EXHIBIT 1.1
November 24, 1999
Mr. Brad Hurta
Chief Executive Officer
Community Bank of Central Texas
312 Main Street
Smithville, TX 78957-2035
Dear Mr. Hurta:
This proposal is in connection with Community Bank of Central Texas (the
"Client" or "Bank") intention to convert from a mutual to a capital stock form
of organization (the "Conversion"). In order to effect the Conversion, it is
contemplated that all of the Bank's common stock to be outstanding pursuant to
the Conversion will be issued to a holding company (the "Company") to be formed
by the Bank, and that the Company will offer and sell shares of its common stock
first to eligible persons (pursuant to the Bank's Plan of Conversion) in a
Subscription and Community Offering.
Charles Webb & Company ("Webb"), a Division of Keefe, Bruyette and Woods, Inc.
("KBW"), will act as the Bank's and the Company's exclusive financial advisor
and marketing agent in connection with the Conversion. This letter sets forth
selected terms and conditions of our engagement.
1. Advisory/Conversion Services. As the Bank's and Company's financial advisor
and marketing agent, Webb will provide the Bank and the Company with a
comprehensive program of conversion services designed to promote an orderly,
efficient, cost-effective and long-term stock distribution. Webb will provide
financial and logistical advice to the Bank and the Company concerning the
offering and related issues. Webb will assist in providing conversion
enhancement services intended to maximize stock sales in the Subscription
Offering and to residents of the Bank's market area, if necessary, in the
Community Offering.
Webb shall provide financial advisory services to the Bank which are typical in
connection with an equity offering and include, but are not limited to, overall
financial analysis of the client with a focus on identifying factors which
impact the valuation of the common stock and provide the appropriate
recommendations for the betterment of the equity valuation.
Additionally, post conversion financial advisory services will include advice on
shareholder relations, after-market trading, dividend policy (for both regular
and special dividends), stock
Mr. Brad Hurta
November 24, 1999
Page 2 of 5
repurchase strategy and communication with market makers. Prior to the closing
of the offering, Webb shall furnish to client a Post-Conversion reference manual
which will include specifics relative to these items. (The nature of the
services to be provided by Webb as the Bank's and the Company's financial
advisor and marketing agent is further described in Exhibit A attached hereto.)
2. Preparation of Offering Documents. The Bank, the Company and their counsel
will draft the Registration Statement, Application for Conversion, Prospectus
and other documents to be used in connection with the Conversion. Webb will
attend meetings to review these documents and advise you on their form and
content. Webb and its counsel will draft appropriate agency agreement and
related documents as well as marketing materials other than the Prospectus.
3. Due Diligence Review. Prior to filing the Registration Statement, Application
for Conversion or any offering or other documents naming Webb as the Bank's and
the Company's financial advisor and marketing agent, Webb and their
representatives will undertake substantial investigations to learn about the
Bank's business and operations ("due diligence review") in order to confirm
information provided to us and to evaluate information to be contained in the
Banks and/or the Company's offering documents. The Bank agrees that it will make
available to Webb all relevant information, whether or not publicly available,
which Webb reasonably requests, and will permit Webb to discuss with management
the operations and prospects of the Bank. Webb will treat all material
non-public information as confidential. The Bank acknowledges that Webb will
rely upon the accuracy and completeness of all information received from the
Bank, its officers, directors, employees, agents and representatives,
accountants and counsel including this letter to serve as the Bank's and the
Company's financial advisor and marketing agent.
4. Regulatorv Filings. The Bank and/or the Company will cause appropriate
offering documents to be filed with all regulatory agencies including, the
Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD"), Federal Deposit Insurance Corp. ("FDIC") and such
state securities commissioners as may be determined by the Bank.
5. Agencv Agreement. The specific terms of the conversion services, conversion
offering enhancement and syndicated offering services contemplated in this
letter shall be set forth in a mutually agreed upon Agency Agreement between
Webb and the Bank and the Company to be executed prior to commencement of the
offering, and dated the date that the Company's Prospectus is declared effective
and/or authorized to be disseminated by the appropriate regulatory agencies, the
SEC, the NASD, the FDIC and such state securities commissioners and other
regulatory agencies as required by applicable law.
