EXHIBIT 1.1
MARK B. COHEN
MANAGING DIRECTOR
September 28, 2007
Mr. Ronald Anderson
President & CEO
Malvern Federal Savings Bank
42 East Lancaster Avenue
Paoli, PA 19301
CONFIDENTIAL
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| Re: | Proposed Mutual Holding Company Formation – Advisory, Administrative and Marketing Services |
Dear Mr. Anderson:
Stifel Nicolaus & Co., INC. (“Stifel Nicolaus”) is pleased to submit this engagement letter setting forth the terms of the proposed engagement between Stifel Nicolaus and Malvern Federal Savings Bank (the “Institution” or the “Company”) in connection with the potential corporate reorganization of the Institution and sale of common stock by the Institution. The parties acknowledge and agree that this letter agreement supersedes the letter agreement dated September 5, 2006 between the Company and Ryan Beck & Co. which was acquired by means of merger by Stifel Nicolaus.
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| 1. | MUTUAL HOLDING COMPANY FORMATION AND STOCK OFFERING |
The Institution is considering reorganization into a two-tier mutual holding company structure by forming a mutual holding company and middle-tier holding company (“Holding Company”) pursuant to applicable regulations. The common stock (the “Common Stock”) would be offered in a subscription offering with any remaining shares expected to be sold in a community offering and, if necessary, a syndicated community offering (collectively the “Offering”). In connection therewith, the Institution’s Board of Directors would adopt a stock issuance plan (the “Plan”) regarding the reorganization and the Offering. Stifel Nicolaus proposes to act as financial advisor to the Institution with respect to the reorganization and Offering and as selling agent with respect to the Offering. Specific terms of services shall be set forth in a definitive agency agreement (the “Definitive Agreement”) between Stifel Nicolaus and the Institution to be executed on the date the offering document is declared effective by the regulatory authorities.
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STIFLE, NICOLAUS & COMPANY, INCORPORATED |
650 MADISON AVENUE | NEW YORK, NEW YORK 10022 | (212) 407-0506 | (212) 407-0898 FAX | WWW.STIFLE.COM |
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| 2. | SERVICES TO BE PROVIDED BY STIFEL NICOLAUS |
Stifel Nicolaus provides and helps coordinate advisory, administrative and marketing services in connection with thrift reorganizations and related stock offerings. Our existing team has worked together on numerous such transactions.
a.Advisory Services - As your investment banker, Stifel Nicolaus will work with you and your counsel to evaluate financial, marketing and regulatory issues. Our working knowledge of the law and “lore” of bank regulators, securities regulators and NASD is essential. Our legal, accounting and regulatory background is equally important.
Our specific advisory responsibilities include:
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| - | Advise with respect to business planning issues in preparation for a public offering; |
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| - | Advise with respect to the choice of charter and form of organization; |
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| - | Review and advise with respect to the stock issuance plan (e.g. sizes of benefit plan purchases; max purchase limits for investors); |
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| - | Advise with respect to which trading venue the shares should trade on; |
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| - | Review and provide input with respect to the business plan to be prepared in connection with the Offering; |
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| - | Discuss the appraisal process and analyze the appraisal with the Board of Directors; |
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| - | Participate in drafting the offering document and any proxy materials, and assist in obtaining all requisite regulatory approvals; |
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| - | Develop a marketing plan for the subscription and community offerings, considering various sales method options, including direct mail, advertising, community meetings and telephone solicitation; |
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| - | Develop a proxy solicitation plan, to include telephone calls and mailings; |
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| - | Stifel Nicolaus does not offer data processing agent, printing and transfer agent functions. Costs of such services will be borne by the Institution and are subject to agreements signed by the Institution and each service provider. Stifel Nicolaus will work with the Institution to provide specifications and assistance in selecting these and any other professionals that will perform administrative functions in connection with the offering and the proxy solicitation process; |
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| - | Develop a layout for the Stock Information Center (the “Center”), where stock order and proxy card processing occur; |
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| - | Provide a list of equipment, staff and supplies needed for the Center; and |
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| - | Draft marketing materials including letters, order form, advertisement, and brochure. If a community meeting or road show is anticipated, we will help draft the presentation – saving you time and legal expense; and |
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| - | Consulting with management, determine whether and when to assemble a selling group of selected local broker-dealers to assist in selling stock after the community offering; |
b.Administrative Services and Stock Information Center Management – Stifel Nicolaus manages all aspects of a thrift reorganization’s stock offering and proxy solicitation. Successful stock sale and vote results require thorough planning and an enormous amount of attention to detail. Our efforts are meant to avoid mistakes, costly surprises and lost opportunities. We identify key logistics, define responsibilities and create timetables to help avoid confusion among the many members of the working group. An offering also requires accurate and timely record keeping and reporting. Furthermore, customers must be handled professionally and their questions must be answered accurately.
