders by the weighted average common shares
outstanding. In the computation of fully diluted earnings per share, the
treasury stock method of determining weighted average shares is required, which
assumes the exercise of existing stock options and the repurchase of shares with
the proceeds. At September 30, 1998 there were approximately 260,000 potential
shares of common stock from stock options and warrants outstanding. Had these
stock options and warrants been exercised in 1998 they would have had an
anti-dilutive effect on the net loss. The effect of the anti-dilutive shares is
not included in the earnings per share calculation for 1998.
The following table presents a reconciliation of the numerator (income
applicable to common shareholders) and denominator (weighted average common
shares outstanding) for the basic loss per share calculation:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------------
1999 1998
------------------------- -------------------------
EARNINGS (LOSS) EARNINGS (LOSS)
SHARES PER SHARE SHARES PER SHARE
------ --------------- ------ ---------------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
Basic earnings (loss) per share........... 1,966 $ 0.39 1,261 $(0.46)
Net dilutive effect of:
Options................................. 22 -- -- --
Warrants................................ 158 (0.03) -- --
----- ------ ----- ------
Diluted earnings (loss) per share......... 2,146 $ 0.36 1,261 $(0.46)
===== ====== ===== ======
</TABLE>
Securities: All securities owned as of September 30, 1999 are classified as
securities available for sale. Using the specific identification method, such
securities are carried at market value with a corresponding market value
adjustment carried as a separate component of the equity section of the balance
sheet on a net of tax basis. The adjusted cost of the securities would be used
to compute realized gains or losses if the securities are sold.
Recent Accounting Pronouncements: In April 1998 the Financial Accounting
Standards Board issued Statement of Position Number 98-5 (SOP 98-5) "Reporting
on the Cost of Start-Up Activities". This statement, which is required to be
adopted for fiscal years beginning after December 15, 1998 establishes guidance
for the accounting of start-up activities. It states that the cost of start-up
activities, including organizational costs, should be expensed as incurred. The
Company has deferred organizational and start
F-24
<PAGE> 175
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
up costs related to the formation of its manufactured home lending subsidiary
and the filing of its application to become a unitary thrift holding company and
for the formation of a federally chartered savings bank. As of September 30,
1999 those costs totaled approximately $682,000. Any remaining unamortized
balance at October 1, 1999 will be expensed.
In June 1998 Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was
issued. SFAS 133 requires all derivative instruments to be recorded on the
balance sheet at estimated fair value. Changes in the fair value of derivative
instruments are to be recorded each period either in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, on the type of hedge transaction. SFAS 133 is
effective for the year 2000. The Company is currently evaluating the impact of
SFAS 133; at present the Company does not believe it will have a material effect
on the consolidated financial position or results of operations.
B. ACQUISITIONS
In March 1998 the Company acquired 100% of the outstanding stock of
Bloomfield Acceptance Company, L.L.C. ("Bloomfield") and Bloomfield Servicing
Company, L.L.C. ("Bloomfield Servicing") for 281,818 shares of the Company's
common stock valued at approximately $2.1 million. Bloomfield is engaged in the
business of the origination of mortgages and real estate lending. Loans
originated by Bloomfield primarily consist of fixed rate loans secured by
mortgages on commercial property. Bloomfield Servicing was formed to service the
loans originated by Bloomfield and other investors.
In addition to the shares of common stock issued to the former owners of
Bloomfield and Bloomfield Servicing, additional consideration of up to $500,000,
in the form of the Company's common stock, will be paid to the owners subject to
the performance of the merged entities after a two year period following the
date of merger.
Each of the acquisitions was accounted for as a purchase. The results of
operations for the year ended September 30, 1998 include the results of
operations for each of the acquired companies since the date of their respective
acquisitions.
The aggregate purchase price for the acquisitions completed for the year
ended September 30, 1998, was $2.1 million. The purchase price was allocated to
the assets acquired and liabilities assumed based on the related fair values at
the date of acquisition. The excess of the aggregate purchase price over the
fair values of the assets acquired and liabilities assumed has been allocated to
goodwill and is being amortized on a straight-line method over 25 years.
On July 1, 1999 pursuant to a Reorganization Agreement dated as of June 30,
1999 (the "Reorganization Agreement") the Company acquired all of the issued and
outstanding stock of Hartger and 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 agreement,
66,667 shares of Bingham common stock, without par value, were issued to DMRFS.
In connection with the acquisition of Hartger & Willard the Company loaned
$1.5 million 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. The Company has the
right to cause DMRFS to surrender the pledged shares in full payment of the
principal amount of the loan and has demanded their surrender. The effect of
this transaction is that the Company has acquired the Hartger & Willard shares
for $1.5 million in cash.
F-25
<PAGE> 176
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Hartger & Willard acquisition was accounted for as a purchase. The
results of operations for the year ended September 30, 1999 include the results
of operations for the acquired company since the date of the acquisition.
The aggregate purchase price for the acquisition of $1.9 million, including
expenses of the acquisition, was allocated to the assets acquired and
liabilities assumed based on the related fair values at the date of acquisition.
The excess of the aggregate purchase price over the fair values of the assets
acquired and liabilities assumed has been allocated to goodwill and is being
amortized on a straight-line method over 20 years.
In conjunction with the acquisition in July, 1999, liabilities assumed and
other non-cash consideration was as follows (in thousands, unaudited):
<TABLE>
<S> <C>
Fair value of assets acquired............................... $ 1,753
Goodwill.................................................... 151
Cash paid in consideration and expenses of company
acquired.................................................. (1,900)
-------
Liabilities assumed......................................... $ 4
=======
</TABLE>
The following table summarizes pro forma unaudited results of operations as
if the acquisition completed during 1999 had occurred at the beginning of each
year presented:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1999 1998
-------- -------
(IN THOUSANDS, EXCEPT
EARNINGS PER SHARE)
<S> <C> <C>
Revenues.................................................... $16,933 $8,074
Income (loss) before income taxes........................... 1,158 (521)
Net income (loss)........................................... 733 (400)
Basic earnings (loss) per share............................. $ 0.37 $(0.32)
Diluted earnings (loss) per share........................... 0.34 (0.32)
</TABLE>
C. LOANS RECEIVABLE
The carrying amounts and fair values of loans receivable consisted of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------------
1999 1998
-------------------------- --------------------------
BOOK VALUE MARKET VALUE BOOK VALUE MARKET VALUE
---------- ------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Manufactured home loans............... $ 64,501 $ 66,114 $22,674 $24,098
Commercial loans...................... 52,904 52,695 65,546 61,722
Accrued interest receivable........... 740 740 440 440
Valuation allowance................... -- -- (2,400) --
Reserve for credit loss............... (258) -- (185) --
-------- -------- ------- -------
$117,887 $119,549 $86,075 $86,260
======== ======== ======= =======
</TABLE>
F-26
<PAGE> 177
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amount of loans receivable includes a valuation allowance as a
result of the inclusion of the loss on the hedge positions. The entire loss was
recovered in 1999. The following table shows the valuation allowance and any
related additions or deductions:
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year................................ $2,400 $ 0
Recovery adjustment......................................... (2,400) 2,400
------ ------
Balance at end of year.................................... $ -- $2,400
====== ======
</TABLE>
The following table sets forth the average loan balance, weighted average
loan yield and weighted average initial term of the loan portfolio:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------
1999 1998 1999 1998
------------ --------- ---------- ---------
MANUFACTURED HOME COMMERCIAL MORTGAGE
------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
Principal balance loans receivable, net......... $ 64,730 $ 22,673 $ 53,157 $ 63,402
Number of loans receivable...................... 2,190 803 20 13
Average loan balance............................ $ 29 $ 29 $ 2,645 $ 5,042
Weighted average loan yield..................... 11.33% 10.9% 8.5% 7.6%
Weighted average initial term................... 22 years 22 years 5.8 years 9.7 years
</TABLE>
The following table sets forth the concentration by state of the loan
portfolio:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------------------------------------------
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
MANUFACTURED HOME COMMERCIAL MORTGAGE
----------------------------------- -----------------------------------
PRINCIPAL % PRINCIPAL % PRINCIPAL % PRINCIPAL %
--------- ---- --------- ---- --------- ---- --------- ----
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michigan........... $25,102 38.9% $9,177 40.5% $11,338 21.4% $29,107 44.4%
Indiana............ 10,128 15.7 5,729 25.3 -- -- -- --
Arizona............ -- -- -- -- 17,431 32.9 9,953 15.2
Texas.............. 5,516 8.6 1,859 8.2 1,807 3.4 -- --
Florida............ 6,142 9.5 1,805 8.0 5,980 11.3 14,260 21.8
California......... -- -- -- -- 4,651 8.8 8,504 0.13
Other.............. 17,613 27.3 4,104 18.1 11,697 22.1 3,722 5.6
</TABLE>
The manufactured home contracts are collateralized by manufactured homes
which range in age from 1963 to 1999, with approximately 60% of the manufactured
homes built since 1997.
F-27
<PAGE> 178
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the number and value of loans for various
terms for the manufactured home loan portfolio:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------
1999 1998
---------------------- ----------------------
NUMBER OF PRINCIPAL NUMBER OF PRINCIPAL
TERM LOANS BALANCE LOANS BALANCE
---- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
5 or less..................................... 55 $ 393 27 $ 209
6-10.......................................... 210 2,488 88 1,073
11-12......................................... 9 148 9 100
13-15......................................... 274 4,542 104 1,876
16-20......................................... 503 12,603 210 6,020
21-25......................................... 1,102 42,833 363 13,291
26-30......................................... 37 1,494 2 105
</TABLE>
The commercial mortgage loans have amortization terms of between 25 and 30
years. In most cases they also have a hyper-amortization feature that takes
effect if the loan is not repaid on its anticipated repayment date. At that time
the interest rate increases and any excess cash flows from the project are used
to pay down the principal balance.
Delinquency statistics for the manufactured home loan portfolio are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------------------------------------------------------
1999 1998
------------------------------ ------------------------------
DAYS NO. OF PRINCIPAL % OF NO. OF PRINCIPAL % OF
DELINQUENT LOANS BALANCE PORTFOLIO LOANS BALANCE PORTFOLIO
------------------------ ------ --------- --------- ------ --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
31-60................... 60 $1,748 2.7% 31 $730 3.2%
61-90................... 20 706 1.1 18 508 2.2
Greater than 90......... 40 988 1.5 16 357 1.6
</TABLE>
No commercial mortgage loans were delinquent as of September 30, 1999 or
1998.
D. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses and related additions and deductions to the
allowance for the years ended September 30, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $ 185 $ 58 $--
Provision for loan losses................................... 653 166 58
Net losses.................................................. (580) (39) --
----- ---- ---
Balance at end of year.................................... $ 258 $185 $58
===== ==== ===
</TABLE>
F-28
<PAGE> 179
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
E. SERVICING RIGHTS
Changes in servicing rights are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------ -----
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year................................ $ 156 $ --
Addition through acquisition of Bloomfield Servicing........ -- 552
Purchased servicing rights.................................. 1,376 104
Originated serving rights................................... 735 --
Amortization................................................ (94) (28)
Sales....................................................... (53) (472)
------ -----
Balance at end of year.................................... $2,120 $ 156
====== =====
</TABLE>
Bloomfield Servicing ("BSC") the Company's loan servicing subsidiary,
services commercial real estate loans that Bloomfield Acceptance originates as
well as commercial real estate loans on behalf of twenty seven institutional
investors. BSC also acts as the sub-servicer on the approximately $80 million of
commercial mortgage loans the Company securitized and sold in June 1999. As of
September 30, 1999 and 1998, BSC's commercial mortgage loan servicing portfolio
totaled approximately $900 million and $374 million respectively.
BSC also services the manufactured home loans originated by the Company and
held in its loan portfolio as well as manufactured home loans originated by the
Company and sold with the servicing rights retained. The manufactured home loan
servicing portfolio totaled $83 million at September 30, 1999. There were no
manufactured home loans serviced by BSC as of September 30, 1998.
F. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1999 1998
------ ----
(IN THOUSANDS)
<S> <C> <C>
Cost:
Furniture and fixtures.................................... $ 327 $159
Leasehold improvements.................................... 46 33
Capitalized Software...................................... 322 322
Computer equipment........................................ 556 175
------ ----
1,251 689
Less accumulated depreciation............................... 151 34
------ ----
$1,100 $655
====== ====
</TABLE>
Depreciation expense was $116,000 and $33,700 in 1999 and 1998
respectively.
G. DEBT
In connection with its initial public offering The Company entered into a
subordinated loan agreement with Sun. The subordinated loan agreement currently
provides for a subordinated debt facility which indebtedness shall be
subordinated to all senior debt of the Company. The facility consists of a $4
million term loan with an annual interest rate of 9.75%. As of September 30,
1999 the Company also had a $10 million demand line of credit and an $18 million
demand line of credit with Sun, both of which
F-29
<PAGE> 180
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provide for an annual interest rate equal to the one month "Libor" rate plus a
spread. At September 30, 1999 the Company had used $32.0 million of the
subordinated debt and demand line of credit facilities. In accordance with the
subordinated loan agreement the Company issued detachable warrants to Sun
covering 400,000 shares of common stock at a price of $10.00 per warrant share.
The detachable warrants have a term of seven years and may be exercised at any
time after the fourth anniversary of the issuance. In March 1998 the Company's
commercial mortgage originating subsidiary entered into a one year master
repurchase agreement with a lender to finance fixed rate commercial loans
collateralized by real estate. In September of 1998 that agreement was amended
to include financing of manufactured home, floor plan and bridge loans. At
September 30, 1999 the maximum financing limits on the facility were $50 million
for commercial mortgage and bridge loans and $50 million for manufactured home
and floor plan loans. The annual interest rate on the facility is a variable
rate of interest equal to "LIBOR" plus a spread, dependent on the advance rate
and the asset class. The loans are sold at 85-92% of the then current face
value, depending on the asset class and certain concentration constraints. The
repurchase transactions are for 30 days and may be rolled over for up to nine
months.
At September 30, 1999 and 1998 debt outstanding was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Loans sold under agreements to repurchase................... $ 69,026 $56,900
Demand line of credit....................................... 28,477 17,800
Term loan, net of discount.................................. 3,567 3,500
-------- -------
$101,070 $78,200
======== =======
</TABLE>
H. SUN COMMUNITIES AGREEMENT
As of September 30, 1997 the Company entered into an agreement with Sun
Communities. Pursuant to the agreement, options were granted to Sun September
30, 1997 and will vest if, and only if, Sun is a party to and in compliance with
the terms of the agreement on the vesting date and on December 31 of the
previous year. The options will vest in eight equal annual amounts, each
consisting of 41,250 options, on January 31, 2001 through 2008. The options may
be exercised at any time after vesting until expiration ten years after the date
of vesting. Each option vesting January 31, 2001 to 2003 will entitle the holder
to purchase one share of common stock for a purchase price of $10. Each option
vesting on January 31, 2004, 2005 and 2006 will entitle the holder to purchase
one share of common stock for $12. Each option vesting on January 31, 2007 and
2008 will entitle the holder to purchase one share of common stock for $14.
The Company recognizes service costs related to the options based on the
fair value method as prescribed by Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock based Compensation". Fair value is
determined using quoted market prices. Service costs are amortized based on the
vesting periods of the options. Amortization for the years ended September 30,
1999 and 1998 was $86,400 and $74,700 respectively.
I. STOCK OPTION PLAN
The Company has stock option plans in which 248,915 shares of common stock
have been reserved for issuance as of September 30, 1999. Under the plans, the
exercise price of the options will not be less than the fair market value of the
common stock on the date of grant. The date on which the options are first
exercisable is determined by the administrator of the Company's stock option
plan, the Compensation Committee of the Board of Directors or the entire Board
of Directors, and options generally have vested
F-30
<PAGE> 181
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
over a three-year period from the date of grant. The term of an option may not
exceed ten years from the date of grant.
The Company has adopted the disclosure requirements of Statements of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation." Accordingly, the fair value of each option granted in 1999 and
1998 was estimated using the Black-Scholes option pricing model based on the
assumptions stated below:
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Estimated weighted average fair value per share of options
granted................................................... $4.39 $5.44
Assumptions:
Annualized dividend yield................................. --% --%
Common stock price volatility............................. 50.16% 44.14%
Weighted average risk free rate of return................. 5.31% 5.83%
Weighted average expected option term (in years).......... 6.0 6.0
</TABLE>
The Company has elected to measure compensation cost using the intrinsic
value method, in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly since all options are granted at a fixed price
not less than the fair market value of the Company's common stock on the date of
grant, no compensation cost has been recognized for its stock option plan. Had
stock option costs of the plan been determined based on the fair value at the
grant dates for awards under those plans consistent with the methodology of SFAS
123, the pro forma effects on the Company's net income and earnings per share
would be as follows:
<TABLE>
<CAPTION>
1999 1998
------- --------
(DOLLARS IN THOUSANDS,
EXCEPT EARNINGS PER SHARE)
<S> <C> <C>
Net income (loss) as reported............................... $ 776 $ (574)
Stock option compensation cost.............................. 346 143
----- ------
Pro forma net income (loss)............................... $ 430 $ (717)
===== ======
Basic income (loss) per share as reported................... $0.39 $(0.46)
Stock option compensation cost.............................. 0.18 0.11
----- ------
Pro forma earnings (loss) per share....................... $0.21 $(0.57)
===== ======
Diluted earnings (loss) per share as reported............... $0.36 $(0.46)
Stock option compensation cost.............................. 0.16 0.11
----- ------
Pro forma fully diluted earnings (loss) per share......... $0.20 $(0.57)
===== ======
</TABLE>
F-31
<PAGE> 182
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth changes in options outstanding:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
WEIGHTED WEIGHTED
AMOUNT AVG. PRICE AMOUNT AVG. PRICE
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Shares under option:
Outstanding at beginning of year............. 109,900 $10.65 -- $ --
Granted...................................... 29,250 13.19 111,850 10.65
Forfeited.................................... (1,332) 12.25 (1,950) 13.00
Canceled..................................... -- -- -- --
Exercised.................................... -- -- -- --
------- ------ ------- ------
Outstanding at end of year................... 137,818 $11.15 109,900 $10.65
======= ====== ======= ======
Exercisable at end of year................... 65,917 $10.38 30,000 $10.00
</TABLE>
The following table sets forth details of options outstanding at September
30, 1999 and 1998:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF NUMBER REMAINING RANGE OF NUMBER REMAINING
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE
--------------- ----------- ---------------- --------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 10.00 85,568 8.17 years $ 10.00 56,926 8.17 Years
10.25 750 9.92 years 12.50 3,246 9.08 Years
11.00 2,500 9.83 years 13.00 5,745 8.42 Years
12.50 10,750 9.17 years
13.00 21,000 8.42 years
13.50 9,500 9.75 years
14.50 6,750 9.58 years
15.25 1,000 9.25 years
-------------- ------- ---------- -------------- ------
$10.00 - 15.25 137,818 8.51 Years $10.00 - 13.00 65,917 8.24 Years
======= ========== ====== ==========
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF NUMBER REMAINING RANGE OF NUMBER REMAINING
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE
--------------- ----------- ---------------- --------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 10.00 85,900 9.08 Years $10.00 30,000 9.08 Years
13.00 24,000 9.42 Years
-------------- ------- ---------- ------ ------ ----------
$10.00 - 13.00 109,900 9.15 Years $10.00 30,000 9.08 Years
======= ========== ====== ==========
</TABLE>
There were no options outstanding in 1997.
F-32
<PAGE> 183
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
J. FEDERAL INCOME TAXES
Federal income tax expense consisted of the following:
<TABLE>
<CAPTION>
1999 1998
----- -----
(IN THOUSANDS)
<S> <C> <C>
Current tax provision....................................... $(473) $ 683
Deferred tax provision (benefit)............................ 914 (902)
----- -----
Federal income tax expense (benefit)........................ $ 441 $(219)
===== =====
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Statutory tax rate.......................................... 34.00% (34.00)%
Effect of:
Nondeductible expenses.................................... 2.22 --
Other..................................................... -- 6.39
------ ------
Effective tax rate.......................................... 36.22% (27.61)%
====== ======
</TABLE>
There was no federal income tax provision in 1997.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company believes its
deferred tax liabilities and available tax planning strategies will allow for
the recovery of total net deferred tax asset. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
----- -----
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Option amortization....................................... $ 55 $ 25
Net deferral required by SFAS 91.......................... -- 130
Reserve for loan losses................................... 230 14
Unrealized loss on mortgage loans......................... -- 816
Other items, net.......................................... 273 5
---- ----
Total deferred tax assets............................ 558 990
Deferred Tax Liabilities:
Net deferral required by SFAS 91.......................... 169 --
Deferred closing costs.................................... 148 88
Gain on sale of servicing rights required by SFAS 125..... 253 --
---- ----
Total deferred tax liabilities....................... 570 88
---- ----
Total net deferred tax assets (liabilities)................. (12) 902
---- ----
Total net federal income tax assets (liabilities)........... $(12) $902
==== ====
</TABLE>
K. STOCKHOLDERS' EQUITY
The Company consummated an initial public offering of 1,200,000 shares of
common stock on November 19, 1997. The initial offering price was $10.00, which
provided approximate proceeds to the Company of $11.2 million. On December 16,
1997, an additional 70,000 shares were issued which provided approximate
proceeds to the Company of $651,000.
F-33
<PAGE> 184
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior to the initial public offering, on October 27, 1997 the Company sold
25,000 shares to Sun Communities for gross proceeds of $250,000.
In April, 1999 the Company issued 800,330 shares of its common stock in
private equity raises. The stock issuances resulted in proceeds of approximately
$12 million.
During the year ended September 30, 1999 the Company issued stock awards of
84,658 restricted shares to executive officers and senior management.
Compensation costs related to the awards are being amortized over their
respective vesting periods, generally between 3 to 5 years.
L. LITIGATION
The Company is subject to various claims and legal proceedings arising out
of the normal course of business, none of which in the opinion of management are
expected to have a material effect on the Company's future financial position,
results of operations or cashflows.
M. COMMITMENTS AND CONTINGENCIES
Lease Commitments: At September 30, 1999 aggregate minimum rental
commitments under noncancelable leases having terms of more than one year were
$937,000 payable $403,000 (2000), $414,000 (2001), $88,000 (2002) and $31,000
(2004). Total rental expense for the year ended September 30, 1999 and 1998 was
$420,000 and $83,000 respectively. These leases are for office facilities and
equipment and generally contain either clauses for cost of living increases
and/or options to renew or terminate the lease.
Loan Commitments: At September 30, 1999 and 1998 the Company had
commitments to originate manufactured home installment contracts approximating
$5.1 million and $4.8 million respectively. Commercial mortgage loan commitments
totaled $73.1 and $14.7 million at September 30, 1999 and 1998 respectively.
N. FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET ACTIVITY
Financial Instruments: The Company hedges its commercial mortgage loan
portfolio as part of its interest rate risk management strategy and as a
condition of the related repurchase agreement which finances the portfolio. The
Company hedges the interest rate risk on its portfolio by doing forward sales of
U.S. Treasury Securities, Treasury locks and forward interest rate swaps.
The Company classifies these transactions as hedges on specific loan
receivables. Any gross unrealized gains or losses on these hedge positions are
determined based on quoted market prices and are an adjustment to the basis of
the mortgage loan portfolio. They are also used in the lower of cost or market
valuation to establish a valuation allowance as shown in Note C.
F-34
<PAGE> 185
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table identifies the gross unrealized gains and losses of the
hedge positions based on quoted market prices as of September 30, 1999 and 1998:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1999 1998
------------- -------------
GROSS GROSS
UNREALIZED UNREALIZED
GAINS GAINS
TYPE REFERENCE RATE/TREASURY (LOSSES) (LOSSES)
---- -------------------------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Treasury Lock......................... U.S. Treasury 4.750% -- 11/08 $ 126 $ --
Treasury Lock......................... U.S. Treasury 5.625% -- 5/08 6 --
Treasury Lock......................... U.S. Treasury 5.500% -- 5/09 2 --
Treasury Lock......................... 10 Year Treasury (146) --
Interest Rate Swap.................... 10 Year Swap -- (2,019)
Forward Sale.......................... U.S. Treasury 6.125% -- 8/07 -- (294)
Forward Sale.......................... U.S. Treasury 6.375% -- 8/27 -- (1,649)
Forward Sale.......................... U.S. Treasury 5.500% -- 2/08 -- (321)
Forward Sale.......................... U.S. Treasury 5.625% -- 5/08 -- --
</TABLE>
Loans Sold with Recourse: As of September 30, 1999 and 1998 outstanding
principal on manufactured home loans the Company had sold with recourse totaled
$27.6 and $11.3 million respectively. The Company is required to repurchase the
outstanding principal balance, accrued interest and refund of any purchase
premium of any contract that goes into default, as defined in the loan
agreement, for the life of the loan.
Fair Value of Financial Instruments: Statement of Financial Accounting
Standards No. 107 ("SFAS 107") requires disclosure of fair value information
about financial instruments, whether or not recognized in the Balance Sheet, for
which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques.
The following table shows the carrying amount and estimated fair values of
the Company's Financial instruments:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------
1999 1998
--------------------- ---------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents.................................. $ 730 $ 730 $ 1,979 $ 1,979
Restricted cash....................................... 3,901 3,901 2,253 2,253
Loans receivable...................................... 117,887 119,548 86,075 86,260
Other................................................. 6,960 6,960 3,741 3,741
LIABILITIES
Advances by mortgages................................. 3,882 3,882 2,238 2,238
Accounts payable and accrued expenses................. 1,474 1,474 636 636
Advances under repurchase agreements.................. 69,026 69,026 56,892 56,892
Subordinated debt..................................... 3,567 3,567 3,490 3,490
Note payable.......................................... 28,477 28,477 17,848 17,848
</TABLE>
F-35
<PAGE> 186
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amount for cash and cash equivalents and other assets is a
reasonable estimate of their fair value.
Fair values for the Company's loans are estimated using quoted market
prices for loans with similar interest rates, terms and borrowers credit quality
as those being offered by the Company.
The carrying amount of accrued interest approximates its fair value. Due to
their short maturity, accounts payable and accrued expense carrying values
approximate fair value.
The fair value of the Company's fixed rate subordinated debt is based on
quoted market prices for debt with similar terms and remaining maturities. The
fair value of the variable rate date is based on its carrying amount since
effective rates reflect current market rates.
O. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
1999:
Interest income.................................... $2,118 $2,617 $2,521 $ 2,221
Interest expense................................... 1,699 1,841 1,953 1,363
Net income (loss).................................. 764 480 304 (772)
Diluted earnings (loss) per share.................. 0.43 0.26 0.13 (0.30)
1998:
Interest income.................................... $ 316 $ 433 $ 819 $ 1,797
Interest expense................................... 151 135 405 1,241
Net income (loss).................................. 22 120 435 (1,151)
Diluted earnings (loss) per share.................. 0.04 0.08 0.22 (0.73)
1997:
Interest income.................................... $ -- $ 10 $ 112 $ 158
Interest expense................................... -- 15 70 110
Net (loss)......................................... -- (62) (3) (45)
</TABLE>
P. SUBSEQUENT EVENTS
In December 1999, the Company completed the acquisition of Dynex Financial,
Inc. (DFI) from Dynex Holding, Inc. (DHI), a subsidiary of Dynex Capital, Inc
(DCI). The Company acquired all of the issued and outstanding stock of DFI and
all of the rights to DCI's manufactured home lending business for approximately
$4.0 million in cash funded by bank borrowings. DFI specializes in lending to
buyers of manufactured homes and has regional and district offices in nine
states. In addition DFI provides servicing for manufactured home and land/home
loans.
F-36
<PAGE> 187
FRANKLIN BANK, N.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AT
----------------------------------
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 27,835,912 $ 21,129,803
Interest-earning deposits................................... 5,686,512 --
Time deposits with Federal Home Loan Bank................... 42,786 82,854
------------ ------------
Cash and cash equivalents................................... 33,565,210 21,212,657
Securities available for sale............................... 201,915,418 199,870,948
Federal Home Loan Bank stock, at cost....................... 5,868,900 5,868,900
Federal Reserve Bank stock, at cost......................... 1,297,300 1,288,550
Loans....................................................... 288,926,947 275,621,192
Allowance for loan losses................................... (3,844,578) (3,584,301)
------------ ------------
Net loans................................................... 285,082,369 272,036,891
Accrued interest receivable................................. 3,865,202 4,187,029
Real estate owned........................................... 1,219,275 3,349,516
Premises and equipment, net................................. 4,250,236 4,288,600
Prepaid expenses and other assets........................... 7,578,912 4,543,021
------------ ------------
Total assets................................................ $544,642,822 $516,646,112
============ ============
LIABILITIES, PREFERRED STOCK OF SUBSIDIARY AND SHAREHOLDERS' EQUITY
Deposits.................................................... $410,835,377 $400,365,436
Short term borrowings....................................... 71,540,622 55,045,577
Subordinated capital notes.................................. 7,470,000 7,475,000
Accrued interest payable.................................... 347,448 356,768
Other liabilities........................................... 1,526,110 836,632
------------ ------------
Total liabilities........................................... 491,719,557 464,079,413
Commitments and contingencies............................... -- --
Preferred stock of subsidiary............................... 19,500,398 19,500,398
Shareholders' equity:
Common stock -- par value $1; authorized 6,000,000 shares,
issued and outstanding 3,517,249 and 3,509,537 shares at
March 31, 2000 and December 31, 1999, respectively........ 3,517,249 3,509,537
Additional paid-in capital.................................. 27,228,301 27,201,083
Retained earnings........................................... 5,345,226 4,752,606
Accumulated other comprehensive loss........................ (2,667,909) (2,396,925)
------------ ------------
Total shareholders' equity.................................. 33,422,867 33,066,301
------------ ------------
Total liabilities, preferred stock of subsidiary and
shareholders' equity...................................... $544,642,822 $516,646,112
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-37
<PAGE> 188
FRANKLIN BANK, N.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
INTEREST INCOME
Interest on loans........................................... $6,580,203 $6,714,570
Interest on securities...................................... 2,322,851 1,056,975
Other interest and dividends................................ 934,771 1,038,405
---------- ----------
Total interest income....................................... 9,837,825 8,809,950
---------- ----------
INTEREST EXPENSE
Interest on deposits........................................ 1,827,767 2,452,657
Interest on Federal Home Loan Bank advances and other
borrowings................................................ 1,178,629 158,844
---------- ----------
Total interest expense...................................... 3,006,396 2,611,501
---------- ----------
Net interest income......................................... 6,831,429 6,198,449
Provision for loan losses................................... 555,000 400,000
---------- ----------
Net interest income after provision for loan losses......... 6,276,429 5,798,449
---------- ----------
NON INTEREST INCOME
Deposit account service charges............................. 938,365 739,284
Loan fees................................................... 57,186 178,574
Net gain (loss) on sale of assets........................... (147,841) 64,045
Investment products......................................... 35,279 33,197
Other....................................................... 118,049 111,455
---------- ----------
Total non interest income................................... 1,001,038 1,126,555
---------- ----------
NON INTEREST EXPENSE
Compensation and benefits................................... 2,859,927 2,796,880
Occupancy and equipment..................................... 817,103 845,902
Advertising................................................. 147,362 198,118
Federal insurance premiums.................................. 52,705 98,120
Defaulted loan expense...................................... 285,319 252,296
Communication expense....................................... 157,762 185,908
Outside service expense..................................... 615,697 366,741
Other....................................................... 693,816 765,599
---------- ----------
Total non interest expense.................................. 5,629,691 5,509,564
---------- ----------
Income before provision for federal income taxes............ 1,647,776 1,415,440
Provision for federal income taxes.......................... 359,265 269,007
---------- ----------
Net income before preferred stock dividends................. 1,288,511 1,146,433
Preferred stock dividends of subsidiary..................... 450,225 450,225
---------- ----------
Net income.................................................. $ 838,286 $ 696,208
========== ==========
INCOME PER SHARE
Shares outstanding
Basic..................................................... 3,517,249 3,507,107
Diluted................................................... 3,564,632 3,561,605
Income per common share
Basic..................................................... $ 0.24 $ 0.20
Diluted................................................... $ 0.24 $ 0.20
</TABLE>
See Notes to Consolidated Financial Statements
F-38
<PAGE> 189
FRANKLIN BANK, N.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- --------
<S> <C> <C>
Net Income.................................................. $ 838,286 $696,208
Other comprehensive income (loss), net of tax:
Unrealized gains/(losses) on securities:
Unrealized holding gains/(losses) arising during
period.............................................. (270,984) 90,174
Less: reclassification adjustment for gains included
in net income....................................... -- 42,269
--------- --------
Other comprehensive income/(loss).................... (270,984) 47,905
--------- --------
Comprehensive income........................................ $ 567,302 $744,113
========= ========
</TABLE>
See Notes to Consolidated Financial Statements
F-39
<PAGE> 190
FRANKLIN BANK, N.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 838,286 $ 696,208
Adjustments to reconcile net income to cash provided by
operating activities:
Provision for loan losses................................. 555,000 400,000
Depreciation and amortization............................. 376,566 158,895
Gain on sale of securities................................ -- (64,045)
Net deferral of loan origination cost..................... 44,909 30,913
Decrease(increase) in accrued interest receivable........... 321,827 (68,036)
Decrease(increase) in amortization on securities............ 239,063 (231,422)
Increase in prepaid expenses and other assets............... (2,896,250) (1,068,416)
Increase in accrued interest payable; deferred taxes and
other liabilities......................................... 680,158 1,656,563
------------ ------------
Total adjustments........................................... (678,727) 814,452
------------ ------------
Net cash provided by operating activities................... 159,559 1,510,660
INVESTING ACTIVITIES
Purchase of securities available for sale................... (6,835,706) (49,654,959)
Proceeds from sales of securities available for sale........ -- 16,979,136
Proceeds from maturities and paydowns of securities
available for sale........................................ 4,141,592 5,242,254
Net (increase)decrease in loans............................. (13,603,281) 36,449,152
Proceeds from the sale of real estate owned................. 2,088,135 231,785
Capital expenditures........................................ (338,246) (50,394)
Purchase of Federal Reserve Bank stock...................... (8,750) --
------------ ------------
Net cash (used in) provided by investing activities......... (14,556,256) 9,196,974
FINANCING ACTIVITIES
Net increase in deposits.................................... 10,469,941 2,094,382
Increase in short term borrowings and subordinated capital
notes..................................................... 16,490,045 905
Exercise of common stock options............................ 34,930 84,122
Cash dividends paid on common stock......................... (245,666) (245,499)
------------ ------------
Net cash provided by financing activities................... 26,749,250 1,933,910
------------ ------------
Net increase in cash and cash equivalents................... 12,352,553 12,641,544
Beginning cash and cash equivalents......................... 21,212,657 72,520,046
------------ ------------
Ending cash and cash equivalents............................ $ 33,565,210 $ 85,161,590
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................................. $ 1,874,371 $ 2,527,045
Federal income taxes...................................... -- 300,000
Non-cash investing and financing activities
Transfer from loans to real estate owned (net)......... -- 1,754,746
</TABLE>
See Notes to Consolidated Financial Statements
F-40
<PAGE> 191
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements of Franklin Bank N.A.
and its subsidiaries ("Franklin" or the "Bank") have been prepared in accordance
with the instructions for Form 10-Q. Accordingly, they do not include all
information and footnotes necessary for a fair presentation of consolidated
financial condition, results of operations and cash flows in conformity with
generally accepted accounting principles. The statements do, however, include
all adjustments (consisting of normal recurring accruals) which management
considers necessary for a fair presentation of the interim periods.
For further information, refer to the audited consolidated financial
statements and footnotes thereto included elsewhere in this document.
The results of operations for the three-month period ended March 31, 2000
are not necessarily indicative of the results to be expected for the year ended
December 31, 2000.
The Consolidated Statement of Financial Condition as of December 31, 1999
has been derived from the audited Consolidated Statement of Financial Condition
as of that date.
2. INCOME PER SHARE:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
NUMERATOR
Net income.................................................. $ 838,286 $ 696,208
Numerator for basic and diluted income per share
Income available for common shareholders.................. $ 838,286 $ 696,208
---------- ----------
DENOMINATOR
Denominator for basic income per share -- weighted average
shares.................................................... 3,512,108 3,507,107
Employee stock options...................................... 52,524 54,498
---------- ----------
Denominator for diluted income per share -- adjusted
weighted average shares................................... 3,564,632 3,561,605
========== ==========
Basic income per share...................................... $ 0.24 $ 0.20
Diluted income per share.................................... $ 0.24 $ 0.20
</TABLE>
F-41
<PAGE> 192
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
3. LOANS, NONPERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES:
Loans at March 31, 2000 and December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
AT
-------------------------
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
NONACCRUAL LOANS
Commercial.................................................. $ 58,835 $ 63,393
Commercial mortgage......................................... 807,713 807,713
---------- ----------
Total nonaccrual loans...................................... 866,548 871,106
---------- ----------
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
Commercial.................................................. 1,107,652 141,029
Residential mortgage........................................ 1,743,508 469,080
Home equity................................................. 27,629 --
Consumer.................................................... 261,992 257,868
Lease financing............................................. 273,649 357,639
---------- ----------
Total....................................................... 3,414,430 1,225,616
---------- ----------
Total nonperforming loans................................... 4,280,978 2,096,722
---------- ----------
REAL ESTATE OWNED
Commercial mortgage......................................... 891,000 891,000
Residential mortgage........................................ 328,275 2,458,516
---------- ----------
Total real estate owned..................................... 1,219,275 3,349,516
Other repossessed assets.................................... 15,000 14,580
---------- ----------
Total nonperforming assets.................................. $5,515,253 $5,460,818
========== ==========
TOTAL NONACCRUAL LOANS AND REAL ESTATE OWNED AS A PERCENTAGE
OF:
Total assets.............................................. 0.38% 0.82%
Loans and real estate owned............................... 0.73 1.51
TOTAL NONPERFORMING ASSETS AS A PERCENTAGE OF:
Total assets.............................................. 1.01% 1.06%
Loans and real estate owned............................... 1.93 1.96
</TABLE>
The carrying values of impaired loans are periodically adjusted to reflect
cash payments, revised estimates of future cash flows and increases in the
present value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
reported as bad debt expense, if reductions, or otherwise as reductions in bad
debt expense.
F-42
<PAGE> 193
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The following table summarizes changes in the allowance for loan losses
arising from loans charged off, recoveries of loans previously charged off and
additions to the allowance which have been charged to expense:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Balance at beginning of period.............................. $3,584,301 $4,532,756
Provision for loan losses................................... 555,000 400,000
CHARGE-OFFS:
Commercial.................................................. 76,254 658,194
Consumer.................................................... 70,304 77,418
Overdraft................................................... 17,470 81,327
Lease financing............................................. 382,730 678,955
---------- ----------
Total charge-offs........................................... 546,758 1,495,894
RECOVERIES:
Commercial.................................................. 21,585 27,882
Consumer.................................................... 2,166 --
Residential mortgage........................................ -- 28,657
Overdraft................................................... 8,335 9,036
Lease financing............................................. 219,950 243,683
---------- ----------
Total recoveries............................................ 252,036 309,258
---------- ----------
Net charge-offs............................................. 294,723 1,186,636
---------- ----------
Balance at end of period.................................... $3,844,578 $3,746,120
========== ==========
Allowance as a percentage of:
Loans..................................................... 1.33% 1.32%
Nonperforming loans....................................... 89.81 219.62
Nonperforming assets...................................... 69.71 59.27
Net charge-offs (annualized).............................. 326.12 78.92
Net charge-offs to average loans outstanding (annualized)... 0.42 1.64
</TABLE>
Information regarding impaired loans is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
---------- --------
<S> <C> <C>
Average investment in impaired loans........................ $1,603,692 $246,361
Interest income recognized on impaired loans on cash
basis..................................................... -- 2,221
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
---------- --------
<S> <C> <C>
Balance of impaired loans................................... $1,600,654 $915,427
Less portion of which no allowance for loan losses is
allocated................................................. 95,423 821,607
Portion of impaired loan balances for which an allowance for
credit losses is allocated................................ 1,505,231 93,820
Portion of allowance for loan losses allocated to the
impaired loan balances.................................... 535,943 26,501
</TABLE>
F-43
<PAGE> 194
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders -- Franklin Bank, N.A.
