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Exhibit 10.7
Agreement between Carruthers & Company
and Federal Trust Corporation
CARRUTHERS & COMPANY
17205 BEAUVOIR BOULEVARD
ROCKVILLE, MARYLAND 20855
TELEPHONE: (301) 990-8512
FACSIMILE: (301) 330-1589
July 7, 1997
Mr. James V. Suskiewich
Chief Executive Officer
Federal Trust Corporation
1211 Orange Avenue
Winter Park, Florida 32789
Dear Jim:
As previously noted in my analysis of the capital enhancement options,
the management of Federal Trust Corporation ("Federal Trust" or the "Company")
has done a notable job of halting the Company's slide and beginning the process
of turning it around. While it appears that we may have access to a considerable
source of capital, this capital has yet to be committed and will not be
committed until the individual investors are satisfied with the investment's
fundamentals. This additional capital infusion is critical. As we have discussed
many times, those banks that have successfully recapitalized have raised enough
capital to both meet short-term regulatory capital compliance, but as
importantly, to allow the bank to grow and become a competitively viable
institution in the years to come.
In this regard, I am enthusiastic about the potential new investors.
Nevertheless, my enthusiasm will remain tempered until the total
recapitalization of the Company is completed. The prospective transaction is
currently contemplates a combination rights offering ("Rights Offering"),
community offering ("Community Offering") and syndicated community offering
("Syndicated Community Offering"), collectively referred to as the "Offering".
This process, which will include a number of important investor presentations,
will take several weeks, possibly months, to complete and we must remain focused
in our efforts during this period of time.
As previously discussed, the placement of stock in the Rights Offering,
which includes the sales to current shareholders and insiders (the Company's
officers, directors and employees), will be significant. A successful Rights
Offering sale will: (1) save the Company the significant marketing fee, (2)
garner the confidence of the current shareholders and Company insiders, (3)
build up momentum for the Community and Syndicated Community Offerings, and (4)
place the stock in friendly hands.
The purpose of this letter is to memorialize our recent discussions
regarding Federal Trust's engagement of Carruthers & Company (or the "Firm") as
financial advisor in connection with the recapitalization of the Company and on
an ongoing basis. The remainder of this letter will describe the scope of our
work, our fee structure and the estimated time frame for completion of the
project. Also included is some background on our firm and the principals who
will be advising you.
Mr. James V. Suskiewich
July 7, 1997
Page 2
SCOPE OF THE WORK
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Based on our vast experience in working with financial institution
recapitalizations, we believe there are certain critical success factors in
these types of Offerings both in the pre- capitalization and post-capitalization
environments. These critical success factors, and how we would assist you in
accomplishing each of them, are outlined below. The factors are divided into the
two phases -- (1) pre-capitalization and (2) post-capitalization.
Phase One - Design Effective Presentations Tailored to Your Target Audiences.
High quality investment community presentations will help the Company
generate support for the prospective offering, and provides a foundation for
your future investor/public relations efforts. The presentations encompass
marketing and promotional material designed to enlighten and gain investor
support for Federal Trust, its prospects and the stock price. The presentations
are designed to meet the informational needs of the various elements of the
investment community that will be the most likely sources of investment capital
for the Company, including Federal Trust's directors, management, employees, and
current shareholders, as well as, the institutional/entrepreneurial investors
and other brokerage firms utilized in the Subscription Community Offering. Our
experience in working with both retail and institutional type investors, as well
as the expertise developed via our participation in ten of these types of
recapitalizations will be utilized.
If appropriate, our advisors will directly participate in investor
presentations bringing our third party perspective on the Company's strategic
positioning, financial fundamentals and prospects for success.
Phase Two - Post-Capitalization Monitoring and Planning.
Having participated directly in or analyzing a significant portion of
the recapitalizations, we strongly believe that the first year after the
capitalization is a very critical period. The foundation for the long-term
success or failure of the recapitalization is developed during this time. As
such, we will help Federal Trust's Board by assisting in the monitoring and
planning process during this crucial time frame. Throughout the first
post-capitalization year, we will participate (on a quarterly basis) in Board
meetings and help facilitate the monitoring and planning process, which is a
basic element of the strategic planning process. One of the principal objectives
will be the same as the one developed in the Strategic Alternative Financial
Evaluation ("SAFE") program, to ensure that management and the Board of
Directors of both the Company have been fully informed (in a timely and on a
cost effective basis) as to their various strategic alternatives, and that both
groups fully understand what strategies will maximize long-term shareholder
value. In this process, we can cover a number of areas, including strategic
alternatives (such as branching strategies), issues effecting financial
institution equities, investor relations, employee/ management compensation, and
others issues of interest.
Mr. James V. Suskiewich
July 7, 1997
Page 3
FEE SCHEDULE
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Our standard fee schedule for these types of transactions includes
professional fees charged for work done on the project, plus normal
out-of-pocket expenses. We know of no reason to deviate from this format, nor
have you or your staff indicated any problem with this format.