6. Representations, Warranties and Covenants. The Agency Agreement will provide
for to be
Mr. Brad Hurta
November 24, 1999
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agreed upon representations, warranties and covenants by the Bank and Webb, and
for the Company to indemnify Webb and their controlling persons (and, if
applicable, the members of the selling group and their controlling persons), and
for Webb to indemnify the Bank and the Company against certain liabilities,
including, without limitation, liabilities under the Securities Act of 1933.
7. Fees. For the services hereunder, the Bank and/or Company shall pay the
following fees to Webb at closing unless stated otherwise:
(a) Management Fee. A Management Fee of $25,000 payable in four
consecutive monthly installments of $6,250 commencing with the
signing of this letter. Such fees shall be deemed to have been
earned when due. Should the Conversion be terminated for any
reason not attributable to the action or inaction of Webb,
Webb shall have earned and be entitled to be paid fees
accruing through the stage at which point the termination
occurred.
(b) With respect to the Conversion, a Success Fee of $50,000.
Notwithstanding anything contained herein to the contrary, the
total amount that Client shall pay Webb relating to the
Management Fee in 7(a) above, the Success Fee in 7(b) above
and the expense reimbursement set forth in Section 9 below
shall not exceed $105,000.
(c) Broker-Dealer Pass-Through. If any shares of the Company's
stock remain available after the subscription offering, at the
request of the Bank, Webb will seek to form a syndicate of
registered broker-dealers to assist in the sale of such common
stock on a best efforts basis, subject to the terms and
conditions set forth in the selected dealers agreement. Webb
will endeavor to distribute the common stock among dealers in
a fashion which best meets the distribution objectives of the
Bank and the Plan of Conversion. Webb will be paid a fee not
to exceed 5.5% of the aggregate Purchase Price of the shares
of common stock sold by them. From this fee, Webb will pass
onto selected broker-dealers, who assist in the syndicated
community, an amount competitive with gross underwriting
discounts charged at such time for comparable amounts of stock
sold at a comparable price per share in a similar market
environment. Fees with respect to purchases affected with the
assistance of a broker/dealer other than Webb shall be
transmitted by Webb to such broker/dealer. The decision to
utilize selected broker-dealers will be made by the Bank upon
consultation with Webb. In the event, with respect to any
stock purchases, fees are paid pursuant to this subparagraph
7(c), such fees shall be in lieu of, and not in addition to,
payment pursuant to subparagraph 7(a), and 7(b). Mr. Brad
Hurta November 24, 1999 Page 4 of 5
8. Additional Services. Webb further agrees to provide financial advisory
assistance to the Company and the Bank for a period of one year following
completion of the Conversion, including formation of a dividend policy and share
repurchase program, assistance with shareholder reporting and shareholder
relations mailers, general advice on mergers and acquisitions and other related
financial matters, without the payment by the Company and the Bank of any fees
in addition to those set forth in Section 7 hereof. Nothing in this Agreement
shall require the Company and the Bank to obtain such services from Webb.
Following this initial one year term, if both parties wish to continue the
relationship, a fee will be negotiated and an agreement entered into at that
time.
9. Expenses. The Bank will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation, regulatory filing
fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the
Bank's accountants, attorneys, appraiser, transfer agent and registrar,
printing, mailing and marketing and syndicate expenses associated with the
Conversion; the fees set forth in Section 7; and fees for "Blue Sky" legal work.
If Webb incurs expenses on behalf of Client, Client will reimburse Webb for such
expenses.
Webb shall be reimbursed for reasonable out-of-pocket expenses, including costs
of travel, meals and lodging, photocopying, telephone, facsimile and couriers.
The selection of Webb's counsel will be done by Webb, with the approval of the
Bank. The Bank will reimburse Webb for the fees and expenses of its counsel
which will not exceed $25,000.
10. Conditions. Webb's willingness and obligation to proceed hereunder shall be
subject to, among other things, satisfaction of the following conditions in
Webb's opinion, which opinion shall have been formed in good faith by Webb after
reasonable determination and consideration of all relevant factors: (a) full and
satisfactory disclosure of all relevant material, financial and other
information in the disclosure documents and a determination by Webb, in its sole
discretion, that the sale of stock on the terms proposed is reasonable given
such disclosures; (b) no material adverse change in the condition or operations
of the Bank subsequent to the execution of the agreement; and (c) no adverse
market conditions at the time of offering which in Webb's opinion make the sale
of the shares by the Company inadvisable.