We have audited the accompanying consolidated statements of financial
condition of Franklin Bank, N.A. as of December 31, 1999 and 1998, and the
related consolidated statements of income, comprehensive income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Bank'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. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Franklin Bank, N.A. as of December 31, 1999 and 1998, and the consolidated
results of its operations and its consolidated cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ GRANT THORNTON LLP
Southfield, Michigan
January 28, 2000, except for note 16 as to which the date is March 20, 2000
F-44
<PAGE> 195
FRANKLIN BANK, N.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
NOTES 1999 1998
------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks.................................. $ 21,129,803 $ 19,098,168
Interest-earning deposits................................ -- 120,814
Time deposits with Federal Home Loan Bank................ 82,854 53,301,064
------------ ------------
Cash and cash equivalents................................ 21,212,657 72,520,046
Securities available for sale............................ 3 199,870,948 87,245,054
Federal Home Loan Bank stock, at cost.................... 5,868,900 5,868,900
Federal Reserve Bank stock, at cost...................... 1,288,550 1,267,700
Loans held for sale, at market........................... -- 29,522,093
Loans.................................................... 275,621,192 293,310,548
Allowance for loan losses................................ (3,584,301) (4,532,756)
------------ ------------
Net loans................................................ 2,6,12 272,036,891 318,299,885
Accrued interest receivable.............................. 4,187,029 3,442,056
Real estate owned........................................ 3,349,516 2,563,103
Premises and equipment, net.............................. 8 4,288,600 4,823,852
Prepaid expenses and other assets........................ 10 4,543,021 7,231,894
------------ ------------
Total assets................................... $516,646,112 $503,262,490
============ ============
LIABILITIES, PREFERRED STOCK OF SUBSIDIARY AND SHAREHOLDERS' EQUITY
Deposits................................................. 4 $400,365,436 $441,539,221
Short-term borrowings.................................... 6 55,045,577 --
Accrued interest payable................................. 356,768 469,243
Subordinated capital notes............................... 9 7,475,000 7,475,000
Other liabilities........................................ 836,632 994,786
------------ ------------
Total liabilities........................................ 464,079,413 450,478,250
Commitments and contingencies............................ 14 -- --
Preferred stock of subsidiary............................ 1 19,500,398 19,500,398
Shareholders' equity..................................... 7,9,11
Common stock -- par value $1; authorized 6,000,000
shares, issued and outstanding 3,509,537 and 3,507,107
shares at December 31, 1999 and 1998, respectively..... 3,509,537 3,507,107
Additional paid-in capital............................... 27,201,083 27,183,731
Retained earnings........................................ 4,752,606 2,778,807
Accumulated other comprehensive loss..................... (2,396,925) (185,803)
------------ ------------
Total shareholders' equity..................... 33,066,301 33,283,842
------------ ------------
Total liabilities, preferred stock of
subsidiary and shareholders' equity.......... $516,646,112 $503,262,490
============ ============
</TABLE>
See notes to consolidated financial statements.
F-45
<PAGE> 196
FRANKLIN BANK, N.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
NOTES 1999 1998 1997
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans.............................. $26,152,460 $34,109,834 $36,726,583
Interest on securities......................... 6,820,094 2,527,794 2,506,041
Other interest and dividends................... 3,678,298 3,162,781 1,308,570
----------- ----------- -----------
Total interest income................ 36,650,852 39,800,409 40,541,194
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits........................... 5 8,997,832 11,883,285 13,570,005
Interest on other borrowings................... 6 1,494,697 922,840 2,249,672
----------- ----------- -----------
Total interest expense............... 10,492,529 12,806,125 15,819,677
----------- ----------- -----------
Net interest income............................ 26,158,323 26,994,284 24,721,517
Provision for loan losses...................... 2 1,226,000 4,335,000 6,600,000
----------- ----------- -----------
Net interest income after provision
for loan losses.................... 24,932,323 22,659,284 18,121,517
----------- ----------- -----------
NON INTEREST INCOME
Deposit account service charges................ 3,177,308 2,509,086 2,741,358
Loan fees...................................... 201,994 759,429 715,169
Net gain on sales of securities................ 3 202,542 221,507 313,126
Net gain/(loss) on sale of loans............... (37,108) 157,919 7,445
Other.......................................... 609,002 527,734 381,797
----------- ----------- -----------
Total non interest income............ 4,153,738 4,175,675 4,158,895
----------- ----------- -----------
NON INTEREST EXPENSE
Compensation and benefits...................... 11,202,162 10,322,377 9,573,975
Occupancy and equipment........................ 3,440,771 3,450,879 2,894,287
Advertising.................................... 827,832 788,557 841,218
Federal insurance premiums..................... 383,373 385,623 370,334
Defaulted loan expense......................... 1,439,860 1,280,113 1,003,806
Communication expense.......................... 707,636 700,329 636,227
Outside services............................... 2,132,449 1,793,988 1,773,773
Other.......................................... 2,987,123 2,634,195 2,412,677
----------- ----------- -----------
Total non interest expense........... 23,121,206 21,356,061 19,506,297
----------- ----------- -----------
Income before provision for federal income
taxes........................................ 5,964,855 5,478,898 2,774,115
Provision for federal income taxes............. 10 1,207,653 1,048,990 682,941
----------- ----------- -----------
Net income before preferred stock dividends.... 4,757,202 4,429,908 2,091,174
----------- ----------- -----------
Preferred stock dividends of subsidiary........ 1,800,900 1,801,447 49,340
----------- ----------- -----------
Net income........................... $ 2,956,302 $ 2,628,461 $ 2,041,834
=========== =========== ===========
INCOME PER COMMON SHARE
Basic........................................ $ 0.84 $ 0.75 $ 0.59
Diluted...................................... $ 0.83 $ 0.72 $ 0.56
</TABLE>
See notes to consolidated financial statements.
F-46
<PAGE> 197
FRANKLIN BANK, N.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
NET INCOME.............................................. $ 2,956,302 $2,628,461 $2,041,834
Other comprehensive income/(loss), net of tax:
Unrealized gains/(losses) on securities:
Unrealized holding gains/(losses) arising during
period............................................. (2,077,444) (117,171) 86,270
Less: Reclassification adjustment for gains included
in net income...................................... 133,678 146,195 206,663
----------- ---------- ----------
Other comprehensive loss................................ (2,211,122) (263,366) (120,393)
----------- ---------- ----------
Comprehensive income.................................... $ 745,180 $2,365,095 $1,921,441
=========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-47
<PAGE> 198
FRANKLIN BANK, N.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE RETAINED SHAREHOLDERS'
STOCK CAPITAL INCOME/(LOSS) EARNINGS EQUITY
---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997....... $3,315,545 $24,179,756 $ 197,956 $ 2,642,260 $30,335,517
Net income....................... -- -- -- 2,041,834 2,041,834
Cash dividends on common stock
($0.24 per share).............. -- -- -- (799,166) (799,166)
Common stock dividend............ 166,618 2,811,679 -- (2,978,297)
Exercise of options.............. 16,822 96,165 -- -- 112,987
Change in accumulated other
comprehensive income........... -- -- (120,393) -- (120,393)
---------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1997..... 3,498,985 27,087,600 77,563 906,631 31,570,779
Net income....................... -- -- -- 2,628,461 2,628,461
Cash dividends on common stock
($0.21 per share).............. -- -- -- (735,458) (735,458)
Common stock dividend (fractional
shares)........................ (244) 16,679 -- (20,827) (4,392)
Exercise of options.............. 8,366 79,452 -- -- 87,818
Change in accumulated other
comprehensive income........... -- -- (263,366) -- (263,366)
---------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1998..... 3,507,107 27,183,731 (185,803) 2,778,807 33,283,842
Net income....................... -- -- -- 2,956,302 2,956,302
Cash dividends on common stock
($0.28 per share).............. -- -- -- (982,503) (982,503)
Exercise of options.............. 2,430 17,352 -- -- 19,782
Change in accumulated other
comprehensive loss............. -- -- (2,211,122) -- (2,211,122)
---------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1999..... $3,509,537 $27,201,083 $(2,396,925) $ 4,752,606 $33,066,301
========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-48
<PAGE> 199
FRANKLIN BANK, N.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------- ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $ 2,956,302 $ 2,628,461 $ 2,041,834
Adjustments to reconcile net income to cash provided
by operating activities:
Provision for loan losses......................... 1,226,000 4,335,000 6,600,000
Depreciation and amortization..................... 1,658,359 1,753,323 1,397,831
Gain on sale of assets............................ (165,434) (379,426) (334,720)
Net deferral of loan origination cost/(fees)...... 310,980 (51,684) (1,103)
Amortization/(accretion) on securities............ 1,103,699 (1,294,067) 399,041
(Increase)/decrease in accrued interest
receivable..................................... (744,973) (390,744) 957,162
Decrease/(increase) prepaid expenses and other
assets......................................... 3,850,928 500,265 (3,111,788)
(Decrease)/increase accrued interest payable,
deferred taxes and other liabilities........... (270,629) (2,631,321) 1,615,501
------------- ------------- ------------
Total adjustments......................... 6,968,930 1,841,346 7,521,924
------------- ------------- ------------
Net cash provided by operating activities........... 9,925,232 4,469,807 9,563,758
INVESTING ACTIVITIES
Purchases of securities available for sale........ (175,044,242) (176,986,880) (18,652,083)
Proceeds from sales of securities available for
sale........................................... 32,863,974 74,043,207 53,504,184
Proceeds from maturities and paydowns of
securities available for sale.................. 25,303,033 29,559,215 1,478,636
Net decrease in loans............................. 42,618,601 51,954,561 7,610,353
Proceeds from the sale of real estate owned....... 1,283,890 3,171,084 7,667
Capital expenditures.............................. (1,146,098) (1,753,082) (1,077,201)
Purchase of Federal Home Loan Bank stock............ -- -- (715,700)
Purchase of Federal Reserve Bank stock.............. (20,850) (442,550) (52,700)
------------- ------------- ------------
Net cash provided by/(used in) investing
activities........................................ (74,141,692) (20,454,445) 42,103,156
FINANCING ACTIVITIES
Net (decrease)/increase in deposits............... (41,173,785) 781,571 38,867,668
Decrease in Federal Home Loan Bank advances....... (24,000,000)
Proceeds from/(repayment of) repurchase
agreements..................................... 55,045,577 (29,612,500)
Cash dividends paid on common stock............... (982,503) (739,850) (799,166)
Exercise of common stock options.................. 19,782 87,818 112,987
Proceeds from the sale of preferred stock of
subsidiary..................................... (67,553) 19,567,951
------------- ------------- ------------
Net cash from financing activities.................. 12,909,071 61,986 4,136,940
------------- ------------- ------------
Net increase/(decrease) in cash and cash
equivalents....................................... (51,307,389) (15,922,652) 55,803,854
------------- ------------- ------------
Beginning cash and cash equivalents................. 72,520,046 88,442,698 32,638,844
------------- ------------- ------------
Ending cash and cash equivalents.................... $ 21,212,657 $ 72,520,046 $ 88,442,698
============= ============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.......................................... $ 9,139,297 $ 12,007,132 $ 15,917,158
Federal income taxes.............................. 1,311,623 575,000 1,389,604
Non-cash investing and financing activities:
Transfer from loans to real estate owned (net).... 2,518,344 1,429,583 5,139,897
</TABLE>
See notes to consolidated financial statements.
F-49
<PAGE> 200
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Franklin Bank, N.A. ("the Bank") is a nationally chartered
commercial bank, and a member of the Federal Reserve Bank ("FRB") System and the
Federal Home Loan Bank ("FHLB") System. As a member of these systems, the Bank
maintains a required investment in capital stock of the FRB of Chicago and the
FHLB of Indianapolis.
Deposits are insured by the Savings Association Insurance Fund ("SAIF")
within certain limitations, as administered by the Federal Deposit Insurance
Corporation ("FDIC"). The Bank operates three branches along with its main
office branch in the communities of Southfield, Birmingham, and Grosse Pointe
Woods, Michigan. The Bank is engaged in the business of commercial and retail
banking. The majority of the Bank's income is derived from commercial and to a
lesser extent retail business lending activities and investments.
Principles of Consolidation -- The consolidated financial statements
consist of the accounts of Franklin Bank, N.A. and its wholly owned
subsidiaries, Franklin Home Lending Group, Ben Properties and Franklin Finance
Corporation. Significant intercompany balances and transactions have been
eliminated.
Preferred Stock of Subsidiary -- In December 1997, Franklin Finance
Corporation ("the Company"), a wholly owned subsidiary of Franklin Bank, N.A.
issued 2,070,000 shares of 8.70% Noncumulative Exchangeable Preferred Stock,
Series A ("Series A Preferred Shares"), with a liquidation preference of $10 per
share. The Company is a real estate investment trust established for the purpose
of acquiring, holding and managing real estate mortgage assets. Dividends on
Series A Preferred Shares are noncumulative, are payable quarterly in arrears,
and commenced on December 31, 1997.
The Series A Preferred Shares are generally not redeemable prior to
December 22, 2002. On or after such date, the Series A Preferred Shares may be
redeemed for cash at the option of the Company, in whole or in part, at a
redemption price of $10 per share, plus accrued and unpaid dividends, if any,
thereon. The Series A Preferred Shares are treated as regulatory capital for the
Bank. The Series A Preferred Shares are not subject to any sinking fund or
mandatory redemption and are not convertible into any other securities of the
Bank or any of its subsidiaries.
Securities -- The Bank classifies securities into held to maturity,
available for sale and trading categories. Held to maturity securities are those
which management has the positive intent and the Bank has the ability to hold to
maturity, and are reported at amortized cost. Available for sale securities are
those which the Bank may decide to sell if needed for liquidity, asset/liability
management or other reasons. Available for sale securities are reported at fair
value, with unrealized gains or losses included as a separate component of other
comprehensive income or loss. Trading securities are bought principally for sale
in the near term, and are reported at fair value with unrealized gains or losses
included in earnings. There were no securities classified as trading or held to
maturity at December 31, 1999 or 1998.
Realized gains or losses are determined based on the amortized cost of the
specific security sold. Interest and dividend income is adjusted by amortization
of purchase premium or discount and are included in income.
Loans and Allowance for Loan Losses -- Loans, for which management has the
intent and the Bank has the ability to hold for the foreseeable future, until
maturity or payoff, are reported at their outstanding, unpaid principal
balances, reduced by any charge-offs or specific valuation accounts and net of
any deferred fees or costs on originated loans, unamortized premiums or
discounts on purchased loans. Loans held for sale are reported at the lower of
cost or fair value.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb inherent losses in the loan portfolio. Management's
determination of the adequacy of the allowance is
F-50
<PAGE> 201
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based on an evaluation of the portfolio, past loan loss experience, current
economic conditions, volume, amount and composition of the loan portfolio and
other factors. The allowance is increased by provisions for loan losses charged
to income and reduced by net charge-offs.
A loan is considered impaired when, based on current information and
events, it is probable that the Bank will be unable to collect all principal and
interest amounts due according to the contractual terms of the loan agreement.
Smaller balance homogeneous loans are collectively evaluated for impairment.
Impaired loans, or portions thereof, are charged off when deemed uncollectible.
The carrying value of impaired loans is periodically adjusted to reflect
cash payments, revised estimates of future cash flows, and increases in the
present value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such and recognized as income when
received. Increases or decreases in carrying value due to changes in estimates
of future payments or the passage of time are reported as reductions or
increases in the provision for loan losses.
Discounts and premiums on purchased residential real estate loans are
amortized to income using the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments. Discounts and
premiums on purchased consumer loans are recognized over the expected lives of
the loans using methods that approximate the interest method.
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan. Fees received
for originating loans for other institutions are recognized as income when the
services are performed.
Real Estate Owned -- Real estate properties acquired through, or in lieu
of, loan foreclosure are initially recorded at fair value minus estimated costs
to sell at the date of foreclosure, establishing a new cost basis. After
foreclosure, valuations are periodically performed by management, and the real
estate is carried at the lower of the (1) new cost basis or (2) fair value minus
estimated costs to sell. Revenue and expenses from operations are included in
defaulted loan expense, and additions to the valuation allowance are included in
other expense.
Premises and Equipment -- Premises and equipment, including leasehold
improvements, are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on a straight-line
basis over the estimated lives of the assets.
Statements of Cash Flows -- For the purpose of presentation in the
consolidated statements of cash flows, cash and cash equivalents are defined as
those amounts included in the consolidated statements of financial condition
caption "Cash and cash equivalents." These items have original maturities of
ninety days or less.
Income per Common Share -- Basic income per share excludes dilution and is
computed by dividing income available to common shareholders by the weighted
average common shares outstanding for the period. Diluted income per share
reflects the potential dilution that could occur if options or other contracts
to issue common stock were exercised and converted into common stock or resulted
in the issuance of common stock that then shared income of the entity.
Comprehensive Income -- The Financial Accounting Standards Board (FASB) has
issued SFAS No. 130, "Comprehensive Income." The Statement requires that
entities present items of other comprehensive income in a financial statement
with the same prominence as other financial statements. Other comprehensive loss
consists solely of unrealized gains or losses, net of deferred taxes, on
investment securities available for sale.
Dividends -- The payment of dividends on the Bank's common shares (if any)
is limited by applicable law and regulations promulgated by the Office of the
Comptroller of the Currency ("OCC").
F-51
<PAGE> 202
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The indenture relating to the Bank's subordinated capital notes also contains
certain limitations on the payment of dividends in the event of default.
Income Taxes -- The Bank records income tax expense based on the amount of
taxes due on its return plus changes in deferred taxes, computed based on the
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities, using enacted tax rates.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
Stock Dividends -- The Bank accounts for stock dividends by capitalizing
retained earnings in an amount equal to the fair value of the additional shares
issued. All per share amounts are retroactively adjusted for stock dividends.
Use of Estimates in Preparation of Financial Statements -- The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Estimates that are more susceptible to change in the near term include the
allowance for loan loss and the fair value of securities available for sale and
certain financial instruments.
Issued But Not Yet Adopted Accounting Standards -- The Financial Accounting
Standards Board (FASB) has issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended. The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
statement is effective in 2001 for the Bank; however, management does not expect
this pronouncement to have a significant impact on the Bank's financial
position.
F-52
<PAGE> 203
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. LOANS
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Lease financing -- held for sale......................... $ -- $ 29,522,093
------------ ------------
Loans held for investment
Real estate:
Single family mortgage................................. 26,734,995 29,599,137
Home equity............................................ 7,100,232 6,309,710
Commercial mortgage.................................... 96,699,000 83,848,700
Construction........................................... 56,243,443 37,451,843
Lease financing.......................................... 18,057,354 58,592,211
Commercial............................................... 72,817,554 75,821,089
Consumer................................................. 14,031,454 18,527,699
------------ ------------
Total loans held for investment.......................... 291,684,032 310,150,389
Less:
Undisbursed construction funds......................... 14,542,501 9,757,530
Unamortized discounts on purchased loans............... 188,335 220,962
Unamortized discounts on lease financing............... 1,563,500 6,781,865
Unamortized net loan expenses/(fees)................... (231,496) 79,484
------------ ------------
Loans held for investment................................ 275,621,192 293,310,548
------------ ------------
Loans.................................................... 275,621,192 322,832,641
Allowance for loan losses................................ 3,584,301 4,532,756
------------ ------------
Net loans................................................ $272,036,891 $318,299,885
============ ============
</TABLE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year..................... $4,532,756 $3,180,810 $3,199,549
Provision for loan losses........................ 1,226,000 4,335,000 6,600,000
CHARGE-OFFS:
Commercial..................................... 1,088,866 2,210,799 2,302,191
Residential.................................... -- 139,379 --
Overdrafts..................................... 325,000 502,488 2,956,478
Consumer....................................... 235,340 153,738 190,751
Lease financing................................ 2,205,254 2,082,039 2,063,781
---------- ---------- ----------
Total charge-offs................................ 3,854,460 5,088,443 7,513,201
---------- ---------- ----------
RECOVERIES:
Commercial..................................... 190,751 110,272 107,827
Residential.................................... 1,500 12,736 1,327
Overdrafts..................................... 391,202 1,196,947 142,515
Consumer....................................... 85,626 88,346 72,050
Lease financing................................ 1,010,926 697,088 570,743
---------- ---------- ----------
Total recoveries................................. 1,680,005 2,105,389 894,462
---------- ---------- ----------
Net charge-offs.................................. 2,174,455 2,983,054 6,618,739
---------- ---------- ----------
Balance at end of year........................... $3,584,301 $4,532,756 $3,180,810
========== ========== ==========
</TABLE>
F-53
<PAGE> 204
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999 and 1998, the balance of impaired loans was $871,106
and $101,653, respectively. Of this amount, $781,081 and $0 in impaired loans
required no allowance for loan loss allocation at December 31, 1999 and 1998,
respectively. At December 31, 1999 and 1998 the remaining impaired loans of
$90,025 and $101,653 had $18,551 and $25,760 of the allowance for loan losses
allocated to them, respectively, although the entire allowance remains available
for charge-offs of any loan.
The average balance of impaired loans for 1999 and 1998 was $881,387 and
$633,677, respectively. Interest income recognized on impaired loans during 1999
and 1998 was $34,456 and $14,318, respectively. All of the interest income was
recognized on a cash basis.
Nonaccrual loans at December 31, 1999 and 1998 amounted to $871,106 and $0,
respectively and are included in impaired loans.
At December 31, 1999 and 1998, the Bank serviced whole loans and
participations sold to others totaling approximately $937,259 and $4.6 million,
respectively.
A large percentage of the Bank's portfolio of loans is comprised of loans
collateralized by commercial or residential real estate, substantially all of
which are located in southeastern Michigan.
At December 31, 1998, the Bank had $29.5 million in lease financing loans
held for sale.
3. DEBT AND EQUITY SECURITIES
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED COST GAINS LOSSES FAIR VALUE
-------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
December 31, 1999:
Mortgage-backed securities.............. $ 98,513,186 $49,751 $2,405,966 $ 96,156,971
U.S. Government and agency securities... 55,880,442 38,254 826,569 55,092,127
Corporate bonds......................... 49,109,025 -- 487,175 48,621,850
------------ ------- ---------- ------------
Total..................................... $203,502,653 $88,005 $3,719,710 $199,870,948
============ ======= ========== ============
December 31, 1998:
Mortgage-backed securities.............. $ 45,441,590 $ 1,906 $ 345,808 $ 45,097,688
U.S. Government and agency securities... 17,660,601 66,543 1,915 17,725,229
Municipal securities.................... 24,424,384 12,562 14,809 24,422,137
------------ ------- ---------- ------------
Total..................................... $ 87,526,575 $81,011 $ 362,532 $ 87,245,054
============ ======= ========== ============
</TABLE>
Gross realized gains, losses and proceeds on sales of securities available
for sale were:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Gross realized gains on U.S. Government and agency
securities.......................................... $ -- $ -- $ 200,731
Gross realized gains on mortgage-backed securities.... 102,634 118,022 112,395
Gross realized gains on municipal securities.......... -- 94,641 --
Gross realized gains on corporate bonds............... 99,908 8,844 --
Gross proceeds from the sale of available for sale
securities.......................................... 32,863,974 74,043,207 53,504,184
</TABLE>
F-54
<PAGE> 205
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The scheduled maturities of available for sale securities at December 31,
1999 were as follows:
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- ------------
<S> <C> <C>
Mortgage-backed securities due within one year........... $ 7,030,696 $ 7,033,102
Mortgage-backed securities due after one through five
years.................................................. 89,130,766 86,925,123
Mortgage-backed securities due after five through ten
years.................................................. 624,819 588,849
Mortgage-backed securities due after ten years........... 1,726,905 1,609,897
U.S. Government and agency securities due within one
year................................................... 10,061,358 9,864,500
U.S. Government and agency securities due after one
through five years..................................... 38,052,015 37,422,304
U.S. Government and agency securities due after five
through ten years...................................... 7,767,069 7,805,323
Corporate bonds due within one year...................... 21,111,127 21,004,675
Corporate bonds due after one through five years......... 27,997,898 27,617,175
------------ ------------
Total.................................................... $203,502,653 $199,870,948
============ ============
</TABLE>
At December 31, 1999 and 1998, securities of $110.3 million and $3.9
million were pledged to secure public deposits.
4. DEPOSITS
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Business checking........................................ $173,176,789 $178,197,338
Personal checking........................................ 8,065,051 9,440,618
Statement savings........................................ 271,320 301,618
Variable rate accounts:
Money funds............................................ 86,400,447 95,320,871
Money markets.......................................... 62,726,686 58,389,026
Negotiable order of withdrawal accounts.................. 14,320,845 10,474,394
Fixed rate certificates of deposit....................... 55,404,298 89,415,356
------------ ------------
Total.................................................... $400,365,436 $441,539,221
============ ============
</TABLE>
Time deposits issued in denominations of $100,000 or more at December 31,
1999 and 1998 were $29.8 million and $52.8 million respectively.
Fixed rate certificates of deposit at December 31, 1999 mature as follows:
<TABLE>
<S> <C>
2000........................................................ $50,551,452
2001........................................................ 3,696,260
2002........................................................ 657,736
2003........................................................ 110,606
2004........................................................ 105,541
2005 and thereafter......................................... 282,703
-----------
Total....................................................... $55,404,298
===========
</TABLE>
F-55
<PAGE> 206
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTEREST EXPENSE ON DEPOSITS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
Statement savings...................................... $ 7,603 $ 7,266 $ 8,662
Variable rate accounts:
Money funds.......................................... 3,182,371 3,781,962 3,740,394
Money markets........................................ 2,031,126 1,845,428 1,805,883
Negotiable order of withdrawal accounts................ 83,303 71,480 70,671
Fixed rate certificates of deposit..................... 3,693,429 6,177,149 7,944,395
---------- ----------- -----------
Total.................................................. $8,997,832 $11,883,285 $13,570,005
========== =========== ===========
</TABLE>
6. SHORT-TERM BORROWINGS
FHLB advances and Cash Management Services ("CMS") line of credit are
collateralized by the Bank's designated securities. The maximum borrowings
allowed under this arrangement were $75 million at December 31, 1999. At
December 31, 1999, designated securities pledged as collateral totaled
approximately $67.9 million.
At December 31, 1999, FHLB CMS line of credit was as follows:
<TABLE>
<CAPTION>
MATURITY DATE WEIGHTED INTEREST RATE AMOUNT
------------- ---------------------- -----------
<S> <C> <C>
March 1, 2000............................................... 5.13% $12,377,477
</TABLE>
At December 31, 1999, repurchase agreements were as follows:
<TABLE>
<CAPTION>
MATURITY DATE INTEREST RATE AMOUNT
------------- ------------- -----------
<S> <C> <C>
January 7, 2000............................................. 5.50% $ 3,251,850
January 7, 2000............................................. 5.50 2,865,000
January 7, 2000............................................. 5.50 4,937,500
January 7, 2000............................................. 5.50 5,025,000
January 7, 2000............................................. 5.50 2,996,250
January 21, 2000............................................ 5.80 5,000,000
January 21, 2000............................................ 5.80 5,012,500
January 31, 2000............................................ 5.75 4,146,000
January 31, 2000............................................ 5.75 9,434,000
---- -----------
Total....................................................... 5.62% $42,668,100
==== ===========
</TABLE>
There were no FHLB advances or repurchase agreements outstanding at
December 31, 1998.
The following table sets forth the maximum month-end balance, average daily
balance and weighted average interest rate of FHLB advances and CMS line of
credit for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Maximum balance............................... $12,377,477 -- $34,000,000
Average balance............................... $ 773,841 -- $ 9,785,362
Weighted average interest rate................ 5.67% -- 5.67%
</TABLE>
F-56
<PAGE> 207
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the maximum month-end balance, average daily
balance and weighted average interest rate of repurchase agreements for the
periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Maximum balance............................... $43,059,250 -- $30,782,500
Average balance............................... $14,865,401 -- $18,186,978
Weighted average interest rate................ 5.49% -- 5.51%
</TABLE>
7. REGULATORY MATTERS
The Bank is required by law to maintain average cash reserve balances with
the Federal Reserve Bank based on a percentage of deposits. At December 31, 1999
and 1998, these reserves totaled $609,000 and $274,000, respectively. The Bank
is subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital (as defined in the regulations) to
risk weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). As of December 31, 1999, the Bank met its capital adequacy
requirements to which it is subject.
As of December 31, 1999, the most recent notification from the Office of
the Comptroller of the Currency categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
<TABLE>
<CAPTION>
WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE
ACTUAL PURPOSES PROVISIONS
--------------- --------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total capital (to risk weighted
assets)............................... $56,024 15.61% $28,712 8.00% $35,890 10.00%
Tier I capital (to risk weighted
assets)............................... 47,955 13.36 14,358 4.00 21,537 6.00
Tier I capital (to average assets)...... 47,955 8.97 21,385 4.00 26,731 5.00
AS OF DECEMBER 31, 1998:
Total capital (to risk weighted
assets)............................... $55,283 14.59 $30,315 8.00% $37,893 10.00%
Tier I capital (to risk weighted
assets)............................... 44,560 11.76 15,157 4.00 22,736 6.00
Tier I capital (to average assets)...... 44,560 8.72 20,436 4.00 25,545 5.00
</TABLE>
F-57
<PAGE> 208
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Land and land improvements................................. $ 200,000 $ 200,000
Building................................................... 583,337 583,337
Furniture, fixtures and equipment.......................... 9,363,950 8,309,554
Leasehold improvements..................................... 2,277,055 2,232,299
----------- -----------
Total...................................................... 12,424,342 11,325,190
Less accumulated depreciation and amortization............. (8,135,742) (6,501,338)
----------- -----------
Premises and equipment, net................................ $ 4,288,600 $ 4,823,852
=========== ===========
</TABLE>
9. SUBORDINATED CAPITAL NOTES
At December 31, 1999 and 1998, the Bank has outstanding $7,475,000 of 8.50%
subordinated capital notes due January 15, 2003 (the "Notes").
The Notes, including principal and interest payments thereon, are
subordinated at all times to the prior payment of senior indebtedness due and
owing, including deposit accounts. The Notes may be redeemed at the Bank's
option subject to certain conditions. The Notes are considered regulatory
capital for purposes of determining risk-based capital.
10. FEDERAL INCOME TAXES
The following is a summary of the provisions for Federal income taxes.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Current expense................................... $ 893,876 $1,573,199 $768,832
Deferred expense/(benefit)........................ 313,777 (524,209) (85,891)
---------- ---------- --------
Total............................................. $1,207,653 $1,048,990 $682,941
========== ========== ========
</TABLE>
A reconciliation of the statutory rate to the effective rate is shown
below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Provision computed at statutory rate............. $1,415,745 $1,250,333 $ 943,199
Tax exempt interest.............................. (58,366) (104,551) (101,311)
Affordable housing credit........................ (125,740) (125,740) (176,607)
Other, net....................................... (23,986) 28,948 17,660
---------- ---------- ---------
Total............................................ $1,207,653 $1,048,990 $ 682,941
========== ========== =========
</TABLE>
F-58
<PAGE> 209
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for loan losses................................... $ 669,923 $ 835,615
Nonaccrual loan interest.................................... 32,528 --
Unrealized loss on securities............................... 1,234,780 71,669
Gain on sale of real estate owned........................... 66,314 95,097
Premises and equipment...................................... 59,571 --
Other....................................................... 73,229 22,159
---------- ----------
Total deferred tax assets................................... 2,136,345 1,024,540
DEFERRED TAX LIABILITIES:
Premises and equipment...................................... -- 50,824
Affordable housing.......................................... 35,247 32,969
Net deferred loan fees...................................... 166,840 52,939
Other....................................................... 26,066 23,659
---------- ----------
Total deferred tax liabilities.............................. 228,153 160,391
---------- ----------
Net deferred tax assets..................................... $1,908,192 $ 864,149
========== ==========
</TABLE>
The above amounts are included in prepaid expenses and other assets and
other liabilities on the consolidated statements of financial condition.
11. STOCK OPTIONS AND EMPLOYEE STOCK OWNERSHIP PLAN
In 1994, shareholders approved the adoption of two separate stock option
plans for certain key executives and non-employee directors of the Bank
(collectively, "the Plans").
The Key Executive Plan authorizes the grant of 140,000 common shares, while
the Directors' Plan provides for the grant of up to 50,000 common shares. Grants
made under the Plans are subject to certain anti-dilution provisions. If an
option expires or terminates for any reason without having been fully exercised,
unexercised portions of the options are available for further grant under the
Plans.
The Plans are administered by Committees selected by the Board of
Directors. Subject to the eligibility and other limitations of the Directors'
Plan, the Committees are authorized to make grants under the Plans and otherwise
administer the Plans. The Committees may determine the term of each option (not
to exceed 10 years from the date of grant), the date on which each option shall
be granted and the other relevant provisions of each option agreement.
The Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock Based Compensation" ("SFAS No. 123") for transactions
entered into during 1996 and thereafter. The Statement establishes a fair value
method of accounting for employee stock options and similar equity instruments
such as warrants, and encourages all companies to adopt that method of
accounting for all of their employee stock compensation plans. However, the
Statement allows companies to continue measuring compensation cost for such
plans using accounting guidance in place prior to SFAS No. 123. Companies that
elect to remain with the former method of accounting must make pro-forma
disclosures of net income and earnings per share as if the fair value method
provided for in SFAS No. 123 had been adopted.
F-59
<PAGE> 210
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Bank has not adopted the fair value accounting provisions of SFAS No.
123 and will continue to apply its current method of accounting. Accordingly,
SFAS No. 123 has no impact on the Bank's consolidated financial position or
results of operation.
The Bank accounts for the Plans under APB Opinion No. 25, "Accounting for
Stock Issued to Employees." No compensation costs have been recognized for the
Plans as options are granted at fair value as of the date of the grant. Had
compensation cost for the Plans been determined based on the fair value of the
options at the grant dates consistent with the method of SFAS No. 123, the
Bank's net income and income per share would have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported.................................... $2,956,302 $2,628,461 $2,041,834
Pro forma...................................... $2,919,573 $2,232,809 $1,831,986
Basic income per share:
As reported.................................... $ 0.84 $ 0.75 $ 0.59
Pro forma...................................... $ 0.83 $ 0.64 $ 0.53
Diluted income per share:
As reported.................................... $ 0.83 $ 0.72 $ 0.56
Pro forma...................................... $ 0.82 $ 0.61 $ 0.51
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997: expected volatility of
34.1%, 32.6% and 17.5%, respectively; risk- free interest rates of approximately
6.4%, 5.3% and 7.0% respectively; and expected lives of 10 years.
The Bank also has options outstanding under previous plans. The weighted
average remaining contractual life of shares outstanding at December 31, 1999 is
7 years.
The following table summarizes outstanding stock options by plan at
December 31, 1999. All information presented in this footnote with respect to
stock options has been adjusted for the effects of all stock dividends.
<TABLE>
<CAPTION>
EXERCISE PRICE PER SHARE
--------------------------------------------------
NUMBER OF NUMBER OF
SHARES WEIGHTED SHARES
OUTSTANDING RANGE AVERAGE EXERCISABLE
----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Key Executives' 1986 Plan....................... 20,446 $ 2.20-8.78 $ 3.60 20,446
Directors' 1986 Plan............................ 40,953 2.93-8.78 6.80 40,953
Key Executives' 1994 Plan....................... 291,135 8.14-13.20 11.06 218,175
Directors' 1994 Plan............................ 54,698 6.99-8.50 7.77 54,698
Directors' 1998 Plan............................ 14,000 16.63 16.63 14,000
------- ----------- ------ -------
Balance at December 31, 1999.................... 421,232 $2.20-16.63 $10.04 348,272
======= ====== =======
</TABLE>
F-60
<PAGE> 211
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of stock option activity for each of the three
years in the period ended December 31, 1999.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE PER NUMBER
PRICE SHARE OF OPTIONS
-------- ----------- ----------
<S> <C> <C> <C>
Outstanding -- January 1, 1997..................... $ 7.80 $2.20-11.18 252,020
Additions of options-1994 Executives' Plan......... 12.57 12.57 87,150
Additions of options-1994 Directors' Plan.......... 8.10 8.10 20,992
Exercised in 1997.................................. 6.27 2.20-12.57 (17,663)
Forfeited in 1997.................................. 9.32 2.20-12.57 (2,404)
-------- ----------- -------
Outstanding -- December 31, 1997................... 9.12 2.20-12.57 340,095
Additions of options -- 1994 Executives' Plan...... 13.20 13.20 96,000
Additions of options -- 1994 Directors' Plan....... 8.50 8.50 9,996
Exercised in 1998.................................. 10.50 2.20-12.57 (8,366)
Forfeited in 1998.................................. 11.98 11.18-12.57 (1,094)
-------- ----------- -------
Outstanding -- December 31, 1998................... 9.97 2.20-13.20 436,631
Additions of options -- 1998 Directors' Plan....... 16.63 16.63 14,000
Exercised in 1999.................................. 8.14 8.14 (2,430)
Forfeited in 1999.................................. 12.56 2.20-13.20 (26,969)
-------- ----------- -------
Outstanding -- December 31, 1999................... $ 10.04 $2.20-16.63 421,232
======== =======
</TABLE>
The Bank also has an Employee Stock Ownership Plan ("ESOP"). Cash
contributions to the ESOP may be invested in either common or preferred stock of
the Bank, purchased in the open market. For the years ended December 31, 1999,
1998 and 1997, cash contributions of $96,454, $97,659 and $155,600,
respectively, were made to the ESOP. The Bank is not committed to predetermined
ESOP contributions. Any future contributions to the ESOP, as recommended by the
ESOP Committee, must be approved by the Board of Directors.
12. TRANSACTIONS WITH RELATED PARTIES
The Bank has engaged two advertising agencies in which two Board members
have partial ownership interests. The Bank paid $226,017, $178,273 and $270,086,
to these agencies for the years ended December 31, 1999, 1998 and 1997,
respectively.
Loan activity to officers of the Bank and their associates is summarized as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year........................... $136,542 $128,139 $224,082
Additions............................................ 99,023 35,243 34,545
Less: Principal payments and loans sold.............. 126,710 26,840 130,488
-------- -------- --------
Balance, end of year................................. $108,855 $136,542 $128,139
======== ======== ========
</TABLE>
As of December 31, 1999, and 1998 there were no loans outstanding to
Directors of the Bank or their associates.
F-61
<PAGE> 212
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the fair value of financial instruments is
made in accordance with the requirements of Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial Instruments. The
fair value amounts have been determined by the Bank using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Bank could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the fair value amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents........................ $ 21,213 $ 21,213 $ 72,520 $ 72,520
Securities available for sale.................... 199,871 199,871 87,245 87,245
Loans............................................ 275,621 277,619 293,311 296,115
Loans held for sale.............................. -- -- 29,522 29,522
Accrued interest receivable...................... 4,187 4,187 3,442 3,442
FHLB and FRB stock............................... 7,157 7,157 7,137 7,137
LIABILITIES:
Demand deposits.................................. 344,961 344,961 352,124 352,124
Time deposits.................................... 55,404 55,541 89,415 89,586
Subordinated capital notes....................... 7,475 8,252 7,475 8,098
Short-term borrowings............................ 55,046 55,046 -- --
Accrued interest payable......................... 357 357 469 469
</TABLE>
Fair values were determined using the following assumptions:
Cash and Cash Equivalents -- For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
Securities Available for Sale -- For securities available for sale, fair
values are based on quoted market prices or dealer quotes.
Loans -- For certain homogeneous categories of loans, such as some
residential mortgages, consumer loans, commercial real estate loans, etc., fair
value is estimated by discounting the future cash flows over the life to
maturity using the current rates at which similar loans would be made to
borrowers with similar credit ratings. For those loans tied to a prime rate
index, fair values approximate carrying values.
Accrued Interest Receivable and Payable -- The carrying values of accrued
interest receivable and payable approximate their fair values.
FHLB Stock and FRB Stock -- The carrying values of the FHLB and FRB stock
approximate fair value.
Demand Deposits and Time Deposits -- The fair values of demand deposits,
savings accounts and certain money market deposits are the amount payable on
demand at the reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the current rates for deposits of similar remaining
maturities.
F-62
<PAGE> 213
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subordinated Capital Notes -- Rates currently available to the Bank for
debt with similar terms and remaining maturities are used to estimate fair
value. For that debt which has repriced within the last six months, its fair
market value would approximate its carrying value.
Short-Term Borrowings -- The Bank values of short-term borrowings
approximate their fair values.
14. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK
At December 31, 1999, 1998 and 1997 the Bank had outstanding loan
commitments for loans that have either not been accepted by the borrower or not
closed of approximately $3.7 million, $3.2 million and $10.0 million,
respectively. These include commitments for commercial business loans,
residential mortgages and home equity loans.
Under loan agreements for transactions which had closed, the Bank had
commitments to fund commercial lines of credit, construction and home equity
loans of approximately $46.4 million, $52.4 million and $48.5 million at
December 31, 1999, 1998 and 1997, respectively. The Bank had commitments to fund
construction loans of approximately $14.9 million, $9.8 million and $7.9 million
at December 31, 1999, 1998 and 1997, respectively. The Bank had commitments to
fund home equity loans of approximately $6.7 million, $7.2 million and $9.7
million at December 31, 1999, 1998 and 1997, respectively. As certain
commitments to make loans and fund lines of credit expire without being used,
the amount does not necessarily represent future cash commitments.
The Bank leases three of its offices from nonaffiliated entities for its
headquarters in Southfield and two branch offices in Birmingham and Southfield.
Minimum rents under all non-cancelable leases are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDING
------------
<S> <C>
2000...................................................... $ 884,129
2001...................................................... 885,611
2002...................................................... 885,611
2003...................................................... 218,388
2004...................................................... 218,388
Thereafter................................................ 3,383,793
----------
Total............................................. $6,475,920
==========
</TABLE>
Rental expense for the years ended December 31, 1999, 1998 and 1997 totaled
$878,540, $875,131 and $823,714, respectively.
The Bank is a defendant in lawsuits arising in the normal course of
business. In the opinion of management the results of these lawsuits will not
have a significant adverse effect on the Bank's consolidated financial
statements.
