Exhibit 1.1
[Letterhead of Keefe, Bruyette & Woods, Inc.]
February 27, 2003
Mr. Anderson L. Smith
President and Chief Executive Officer
Jefferson Federal Savings and Loan Association of Morristown
120 Evans Avenue
Morristown, TN 37814
Dear Mr. Smith:
This proposal is in connection with Jefferson Federal Savings & Loan's
("Jefferson") intention to have the mutual holding company component of its
organization reorganize from a mutual to a capital stock form of organization
(the "Conversion"). In order to effect the Conversion, it is contemplated that
all of Jefferson's common stock to be outstanding pursuant to the Conversion
will be issued to a holding company (the "Company") to be formed by Jefferson,
and that the Company will offer and sell shares of its common stock first to
eligible persons (pursuant to Jefferson's Plan of Conversion) in a Subscription
and Community Offering.
Keefe, Bruyette & Woods, Inc. ("KBW") will act as Jefferson'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 Jefferson's and Company's financial advisor
and marketing agent, KBW will provide Jefferson and the Company with a
comprehensive program of conversion services designed to promote an orderly,
efficient, cost-effective and long-term stock distribution. KBW will provide
financial and logistical advice to Jefferson and the Company concerning the
offering and related issues. KBW will assist in providing conversion enhancement
services intended to meet the directors' objectives in the Subscription Offering
and to residents of Jefferson's market area, if necessary, in the Community
Offering.
KBW shall provide financial advisory services to Jefferson 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, NASDAQ listing, dividend policy (for both regular and
special dividends), stock repurchase strategy and communication with market
makers. Prior to the closing of the offering, KBW shall furnish to client a
Post-Conversion reference manual which will include specifics
Mr. Anderson L. Smith
February 27, 2003
Page 2 of 5
relative to these items. (The nature of the services to be provided by KBW as
Jefferson's and the Company's financial advisor and marketing agent are further
described in Exhibit A attached hereto.)
2. Preparation of Offering Documents. Jefferson, 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. KBW will
attend meetings to review these documents and advise you on their form and
content. KBW 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 KBW as
Jefferson's and the Company's financial advisor and marketing agent, KBW and
their representatives will undertake substantial investigations to learn about
Jefferson's business and operations ("due diligence review") in order to confirm
information provided to us and to evaluate information to be contained in
Jefferson's and/or the Company's offering documents. Jefferson agrees that it
will make available to KBW all relevant information, whether or not publicly
available, which KBW reasonably requests, and will permit KBW to discuss with
management the operations and prospects of Jefferson. KBW will treat all
material non-public information as confidential. Jefferson acknowledges that KBW
will rely upon the accuracy and completeness of all information received from
Jefferson, its officers, directors, employees, agents and representatives,
accountants and counsel including this letter to serve as Jefferson's and the
Company's financial advisor and marketing agent.
4. Regulatory Filings. Jefferson 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"), Office of Thrift Supervision ("OTS") and such state
securities commissioners as may be determined by Jefferson.
5. Agency Agreement. The specific terms of the conversion services, conversion
offering enhancement and syndicated offering services contemplated in this
letter shall be set forth in an Agency Agreement between KBW and Jefferson 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 OTS
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 customary representations, warranties and covenants by Jefferson and KBW,
and for the Company to indemnify KBW and their controlling persons (and, if
applicable, the members of
Mr. Anderson L. Smith
February 27, 2003
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the selling group and their controlling persons), and for KBW to indemnify
Jefferson and the Company against certain liabilities, including, without
limitation, liabilities under the Securities Act of 1933.
7. Fees. For the services hereunder, Jefferson and/or Company shall pay the
following fees to KBW at closing unless stated otherwise:
(a) A Management Fee of $50,000 payable in four consecutive monthly
installments of $12,500 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 KBW, KBW shall have earned and be entitled to be paid
fees accruing through the stage at which point the termination
occurred. This Management Fee shall be applied against the Success Fee
described below.
(b) A Flat fee of $600,000 to be reduced by the Management fee described in
(a) above.
(c) If any shares of the Company's stock remain available after the
Subscription Offering and Community Offering, at the request of
Jefferson, KBW 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. KBW will endeavor to distribute the common
stock among dealers in a fashion which best meets the distribution
objectives of Jefferson and the Plan of Conversion. KBW will be paid a
fee not to exceed 5.5% of the aggregate Purchase Price of the shares of
common stock sold by them. KBW will pass onto selected broker-dealers,
who assist in the syndicated offering, 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 KBW shall be transmitted by
KBW to such broker/dealer. The decision to utilize selected
broker-dealers will be made by Jefferson upon consultation with KBW. 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. Anderson L. Smith
February 27, 2003
Page 4 of 5
8. Additional Services. KBW further agrees to provide financial advisory
assistance to the Company and Jefferson 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 matters, general advice on mergers and acquisitions and other related
financial matters, without the payment by the Company and Jefferson of any fees
in addition to those set forth in Section 7 hereof. Nothing in this Agreement
shall require the Company and Jefferson to obtain such services from KBW.
Following this initial one year term, if both parties wish to continue the
relationship, a fee may be negotiated and an agreement entered into at that
time.
9. Expenses. Jefferson 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
Jefferson'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 KBW incurs expenses on behalf of Client, Client will reimburse KBW for such
expenses.
KBW's reasonable out-of-pocket expenses, including costs of travel, meals and
lodging, photocopying, telephone, facsimile and couriers, shall not exceed
$25,000, and reasonable fees and expenses of counsel shall not exceed $35,000.
The selection of such counsel will be done by KBW, with the approval of
Jefferson.
10. Conditions. KBW's willingness and obligation to proceed hereunder shall be
subject to, among other things, satisfaction of the following conditions in
KBW's opinion, which opinion shall have been formed in good faith by KBW 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 KBW, 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 Jefferson subsequent to the execution of the agreement; and (c) no adverse
market conditions at the time of offering which in KBW's opinion make the sale
of the shares by the Company inadvisable.
11. 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 KBW.
12. Definitive Agreement. This letter reflects KBW's present intention of
proceeding to work with Jefferson on its proposed Conversion. It does not create
a binding obligation on the
Mr. Anderson L. Smith
February 27, 2003
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part of Jefferson, the Company or KBW 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 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 letter 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 KBW pursuant to this engagement is rendered for use solely by the
management of Jefferson 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.
KBW 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, KBW 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.
Sincerely,
/s/ Harold T. Hanley III
Harold T. Hanley III
Managing Director
ACCEPTED AND AGREED TO THIS 4/th/ DAY OF March, 2003.
Jefferson Federal Savings and Loan Association of Morristown
By: /s/ Anderson L. Smith
---------------------
Anderson L. Smith
President and CEO
EXHIBIT A
CONVERSION SERVICES PROPOSAL
TO JEFFERSON FEDERAL SAVINGS & LOAN
KBW 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 Jefferson.
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 Jefferson. Stock Information
Center personnel will track prospective investors; record stock orders; mail
order confirmations; provide Jefferson's senior management with daily reports;
answer customer inquiries; and handle special situations as they arise.
Assign KBW's personnel to be at Jefferson 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 KBW.
Create target investor list based upon review of Jefferson'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 Jefferson's common stock.