The Stock Information Center is the “command center” during a stock offering. Stifel Nicolaus staff’s experience in managing many thrift minority stock offerings, full conversion offerings will help minimize the burden on your management and staff. They will train and supervise the staff that you assign to the Center to help record stock orders, answer customer inquiries and participate in other activities of the Center.
Our administrative services include the following:
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| - | Provide experienced on-site Stifel Nicolaus registered representatives to manage and supervise the Center. All substantive stock offering and proxy vote matters and customer inquiries will be handled by Stifel Nicolaus; |
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| - | Prepare procedures for processing proxies, stock orders and cash, and for handling requests for material; |
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| - | Provide scripts and training for the telephone team who will solicit proxies and, if needed, help conduct a stock sales telemarketing effort; |
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| - | Educate the Institution’s directors, officers and employees about the reorganization and Offering, their roles and relevant securities laws; |
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| - | Train branch managers and customer-contact employees on the proper response to stock purchase and proxy vote inquiries; |
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| - | Coordinate functions with and between the data processing agent, printer, transfer agent, stock certificate printer and other professionals; |
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| - | Design and implement procedures for handling IRA and Keogh orders; |
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| - | Supervise Center staff in proxy card and stock order processing and in proxy solicitation calling efforts; |
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| - | Prepare daily vote and sales reports for management, ensuring funds received balance to the reports; |
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| - | Manage the pro-ration process in the event of oversubscription; |
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| - | Coordinate with NASDAQ and DTC to ensure a smooth closing and stock trading; and |
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| - | Provide post-offering subscriber assistance. |
c.Securities Marketing Services – Stifel Nicolaus uses various sales techniques including direct mail, advertising, community investor meetings, telephone solicitation, and if necessary, assembling a selling group of broker-dealers for a syndicated community offering. The sales approach for your stock offering will be tailored to fit your specific situation, in order to best mange the offering and attract a stockholder base comprised largely of community-oriented individuals loyal to the Institution.
Our specific marketing services include:
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| - | If applicable, assist management in developing a list of potential investors who are viewed as priority prospects; |
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| - | The Stifel Nicolaus registered representatives at the Center will solicit orders from the eligible prospects described above; |
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| - | Respond to questions related to information in the offering document and in any proxy materials, and answer investment-related questions; |
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| - | If the sales plan calls for community meetings, participate in them. Community meetings can relieve customer anxiety and generate local publicity for the Offering; |
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| - | Continually advise management on sales progress, market conditions and customer/community responsiveness to the Offering; |
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| - | Prepare broker “fact sheets” and arrange “road shows” for the purpose of stimulating interest in the stock and informing the brokerage community of the particulars of the Offering; and |
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| - | Contact other market-makers to trade the stock in the after-market. |
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| 3. | COMPENSATION |
For its services hereunder, the Institution will pay to Stifel Nicolaus the following compensation:
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| a. | A reorganization and proxy vote advisory and administrative services fee of $50,000 in connection with certain services set forth in section 3.a. and 3.b. hereof. In view of the long preparation phase prior to commencement of the Offering, this fee shall be payable as follows: $25,000 upon executing this letter (already paid); $15,000 upon the initial filing of the offering document and $10,000 upon closing of the reorganization and Offering. |