F-63
<PAGE> 214
FRANKLIN BANK, N.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. COMPUTATION OF PRIMARY AND FULLY DILUTED INCOME PER SHARE
The following table sets forth the computation of basic and diluted income
per share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Net income....................................... $2,956,302 $2,628,461 $2,041,834
Denominator:
Denominator for basic income per
share -- weighted average shares outstanding... 3,508,789 3,501,195 3,487,094
Employee stock options........................... 50,085 133,942 130,871
---------- ---------- ----------
Denominator for diluted income per
share -- adjusted weighted average shares
outstanding.................................... 3,558,874 3,635,137 3,617,965
========== ========== ==========
Basic income per share........................... $ 0.84 $ 0.75 $ 0.59
Diluted income per share......................... $ 0.83 $ 0.72 $ 0.56
</TABLE>
16. SUBSEQUENT EVENT
On March 20, 2000 the Bank announced it had entered into an agreement to
merge with Bingham Financial Services Company, a Birmingham, Michigan based
national commercial and manufactured home lending and servicing organization.
Under the agreement Bingham will issue 1.525 shares of its common stock for each
outstanding Franklin share in a tax-free reorganization to be accounted for
under the reverse purchase method of accounting, whereby the Bank will be the
acquirer for accounting purposes. The closing is expected in the third quarter
of 2000 and is subject to shareholder and regulatory approvals.
F-64
<PAGE> 215
APPENDIX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
DATED AS OF
MAY 16, 2000
BY AND BETWEEN
BINGHAM FINANCIAL SERVICES CORPORATION
AND
FRANKLIN BANK, N.A.
A-1
<PAGE> 216
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger, dated May 16, 2000
(the "Agreement"), is entered into by and between BINGHAM FINANCIAL SERVICES
CORPORATION, a Michigan corporation ("Bingham") and FRANKLIN BANK, N.A., a
national banking association ("Bank"). Bingham and Bank are referred to
collectively in this Agreement as the "Parties" and individually as a "Party".
RECITALS:
A. The Parties have entered into an Agreement and Plan of Merger dated
March 19, 2000, which they desire to amend and restate in its entirety in
accordance with the terms and conditions of this Agreement.
B. The Parties desire to merge Bank with and into Bingham Bank, a
federally-chartered savings association to be formed as a wholly-owned
subsidiary of Bingham ("Merger Sub"), with Merger Sub to be the surviving
entity, as a wholly-owned subsidiary of Bingham (the "Merger").
C. The respective boards of directors of each of the Parties have
determined that it is in the best interests of their respective companies and
their shareholders to consummate the Merger.
D. The Parties intend that the Merger be treated as a tax-free
"reorganization" under Section 368(a)(2)(D) of the Internal Revenue Code of
1986, as amended (the "Code").
In consideration of the premises and of the mutual covenants,
representations, warranties and agreements contained in this Agreement, the
Parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
The following terms are used in this Agreement with the meanings set forth
below:
"Affiliate" has the meaning ascribed to it in Rule 12(b)(2) promulgated
under the Exchange Act.
"Agreement" means this Agreement, as amended or modified from time to time.
"Attendant Documents" has the meaning set forth in Section 4.01(a).
"BAC" has the meaning set forth in Section 4.02(a).
"Bank" has the meaning set forth in the preamble to this Agreement.
"Bank Act" means the Bank Conservation Act, 12 U.S.C. sec.201 et. seq., as
amended.
"Bank Arrangements" has the meaning set forth in Section 5.12.
"Bank Board" means the board of directors of Bank.
"Bank Common Stock" means the common stock, par value $1.00 per share, of
Bank.
"Bank Employee Benefit Plan" means any Pension Plan, Welfare Plan and any
bonus, severance, deferred compensation, annuity, retirement, stock option,
stock purchase, executive compensation, incentive compensation, educational
assistance, insurance or other plan, policy or arrangement providing benefits to
employees of Bank, its Subsidiaries or any Controlled Group Member or with
respect to which Bank or any of its Subsidiaries has any liability or potential
liability, including, if Bank, its Subsidiaries or any Controlled Group Member
is organized under foreign law, any similar plan allowed by any foreign law, and
including any multi-employer plan (as defined in Section 3(37) of ERISA).
"Bank Material Adverse Effect" means, with respect to Bank, any effect that
(i) is material and adverse to the financial position, results of operations,
business, or operations of Bank and its Subsidiaries taken as a whole, or (ii)
would materially impair the ability of Bank to perform its obligations under
this
A-2
<PAGE> 217
Agreement or otherwise materially impede the consummation of the Merger;
provided, however, that Bank Material Adverse Effect shall not be deemed to
include the impact of (a) changes in thrift, banking and similar laws of general
applicability or interpretations thereof by Governmental Authorities, or other
changes affecting depository institutions generally, including changes in
general economic conditions and changes in prevailing interest and deposit
rates, (b) changes in generally accepted accounting principles or regulatory
accounting requirements applicable to thrifts, banks and their holding companies
generally, (c) any modifications or changes to valuation policies and practices
or restructuring charges, in each case taken pursuant to this Agreement by Bank
or its Subsidiaries and in such event only in accordance with generally accepted
accounting principles, (d) changes resulting from expenses (such as legal,
accounting and investment bankers' fees) incurred in connection with this
Agreement and (e) actions or omissions of Bank taken with the prior written
consent of Bingham in contemplation of the transactions contemplated hereby.
"Bank Meeting" has the meaning set forth in Section 5.04.
"Bank SEC Documents" has the meaning set forth in Section 4.01(c).
"Bank Stock" means all of the authorized capital stock of Bank.
"Bank Stock Option" has the meaning set forth in Section 3.06(a).
"Bank Stock Plans" means the [1983] Franklin Savings and Loan Association
Directors Stock Option Plan, the [1986] Franklin Savings and Loan Association
Directors Stock Option Plan, the [1994] Franklin Bank, N.A. Directors Stock
Option Plan, the [1986] Franklin Bank Key Executive Stock Option Plan and the
[1994] Franklin Bank, N.A. Key Executive Incentive Stock Option Plan.
"Ben Properties" means Ben Properties, Inc., a Michigan corporation, and a
wholly owned subsidiary of Bank.
"Bingham" has the meaning set forth in the preamble to this Agreement.
"Bingham Board" means the board of directors of Bingham.
"Bingham Common Stock" means the common stock, without par value, of
Bingham.
"Bingham Employee Benefit Plan" means any Pension Plan, Welfare Plan and
any bonus, severance, deferred compensation, annuity, retirement, stock option,
stock purchase, executive compensation, incentive compensation, educational
assistance, insurance or other plan, policy or arrangement providing benefits to
employees of Bingham, its Subsidiaries or any Controlled Group Member or with
respect to which Bingham or any of its Subsidiaries has any liability or
potential liability, including, if Bingham, its Subsidiaries or any Controlled
Group Member is organized under foreign law, any similar plan allowed by any
foreign law, and including any multiemployer plan (as defined in Section 3(37)
of ERISA).
"Bingham Material Adverse Effect" means, with respect to Bingham, any
effect that (i) is material and adverse to the financial position, results of
operations, business, or operations of Bingham and its Subsidiaries taken as a
whole, or (ii) would materially impair the ability of Bingham to perform its
obligations under this Agreement or otherwise materially impede the consummation
of the Merger; provided, however, that Bingham Material Adverse Effect shall not
be deemed to include the impact of (a) any modifications or changes to valuation
policies and practices or restructuring charges, in each case taken pursuant to
this Agreement by Bingham or its Subsidiaries, taken pursuant to the DFI
Restructuring Plan and in such event, only in accordance with generally accepted
accounting principles, (b) changes resulting from expenses (such as legal,
accounting and investment bankers' fees) incurred in connection with this
Agreement and (c) actions or omissions of Bingham taken with the prior written
consent of Bank in contemplation of the transactions contemplated hereby.
"Bingham Meeting" has the meaning set forth in Section 5.04.
"Bingham SEC Documents" has the meaning set forth in Section 4.02(c).
"Bingham Stock" means all of the authorized capital stock of Bingham.
A-3
<PAGE> 218
"Bingham Stock Plan" means the First Amended and Restated Bingham Financial
Services 1997 Stock Option Plan.
"BSC" has the meaning set forth in Section 4.02(a).
"Closing" has the meaning set forth in Section 7.01.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended.
"Code" has the meaning set forth in the Recitals to this Agreement.
"Controlled Group" means (A) a controlled group of corporations as defined
in Section 414(b) of the Code; (B) a group of trades or businesses under common
control as defined in Section 414(c) of the Code; (C) an affiliated service
group as defined in Section 414(m) of the Code; (D) a group of businesses
referred to in Section 414(o) of the Code; (E) a group of trades or businesses
under common control as defined in Section 4001(b) of ERISA; or (F) any other
group under the law, rules or regulations of a foreign country similar to (A)
through (E).
"Controlled Group Member" means a corporation, trade or business that is a
part of the same Controlled Group as Bank or Bingham, as applicable.
"DFI" has the meaning set forth in Section 4.02(a).
"DFI Alabama" has the meaning set forth in Section 4.02(a).
"DIA" has the meaning set forth in Section 4.02(a).
"DFI Restructuring Plan" means Bingham's plan for restructuring the
manufactured home lending businesses, the material terms of which are set forth
on Schedule 5.02(a).
"DOL" means the United States Department of Labor.
"Effective Date" has the meaning set forth in Section 7.01.
"Effective Time" has the meaning set forth in Section 7.01.
"Environmental Laws" shall mean any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any Governmental
Authority relating to (i) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Materials of Environmental Concern.
The term Environmental Law includes without limitation (i) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended; the Resource
Conservation and Recovery Act, as amended; the Clean Air Act, as amended; the
Federal Water Pollution Control Act, as amended; the Toxic Substances Control
Act, as amended; the Emergency Planning and Community Right to Know Act; the
Safe Drinking Water Act; and all comparable state and local laws, and (ii) any
common law (including without limitation common law that may impose strict
liability) that may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of or exposure to any Materials
of Environmental Concern.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESOP" means the Franklin Bank, N.A. Employee Stock Ownership Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.04(a).
"Exchange Fund" has the meaning set forth in Section 3.04(a).
"Exchange Ratio" has the meaning set forth in Section 3.01(a).
A-4
<PAGE> 219
"FDIC" means the Federal Deposit Insurance Corporation.
"FRB" means the Board of Governors of the Federal Reserve System.
"Franklin Finance" means Franklin Finance Corporation, a Michigan
corporation, and a wholly-owned subsidiary of Bank.
"Franklin Home" means Franklin Home Lending Group, Inc., a Michigan
corporation, and a wholly-owned subsidiary of Bank.
"Governing Documents" means, with respect to any Person other than an
individual, such Person's articles of incorporation, articles of organization,
articles of association, charter, partnership agreement, operating agreement,
bylaws, or similar governing documents, as applicable.
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"Holding Company" means the holding company of the Surviving Subsidiary
after the Merger, whether or not such holding company is known as Bingham
Financial Services Corporation.
"Holding Company Board" means the board of directors of the Holding
Company.
"IRS" means the Internal Revenue Service.
"Knowledge" means the actual knowledge of any director, executive officer,
or officer of Bank and its Subsidiaries or Bingham and its Subsidiaries, as
applicable, or the existence of any facts which any of such persons reasonably
should be expected to know, had any of them conducted a reasonable investigation
into the matter.
"Lien" means any title defect, judgment, objection, security interest,
lien, charge, liability, right of redemption, option, mortgage, easement,
restriction, reservation, tenancy, agreement or other obligation or encumbrance
of any nature whatsoever other than (a) mechanic's, materialmen's, and similar
liens, (b) liens for taxes not yet due and payable, (c) purchase money liens and
liens securing rental payments under capital lease arrangements, and other liens
arising in the ordinary course of business and not incurred in connection with
borrowings of money.
"Material Contract" means any agreement or series of related agreements
entered into by a Party or any of its Subsidiaries or by which a Party or any of
its Subsidiaries is bound that (i) requires aggregate payments in any
consecutive 12 month period by or to the Party or its Subsidiary of more than
$50,000 and (ii) is not terminable by the Party or its Subsidiary upon notice of
30 days or less; provided, however, that mortgage loans made in the ordinary
course of business shall not be deemed to be Material Contracts.
"Materials of Environmental Concern" shall mean pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products and any other
materials regulated under Environmental Laws.
"Merger" has the meaning set forth in the Recitals to this Agreement.
"Merger Consideration" means the consideration to be issued to holders of
Bank Common Stock in the Merger.
"Merger Sub" has the meaning set forth in the Recitals to this Agreement.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ National Market" means The Nasdaq National Market System.
"NASDAQ SmallCap" means The Nasdaq SmallCap Market.
"New Certificates" has the meaning set forth in Section 3.04(a).
"1999 Financial Statements" means the internally prepared balance sheets of
the Bank and its Subsidiaries as of December 31, 1999 and the related statements
of income and expenses, retained earnings and cash flows for the 12 months then
ended heretofore delivered to Bingham and its auditors.
A-5
<PAGE> 220
"1999 Work Papers" means the work papers of Grant Thornton LLP relating to
the audit of the financial statements of the Bank and is Subsidiaries as of, and
for the year ended, December 31, 1999.
"OCC" means the Office of the Comptroller of the Currency.
"Old Certificates" has the meaning set forth in Section 3.04(a).
"ordinary course of business" and "business in the ordinary and usual
course" and like phrases shall include, with respect to Bingham and its
Subsidiaries, the sale of loans, in bulk or otherwise, and the securitization of
loans.
"OTS" means the Office of Thrift Supervision.
"OTS Charter" has the meaning set forth in Section 5.08(b).
"Pension Plan" means any employee pension benefit plan as defined in
Section 3(2) of ERISA.
"Person" means any individual, bank, corporation, partnership, limited
liability company, association, joint-stock company, trust or unincorporated
organization.
"Proxy Statement" has the meaning set forth in Section 5.05(a).
"Raymond James" has the meaning set forth in Section 4.01(p).
"Registered Shares" has the meaning set forth in Section 3.04(b).
"Registration Statement" has the meaning set forth in Section 5.05(a).
"Regulator" means the Governmental Authority which will have regulatory
authority over the Surviving Subsidiary after the Merger, to be mutually agreed
upon by the Parties before the Effective Time.
"Regulatory Authority" has the meaning set forth in Section 4.01(e).
"Representatives" means, with respect to any Person, such Person's
guardians, conservators, agents, personal representatives, directors, officers,
employees, accountants, legal or financial advisors or any representatives of
such legal or financial advisors.
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person any
right to subscribe for or acquire, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to the market price or value of,
shares of capital stock of such Person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Severance Agreements" means those agreements set forth on Schedule
5.14(b).
"Severance Payments" means all cash payments that could become payable on
or before the Effective Date, or within three years of the Effective Date, under
the Severance Agreements.
"Shareholder Approvals" has the meaning set forth in Section 5.04.
"Subsidiary" has the meaning ascribed to it in Rule 1-02 of Regulation S-X
of the SEC.
"Surviving Subsidiary" has the meaning set forth in Section 2.01(a).
"Surviving Subsidiary Board" means the board of directors of the Surviving
Subsidiary.
"Takeover Laws" has the meaning set forth in Section 5.09.
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"Tax Returns" means any return, amended return or other report (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be filed with any Governmental Authority with respect to
any Tax.
"Tax" and "Taxes" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gains, gross receipts, sales,
use, ad valorem, goods and services, capital, production, transfer, franchise,
windfall profits, license, withholding, payroll, employment, disability,
employer health, excise, estimated, severance, stamp, occupation, property,
environmental, unemployment or other taxes, custom duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts, in each case imposed by any taxing or
Governmental Authority whether arising before, on or after the Effective Date.
"trading-day" means a day that securities are being traded on the NASDAQ
SmallCap.
"Treasury Stock" shall mean shares of Bank Stock held by Bank or any of its
Subsidiaries or Bingham Stock held by Bingham or any of its Subsidiaries, in
each case other than in a fiduciary capacity or as a result of debts previously
contracted in good faith.
"Walk Away Date" means December 31, 2000.
"Welfare Plan" means any employee welfare benefit plan as defined in
Section 3(1) of ERISA.
ARTICLE II
THE MERGER
Section 2.01 The Merger.
(a) Merger. Before the Effective Time, Bingham will cause Merger Sub
to be formed as a wholly-owned subsidiary of Bingham. At the Effective
Time, Bank will merge with and into Merger Sub, the separate corporate
existence of Bank will cease and Merger Sub will survive and continue to
exist as the surviving entity in the Merger. Merger Sub, as the surviving
entity in the Merger, is sometimes referred to in this Agreement as the
"Surviving Subsidiary".
(b) Conditions to Effectiveness of Merger. The Merger shall be subject
to the satisfaction or waiver of the conditions set forth in Article VI.
(c) Effects of Merger. The Merger shall have the effects set forth in
this Agreement as well as those prescribed under applicable law.
(d) Governing Documents of Surviving Subsidiary. The Governing
Documents of Merger Sub in effect immediately before the Effective Time
will be those of the Surviving Subsidiary immediately after the Effective
Time.
(e) Principal Office. The location of the principal office of the
Surviving Subsidiary in the State of Michigan will be 24725 W. 12 Mile
Road, Southfield, MI 48034.
(f) Corporate Structure. Before the Effective Time, Bingham and Bank
will mutually determine whether Bingham's subsidiaries will be direct
subsidiaries of the Holding Company or will be direct subsidiaries of the
Surviving Subsidiary after the Merger is consummated.
(g) Regulation and Name. Bingham and Bank will mutually agree before
the Effective Time as to which Governmental Authority will be the
Regulator. The Surviving Subsidiary will be named "Franklin Bank".
Section 2.02 Right to Revise Transaction. Bingham and Bank may at any time
before the Effective Time mutually change the method of effecting the Merger or
change any of the determinations to be made or actions to be taken under
Sections 2.01(d) or 2.01(f), if and to the extent they deem that change to be
necessary, appropriate or desirable to (a) ensure that the Merger be treated as
a tax-free
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reorganization under Section 368(a)(2)(D) of the Code, or (b) obtain the
approval of the Regulator to the Merger. In the event the Regulator shall be
other than the OTS, the rights and obligations of the Bank and the Merger Sub
under this Agreement may be assigned so as to cause the rights and obligations
of the Bank and the Merger Sub under this Agreement to be placed in entities
that come under the jurisdiction of the Regulator.
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
Section 3.01 Merger Consideration. Subject to the provisions of this
Agreement, at the Effective Time, automatically by virtue of the Merger and
without any action on the part of any Person:
(a) Outstanding Bank Common Stock. Except for Bank Common Stock owned
of record by Bingham immediately before the Effective Time and Treasury
Stock, each share of Bank Common Stock issued and outstanding immediately
before the Effective Time shall become and be converted into the right to
receive 1.525 shares of Bingham Common Stock (the "Exchange Ratio").
(b) Outstanding Bingham Common Stock. Each share of Bingham Common
Stock issued and outstanding or held in treasury immediately before the
Effective Time shall remain issued and outstanding or held in treasury and
will be unaffected by the Merger.
(c) Cancellation of Shares. Each share of Bank Common Stock held as
Treasury Stock immediately before the Effective Time and each share of Bank
Common Stock owned of record by Bingham immediately before the Effective
Time will be canceled and retired at the Effective Time, and no
consideration will be issued in exchange for that Treasury Stock or Bank
Common Stock owned by Bingham.
Section 3.02 Rights as Shareholders; Stock Transfers. At the Effective
Time, holders of Bank Stock will cease to be, and will have no rights as,
shareholders of Bank, other than to receive the consideration provided under
this Article III. After the Effective Time, there shall be no transfers of
shares of Bank Stock on the stock transfer books of Bank or the Surviving
Subsidiary.
Section 3.03 Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Bingham Common Stock and no certificates or
scrip therefor, or other evidence of ownership thereof, will be issued in the
Merger. Instead, Bingham will pay to each holder of Bank Common Stock who would
otherwise be entitled to a fractional share of Bingham Common Stock (after
taking into account all Old Certificates delivered by such holder) an amount in
cash (without interest) determined by multiplying the fraction by the closing
per share sale price of Bingham Common Stock on NASDAQ SmallCap for the last
trading day immediately preceding the Effective Date.
Section 3.04 Exchange Procedures.
(a) Deposit of New Certificates, Etc. At or before the Effective Time,
Bingham shall deposit, or shall cause to be deposited, with an independent
exchange agent (the "Exchange Agent") to be mutually selected by Bingham
and Bank before the Effective Time, for the benefit of the holders of
certificates formerly representing shares of Bank Common Stock ("Old
Certificates"), for exchange in accordance with this Article III,
certificates representing the shares of Bingham Common Stock ("New
Certificates") and an amount of cash (that cash and New Certificates,
together with any dividends or distributions with a record date occurring
after the Effective Date with respect thereto (without any interest on any
of that cash, dividends or distributions), is referred to as the "Exchange
Fund") to be paid pursuant to this Article III in exchange for outstanding
shares of Bank Common Stock.
(b) Transmittal and Deliveries. As soon as practicable after the
Effective Date (but in no event later than 15 days following the Effective
Date), Bingham shall send or cause to be sent to each former holder of
record of shares of Bank Common Stock immediately before the Effective Time
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transmittal materials (which shall specify that risk of loss and title to
Old Certificates shall pass only upon acceptance of those Old Certificates
by Bingham or the Exchange Agent) for use in exchanging the shareholder's
Old Certificates for Merger Consideration. Bingham will cause the New
Certificates or uncertificated shares of Bingham Common Stock registered on
the stock transfer books of Bingham ("Registered Shares") into which shares
of a shareholder's Bank Common Stock are converted on the Effective Date or
any check in respect of any fractional share interest or dividends or
distributions which that person is entitled to receive to be delivered to
that shareholder upon delivery to the Exchange Agent of Old Certificates
representing the shares of Bank Common Stock (or indemnity reasonably
satisfactory to Bingham and the Exchange Agent, if any of the certificates
are lost, stolen or destroyed) owned by that shareholder. No interest will
be paid on any cash to be paid in lieu of a fractional share interest or in
respect of dividends or distributions that any person is entitled to
receive under this Article III upon delivery. Bingham and the Exchange
Agent will be entitled to rely upon the stock transfer books of Bank to
identify persons entitled to receive Merger Consideration, which books
shall be conclusive with respect to establishing the identify of those
persons. If a dispute arises with respect to ownership of stock represented
by any Old Certificate, Bingham or the Exchange Agent will be entitled to
deposit any consideration in respect of that stock in escrow with an
independent third party and thereafter be relieved with respect to any
claims to that consideration.
(c) Escheat. Notwithstanding the foregoing, neither the Exchange Agent
nor any Party will be liable to any former holder of Bank Stock for any
amount properly delivered to a public official under applicable abandoned
property, escheat or similar laws.
(d) Restrictions on the Payment of Dividends and Voting. No dividends
or other distributions with respect to Bingham Common Stock with a record
date after the Effective Time will be paid to the holder of any
unsurrendered Old Certificates converted into the right to receive shares
of Bingham Common Stock until the holder of the Old Certificates becomes
entitled to receive New Certificates or Registered Shares in exchange under
the procedures set forth in this Section 3.04. After becoming so entitled
in accordance with this Section 3.04, the record holder of the Old
Certificates will be entitled to receive any dividends or other
distributions, without any interest, that before that time had become
payable with respect to shares of Bingham Common Stock the holder had the
right to receive upon surrender of the Old Certificates. Registered holders
of unsurrendered Old Certificates will be entitled to vote after the
Effective Time at any meeting of Bingham shareholders with a record date at
or after the Effective Time the number of whole shares of Bingham Common
Stock represented by those Old Certificates, regardless of whether those
holders have exchanged their Old Certificates.
(e) Return of Exchange Fund to Bingham. Any portion of the Exchange
Fund that remains unclaimed by the shareholders of Bank for 12 months after
the Effective Time will be paid to Bingham. Any shareholder of Bank who has
not complied with this Article III after that 12-month period may look only
to Bingham for payment of Merger Consideration and unpaid dividends and
distributions on Bingham Common Stock deliverable in respect of shares of
Bank Common Stock that shareholder holds as determined under this
Agreement, in each case, without any interest.
Section 3.05 [intentionally omitted]
Section 3.06 Options.
(a) Conversion. At the Effective Time, each option outstanding on the
date of this Agreement to purchase shares of Bank Common Stock under the
Bank Stock Plans (each, a "Bank Stock Option") and remaining outstanding
immediately before the Effective Time will, at the Effective Time, be
assumed by Bingham and will continue to be outstanding. Each Bank Stock
Option will be converted into an option to purchase shares of Bingham
Common Stock in an amount and at an exercise price determined as provided
below (and otherwise subject to the terms of the applicable Bank Stock Plan
and Bank Stock Option, as they may be amended from time to time):
(i) the number of shares of Bingham Common Stock to be subject to
the continuing Bank Stock Option will be equal to the product of (A) the
number of shares of Bank Common Stock
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subject to the Bank Stock Option immediately before the Effective Time
and (B) the Exchange Ratio, provided that any fractional share of
Bingham Common Stock resulting from that multiplication will be rounded
down to the nearest whole share; and
(ii) the exercise price per share of Bingham Common Stock under the
continuing Bank Stock Option will be equal to (A) the exercise price per
share of Bank Common Stock under the Bank Stock Option immediately
before the Effective Time divided by (B) the Exchange Ratio, provided
that the exercise price will be rounded down to the nearest cent.
The conversion of Bank Stock Options will be undertaken consistent
with and in a manner that will not constitute a "modification" under
Section 424 of the Code as to any Bank Stock Option that is an "incentive
stock option". Notwithstanding the foregoing, the Parties agree that the
Bank Stock Options and Bank Stock Plans will be treated as set forth in the
attached Schedule 5.01(f); provided that such treatment shall not result in
the Holding Company or the Surviving Subsidiary having any liability as a
result of changing the tax treatment in connection with the Bank Stock
Options or the exercise thereof.
(b) Reservation of Bingham Common Stock and Securities Filings. At all
times after the Effective Time, Bingham will reserve for issuance the
number of shares of Bingham Common Stock necessary to permit the exercise
of continuing options in the manner contemplated by this Agreement and the
documents under which those options were granted. Bingham will make all
filings required under federal and state securities laws including without
limitation a filing with the SEC on Form S-8, promptly after the Effective
Time so as to permit the exercise of the continuing options and the sale of
the shares received by the optionee upon exercise of the options. Bingham
will continue to make all such filings necessary to permit the continued
exercise of continuing options.
(c) Amendment of Bingham Stock Option Plan. At the Bingham Meeting,
Bingham will present to its shareholders for approval before the Effective
Time a proposal to amend the Bingham Stock Plan to increase the number of
shares of Bingham Common Stock available under the Bingham Stock Plan to a
number sufficient to enable grants thereunder to be made to any specified
group of officers, directors and/or employees of Bingham, the Holding
Company and the Surviving Subsidiary before or after the Effective Time.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01 Representations and Warranties of Bank. Bank hereby represents
and warrants to Bingham, both as of the date of this Agreement and as of the
Effective Date, with the knowledge and expectation that, in agreeing to enter
into this Agreement, Bingham is relying on, and in connection with the
consummation of the transactions contemplated in this Agreement, will rely on,
such representations and warranties:
(a) Good Standing and Authority. Bank is a national banking
association, duly organized, validly existing and in good standing under
the Bank Act. Franklin Finance is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan.
Franklin Home is a corporation duly organized, validly existing and in good
standing under the laws of the State of Michigan. Ben Properties is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Michigan. Each of Bank and its Subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which it is required to be so qualified other than
where a failure to so qualify would not have a Bank Material Adverse
Effect. Each such jurisdiction is listed on Schedule 4.01(a). Bank has all
requisite power and authority to enter into this Agreement and any and all
documents contemplated in this Agreement (the "Attendant Documents") to
which it is a party and to consummate the transactions contemplated in this
Agreement and the Attendant Documents. This Agreement and all of the
Attendant Documents to which Bank is a party, and the consummation of the
transactions contemplated in this Agreement,
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have been or will be, on or prior to the Effective Date, duly authorized
and approved by the Bank Board and all other necessary and proper corporate
action on the part of Bank has been or will be taken on or prior to the
Effective Date. This Agreement, and all of the Attendant Documents to which
Bank is a party, when executed and delivered, will constitute legal, valid
and binding obligations of Bank enforceable against it in accordance with
their respective terms.
(b) Consents and Approvals; No Defaults.
(i) To the knowledge of Bank, except as set forth on Schedule
4.01(b), no consent, approval or authorization of, or designation,
declaration or filing with, or notice to, any Governmental Authority, or
any lenders, lessors, creditors, shareholders or others, is required on
the part of Bank or its Subsidiaries in connection with the valid
execution and delivery of this Agreement and the Attendant Documents or
the consummation of the transactions contemplated in this Agreement and
the Attendant Documents except where the failure to obtain such consent,
approval, authorization, designation, declaration or filing would not
have a Bank Material Adverse Effect. Before the Effective Time, Bank and
its Subsidiaries (in cooperation with Bingham, as applicable) shall
properly obtain, perform or give all of the consents, approvals,
authorizations, designations, declarations, filings and notices set
forth on Schedule 4.01(b), and as of the Effective Time, Bank shall have
given Bingham's counsel copies or adequate evidence of all such
consents, approvals, authorizations, designations, declarations, filings
and notices.
(ii) Subject to the receipt or making of the consents, approvals,
authorizations, designations, declarations, filings and notices referred
to in the preceding paragraph, and expiration of related waiting
periods, and required filings under federal and state securities laws,
the execution, delivery and performance of this Agreement and the
consummation of the Merger do not and will not: (i) (A) constitute a
breach or violation of, or a default under, or give rise to any Lien,
any acceleration of remedies or any right of termination under, any law,
rule or regulation or any judgment, decree, order, governmental permit
or license, or agreement, license, indenture or instrument of Bank or of
any of its Subsidiaries or to which Bank or any of its Subsidiaries or
properties is subject or bound, (B) constitute a breach or violation of,
or a default under, Bank's Governing Documents, (C) require any consent
or approval under any such law, rule, regulation, judgment, decree,
order, governmental permit or license, agreement, license, indenture or
instrument or (D) result in any penalty payment relating to borrowed
funds, advances or financial instruments; and (ii) have a Bank Material
Adverse Effect.
(c) Financial Reports, SEC Documents, and Material Adverse Effect.
(i) Bank's Form 10-K for the period ending December 31, 1998 and
all other reports, registration statements, definitive proxy statements
or information statements filed or to be filed by it or any of its
Subsidiaries subsequent to December 31, 1998 under the Securities Act or
the Exchange Act, in the form filed or to be filed with the SEC or the
OCC (collectively, "Bank SEC Documents"), as of the date filed, (A)
complied or will comply in all material respects with the applicable
requirements under the Securities Act or the Exchange Act, as the case
may be, and (B) did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and each of
the balance sheets or statements of condition contained in or
incorporated by reference into any such SEC Document (including the
related notes and schedules thereto), and each of the statements of
income or results of operations and changes in shareholders' equity and
cash flows or equivalent statements in the Bank SEC Documents (including
any related notes and schedules thereto), have been prepared, in each
case, in accordance with generally accepted accounting principles
consistently applied during the periods involved, except in each case as
may be noted therein, subject to normal year-end audit adjustments and
the absence of footnotes in the case of unaudited statements.
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(ii) The 1999 Financial Statements have been prepared in accordance
with generally accepted accounting principals applied consistently with
the audited statements of the Bank and its Subsidiaries subject only to
normal year-end adjustments and the absence of footnotes.
(iii) Except as set forth on Schedule 4.01(c), and except for
liabilities incurred in connection with negotiation of and compliance
with this Agreement and otherwise in connection with the transactions
contemplated hereby, since December 31, 1999 to the date hereof, Bank
and its Subsidiaries have not incurred any material liability other than
in the ordinary course of business consistent with past practice which
would constitute a Bank Material Adverse Effect.
(iv) Except as set forth on Schedule 4.01(c), since December 31,
1999, (A) Bank and its Subsidiaries have to the date hereof conducted
their respective businesses in the ordinary and usual course consistent
with past practice (excluding matters related to this Agreement and the
transactions contemplated hereby) and (B) there has not occurred any
event or circumstance that, individually or taken together with all
other facts, circumstances and events, would constitute a Bank Material
Adverse Effect.
(d) Litigation. Except as set forth on Schedule 4.01(d), no material
litigation, claim or other proceeding before any Governmental Authority is
pending against Bank or any of its Subsidiaries and, to Bank's Knowledge,
no such litigation, claim or other proceeding has been threatened.
(e) Regulatory Matters.
(i) Except as set forth on Schedule 4.01(e), neither Bank nor any
of its Subsidiaries or properties is a party to or is subject to any
order, decree, agreement, memorandum of understanding or similar
arrangement with, or a commitment letter to, or extraordinary
supervisory letter from, any federal or state Governmental Authority or
authority charged with the supervision or regulation of financial
institutions and trust companies (or their holding companies) or issuers
of securities or engaged in the insurance of deposits (including,
without limitation, the FRB, the OCC, and the FDIC) or the supervision
or regulation of it or any of its Subsidiaries (collectively, the
"Regulatory Authorities").
(ii) Except as set forth on Schedule 4.01(e), neither Bank nor any
of its Subsidiaries has been advised by any Regulatory Authority that
such Regulatory Authority is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such
order, decree, agreement, memorandum of understanding, commitment
letter, or extraordinary supervisory letter.
(f) Compliance with Laws. Except as set forth on Schedule 4.01(f), and
except for violations and acts of noncompliance that would not have a Bank
Material Adverse Effect, each of Bank and its Subsidiaries:
(i) to Bank's knowledge, is in material compliance with all
applicable federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees applicable
thereto or to the employees conducting such businesses, including,
without limitation, the Equal Credit Opportunity Act, the Fair Housing
Act, the Community Reinvestment Act of 1977, the Home Mortgage
Disclosure Act and all other applicable fair lending laws and other laws
relating to discriminatory business practices; and
(ii) has received, since December 31, 1998, no notification or
communication from any Governmental Authority (A) asserting that Bank or
any of its Subsidiaries is not in compliance in any material respect
with any of the statutes, regulations, or ordinances which such
Governmental Authority enforces or (B) threatening to revoke any
material license, franchise, permit, or governmental authorization (nor,
to Bank's Knowledge, do any grounds for any of the foregoing exist).
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(g) Loan Portfolio; Portfolio Management.
(i) Except as set forth on Schedule 4.01(g) all evidences of
indebtedness reflected as assets in Bank's financial statements at
December 31, 1999 referred to in Section 4.01(c) hereof, or originated
or acquired since such date, are (except with respect to those assets
which are no longer assets of it or any of its Subsidiaries) binding
obligations of the respective obligors named therein except as
enforcement may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally, and
except as to the availability of equitable remedies, including specific
performance, which are subject to the discretion of the court before
which a proceeding is brought, and except where a failure of enforcement
will not have a Bank Material Adverse Effect, and the payment of no
material amount thereof (either individually or in the aggregate with
other evidences of indebtedness) is subject to any defenses or offsets
which have been threatened or asserted against Bank or any of its
Subsidiaries which would collectively constitute a Bank Material Adverse
Effect. All such indebtedness which is secured by an interest in real
property is secured by a valid and perfected mortgage lien having the
priority specified in the loan documents except in each case in which,
individually or in the aggregate, the failure to have such a mortgage
would not have a Bank Material Adverse Effect. All such indebtedness
which is secured by an interest in personal property is secured by a
valid and perfected security interest having the priority specified in
the loan documents, except in each case in which, individually or in the
aggregate, the failure to have such a security interest would not have a
Bank Material Adverse Effect. Except as set forth on Schedule 4.01(g) or
except where noncompliance would not have a Bank Material Adverse
Effect, all loans originated, directly or indirectly, or purchased by
Bank or any of its Subsidiaries were, at the time entered into and at
all times owned by Bank or its Subsidiaries, in compliance in all
material respects with all applicable laws and regulations (including,
without limitation, all consumer protection laws and regulations).
Except where noncompliance would not have a Bank Material Adverse
Effect, Bank and its Subsidiaries (as applicable), in all material
respects, administer their loan and investment portfolios (including,
but not limited to, adjustments to adjustable mortgage loans) in
accordance with all applicable laws and regulations and the terms of
applicable instruments. Except where noncompliance would not have a Bank
Material Adverse Effect, the records of Bank and any of its Subsidiaries
(as applicable) regarding all loans outstanding on its books are
accurate in all material respects. With respect to loans for which real
property is the primary collateral, the Bank and its Subsidiaries (as
applicable) maintain or require all borrowers to maintain adequate
insurance on the security property and pay or cause all borrowers, to
pay all taxes or assessments which may be entitled to a Lien with
priority over the Bank's Lien in such property. The Bank maintains
insurance against its failure or the borrower's failure to maintain
insurance and pay taxes or assessments.
(ii) Schedule 4.01(g) sets forth a list, accurate and complete in
all material respects, of the aggregate amounts of loans, extensions of
credit and other assets of Bank and its Subsidiaries that have been
adversely designated, criticized or classified by Bank, its outside
auditors or the OCC as of November 30, 1999, separated by category of
classification or criticism (the "Bank Asset Classification"); and no
amounts of loans, extensions of credit or other assets that have been
adversely designated, classified or criticized as of the date hereof, by
any representative of any governmental or regulatory authority as
"Special Mention," "Substandard," "Doubtful," "Loss" or words of similar
import are excluded from the amounts disclosed in the Bank Asset
Classification other than amounts of loans, extensions of credit or
other assets that were charged off by Bank or any of its Subsidiaries
before the date hereof.
(h) Permits and Licenses. Bank and each of its Subsidiaries has all
franchises, permits, licenses or other authorizations by all Governmental
Authorities, and has made all filings, applications and registrations with,
all Governmental Authorities that are required in order to permit them to
own or lease their properties and to conduct their businesses as presently
conducted except where the failure to obtain such franchises, permits,
licenses or other authorizations would not have a Bank Material
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Adverse Effect. Schedule 4.01(h) lists all franchises, permits, licenses or
other authorizations by all Governmental Authorities held by Bank and its
Subsidiaries ("Bank Licenses"), true and complete copies of all of which
have been delivered to Bingham. Except as set forth on Schedule 4.01(h),
all of the Bank Licenses are in full force and effect and will not be
affected in any way by, and will continue to be in full force and effect
after, the consummation of the transactions contemplated in this Agreement
and the Attendant Documents to the extent necessary to complete any
required governmental approvals of the transactions contemplated in this
Agreement and the Attendant Documents, and to permit continuous business
operations following consummation of the transactions contemplated.
(i) Labor Matters.
(i) Schedule 4.01(i) contains a complete and accurate list of the
current employees of Bank and its Subsidiaries as of a date no later
than 30 days before this representation and warranty is made (the "Bank
Employees") and, with respect to each Bank Employee, his or her salary
or hourly rate currently in effect, annual bonuses (last paid or
payable), if any, any other fringe benefits or incentive paid or payable
to him or her and the amount of all cash compensation accrued through
February 29, 2000, but as yet unpaid for each such Bank Employee. Except
as set forth on Schedule 4.01(i), all such Bank Employees are actively
at work, and no such Bank Employee is currently on leave of absence,
layoff, military leave, suspension, workers' compensation, salary
continuance or short or long term disability or otherwise not actively
performing his or her work during all normally scheduled business hours.
(ii) Except as set forth on Schedule 4.01(i), neither Bank nor any
of its Subsidiaries is a party to or is bound by any collective
bargaining agreement, contract or other agreement or understanding with
a labor union or labor organization, nor is Bank or any of its
Subsidiaries the subject of a proceeding asserting that it or any such
Subsidiary has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel Bank or any such
Subsidiary to bargain with any labor organization as to wages or
conditions of employment, nor is there any strike or other labor dispute
involving Bank or any of its Subsidiaries pending or, to Bank's
Knowledge, threatened, nor does Bank have any Knowledge of any activity
involving any Bank Employee seeking to certify a collective bargaining
unit or engaging in other organizational activity.
(iii) To the knowledge of Bank, except as set forth on Schedule
4.01(i), hours worked by, and payments made to, all Bank Employees and
former employees of Bank and its Subsidiaries ("Former Bank Employees")
have been in compliance with the Fair Labor Standards Act and other
applicable federal, state and local laws.
(iv) Except as set forth on Schedule 4.01(i), as of the Effective
Date, all payments determined to be due from Bank and its Subsidiaries
on account of any Bank Employee's or Former Bank Employees' work, health
or welfare insurance, under any agreement, whether oral or written, will
have been paid or properly accrued on Bank's financial statements.
(v) Except as set forth on Schedule 4.01(i), there are no vacation
monies or rights to time off which have been earned by any Bank Employee
or Former Bank Employee under any agreement, whether oral or written,
that have not been paid or properly accrued on Bank's financial
statements, nor are there any severance payments which could become
payable by Bank or its Subsidiaries under the terms of any oral or
written agreement or commitment.
(vi) Except as disclosed pursuant to Section 4.01(j), neither Bank
nor any of its Subsidiaries has any material liability with respect to
any pension, profit sharing, retirement or similar plan, or other
employee benefit plan.