Specifically, our hourly fees are $200 per hour worked. Since we are
very interested in continuing to participate in this transaction, we will cap
our hourly fees for Phase One of the engagement at $5,000. We would also cap our
hourly fees for Phase Two of the project at $5,000 (or $1,250 for each of the
four Board meetings). It is our standard practice to request that each of our
clients maintain a retainer balance with us, against which we charge our hourly
fees and out of pocket expenses. In this case, we believe an initial retainer of
$3,750 will be adequate. Our fees and out-of-pocket expenses will be billed at
the end of each month or after each Board meeting.
CORPORATE BACKGROUND - CARRUTHERS & COMPANY
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Carruthers & Company sole mission is to provide expert, discrete and
cost-effective advisory services to financial institution managers, directors
and investors. Our firm has a reputation for high quality service, because our
professionals are focused, experienced, work interdependently and produce
successful results.
Our professionals are focused. Carruthers & Company is a specialized
consulting firm providing a select range of financial, economic and management
advisory services exclusively to the financial services industry. Our nationwide
client base includes commercial banks, bank holding companies, thrift
institutions, mortgage banking firms, government regulatory agencies, and
investors in the financial services industry.
Our professionals are experienced. Our principals are seasoned
financial service firm professionals. Prior to forming Carruthers & Company,
these individuals worked for or with leading financial service firms, financial
consulting concerns and investment banks. As such, these principals possess a
wealth of practical industry experience, financial advisory expertise and
regulatory knowledge. In addition, these individuals have years of consulting
and management experience. They have firsthand appreciation of what it takes to
successfully implement organizational change.
Our professionals work interdependently. We bring to each engagement an
in-depth understanding of the financial institution's markets, competition,
economics and regulation. In this regard, we act as an independent and objective
counsel to our clients. Yet, we understand that high degree of client consensus,
commitment and involvement are necessary if meaningful results are to be
achieved. Therefore, we work hard to build rich, enduring, and highly productive
partnerships with our clients.
Mr. James V. Suskiewich
July 7, 1997
Page 4
CORPORATE BACKGROUND - CARRUTHERS & COMPANY (Continued)
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Our professionals produce successful results. By combining our
expertise with our focused and integrated approach, Carruthers & Company
empowers our clients to achieve superior economic performance and build sound,
efficient organizations. In short, we help our clients produce practical,
concrete results that optimize financial performance.
With our offices in suburban Washington, D.C., Carruthers & Company can
stay abreast of the dynamic regulatory and legislative environment. Our
professionals have worked closely with all of the major financial institution
regulatory agencies: Federal Deposit Insurance Corporation, Federal Reserve,
Office of the Comptroller of the Currency, Office of Thrift Supervision, and the
Resolution Trust Corporation.
CARRUTHERS & COMPANY'S FINANCIAL ADVISORY EXPERIENCE
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During the last 15 years, our professionals have provided senior level
financial advisory and investment banking services to financial institution
managers, directors and investors, including bank holding companies, commercial
banks, thrift institutions, mortgage bankers and credit finance companies. The
financial advisory transactions have included mergers/acquisitions,
divestitures, branch transactions, mutual-to-stock conversions, and other
capital raising transactions, including recapitalizations. Other assignments
have included providing fairness opinions, portfolio valuations, profitability
analyses, strategic/corporate development planning, and investment advisory
studies. Our professionals have prepared numerous analyses of debt and equity
issues of financial service firms and presented this material to retail,
entrepreneurial and institutional clients.
CARRUTHERS & COMPANY'S CAPITAL RAISING EXPERIENCE
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For over a decade, our professionals have participated in dozens of
capital raising efforts that ranged in size from $5 million to well over $100
million. In recent years, we have focused on smaller capital
formation/enhancement transactions, by raising funds for both troubled and
healthy financial institutions. These smaller transactions, between $3 million
and $15 million, however, are the most difficult to complete. Nevertheless,
during the past five years, we completed ten such offerings for troubled
community banks, a distinction that sets us apart from any major or regional
investment banking firm.
During the last five years, we have helped our clients raise gross
proceeds approaching $100 million through public and private offerings.
Moreover, our knowledge of the capital markets is nationwide in scope.
Carruthers & Company has helped raise capital for clients from New England to
Southern California.
Mr. James V. Suskiewich
July 7, 1997
Page 5
SUMMARY
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We look forward to continuing to serve Federal Trust and completing the
recapitalization process. While we do not envision the consummation of the
recapitalization taking more than several months, we will certainly be available
for the duration of the project.
If the foregoing is satisfactory to you, please sign in the space
provided below and return to me an executed copy of this agreement. Our standard
confidentiality and indemnification clauses are attached. If you have any
questions, please do not hesitate to contact me at (301) 990-8512.
Sincerely,
/s/Alan P. Carruthers
President
Enclosures