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| b. | A sales fee of one percent (1.00%) of the dollar amount of the Common Stock sold in the Offering, other than those shares sold pursuant to subparagraph c. below. No fee shall be payable pursuant to this subsection in connection with the sale of stock to officers, directors, employees or immediate family of such persons including retirement account or trust accounts of any such individuals (“Insiders”) and qualified and non-qualified employee benefit plans of the Institution of the Insiders. |
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| c. | For stock sold by a group of selected dealers (including Stifel Nicolaus) pursuant to a syndicated community offering solely managed by Stifel Nicolaus (the “Selling Group”), a fee equal to six percent (6.00%) of the aggregate dollar amount of Common Stock sold in the syndicated community offering, which fee paid to Stifel Nicolaus, along with the fee payable directly by the Institution to the other selected dealers shall not exceed six percent (6.00%) of the aggregate dollar amount of Common Stock so sold. In consultation with Stifel Nicolaus, the Institution will determine which NASD member firms will participate in the Selling Group and the extent of their participation. Stifel Nicolaus will not commence sales of the Common Stock through the Selling Group without the specific prior approval of the Institution. |
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| d. | If, pursuant to a resolicitation of subscribers undertaken by the Institution, Stifel Nicolaus is required to provide significant additional services, the parties shall mutually agree to the dollar amount of any additional compensation due. |
The above compensation, less the amount of advance payments described in subparagraph a., is to be paid to Stifel Nicolaus at the closing of the Offering.
If, after adoption of the Plan, (i) the Plan is abandoned or terminated by the Institution; (ii) the Offering is not consummated by December 31, 2008; (iii) Stifel Nicolaus terminates this relationship because there has been a material adverse change in the financial condition or operations of the Institution since September 30, 2007; or (iv) immediately prior to commencement of the Offering, Stifel Nicolaus terminates this relationship because in its opinion, which shall have been formed in good faith after reasonable determination and consideration of all relevant factors, there has been a failure to satisfactorily disclose all relevant information in the offering document or other disclosure documents or market conditions exist which might render the sale of the Common Stock inadvisable; Stifel Nicolaus shall not be entitled to the compensation set forth above, but in addition to reimbursement of its reasonable out-of-pocket expenses as set forth in paragraph 6 below, shall be entitled to payment of $50,000 for its reorganization and proxy vote advisory services.
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| 4. | MARKET MAKING |
If applicable, Stifel Nicolaus agrees to use its best efforts to maintain a market and to solicit other broker-dealers to make a market in the Common Stock so that there will be at least three market makers for the Common Stock after the Offering.
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| 5. | DOCUMENTS |
The Institution and its counsel will complete, file with the appropriate regulatory authorities and, as appropriate, amend from time to time, the information to be contained in the Institution’s applications to banking and securities regulators and any related exhibits thereto. In this regard, the Institution and its counsel will prepare an offering document and any other necessary disclosure documents relating to the offering of the Common Stock in conformance with applicable rules and regulations. As the Institution’s financial advisor, Stifel Nicolaus will, in conjunction with counsel, conduct an examination of the relevant documents and records of the Institution and will make such other reasonable investigations as deemed necessary and appropriate under the circumstances. The Institution agrees to make all documents, records and other information deemed necessary by Stifel Nicolaus, or its counsel, available to them upon reasonable notice. Stifel Nicolaus’ counsel will prepare, subject to the approval of Institution’s counsel, the Definitive Agreement. Stifel Nicolaus’ counsel shall be selected by Stifel Nicolaus, subject to the approval of the Institution.
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| 6. | EXPENSES AND REIMBURSEMENT |
The Institution will bear all of its expenses in connection with the reorganization and the Offering of Common Stock including, but not limited to: appraisal and business plan preparation; the Institution’s attorney fees; NASD filing fees; “blue sky” legal fees and state filing fees; services of the data processing agent, transfer agent, financial and stock certificate printers, auditors and accountants; advertising; postage; “road show” and other syndicated community offering costs; and all costs of operating the Stock Information Center, including hiring temporary personnel, if necessary. In the event Stifel Nicolaus incurs such expenses on behalf of the Institution, the Institution shall reimburse Stifel Nicolaus for such reasonable fees and expenses regardless of whether the Reorganization is successfully completed. Stifel Nicolaus will not incur any single expense of more than $1,000, pursuant to this paragraph without the prior approval of the Institution.