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(vii) Except as set forth on Schedule 4.01(i):
(A) there is no unfair labor practice charge or complaint
concerning Bank or its Subsidiaries or any Bank Employee or Former
Bank Employee pending before any Governmental Authority in any
jurisdiction in which Bank or its Subsidiaries conduct business;
(B) there is no labor strike or slowdown, work stoppage, lockout
or other collective labor action actually pending or, to Bank's
Knowledge, threatened against or affecting the business of Bank or
its Subsidiaries, and neither Bank nor its Subsidiaries has
experienced any strike or slowdown, work stoppage, lockout or other
collective labor action in connection with their business by or with
respect to any Bank Employees or Former Bank Employees;
(C) there is no representation claim or petition concerning the
business of Bank or its Subsidiaries or any Bank Employee or Former
Bank Employee pending before any Governmental Authority in any
jurisdiction in which the business of Bank or its Subsidiaries
conduct business, and no question concerning representation exists
relating to the Bank Employees;
(D) there are no charges with respect to or relating to the
business of Bank or its Subsidiaries pending before the Equal
Employment Opportunity Commission or any Governmental Authority in
any jurisdiction in which Bank or its Subsidiaries conduct business
responsible for the prevention of unlawful employment practices;
(E) neither of Bank nor its Subsidiaries has received formal
notice from any Governmental Authority responsible for the
enforcement of labor or employment laws of an intention to conduct an
investigation of Bank or its Subsidiaries and no such investigation
is currently in progress; and
(F) to Bank's Knowledge, no key Bank Employee or group of Bank
Employees has any plans to terminate employment with Bank or its
Subsidiaries prior to or after Closing.
(j) Employee Benefits.
(i) Controlled Group: Except as disclosed in Schedule 4.01(j),
neither Bank nor any of its Subsidiaries is now, has ever been or will
be at any time prior to the Effective Time, a member of a Controlled
Group.
(ii) Bank Employee Benefit Plans and Documents: Schedule 4.01(j)
lists each and every Bank Employee Benefit Plan that Bank, its
Subsidiaries or any Controlled Group Member now, or will at any time
prior to the Effective Date, maintain, sponsor, participate in or
contribute to with respect to the Bank Employees or the Former Bank
Employees, or that Bank, its Subsidiaries or any Controlled Group Member
ever maintained, sponsored, participated in or made contributions to
with respect to the Bank Employees or the Former Bank Employees. Except
as disclosed in Schedule 4.01(j), neither Bank nor any of its
Subsidiaries or any Controlled Group Member is a party to any collective
bargaining or union contract with respect to the Bank Employees or the
Former Bank Employees. Bank has provided to Bingham true and correct
copies of all current and prior material and readily available documents
relating to the Bank Employee Benefit Plans listed in Schedule 4.01(j),
including, but not limited to: (A) plan documents, trust documents and
plan and trust amendments, in each case, which implement, relate to or
amend a Bank Employee Benefits Plan; (B) summary plan descriptions,
amendments thereto, and all other communication material provided to
employees; (C) summaries of material modifications; (D) insurance
(including reinsurance), administrative services or annuity contracts;
(E) collective bargaining agreements or contracts and all amendments
thereto; (F) the most recent financial statements; (G) with regard to
self-funded Welfare Plans, experience and enrollment data for the prior
three plan years as well as documentation and calculations demonstrating
the preset value of accrued obligations under such plans as of the
Effective Date;
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(H) if Bank or its Subsidiaries provide, or have any commitment or
obligation to provide, any Bank Employee Benefit Plan benefits to their
retirees, copies of all documentation and calculations demonstrating the
present value of such obligation or commitment as of the Effective Date;
(I) if Bank, its Subsidiaries or any Controlled Group Member maintains a
defined benefit pension plan, as defined in Section 3(35) of ERISA with
respect to the Bank Employees or the Former Bank Employees, the most
recent actuarial valuation for each such plan and copies of any funding
waivers and applications therefor, and all related correspondence and
documentation; (J) the three most recent annual reports; (K) agreements
with respect to leased or temporary employees; (L) all government
rulings and opinions, if any (and pending requests for rulings and
opinions, if any); and (M) the most recent IRS determination letters
with respect to the Bank Employee Benefit Plans listed in Schedule
4.01(j).
(iii) No Minimum Funding Obligations; No Multiemployer Plan,
Multiple Employer Plan or Post-Employment Welfare Plan Liability. No
Bank Employee Benefit Plan is a, and none of Bank, any of its
Subsidiaries or any Controlled Group Member has any material liability
or potential liability (including, with respect to clauses (B) and (C)
of this paragraph any actual or potential withdrawal liability)with
respect to any, (A) Pension Plan that is subject to the minimum funding
requirements of Section 412 of the Code or Section 302 of ERISA, (B)
multiemployer plan (as such term is defined in Section 3(37) of ERISA),
(C) plan of the type described in Sections 4063 and 4064 of ERISA or in
Section 413(c) of the Code (and regulations promulgated thereunder), or
(D) plan which provides health, life insurance, accident or other
"welfare-type" benefits to current or future retirees or current or
future former employees, their spouses or dependents, other than in
accordance with Section 4980B of the Code, Part 6 of Subtitle B of Title
I of ERISA or applicable state continuation coverage law.
(iv) Representations: Except as set forth in Schedule 4.01(j):
(A) Qualification: All the Pension Plans required to be listed
on Schedule 4.01(j), and the related trusts, if any, now meet, and
since their inception have met, and as of the Effective Date shall
meet, in all material respects, the requirements for qualification
under Section 401(a) of the Code and are now, and since their
inception have been, exempt from taxation under Section 501(a) of the
Code;
(B) Determination Letters: The IRS has issued a favorable
determination letter with respect to the qualified status of each
such Pension Plan and trust, and has not taken, nor to the Knowledge
of Bank, its Subsidiaries and Controlled Group Members, has
reasonable grounds to take any action to revoke such letter;
(C) Satisfaction of Obligations: Bank, each of its Subsidiaries
and each Controlled Group Member have performed, and through the
Effective Date shall perform, in all material respects, all
obligations required to be performed by them under the Bank Employee
Benefit Plans (including, but not limited to, the making of all
contributions), and are not in material default under, or in material
violation of, any of the Bank Employee Benefit Plans, and none of
Bank, its Subsidiaries, or any Controlled Group Member has Knowledge
of any such material default or violation of any other party to any
and all of the Bank Employee Benefit Plans;
(D) Compliance With Laws: Each Bank Employee Benefit Plan has
been, and through the Effective Date shall be, maintained, and funded
in compliance in all material respects with ERISA, the Code, the Age
Discrimination in Employment Act (to the extent applicable), COBRA,
and each other applicable federal, state or local laws, and, if
applicable, each foreign law, and each Bank Employee Benefit Plan is
valid and binding, in full force and effect, and there are no
material defaults thereunder;
(E) No Prohibited Transactions: None of the Bank Employee
Benefit Plans, nor any trust created thereunder, any trustee or
administrator thereof, nor Bank or any of its
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Subsidiaries, nor any other Party dealing with any Bank Employee
Benefit Plan has engaged in any transaction, or will prior to the
Effective Date engage in any transaction, that would trigger a tax
under Section 4975 of the Code, or violate Section 406 of ERISA, or,
if applicable, any similar provision under foreign law;
(F) No Claims Pending or Threatened: There are not presently,
nor shall there be prior to the Effective Date, any actions, suits or
claims pending (other than routine claims for benefits) or, to Bank's
Knowledge, threatened against, any Bank Employee Benefit Plan,
against the assets of any Bank Employee Benefit Plan, or against the
Bank, any of its Subsidiaries or any Controlled Group Member for
benefits arising under or pursuant to any Bank Employee Benefit Plan;
(G) Reporting and Disclosure: With regard to each Bank Employee
Benefit Plan listed in Schedule 4.01(j), Bank and its Subsidiaries
have complied with, and will through the Effective Date continue to
comply with, all reporting and disclosure requirements of ERISA and
the Code in all material respects;
(H) No Unfunded Liabilities: No Bank Employee Benefit Plan has
any material unfunded liabilities;
(I) No Further Liabilities: Except as provided in Schedule
4.01(j), Bank and its Subsidiaries do not, and shall not as of the
Effective Date, have any liability or obligation to any Bank Employee
Benefit Plan or to the Pension Benefit Guaranty Corporation, DOL,
Department of Treasury or similar agency of a foreign government, any
other plan or entity, or any employee, participant or beneficiary of
any Bank Employee Benefit Plan, arising out of or pursuant to any
Bank Employee Benefit Plan which could subject Bank or its
Subsidiaries to any material liability;
(J) Termination and Amendment: Except as disclosed in Schedule
4.01(j), each Bank Employee Benefit Plan listed in Schedule 4.01(j)
is, and as of and through the Effective Date, shall be terminable,
and/or subject to amendment by Bank or its Subsidiaries, at the
discretion of Bank or its Subsidiaries, with no liability for
benefits incurred after such termination or inconsistent with the
terms of any amendment after its effective date.
(K) Change of Control Payments: Except as set forth in Schedule
4.01(j), none of the Bank Employee Benefit Plans obligates Bank or
any of its Subsidiaries to pay separation, severance, termination or
similar-type benefits solely as a result of any transaction
contemplated by this Agreement or solely as a result of a "change in
control," as such term is contemplated by Section 280G of the Code.
(v) ESOP. None of the execution, delivery and performance of this
Agreement, or the consummation of the transactions, contemplated hereby
shall violate or conflict with any governing document of the ESOP, any
contract, agreement or other arrangement binding upon the ESOP or its
assets or any statute, regulation or other provision of law applicable
to the ESOP in any material respect. During the five years preceding the
date hereof, there has not been any action, suit, proceeding,
investigation, audit, or order against or affecting the ESOP at law or
in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. The ESOP is not subject to or
bound by any outstanding orders, judgments or decrees of any court or
governmental entity.
(k) Tax Matters.
(i) Except as would not cause a Bank Material Adverse Effect or
except as set forth on Schedule 4.01(k):
(A) Bank, each of its Subsidiaries, each of their affiliated
groups and each of the entities identified on Schedule 4.01(k)
pursuant to Section 4.01(k)(ii)(B) (the "Bank
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Predecessors") have filed all Tax Returns which they are required to
file under applicable laws and regulations, and all such Tax Returns
are complete and correct and have been prepared in compliance with
all applicable laws and regulations;
(B) Bank, each of its Subsidiaries, each of their affiliated
groups and each of the Bank Predecessors have paid all Taxes due and
owing by them (whether or not such Taxes are required to be shown on
a Tax Return) and have withheld and paid over to the appropriate
taxing authority all Taxes which they are required to withhold from
amounts paid or owing to any employee, shareholder, creditor or other
third party;
(C) neither Bank or its Subsidiaries, nor any of their
affiliated groups or the Bank Predecessors have waived any statute of
limitations with respect to any Taxes or agreed to any extension of
time with respect to any Tax assessment or deficiency;
(D) the accrual for Taxes on Bank's most recent audited balance
sheet would be adequate to pay all Tax liabilities of Bank and its
Subsidiaries if their current tax year were treated as ending on the
date of such balance sheet (excluding any amount recorded which is
attributable solely to timing differences between book and Tax
income);
(E) since December 31, 1998, neither Bank nor any of its
Subsidiaries has incurred any liability for Taxes with respect to
their businesses other than in the ordinary course;
(F) no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted
with respect to Bank, any of its Subsidiaries, any of their
affiliated groups or any of the Bank Predecessors;
(G) neither Bank or its Subsidiaries, nor any of their
affiliated groups or the Bank Predecessors have received from any
foreign, federal, state or local taxing authority any (1) written
notice indicating an intent to open an audit or other review, or (2)
request for information related to Tax matters; and
(H) there are no material unresolved questions or claims
concerning any Tax liability of Bank, its Subsidiaries, or any of
their affiliated groups or the Bank Predecessors.
(ii) Except as set forth on Schedule 4.01(k), neither Bank nor any
of its Subsidiaries (A) has made an election under Section 341(f) of the
Code, (B) is liable for the Taxes of another person (1) under Treasury
Regulation Section 1.1502-6 (or comparable provisions of state, local or
foreign law), (2) as a transferee or successor, (3) by contract or
indemnity or (4) otherwise, (C) is a party to any tax sharing agreement
or (D) has made any payments, are obligated to make any payments or is a
party to an agreement that could obligate it to make any payments that
would not be deductible under Section 280G of the Code.
(l) Environmental Matters. To Bank's Knowledge, neither the conduct
nor operation of Bank or its Subsidiaries nor any condition of any property
currently or previously owned or operated by any of them (including,
without limitation, in a fiduciary or agency capacity), or on which any of
them holds a Lien, results or resulted in a violation of any Environmental
Laws and to Bank's Knowledge, no condition has existed or event has
occurred with respect to any of them or any such property that, with notice
or the passage of time, or both, is reasonably likely to result in any
liability to Bank or any of its Subsidiaries under or by reason of any
Environmental Laws or Materials of Environmental Concern except where the
conduct, operation, condition or event would not have a Bank Material
Adverse Effect. To Bank's Knowledge, except for any notice for which, in
Bank's reasonable judgment, there is no reasonable basis, neither Bank nor
any of its Subsidiaries has received any notice from any person or entity
that Bank or its Subsidiaries or the operation or condition of any property
ever owned, operated, or held as collateral or in a fiduciary capacity by
any of them are or were in violation of or otherwise are alleged to have
liability under any Environmental Law or relating to Materials of
Environmental Concern, including, but not limited to, responsibility (or
potential
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responsibility) for the cleanup or other remediation of Materials of
Environmental Concern at, on, beneath, or originating from any such
property.
(m) Risk Management Instruments. Except as set forth on Schedule
4.01(m), all material interest rate swaps, caps, floors, option agreements,
futures and forward contracts and other similar risk management
arrangements, whether entered into for Bank's own account, or for the
account of one or more of Bank's Subsidiaries or their customers have been
previously disclosed to Bingham and were entered into (i) in accordance
with prudent business practices and in all material respects in compliance
with all applicable laws, rules, regulations and regulatory policies and
(ii) with parties believed to be financially responsible at the time; and
each of them constitutes the valid and legally binding obligation of Bank
or one of its Subsidiaries, enforceable in accordance with its terms
(except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar
laws of general applicability relating to or affecting creditors' rights or
by general equity principles), and is in full force and effect. Neither
Bank nor its Subsidiaries, nor to Bank's Knowledge any other party thereto,
is in breach of any of its obligations under any such agreement or
arrangement in any material respect.
(n) Insurance. Except as set forth on Schedule 4.01(n), Bank and its
Subsidiaries have maintained and now maintain insurance with respect to
their assets and businesses covering property damage by fire or other
casualty, and against such liabilities, claims and risks, including,
without limitation, workers compensation, and in such amounts as is
customary or appropriate in the industry. Schedule 4.01(n) contains a true
and correct summary of all such insurance policies maintained by Bank and
its Subsidiaries, presently or at any point during the last five years,
setting forth the names of the insured and the insurer, policy numbers, the
types of coverage, premium payments or basis of payment, deductible amounts
and limits of coverage. Except as set forth on Schedule 4.01(n), to the
knowledge of Bank no such policy of insurance is subject to any deductible,
self-insured retention, retrospective rating agreement, indemnification
agreement or any other method or device by which the insured person is
subject to all or any part of the liability for any or all claims.
Concurrently with or prior to the execution of this Agreement, Bank and its
Subsidiaries have delivered to Bingham true, correct and complete copies of
all such insurance policies. Except as set forth on Schedule 4.01(n), all
such insurance policies will be in full force and effect through the
Effective Date. To the knowledge of Bank, except as set forth on Schedule
4.01(n), there is no state of facts and no event has occurred forming the
basis for any present property, casualty or fidelity claim against Bank or
its Subsidiaries that is not fully covered by insurance. Schedule 4.01(n)
contains loss runs for the last five years setting forth all property,
general and products liability and workers compensation claim activity
against the businesses of Bank and its Subsidiaries, including the date and
place of the occurrence, the claimant's name, reserves, amounts paid, a
brief description of the incident and whether the claim is open or closed.
Except as set forth on Schedule 4.01(n), Bank has no Knowledge of any
occurrence, circumstance, or event which could reasonably be expected to
result in any such claim.
(o) Governmental Reviews. Except as set forth on Schedule 4.01(o), no
investigation or review by any Governmental Authority with respect to Bank,
any Bank Subsidiary or any of their officers or directors is pending or, to
the Knowledge of Bank, threatened, nor has any Governmental Authority
indicated to Bank or any Bank Subsidiary an intention to conduct the same,
other than normal or routine regulatory examinations.
(p) Fairness Opinion. On March 19, 2000, Raymond James & Associates,
Inc. ("Raymond James") provided to the Bank Board a written fairness
opinion to the effect that the Exchange Ratio is fair to the shareholders
of Bank from a financial point of view.
(q) Compliance with Servicing Obligations. Except as set forth on
Schedule 4.01(q), and except for violations and acts of noncompliance that
would not have a Bank Material Adverse Effect, to the best of Bank's
Knowledge, Bank and the Bank Subsidiaries are in compliance in all material
respects with all contract, agency and investor requirements and
guidelines, and all applicable laws, rules and
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regulations of Governmental Authorities, relating to the servicing and
administration of loans by them, or any of them, including but not limited
to, properly and timely making interest rate adjustments to adjustable rate
loans.
(r) Intellectual Property. Schedule 4.01(r) sets forth all patents,
trade names, service names, trademarks, service marks, copyrights, or any
other intellectual or intangible property or applications ("Intellectual
Property") Bank and its Subsidiaries own or use in their businesses ("Bank
Intellectual Property"). Bank and its Subsidiaries are the sole owners
(except for licensed property for which valid and subsisting licenses
exist) of the Bank Intellectual Property, free of all Liens. Except as set
forth on Schedule 4.01(r), to Bank's Knowledge, there is no claim against
Bank or any of its Subsidiaries that the Bank Intellectual Property or any
of its operations, activities, products or publications infringes any
material patent, trademark, trade name, copyright or other proprietary or
intellectual property right of any third party or that any of them is
illegally using the material trade secrets or property rights of others in
any material respect. To the knowledge of Bank, neither Bank nor any of its
Subsidiaries has any disputes with or claims against, or any basis for
claims against, any third party for infringement by such third party of any
Bank Intellectual Property.
(s) Material Contracts. Schedule 4.01(s) identifies all of the
Material Contracts of Bank and its Subsidiaries, true and complete copies
of all of which have been delivered to Bingham. Except as set forth on
Schedule 4.01(s), and except for any default which would not constitute a
Bank Material Adverse Effect, (i) Bank and each of its Subsidiaries has
complied in all material respects with the provisions of, and is not in
default under, each such Material Contract to which it is a party or any
such default has been waived, and (ii) to the Knowledge of Bank, no other
party to any such Material Contract has failed to comply in any material
respect with, or is in default under, the provisions of any such Material
Contract.
(t) Real Property Owned.
(i) Other than the real property described on Schedule 4.01(t)(the
"Bank Owned Real Property") or real property of a type classified as
OREO (other real estate owned) on the Bank's financial statements (i.e.,
foreclosed property not owned for the operation of the Bank's business),
Bank and its Subsidiaries own no real property. Schedule 4.01(t)
contains a true and accurate legal description of the Bank Owned Real
Property. Bank and its Subsidiaries have good and marketable fee simple
title to the Bank Owned Real Property free and clear of all Liens other
than those identified on Schedule 4.01(t).
(ii) Except as set forth on Schedule 4.01(t), no substantial work
has been performed on or materials supplied with respect to the Bank
Owned Real Property within any applicable statutory period which could
give rise to mechanics' or materialmen's liens; all bills and claims for
substantial labor performed and materials furnished to or for the
benefit of the Bank Owned Real Property for all periods prior to the
Effective Time have been, or prior to the Effective Time, will be, paid
or properly accrued on Bank's financial statements in full, and Bank has
no Knowledge of any mechanics' or materialmen's Liens, whether or not
perfected, on or affecting any portion of the Bank Owned Real Property.
(iii) There is no pending or, to Bank's Knowledge, threatened
condemnation or eminent domain proceeding with respect to the Bank Owned
Real Property.
(iv) Except as set forth on Schedule 4.01(t), (A) there are no
taxes or special assessments other than ordinary real estate taxes
pending or payable against the Bank Owned Real Property, and to the
knowledge of Bank there are no contingencies existing under which any
assessment for real estate taxes may be retroactively filed against the
Bank Owned Real Property; (B) Bank has no Knowledge of any proposed
special assessment that may affect the Bank Owned Real Property or any
part thereof; (C) there are no penalties due with respect to real estate
taxes and/or impositions, and all real estate taxes and/or impositions
(excepting those for the current year that are not yet due and payable)
with respect to the Bank Owned Real Property have been
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paid in full; and (D) there are no taxes, permit fees or connection fees
which must be paid respecting existing curb cuts, sewer hookups,
water-main hookups or services of a like nature.
(v) Except as set forth on Schedule 4.01(t), the Bank Owned Real
Property materially complies with the requirements of all building,
zoning, subdivision, health, safety, environmental, pollution control,
waste products, sewage control and all other applicable statutes, laws,
codes, ordinances, rules, orders, regulations and decrees of any and all
government agencies. There is no uncured breach of any material
condition or requirement imposed by, or pursuant to, any permit or
license issued with respect to the Bank Owned Real Property.
(vi) Except as set forth on Schedule 4.01(t), no property insurer
or similar body has made any recommendations with respect to any parcel
of Bank Owned Real Property which have not been complied with, and all
structures on the Bank Owned Real Property meet all qualifications for
"highly protected risk" classification for fire insurance purposes.
(vii) Except as set forth on Schedule 4.01(t), and except for real
property of the type classified as OREO (other real estate owned) on the
Bank's financial statements (i.e., foreclosed property not owned for the
operation of the Bank's business), Bank and its Subsidiaries have never
owned any real property.
(u) Real Property Leased. Schedule 4.01(u) sets forth the legal
description for all real properties leased or subleased to Bank or its
Subsidiaries (the "Bank Leased Real Property"). Bank has delivered to
Bingham true, correct and complete copies of the leases and subleases
listed on Schedule 4.01(u). Except as set forth on Schedule 4.01(u),
neither Bank nor any of its Subsidiaries has leased or subleased any real
property during the past three years. Except as set forth on Schedule
4.01(u), with respect to each such lease or sublease:
(i) the lease or sublease is legal, valid, binding, enforceable and
in full force and effect in all material respects;
(ii) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect in all material
respects on identical terms following the Closing;
(iii) neither Bank, its Subsidiaries, nor, to Bank's Knowledge, any
other party to the lease or sublease is in breach or default, and no
event has occurred which, with notice or lapse of time, would constitute
such a breach or default or permit termination, modification or
acceleration under the lease or sublease;
(iv) to Bank's Knowledge, no party to the lease or sublease has
repudiated any of its provisions;
(v) there are no material disputes, oral agreements or forbearance
programs in effect as to the lease or sublease;
(vi) neither Bank nor any of its Subsidiaries, as applicable, has
assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered all or any portion of their interest in the leasehold or
subleasehold;
(vii) to Bank's Knowledge, all facilities leased or subleased under
the lease or sublease have been operated and maintained in accordance
with applicable laws, rules and regulations in all material respects;
(viii) all facilities leased or subleased under the lease or
sublease are supplied with utilities and other services reasonably
necessary for the operation of such facilities;
(ix) all facilities leased or subleased under the lease or sublease
are in good operating condition, and would not, with ordinary wear and
tear, require major repair or replacement during the remainder of the
lease term; and
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(x) no property insurer or similar body has made any
recommendations with respect to any parcel of Bank Leased Real Property
which have not been complied with, and all structures on the Bank Leased
Real Property meet all qualifications for "highly protected risk"
classification for fire insurance purposes.
(v) Liens. Except as set forth on Schedule 4.01(v), Bank and its
Subsidiaries own and have good, marketable and unencumbered title to, or an
unencumbered interest in, each item comprising their assets, free and clear
of any and all Liens.
(w) Good Condition. Except as set forth on Schedule 4.01(w), all
facilities used in connection with the operation of the businesses of Bank
and its Subsidiaries and all of the material assets of Bank and its
Subsidiaries, except real property of a type classified as OREO (other real
estate owned) on the Bank's financial statements (i.e., foreclosed property
not owned for the operation of the Bank's business), are free from material
defects (normal wear and tear excepted) and have been maintained in
accordance with normal industry practice.
(x) No Undisclosed Liabilities. Except as and to the extent set forth
on Schedule 4.01(x) or reflected in the 1999 Financial Statements, and
except for current liabilities incurred by Bank or its Subsidiaries in
connection with the operation of or with respect to their businesses in the
ordinary course, since December 31, 1999, neither Bank nor its Subsidiaries
has incurred any debts, liabilities or obligations of any nature or kind
(whether absolute, accrued, contingent, unliquidated or otherwise, whether
or not known to Bank, whether due or to become due and regardless of when
asserted) arising out of transactions entered into, at or prior to the
Closing, or any action or inaction at or prior to the Closing or any state
of facts existing at or prior to the Closing and which could have a Bank
Material Adverse Effect. Except as set forth on Schedule 4.01(x), Bank has
no Knowledge of any existing, proposed or threatened change which could
have a Bank Material Adverse Effect. There are no contingent or other
liabilities of Bank or its Subsidiaries that have not been disclosed in the
Schedules to this Agreement which could have a Bank Material Adverse
Effect.
(y) Recent Conduct of Business; Interim Operations. Except as set
forth on Schedule 4.01(y), since December 31, 1999, there has not been, and
through the Effective Time, there shall not be, any Bank Material Adverse
Effect. Except as set forth on Schedule 4.01(y) or any other Schedule to
this Agreement, since December 31, 1999, Bank and its Subsidiaries have
caused their businesses to be conducted only in the ordinary course. Except
as set forth on Schedule 4.01(y) or any other Schedule to this Agreement,
since December 31, 1999, Bank and its Subsidiaries have not done any of the
actions described in Sections 5.01(a) through (g), 5.01(l) through (v) or
5.01(w) as Section 5.01(w) relates to Sections 5.01(a) through (g) and
5.01(l) through (v).
(z) Brokerage or Finder's Fee. Except for McConnell, Budd & Dowens,
Inc. and Raymond James, no broker, finder, agent or similar intermediary
has acted for or on behalf of Bank in connection with this Agreement or the
transactions contemplated hereby and, except for the fee payable to Raymond
James by Bank, no broker, finder, agent or similar intermediary is entitled
to any broker's, finder's or similar fee or other commission in connection
therewith based on any agreement, arrangement or understanding with Bank or
any action taken by Bank.
(aa) [intentionally omitted].
(bb) Disclosure. No representation or warranty by Bank contained in
this Agreement and no statement contained in any of the Attendant Documents
or any other certificate or instrument furnished or to be furnished
pursuant to this Agreement or in connection with the transactions
contemplated in this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material
fact, necessary in order to make any of the statements not misleading.
(cc) Capitalization. Bank has two classes of capital stock, common
stock, $1.00 par value, and preferred stock, $1.00 par value. Franklin
Finance has two classes of capital stock, common stock, $300.00 par value,
and preferred stock $10.00 par value. Franklin Home has one class of
capital stock,
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common stock, $1.00 par value. Ben Properties has one class of capital
stock, common stock, no par value. Schedule 4.01(cc) sets forth the number
of authorized and the number of issued and outstanding shares of capital
stock of Bank and each of its Subsidiaries. All of the shares of Bank Stock
and all of the shares of capital stock of each of its Subsidiaries have
been duly authorized and validly issued, are fully paid and non-assessable
and were issued by Bank and its Subsidiaries without violating any
requirements of law. Except as set forth on Schedule 4.01(cc), (i) there
are no preemptive or first refusal rights to purchase or otherwise acquire
shares of Bank Stock or capital stock of any of Bank's Subsidiaries
pursuant to the Governing Documents of Bank or its Subsidiaries, by
agreement or otherwise, (ii) there are no outstanding agreements,
commitments, rights, options, warrants or claims of any nature whatsoever
for the issuance, sale, purchase or redemption of any shares of Bank Stock
or capital stock of any of Bank's Subsidiaries or any securities
convertible into or exchangeable for such shares and (iii) there are no
stock appreciation rights or phantom stock rights outstanding with respect
to Bank stock or the capital stock of any of Bank's Subsidiaries.
(dd) No Knowledge. Except as set forth in Schedule 4.01(dd), Bank has
no Knowledge whatsoever that any of the representations or warranties of
Bingham are untrue in any material respect.
(ee) Affiliate Transactions. Except as set forth on Schedule 4.01(ee),
Bank has not entered into any business transactions with any of its
Affiliates.
Section 4.02 Representations and Warranties of Bingham. Bingham hereby
represents and warrants to Bank, both as of the date of this Agreement and as of
the Effective Date, with the knowledge and expectation that, in agreeing to
enter into this Agreement, Bank is relying on, and in connection with the
consummation of the transactions contemplated in this Agreement, will rely on,
such representations and warranties:
(a) Good Standing and Authority. Bingham and each of its Subsidiaries
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Michigan, except for (i) Merger Sub, which,
prior to the Effective Time, will be a federally-chartered savings
association, duly organized, validly existing and in good standing under
applicable law, (ii) Dynex Financial, Inc. ("DFI"), Dynex Financial of
Alabama, Inc. ("DFI Alabama") and Dynex Insurance Agency, Inc. ("DIA"),
which are corporations duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia, and (iii)
Bloomfield Acceptance Company, L.L.C. ("BAC") and Bloomfield Servicing
Company, L.L.C. ("BSC"), which are limited liability companies duly
organized, validly existing and in good standing under the laws of the
State of Michigan. Bingham and each of its Subsidiaries is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which it is required to be so qualified other than where a
failure to so qualify would not have a Bingham Material Adverse Effect.
Each such jurisdiction is listed on Schedule 4.02(a). Bingham has all
requisite power and authority to enter into this Agreement and any
Attendant Documents to which it is a party and to consummate the
transactions contemplated in this Agreement and the Attendant Documents.
This Agreement and all of the Attendant Documents to which Bingham is a
party, and the consummation of the transactions contemplated in this
Agreement, have been or will be, on or prior to the Effective Date, duly
authorized and approved by the Bingham Board, and all other necessary and
proper corporate action on the part of Bingham has been or will be taken on
or prior to the Effective Date. This Agreement, and all of the Attendant
Documents to which Bingham is a party, when executed and delivered, will
constitute legal, valid and binding obligations of Bingham enforceable
against it in accordance with their respective terms.
(b) Consents and Approvals; No Defaults.
(i) To the knowledge of Bingham, except as set forth on Schedule
4.02(b) and except for filings or approvals required under state "Blue
Sky" laws, no consent, approval or authorization of, or designation,
declaration or filing with, or notice to, any Governmental Authority, or
any lenders, lessors, creditors, shareholders or others, is required on
the part of Bingham or its Subsidiaries in connection with the valid
execution and delivery of this Agreement and the
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Attendant Documents or the consummation of the transactions contemplated
in this Agreement and the Attendant Documents except where the failure
to obtain such consent, approval, authorization, designation,
declaration or filing would not have a Bingham Material Adverse Effect.
Before the Effective Time, Bingham and its Subsidiaries (in cooperation
with Bank, as applicable) shall properly obtain, perform or give all of
the consents, approvals, authorizations, designations, declarations,
filings and notices set forth on Schedule 4.02(b), and as of the
Effective Time, Bingham shall have given Bank's counsel copies or
adequate evidence of all such consents, approvals, authorizations,
designations, declarations, filings and notices.
(ii) Subject to the receipt or making of the consents, approvals,
authorizations, designations, declarations, filings and notices referred
to in the preceding paragraph, and expiration of related waiting
periods, and required filings under federal and state securities laws,
the execution, delivery and performance of this Agreement and the
consummation of the Merger do not and will not: (i)(A) constitute a
breach or violation of, or a default under, or give rise to any Lien,
any acceleration of remedies or any right of termination under, any law,
rule or regulation or any judgment, decree, order, governmental permit
or license, or agreement, license, indenture or instrument of Bingham or
of any of its Subsidiaries or to which Bingham or any of its
Subsidiaries or properties is subject or bound, (B) constitute a breach
or violation of, or a default under, Bingham's or Merger Sub's Governing
Documents, (C) require any consent or approval under any such law, rule,
regulation, judgment, decree, order, governmental permit or license,
agreement, license, indenture or instrument or (D) result in any penalty
payment relating to borrowed funds, advances or financial instruments;
and (ii) have a Bingham Material Adverse Effect.
(c) Financial Reports, SEC Documents, and Material Adverse Effect.
(i) Bingham's Form 10-K for the period ending September 30, 1999
and all other reports, registration statements, definitive proxy
statements or information statements filed or to be filed by it or any
of its Subsidiaries subsequent to September 30, 1999 under the
Securities Act or the Exchange Act, in the form filed or to be filed
with the SEC (collectively, "Bingham SEC Documents"), as of the date
filed, (A) complied or will comply in all material respects with the
applicable requirements under the Securities Act or the Exchange Act, as
the case may be, and (B) did not and will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
and each of the balance sheets or statements of condition contained in
or incorporated by reference into any such SEC Document (including the
related notes and schedules thereto), and each of the statements of
income or results of operations and changes in shareholders' equity and
cash flows or equivalent statements in the Bingham SEC Documents
(including any related notes and schedules thereto), have been prepared,
in each case, in accordance with generally accepted accounting
principles consistently applied during the periods involved, except in
each case as may be noted therein, subject to normal year-end audit
adjustments and the absence of footnotes in the case of unaudited
statements.
(ii) Except as set forth on Schedule 4.02(c), and except for
liabilities incurred in connection with negotiation of and compliance
with this Agreement and otherwise in connection with the transactions
contemplated hereby, since September 30, 1999 to the date hereof,
Bingham and its Subsidiaries have not incurred any material liability
other than in the ordinary course of business consistent with past
practice which would constitute a Bingham Material Adverse Effect.
(iii) Except as set forth on Schedule 4.02(c), since September 30,
1999, (A) Bingham and its Subsidiaries have to the date hereof conducted
their respective businesses in the ordinary and usual course consistent
with past practice (excluding matters related to this Agreement and the
transactions contemplated hereby) and (B) there has not occurred any
event or circumstance
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that, individually or taken together with all other facts, circumstances
and events, would constitute a Bingham Material Adverse Effect.
(d) Litigation. Except as set forth on Schedule 4.02(d), no material
litigation, claim or other proceeding before any Governmental Authority is
pending against Bingham or any of its Subsidiaries and, to Bingham's
Knowledge, no such litigation, claim or other proceeding has been
threatened.
(e) Regulatory Matters.
(i) Except as set forth on Schedule 4.02(e), neither Bingham nor
any of its Subsidiaries or properties is a party to or is subject to any
order, decree, agreement, memorandum of understanding or similar
arrangement with, or a commitment letter to, or extraordinary
supervisory letter from, any federal or state Governmental Authority or
Regulatory Authority.
(ii) Except as set forth on Schedule 4.02(e), neither Bingham nor
any of its Subsidiaries has been advised by any Regulatory Authority
that such Regulatory Authority is contemplating issuing or requesting
(or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, commitment
letter, or extraordinary supervisory letter.
(f) Compliance with Laws. Except as set forth on Schedule 4.02(f), and
except for violations and acts of noncompliance that would not have a
Bingham Material Adverse Effect, each of Bingham and its Subsidiaries:
(i) to Bingham's Knowledge is in material compliance with all
applicable federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees applicable
thereto or to the employees conducting such businesses, including,
without limitation, the Equal Credit Opportunity Act, the Fair Housing
Act, the Home Mortgage Disclosure Act and all other applicable fair
lending laws and other laws relating to discriminatory business
practices; and
(ii) has received, since September 30, 1999, no notification or
communication from any Governmental Authority (A) asserting that Bingham
or any of its Subsidiaries is not in compliance in any material respect
with any of the statutes, regulations, or ordinances which such
Governmental Authority enforces or (B) threatening to revoke any
material license, franchise, permit, or governmental authorization (nor,
to Bingham's Knowledge, do any grounds for any of the foregoing exist).
(g) Loan Portfolio; Portfolio Management.
(i) Except as set forth on Schedule 4.02(g) all evidences of
indebtedness reflected as assets in Bingham's financial statements at
September 30, 1999 referred to in Section 4.02(c) hereof, or originated
or acquired since such date, are (except with respect to those assets
which are no longer assets of it or any of its Subsidiaries) binding
obligations of the respective obligors named therein except as
enforcement may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and except
as to the availability of equitable remedies, including specific
performance, which are subject to the discretion of the court before
which a proceeding is brought, and except where a failure of enforcement
will not have a Bingham Material Adverse Effect, and the payment of no
material amount thereof (either individually or in the aggregate with
other evidences of indebtedness) is subject to any defenses or offsets
which have been threatened or asserted against Bingham or any of its
Subsidiaries which would collectively constitute a Bingham Material
Adverse Effect. All such indebtedness which is secured by an interest in
real property is secured by a valid and perfected mortgage lien having
the priority specified in the loan documents except in each case in
which, individually or in the aggregate, the failure to have such a
mortgage would not have a Bingham Material Adverse Effect. All such
indebtedness which is secured by an interest in personal property is
secured by a valid and perfected security interest having the priority
specified in the loan
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documents, except in each case in which, individually or in the
aggregate, the failure to have such a security interest would not have a
Bingham Material Adverse Effect. Except as set forth on Schedule
4.02(g), or except where noncompliance would not have a Bingham Material
Adverse Effect, all loans originated, directly or indirectly, or
purchased by Bingham or any of its Subsidiaries were, at the time
entered into and at all times owned by Bingham or its Subsidiaries, in
compliance in all material respects with all applicable laws and
regulations (including, without limitation, all consumer protection laws
and regulations). Except where noncompliance would not have a Bingham
Material Adverse Effect, Bingham and its Subsidiaries (as applicable),
in all material respects, administer their loan and investment
portfolios (including, but not limited to, adjustments to adjustable
mortgage loans) in accordance with all applicable laws and regulations
and the terms of applicable instruments. Except where noncompliance
would not have a Bingham Material Adverse Effect, the records of Bingham
and any of its Subsidiaries (as applicable) regarding all loans
outstanding on its books are accurate in all material respects. With
respect to loans for which real property is the primary collateral,
Bingham and its Subsidiaries (as applicable) maintain or require all
borrowers to maintain adequate insurance on the security property and
pay or cause all borrowers, to pay all taxes or assessments which may be
entitled to a Lien with priority over the Bingham's Lien in such
property. Other than in connection with commercial loans, Bingham
maintains insurance against its failure or the borrower's failure to
maintain insurance and pay taxes or assessments.
(ii) Schedule 4.02(g) sets forth a list, accurate and complete in
all material respects, of the aggregate amounts of loans, extensions of
credit and other assets of Bingham and its Subsidiaries that have been
adversely designated, criticized or classified by Bingham or its outside
auditors as of December 31, 1999, separated by category of
classification or criticism (the "Bingham Asset Classification"); and no
amounts of loans, extensions of credit or other assets that have been
adversely designated, classified or criticized as of the date hereof, by
any representative of any governmental or regulatory authority as
"Special Mention," "Substandard," "Doubtful," "Loss" or words of similar
import are excluded from the amounts disclosed in the Bingham Asset
Classification other than amounts of loans, extensions of credit or
other assets that were charged off by Bingham or any of its Subsidiaries
before the date hereof.
(h) Permits and Licenses. Bingham and each of its Subsidiaries has all
franchises, permits, licenses or other authorizations by all Governmental
Authorities, and has made all filings, applications and registrations with,
all Governmental Authorities that are required in order to permit them to
own or lease their properties and to conduct their businesses as presently
conducted except where the failure to obtain such consent, approval,
authorization, designation, declaration or filing would not have a Bingham
Material Adverse Effect. Schedule 4.02(h) lists all franchises, permits,
licenses or other authorizations by all Governmental Authorities held by
Bingham and its Subsidiaries ("Bingham Licenses"), true and complete copies
of all of which have been delivered to Bank. Except as set forth on
Schedule 4.02(h), all of the Bingham Licenses are in full force and effect
and will not be affected in any way by, and will continue to be in full
force and effect after, the consummation of the transactions contemplated
in this Agreement and the Attendant Documents to the extent necessary to
complete any required governmental approvals of the transactions
contemplated in this Agreement and the Attendant Documents, and to permit
continuous business operations following consummation of the transactions
contemplated.
(i) Labor Matters.
(i) Schedule 4.02(i) contains a complete and accurate list of the
current employees of Bingham and its Subsidiaries as of a date no later
than 30 days before this representation and warranty is made (the
"Bingham Employees") and, with respect to each Bingham Employee, his or
her salary or hourly rate currently in effect, annual bonuses (last paid
or payable), if any, any other fringe benefits or incentive paid or
payable to him or her and the amount of all cash compensation accrued
through February 29, 2000, but as yet unpaid for each such Bingham
Employee. Except as set forth on Schedule 4.02(i), all such Bingham
Employees are actively at
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work, and no such Bingham Employee is currently on leave of absence,
layoff, military leave, suspension, workers' compensation, salary
continuance or short or long term disability or otherwise not actively
performing his or her work during all normally scheduled business hours.
(ii) Except as set forth on Schedule 4.02(i), neither Bingham nor
any of its Subsidiaries is a party to or is bound by any collective
bargaining agreement, contract or other agreement or understanding with
a labor union or labor organization, nor is Bingham or any of its
Subsidiaries the subject of a proceeding asserting that it or any such
Subsidiary has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel Bingham or any
such Subsidiary to bargain with any labor organization as to wages or
conditions of employment, nor is there any strike or other labor dispute
involving Bingham or any of its Subsidiaries pending or, to Bingham's
Knowledge, threatened, nor does Bingham have any Knowledge of any
activity involving any Bingham Employee seeking to certify a collective
bargaining unit or engaging in other organizational activity.
