EXHIBIT 1.1 ENGAGEMENT LETTER BETWEEN FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WARREN AND CHARLES WEBB & COMPANY
Exhibit 1.1
[LETTERHEAD OF KEEFE, BRUYETTE & WOODS, INC.]
Charles Webb & Company
A Division of
KEEFE, BRUYETTE & WOODS, INC.
March 23, 1998
Mr. Steven R. Lewis Mr. Paul A. Watson
President and Chief Executive Officer Chairman of the Board
First Federal Savings and Loan Association of Warren
185 East Market Street
Warren, Ohio 44481
Gentlemen:
This proposal is in connection with First Federal Savings and Loan Association
of Warren (the "Association") intention to acquire a stock financial institution
(the "Acquisition") and in connection therewith 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 Association's common stock to be
outstanding pursuant to the Conversion will be issued to a holding company (the
"Company") to be formed by the Association, and that the Company will offer and
sell shares of its common stock first to eligible persons (pursuant to the
Association's Plan of Conversion) in a Subscription and Community Offering. In
order to effect the Acquisition, it is contemplated that the Company will issue
cash, its stock, or a combination thereof, immediately following the Conversion.
Charles Webb & Company ("Webb"), a Division of Keefe, Bruyette and Woods, Inc.
("KBW"), will act as the Association's and the Company's exclusive financial
advisor and marketing agent in connection with the Acquisition/Conversion. This
letter sets forth selected terms and conditions of our engagement.
1. Merger & Acquisition Services. As the Association's and Company's financial
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advisor, Webb will perform the following services:
a) prepare a summary of recent merger and acquisition trends in the
financial services industry, including tactics employed by others and
typical terms and values applied;
b) advise the Association as to the structure and form of a proposed
Acquisition Transaction;
c) make presentations to the Board of Directors about the Acquisition
Transaction;
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 2 of 9
d) perform financial analyses of the Association and prospective Target
in the context of a possible Acquisition Transaction;
e) counsel the Association as to strategy and tactics for initiating
discussions and negotiations with the prospective Target and
participate in such discussions and negotiations;
f) coordinate and participate in (i) initial discussions between the
Association and prospective Target and (ii) "due diligence"
investigations of Association and prospective Target;
g) assuming an agreement in principle is reached for a Transaction,
assist you in negotiating a letter of intent, memorandum of
understanding and a definitive acquisition agreement;
h) assist the Association in any proceedings relating to regulatory
approvals required for a Transaction;
i) if requested by the Association, rendering an opinion at the time of
execution of an agreement and an update of such opinion as of the date
of mailing the proxy statement ("Opinion") as to whether or not the
consideration to be paid in a proposed Transaction is fair to the
Company from a financial point of view: and
j) render such other financial advisory and investment banking services
as are customary in such engagements and as may be agreed upon by Webb
and the Association.
2. Conversion/Advisory Services. As the Association's and Company's financial
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advisor and marketing agent, Webb will provide the Association 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
Association and the Company concerning the offering and related issues. Webb
will assist the Association and provide conversion enhancement services
intended to maximize stock sales in the Subscription Offering and to
residents of the Association's market area, if necessary, in the Community
Offering.
Webb shall provide financial advisory services to the Association which are
typical in connection with an equity offering and include, but are not
limited to, overall financial analysis of the Association 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.
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 3 of 9
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, 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 Association's and the Company's financial advisor and marketing agent
are further described in Exhibit A attached hereto.)
3. Due Diligence Review. Prior to filing the Registration Statement,
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Acquisition Application and Application for Conversion or any offering or other
documents naming Webb as the Association's and the Company's financial advisor
and marketing agent, Webb and its representatives will undertake substantial
investigations to learn about the Association's and the Target's business and
operations ("due diligence review") in order to confirm information provided to
us and to evaluate information to be contained in the Association's and/or the
Company's offering documents. The Association 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 Association. Webb will treat all material
non-public information as confidential. The Association acknowledges that Webb
will rely upon the accuracy and completeness of all information received from
the Association, its officers, directors, employees, agents and representatives,
accountants and counsel including this letter to serve as the Association's and
the Company's financial advisor and marketing agent.
4. Regulatory Filings. The Association and/or the Company will cause
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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
Corporation ("FDIC"), Office of Thrift Supervision ("OTS") and such state
securities commissioners as may be determined by the Association.