The Institution also agrees to reimburse Stifel Nicolaus for its reasonable out-of-pocket expenses, including legal fees and expenses, incurred by Stifel Nicolaus in connection with the services contemplated hereunder subject to the limits set forth below. In the offering, Stifel Nicolaus will not incur legal fees reimbursable by The Institution (excluding the out-of-pocket expenses of counsel) in excess of $75,000 and out of pocket expenses of counsel of more than $5,000. These expenses assume no unusual circumstances or resolicitation. Stifel Nicolaus will not incur reimbursable direct out-of-pocket expenses in excess of $15,000. The parties acknowledge, however, that such cap may be increased by the mutual consent of the Institution and Stifel Nicolaus, including in the event of a material delay in the Offering which would require an update of the financial information in tabular form to reflect a period later than that set forth in the original filing of the offering document. In addition, in the event of a syndicated community offering, the Institution will reimburse all reasonable out-of-pocket expenses incurred in connection with that offering phase not to exceed $15,000. Not later than two days before closing, Stifel Nicolaus will provide the Institution with a detailed accounting of all reimbursable expenses of Stifel Nicolaus and its counsel to be paid at closing.
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| 7. | BLUE SKY |
To the extent required by applicable state law, Stifel Nicolaus and the Institution must obtain or confirm exemptions, qualifications or registration of the Common Stock under applicable state securities laws and NASD policies. The cost of such legal work and related state filing fees will be paid by the Institution to the law firm furnishing such legal work. The Institution will instruct the counsel performing such services to prepare a Blue Sky memorandum related to the Offering including Stifel Nicoalus’ participation therein and shall furnish Stifel Nicolaus a copy thereof, regarding which such counsel shall state Stifel Nicolaus may rely.
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| 8. | AVAILABILITY OF “STARS” PROGRAM |
As an additional service to the Institution, Stifel Nicolaus will make available for a period of 1 year following the completion of the Offering, advisory services through the Stifel Nicolaus Strategic Advisory Services (“STARS”) program. The undersigned will serve as the senior relationship manager for this program. If the Institution elects to avail itself of the STARS program, Stifel Nicolaus will meet with the Institution at its request. Stifel Nicolaus also will provide opinions and recommendations, upon request, for the areas covered below:
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| Valuation Analysis |
| Merger and Acquisition Planning and Analysis |
| Merger and Acquisition Trends |
| Planning, Forecasting & Competitive Strategy |
| Capital, Asset & Liability Structure & Management |
| Stock Repurchase Programs |
| Dividend Policy |
| Dividend Reinvestment Programs |
| Market Development and Sponsorship of Bank Securities |
| Financial Disclosure |
| Financial Relations |
| Financial Reports |
| Branch Sales and Purchases |
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| Stock Benefit Plan Analysis and Advisory |
| Stockholder & Investor Relations Presentations & Programs |
| Fairness Opinions |
| Scanning of Potential Acquisition Candidates |
| Based on Published Statement Information |
If the Institution elects to utilize the STARS program Stifel Nicolaus will waive the regular retainer fee and hourly charges for this program for the first year. The Institution also will reimburse Stifel Nicolaus’ reasonable out-of-pocket expenses incurred in conjunction with the performance of these services. Such out-of-pocket expenses shall include travel, legal and other miscellaneous expenses. Stifel Nicolaus will not incur any single expense in excess of $1,000 pursuant to this paragraph without the prior approval of the Institution.
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| 9. | INDEMNIFICATION |
The Definitive Agreement will provide for indemnification of the type usually found in underwriting agreements as to certain liabilities, including liabilities under the Securities Act of 1933. The Institution also agrees to defend, indemnify and hold harmless Stifel Nicolaus and its officers, directors, employees and agents against all claims, losses, actions, judgments, damages or expenses, including but not limited to reasonable attorneys’ fees, arising solely out of the engagement described herein, except that such indemnification shall not apply to Stifel Nicolaus’ own bad faith, willful misconduct or gross negligence.