(iii) To the knowledge of Bingham, except as set forth on Schedule
4.02(i), hours worked by, and payments made to, all Bingham Employees
and former employees of Bingham and its Subsidiaries ("Former Bingham
Employees") have been in compliance with the Fair Labor Standards Act
and other applicable federal, state and local laws.
(iv) Except as set forth on Schedule 4.02(i), as of the Effective
Date, all payments determined to be due from Bingham and its
Subsidiaries on account of any Bingham Employee's or Former Bingham
Employees' work, health or welfare insurance, under any agreement,
whether oral or written, will have been paid or properly accrued on
Bingham's financial statements.
(v) Except as set forth on Schedule 4.02(i), there are no vacation
monies or rights to time off which have been earned by any Bingham
Employee or Former Bingham Employee under any agreement, whether oral or
written, that have not been paid or properly accrued on Bingham's
financial statements, nor, except for payments in connection with the
DFI Restructuring Plan, are there any severance payments which could
become payable by Bingham or its Subsidiaries under the terms of any
oral or written agreement or commitment.
(vi) Except as disclosed pursuant to Section 4.02(j), neither
Bingham nor any of its Subsidiaries has any material liability with
respect to any pension, profit sharing, retirement or similar plan, or
other employee benefit plan.
(vii) Except as set forth on Schedule 4.02(i):
(A) there is no unfair labor practice charge or complaint
concerning Bingham or its Subsidiaries or any Bingham Employee or
Former Bingham Employee pending before any Governmental Authority in
any jurisdiction in which Bingham or its Subsidiaries conduct
business;
(B) there is no labor strike or slowdown, work stoppage, lockout
or other collective labor action actually pending or, to Bingham's
Knowledge, threatened against or affecting the business of Bingham or
its Subsidiaries, and neither Bingham nor its Subsidiaries has
experienced any strike or slowdown, work stoppage, lockout or other
collective labor action in connection with their business by or with
respect to any Bingham Employees or Former Bingham Employees;
(C) there is no representation claim or petition concerning the
business of Bingham or its Subsidiaries or any Bingham Employee or
Former Bingham Employee pending before any Governmental Authority in
any jurisdiction in which the business of Bingham or its Subsidiaries
conduct business, and no question concerning representation exists
relating to the Bingham Employees;
(D) there are no charges with respect to or relating to the
business of Bingham or its Subsidiaries pending before the Equal
Employment Opportunity Commission or any
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Governmental Authority in any jurisdiction in which Bingham or its
Subsidiaries conduct business responsible for the prevention of
unlawful employment practices;
(E) neither of Bingham nor its Subsidiaries has received formal
notice from any Governmental Authority responsible for the
enforcement of labor or employment laws of an intention to conduct an
investigation of Bingham or its Subsidiaries and no such
investigation is currently in progress; and
(F) to Bingham's Knowledge, no key Bingham Employee or group of
Bingham Employees has any plans to terminate employment with Bingham
or its Subsidiaries prior to or after Closing.
(j) Employee Benefits.
(i) Controlled Group: Except as disclosed in Schedule 4.02(j),
neither Bingham nor any of its Subsidiaries is now, has ever been or
will be at any time prior to the Effective Time, a member of a
Controlled Group.
(ii) Bingham Employee Benefit Plans and Documents: Schedule 4.02(j)
lists each and every Bingham Employee Benefit Plan that Bingham, its
Subsidiaries or any Controlled Group Member now, or will at any time
prior to the Effective Date, maintain, sponsor, participate in or
contribute to with respect to the Bingham Employees or the Former
Bingham Employees, or that Bingham, its Subsidiaries or any Controlled
Group Member ever maintained, sponsored, participated in or made
contributions to with respect to the Bingham Employees or the Former
Bingham Employees. Except as disclosed in Schedule 4.02(j), neither
Bingham nor any of its Subsidiaries or any Controlled Group Member is a
party to any collective bargaining or union contract with respect to the
Bingham Employees or the Former Bingham Employees. Bingham has provided
to Bank true and correct copies of all current and prior material and
readily available documents relating to the Bingham Employee Benefit
Plans listed in Schedule 4.02(j), including, but not limited to: (A)
plan documents, trust documents and plan and trust amendments, in each
case, which implement, relate to, or amend a Bingham Employee Benefits
Plan; (B) summary plan descriptions, amendments thereto, and all other
communication material provided to employees; (C) summaries of material
modifications; (D) insurance (including reinsurance), administrative
services or annuity contracts; (E) collective bargaining agreements or
contracts and all amendments thereto; (F) the most recent financial
statements; (G) with regard to self-funded Welfare Plans, experience and
enrollment data for the prior three plan years as well as documentation
and calculations demonstrating the preset value of accrued obligations
under such plans as of the Effective Date; (H) if Bingham or its
Subsidiaries provide, or have any commitment or obligation to provide,
any Bingham Employee Benefit Plan benefits to their retirees, copies of
all documentation and calculations demonstrating the present value of
such obligation or commitment as of the Effective Date; (I) if Bingham,
its Subsidiaries or any Controlled Group Member maintains a defined
benefit pension plan, as defined in Section 3(35) of ERISA with respect
to the Bingham Employees or the Former Bingham Employees, the most
recent actuarial valuation for each such plan and copies of any funding
waivers and applications therefor, and all related correspondence and
documentation; (J) the three most recent annual reports; (K) agreements
with respect to leased or temporary employees; (L) all government
rulings and opinions, if any (and pending requests for rulings and
opinions, if any); and (M) the most recent IRS determination letters
with respect to the Bingham Employee Benefits Plans listed on Schedule
4.02(j).
(iii) No Minimum Funding Obligations; No Multiemployer Plan,
Multiple Employer Plan or Post-Employment Welfare Plan Liability. No
Bingham Employee Benefit Plan is a, and none of Bingham, any of its
Subsidiaries or any Controlled Group Member has any material liability
or potential liability (including, with respect to clauses (B) and (C)
of this paragraph any actual or potential withdrawal liability)with
respect to any, (A) Pension Plan that is subject to the minimum funding
requirements of Section 412 of the Code or Section 302 of ERISA,
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(B) multiemployer plan (as such term is defined in Section 3(37) of
ERISA), (C) plan of the type described in Sections 4063 and 4064 of
ERISA or in Section 413(c) of the Code (and regulations promulgated
thereunder), or (D) plan which provides health, life insurance, accident
or other "welfare-type" benefits to current or future retirees or
current or future former employees, their spouses or dependents, other
than in accordance with Section 4980B of the Code, Part 6 of Subtitle B
of Title I of ERISA or applicable state continuation coverage law.
(iv) Representations: Except as set forth in Schedule 4.02(j):
(A) Qualification: All the Pension Plans required to be listed
on Schedule 4.02(j), and the related trusts, if any, now meet, and
since their inception have met, and as of the Effective Date shall
meet, in all material respects, the requirements for qualification
under Section 401(a) of the Code and are now, and since their
inception have been, exempt from taxation under Section 501(a) of the
Code;
(B) Determination Letters: The IRS has issued a favorable
determination letter with respect to the qualified status of each
such Pension Plan and trust, and has not taken, nor to the Knowledge
of Bingham, its Subsidiaries and Controlled Group Members, has
reasonable grounds to take any action to revoke such letter;
(C) Satisfaction of Obligations: Bingham, each of its
Subsidiaries and each Controlled Group Member have performed, and
through the Effective Date shall perform, in all material respects,
all obligations required to be performed by them under the Bingham
Employee Benefit Plans (including, but not limited to, the making of
all contributions), and are not in material default under, or in
material violation of, any of the Bingham Employee Benefit Plans, and
none of Bingham, its Subsidiaries, or any Controlled Group Member has
Knowledge of any such material default or violation of any other
party to any and all of the Bingham Employee Benefit Plans;
(D) Compliance With Laws: Each Bingham Employee Benefit Plan has
been, and through the Effective Date shall be, maintained, and funded
in compliance in all material respects with ERISA, the Code, the Age
Discrimination in Employment Act (to the extent applicable), COBRA,
and each other applicable federal, state or local laws, and, if
applicable, each foreign law, and each Bingham Employee Benefit Plan
is valid and binding, in full force and effect, and there are no
material defaults thereunder;
(E) No Prohibited Transactions: None of the Bingham Employee
Benefit Plans, nor any trust created thereunder, any trustee or
administrator thereof, nor Bingham or any of its Subsidiaries, nor
any other Party dealing with any Bingham Employee Benefit Plan has
engaged in any transaction, or will prior to the Effective Date
engage in any transaction, that would trigger a tax under Section
4975 of the Code, or violate Section 406 of ERISA, or, if applicable,
any similar provision under foreign law;
(F) No Claims Pending or Threatened: There are not presently,
nor shall there be prior to the Effective Date, any actions, suits or
claims pending (other than routine claims for benefits) or, to
Bingham's Knowledge, threatened against, any Bingham Employee Benefit
Plan, against the assets of any Bingham Employee Benefit Plan, or
against the Bingham, any of its Subsidiaries or any Controlled Group
Member for benefits arising under or pursuant to any Bingham Employee
Benefit Plan;
(G) Reporting and Disclosure: With regard to each Bingham
Employee Benefit Plan listed in Schedule 4.02(j), Bingham and its
Subsidiaries have complied with, and will through the Effective Date
continue to comply with, all reporting and disclosure requirements of
ERISA and the Code in all material respects;
(H) No Unfunded Liabilities: No Bingham Employee Benefit Plan
has any material unfunded liabilities;
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(I) No Further Liabilities: Except as provided in Schedule
4.02(j), Bingham and its Subsidiaries do not, and shall not as of the
Effective Date, have any liability or obligation to any Bingham
Employee Benefit Plan or to the Pension Benefit Guaranty Corporation,
DOL, Department of Treasury or similar agency of a foreign
government, any other plan or entity, or any employee, participant or
beneficiary of any Bingham Employee Benefit Plan, arising out of or
pursuant to any Bingham Employee Benefit Plan which could subject
Bingham or its Subsidiaries to any material liability;
(J) Termination and Amendment: Except as disclosed in Schedule
4.02(j), each Bingham Employee Benefit Plan listed in Schedule
4.02(j) is, and as of and through the Effective Date, shall be
terminable, and/or subject to amendment by Bingham or its
Subsidiaries, at the discretion of Bingham or its Subsidiaries, with
no liability for benefits incurred after such termination or
inconsistent with the terms of any amendment after its effective
date.
(K) Change of Control Payments: Except as set forth in Schedule
4.02(j), none of the Bingham Employee Benefit Plans obligates Bingham
or any of its Subsidiaries to pay separation, severance, termination
or similar-type benefits solely as a result of any transaction
contemplated by this Agreement or solely as a result of a "change in
control," as such term is contemplated by Section 280G of the Code.
(k) Tax Matters.
(i) Except as would not cause a Bingham Material Adverse Effect or
except as set forth on Schedule 4.02(k):
(A) Bingham, each of its Subsidiaries, each of their affiliated
groups and each of the entities identified on Schedule 4.02(k)
pursuant to Section 4.02(k)(ii)(B) (the "Bingham Predecessors") have
filed all Tax Returns which they are required to file under
applicable laws and regulations, and all such Tax Returns are
complete and correct and have been prepared in compliance with all
applicable laws and regulations;
(B) Bingham, each of its Subsidiaries, each of their affiliated
groups and each of the Bingham Predecessors have paid all Taxes due
and owing by them (whether or not such Taxes are required to be shown
on a Tax Return) and have withheld and paid over to the appropriate
taxing authority all Taxes which they are required to withhold from
amounts paid or owing to any employee, shareholder, creditor or other
third party;
(C) neither Bingham or its Subsidiaries, nor any of their
affiliated groups or the Bingham Predecessors have waived any statute
of limitations with respect to any Taxes or agreed to any extension
of time with respect to any Tax assessment or deficiency;
(D) the accrual for Taxes on Bingham's most recent audited
balance sheet would be adequate to pay all Tax liabilities of Bingham
and its Subsidiaries if their current tax year were treated as ending
on the date of such balance sheet (excluding any amount recorded
which is attributable solely to timing differences between book and
Tax income);
(E) since September 30, 1999, neither Bingham nor any of its
Subsidiaries has incurred any liability for Taxes with respect to
their businesses other than in the ordinary course;
(F) no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted
with respect to Bingham, any of its Subsidiaries, any of their
affiliated groups or any of the Bingham Predecessors;
(G) neither Bingham or its Subsidiaries, nor any of their
affiliated groups or the Bingham Predecessors have received from any
foreign, federal, state or local taxing authority
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any (1) written notice indicating an intent to open an audit or other
review, or (2) request for information related to Tax matters; and
(H) there are no material unresolved questions or claims
concerning any Tax liability of Bingham, its Subsidiaries, or any of
their affiliated groups or the Bingham Predecessors.
(ii) Except as set forth on Schedule 4.02(k), neither Bingham nor
any of its Subsidiaries (A) has made an election under Section 341(f) of
the Code, (B) is liable for the Taxes of another person (1) under
Treasury Regulation Section 1.1502-6 (or comparable provisions of state,
local or foreign law), (2) as a transferee or successor, (3) by contract
or indemnity or (4) otherwise, (C) is a party to any tax sharing
agreement or (D) has made any payments, are obligated to make any
payments or is a party to an agreement that could obligate it to make
any payments that would not be deductible under Section 280G of the
Code.
(l) Environmental Matters. To Bingham's Knowledge, neither the conduct
nor operation of Bingham or its Subsidiaries nor any condition of any
property currently or previously owned or operated by any of them
(including, without limitation, in a fiduciary or agency capacity), or on
which any of them holds a Lien, results or resulted in a violation of any
Environmental Laws and to Bingham's Knowledge, no condition has existed or
event has occurred with respect to any of them or any such property that,
with notice or the passage of time, or both, is reasonably likely to result
in any liability to Bingham or any of its Subsidiaries under or by reason
of any Environmental Laws or Materials of Environmental Concern except
where the conduct, operation, condition or event would not have a Bingham
Material Adverse Effect. To Bingham's Knowledge, except for any notice for
which, in Bingham's reasonable judgment, there is no reasonable basis,
neither Bingham nor any of its Subsidiaries has received any notice from
any person or entity that Bingham or its Subsidiaries or the operation or
condition of any property ever owned, operated, or held as collateral or in
a fiduciary capacity by any of them are or were in violation of or
otherwise are alleged to have liability under any Environmental Law or
relating to Materials of Environmental Concern, including, but not limited
to, responsibility (or potential responsibility) for the cleanup or other
remediation of Materials of Environmental Concern at, on, beneath, or
originating from any such property.
(m) Risk Management Instruments. Except as set forth on Schedule
4.02(m), all material interest rate swaps, caps, floors, option agreements,
futures and forward contracts and other similar risk management
arrangements, whether entered into for Bingham's own account, or for the
account of one or more of Bingham's Subsidiaries or their customers have
been previously disclosed to Bank and were entered into (i) in accordance
with prudent business practices and in all material respects in compliance
with all applicable laws, rules, regulations and regulatory policies and
(ii) with parties believed to be financially responsible at the time; and
each of them constitutes the valid and legally binding obligation of
Bingham or one of its Subsidiaries, enforceable in accordance with its
terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar
laws of general applicability relating to or affecting creditors' rights or
by general equity principles), and is in full force and effect. Neither
Bingham nor its Subsidiaries, nor to Bingham's Knowledge any other party
thereto, is in breach of any of its obligations under any such agreement or
arrangement in any material respect.
(n) Insurance. Except as set forth on Schedule 4.02(n), Bingham and
its Subsidiaries have maintained and now maintain insurance with respect to
their assets and businesses covering property damage by fire or other
casualty, and against such liabilities, claims and risks, including,
without limitation, workers compensation, and in such amounts as is
customary or appropriate in the industry. Schedule 4.02(n) contains a true
and correct summary of all such insurance policies maintained by Bingham
and its Subsidiaries, presently or at any point during the last five years,
setting forth the names of the insured and the insurer, policy numbers, the
types of coverage, premium payments or basis of payment, deductible amounts
and limits of coverage. Except as set forth on Schedule 4.02(n), to the
knowledge of Bingham no such policy of insurance is subject to any
deductible, self-insured retention, retrospective rating agreement,
indemnification agreement or any other method or device by
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which the insured person is subject to all or any part of the liability for
any or all claims. Concurrently with or prior to the execution of this
Agreement, Bingham and its Subsidiaries have delivered to Bank true,
correct and complete copies of all such insurance policies. Except as set
forth on Schedule 4.02(n), all such insurance policies will be in full
force and effect through the Effective Date. To the knowledge of Bingham,
except as set forth on Schedule 4.02(n), there is no state of facts and no
event has occurred forming the basis for any present property, casualty or
fidelity claim against Bingham or its Subsidiaries that is not fully
covered by insurance. Schedule 4.02(n)contains loss runs for the last five
years setting forth all property, general and products liability and
workers compensation claim activity against the businesses of Bingham and
its Subsidiaries, including the date and place of the occurrence, the
claimant's name, reserves, amounts paid, a brief description of the
incident and whether the claim is open or closed. Except as set forth on
Schedule 4.02(n), Bingham has no Knowledge of any occurrence, circumstance,
or event which could reasonably be expected to result in any such claim.
(o) Governmental Reviews. Except as set forth on Schedule 4.02(o), no
investigation or review by any Governmental Authority with respect to
Bingham, any Bingham Subsidiary or any of their officers or directors is
pending or, to the Knowledge of Bingham, threatened, nor has any
Governmental Authority indicated to Bingham or any Bingham Subsidiary an
intention to conduct the same, other than normal or routine regulatory
examinations.
(p) Fairness Opinion. On March 19, 2000, Keefe Bruyette & Woods, Inc.
("Keefe Bruyette") provided to the Bingham Board a written fairness opinion
to the effect that the consideration to be paid by Bingham in the Merger is
fair to the shareholders of Bingham from a financial point of view.
(q) Compliance with Servicing Obligations. Except as set forth on
Schedule 4.02(q) and except for violations and acts of noncompliance that
would not have a Bingham Material Adverse Effect, to the best of Bingham's
Knowledge, Bingham and the Bingham Subsidiaries are in compliance in all
material respects with all contract, agency and investor requirements and
guidelines, and all applicable laws, rules and regulations of Governmental
Authorities, relating to the servicing and administration of loans by them,
or any of them, including but not limited to, properly and timely making
interest rate adjustments to adjustable rate loans.
(r) Intellectual Property. Schedule 4.02(r) sets forth all
Intellectual Property Bingham and its Subsidiaries own or use in their
businesses ("Bingham Intellectual Property"). Bingham and its Subsidiaries
are the sole owners (except for licensed property for which valid and
subsisting licenses exist) of the Bingham Intellectual Property, free of
all Liens. Except as set forth in Schedule 4.02(r), to Bingham's Knowledge,
there is no claim against Bingham or any of its Subsidiaries that the
Bingham Intellectual Property or any of its operations, activities,
products or publications infringes any material patent, trademark, trade
name, copyright or other proprietary or intellectual property right of any
third party or that any of them is illegally using the material trade
secrets or property rights of others in any material respect. To the
knowledge of Bingham, neither Bingham nor any of its Subsidiaries has any
disputes with or claims against, or any basis for claims against, any third
party for infringement by such third party of any Bingham Intellectual
Property.
(s) Material Contracts. Schedule 4.02(s) identifies all of the
Material Contracts of Bingham and its Subsidiaries, true and complete
copies of all of which have been delivered to Bank. Except as set forth on
Schedule 4.02(s), and except for any default which would not constitute a
Bingham Material Adverse Effect, (i) Bingham and each of its Subsidiaries
has complied in all material respects with the provisions of, and is not in
default under, each such Material Contract to which it is a party or any
such default has been waived, and (ii) to the Knowledge of Bingham, no
other party to any such Material Contract has failed to comply in any
material respect with, or is in default under, the provisions of any such
Material Contract.
(t) Real Property Owned. Neither Bingham nor any of its Subsidiaries
own any real property and, except as set forth on Schedule 4.02(t), and
except for real property of the type classified as
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OREO (other real estate owned) on the Bingham's financial statements (i.e.,
foreclosed property not owned for the operation of Bingham's business),
none of them has ever owned any real property.
(u) Real Property Leased. Schedule 4.02(u) sets forth the legal
description for all real properties leased or subleased to Bingham or its
Subsidiaries (the "Bingham Leased Real Property"). Bingham has delivered to
Bank true, correct and complete copies of the leases and subleases listed
on Schedule 4.02(u). Except as set forth on Schedule 4.02(u), neither
Bingham nor any of its Subsidiaries has leased or subleased any real
property during the past three years. Except as set forth on Schedule
4.02(u), with respect to each such lease or sublease:
(i) the lease or sublease is legal, valid, binding, enforceable and
in full force and effect in all material respects;
(ii) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect in all material
respects on identical terms following the Closing;
(iii) neither Bingham, its Subsidiaries, nor, to Bingham's
Knowledge, any other party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse of time,
would constitute such a breach or default or permit termination,
modification or acceleration under the lease or sublease;
(iv) to Bingham's Knowledge, no party to the lease or sublease has
repudiated any of its provisions;
(v) there are no material disputes, oral agreements or forbearance
programs in effect as to the lease or sublease;
(vi) neither Bingham nor any of its Subsidiaries, as applicable,
has assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered all or any portion of their interest in the leasehold or
subleasehold;
(vii) to Bingham's Knowledge, all facilities leased or subleased
under the lease or sublease have been operated and maintained in
accordance with applicable laws, rules and regulations in all material
respects;
(viii) all facilities leased or subleased under the lease or
sublease are supplied with utilities and other services reasonably
necessary for the operation of such facilities;
(ix) all facilities leased or subleased under the lease or sublease
are in good operating condition, and would not, with ordinary wear and
tear, require major repair or replacement during the remainder of the
lease term; and
(x) no property insurer or similar body has made any
recommendations with respect to any parcel of Bingham Leased Real
Property which have not been complied with, and all structures on the
Bingham Leased Real Property meet all qualifications for "highly
protected risk" classification for fire insurance purposes.
(v) Liens. Except as set forth on Schedule 4.02(v), Bingham and its
Subsidiaries own and have good, marketable and unencumbered title to, or an
unencumbered interest in, each item comprising their assets, free and clear
of any and all Liens.
(w) Good Condition. Except as set forth on Schedule 4.02(w), all
facilities used in connection with the operation of the businesses of
Bingham and its Subsidiaries and all of the material assets of Bingham and
its Subsidiaries except real property of a type classified as OREO (other
real estate owned) on the Bingham's financial statements (i.e., foreclosed
property not owned for the operation of the Bingham's business) are free
from material defects (normal wear and tear excepted) and have been
maintained in accordance with normal industry practice.
(x) No Undisclosed Liabilities. Except as and to the extent set forth
on Schedule 4.02(x) or reflected in the Bingham SEC Documents, and except
for current liabilities incurred by Bingham or
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its Subsidiaries in connection with the operation of or with respect to
their businesses in the ordinary course, since September 30, 1999, neither
Bingham nor its Subsidiaries has incurred any debts, liabilities or
obligations of any nature or kind (whether absolute, accrued, contingent,
unliquidated or otherwise, whether or not known to Bingham, whether due or
to become due and regardless of when asserted) arising out of transactions
entered into, at or prior to the Closing, or any action or inaction at or
prior to the Closing or any state of facts existing at or prior to the
Closing and which could have a Bingham Material Adverse Effect. Except as
set forth on Schedule 4.02(x), Bingham has no Knowledge of any existing,
proposed or threatened change which could have a Bingham Material Adverse
Effect. There are no contingent or other liabilities of Bingham or its
Subsidiaries that have not been disclosed in the Schedules to this
Agreement which could have a Bingham Material Adverse Effect.
(y) Recent Conduct of Business; Interim Operations. Except as set
forth on Schedule 4.02(y), since September 30, 1999, there has not been,
and through the Effective Time, there shall not be, any Bingham Material
Adverse Effect. Except as set forth on Schedule 4.02(y) or any other
Schedule to this Agreement, since September 30, 1999, Bingham and its
Subsidiaries have caused their businesses to be conducted only in the
ordinary course. Except as set forth on Schedule 4.02(y) or any other
Schedule to this Agreement, since September 30, 1999, Bingham and its
Subsidiaries have not done any of the actions described in Sections 5.02
(a) through (g), 5.02 (l) through (u) or 5.02(v) as Section 5.02(v) relates
to Sections 5.02(a) through (g) and 5.02(l) through (u).
(z) Brokerage or Finder's Fee. Except for Keefe Bruyette, no broker,
finder, agent or similar intermediary has acted for or on behalf of Bingham
in connection with this Agreement or the transactions contemplated hereby
and, except for the fee payable to Keefe Bruyette by Bingham, no broker,
finder, agent or similar intermediary is entitled to any broker's, finder's
or similar fee or other commission in connection therewith based on any
agreement, arrangement or understanding with Bingham or any action taken by
Bingham.
(aa) Disclosure. No representation or warranty by Bingham contained in
this Agreement and no statement contained in any of the Attendant Documents
or any other certificate or instrument furnished or to be furnished
pursuant to this Agreement or in connection with the transactions
contemplated in this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material
fact, necessary in order to make any of the statements not misleading.
(bb) Capitalization. Bingham and each of its Subsidiaries has one
class of capital stock, common stock, without par value, except for (i) DFI
Alabama and DIA, which each have one class of capital stock, common stock,
$0.01 par value per share, (ii) Hartger & Willard Mortgage Associates,
Inc., which has one class of capital stock, common stock, $1.00 par value
per share, and (iii) BAC and BSC, which are limited liability companies
with one class of ownership interest. Schedule 4.02(bb) sets forth the
number of authorized and the number of issued and outstanding shares of
common stock of Bingham and each of its Subsidiaries. All of the shares of
Bingham Stock and all of the shares of capital stock of each of its
Subsidiaries have been duly authorized and validly issued, are fully paid
and non-assessable and were issued by Bingham and its Subsidiaries without
violating any requirements of law. Except as set forth on Schedule
4.02(bb), (i) there are no preemptive or first refusal rights to purchase
or otherwise acquire shares of Bingham Stock or capital stock of any of
Bingham's Subsidiaries pursuant to the Governing Documents of Bingham or
its Subsidiaries, by agreement or otherwise, (ii) there are no outstanding
agreements, commitments, rights, options, warrants or claims of any nature
whatsoever for the issuance, sale, purchase or redemption of any shares of
Bingham Stock or capital stock of any of Bingham's Subsidiaries or any
securities convertible into or exchangeable for such shares, and (iii)
there are no stock appreciation rights or phantom stock rights outstanding
with respect to the capital stock of Bingham or any of its Subsidiaries.
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(cc) No Knowledge. Except as set forth in Schedule 4.02(cc), Bingham
has no Knowledge whatsoever that any of the representations or warranties
of Bank are untrue in any material respect.
(dd) Affiliate Transactions. Except as set forth on Schedule 4.02(dd),
Bingham has not entered into any business transactions with any of its
Affiliates.
ARTICLE V
COVENANTS
Section 5.01 Bank's Forbearances From the date of this Agreement until the
Effective Time, except as expressly contemplated by this Agreement, without the
prior written consent of Bingham, Bank will not, and will cause each of its
Subsidiaries not to:
(a) Ordinary Course. Conduct the business of Bank and its Subsidiaries
other than in the ordinary and usual course consistent with past practice
or fail to use reasonable efforts to (i) preserve intact in any material
respect their business organizations and assets, and (ii) maintain their
rights, franchises and existing relations with customers, suppliers,
employees and business associates, or take any action reasonably likely to
materially impair Bank's ability to perform any of its obligations under
this Agreement. Notwithstanding the fact that it has customarily done so in
the past, Bank shall not make, declare, pay or set aside for payment any
stock dividend on shares of Bank Stock; provided, however, that Bank may
redeem its subordinated debt in accordance with the terms of the documents
evidencing such debt.
(b) Bank Stock. Other than pursuant to Bank Stock Options outstanding
on the date of this Agreement as disclosed on Schedule 5.01(b) or Bank
Stock Options issued to officers, employees or directors in the ordinary
course of business, (i) issue, sell or otherwise permit to become
outstanding, or authorize the creation of, any additional shares of Bank
Stock or any Rights, or (ii) enter into any agreement with respect to the
foregoing, provided, however, that Bank Stock Options and Bank Stock Plans
may be amended in the ordinary course of business or as contemplated by
this Agreement.
(c) Other Securities. Issue any other capital securities, capital
stock of any Subsidiary, debentures, or subordinated notes other than in
the ordinary course of business.
(d) Dividends, Etc. (i) Except for quarterly dividends (common or
preferred) in the ordinary course of business, make, declare, pay or set
aside for payment any dividend (other than dividends from wholly-owned
Subsidiaries to Bank or another wholly-owned Subsidiary of Bank) on or in
respect of, or declare or make any distribution on any shares of Bank Stock
or (ii) directly or indirectly adjust, split, combine, redeem, reclassify,
purchase or otherwise acquire, any shares of its capital stock or Rights.
(e) Compensation; Employment Agreements, Etc. Except (i) for oral at
will employment agreements, (ii) for normal individual increase in
compensation to employees in the ordinary course of business consistent
with past practice, (iii) for other changes that are required by applicable
law, (iv) to satisfy contractual obligations existing as of the date hereof
that are disclosed on Schedule 5.01(e) in the ordinary course of business,
(v) otherwise in the ordinary course of business, or (vi) as contemplated
by this Agreement, enter into or amend or renew any employment, consulting,
severance or similar agreements or arrangements with any director, officer
or employee of Bank or its Subsidiaries, or grant any salary or wage
increase or increase any employee benefit (including incentive or bonus
payments).
(f) Benefit Plans. Except in the ordinary course of business and
consistent with past practice, to provide incentive to directors, officers
or employees, enter into, establish, adopt, renew, or amend (except as may
be required by applicable law) any pension, profit sharing, employee stock
ownership, retirement, stock option, stock appreciation, phantom stock,
stock purchase, savings, deferred compensation, consulting, bonus, group
insurance or other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement (or similar arrangement) related
thereto, in
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respect of any director, officer or employee of Bank or its Subsidiaries,
or take any action to accelerate the vesting or exercisability of stock
options or other compensation or benefits payable thereunder.
Notwithstanding the foregoing, Bank shall expressly be allowed to amend its
Bank Stock Options and Bank Stock Plans as set forth in the attached
Schedule 5.01(f); provided, however, such amendment shall not result in the
Holding Company or the Surviving Subsidiary having any liability as a
result of changing the tax treatment in connection with the Bank Stock
Options or the exercise thereof. Further, notwithstanding the foregoing,
the Bank shall expressly be allowed to enter into a trust agreement
establishing and funding trusts contemplated in the Severance Agreements;
provided that such trust agreement shall provide that at such time as
Severance Payments or Bank Board Severance Payments (defined below) are no
longer payable to a beneficiary of the trusts established under such trust
agreement, an amount equal to such Severance Payments or Bank Board
Severance Payment, less the amount of trust funds used to pay such
Severance Payments or Bank Board Severance Payments, shall be released from
the trusts established under such trust agreement and paid to the Surviving
Subsidiary; provided further, such trusts will be funded with funds of the
Bank and the trustee of the trusts established under such trust agreement
shall be reasonably acceptable to Bingham; and provided further, such trust
agreement shall specifically provide that the trustee shall pay over the
earnings of the trusts established thereunder to the Surviving Subsidiary
as and when earned or as otherwise acceptable to Bingham.
(g) Dispositions. Except as set forth in Schedule 4.01(y), sell,
transfer, mortgage, encumber or otherwise dispose of or discontinue any of
its material assets, deposits, business or properties except in the
ordinary course of business for fair value consistent with past practice.
(h) Acquisitions. Except in the ordinary and usual course of business
consistent with past practice, acquire all or any portion of, the assets,
business, deposits or properties of any Person or entity.
(i) Governing Documents. Except as contemplated in this Agreement,
amend the Governing Documents of Bank or any of its Subsidiaries.
(j) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required
by generally accepted accounting principles.
(k) Material Contracts. Except as permitted by Sections 5.01(e) and
5.01(f), and to renew real and personal property leases in the ordinary
course of business where the renewal option would otherwise expire, enter
into or terminate any Material Contract or amend or modify in any material
respect or renew any of its existing Material Contracts.
(l) Claims. Except in the ordinary course of business consistent with
past practice or involving an amount not in excess of $100,000, settle any
claim, action or proceeding.
(m) Foreclosure. Foreclose upon or otherwise take title to or
possession or control of any real property without first having an
environmental report thereon.
(n) Deposit Taking and Other Bank Activities. In the case of Bank (i)
voluntarily make any material changes in or to its deposit mix; (ii)
increase or decrease the rate of interest paid on time deposits or on
certificates of deposit, except in a manner consistent with prevailing
banking practice or the Bank's existing strategic plan and year 2000
budget; or (iii) incur any liability or obligation relating to retail
banking and branch merchandising, marketing and advertising activities and
initiatives materially in excess of the amounts previously disclosed to
Bingham.
(o) Facilities. Except as disclosed on Schedule 5.01(o) or as
contemplated in the Bank's existing strategic plan and year 2000 budget, or
as required for technology or facility upgrades, open any new offices or
facilities or expand, close or relocate any existing office or facility.
(p) Investments. Enter into any material securities transaction for
its own account or purchase or otherwise acquire any material amount of
investment securities for its own account except purchases and sales of
securities consistent with past practice (including the Bank's existing
strategic
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plan and year 2000 budget) in order to maintain investment portfolios at
Bank and its Subsidiaries that have risk and asset mix characteristics
substantially similar to those of the respective investment portfolios as
of the date of this Agreement.
(q) Capital Expenditures. Purchase or lease fixed assets where the
amount paid or committed is in excess of $50,000 individually or $250,000
in the aggregate.
(r) Lending. Except as required by action of any Regulatory Authority
(i) make any material changes in its policies concerning loan underwriting
or which persons may approve loans as previously provided in writing to
Bingham (except in the ordinary course of business consistent with past
practice or prevailing banking practices) or fail to materially comply with
such policies; or (ii) make or commit to make any new loan or letter of
credit, or any new or additional discretionary advance under any existing
loan or letter of credit, or restructure any existing loan or letter of
credit in a manner inconsistent with past practice or customary safe and
sound standards.
(s) Acquisition of Loans. Except in the ordinary course of business
and consistent with current policies and guidelines in effect as previously
disclosed to Bingham, purchase any loan, loan participation or other
interest in any loan.
(t) Adverse Actions. (i) Take any action or fail to take any action
while knowing that such action or inaction would, or is reasonably likely
to, prevent or impede the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code; or (ii) knowingly take any
action or fail to take any action that is intended or is reasonably likely
to result in (A) any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect at any time
at or prior to the Effective Time except as expressly permitted by this
Agreement, (B) any of the conditions to the Merger set forth in Article VI
not being satisfied except as expressly permitted by this Agreement or (C)
a material violation of any provision of this Agreement except, in each
case, as may be required by applicable law or regulation.
(u) Risk Management. Except as required by applicable law or as
contemplated by the Bank's existing strategic plan and year 2000 budget,
regulation, (i) implement or adopt any material change in its interest rate
and other risk management policies, procedures or practices; (ii) fail to
follow its existing policies or practices with respect to managing its
exposure to interest rate and other risk; or (iii) fail to use commercially
reasonable means to avoid any material increase in its aggregate exposure
to interest rate risk.
(v) Indebtedness. Incur any indebtedness for borrowed money other than
in the ordinary course of business.
(w) Commitments. Agree or commit to do any of the foregoing.
Section 5.02 Bingham's Forbearances. From the date hereof until the
Effective Time, except as expressly contemplated by this Agreement, without the
prior written consent of Bank, Bingham will not, and will cause each of its
Subsidiaries not to:
(a) Ordinary Course. Conduct the business of Bingham and its
Subsidiaries other than in the ordinary and usual course consistent with
past practice or fail to use reasonable efforts to (i) preserve intact in
any material respect their business organizations and assets, and (ii)
maintain their rights, franchises and existing relations with customers,
suppliers, employees and business associates, or take any action reasonably
likely to materially impair Bingham's ability to perform any of its
obligations under this Agreement. Without limiting the foregoing, Bingham
may not make, declare, pay or set aside for payment any stock dividend on
shares of Bingham's capital stock. Notwithstanding the foregoing, Bingham
may effectuate the DFI Restructuring Plan substantially on the terms set
forth on Schedule 5.02(a) and may enter into commercially reasonable whole
loan sales or loan securitizations.
(b) Bingham Stock. Other than pursuant to options to purchase shares
of Bingham Stock ("Bingham Stock Options") outstanding on the date of this
Agreement as disclosed on Schedule 5.02(b) or Bingham Stock Options and
other stock awards issued to officers, employees or
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directors in the ordinary course of business, (i) issue, sell or otherwise
permit to become outstanding, or authorize the creation of, any additional
shares of Bingham Stock or any Rights, or (ii) enter into any agreement
with respect to the foregoing, provided, however, that options to purchase
Bingham stock and Bingham's stock option plans may be amended in the
ordinary course of business or as contemplated by this Agreement.
(c) Other Securities. Issue any other capital securities, capital
stock of any Subsidiary, debentures, or subordinated notes.
(d) Dividends, Etc. (i) Except for dividends in the ordinary course of
business, make, declare, pay or set aside for payment any dividend (other
than dividends from wholly-owned Subsidiaries to Bingham or another
wholly-owned Subsidiary of Bingham) on or in respect of, or declare or make
any distribution on any shares of Bingham Stock or (ii) directly or
indirectly adjust, split, combine, redeem, reclassify, purchase or
otherwise acquire, any shares of its capital stock or Rights.
(e) Compensation; Employment Agreements, Etc. Except (i) for oral at
will employment agreements, (ii) for normal individual increase in
compensation to employees in the ordinary course of business consistent
with past practice, (iii) for other changes that are required by applicable
law, (iv) to satisfy contractual obligations existing as of the date hereof
that are disclosed on Schedule 5.02(e) in the ordinary course of business,
(v) otherwise in the ordinary course of business, or (vi) as contemplated
by this Agreement, enter into or amend or renew any employment, consulting,
severance or similar agreements or arrangements with any director, officer
or employee of Bingham or its Subsidiaries, or grant any salary or wage
increase or increase any employee benefit (including incentive or bonus
payments).
(f) Benefit Plans. Except in the ordinary course of business and
consistent with past practice to provide incentives to directors, officers
or employees, enter into, establish, adopt, renew, or amend (except as may
be required by applicable law) any pension, profit sharing, employee stock
ownership, retirement, stock option, stock appreciation, phantom stock,
stock purchase, savings, deferred compensation, consulting, bonus, group
insurance or other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement (or similar arrangement) related
thereto, in respect of any director, officer or employee of Bingham or its
Subsidiaries, or take any action to accelerate the vesting or
exercisability of stock options or other compensation or benefits payable
thereunder. Notwithstanding the foregoing, Bingham shall expressly be
allowed to amend the Bingham Stock Plan in accordance with Section 3.06(c).
(g) Dispositions. Except as set forth on Schedule 4.02(y), sell,
transfer, mortgage, encumber or otherwise dispose of or discontinue any of
its material assets, deposits, business or properties except in the
ordinary course of business for fair value consistent with past practice.
(h) Acquisitions. Except as set forth in Schedule 5.02(h) acquire all
or any substantial portion of, the assets, business, deposits or properties
of any Person or entity.
(i) Governing Documents. Except as contemplated in this Agreement,
amend the Governing Documents of Bingham or any of its Subsidiaries.
(j) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required
by generally accepted accounting principles.
(k) Material Contracts. Except as permitted by Section 5.02(e), and to
renew real and personal property leases in the ordinary course of business
where the renewal option would otherwise expire, enter into or terminate
any Material Contract or amend or modify in any material respect or renew
any of its existing Material Contracts.
(l) Claims. Except: (i) in the ordinary course of business consistent
with past practice; (ii) involving an amount not in excess of $100,000; or
(iii) in connection with the DFI Restructuring Plan which, in the
aggregate, involves an amount not in excess of $5,000,000, settle any
claim, action or proceeding.
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(m) Foreclosure. Foreclose upon or otherwise take title to or
possession or control of any real property without first having an
environmental report thereon.
(n) Facilities. Except as disclosed on Schedule 5.02(n), or as
contemplated in Bingham's year 2000 budget or as required for technology or
facility upgrades, open any new offices or facilities or expand, close or
relocate any existing office or facility.
(o) Investments. Enter into any material securities transaction for
its own account or purchase or otherwise acquire any material amount of
investment securities for its own account except purchases and sales of
securities consistent with past practice (including Bingham's year 2000
budget) in order to maintain investment portfolios at Bingham and its
Subsidiaries that have risk and asset mix characteristics substantially
similar to those of the respective investment portfolios as of the date of
this Agreement.
(p) Capital Expenditures. Except as set forth on Schedule 5.02(p),
purchase or lease fixed assets where the amount paid or committed is in
excess of $50,000 individually or $250,000 in the aggregate.
(q) Lending. Except as required by action of any Regulatory Authority
(i) make any material changes in its policies concerning loan underwriting
or which persons may approve as previously provided in writing to Bank
(except in the ordinary course of business consistent with past practice or
prevailing lending practices) loans or fail to materially comply with such
policies; or (ii) make or commit to make any new loan or letter of credit,
or any new or additional discretionary advance under any existing loan or
letter of credit, or restructure any existing loan or letter of credit in a
manner inconsistent with past practice or customary safe and sound
standards.
(r) Acquisition of Loans. Except in the ordinary course of business
and consistent with current policies and guidelines in effect as previously
disclosed to Bank, purchase any loan, loan participation or other interest
in any loan.