5. Agency Agreement. The specific terms of the conversion services, conversion
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offering enhancement and syndicated offering services contemplated in this
letter shall be set forth in an Agency Agreement between Webb and the
Association 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, 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
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provide for customary representations, warranties and covenants by the
Association and Webb, and for the
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 4 of 9
Company to indemnify Webb and their controlling persons (and, if applicable, the
members of the selling group and their controlling persons), provided however,
that the Association and the Company will not be liable in any such case to the
extent that any request for indemnification (i) arises out of or is based upon
any untrue statement of a material fact or the omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading contained in any proxy statement or prospectus (preliminary or
final), or any amendment thereto, or any of the applications, notices, filings
or documents related thereto made in reliance on and in conformity with written
information furnished to the Association by Webb expressly for use therein, or
(ii) is attributable to the negligence, willful misconduct or bad faith of Webb,
provided that the Association or Company is not providing indemnification or
reimbursement to any other person for liabilities arising from such person's
negligence, willful misconduct or bad faith, and for Webb to indemnify the
Association and the Company against certain liabilities, including, without
limitation, liabilities under the Securities Act of 1933.
7. Fees. For the services hereunder, the Association and/or Company shall pay
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the following fees to Webb at closing unless stated otherwise:
(a) For general advisory services relating to the acquisition, conversion
or such other matters requested by the Association, the Association
shall pay Webb an annual Management Fee of $25,000. Such fee may be
paid at the Association's option either in four consecutive quarterly
installments of $6,250 commencing with the signing of this letter or
on a per diem basis for worked performed billed at our hourly rates.
Such fees shall be deemed to have been earned when due. Should the
Acquisition or 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 Acquisition Transaction, a Success Fee of .50% of
the total fair market value of any securities issued and any non-cash
and cash consideration paid as of the closing of the Acquisition
Transaction, including any amounts paid by the Company or the Target
to any stock benefit plans maintained by the Target or an affiliate or
paid to any holders of any options or stock appreciation rights
granted by the Target, whether or not vested, provided that for
purposes of determining the amounts paid with respect to such options
or appreciation rights, as the case may be, which remain unexercised
immediately prior to the closing of the subject Transaction, the
amount paid with respect to such stock options or appreciation rights,
shall be deemed to equal the difference between the aggregate value to
be paid to, or received by, the holders of such options and rights and
the aggregate exercise price of such options and rights. The
Acquisition Success Fee
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 5 of 9
shall be due and payable at the closing of such Acquisition.
Notwithstanding the above, the aggregate Acquisition fee payable shall
not exceed $500,000.
(c) For delivery of a fairness opinion pursuant to an Acquisition
Transaction, Webb shall receive a fee of $25,000, payable upon the
issuance of the fairness opinion to the Board at the time the
definitive agreement is signed; provided that such fee shall be deemed
earned at the time of the events described whether or not a
Transaction is eventually consummated. (Such fairness opinion fees
shall be deducted from amount due under 7 (b) above.)
(d) With respect to the Conversion, a Success Fee of 1.25% of the
aggregate Purchase Price of Common Stock sold in the conversion,
excluding shares purchased by the Association's officers, directors,
or employees (or members of their immediate families) plus any ESOP,
tax-qualified or stock based compensation plans (except IRA's) or
similar plan created by the Association for some or all of its
directors or employees. The aggregate Purchase Price for purposes of
this calculation shall not exceed the "Maximum" of the appraisal range
(i.e., 15% above the "Midpoint" of the appraisal).
(e) If any shares of the Company's stock remain available after the
subscription offering, at the request of the Association, 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 that best meets the distribution objectives of the Association
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. Webb will pass onto selected broker-dealers, who assist
in the syndicated community 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 effected 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 Association upon consultation with Webb.
In the event, with respect to any stock purchases, fees are paid
pursuant to this subparagraph 7(e), such fees shall be in lieu of, and
not in addition to, payment pursuant to subparagraph 7(d).
(f) The Association shall reimburse Webb for its out-of-pocket expenses
incurred in connection with the Acquisition or the Conversion,
including costs of travel, meals and lodging, photocopying, telephone,
facsimile and courier, provided that such expenses shall not exceed
$15,000.
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 6 of 9
In addition, the Association shall reimburse Webb for the fees and
expenses paid by Webb to Webb's counsel, including such counsel's
reasonable out-of-pocket expenses for costs of travel, meals and
lodging, photocopying, telephone, facsimile and couriers. Such fees
and expenses will be agreed upon by Webb and the Association prior to
the execution of the Agency Agreement. The selection of such counsel
will be done by Webb, with the approval of the Association.
Notwithstanding anything to the contrary, the fees set forth in Section 7(b),
(d) and (e) shall not be deemed earned by Webb or payable by the Association
unless and until such time as the Acquisition and/or the Conversion is
completed.
The Association hereby grants to Webb a right of first refusal to provide the
above referenced Acquisition and Conversion services at competitive rates of
compensation, as agreed upon by the Association and Webb.