12. Benefit. This Agreement shall inure to the benefit of the parties hereto and
their respective successors and to the parties indemnified pursuant to the terms
and conditions of the Agency Agreement and their successors, and the obligations
and liabilities assumed hereunder by the parties hereto shall be binding upon
their respective successors provided, however, that this Agreement shall not be
assignable by Webb.
13. Definitive Agreement. This letter reflects Webb's present intention of
proceeding to work with the Bank on its proposed Conversion. It does not create
a binding obligation on the part of
Mr. Brad Hurta
November 24, 1999
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the Bank, the Company or Webb except as to the agreement to maintain the
confidentiality of non-public information set forth in Section 3, the payment of
certain fees as set forth in Section 7(a) and 7(b) and the assumption of
expenses as set forth in Section 9, all of which shall constitute the binding
obligations of the parties hereto and which shall survive the termination of
this Agreement or the completion of the services furnished hereunder and shall
remain operative and in full force and effect. You further acknowledge that any
report or analysis rendered by Webb pursuant to this engagement is rendered for
use solely by the management of the Bank and its agents in connection with the
Conversion. Accordingly, you agree that you will not provide any such
information to any other person without our prior written consent.
Webb acknowledges that in offering the Company's stock no person will be
authorized to give any information or to make any representation not contained
in the offering prospectus and related offering materials filed as part of a
registration statement to be declared effective in connection with the offering.
Accordingly, Webb agrees that in connection with the offering it will not give
any unauthorized information or make any unauthorized representation. We will be
pleased to elaborate on any of the matters discussed in this letter at your
convenience.
If the foregoing correctly sets forth our mutual understanding, please so
indicate by signing and returning the original copy of this letter to the
undersigned.
Very truly yours,
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
By:___________________
Patricia A. McJoynt
Executive Vice President
COMMUNITY BANK OP CENTRAL TEXAS
By:________________________ _______________Date:
Brad Hurta
Chief Executive Officer
EXHIBIT A
CONVERSION SERVICES PROPOSAL
TO SECURITY FEDERAL BANK
Charles Webb & Company provides thrift institutions converting from mutual to
stock form of ownership with a comprehensive program of conversion services
designed to promote an orderly, efficient, cost-effective and long-term stock
distribution. The following list is representative of the conversion services,
if appropriate, we propose to perform on behalf of the Bank.
General Services
Assist management and legal counsel with the design of the transaction
structure.
Analyze and make recommendations on bids from printing, transfer
agent, and appraisal firms.
Assist officers and directors in obtaining bank loans to purchase
stock, if requested.
Assist in drafting and distribution of press releases as required or
appropriate.
Conversion Offering Enhancement Services
Establish and manage Stock Information Center at the Bank. Stock
Information Center personnel will track prospective investors; record stock
orders; mail order confirmations; provide the Bank's senior management with
daily reports; answer customer inquiries; and handle special situations as they
arise.
Assign Webb's personnel to be at the Bank through completion of the
Subscription and Community Offerings to manage the Stock Information Center,
meet with prospective shareholders at individual and community information
meetings, solicit local investor interest through a tele-marketing campaign,
answer inquiries, and otherwise assist in the sale of stock in the Subscription
and Community Offerings. This effort will be lead by a Principal of Webb/KBW.
Create target investor list based upon review of the Bank's depositor
base.
Provide intensive financial and marketing input for drafting of the
prospectus.
Conversion Offering Enhancement Services- Continued
Prepare other marketing materials, including prospecting letters and
brochures, and media advertisements.
Arrange logistics of community information meeting(s) as required.
Prepare audio-visual presentation by senior management for community
information meeting(s).
Prepare management for question-and-answer period at community
information meeting(s).
Attend and address community information meeting(s) and be available to
answer questions.
Broker-Assisted Sales Services.
Arrange for broker information meeting(s) as required.
Prepare audio-visual presentation for broker information meeting(s).
Prepare script for presentation by senior management at broker
information meeting(s).
Prepare management for question-and-answer period at broker information
meeting(s).
Attend and address broker information meeting(s) and be available to
answer questions.
Produce confidential broker memorandum to assist participating brokers
in selling the Bank's common stock.
Aftermarket Support Services.
Webb will use their best efforts to secure market making and on-going
research commitment from at least two NASD firms, one of which will be Keefe,
Bruyette & Woods, Inc.