(s) Adverse Actions. (i) Take any action or fail to take any action
while knowing that such action or inaction would, or is reasonably likely
to, prevent or impede the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code; or (ii) knowingly take any
action or fail to take any action that is intended or is reasonably likely
to result in (A) any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect at any time
at or prior to the Effective Time except as expressly permitted by this
Agreement, (B) any of the conditions to the Merger set forth in Article VI
not being satisfied except as expressly permitted by this Agreement or (C)
a material violation of any provision of this Agreement except, in each
case, as may be required by applicable law or regulation.
(t) Risk Management. Except as required by applicable law or
regulation or as contemplated by Bingham's year 2000 budget, (i) implement
or adopt any material change in its interest rate and other risk management
policies, procedures or practices; (ii) fail to follow its existing
policies or practices with respect to managing its exposure to interest
rate and other risk; or (iii) fail to use commercially reasonable means to
avoid any material increase in its aggregate exposure to interest rate
risk.
(u) Indebtedness. Incur any indebtedness for borrowed money other than
in the ordinary course of business.
(v) Commitments. Agree or commit to do any of the foregoing.
Section 5.03 Reasonable Efforts. Subject to the terms and conditions of
this Agreement, each Party agrees to use its reasonable efforts in good faith to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper, desirable, or advisable to consummate the Merger and
all other transactions contemplated in this Agreement as promptly as
practicable. Each Party will cooperate fully with the other Parties to that end.
A Party's reasonable efforts will include, without limitation, (a) using
reasonable efforts to obtain all necessary consents, approvals or waivers from
Regulatory
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Authorities necessary to consummate the Merger, including without limitation
making any revisions to loan reserves required by the Regulator, and (b)
opposing vigorously any litigation or administrative proceeding or directive
relating to this Agreement or the Merger, including, if necessary, promptly
appealing any adverse court or agency order.
Section 5.04 Shareholder Approvals. Bingham and Bank agree to take, in
accordance with applicable law and NASD rules and their Governing Documents, all
action necessary to convene an appropriate meeting of their shareholders to
consider and vote upon, in the case of Bank, the adoption of this Agreement and
the approval of the Merger, and in the case of Bingham to approve (a) this
Agreement and the transactions it contemplates, including (i) the issuance of
Bingham Common Stock in the Merger, (ii) the conversion of Bank Stock Options
into Bingham stock options, (iii) the assumption of the Bank Stock Plans by
Bingham, and (iv) the amendment of the Bingham Stock Plan as contemplated in
Section 3.06 (c), and (b) a plan to reconstitute the Holding Company Board as
set forth in Section 5.14(a), and in each case any other matter required to be
approved by shareholders to consummate the Merger (including any adjournment or
postponement, the "Bingham Meeting" or "Bank Meeting", as applicable), in each
case as promptly as practicable after the Registration Statement is declared
effective (collectively, the "Shareholder Approvals"). The Bingham Board and the
Bank Board shall each recommend adoption or approval, and Bingham and Bank shall
take all reasonable, lawful action to solicit adoption or approval by its
shareholders, except to the extent that their fiduciary obligations require them
to do otherwise.
Section 5.05 Registration Statement.
(a) Bingham and Bank agree to jointly promptly prepare a registration
statement on Form S-4 (the "Registration Statement") to be filed by them
with the SEC in connection with the issuance of Bingham Common Stock in the
Merger (including the joint proxy statement and prospectus and other
necessary proxy solicitation materials of Bingham and Bank (the "Proxy
Statement") and all related documents). Subject to compliance by Bingham
and Bank with Sections 5.05(b) and (c), the Registration Statement will
comply in all material respects with applicable federal securities laws.
Bingham and Bank agree to cooperate, and to cause their Subsidiaries to
cooperate, with each other, their counsel and their accountants, in
preparing the Registration Statement and the Proxy Statement. Bingham and
Bank agree to file the Registration Statement (or the form of the Proxy
Statement) in preliminary form with the SEC as promptly as reasonably
practicable and will use reasonable efforts to cause the filing to occur
within 45 days after the Parties execute this Agreement. If the Proxy
Statement is filed in preliminary form, the Registration Statement will be
filed with the SEC as soon as reasonably practicable after any SEC comments
with respect to the preliminary Proxy Statement are resolved. Each of Bank
and Bingham agrees to use all reasonable efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
reasonably practicable after it is filed. Each of Bank and Bingham also
agrees to use reasonable efforts to obtain, before the effective date of
the Registration Statement, all state securities law or "Blue Sky" permits
and approvals required to consummate the Merger. Each of Bank and Bingham
agrees to give the other all information concerning it, its Subsidiaries,
officers, directors and shareholders that the other reasonably requests in
connection with the foregoing.
(b) Each of Bank and Bingham agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it
for inclusion or incorporation by reference in (i) the Registration
Statement will, at the time the Registration Statement and each amendment
or supplement to it, if any, becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Proxy Statement and any
amendment or supplement to it will, at the date of mailing to shareholders
and at the time of the Bingham Meeting or the Bank Meeting, as the case may
be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or any statement that, in the light of
the circumstances under which such statement is made, will be false or
misleading with respect to any material fact, or that will omit to state
any
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material fact necessary in order to make the statements therein not false
or misleading or necessary to correct any statement in any earlier
statement in the Proxy Statement or any amendment or supplement thereto.
Each of Bank and Bingham further agrees to promptly inform the other if it
becomes aware before the Effective Date of any information furnished by it
that would cause any of the statements in the Proxy Statement to be false
or misleading with respect to any material fact, or to omit to state any
material fact necessary to make the statements therein not false or
misleading, and to take the necessary steps to correct the Proxy Statement.
(c) Bingham agrees to advise Bank, promptly after it receives notice
thereof, if (i) any stop order has been issued or the Bingham Common Stock
for offering or sale has been suspended or qualified in any jurisdiction or
(ii) a threat of any proceeding for any such purpose has been initiated.
Section 5.06 Proxy Solicitors. Each of Bingham and Bank, in consultation
with the other, will employ professional proxy solicitors to assist it in
contacting shareholders in connection with soliciting votes on the matters to be
considered and voted upon at the Bingham Meeting and Bank Meeting. Bank and
Bingham shall share equally all costs and fees associated with the retention of
proxy solicitors.
Section 5.07 Access; Information.
(a) Each of Bank and Bingham agrees that upon reasonable notice it
shall afford the other Party and the other Party's Representatives such
access during normal business hours throughout the period prior to the
Effective Time to the books, records (including, without limitation, Tax
Returns and work papers of independent auditors), properties, personnel and
to such other information as any Party may reasonably request. During that
period, it shall furnish promptly to the other Party (i) a copy of each
material report, schedule and other document filed by it pursuant to the
requirements of federal or state securities or banking laws, and (ii) all
other information concerning the business, properties and personnel of it
and its Subsidiaries as the other Party may reasonably request.
(b) During the period from the date of this Agreement to the Effective
Time, each of Bingham and Bank agrees to promptly give to the other copies
of all monthly and other interim financial statements produced in the
ordinary course of business as they become available.
(c) Notwithstanding anything to the contrary set forth in this Section
5.07 or otherwise, except with respect to the obligation of the Bank to
provide the 1999 Work Papers to Bingham and its auditors, and Bingham and
its auditors having the opportunity to review and approve the same, and
except as set forth in a letter dated March 19, 2000 directed to the Bank
by Bingham, each of Bank and Bingham acknowledges that it has completed its
respective due diligence investigations in connection with the Merger and
is satisfied with the results thereof. Accordingly, each agrees that
neither has the right to terminate this Agreement except as provided in
Article VIII or the letter described in the preceding sentence.
Section 5.08 Exclusivity.
(a) From and after the date of this Agreement until the Effective
Time, neither Bank nor Bingham shall offer to sell its business, stock or
assets to (a "Unilateral Offer"), or carry on negotiations with respect to
the sale of its business, stock or assets with, any party other than the
other Party or the other Party's Affiliates. Notwithstanding the foregoing
sentence, either the Bank Board or the Bingham Board may consider
unsolicited bona fide third-party offers to purchase its business, stock or
assets ("Unsolicited Offers") if it determines in good faith after
consultation with legal counsel that such action is necessary for it to act
in a manner consistent with fiduciary duties under applicable law. If
either Bingham or Bank receives an Unsolicited Offer, it must within 24
hours of its receipt advise the other Party that it has received the
Unsolicited Offer, disclose its terms (including the identity of the person
making the Unsolicited Offer), and advise the other Party of any material
developments concerning the Unsolicited Offer immediately as they occur.
(b) Bank acknowledges that Bingham has filed an application with the
OTS seeking a charter (the "OTS Charter") to become a Federal Savings Bank.
Bank acknowledges that Bingham's pursuit
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of the Merger may jeopardize attainment of the OTS Charter and that
significant incurred expenses will be lost by Bingham without benefit. In
consideration of these events, Bingham's execution of this Agreement,
Bingham's expenses incurred in connection with this Agreement and the
Merger, and lost opportunities incurred by Bingham as the result of
pursuing the Merger, Bank shall pay $3,000,000 to Bingham as liquidated
damages (and not as a penalty) if before the Effective Time, (i) Bank makes
a Unilateral Offer or enters into negotiations with respect to a Unilateral
Offer or an Unsolicited Offer, and (ii) the Merger is abandoned or
terminated by Bank as a result of considering that Unilateral Offer or
Unsolicited Offer. Bingham and Bank acknowledge that Bingham's damages if
the Merger is abandoned or terminated as described in this clause would be
incapable of accurate calculation and that $3,000,000 is a reasonable
estimate of Bingham's actual damages.
(c) In consideration of Bank's execution of this Agreement, Bank's
expenses incurred in connection with this Agreement and the Merger, and
lost opportunities incurred by Bank as the result of pursuing the Merger,
Bingham shall pay $3,000,000 to Bank as liquidated damages (and not as a
penalty) if before the Effective Time, (i) Bingham makes a Unilateral Offer
or enters into negotiations with respect to a Unilateral Offer or an
Unsolicited Offer, and (ii) the Merger is abandoned or terminated by
Bingham as a result of considering that Unilateral Offer or Unsolicited
Offer. Bingham and Bank acknowledge that Bank's damages if the Merger is
abandoned or terminated as described in this clause would be incapable of
accurate calculation and that $3,000,000 is a reasonable estimate of Bank's
actual damages.
Section 5.09 Takeover Laws. No Party may take any action that would cause
the transactions contemplated by this Agreement to be subject to requirements
imposed by any "moratorium", "control share", "fair price", "affiliate
transactions", "business combination" or other anti-takeover laws or regulations
("Takeover Laws") and each Party will take all necessary steps within its
control to exempt (or ensure the continued exemption of) the transactions
contemplated by this Agreement from, or if necessary, challenge the validity or
applicability of, any applicable Takeover Law, as now or hereafter in effect.
Section 5.10 Listing. Bingham agrees to use its reasonable efforts before
the Effective Time and subject to official notice of issuance, to list all
shares of Bingham Common Stock, including the shares to be issued in the Merger,
on the NASDAQ National Market.
Section 5.11 Regulatory Applications.
(a) Bingham and Bank and their respective Subsidiaries will cooperate
and use their reasonable efforts to (i) promptly prepare all documentation,
to effect all filings and to obtain all permits, consents, approvals and
authorizations of all third parties and Governmental Authorities necessary
to consummate the transactions contemplated by this Agreement, and (ii)
file within 45 days of the date of this Agreement, the applications
necessary to obtain the permits, consents, approvals and authorizations of
all Regulatory Authorities necessary to consummate the Merger. Each of
Bingham and Bank may review in advance, and to the extent practicable each
will consult with the other with respect to all material written
information submitted to any third party or any Governmental Authority in
connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each Party agrees to act reasonably and as
promptly as practicable. Each of Bingham and Bank agrees that it will
consult with the other with respect to the obtaining of all material
permits, consents, approvals and authorizations of all third parties and
Governmental Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement. Each of Bingham and Bank will
keep the other apprised of the status of material matters relating to
completion of the transactions contemplated by this Agreement.
(b) Each of Bingham and Bank agrees, upon request, to furnish the
other with all information concerning itself, its Subsidiaries, directors,
officers and shareholders and such other matters as may be reasonably
necessary or advisable in connection with any filing, notice or application
made by or on behalf of such other party or any of its Subsidiaries to any
third party or Governmental Authority.
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Section 5.12 Benefit Plans. At the Effective Time, Bingham shall be
substituted for Bank or a Bank Subsidiary as the sponsoring employer under those
employee benefit and welfare plans with respect to which Bank or any of its
Subsidiaries is a sponsoring employer, and any other employee benefit programs,
policies, agreements and arrangements of Bank or its Subsidiaries in effect
immediately prior to the Effective Time (collectively, the "Bank Arrangements").
Bingham shall assume and be vested with all of the powers, rights, duties,
obligations and liabilities previously vested in Bank or the applicable Bank
Subsidiary with respect to each such Bank Arrangement. Except as otherwise
provided in this Agreement, and except as otherwise covered under the Bank
Arrangements, each such Bank Arrangement shall be continued in effect by Bingham
after the Effective Time without a termination or discontinuance thereof as a
result of the Merger, subject to the power reserved to Bingham under each such
Bank Arrangement to subsequently amend or terminate the Bank Arrangement, which
amendments or terminations shall comply with applicable law. Bank, each Bank
Subsidiary, and Bingham will use all reasonable efforts (i) to effect said
substitutions and assumptions, and such other actions contemplated under this
Agreement, and (ii) to amend such Bank Arrangements to the extent necessary to
provide for said substitutions and assumptions, and such other actions
contemplated under this Agreement.
Section 5.13 Notification of Certain Matters. Each of Bank and Bingham
shall give prompt notice to the other of any fact, event or circumstance known
to it that (a) is reasonably likely, individually or taken together with all
other facts, events and circumstances known to it, to result in any Bank
Material Adverse Effect or Bingham Material Adverse Effect, respectively, (b)
would cause or constitute a material breach of any of its representations,
warranties, covenants or agreements in this Agreement as of the date of this
Agreement or (c) would cause or constitute a material breach of any of its
representations, warranties, covenants or agreements in this Agreement, arising
from events or circumstances after the date of this Agreement or otherwise.
Section 5.14 Holding Company Board
(a) At the Effective Time, Bingham shall cause the Holding Company
Board to be reconstituted to consist of twelve directors, six of which will
be designated by Bingham and five of which will be designated by Bank prior
to the Effective Time. Of the five directors appointed by Bank, the term of
two will expire on the date of the first annual meeting of the Holding
Company after the Effective Date, the terms of two will expire on the date
of the second annual meeting of the Holding Company after the Effective
Date, and the term of the fifth will expire on the date of the third annual
meeting of the Holding Company after the Effective Date. The twelfth
director shall be the CEO of the Surviving Subsidiary. Before the Effective
Time, Bank and Bingham shall identify their designees for the Holding
Company Board on Schedule 5.14(a), which Schedule shall also set forth the
initial term of each director.
(b) Schedule 5.14(b) lists all the Severance Agreements, the amount of
all Severance Payments, and the amount of the Severance Payments that would
be due to each of the current non-employee directors of Bank (the "Current
Non-Employee Bank Directors") if each such Current Non-Employee Bank
Director were to be terminated on December 31, 2000 (the "Bank Board
Severance Payments"). At or before the Effective Time, any Current
Non-Employee Bank Director that is designated by Bank to serve as a
director of the Holding Company after the Effective Time pursuant to
Section 5.14(a) above, shall enter into a new severance agreement with the
Holding Company substantially in the form of Exhibit A attached hereto (the
"New Holding Company Severance Agreement") which provides, among other
things, that (i) such Current Non-Employee Bank Director's current
Severance Agreement with Bank will be terminated if he or she is elected to
the Holding Company Board at or around the Effective Date and will be
replaced with the New Holding Company Severance Agreement; (ii) the
aggregate amount of Bank Board Severance Payments payable to such Current
Non-Employee Bank Director at any time after the Effective Time will not
exceed the aggregate amount of Bank Board Severance Payments to be paid to
such person as shown on Schedule 5.14(b); (iii) subject to clause (v) of
this Section 5.14(b), such Current Non-Employee Bank Director who serves as
a Holding Company director after the Effective Date shall be entitled to
receive the Bank Board Severance Payments shown for such person on Schedule
5.14(b) if he or she
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resigns from, fails to be re-elected to or is removed from the Holding
Company Board within two years of the Effective Date, and the New Holding
Company Severance Agreement with such Current Non-Employee Bank Director
who serves as a Holding Company director after such two-year period shall
thereupon terminate and he or she shall not be entitled to any Bank Board
Severance Payments whatsoever; (iv) subject to clause (v) of this Section
5.14(b), any Current Non-Employee Bank Director who is elected to a term on
the Holding Company Board expiring more than two years after the Effective
Date but who dies before the second anniversary of the Effective Date shall
be entitled to receive the Bank Board Severance Payments shown for such
person on Schedule 5.14(b); (v) notwithstanding any provisions of clauses
(iii) or (iv) of this Section 5.14(b) to the contrary, in the event a
Current Non-Employee Bank Director who is elected to serve on the Holding
Company Board for a term expiring on the date of the first annual meeting
of the Holding Company after the Effective Date and who is also serving on
the Surviving Subsidiary Board on the Effective Date shall be elected to
serve on the Holding Company Board after the first annual meeting of the
Holding Company after the Effective Date, such Current Non-Employee Bank
Director shall no longer be entitled to any Bank Board Severance Payments
whatsoever, provided, however, that such person will not lose his
eligibility for Bank Board Severance Payments by virtue of serving a second
and/or third year on the Surviving Subsidiary Board as long as he is not
then serving on the Holding Company Board; and (vi) such Current
Non-Employee Bank Director shall not be entitled to cancel his or her Bank
Stock Options and receive payments in connection therewith by reason of the
occurrence of the Merger, or otherwise, unless Bingham elects to have such
Bank Stock Options cancelled and cause payments to be made in connection
therewith.
Section 5.15 Surviving Subsidiary Board
(a) At the Effective Time, the Surviving Subsidiary Board shall be
constituted so that four members of the Surviving Subsidiary Board will be
designated by Bank plus one shall be the CEO of the Surviving Subsidiary,
who shall be selected with the mutual consent of Bingham and Bank. The
remaining six members of the Surviving Subsidiary Board will be designated
by Bingham. In addition to designating four of the Surviving Subsidiary
directors after the Closing, Bank will be entitled to designate one
non-voting observer to the Surviving Subsidiary Board to serve at the
Surviving Subsidiary Board's discretion, who shall be entitled to receive
all materials and information provided to the Surviving Subsidiary
directors, shall be entitled to attend Surviving Subsidiary Board meetings
and shall be paid as if he were a Surviving Subsidiary director. Before the
Effective Time, Bank and Bingham shall identify their designees for the
Surviving Subsidiary Board on Schedule 5.15(a). Bingham shall use its
reasonable efforts to re-nominate the members of the Surviving Subsidiary
Board designated by the Bank for two successive one year terms following
the term commencing on, or running at the time of, the Effective Date.
(b) At or before the Effective Time, any Current Non-Employee Bank
Director that is designated by Bank to serve as a director of Bank after
the Effective Time pursuant to Section 5.15(a) above, shall enter into a
new severance agreement with Bank substantially in the form of Exhibit B
attached hereto (the "New Bank Severance Agreement") which provides, among
other things, that (i) such Current Non-Employee Bank Director's current
Severance Agreement with Bank will be terminated if he or she is elected to
the Bank Board at or around the Effective Date and will be replaced with
the New Bank Severance Agreement; (ii) the aggregate amount of Bank Board
Severance Payments payable to each such Current Non-Employee Bank Director
at any time after the Effective Time will not exceed the aggregate amount
of Bank Board Severance Payments to be paid to such person as shown on
Schedule 5.14(b); (iii) such Current Non-Employee Bank Director who serves
as a director of the Surviving Subsidiary but not as a director of the
Holding Company after the Effective Date shall be entitled to receive all
Bank Board Severance Payments shown for such person on Schedule 5.14(b) if
he or she resigns from, is removed from or fails to be re-elected to the
Surviving Subsidiary Board through a period ending three years after the
Effective Date; (iv) at the expiration of that three-year period, the New
Bank Severance Agreement with such Current Non-Employee Bank Director shall
terminate if he or she continues to serve as a director of
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Surviving Subsidiary and he or she shall not be entitled to any Bank Board
Severance Payments whatsoever; and (v) such Current Non-Employee Bank
Director shall not be entitled to cancel his or her Bank Stock Options and
receive payments in connection therewith by reason of the occurrence of the
Merger, or otherwise, unless Bingham elects to have such Bank Stock Options
cancelled and cause payments to be made in connection therewith.
Notwithstanding anything to the contrary set forth in this Section 5.15(b),
in the event that any Current Non-Employee Bank Director shall no longer be
entitled to any Bank Board Severance Payments pursuant to clause (v) of
Section 5.14(b) above, such Current Non-Employee Bank Director shall not be
entitled to any Bank Board Severance Payments by virtue of any provision of
this Section 5.15(b).
Section 5.16 Management
(a) Bingham and Bank contemplate that, after the Effective Date (i)
Ronald A. Klein will continue to be the President and CEO of the Holding
Company, (ii) Gary A. Shiffman will continue to be the Chairman of the
Board of the Holding Company and (iii) David F. Simon will be an Executive
Vice President of the Holding Company.
(b) Before the Effective Time, the person who will serve as the CEO of
the Surviving Subsidiary after the Effective Date will be appointed with
the consent of both Bingham and Bank. Bingham and Bank contemplate that
David F. Simon will serve as Chairman of the Board of the Surviving
Subsidiary after the Effective Date in accordance with the terms and
conditions of his employment agreement with Bank.
Section 5.17 Appointment of Independent ESOP Trustee; Meeting of ESOP
Participants. Bank shall appoint an independent trustee of the ESOP (the "ESOP
Trustee") to take all actions necessary in accordance with applicable law and
the terms of the ESOP to convene a meeting of the ESOP participants to consider
the approval of this Agreement and the transactions contemplated hereby
(including the Merger and issuance of Bingham Common Stock to be issued in the
Merger), before the Bank Meeting. The ESOP Trustee shall vote any and all shares
of Bank Common Stock owned by the ESOP pursuant to the terms of the ESOP and
applicable law (including, without limitation, securities laws and applicable
provisions of ERISA, the Code and regulations promulgated thereunder).
ARTICLE VI
CLOSING CONDITIONS
Section 6.01 Conditions Precedent to Each Party's Obligation. The
respective obligation of each of Bingham and Bank to consummate the transactions
contemplated in this Agreement at the Closing is subject to the satisfaction of
all of the following conditions, any of which may be waived in writing by the
Party not responsible for satisfying the condition, or by both Parties if they
are both responsible for satisfying the condition:
(a) Shareholder Approvals. The Shareholder Approvals shall have been
obtained.
(b) Regulatory Approvals. The Regulator shall have approved the Merger
in accordance with applicable law. All consents, approvals, authorizations,
designations, declarations, filings and notices set forth on Schedules
4.01(b) and 4.02(b) shall have been obtained or made and shall remain in
full force and effect and all statutory waiting periods with respect
thereto shall have expired and no such approvals shall contain (i) any
conditions, restrictions or requirements which the Bingham Board or the
Bank Board reasonably determines would either before or after the Effective
Time have a Bingham Material Adverse Effect or a Bank Material Adverse
Effect or (ii) any conditions, restrictions or requirements that are not
customary and usual for approvals of such type and which the Bingham Board
or the Bank Board reasonably determines would either before or after the
Effective Time be unduly burdensome.
(c) No Injunction. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or
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other order (whether temporary, preliminary or permanent) which is in
effect and prohibits consummation of the Merger.
(d) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
(e) Blue Sky Approvals. All permits and other authorizations under
state securities laws necessary to consummate the transactions contemplated
hereby and to issue the shares of Bingham Common Stock to be issued in the
Merger shall have been received and be in full force and effect.
(f) Listing. The shares of Bingham Common Stock to be issued in the
Merger shall have been approved for listing on the NASDAQ National Market,
subject to official notice of issuance.
(g) Litigation. There shall not be any litigation, action, suit,
claim, proceeding, order, investigation or inquiry pending or threatened
before any court or quasi-judicial or administrative agency to, or pursuant
to which a judgment, order, decree, stipulation, injunction or charge could
be entered, which could enjoin or prevent the consummation of the Merger or
cause any of the transactions contemplated in this Agreement or the
Attendant Documents to be rescinded following consummation thereof.
(h) Surviving Subsidiary CEO. The Bingham Board and the Bank Board
shall have each approved the selection of, and compensation arrangement
for, the Surviving Subsidiary's CEO.
(i) No Change to Business Plan. There shall have been no material
change to the business plan of the Surviving Subsidiary previously approved
by the Bingham Board and the Bank Board, unless the Bingham Board and the
Bank Board approve such change before the Effective Time.
(j) The Holding Company Board and the Surviving Subsidiary Board shall
have been reconstituted as provided in Sections 5.14(a) and 5.15(a),
respectively. The persons identified on Schedules 5.14(a) and 5.15(a) and
Sections 5.16(a) and 5.16(b) shall have been appointed to the Holding
Company Board and the Surviving Subsidiary Board or to serve as an officer
of the Holding Company or the Surviving Subsidiary, as applicable, to serve
until their respective successors are duly elected and have qualified.
Section 6.02 Conditions Precedent to Bank's Obligation. The obligation of
Bank to consummate the transactions contemplated in this Agreement at the
Closing is subject to the satisfaction of all of the following conditions, any
of which may be waived in writing by Bank:
(a) Representations and Warranties. All representations and warranties
made by Bingham in this Agreement shall have been true and correct in all
material respects on the date of this Agreement and shall be true and
correct in all material respects as of the Effective Date with the same
force and effect as if they had been made on and as of such date.
(b) Performance of Obligations of Bingham. Bingham and its
Subsidiaries shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the
Effective Time.
(c) Approvals. Bingham shall have obtained, performed or given all of
the consents, approvals, authorizations, designations, declarations,
filings and notices set forth on Schedule 4.02(b), in accordance with the
terms and conditions of this Agreement.
(d) Updating of Disclosure Schedules. From the date of this Agreement
until the Effective Time, Bingham shall have updated all of the Schedules
to this Agreement and shall have promptly notified Bank of any changes or
additions or events which may cause any material change or addition to any
such Schedules or in any representation or warranty made pursuant to
Section 4.02. Subject to the other provisions of this Section 6.02(d),
neither the immediately preceding sentence nor any notice by Bingham
pursuant to this Section 6.02(d) shall be deemed in any way to constitute a
waiver by Bank of the condition set forth in Section 6.02(a).
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(e) Termination. This Agreement shall not have been terminated
pursuant to Article VIII.
(f) Delivery of Closing Documents. Bingham shall have executed and
delivered, or caused to be executed and delivered, all of the documents
described in Section 7.03. All documents relating to the transactions
contemplated in this Agreement shall be reasonably satisfactory in form and
content to Bank and its legal counsel.
(g) Operation of Business and Material Adverse Effect. Bingham and its
Subsidiaries shall have continued to operate their businesses in the
ordinary course through the Effective Time. Since the date of this
Agreement, no change shall have occurred which could have a Bingham
Material Adverse Effect.
Section 6.03 Conditions to Bingham's Obligation. The obligation of Bingham
to consummate the transactions contemplated in this Agreement at the Closing is
subject to the satisfaction of all of the following conditions, any of which may
be waived in writing by Bingham:
(a) Representations and Warranties. All representations and warranties
made by Bank in this Agreement shall have been true and correct in all
material respects on the date of this Agreement and shall be true and
correct in all material respects as of the Effective Date with the same
force and effect as if they had been made on and as of such date.
(b) Performance of Obligations of Bank. Bank shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time.
(c) Approvals. Bank shall have obtained, performed or given all of the
consents, approvals, authorizations, designations, declarations, filings
and notices set forth on Schedule 4.01(b), in accordance with the terms and
conditions of this Agreement.
(d) Updating of Disclosure Schedules. From the date of this Agreement
until the Effective Time, Bank shall have updated all of the Schedules to
this Agreement and shall have promptly notified Bingham of any changes or
additions or events which may cause any material change or addition to any
such Schedules or in any representation or warranty made pursuant to
Section 4.01. Subject to the other provisions of this Section 6.03(d),
neither the immediately preceding sentence nor any notice by Bank pursuant
to this Section 6.03(d) shall be deemed in any way to constitute a waiver
by Bingham of the condition set forth in Section 6.03(a).
(e) Termination. This Agreement shall not have been terminated
pursuant to Article VIII.
(f) Delivery of Closing Documents. Bank shall have executed and
delivered, or caused to be executed and delivered, all of the documents
described in Section 7.02. All documents relating to the transactions
contemplated in this Agreement shall be reasonably satisfactory in form and
content to Bingham and its legal counsel.
(g) Operation of Business and Material Adverse Change. Bank and its
Subsidiaries shall have continued to operate their businesses in the
ordinary course through the Effective Time. Since the date of this
Agreement, no change shall have occurred which could have a Bank Material
Adverse Effect.
(h) Compensation Amendments. The New Holding Company Severance
Agreements and the New Bank Severance Agreements as contemplated by
Sections 5.14(b) and 5.15(b) shall have been executed and delivered by the
applicable Current Non-Employee Bank Directors.
(i) ESOP Compliance. The ESOP Trustee shall have complied with all
provisions of the Governing Documents of the ESOP and all provisions of
applicable law necessary for the consummation of the transactions
contemplated by this Agreement.
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ARTICLE VII
CLOSING
Section 7.01 Closing. The closing (the "Closing") of the transactions
contemplated in this Agreement shall take place as soon as reasonably possible
following execution of the Agreement and the satisfaction of each of the
conditions precedent set forth in Article VI; provided, however, that in no
event shall the Closing take place after the Walk Away Date. The Parties shall
mutually agree on the date of the Closing consistent with the immediately
preceding sentence. As used in this Agreement, the "Effective Date" means the
date on which the Closing actually occurs and "Effective Time" means the time on
the Effective Date when the Merger becomes effective. The Closing shall take
place at the offices of Bingham's counsel, Jaffe, Raitt, Heuer & Weiss,
Professional Corporation, One Woodward Avenue, Suite 2400, Detroit, Michigan, or
at such other location and in such other manner as the Parties may mutually
agree.
Section 7.02 Deliveries at Closing by Bank. At the Closing, Bank shall
properly execute (if necessary) and deliver to Bingham, or cause to be executed
and delivered to Bingham, the following:
(a) An opinion of Bodman, Longley & Dahling LLP, counsel to Bank,
addressed to Bingham, in form and substance reasonably satisfactory to
Bingham and its counsel to the effect that, among other things: (i) the
Merger will qualify as a tax-free "reorganization" under Section 368(a) of
the Internal Revenue Code, (ii) no gain or loss will be recognized by Bank
or Bingham by reason of the Merger, (iii) no gain or loss will be
recognized by any shareholder of Bank upon the exchange of Bank Common
Stock solely for Bingham Common Stock in the Merger, (iv) the basis of the
Bingham Common Stock received by each Bank shareholder who exchanges Bank
Common Stock for Bingham Common Stock in the Merger will be the same as the
shareholder's basis in the Bank Common Stock surrendered in exchange
therefor (subject to any adjustments required as the results of receipt of
cash in lieu of a fractional share of Bingham Common Stock), (v) the
holding period of the Bingham Common Stock received by each Bank
shareholder in the Merger will include the holding period of the Bank
Common Stock surrendered in exchange therefor, provided that such shares of
Bank Common Stock were held as a capital asset by such shareholder at the
Effective Time, (vi) cash received by each Bank shareholder in lieu of a
fractional share interest of Bingham Common Stock as part of the Merger
will be treated as having been received as a distribution in full payment
in exchange for the fractional share interest of Bingham Common Stock which
such shareholder would otherwise be entitled to receive and will qualify as
capital gain or loss (assuming the Bank Common Stock was a capital asset in
such shareholder's hands at the Effective Time), and (vii) Franklin Finance
qualifies as a real estate investment trust under the Code.
(b) A copy of each of Bank's Governing Documents, certified when
applicable by the OCC, and a Certificate of Good Standing (or analogous
document) for Bank issued by every state in which it is authorized to do
business. All such documents shall be dated not earlier than 30 days prior
to the Effective Date.
(c) The resignations of each officer and director of Bank and its
Subsidiaries other than those who, with Bingham's and Bank's consent,
desire to remain as officers or directors of the Surviving Subsidiary and
its Subsidiaries.
(d) Bank's Certificates.
(i) A "Closing Certificate", executed by an officer of Bank, to the
effect that (A) all of the representations and warranties made by Bank
in this Agreement are true and correct in all material respects on the
Effective Date with the same force and effect as though made on and as
of the Effective Date, (B) Bank has performed and complied in all
material respects with all of its obligations under this Agreement which
are to have been performed or complied with on or before the Effective
Date, (C) since the date of this Agreement, Bank and its Subsidiaries
have operated their businesses only in the ordinary course, and (D)
there has been no Bank Material Adverse Effect from the date of this
Agreement to the Effective Date.
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(ii) A "Secretary's Certificate", executed by the Secretary or
Assistant Secretary of Bank, attaching a copy of Bank's Governing
Documents and copies of the resolutions of the Bank Board and the Bank's
shareholders approving the transactions contemplated in this Agreement.
The officer executing such certificate shall certify that, as of the
Effective Date, such Governing Documents and resolutions are true,
complete and correct, have not been altered or repealed and are in full
force and effect.
(e) Such other documents and instruments as are contemplated in this
Agreement (or as the Parties have contemplated in connection with this
Agreement) or as Bingham or its counsel may reasonably request in order to
evidence or consummate the transactions contemplated in this Agreement or
to effectuate the purpose or intent of this Agreement.
Section 7.03 Deliveries at Closing by Bingham. At the Closing, Bingham
shall properly execute (if necessary) and deliver to Bank, or cause to be
executed and delivered to Bank, the following:
(a) An opinion of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation, counsel to Bingham and Merger Sub, addressed to Bank, in form
and substance reasonably satisfactory to Bank and its counsel to the effect
that, among other things: (i) the Merger will qualify as a tax-free
"reorganization" under Section 368(a) of the Internal Revenue Code, (ii) no
gain or loss will be recognized by Bank or Bingham by reason of the Merger,
(iii) no gain or loss will be recognized by any shareholder of Bank upon
the exchange of Bank Common Stock solely for Bingham Common Stock in the
Merger, (iv) the basis of the Bingham Common Stock received by each Bank
shareholder who exchanges Bank Common Stock for Bingham Common Stock in the
Merger will be the same as the shareholder's basis in the Bank Common Stock
surrendered in exchange therefor (subject to any adjustments required as
the results of receipt of cash in lieu of a fractional share of Bingham
Common Stock), (v) the holding period of the Bingham Common Stock received
by each Bank shareholder in the Merger will include the holding period of
the Bank Common Stock surrendered in exchange therefor, provided that such
shares of Bank Common Stock were held as a capital asset by such
shareholder at the Effective Time, and (vi) cash received by each Bank
shareholder in lieu of a fractional share interest of Bingham Common Stock
as part of the Merger will be treated as having been received as a
distribution in full payment in exchange for the fractional share interest
of Bingham Common Stock which such shareholder would otherwise be entitled
to receive and will qualify as capital gain or loss (assuming the Bank
Common Stock was a capital asset in such shareholder's hands at the
Effective Time) and (vii) Franklin Finance qualifies as a real estate
investment trust under the Code.
(b) The Merger Consideration to the Exchange Agent.
(c) A copy of Bingham's articles of incorporation, certified by the
Michigan Department of Consumer and Industry Services, a copy of Merger
Sub's Governing Documents, certified, when applicable, by the appropriate
Governmental Authority and a Certificate of Good Standing (or analogous
document) for Bingham and Merger Sub issued by every state in which each is
authorized to do business. All such documents shall be dated not earlier
than 30 days prior to the Effective Date.
(d) Bingham's Certificates.
(i) A "Closing Certificate", executed by an officer of Bingham, to
the effect that (A) all of the representations and warranties made by
Bingham in this Agreement are true and correct in all material respects
on the Effective Date with the same force and effect as though made on
and as of the Effective Date, (B) Bingham has performed and complied in
all material respects with all of its obligations under this Agreement
which are to have been performed or complied with on or before the
Effective Date, (C) since the date of this Agreement, Bingham and its
Subsidiaries have operated their businesses only in the ordinary course,
and (D) there has been no Bingham Material Adverse Effect from the date
of this Agreement to the Effective Date.
(ii) "Secretary's Certificates", executed by the Secretary or
Assistant Secretary of each of Bingham and Merger Sub, attaching a copy
of the Governing Documents of such company and,
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in the case of Bingham, a copy of the resolutions of the Bingham Board
approving the transactions contemplated in this Agreement and a copy of
the resolutions of Bingham's shareholders approving the issuance of
Bingham Common Stock to be issued in the Merger, and, in the case of
Merger Sub, a copy of the resolutions of its board of directors and
shareholders approving the transactions contemplated in this Agreement.
The officer executing each such certificate shall certify that, as of
the Effective Date, such Governing Documents and resolutions are true,
complete and correct, have not be altered or repealed and are in full
force and effect.
(e) Such other documents and instruments as are contemplated in this
Agreement (or as the Parties have contemplated in connection with this
Agreement) or as Bank or its counsel may reasonably request in order to
evidence or consummate the transactions contemplated in this Agreement or
to effectuate the purpose or intent of this Agreement.
ARTICLE VIII
TERMINATION
Section 8.01 Termination. This Agreement may be terminated:
(a) at any time before the Effective Time by the mutual consent of the
Parties;
(b) at any time before the Effective Time by Bank (i) if any of the
conditions set forth in Sections 6.01 or 6.02 have not been fulfilled,
satisfied or waived by the Walk Away Date, or (ii) if Bingham materially
breaches any representation, warranty, covenant or agreement set forth in
this Agreement;
(c) at any time before the Effective Time by Bingham (i) if any of the
conditions set forth in Sections 6.01 or 6.03 have not been fulfilled,
satisfied or waived by the Walk Away Date, or (ii) if Bank materially
breaches any representation, warranty, covenant or agreement set forth in
this Agreement;
(d) by Bank or by Bingham, if such Party's board of directors so
determines by a vote of a majority of the members of its entire board, in
the event (i) the approval of any Governmental Authority required for
consummation of the Merger shall have been denied by final nonappealable
action of such Governmental Authority or (ii) any shareholder approval
required by Section 5.04 is not obtained at the Bank Meeting or the Bingham
Meeting;
(e) at any time prior to the Bank Meeting, by Bingham if the Bank
Board shall have failed to recommend adoption of this Agreement to the Bank
shareholders, withdrawn such recommendation or modified or changed such
recommendation in a manner adverse in any respect to the interests of
Bingham;
(f) at any time prior to the Bingham Meeting, by Bank, if the Bingham
Board shall have failed to recommend to the Bingham shareholders approval
of the issuance of Bingham Common Stock to be issued pursuant to the
Merger, withdrawn such recommendation or modified or changed such
recommendation in a manner adverse in any respect to the interests of Bank;
(g) by Bank, if, for any 20-consecutive-trading-day period between the
date of this Agreement and the date the Shareholders of the Bank approve
the Merger, the price of Bingham's stock does not trade or close at or
above $8.00 per share; or
(h) no later than the close of business seven days after the 1999 Work
Papers are delivered or made available (with such availability being
confirmed by written notice to Ronald A. Klein) to Bingham and its
auditors, by Bingham, if Bingham reasonably determines that the 1999 Work
Papers do not support any information set forth in the 1999 Financial
Statements; provided, however, such determination cannot be based on
methodology, if such methodology was used in the preparation of prior
audited statements of the Bank.
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Section 8.02 Effect of Termination. If terminated in accordance with
Section 8.01, this Agreement shall be null and void and have no further force or
effect, except as provided in Section 9.13.
ARTICLE IX
MISCELLANEOUS
Section 9.01 Expenses. Except as provided in Section 5.08 and this Section
9.01, and the next sentence, regardless of whether the closing actually occurs,
each Party will bear the expenses incurred by it in connection with the
preparation and negotiation of this Agreement and the Attendant Documents and
the consummation of the transactions contemplated in this Agreement and the
Attendant Documents. Notwithstanding the foregoing, Bank and Bingham shall share
equally (a) all printing expenses and filing fees related to the Proxy Statement
and the Registration Statement, (b) all filing fees payable to Regulatory
Authorities in connection with the Merger, and (c) all Hart-Scott-Rodino fees
incurred by the Parties in connection with the Merger, (d) all costs, expenses
and fees of proxy solicitors incurred under Section 5.06, and (e) all other
costs and expenses incurred by any Party in connection with a collaborative
effort among the Parties (other than fees of legal counsel and accountants), the
purpose of which is to effectuate the Merger. Further, while Bingham shall be
responsible for paying the compensation of the Surviving Subsidiary's CEO during
the time from his or her retention to the Effective Date, if for any reason,
this Agreement is terminated and the Merger shall not be consummated, the Bank
shall reimburse Bingham for one-half of all compensation paid to such CEO.