For purposes of Paragraph 7 (b) above, "total fair market value" of securities
and non-cash consideration shall have the following meaning: (i) in the case of
an exchange of common stock in a transaction in which the number of shares of
the Company to be received by the shareholders of Target will vary in a manner
designed to produce a fixed value to be received in exchange for each share of
Target, the "total fair market value" shall mean the maximum number of shares of
Company stock to be exchanged in such transaction, multiplied by the value per
share specified in the agreement between Company and the Target; (ii) in the
case of an exchange of common stock in a transaction in which the number of
shares of the Company to be received in exchange for each share of the Target is
fixed and the value of such shares may vary, the "total fair market value" shall
mean (A) for securities traded on a national securities exchange, the average of
the closing prices, as reported on such national securities exchange, for the 20
trading days ending on the fifth trading day prior to the closing of the
transaction, multiplied by the maximum number of shares of common stock of the
Company issuable upon conversion of Target's common stock (and any securities
convertible into common stock) in the transaction, and (B) for securities quoted
on a national quotation service, the average of the closing bid and ask prices
of the securities for a period of 20 trading days ending on the fifth trading
day prior to the closing of the transaction, multiplied by the maximum number of
shares of common stock of the Company issuable upon conversion of Target's
common stock (and any securities convertible into common stock) in the
transaction; and (C) for any securities not traded on a national securities
exchange or quoted by a national quotation service, the "total fair market
value" shall mean the fair market value as determined by mutual agreement of
Company and Webb, provided that if such securities are promissory notes, the
securities shall be valued at face value; and (iii) in the case of an
Acquisition to occur simultaneously with or immediately after the Conversion,
"fair market value" shall mean the per share price of the Company's stock as
sold in the conversion, multiplied by the maximum number of shares of
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 7 of 9
common stock of the Company issuable upon conversion of Target's common stock
(and any securities convertible into common stock) in the transaction.
8. Additional Services. Webb further agrees to provide financial advisory
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assistance to the Company and the Association 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 the Association of any
fees in addition to those set forth in Section 7 hereof. Nothing in this
Agreement shall require the Company and the Association 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 Association will bear those expenses of the proposed offering
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customarily borne by issuers, including, without limitation, regulatory filing
fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the
Association's accountants, attorneys, appraiser, transfer agent and registrar,
printing, mailing and marketing, conversion agent fees and syndicate expenses
associated with the Conversion; the fees and expenses set forth in Section 7;
and fees for "Blue Sky" legal work. If Webb incurs expenses on behalf of the
Association for any of the aforementioned matters, the Association will
reimburse Webb for such expenses.
10. Conditions. Webb's willingness and obligation to proceed hereunder shall
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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) legally
sufficient disclosure of all relevant material, financial and other information
in the disclosure documents; (b) no material adverse change in the condition or
operations of the Association 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.
11. Preparation of Acquisition/Stock Offering Documents. The Association, the
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Company and their counsel will draft the Acquisition Agreement, Application for
Acquisition, Registration Statement, Application for Conversion, Prospectus and
other documents to be used in connection with the Conversion and Acquisition.
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.
12. Benefit. This Agreement shall inure to the benefit of the parties hereto
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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
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 8 of 9
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
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proceeding to work with the Association on its proposed Acquisition and
Conversion. It does not create a binding obligation on the part of the
Association, 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 and expenses as set forth in Section 7 and the assumption of
expenses as set forth in Section 9, and the mutual indemnification provisions
set forth in Section 6, 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 Association and its agents in connection with the
Acquisition or the Conversion. Accordingly, you agree that you will not provide
any such information to any other person without our prior written consent.
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 9 of 9
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: /s/ John Bruno
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John Bruno
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF WARREN
By: /s/ Steven R. Lewis Date: 4/9/98
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Steven R. Lewis
President and Chief Executive Officer
By: /s/ Paul A. Watson Date: 3-18-98
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Paul A. Watson
Chairman of the Board
EXHIBIT A
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CONVERSION SERVICES PROPOSAL
TO FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF WARREN
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 Association.
General Services
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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
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Establish and manage Stock Information Center at the Association. Stock
Information Center personnel will track prospective investors; record stock
orders; mail order confirmations; provide the Association's senior management
with daily reports; answer customer inquiries; and handle special situations as
they arise.
Assign Webb's personnel to be at the Association through completion of the
Subscription and Community Offerings to manage the Stock Information Center. If
so desired by the Association, Webb's personnel will also 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 led by a Principal of Webb/KBW.
Provide proxy solicitation, member vote tabulation and act as inspector of
election at the special meeting of members.
Create target investor list based upon review of the Association's depositor
base.
Provide intensive financial and marketing input for drafting of the prospectus.
Conversion Offering Enhancement Services- Continued
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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.
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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 Association's common stock.
Aftermarket Support Services.
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Webb, through Keefe, Bruyette & Woods, Inc., will provide market making and on-
going research of the Company. In addition, Webb will use its best efforts to
secure a commitment from at least two additional NASD firms to provide market
making services.
Conversion Agent Services
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Webb will subcontract the services of a conversion agent for aggregation of
accounts. The services provided such conversion agent will be a part of a
separate agreement between the Association and such third party.