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| 10. | CONFIDENTIALITY |
To the extent consistent with legal requirements and except as otherwise set forth in the offering document, all information given to Stifel Nicolaus by the Institution, unless publicly available or otherwise available to Stifel Nicolaus without restriction to breach of any confidentiality agreement (“Confidential Information”), will be held by Stifel Nicolaus in confidence and will not be disclosed to anyone other than Stifel Nicolaus’ agents without the Institution’s prior approval or used for any purpose other than those referred to in this engagement letter. Upon the termination of its engagement, Stifel Nicolaus will promptly deliver to the Institution all materials specifically produced for it and will return to the Institution all Confidential Information provided to Stifel Nicolaus during the course of its engagement hereunder. Stifel Nicolaus shall cause its employees, attorneys and other agents to abide by Section 10.
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| 11. | NASD MATTERS |
Stifel Nicolaus has an obligation to file certain documents and to make certain representations to the National Association of Security Dealers (“NASD”) in connection with the Offering. The Institution agrees to cooperate with Stifel Nicolaus and provide such information as may be necessary for Stifel Nicolaus to comply with all NASD requirements applicable to its participation in the Offering. Stifel Nicolaus is and will remain through completion of the Offering a member in a good standing of the NASD and will comply with all applicable NASD requirements.
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| 12. | OBLIGATIONS |
Except as set forth below, this engagement letter is merely a statement of intent. While Stifel Nicolaus and the Institution agree in principle to the contents hereof and propose to proceed promptly and in good faith to work out the arrangements with respect to the Offering, any legal obligations between Stifel Nicolaus and the Institution shall be only: (i) those set forth herein in paragraphs 2, 3 and 4 regarding services and payments; (ii) those set forth in paragraph 6 regarding reimbursement for certain expenses; (iii) those set forth in paragraph 9 regarding indemnification; (iv) those set forth in paragraph 10 regarding confidentiality; and (v) as set forth in a duly negotiated and executed Definitive Agreement.
The obligation of Stifel Nicolaus to enter into the Definitive Agreement shall be subject to there being, in Stifel Nicolaus’ opinion, which shall have been formed in good faith after reasonable determination and consideration of all relevant factors: (i) no material adverse change in the condition or operation of the Institution; (ii) satisfactory disclosure of all relevant information in the disclosure documents and a determination that the sale of stock is reasonable given such disclosures; (iii) no market conditions which might render the sale of the shares by the Institution hereby contemplated inadvisable; and (iv) agreement that the price established by the independent appraiser is reasonable in the then-prevailing market conditions.
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| 13. | INDEPENDENT CONTRACTOR; NO FIDUCIARY DUTY |
The Institution acknowledges and agrees that it is a sophisticated business enterprise and that Stifel Nicolaus has been retained pursuant to this engagement letter to act as financial advisor to the Institution solely with respect to the matters set forth herein. In such capacity, Stifel Nicolaus shall act as an independent contractor, and any duties of Stifel Nicolaus arising out of this engagement pursuant to this letter shall be contractual in nature and shall be owed solely to the Institution. Each party disclaims any intention to impose any fiduciary duty on the other.
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| 14. | GOVERNING LAW |
This engagement letter shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to contracts executed and to be wholly performed therein without giving effects to its conflicts of laws principles or rules. Any dispute here under shall be brought in a court in the State of New Jersey.
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| 15. | WAIVER OF TRAIL BY JURY |
BOTH STIFEL NICOLAUS AND THE INSTITUTION WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF THIS AGREEMENT.
Please acknowledge your agreement to the foregoing by signing in the place provided below and returning one copy of this letter to our office. We look forward to working with you.
STIFEL NICOLAUS & CO., INC.
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BY: | |
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| Mark B. Cohen |
| Managing Director |
Accepted and Agreed to This 1st Day of October, 2007
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BY: | |
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| Ronald Anderson |
| President & Chief Executive Officer |
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cc: | Raymond Tiernan |
| Elias Matz Tiernan & Herrick, L.L.P. |
| 734 15th St. N.W. |
| Washington, D.C. 20005 |