Section 9.02 Dispute Resolution. Any and all disputes between the Parties
arising out of any provision of this Agreement shall be resolved in accordance
with the procedure set forth in this Section 9.02; provided, however, that a
Party may seek a preliminary injunction or other provisional judicial relief if,
in its judgment, such action is necessary to avoid irreparable damage or to
preserve the status quo. Despite any such action, the Parties will continue to
participate in good faith in the procedures set forth in this Section 9.02. The
Parties shall submit all disputes under this Agreement or any of the Attendant
Documents to arbitration. Such arbitration shall be conducted in accordance with
the rules of the American Arbitration Association by one arbitrator. Bingham
shall appoint one arbitrator and Bank shall appoint one arbitrator, who shall
mutually select a third arbitrator to conduct the arbitration. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C., Sections
1 -- 16, and judgment on the award rendered by the arbitrators may be entered by
any court having jurisdiction thereof. The place of the arbitration shall be the
metropolitan Detroit area. The arbitrators shall make written findings of fact
and conclusions of law, and the decision of the arbitrators shall be final. Each
Party shall pay its own expenses of arbitration and the expense of the
arbitrators shall be equally shared; provided, however, that if in the opinion
of the arbitrators any claim under this Agreement or any defense in objection
thereto was unreasonable, the arbitrators may assess, as part of their award,
all or any part of the arbitration expenses (including reasonable attorney's
fees) of the other Party and of the arbitrators against the Party raising such
unreasonable claim, defense or objection. The Parties agree that discovery shall
be permitted as authorized in the Michigan Court Rules of 1985, as amended.
Section 9.03 Notices. All notices, requests and other communications under
this Agreement to a Party shall be in writing and shall be deemed given if
personally delivered, telecopied (with confirmation) or mailed by registered or
certified mail (return receipt requested) to the Party at its address set forth
below or such other address as it may specify by notice to the other Parties.
<TABLE>
<S> <C>
If to Bank, to: With a required copy to:
Franklin Bank, N.A. Bodman, Longley & Dahling LLP
24725 W. 12 Mile Rd. 34th Floor, 100 Renaissance Center
Southfield, MI 48034 Detroit, MI 48243
Attention: David Simon Attention: Laurence B. Deitch
Fax: 248-354-6393 Fax: 313-393-7579
</TABLE>
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<TABLE>
<S> <C>
If to Bingham, to: With required copies to:
Bingham Financial Services Jaffe, Raitt, Heuer & Weiss,
Corporation Professional Corporation
260 E. Brown Street, Suite 200 One Woodward Avenue, Suite 2400
Birmingham, Michigan 48009 Detroit, MI 48226
Attn: Ronald A. Klein Attn: Peter Sugar
Fax: 248-644-5760 Fax: 313-961-8358
</TABLE>
Section 9.04 Construction. This Agreement shall be construed and enforced
in accordance with the laws of the State of Michigan without regard to its
conflicts of law principles. This Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party. The headings contained in this Agreement are
for reference purposes only and are not part of this Agreement. References in
this Agreement to Sections, Exhibits or Schedules shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. Whenever the
words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
Section 9.05 No Assignment; Benefit. No Party may assign its rights and
obligations under this Agreement without the prior written consent of the other
Parties. This Agreement shall be binding on and inure to the benefit of the
Parties and their respective successors and permitted assigns.
Section 9.06 Entire Agreement. This Agreement, including the Exhibits and
the Schedules attached or to be attached to it, is and shall be deemed to be the
complete and final expression of the agreement between the Parties as to the
matters contained in and related to this Agreement and supersedes any previous
agreements between the Parties pertaining to such matters.
Section 9.07 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which together shall be
considered one and the same agreement. Photostatic or facsimile reproductions of
this Agreement may be made and relied upon to the same extent as originals.
Section 9.08 Waiver. Before the Effective Time, any provision of this
Agreement may be (i) waived in writing by the Party benefited by the provision.
The waiver by any Party of any breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent or similar breach.
Section 9.09 Amendment. This Agreement may only be amended by written
agreement executed by all of the Parties, except that after the Bank Meeting,
the consideration to be received by the Bank shareholders for each share of Bank
Common Stock shall not thereby be decreased.
Section 9.10 Brokerage or Finder's Fee. Any and all brokerage fees due and
payable to any broker, finder, agent or similar intermediary in connection with
this Agreement or the transactions contemplated hereby, including but not
limited to the fee payable to Raymond James by Bank as described in Section
4.01(z) and the fee payable to Keefe Bruyette by Bingham as described in Section
4.02(z), shall be borne by the Party responsible for retaining, or claimed to be
responsible for retaining, such broker, finder, agent or similar intermediary.
Section 9.11 Confidentiality. The Parties agree to keep in strict
confidence the fact of and the content of the negotiations and the agreements
concerning the transactions contemplated in this Agreement until such time as
the Parties agree on a joint public announcement or consent, in writing, to the
other Party's proposed public announcement, which consent shall not be
unreasonably withheld, conditioned or delayed. Each of the Parties agrees that
it will not, and will cause its Representatives not to, use any information
obtained pursuant to this Agreement (as well as any other information obtained
before the date of this Agreement in connection with the entering into of this
Agreement) for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement. Each Party will keep confidential, and will
cause its Representatives to keep confidential, all information and documents
obtained pursuant to this Agreement (as well as any other information obtained
before the date of this Agreement in connection with the entering into of this
Agreement) unless such information (i) was
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already known to such Party, (ii) becomes available to such Party from other
sources not known by such Party to be bound by a confidentiality obligation,
(iii) is disclosed with the prior written approval of the Party to which such
information pertains, (iv) is or becomes readily ascertainable from published
information or trade sources or (v) is required to be disclosed by law or
regulation, as determined in good faith by the Party making the disclosure,
provided the disclosing Party advises the other Parties in writing prior to
making the disclosure. If this Agreement is terminated or the transactions
contemplated by this Agreement are otherwise not consummated, each Party shall
promptly cause all copies of documents, extracts thereof or notes, analyses,
compilations, studies or other documents containing information and data as to
another Party to be returned to the Party that furnished the same.
Section 9.12 No Third Party Beneficiaries. Except for Sections 5.12, 5.14,
5.15, 5.16, and 9.14, the rights and obligations of the Parties under this
Agreement are for the benefit of the Parties only, and neither any creditor of
any of the Parties nor any other person or entity (other than a successor in
interest to any of the Parties), shall have the right to rely on or enforce the
provisions of this Agreement as a third-party beneficiary or otherwise.
Section 9.13 Survival. No representations, warranties, agreements and
covenants contained in this Agreement shall survive beyond the Effective Time
(other than the agreements and covenants contained in Sections 3.03, 3.04(b),
3.04(c), 3.04(d), 3.04(e), 3.06(b), 5.05, 5.14, 5.15 and 5.16 and this Article
IX) or the termination of this Agreement if this Agreement is terminated prior
to the Effective Time (other than Sections 5.08(b) and (c), and this Article
IX).
Section 9.14 Indemnification.
(a) For a period of six years from and after the Effective Time, the
Surviving Subsidiary will take no action which would diminish the right of
any officer or director of the Bank or any of its Subsidiaries who shall
have served in such capacity prior to the Effective Time from being
indemnified in accordance with the provisions of the Bank's or the Bank's
Subsidiaries Governing Documents in effect prior to the Effective Time from
and against any losses, claims, damages, costs, expenses (including
reasonable attorney fees), liabilities or judgments arising, in whole or in
part, out of the fact that such person was a director or officer of the
Bank or a Subsidiary of the Bank prior to the Effective Time, and
pertaining to any matter or fact arising, existing or occurring before the
Effective Time.
(b) For a period of six years from and after the Effective Date, the
Surviving Subsidiary, to the extent commercially available and reasonable,
shall maintain directors and officers liability insurance comparable to
that which is maintained by the Bank immediately prior to the Effective
Date covering the liability described in Section 9.14(a) above. Directors
and officers liability insurance shall be deemed to be available on a
commercially reasonable basis at any time, if, at such time, such insurance
is obtainable at rates comparable to the rates then being paid for
directors and officers liability insurance then covering either the
directors of the Holding Company or the Surviving Subsidiary.
(c) Bingham agrees that after the Merger those persons designated by
the Bank to serve on the Holding Company Board or the Surviving Subsidiary
Board will be afforded the same protection against claims and liability
arising from such service, through indemnification agreements, insurance or
otherwise, as is afforded to those persons designated by Bingham to serve
on the Holding Company Board or the Surviving Subsidiary Board,
respectively.
(d) The obligations of the Surviving Subsidiary under this Section
9.14 are intended to be enforceable against the Surviving Subsidiary and
shall be binding on all respective successors and permitted assigns of the
Surviving Subsidiary.
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The Parties have executed this Agreement and Plan of Merger as of the day
and year first written above.
Bingham Financial Services Corporation
By: /s/ RONALD A. KLEIN
------------------------------------
Its: Chief Executive Officer
------------------------------------
Franklin Bank, N.A.
By: /s/ DAVID F. SIMON
------------------------------------
Its: Chairman
------------------------------------
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APPENDIX B
March 19, 2000
Board of Directors
Franklin Bank, N.A.
24725 West Twelve Mile Road
Southfield, MI 48034
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of the outstanding common stock, par value $1.00
(the "Common Stock") of Franklin Bank, N.A. (the "Company") of the Exchange
Ratio (as defined below) provided for pursuant to the Agreement and Plan of
Merger dated as of March 19, 2000 (the "Agreement"), by and between the Company
and Bingham Financial Services Corporation ("Bingham"). Pursuant to the terms of
the Agreement, Bingham will be merged with and into the Company (the
"Transaction") and each outstanding share of the Company's Common Stock will be
converted into 1.525 shares of common stock, without par value, of Bingham (the
"Exchange Ratio").
In connection with our review of the proposed Transaction and the
preparation of our opinion herein, we have reviewed and taken into account such
accepted financial and investment banking procedures and considerations as we
have deemed relevant, including, among other things:
1. the financial terms and conditions as stated in the Agreement;
2. certain publicly available information for the Company, including
each of the annual reports of the Company filed on Form 10-K for each of
the years ended December 31, 1996, 1997 and 1998, and each of the quarterly
reports of the Company filed on Form 10-Q for each of the quarters ended
March 31, 1999, June 30, 1999 and September 30, 1999;
3. certain publicly available information for Bingham, including each
of the annual reports of Bingham filed on Form 10-K for each of the years
ended September 30, 1998 and 1999, and each of the quarterly reports of
Bingham filed on Form 10-Q for each of the quarters ended December 31,
1998, March 31, 1999, June 30, 1999 and December 31, 1999;
4. certain internal financial analyses, financial forecasts, reports
and other information concerning the Company and Bingham prepared by the
respective managements of the Company and Bingham;
5. certain third party analysts' estimates as to the future financial
performance of the Company;
6. discussions we have had with certain members of the respective
managements of the Company and Bingham concerning the historical and
current business operations, financial conditions and prospects of the
Company and Bingham and such other matters we deemed relevant;
7. the reported price and trading histories of the shares of the
common stock of the Company and Bingham as compared to the reported price
and trading histories of certain publicly traded companies we deemed
relevant;
8. the respective financial conditions of the Company and Bingham as
compared to the financial conditions of certain other companies we deemed
relevant;
9. certain financial terms of the Transaction as compared to the
financial terms of selected other business combinations we deemed relevant;
and
10. such other information, financial studies, analyses and
investigations and such other factors that we deemed relevant for the
purposes of this opinion.
In arriving at this opinion, Raymond James did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Raymond James believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying this
opinion.
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We have assumed and relied upon the accuracy and completeness of all
information supplied or otherwise made available to us by the Company, Bingham
or any other party and have not attempted to verify independently any of such
information. We have not made or obtained an independent appraisal of the assets
or liabilities (contingent or otherwise) of the Company or Bingham. With respect
to financial forecasts, potential cost savings and other information and data
provided to or otherwise reviewed by or discussed with us, we have assumed that
such forecasts and other information and data have been reasonably prepared in
good faith on bases reflecting the best currently available estimates and
judgments of the respective managements of the Company and Bingham, and we have
relied upon each party to advise us promptly if any information previously
provided became inaccurate or was required to be updated during the period of
our review. You have informed us, and we have assumed, that the Transaction will
receive purchase accounting treatment and will qualify as a tax free
reorganization under generally accepted accounting principles. With your
consent, we have assumed, without independent verification, that the aggregate
allowance for credit losses for the Company and Bingham are adequate to cover
such losses.
Our opinion is based upon market, economic, financial and other
circumstances and conditions existing and disclosed to us on the date hereof and
any material change in such circumstances and conditions would require a
reevaluation of this opinion, which we are under no obligation to undertake.
We express no opinion as to the underlying business decision to effect the
Transaction, the structure or tax consequences of the Agreement or the
availability or advisability of any alternatives to the Transaction. We did not
structure the Transaction or negotiate the final terms of the Transaction. This
letter does not express any opinion as to the likely trading range of Bingham
common stock following the Transaction, which may vary depending on numerous
factors that generally impact the price of securities or on the financial
condition of Bingham at that time. Our opinion is limited to the fairness, from
a financial point of view, of the Exchange Ratio to the shareholders of the
Company. We express no opinion with respect to any other reasons, legal,
business, or otherwise, that may support the decision of the Board of Directors
to approve or consummate the Transaction.
Raymond James & Associates, Inc. ("Raymond James") is actively engaged in
the investment banking business and regularly undertakes the valuation of
investment securities in connection with public offerings, private placements,
business combinations and similar transactions. Raymond James has been engaged
to render financial advisory services to the Company in connection with the
proposed Transaction and will receive a fee for such services, which fee is
contingent upon the value and consummation of the Transaction. Raymond James
will also receive a fee upon the delivery of this opinion. In addition, the
Company has agreed to indemnify us against certain liabilities arising out of
our engagement.
In the ordinary course of our business, Raymond James may trade in the
securities of the Company and/or Bingham for our own account or for the accounts
of our customers and, accordingly, may at any time hold a long or short position
in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in evaluating the proposed Transaction and does not
constitute a recommendation to any shareholder of the Company regarding how said
shareholder should vote on the proposed Transaction. This opinion is not to be
quoted or referred to, in whole or in part, without our prior written consent,
which will not be unreasonably withheld. We have consented to the inclusion of
this letter in its entirety in the joint proxy statement to be filed by the
Company and Bingham with the Securities and Exchange Commission in connection
with the Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair, from a financial point of view, to the
holders of the Company's outstanding Common Stock.
Very truly yours,
RAYMOND JAMES & ASSOCIATES, INC.
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APPENDIX C
March 19, 2000
Board of Directors
Bingham Financial Services Corporation
260 East Brown Street
Suite 200
Birmingham, MI 48009
Dear Board of Directors:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view to the stockholders of
Bingham Financial Services Corporation ("Bingham" or the "Company"), of the
consideration to be paid by Bingham in the merger (the "Merger") between the
Company and Franklin National Bank ("Franklin"). We have not been requested to
opine as to, and our opinion does not in any manner address, the Company's
underlying business decision to proceed with or effect the Merger.
Pursuant to the Agreement and Plan of Merger (the "Agreement"), dated March
19, 2000, by and among the Company, Bingham and Franklin, at the effective time
of the Merger, Bingham will acquire all of Franklin 's issued and outstanding
shares of common stock, including the assumption of Franklin National Bank's
stock options. The holders of the Franklin's common stock will receive in
exchange for each share of Franklin's common stock, shares of Company's common
stock based on an Exchange Ratio of 1.525 shares of Company common stock for
each share of Franklin common stock. The complete terms of the proposed
transaction are described in the Agreement, and this summary is qualified in its
entirety by reference thereto.
Keefe, Bruyette & Woods, Inc., as part of its investment banking business,
is regularly engaged in the evaluation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, and
distributions of listed and unlisted securities. We are familiar with the market
for common stocks of publicly traded banks, savings institutions and bank and
savings institution holding companies.
In connection with this opinion, we reviewed certain publicly available
financial data relating to Bingham including: the Annual Report, Proxy
Statement, and Form 10-K for the year ended September 30, 1999; unaudited
results for the quarter ended December 31, 1999; and other information we deemed
relevant. We discussed with senior management of Bingham, the current position
and prospective outlook for the Company and its various subsidiaries. We
considered historical quotations and the prices of recorded transactions in the
Company's common stock since its initial public offering in November 1997. We
reviewed financial and stock market data of other specialty finance companies,
and the financial and structural terms of several other recent transactions
involving mergers and acquisitions where the target was a financial institution.
For Franklin, we reviewed the last three years' Annual Reports, Proxy
Statements, and other information provided to us by Franklin that we deemed
relevant, as well as other publicly available information. For purposes of this
opinion we have relied, without independent verification, on the accuracy and
completeness of the material furnished to us by Franklin, including information
from published sources, and we have not made any independent effort to verify
such data. With respect to the financial information, including projections and
asset valuations we received from Franklin, we assumed that they had been
reasonably prepared reflecting the best currently available estimates and
judgment of Franklin's management. In addition, we have not made or obtained any
independent appraisals or evaluations of the assets or liabilities, and
potential and/or contingent liabilities of Franklin. We have further relied on
the assurances of management of Franklin that they are not aware of any facts
that would make such information inaccurate or misleading. We express no opinion
on matters of a legal, regulatory, tax or accounting nature or the ability of
the Merger, as set forth in the Agreement, to be consummated.
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In rendering our opinion, we have assumed that in the course of obtaining
the necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to the Company or the ability to consummate the Merger. Our
opinion is based on the market, economic and other relevant considerations as
they exist and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to the Company in connection with the Merger and will receive a fee for
such services. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement by the Company in connection with the
Merger.
Based upon and subject to the foregoing, as outlined in the foregoing
paragraphs and based on such other matters as we considered relevant, it is our
opinion that as of the date hereof, the consideration to be paid by the Company
in the Merger is fair, from a financial point of view, to the stockholders of
the Company.
This opinion may not be summarized, excerpted from or otherwise publicly
referred to without our prior written consent, although this opinion may be
included in its entirety in the proxy statement of the Company used to solicit
stockholder approval of the Merger, if such a proxy is required. It is
understood that this letter is directed to the Board of Directors of the Company
in its consideration of the Agreement, and is not intended to be and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote with respect to the Merger.
Very truly yours,
KEEFE, BRUYETTE & WOODS, INC.
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APPENDIX D
12 U.S.C. SEC. 215a. MERGER OF NATIONAL BANKS OR STATE BANKS INTO NATIONAL BANKS
(b) DISSENTING SHAREHOLDERS
If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a stockholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the share so
held by him when such merger shall be approved by the Comptroller upon written
request made to the receiving association at any time before thirty days after
the date of consummation of the merger, accompanied by the surrender of his
stock certificates.
(c) VALUATION OF SHARES
The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the merger, by an appraisal made by a committee of
three persons, composed of (1) one selected by the vote of the holders of the
majority of the stock, the owners of which are entitled to payment in cash; (2)
one selected by the directors of the receiving association; and (3) one selected
by the two so selected. The valuation agreed upon by any two of the three
appraisers shall govern. If the value so fixed shall not be satisfactory to any
dissenting shareholder who has requested payment, that shareholder may, within
five days after being notified of the appraised value of his shares, appeal to
the Comptroller, who shall cause a reappraisal to be made which shall be final
and binding as to the value of the shares of the appellant.
(d) APPLICATION TO SHAREHOLDERS OF MERGING ASSOCIATIONS; APPRAISALS BY
COMPTROLLER; EXPENSES OF RECEIVING ASSOCIATION; SALE AND RESALE OF SHARES; STATE
APPRAISAL AND MERGER LAW
If, within ninety days from the date of consummation of the merger, for any
reason one or more of the appraisers is not selected as herein provided, or the
appraisers fail to determine the value of such shares, the Comptroller shall
upon written request of any interested party cause an appraisal to be made which
shall be final and binding on all parties. The expenses of the Comptroller in
making the reappraisal or the appraisal, as the case may be, shall be paid by
the receiving association. The value of the shares ascertained shall be promptly
paid to the dissenting shareholders by the receiving association. The shares of
stock of the receiving association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
receiving association at an advertised public auction, and the receiving
association shall have the right to purchase any of such shares at such public
auction, if it is the highest bidder therefor, for the purpose of reselling such
shares within thirty days thereafter to such person or persons and at such price
not less than par as its board of directors by resolution may determine. If the
shares are sold at public auction at a price greater than the amount paid to the
dissenting shareholders, the excess in such sale price shall be paid to such
dissenting shareholders. The appraisal of such shares of stock in any State bank
shall be determined in the manner prescribed by the law of the State in such
cases, rather than as provided in this section, if such provision is made in the
State law; and no such merger shall be contravention of the law of the State
under which such bank is incorporated. The provisions of this subsection shall
apply only to shareholders of (and stock owned by them in) a bank or association
being merged into the receiving association.
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APPENDIX E
BINGHAM FINANCIAL SERVICES CORPORATION
SECOND AMENDED AND RESTATED
1997 STOCK OPTION PLAN
ARTICLE I.
PURPOSE AND ADOPTION OF THE PLAN
1.01 Purpose. The purpose of the Bingham Financial Services Corporation
Stock Option Plan (the "Plan") is to provide certain employees, directors and
consultants of Bingham Financial Services Corporation (the "Company") with an
additional incentive to promote the Company's financial success and to provide
an incentive which the Company may use to induce able persons to enter into or
remain in service of the Company or a Subsidiary.
1.02 Adoption and Term. The Plan was approved by the Board and the
Company's stockholders on August 22, 1997, and amended by the Board on January
4, 2000 (effective as of January 1, 1999) and on May 8, 2000, and will remain in
effect until all shares authorized under the terms of the Plan have been issued,
unless earlier terminated or abandoned by action of the Board; provided,
however, that no Incentive Stock Option may be granted after August 22, 2007.
ARTICLE II.
DEFINITIONS
2.01 Administrator means the group of persons having authority to
administer the Plan pursuant to Section 3.01.
2.02 Award means any one or combination of Non-Qualified Stock Options,
Performance Based Options, Incentive Stock Options, Stock Appreciation Rights,
Restricted Share Rights or any other award made under the terms of the Plan.
2.03 Award Agreement means a written agreement between the Company and
Participant or a written acknowledgment from the Company specifically setting
forth the terms and conditions of an Award granted under the Plan.
2.04 Award Period means, with respect to an Award, the period of time set
forth in the Award Agreement during which specified conditions set forth in the
Award Agreement must be satisfied.
2.05 Beneficiary means (a) an individual, trust or estate who or which, by
will or by operation of the laws of descent and distribution, succeeds to the
rights and obligations of the Participant under the Plan and Award Agreement
upon the Participant's death; or (b) an individual, who by designation of the
Participant, succeeds to the rights and obligations of the Participant under the
Plan and Award Agreement upon the Participant's death.
2.06 Board means the Board of Directors of the Company.
2.07 Change of Control Event means (a) an event or series of events by
which any Person or other entity or group (as such term is used in Section 13(d)
and 14(d) of the Exchange Act) of Persons or other entities acting in concert as
a partnership or other group (a "Group of Persons") (other than Persons who are,
or Groups of Persons entirely made up of, (i) management personnel of the
Company or (ii) any affiliates of any such management personnel) shall, as a
result of a tender or exchange offer or offers, an open market purchase or
purchases, a privately negotiated purchase or purchases or otherwise, become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to
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acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of 20% or more of the combined voting power of
the then outstanding voting stock of the Company; (b) the Company consolidates
with, or merges with or into, another Person (other than a Subsidiary in a
transaction which is not otherwise a Change of Control Event), or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into the Company, in any such event pursuant to a transaction
in which the outstanding voting stock of the Company is converted into or
exchanged for cash, securities or other property; (c) during any consecutive
two-year period, individuals who at the beginning of such period constituted the
Board (together with any new directors whose election by such Board or whose
nomination for election by the stockholders of the Company, was approved by a
vote of 66 2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board then in office; or (d) any liquidation or dissolution of the Company
(other than a liquidation into a Subsidiary that is not otherwise a Change of
Control Event).
2.08 Code means the Internal Revenue Code of 1986, as amended. References
to a section of the Code shall include that section and any comparable section
or sections of any future legislation that amends, supplements or supersedes
that section.
2.09 Common Stock means the Common Stock of the Company, no par value.
2.10 Company means Bingham Financial Services Corporation, a Michigan
corporation.
2.11 Date of Grant means the date designated by the Administrator as the
date as of which it grants an Award, which shall not be earlier than the date on
which the Administrator approves the granting of such Award.
2.12 Director means a member of the Board of Directors of the Company.
2.13 Exchange Act means the Securities Exchange Act of 1934, as amended.
2.14 Exercise Price means, with respect to a Stock Appreciation Right, the
amount established by the Administrator, in accordance with Section 7.03
hereunder, and set forth in the Award Agreement, which is to be subtracted from
the Fair Market Value on the date of exercise in order to determine the amount
of the Incremental Value to be paid to the Participant.
2.15 Expiration Date means the date specified in an Award Agreement as the
expiration date of such Award.
2.16 Fair Market Value means, with respect to Awards granted coincident
with the date of the closing of the Company's initial public offering of Common
Stock, the public offering price. Thereafter, Fair Market Value means the last
reported sale price per share of Common Stock, regular way, on such date or, in
case no such sale takes place on such date, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on a national securities exchange or included for quotation
on the Nasdaq National Market, or if the Common Stock is not so listed or
admitted to trading or included for quotation, the average of the highest bid
and lowest asked prices, regular way, in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the Common Stock is
not quoted by any such organization, the average of the closing bid and asked
prices, regular way, as furnished by a professional market maker making a market
in the Common Stock as selected in good faith by the Administrator. If, as the
case may be, the relevant date is not a Trading Day, the determination shall be
made as of the next preceding Trading Day.
2.17 Incentive Stock Option means a stock option described in Section 422
of the Code.
2.18 Incremental Value has the meaning given such term in Section 7.01 of
the Plan.
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2.19 Non-Employee Director Participant means a Participant that is a
"non-employee director" of the Company within the meaning of Rule 16b-3.
2.20 Non-Qualified Stock Option means a stock option which is not an
Incentive Stock Option.
2.21 Officer means a president, vice president, treasurer, secretary,
controller, and any other person who performs functions corresponding to the
foregoing officers for the Company, any member of the Board or any person
performing similar functions with respect to the Company, and any other
participant who is deemed to be an officer or director of the Company for
purposes of Section 16 of the Exchange Act and the rules thereunder, as
currently in effect or as amended from time to time.
2.22 Options means all Non-Qualified Stock Options, Incentive Stock Options
and Performance Based Options granted at any time under the Plan.
2.23 Participant shall have the meaning set forth in Article V.
2.24 Performance Based Option means a stock option which, upon exercise or
at any other time, would not result in or give rise to "applicable employee
remuneration" within the meaning of Section 162(m) of the Code.
2.25 Plan means the Bingham Financial Services Corporation Stock Option
Plan, as described herein and as it may be amended from time to time.
2.26 Purchase Price, with respect to options, shall have the meaning set
forth in Section 6.02.
2.27 Restricted Share Right means a right to receive Common Stock subject
to restrictions imposed under the terms of an Award granted pursuant to Article
IX.
2.28 Rule 16b-3 means Rule 16b-3 promulgated by the Securities and Exchange
Commission under Section 16 of the Exchange Act, as currently in effect and as
it may be amended from time to time, and any successor rule.
2.29 Stock Appreciation Right means an Award granted in accordance with
Article VII.
2.30 Subsidiary shall have the meaning set forth in Section 424(f) of the
Code.
2.31 Termination of Employment means the voluntary or involuntary
termination of a Participant's employment with the Company for any reason,
including death, disability, retirement or as the result of the divestiture of
the Participant's employer or any other similar transaction in which the
Participant's employer ceases to be the Company or a Subsidiary of the Company.
Whether an authorized leave of absence or absence on military or government
service, absence due to disability, or absence for any other reason shall
constitute Termination of Employment shall be determined in each case by the
Administrator in its sole discretion.
2.32 Trading Day means a day on which public trading of securities occurs
and is reported in the principal consolidated reporting system referred to in
Section 2.16 above, or if the Common Stock is not listed or admitted to trading
on a national securities exchange or included for quotation on the Nasdaq
National Market, any business day.
ARTICLE III.
ADMINISTRATION
3.01 Administration. The Plan shall be administered by the Board or, to the
extent determined by the Board, a committee (the "Compensation Committee")
consisting of not less than two non-employee directors of the Company (within
the meaning of Rule 16b-3) to be appointed by, and to serve at the pleasure of,
the Board (in either case, the "Administrator"). It is the intention of the
Company that, with respect to Awards designated as Performance Based Options,
each of the members of the Compensation Committee shall also be "outside
directors" within the meaning of Section 162(m) of the Code. The Administrator
shall administer the Plan in accordance with this provision and shall have the
sole
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discretionary authority to interpret the Plan, to establish and modify
administrative rules for the Plan, to impose such conditions and restrictions on
Awards as it determines appropriate, to cancel Awards (including those made
pursuant to other plans of the Company) and to substitute new options (including
options granted under other plans of the Company) with the consent of the
recipient, and to take such steps in connection with the Plan and Awards granted
thereunder as it may deem necessary or advisable. The Administrator may, with
respect to Participants who are not Officers, delegate such of its powers and
authority under the Plan as it deems appropriate to designated officers or
employees of the Company.
3.02 Indemnification. Members of the Administrator shall be entitled to
indemnification and reimbursement from the Company for any action or any failure
to act in connection with service as Administrator to the full extent provided
for or permitted by the Company's articles of incorporation or bylaws or by any
insurance policy or other agreement intended for the benefit of the Company's
officers, directors or employees or by any applicable law.
ARTICLE IV.
COMMON STOCK ISSUABLE PURSUANT TO THE PLAN
4.01 Shares Issuable. Shares to be issued under the Plan may be authorized
and unissued shares or issued shares which have been reacquired by the Company.
Except as provided in Section 4.03, the Awards granted to any Participant and to
all Participants in the aggregate under the Plan shall be limited so that the
sum of the following shall never exceed the greater of 415,000 shares of Common
Stock or ten percent (10%) of the total number of outstanding shares of Common
Stock: (i) all shares which shall be issued upon the exercise of outstanding
Options or other Awards granted under the Plan, (ii) all shares for which
payment of Incremental Value shall be made by reason of the exercise of Stock
Appreciation Rights at any time granted under the Plan, and (iii) the number of
shares otherwise issuable under an Award which are applied by the Company to
payment of the withholding or tax liability discussed in Section 11.04;
provided, however, that in no event shall the number of shares of Common Stock
which may be issued upon the exercise of Incentive Stock Options exceed 100,000
shares, subject to adjustment in accordance with Section 4.03.
4.02 Shares Subject to Terminated Awards. In the event that any Award at
any time granted under the Plan shall be surrendered to the Company, be
terminated or expire before it shall have been fully exercised, or an award of
Stock Appreciation Rights is exercised for cash, then all shares formerly
subject to such Award as to which such Award shall not have been exercised shall
be available for any Award subsequently granted in accordance with the Plan.
Shares of Common Stock subject to Options, or portions thereof, which have been
surrendered in connection with the exercise of tandem Stock Appreciation Rights
shall not be available for subsequent Awards under the Plan, and shares of
Common Stock issued in payment of such Stock Appreciation Rights shall be
charged against the number of shares of Common Stock available for the grant of
Awards. Shares which are reacquired by the Company or shares issuable subject to
Restricted Share Rights which are forfeited pursuant to forfeiture provisions in
the Award Agreement shall be available for subsequently granted Awards only if
the forfeiting Participant received no benefits of ownership (such as dividends
actually paid to the Participant) other than voting rights of the forfeited
shares. Any shares of Common Stock issued by the Company pursuant to its
assumption or substitution of outstanding grants from acquired companies shall
not reduce the number of shares available for Awards under this Plan unless
issued under this Plan.
4.03 Adjustments to Reflect Capital Changes.
(a) Recapitalization. The number and kind of shares subject to
outstanding Awards, the Purchase Price or Exercise Price for such shares,
and the number and kind of shares available for Awards subsequently granted
under the Plan shall be appropriately adjusted to reflect any stock
dividend, stock split, combination or exchange of shares, merger,
consolidation or other change in capitalization with a similar substantive
effect upon the Plan or the Awards granted under the Plan.
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The Administrator shall have the power to determine the amount of the
adjustment to be made in each case.
(b) Sale or Reorganization. After any reorganization, merger or
consolidation in which the Company is a surviving corporation, each
Participant shall, at no additional cost, be entitled upon exercise of an
Award to receive (subject to any required action by stockholders), in lieu
of the number of shares of Common Stock receivable or exercisable pursuant
to such Award, a number and class of shares of stock or other securities to
which such Participant would have been entitled pursuant to the terms of
the reorganization, merger or consolidation if, at the time of such
reorganization, merger or consolidation, such Participant had been the
holder of record of a number of shares of Common Stock equal to the number
of shares receivable or exercisable pursuant to such Award. Comparable
rights shall accrue to each Participant in the event of successive
reorganizations, mergers or consolidations of the character described
above.
(c) Options to Purchase Stock of Acquired Companies. After any
reorganization, merger or consolidation in which the Company or a
Subsidiary of the Company shall be a surviving corporation, the
Administrator may grant substituted Options under the provisions of the
Plan, pursuant to Section 424 of the Code, replacing old options granted
under a plan of another party to the reorganization, merger or
consolidation, where such party's stock may no longer be issued following
such merger or consolidation. The foregoing adjustments and manner of
application of the foregoing provisions shall be determined by the
Administrator in its sole discretion. Any adjustments may provide for the
elimination of any fractional shares which might otherwise have become
subject to any Awards.
ARTICLE V.
PARTICIPATION
5.01 Eligible Participants. Participants in the Plan shall be the
employees, directors and consultants of the Company or any Subsidiary, as
determined and selected from time to time by the Administrator, in its sole and
absolute discretion. The Administrator's designation of a Participant in any
year shall not require the Administrator to designate such person to receive
Awards in any other year. The Administrator shall consider such factors as it
deems pertinent in selecting Participants and in determining the type and amount
of their respective Awards.
ARTICLE VI.
OPTION AWARDS
6.01 Power to Grant Options. The Administrator may grant, to such
Participants as the Administrator may select, Options entitling the Participant
to purchase Common Stock from the Company at such price, in such quantity and on
such terms and subject to such conditions, not inconsistent with the terms of
this Plan, as may be established by the Administrator. The terms of any Option
granted under this Plan shall be set forth in an Award Agreement.
Notwithstanding the foregoing, Options granted to Officers shall not be
exercisable for a period of at least six months from the Date of Grant.
6.02 Purchase Price of Options. The Purchase Price of each share of Common
Stock which may be purchased upon exercise of any Option granted under the Plan
shall not be less than eighty five percent (85%) of the Fair Market Value on the
Date of Grant; provided, however, that the Purchase Price for shares of Common
Stock purchased pursuant to Stock Options designated by the Administrator as
Incentive Stock Options shall be equal to or greater than the Fair Market Value
on the Date of Grant as required under Section 422 of the Code and provided
further that the Purchase Price for shares of Common Stock purchased pursuant to
Stock Options designated by the Administrator as Performance Based Options shall
be equal to or greater than the Fair Market Value on the Date of Grant.
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6.03 Designation of Incentive Stock Options. Except as otherwise expressly
provided in the Plan, the Administrator may designate, at the Date of Grant of
each Option to a Participant that is an employee of the Company or a Subsidiary,
that the Option is an Incentive Stock Option under Section 422 of the Code.
(a) Incentive Stock Option Share Limitation. No Participant may be
granted Incentive Stock Options under the Plan (or any other plans of the
Company) which would result in stock with an aggregate Fair Market Value
(measured on the Date of Grant) of more than $100,000 first becoming
exercisable in any one calendar year, or which would entitle such
Participant to purchase a number of shares greater than the maximum number
permitted by Section 422 of the Code as in effect on the Date of Grant.
(b) Other Incentive Stock Option Terms. Whenever possible, each
provision in the Plan and in every Option granted under this Plan which is
designated by the Administrator as an Incentive Stock Option shall be
interpreted in such a manner as to entitle the Option to the tax treatment
afforded by Section 422 of the Code. If any provision of this Plan or any
Option designated by the Administrator as an Incentive Stock Option shall
be held not to comply with requirements necessary to entitle such Option to
such tax treatment, then (i) such provision shall be deemed to have
contained from the outset such language as shall be necessary to entitle
the Option to the tax treatment afforded under Section 422 of the Code, and
(ii) all other provisions of this Plan and the Award Agreement shall remain
in full force and effect. If any agreement covering an Option designated by
the Administrator to be an Incentive Stock Option under this Plan shall not
explicitly include any terms required to entitle such Incentive Stock
Option to the tax treatment afforded by Section 422 of the Code, all such
terms shall be deemed implicit in the designation of such Option and the
Option shall be deemed to have been granted subject to all such terms.
6.04 Designation of Performance Based Options. Except as otherwise
expressly provided in the Plan, the Administrator may designate, at the Date of
Grant of each Option to a Participant that is an employee of the Company or a
Subsidiary, that the Option is a Performance Based Option. A Performance Based
Option shall have a Purchase Price not less than the Fair Market Value on the
Date of Grant and shall contain such other terms and conditions as the
Administrator may deem necessary so that, upon exercise or at any other time,
the Performance Based Option does not result in or give rise to "applicable
employee remuneration" within the meaning of Section 162(m) of the Code.
6.05 Rights as a Stockholder. The Participant or any transferee of an
Option pursuant to Section 8.02 or Section 11.05 shall have no rights as a
stockholder with respect to any shares of Common Stock covered by an Option
until the Participant or transferee shall have become the holder of record of
any such shares, and no adjustment shall be made for dividends and cash or other
property or distributions or other rights with respect to any such shares of
Common Stock for which the record date is prior to the date on which the
Participant or a transferee of the Option shall have become the holder of record
of any such shares covered by the Option.
ARTICLE VII.
STOCK APPRECIATION RIGHTS
7.01 Power to Grant Stock Appreciation Rights. The Administrator is
authorized to grant to any Participant, on such terms established by the
Administrator on or prior to the Date of Grant and subject to and not
inconsistent with the provisions of this Plan, the right to receive the payment
from the Company, payable as provided in Section 7.04, of an amount equal to the
Incremental Value of the Stock Appreciation Rights, which shall be an amount
equal to the remainder derived from subtracting (i) the Exercise Price for the
right established in the Award Agreement from (ii) the Fair Market Value of a
share of Common Stock on the date of exercise. The terms of any Stock
Appreciation Right granted under the Plan shall be set forth in an Award
Agreement.
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7.02 Tandem Stock Appreciation Rights. The Administrator may grant to any
Participant a Stock Appreciation Right consistent with the provisions of this
Plan covering any share of Common Stock which is, at the Date of Grant of the
Stock Appreciation Right, also covered by an Option granted to the same
Participant, either prior to or simultaneously with the grant to such
Participant of the Stock Appreciation Right, provided: (i) any Option covering
any share of Common Stock shall expire and not be exercisable upon the exercise
of any Stock Appreciation Right with respect to the same share; (ii) any Stock
Appreciation Right covering any share of Common Stock shall not be exercisable
upon the exercise of any related Option with respect to the same share; and
(iii) an Option and Stock Appreciation Right covering the same share of Common
Stock may not be exercised simultaneously.
7.03 Exercise Price. The Exercise Price established under any Stock
Appreciation Right granted under this Plan shall be determined by the
Administrator and, in the case of a tandem Stock Appreciation Right, shall not
be less than the Purchase Price of the related Option. Upon exercise of the
Stock Appreciation Rights, the number of shares subject to exercise under a
related Option shall automatically be reduced by the number of shares of Common
Stock represented by the Option or portion thereof which is surrendered as a
result of the exercise of such Stock Appreciation Rights.
7.04 Payment of Incremental Value. Any payment which may become due from
the Company by reason of Participant's exercise of a Stock Appreciation Right
may be paid to the Participant as determined by the Administrator (i) all in
cash, (ii) all in Common Stock, or (iii) in any combination of cash and Common
Stock. In the event that all or a portion of the payment is made in Common
Stock, the number of shares of the Common Stock delivered in satisfaction of
such payment shall be determined by dividing the amount of the payment by the
Fair Market Value on the date of exercise. The Administrator may determine
whether payment upon exercise of a Stock Appreciation Right will be made in cash
or in stock, or a combination thereof, upon or at any time prior to the exercise
of such Stock Appreciation Right. No fractional share of Common Stock shall be
issued to make any payment; if any fractional shares would be issuable, the mix
of cash and Common Stock payable to the Participant shall be adjusted as
directed by the Administrator to avoid the issuance of any fractional share.
Payment may be made in cash to Officers only if the Stock Appreciation Right is
exercised during the "window period" required under Rule 16b-3(e)(3) and
otherwise in accordance with Rule 16b-3.
ARTICLE VIII.
TERMS OF OPTIONS AND STOCK APPRECIATION RIGHTS
8.01 Duration of Options and Stock Appreciation Rights. Options and Stock
Appreciation Rights shall terminate after the first to occur of the following
events:
(a) Expiration Date of the Award as provided in the Award Agreement;
or
(b) Termination of the Award as provided in Section 8.02; or
(c) In the case of an Incentive Stock Option, ten years from the Date
of Grant; or
(d) Solely in the case of tandem Stock Appreciation Rights, upon the
Expiration Date of the related Option.
8.02 Exercise on Death, Termination of Employment or Removal of Director.
(a) Unless otherwise provided in the Award Agreement, in the event of
the death of a Participant while an employee of the Company or a Subsidiary
of the Company, the right to exercise all unexpired Awards shall be
accelerated and shall accrue as of the date of death, and the Participant's
Awards may be exercised by his Beneficiary at any time within one year
after the date of the Participant's death. Unless otherwise provided in the
Award Agreement, in the event of the death of a Participant while a
director of the Company or a Subsidiary of the Company, the right to
exercise all unexpired Awards shall be accelerated and shall accrue as of
the date of death, and the
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Participant's Awards may be exercised by his Beneficiary at any time within
one year after the date of the Participant's death.
(b) Unless otherwise provided in the Award Agreement, in the event of
a Participant's Termination of Employment at any time for any reason
(including disability or retirement) other than death or for "cause" (as
defined in paragraph (d) below), an Award may be exercised, but only to the
extent it was otherwise exercisable, on the date of Termination of
Employment, within ninety days after the date of Termination of Employment.
In the event of the death of the Participant within the ninety-day period
following Termination of Employment, his Award may be exercised by his
Beneficiary within the one year period provided in subparagraph (a) above.
Unless otherwise provided in the Award Agreement, in the event that a
Non-Employee Director Participant no longer serves on the Board for any
reason other than removal as described in subparagraph (d) below, an Award
may be exercised, but only to the extent it was otherwise exercisable, on
the date that such Non-Employee Director Participant ceases to be a
Director, within ninety days after the date such Non-Employee Director
Participant ceases to be a director. In the event of the death of the
Non-Employee Director Participant within the ninety-day period following
the date he ceases to be a Director, his Award may be exercised by his
Beneficiary within the one year period provided in subparagraph (a) above.
(c) With respect to an Award which is intended to constitute an
Incentive Stock Option, upon Termination of Employment, such Award shall be
exercisable as provided in Section 422 of the Code.
(d) In the event that a Participant's Termination of Employment is for
"cause", all Awards shall terminate immediately upon Termination of
Employment. A Participant's employment shall be deemed to have been
terminated for "cause" if such termination is determined, in the sole
discretion of the Administrator, to have resulted from an act or omission
by the Participant constituting active and deliberate dishonesty, as
established by a final judgment or actual receipt of an improper benefit or
profit in money, property or services, or from the Participant's continuous
failure to perform his or her duties under any employment agreement in
effect between the Participant and the Company in any material manner (or,
in the absence of such an agreement, the consistent failure or refusal of
the Participant to perform according to reasonable expectations and
standards set by the Board and/or management consistent with Participant's
title and position) after receipt of notice of such failure from the
Company specifying how the Participant has so failed to perform. In the
event that a Non-Employee Director Participant is removed for cause
pursuant to the Company's Restated Articles of Incorporation, all Awards
shall terminate immediately upon such removal.
8.03 Acceleration of Exercise Time. The Administrator, in its sole
discretion, shall have the right (but shall not in any case be obligated) to
permit purchase of shares under any Award prior to the time such Award would
otherwise become exercisable under the terms of the Award Agreement.
8.04 Extension of Exercise Time. The Administrator, in its sole discretion,
shall have the right (but shall not in any case be obligated) to permit any
Award granted under this Plan to be exercised after its Expiration Date or after
the ninety day period following Termination of Employment or service on the
Board, subject, however, to the limitations described in Section 8.01 (c) and
(d).
8.05 Conditions for Exercise. An Award Agreement may contain such waiting
periods, exercise dates and restrictions on exercise (including, but not limited
to, periodic installments which may be cumulative) as may be determined by the
Administrator at the Date of Grant. No Stock Appreciation Right may be exercised
prior to six months from the Date of Grant.
8.06 Change of Control Event. Unless otherwise provided in the Award
Agreement, and subject to such other terms and conditions as the Administrator
may establish in the Award Agreement, upon the occurrence of a Change of Control
Event, irrespective of whether or not an Award is then exercisable, the
Participant shall have the right to exercise in full any unexpired Award to the
extent not theretofore exercised or terminated; provided, however, that any
Stock Appreciation Right so exercised must have a Date of Grant at least six
months prior to the date of exercise.
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8.07 Exercise Procedures. Each Option and Stock Appreciation Right granted
under the Plan shall be exercised by written notice to the Company which must be
received by the officer of the Company designated in the Award Agreement on or
before the Expiration Date of the Award. The Purchase Price of shares purchased
upon exercise of an Option granted under the Plan shall be paid in full in cash
by the Participant pursuant to the Award Agreement; provided, however, that the
Administrator may (but need not) permit payment to be made by delivery to the
Company of either (a) shares of Common Stock (including shares issuable to the
Participant pursuant to the exercise of the Option), or (b) any combination of
cash and shares of Common Stock, or (c) such other consideration as the
Administrator deems appropriate and in compliance with applicable law (including
payment in accordance with a cashless exercise program under which, if so
instructed by the Participant, shares of Common Stock may be issued directly to
the Participant's broker or dealer upon receipt of the Purchase Price in cash
from the broker or dealer.) In the event that any Common Stock shall be
transferred to the Company to satisfy all or any part of the Purchase Price, the
part of the Purchase Price deemed to have been satisfied by such transfer of
Common Stock shall be equal to the product derived by multiplying the Fair
Market Value as of the date of exercise times the number of shares transferred.
The Participant may not transfer to the Company in satisfaction of the Purchase
Price (y) a number of shares which when multiplied times the Fair Market Value
as of the date of exercise would result in a product greater than the Purchase
Price or (z) any fractional share of Common Stock. Any part of the Purchase
Price paid in cash upon the exercise of any Option shall be added to the general
funds of the Company and used for any proper corporate purpose. Unless the
Administrator shall otherwise determine, any Common Stock transferred to the
Company as payment of all or part of the Purchase Price upon the exercise of any
Option shall be held as treasury shares.
ARTICLE IX.
RESTRICTED STOCK AWARDS
9.01 Restricted Share Awards. The Administrator may grant to any
Participant an Award of Restricted Share Rights entitling such person to receive
shares of Common Stock in such quantity, and on such terms, conditions and
restrictions (whether based on performance standards, periods of service or
otherwise) as the Administrator shall determine on or prior to the Date of
Grant. The terms of any Award of Restricted Share Rights granted under the Plan
shall be set forth in an Award Agreement.
9.02 Duration of Restricted Share Rights. In no event shall any Restricted
Share Rights granted entitle the holder to receive shares of Common Stock free
of all restrictions on transfer at any time prior to the expiration of one year
from the Date of Grant, and each Award Agreement shall provide, as a condition
to release of restrictions on ownership of the shares, that the Participant
shall remain employed by the Company or a Subsidiary for at least that one-year
period (subject to the Company's or Subsidiary's right to terminate such
employment).
9.03 Forfeiture of Restricted Share Rights. Subject to Section 9.05, all
Restricted Share Rights shall be forfeited and all Restricted Share Awards shall
terminate unless the Participant continues in the service of the Company or a
Subsidiary until the expiration of the forfeiture and satisfies any other
conditions set forth in the Award Agreement. If the Award Agreement shall so
provide, in the case of death, disability or retirement (as defined in the Award
Agreement) of the Participant, all of the shares covered by the Restricted Share
Rights shall immediately vest and any restrictions shall lapse as of the date of
such death, disability or retirement.
9.04 Delivery of Shares Upon Vesting. Upon the lapse of the restrictions
established in the Award Agreement, the Participant shall be entitled to
receive, without payment of any cash or other consideration, certificates for
the number of shares covered by the Award.
9.05 Waiver or Modification of Forfeiture Provisions. The Administrator has
full power and authority to modify or waive any or all terms, conditions or
restrictions (other than the minimum restriction period set forth in Section
9.02) applicable to any Restricted Share Rights granted to a Participant under
the
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Plan; provided that no modification shall, without consent of the Participant,
adversely affect the Participant's rights thereunder and no modification shall
reduce the employment requirement to less than three years, except in the case
of death, disability or retirement.
9.06 Rights as a Stockholder. No person shall have any rights as a
stockholder with respect to any shares subject to Restricted Share Rights until
such time as the person shall have been issued a certificate for such shares.
ARTICLE X.
OTHER STOCK BASED AWARDS
10.01 Grant of Other Awards. Other Awards of Common Stock or other
securities of the Company and other Awards that are valued in whole or in part
by reference to, or are otherwise based on, Common Stock ("Other Awards") may be
granted either alone or in addition to or in conjunction with Options or Stock
Appreciation Rights under the Plan. Subject to the provisions of the Plan, the
Administrator shall have the sole and complete authority to determine the
persons to whom and the time or times at which Other Awards shall be made, the
number of shares of Common Stock or other securities, if any, to be granted
pursuant to such Other Awards, and all other conditions of such Other Awards.
Any Other Award shall be confirmed by an Award Agreement executed by the
Administrator and the Participant, which agreement shall contain such provisions
as the Administrator determines to be necessary or appropriate to carry out the
intent of this Plan with respect to the Other Award.
10.02 Terms of Other Awards. In addition to the terms and conditions
specified in the Award Agreement, Other Awards made pursuant to this Article X
shall be subject to the following:
(a) Any shares of Common Stock subject to such Other Awards may not be
sold, assigned, transferred or otherwise encumbered prior to the date on
which the shares are issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses; and
(b) If specified by the Administrator and the Award Agreement, the
recipient of an Other Award shall be entitled to receive, currently or on a
deferred basis, interest or dividends or dividend equivalents with respect
to the Common Stock or other securities covered by the Other Award; and
(c) The Award Agreement with respect to any Other Award shall contain
provisions providing for the disposition of such Other Award in the event
of Termination of Employment prior to the exercise, realization or payment
of such Other Award, with such provisions to take account of the specific
nature and purpose of the Other Award.
ARTICLE XI.
TERMS APPLICABLE TO ALL AWARDS
11.01 Award Agreement. The grant and the terms and conditions of the Award
shall be set forth in an Award Agreement between the Company and the
Participant. No person shall have any rights under any Award granted under the
Plan unless and until the Administrator and the Participant to whom the Award is
granted shall have executed and delivered an Award Agreement expressly granting
the Award to such person and setting forth the terms of the Award.
11.02 Plan Provisions Control Award Terms. The terms of the Plan shall
govern all Awards granted under the Plan, and in no event shall the
Administrator have the power to grant any Award under the Plan which is contrary
to any of the provisions of the Plan. In the event any provision of any Award
granted under the Plan shall conflict with any term in the Plan as constituted
on the Date of Grant of such Award, the term in the Plan as constituted on the
Date of Grant of such Award shall control. Except as provided in Section 4.03,
(i) the terms of any Award granted under the Plan may not be changed after the
granting of such Award without the express approval of the Participant and (ii)
no modification may be made to an Award granted to an Officer except in
compliance with Rule 16b-3.
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11.03 Modification of Award After Grant. Each Award granted under the Plan
to a Participant other than an Officer may be modified after the date of its
grant by express written agreement between the Company and the Participant,
provided that such change (i) shall not be inconsistent with the terms of the
Plan and (ii) shall be approved by the Administrator. No modifications may be
made to any Awards granted to an Officer except in compliance with Rule 16b-3.
11.04 Taxes. The Company shall be entitled, if the Administrator deems it
necessary or desirable, to withhold (or secure payment from the Participant in
lieu of withholding) the amount of any withholding or other tax required by law
to be withheld or paid by the Company with respect to any amount payable and/or
shares issuable under such Participant's Award, or with respect to any income
recognized upon a disqualifying disposition of shares received pursuant to the
exercise of an Incentive Stock Option, and the Company may defer payment or
issuance of the cash or stock upon exercise or vesting of an Award unless
indemnified to its satisfaction against any liability for such tax. The amount
of such withholding or tax payment shall be determined by the Administrator and,
unless otherwise provided by the Administrator, shall be payable by the
Participant at the time of issuance or payment in accordance with the following
rules:
(a) A Participant, other than an Officer, shall have the right to
elect to meet his or her withholding requirement by: (1) having the Company
withhold from such Award the appropriate number of shares of Common Stock,
rounded out to the next whole number, the Fair Market Value of which is
equal to such amount, or, in the case of the cash payment, the amount of
cash, as is determined by the Company to be sufficient to satisfy
applicable tax withholding requirements; or (2) direct payment to the
Company in cash of the amount of any taxes required to be withheld with
respect to such Award. (b) Unless otherwise provided by the Administrator,
with respect to Officers, the Company shall withhold from such Award the
appropriate number of shares of Common Stock, rounded up to the next whole
number, the Fair Market Value of which is equal to the amount, as
determined by the Administrator, (or, in the case of a cash payment, the
amount of cash) required to satisfy applicable tax withholding
requirements.
(c) In the event that an Award or property received upon exercise of
an Award has already been transferred to the Participant on the date upon
which withholding requirements apply, the Participant shall pay directly to
the Company the cash amount determined by the Company to be sufficient to
satisfy applicable federal, state or local withholding requirements. The
Participant shall provide to the Company such information as the Company
shall require to determine the amounts to be withheld and the time such
withholding requirements become applicable.
(d) If permitted under applicable federal income tax laws, a
Participant may elect to be taxed in the year in which an Award is
exercised or received, even if it would not otherwise have become taxable
to the Participant. If the Participant makes such an election, the
Participant shall promptly notify the Company in writing and shall provide
the Company with a copy of the executed election form as filed with the
Internal Revenue Service no later than thirty days from the date of
exercise or receipt. Promptly following such notification, the Participant
shall pay directly to the Company the cash amount determined by the Company
to be sufficient to satisfy applicable federal, state or local withholding
tax requirements.
11.05 Limitations on Transfer. A Participant's rights and interest under
the Plan may not be assigned or transferred other than by will or the laws of
descent and distribution. Notwithstanding the foregoing, or any other provision
of this Plan, a Participant who holds Non-Qualified Stock Options may transfer
such Options to his or her spouse, lineal ascendants, lineal descendants, or to
a duly established trust for the benefit of one or more of these individuals.
Options so transferred may thereafter be transferred only to the Participant who
originally received the Options or to an individual or trust to whom the
Participant could have initially transferred the Option pursuant to this Section
11.05. Options which are transferred pursuant to this Section 11.05 shall be
exercisable by the transferee according to the same terms and conditions as
applied to the Participant.
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11.06 Surrender of Awards. Any Award granted under the Plan may be
surrendered to the Company for cancellation on such terms as the Administrator
and Participant approve, including, but not limited to, terms which provide that
upon such surrender the Company will pay to the Participant cash or Common
Stock, or a combination of cash and Common Stock.
ARTICLE XII.
GENERAL PROVISIONS
12.01 Amendment and Termination of Plan.
(a) Amendment. The Board shall have complete power and authority to
amend the Plan at any time and to add any other stock based Award or other
incentive compensation programs to the Plan as it deems necessary or
appropriate and no approval by the stockholders of the Company or by any
other person, committee or entity of any kind shall be required to make any
amendment; provided, however, that the Board shall not, without the
requisite affirmative approval of the stockholders of the Company, (i) make
any amendment which requires stockholder approval under any applicable law,
including Rule 16b-3 or the Code; or (ii) which, unless approved by the
requisite affirmative approval of stockholders of the Company, would cause,
result in or give rise to "applicable employee remuneration" within the
meaning of Section 162(m) of the Code with respect to any Performance Based
Option. No termination or amendment of the Plan may, without the consent of
the Participant to whom any Award shall theretofore have been granted under
the Plan, adversely affect the right of such individual under such Award.
For the purposes of this section, an amendment to the Plan shall be deemed
to have the affirmative approval of the stockholders of the Company if such
amendment shall have been submitted for a vote by the stockholders at a
duly called meeting of such stockholders at which a quorum was present and
the majority of votes cast with respect to such amendment at such meeting
shall have been cast in favor of such amendment, or if the holders of
outstanding stock having not less than a majority of the outstanding shares
consent to such amendment in writing in the manner provided under the
Company's bylaws.
(b) Termination. The Board shall have the right and the power to
terminate the Plan at any time. If the Plan is not earlier terminated, the
Plan shall terminate when all shares authorized under the Plan have been
issued. No Award shall be granted under the Plan after the termination of
the Plan, but the termination of the Plan shall not have any other effect
and any Award outstanding at the time of the termination of the Plan may be
exercised after termination of the Plan at any time prior to the expiration
date of such Award to the same extent such award would have been
exercisable if the Plan had not been terminated.
12.02 No Right To Employment Or To Continue As Director. No employee or
other person shall have any claim or right to be granted an Award under this
Plan. Neither the Plan nor any action taken hereunder shall be construed as
giving any employee any right to be retained in the employ of the Company or a
Subsidiary of the Company. Neither the Plan nor any action taken hereunder shall
be construed as giving any Director any right to be retained as a Director, or
to limit in any way the right of the stockholders of the Company to remove such
person as a Director.
12.03 Compliance with Rule 16b-3. It is intended that the Plan be applied
and administered in compliance with Rule 16b-3. If any provision of the Plan
would be in violation of Rule 16b-3 if applied as written, such provision shall
not have effect as written and shall be given effect so as to comply with
Rule 16b-3, as determined by the Administrator. The Board is authorized to amend
the Plan and to make any such modifications to Award Agreements to comply with
Rule 16b-3, as it may be amended from time to time, and to make any other such
amendments or modifications as it deems necessary or appropriate to better
accomplish the purposes of the Plan in light of any amendments made to Rule
16b-3.
12.04 Securities Law Restrictions. The shares of Common Stock issuable
pursuant to the terms of any Awards granted under the Plan may not be issued by
the Company without registration or qualification of such shares under the
Securities Act of 1933, as amended, or under various state securities
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laws or without an exemption from such registration requirements. Unless the
shares to be issued under the Plan have been registered and/or qualified as
appropriate, the Company shall be under no obligation to issue shares of Common
Stock upon exercise of an Award unless and until such time as there is an
appropriate exemption available from the registration or qualification
requirements of federal or state law as determined by the Administrator in its
sole discretion. The Administrator may require any person who is granted an
award hereunder to agree with the Company to represent and agree in writing that
if such shares are issuable under an exemption from registration requirements,
the shares will be "restricted" securities which may be resold only in
compliance with applicable securities laws, and that such person is acquiring
the shares issued upon exercise of the Award for investment, and not with the
view toward distribution.
12.05 Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock or stock options otherwise
than under the Plan.
12.06 Captions. The captions (i.e., all section headings) used in the Plan
are for convenience only, do not constitute a part of the Plan, and shall not be
deemed to limit, characterize or affect in any way any provisions of the Plan,
and all provisions of the Plan shall be construed as if no captions have been
used in the Plan.
12.07 Severability. Whenever possible, each provision in the Plan and every
Award at any time granted under the Plan shall be interpreted in such a manner
as to be effective and valid under applicable law, but if any provision of the
Plan or any Award at any time granted under the Plan shall be held to be
prohibited or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law and (b) all other provisions of
the Plan and every other Award at any time granted under the Plan shall remain
in full force and effect.
12.08 No Strict Construction. No rule of strict construction shall be
implied against the Company, the Administrator, or any other person in the
interpretation of any of the terms of the Plan, any Award granted under the Plan
or any rule or procedure established by the Administrator.
12.09 Choice of Law. The Plan shall be governed by and construed in
accordance with the laws of the State of Michigan.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Bingham's restated articles of incorporation contain a provision,
authorized by the Michigan Business Corporation Act, designed to eliminate in
certain circumstances the personal liability of directors for monetary damages
to Bingham or its stockholders for breach of their fiduciary duty as directors.
This provision, however, does not limit the liability of any director who
breached his or her duty of loyalty to Bingham or its stockholders, failed to
act in good faith, obtained an improper personal benefit or paid a dividend or
approved a stock repurchase or redemption that was prohibited under Michigan
law, derived an improper personal benefit or for any act or omission that
occurred before the effective date of the provision of the articles of
incorporation. This provision will not limit or eliminate the rights of Bingham
or any stockholder to seek an injunction or any other non-monetary relief if a
director breaches his or her duty of care. In addition, this provision applies
only to claims against a director arising out of his or her role as a director
and does not relieve a director from liability unrelated to his or her fiduciary
duty of care or from a violation of statutory law such as certain liabilities
imposed on a director under the federal securities laws.
Bingham's restated articles of incorporation and bylaws also provide that
Bingham will indemnify all of its directors and officers to the fullest extent
permitted by the MBCA. Under the provisions of the MBCA, any director or officer
who, in his or her capacity as such, is made or threatened to be made a party to
any suit or proceeding may be indemnified if the board of directors determines
the director or officer acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of Bingham or its
stockholders. Bingham's restated articles of incorporation and bylaws are set
forth at Exhibits 3.1 and 3.2 to this registration statement.
Michigan corporations are also authorized to obtain insurance to protect
directors and officers from certain liabilities, including liabilities against
which corporations cannot indemnify their directors and officers. Bingham
maintains directors' and officers' liability insurance.
Bingham also has agreements with its directors providing for
indemnification and advancement of expenses. A form of the indemnification
agreements is set forth as Exhibit 10.2 to this registration statement.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger dated May
16, 2000 between Bingham and Franklin. (included as Appendix
A to the proxy statement/ prospectus).
2.2 Agreement and Plan of Merger dated as of February 17, 1998
among Bingham, BAC Acquiring Corp., BSC Acquiring Corp.,
Bloomfield Acceptance Company, L.L.C., and Bloomfield
Servicing Company, L.L.C. (incorporated by reference to
Exhibit 2.1 to Bingham's Report on Form 8-K filed March 13,
1998)
2.3 Reorganization Agreement dated as of June 30, 1999 among
Bingham, DMR Financial Services, Inc., Hartger & Willard
Mortgage Associates, Inc. and Detroit Mortgage and Realty
Company (incorporated by reference to Exhibit 2.1 to
Bingham's Report on Form 8-K filed July 14, 1999)
</TABLE>
II-1
<PAGE> 288
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.4 Purchase Agreement dated as of November 27, 1999 by and
among DFI Acquiring Corp., Dynex Capital, Inc., Dynex
Holding, Inc. and Dynex Financial, Inc. (incorporated by
reference to Exhibit 2.1 to Bingham's Report on Form 8-K
filed December 30, 1999)
3.1 Amended and Restated Articles of Incorporation of Bingham
(incorporated by reference to Exhibit 3.1 to Bingham's
Registration Statement on Form S-1; file no. 333-34453)
3.2 Amended and Restated Bylaws of Bingham (incorporated by
reference to Exhibit 3.3 to Bingham's Registration Statement
on Form S-1; file no. 333-34453)
4.1 Shareholders Agreement dated March 5, 1998 (incorporated by
reference to Exhibit 2.7 to Bingham's Report on Form 8-K
filed March 13, 1998)
4.2 Amendment to Merger Agreement, Shareholders Agreement and
Employment Agreements dated February 21, 1999 (incorporated
by reference to Exhibit 4.2 to Bingham's Annual Report on
Form 10-K for the year ended September 30, 1999)
4.3 Bloomfield Shareholders Agreement dated March 5, 1998
(incorporated by reference to Exhibit 2.6 to Bingham's
Report on Form 8-K filed March 13, 1998)
4.4 Form of Registration Rights Agreement dated April 27, 1999
with respect to an aggregate of 800,330 shares (filed
herewith)
5.1* Opinion of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation regarding legality of securities being
registered
8.1* Opinion of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation regarding tax matters
8.2* Opinion of Bodman, Longley & Dahling LLP regarding tax
matters
10.1 Bingham Financial Services Corporation Second Amended and
Restated 1997 Stock Option Plan (included as Appendix E to
the proxy statement/prospectus)
10.2 Form of Indemnification Agreement between Bingham and its
directors (incorporated by reference to Exhibit 10.4 to
Bingham's Registration Statement on Form S-1; file no.
333-34453)
10.3 Administration Agreement dated July 1, 1997 between Bingham
and Sun Communities, Inc. (incorporated by reference to
Exhibit 10.3 to Bingham's Registration Statement on Form
S-1; file no. 333-34453)
10.4 Participants Support Agreement between Bingham and Sun
Communities, Inc. (assigned to Sun Communities Operating
Limited Partnership as of December 31, 1997) entered into on
September 30, 1997, effective as of July 1, 1997
(incorporated by reference to Exhibit 10.1 to Bingham's
Registration Statement on Form S-1; file no. 333-34453)
10.5 Amendment to Participants Support Agreement dated April 1,
1999 between Bingham and Sun Communities Operating Limited
Partnership (incorporated by reference to Exhibit 10.2 to
Bingham's Annual Report on Form 10-K for the year ended
September 30, 1999)
10.6 Subordinated Loan Agreement dated September 30, 1997 between
Bingham and Sun Communities, Inc. (assigned to Sun
Communities Operating Limited Partnership as of December 31,
1997) (incorporated by reference to Exhibit 10.7 to
Bingham's Registration Statement on Form S-1; file no.
333-34453)
</TABLE>
II-2
<PAGE> 289
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.7 Term Promissory Note dated September 30, 1997 executed by
Bingham in favor of Sun Communities, Inc. (assigned to Sun
Communities Operating Limited Partnership as of December 31,
1997) (incorporated by reference to Exhibit 10.9 to
Bingham's Registration Statement on Form S-1; file no.
333-34453)
10.8 Detachable Warrant Agreement dated September 30, 1997
(incorporated by reference to Exhibit 10.12 to Bingham's
Registration Statement on Form S-1; file no. 333-34453)
10.9 Loan Agreement dated March 1, 1998 between Bingham and Sun
Communities Operating Limited Partnership (incorporated by
reference to Exhibit 10.10 to Bingham's Annual Report on
Form 10-K for the year ended September 30, 1998)
10.10 Employment Agreement dated March 4, 1998 between Bingham and
Daniel E. Bober (incorporated by reference to Exhibit 2.4 to
Bingham's Report on Form 8-K filed March 13, 1998)
10.11 Employment Agreement dated March 4, 1998 between Bingham and
Creighton J. Weber (incorporated by reference to Exhibit 2.5
to Bingham's Report on Form 8-K filed March 13, 1998)
10.12 Certificate of Merger for BAC Acquiring Corp. and Bloomfield
Acceptance Company, L.L.C. dated March 5, 1998 (incorporated
by reference to Exhibit 2.2 to Bingham's Report on Form 8-K
filed March 13, 1998)
10.13 Certificate of Merger for BSC Acquiring Corp. and Bloomfield
Servicing Company, L.L.C. dated March 13, 1998 (incorporated
by reference to Exhibit 2.3 to Bingham's Report on Form 8-K
filed March 13, 1998)
10.14 Loan Agreement dated March 30, 1999 between Bingham and Sun
Communities Operating Limited Partnership (incorporated by
reference to Exhibit 10.12 to Bingham's Annual Report on
Form 10-K for the year ended September 30, 1999)
10.15 Demand Promissory Note dated March 30, 1999 executed by
Bingham in favor of Sun Communities Operating Limited
Partnership (incorporated by reference to Exhibit 10.13 to
Bingham's Annual Report on Form 10-K for the year ended
September 30, 1999)
10.16 Amendment dated June 11, 1999 to Subordinated Loan Agreement
dated September 30, 1997 between Bingham and Sun Communities
Operating Limited Partnership (incorporated by reference to
Exhibit 10.16 to Bingham's Annual Report on Form 10-K for
the year ended September 30, 1999)
10.17 Amendment dated June 11, 1999 to Loan Agreement dated March
1, 1998 between Bingham and Sun Communities Operating
Limited Partnership (incorporated by reference to Exhibit
10.14 to Bingham's Annual Report on Form 10-K for the year
ended September 30, 1999)
10.18 Security Agreement dated December 13, 1999 between Sun
Communities Operating Limited Partnership and Bingham (filed
herewith)
10.19 Second Amended Demand Promissory Note dated December 13,
1999 executed by Bingham in favor of Sun Communities
Operating Limited Partnership (filed herewith)
10.20 Employment Agreement dated January 1, 2000 between Bingham
and Ronald A. Klein (filed herewith)
10.21 Second Amended and Restated Master Repurchase Agreement
dated as of March 15, 2000 among Lehman Commercial Paper
Inc., Bloomfield Acceptance Company, LLC, MHFC, Inc., and
Dynex Financial, Inc. (filed herewith)
</TABLE>
II-3
<PAGE> 290
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.22 Amendment No. 1 dated March 16, 2000 to the Second Amended
and Restated Master Repurchase Agreement (filed herewith)
10.23 Stock Purchase Agreement dated as of March 17, 2000 between
Bingham and Gwenuc, LLC (incorporated by reference to
Exhibit 2.2 to Bingham's Report on Form 8-K filed March 23,
2000)
10.24 Credit Agreement dated March 31, 2000 among Bingham, Dynex
Financial, Inc., and Michigan National Bank (filed herewith)
10.25 Secured Promissory Note dated March 31, 2000 executed by
Bingham and Dynex Financial in favor of Michigan National
Bank (filed herewith)
10.26 Security Agreement dated March 31, 2000 between Michigan
National Bank and Dynex Financial, Inc. (filed herewith)
10.27 Security Agreement dated March 31, 2000 between Michigan
National Bank and Bingham (filed herewith)
10.28* Warehousing Credit and Security Agreement dated as of April
1, 2000 between Bloomfield Servicing Company, L.L.C.,
Bloomfield Acceptance Company, L.L.C. and Residential
Funding Corporation
11 Calculation of Earnings Per Share (incorporated by reference
to Bingham's Annual Report on Form 10-K for the year ended
September 30, 1999)
21 List of Bingham's subsidiaries (filed herewith)
23.1 Consent of Plante & Moran, LLP (filed herewith)
23.2 Consent of PricewaterhouseCoopers LLP. (filed herewith)
23.3 Consent of Grant Thornton LLP. (filed herewith)
23.4 Consents of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation (included in Exhibits 5.1 and 8.2)
23.5 Consent of Bodman, Longley & Dahling LLP (included in
Exhibit 8.2)
23.6 Consent of Keefe, Bruyette & Woods, Inc. (included in
Appendix C to the proxy statement/prospectus)
23.7 Consent of Raymond James & Associates, Inc. (included in
Appendix B to the proxy statement/prospectus)
99.1* Consents of Franklin directors
99.2 Form of proxy card of Bingham (filed herewith)
99.3 Form of proxy card of Franklin (filed herewith)
</TABLE>
-------------------------
* To be filed by amendment.
II-4
<PAGE> 291
(b) Financial Statement Schedules.
Schedules are omitted because they either are not required or are not
applicable or because equivalent information has been included in the financial
statements, the notes thereto or elsewhere herein.
(c) Reports, Opinions and Appraisals.
The information provided pursuant to Item 4(b) of Form S-4 is furnished as
Appendices B and C of the proxy.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned registrant undertakes that every prospectus: (A) that
is filed pursuant to paragraph (1) immediately preceding, or (B) that purports
to meet the requirements of Section 10(a)(3) of the Securities Act and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 292
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Birmingham, State of Michigan, on May 30, 2000.
BINGHAM FINANCIAL SERVICES
CORPORATION,
a Michigan corporation
By: /s/ RONALD A. KLEIN
----------------------------------
Ronald A. Klein,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ RONALD A. KLEIN President, Chief Executive May 30, 2000
----------------------------------------------------- Officer and Director
Ronald A. Klein (principal executive officer)
/s/ GARY A. SHIFFMAN Chairman of the Board and May 30, 2000
----------------------------------------------------- Secretary
Gary A. Shiffman
/s/ W. ANDERSON GEATER, JR. Chief Financial Officer and May 30, 2000
----------------------------------------------------- Treasurer (principal
W. Anderson Geater, Jr. accounting and financial
officer)
/s/ ROBERT H. ORLEY Director April 26, 2000
-----------------------------------------------------
Robert H. Orley
/s/ BRIAN M. HERMELIN Director April 27, 2000
-----------------------------------------------------
Brian M. Hermelin
/s/ DANIEL E. BOBER Director May 17, 2000
-----------------------------------------------------
Daniel E. Bober
/s/ CREIGHTON J. WEBER Director May 30, 2000
-----------------------------------------------------
Creighton J. Weber
/s/ ARTHUR A. WEISS Director May 30, 2000
-----------------------------------------------------
Arthur A. Weiss
/s/ MARK A. GORDON Director April 28, 2000
-----------------------------------------------------
Mark A. Gordon
/s/ JAMES RAISKIN Director May 30, 2000
-----------------------------------------------------
James Raiskin
</TABLE>
II-6
<PAGE> 293
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger dated May
16, 2000 between Bingham and Franklin. (included as Appendix
A to the proxy statement/prospectus).
2.2 Agreement and Plan of Merger dated as of February 17, 1998
among Bingham, BAC Acquiring Corp., BSC Acquiring Corp.,
Bloomfield Acceptance Company, L.L.C., and Bloomfield
Servicing Company, L.L.C. (incorporated by reference to
Exhibit 2.1 to Bingham's Report on Form 8-K filed March 13,
1998)
2.3 Reorganization Agreement dated as of June 30, 1999 among
Bingham, DMR Financial Services, Inc., Hartger & Willard
Mortgage Associates, Inc. and Detroit Mortgage and Realty
Company (incorporated by reference to Exhibit 2.1 to
Bingham's Report on Form 8-K filed July 14, 1999)
2.4 Purchase Agreement dated as of November 27, 1999 by and
among DFI Acquiring Corp., Dynex Capital, Inc., Dynex
Holding, Inc. and Dynex Financial, Inc. (incorporated by
reference to Exhibit 2.1 to Bingham's Report on Form 8-K
filed December 30, 1999)
3.1 Amended and Restated Articles of Incorporation of Bingham
(incorporated by reference to Exhibit 3.1 to Bingham's
Registration Statement on Form S-1; file no. 333-34453)
3.2 Amended and Restated Bylaws of Bingham (incorporated by
reference to Exhibit 3.3 to Bingham's Registration Statement
on Form S-1; file no. 333-34453)
4.1 Shareholders Agreement dated March 5, 1998 (incorporated by
reference to Exhibit 2.7 to Bingham's Report on Form 8-K
filed March 13, 1998)
4.2 Amendment to Merger Agreement, Shareholders Agreement and
Employment Agreements dated February 21, 1999 (incorporated
by reference to Exhibit 4.2 to Bingham's Annual Report on
Form 10-K for the year ended September 30, 1999)
4.3 Bloomfield Shareholders Agreement dated March 5, 1998
(incorporated by reference to Exhibit 2.6 to Bingham's
Report on Form 8-K filed March 13, 1998)
4.4 Form of Registration Rights Agreement dated April 27, 1999
with respect to an aggregate of 800,330 shares (filed
herewith)
5.1* Opinion of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation regarding legality of securities being
registered
8.1* Opinion of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation regarding tax matters
8.2* Opinion of Bodman, Longley & Dahling LLP regarding tax
matters
10.1 Bingham Financial Services Corporation Second Amended and
Restated 1997 Stock Option Plan (included as Appendix E to
the proxy statement/prospectus)
10.2 Form of Indemnification Agreement between Bingham and its
directors (incorporated by reference to Exhibit 10.4 to
Bingham's Registration Statement on Form S-1; file no.
333-34453)
10.3 Administration Agreement dated July 1, 1997 between Bingham
and Sun Communities, Inc. (incorporated by reference to
Exhibit 10.3 to Bingham's Registration Statement on Form
S-1; file no. 333-34453)
10.4 Participants Support Agreement between Bingham and Sun
Communities, Inc. (assigned to Sun Communities Operating
Limited Partnership as of December 31, 1997) entered into on
September 30, 1997, effective as of July 1, 1997
(incorporated by reference to Exhibit 10.1 to Bingham's
Registration Statement on Form S-1; file no. 333-34453)
</TABLE>
<PAGE> 294
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.5 Amendment to Participants Support Agreement dated April 1,
1999 between Bingham and Sun Communities Operating Limited
Partnership (incorporated by reference to Exhibit 10.2 to
Bingham's Annual Report on Form 10-K for the year ended
September 30, 1999)
10.6 Subordinated Loan Agreement dated September 30, 1997 between
Bingham and Sun Communities, Inc. (assigned to Sun
Communities Operating Limited Partnership as of December 31,
1997) (incorporated by reference to Exhibit 10.7 to
Bingham's Registration Statement on Form S-1; file no.
333-34453)
10.7 Term Promissory Note dated September 30, 1997 executed by
Bingham in favor of Sun Communities, Inc. (assigned to Sun
Communities Operating Limited Partnership as of December 31,
1997) (incorporated by reference to Exhibit 10.9 to
Bingham's Registration Statement on Form S-1; file no.
333-34453)
10.8 Detachable Warrant Agreement dated September 30, 1997
(incorporated by reference to Exhibit 10.12 to Bingham's
Registration Statement on Form S-1; file no. 333-34453)
10.9 Loan Agreement dated March 1, 1998 between Bingham and Sun
Communities Operating Limited Partnership (incorporated by
reference to Exhibit 10.10 to Bingham's Annual Report on
Form 10-K for the year ended September 30, 1998)
10.10 Employment Agreement dated March 4, 1998 between Bingham and
Daniel E. Bober (incorporated by reference to Exhibit 2.4 to
Bingham's Report on Form 8-K filed March 13, 1998)
10.11 Employment Agreement dated March 4, 1998 between Bingham and
Creighton J. Weber (incorporated by reference to Exhibit 2.5
to Bingham's Report on Form 8-K filed March 13, 1998)
10.12 Certificate of Merger for BAC Acquiring Corp. and Bloomfield
Acceptance Company, L.L.C. dated March 5, 1998 (incorporated
by reference to Exhibit 2.2 to Bingham's Report on Form 8-K
filed March 13, 1998)
10.13 Certificate of Merger for BSC Acquiring Corp. and Bloomfield
Servicing Company, L.L.C. dated March 13, 1998 (incorporated
by reference to Exhibit 2.3 to Bingham's Report on Form 8-K
filed March 13, 1998)
10.14 Loan Agreement dated March 30, 1999 between Bingham and Sun
Communities Operating Limited Partnership (incorporated by
reference to Exhibit 10.12 to Bingham's Annual Report on
Form 10-K for the year ended September 30, 1999)
10.15 Demand Promissory Note dated March 30, 1999 executed by
Bingham in favor of Sun Communities Operating Limited
Partnership (incorporated by reference to Exhibit 10.13 to
Bingham's Annual Report on Form 10-K for the year ended
September 30, 1999)
10.16 Amendment dated June 11, 1999 to Subordinated Loan Agreement
dated September 30, 1997 between Bingham and Sun Communities
Operating Limited Partnership (incorporated by reference to
Exhibit 10.16 to Bingham's Annual Report on Form 10-K for
the year ended September 30, 1999)
10.17 Amendment dated June 11, 1999 to Loan Agreement dated March
1, 1998 between Bingham and Sun Communities Operating
Limited Partnership (incorporated by reference to Exhibit
10.14 to Bingham's Annual Report on Form 10-K for the year
ended September 30, 1999)
10.18 Security Agreement dated December 13, 1999 between Sun
Communities Operating Limited Partnership and Bingham (filed
herewith)
10.19 Second Amended Demand Promissory Note dated December 13,
1999 executed by Bingham in favor of Sun Communities
Operating Limited Partnership (filed herewith)
</TABLE>
<PAGE> 295
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.20 Employment Agreement dated January 1, 2000 between Bingham
and Ronald A. Klein (filed herewith)
10.21 Second Amended and Restated Master Repurchase Agreement
dated as of March 15, 2000 among Lehman Commercial Paper
Inc., Bloomfield Acceptance Company, LLC, MHFC, Inc., and
Dynex Financial, Inc. (filed herewith)
10.22 Amendment No. 1 dated March 16, 2000 to the Second Amended
and Restated Master Repurchase Agreement (filed herewith)
10.23 Stock Purchase Agreement dated as of March 17, 2000 between
Bingham and Gwenuc, LLC (incorporated by reference to
Exhibit 2.2 to Bingham's Report on Form 8-K filed March 23,
2000)
10.24 Credit Agreement dated March 31, 2000 among Bingham, Dynex
Financial, Inc., and Michigan National Bank (filed herewith)
10.25 Secured Promissory Note dated March 31, 2000 executed by
Bingham and Dynex Financial in favor of Michigan National
Bank (filed herewith)
10.26 Security Agreement dated March 31, 2000 between Michigan
National Bank and Dynex Financial, Inc. (filed herewith)
10.27 Security Agreement dated March 31, 2000 between Michigan
National Bank and Bingham (filed herewith)
10.28* Warehousing Credit and Security Agreement dated as of April
1, 2000 between Bloomfield Servicing Company, L.L.C.,
Bloomfield Acceptance Company, L.L.C. and Residential
Funding Corporation
11 Calculation of Earnings Per Share (incorporated by reference
to Bingham's Annual Report on Form 10-K for the year ended
September 30, 1999)
21 List of Bingham's subsidiaries (filed herewith)
23.1 Consent of Plante & Moran, LLP (filed herewith)
23.2 Consent of PricewaterhouseCoopers LLP. (filed herewith)
23.3 Consent of Grant Thornton LLP. (filed herewith)
23.4 Consents of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation (included in Exhibits 5.1 and 8.2)
23.5 Consent of Bodman, Longley & Dahling LLP (included in
Exhibit 8.2)
23.6 Consent of Keefe, Bruyette & Woods, Inc. (included in
Appendix C to the proxy statement/prospectus)
23.7 Consent of Raymond James & Associates, Inc. (included in
Appendix B to the proxy statement/prospectus)
99.1* Consents of Franklin directors
99.2 Form of proxy card of Bingham (filed herewith)
99.3 Form of proxy card of Franklin (filed herewith)
</TABLE>
-------------------------
* To be filed by amendment.
