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FLAGSTAR TRUST EXHIBIT 1.1
LETTER OF INTENT
FEBRUARY 15, 1999
PAGE 1 OF 6
LETTER OF INTENT
February 15, 1999
The Board of Directors
Flagstar Bancorp, Inc.
2600 Telegraph Road
Bloomfield Hills, MI 48302
ATTN.: MR. MICHAEL W. CARRIE
PRIVATE & CONFIDENTIAL
Ladies and Gentlemen:
This letter of intent ("Letter of Intent") will confirm our recent
conversation and is intended to be an expression of our present mutual intent
concerning the potential initial public offering (the "Offering") of Cumulative
Preferred Securities (the "Preferred Securities") of Flagstar Trust ("Flagstar
Trust") a business trust to be formed as a wholly owned subsidiary of Flagstar
Bancorp, Inc. ("Bancorp") which is also the parent of Flagstar Bank, FSB
("Flagstar" or the "Bank"). Flagstar Trust would upon consummation of the
Offering, purchase a series of junior subordinated debentures from Bancorp for
the same denomination and with the same payment terms as the Preferred
Securities. We are pleased to advise you that, based on the information made
available to us, representations which you have made to us concerning the Bank
and Bancorp, their principals, their business and their prospects, and current
market conditions, Roney Capital Markets, a division of First Chicago Capital
Markets, Inc. ("Roney Capital Markets"), McDonald Investments Inc., Stifel,
Nicolaus & Company, Incorporated and JWGenesis Capital Markets, LLC
(collectively referred to as the "Managing Underwriters") hereby confirm in
principle their interest in underwriting on a firm commitment basis (subject to
the terms and conditions of the Underwriting Agreement) the Offering, the
general terms of which would be in accordance with the terms outlined below.
1. PUBLIC OFFERING OF PREFERRED SECURITIES
The Managing Underwriters propose an offering as follows:
Issuer: Flagstar Trust
Managing Underwriters: Roney Capital Markets (books)
McDonald Investments Inc.
Stifel, Nicolaus & Company,
Incorporated
JWGenesis Capital Markets, LLC
Security: A minimum of 2,600,000
shares of Preferred Securities
Liquidation Preference: $25.00 per share
Proposed Listing: NASDAQ National Market System
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Roney Capital Markets Letter of Intent Investment Banking
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FLAGSTAR TRUST
LETTER OF INTENT
FEBRUARY 15, 1999
PAGE 2 of 6
2. CAPITALIZATION
Flagstar Trust would have a minimum of 2,600,000 shares of Preferred
Securities outstanding immediately after the Offering, excluding the
over-allotment option. Flagstar Trust would also have outstanding Common Stock
owned by Bancorp which would represent an aggregate liquidation amount equal to
at least 3.00% of the total capital of Flagstar Trust, assuming no exercise of
the over-allotment option.
3. OVER-ALLOTMENT OPTION
Flagstar Trust would grant the underwriters, for the purpose of
covering over-allotments, the right for a 30-day period after commencement of
the Offering to purchase from Flagstar Trust up to an additional 15% of the
shares of Preferred Securities offered at the public offering price less the
underwriting discount.
4. ESTIMATED OFFERING PRICE AND DIVIDEND
The public offering price per share is currently estimated at $25.00
per share. It is currently anticipated that the dividend yield, which is subject
to market and other conditions at the time of the Offering and is based, in
part, upon our preliminary review of the Bank's and Bancorp's financial plans
and prospects, will approximate 9.00% to 9.25% based on the current dividend
yield scenario.
5. LISTING
Flagstar Trust's Preferred Securities would be quoted on the National
Association of Securities Dealers, Inc. National Market System and Flagstar
Trust and the Bank would comply with the National Association of Securities
Dealers, Inc.'s (the "NASD") requirements for such quotation.
6. UNDERWRITING COMPENSATION
Assuming the gross proceeds from the sale of Flagstar Trust's Preferred
Securities in the Offering is $65,000,000 the underwriting discount will be
3.15%. If any or all of the over-allotment is exercised, the underwriting
discount will be 3.15% on the over-allotment shares.
7. REGISTRATION STATEMENT
The Offering would be subject to compliance with the Securities Act of
1933, as amended (the "Act"), the Office of Thrift Supervision (the "OTS") and
other applicable federal and state laws and regulations, including, without
limitation, "Blue Sky" laws. The Bank and Flagstar Trust, working with its
counsel, would prepare and file the appropriate registration
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Roney Capital Markets Letter of Intent Investment Banking
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FLAGSTAR TRUST
LETTER OF INTENT
FEBRUARY 15, 1999
PAGE 3 0F 6
statement (the "Registration Statement"). The Registration Statement
(anticipated to be on Form S-3) would conform to the requirements of applicable
laws, the Act and the rules and regulations of the SEC and OTS. Flagstar Trust
would use its best efforts to file such amendments with the SEC and OTS as may
be necessary to have the Registration Statement declared effective by the SEC
as promptly as practicable.
8. OFFERING EXPENSES
Flagstar Trust, Bancorp and the Bank will be jointly and severally
liable for all expenses and fees incurred in connection with the proposed
financing, including but not limited to, fees and expenses related to preparing,
printing and filing of the Registration Statement, all amendments and
supplements thereto, the preliminary and final prospectus, other related
underwriting and selling documents, and certificates for the Preferred
Securities and for accounting, legal, SEC, NASD, appraisal and listing fees. In
addition to the underwriting discount, Bancorp, the Bank and Flagstar Trust also
agree to pay the out-of-pocket expenses, including road show expenses and
underwriters' legal fees (such out-of-pocket expenses payable by Flagstar Trust,
Bancorp and the Bank shall not exceed $75,000 for legal fees and $25,000 for all
other out-of-pocket expenses). In addition, legal fees and disbursements
relating to the "Blue Sky" survey, any required state filing registrations and
the filing fees relating thereto shall be the responsibility of Flagstar Trust.
The underwriters' out-of-pocket expense reimbursement and the Blue Sky legal
fees and disbursements shall be paid regardless of whether the Offering is
completed or not completed for any reason, including market conditions, unless
the Offering is not completed because of the underwriters' refusal (except for
bona fide reasons related to Bancorp, Flagstar Trust, the Bank, or their
officers, directors, employees or agents or market conditions) or inability to
perform. Upon completion of the Offering the Managing Underwriters will agree to
credit the out-of-pocket expense reimbursement (up to a maximum of $100,000)
against the underwriting fee but not the Blue Sky legal fees and disbursements.
Flagstar Trust, Bancorp and the Bank will be responsible for all of
their own out-of-pocket expenses, including, without limitation, transportation,
meals, and lodging with respect to any road shows and other selling efforts.
If the Offering does not close for any reason other than the Managing
Underwriters' refusal (except for bona fide reasons related to Flagstar Trust,
Bancorp, the Bank, or their officers, directors, employees or agents or market
conditions) or inability to perform, the underwriters will account for their
reimbursable expenses and will be entitled to reimbursement from Flagstar Trust,
Bancorp and the Bank of such expenses, as described above, including: (i)
documented out-of-pocket expenses relating to the Registration Statement,
including, without limitation, expenses relating to road shows, syndicate
expenses, sales literature expenses and advertising expenses, (ii) documented
underwriters' legal fees (described above) actually incurred. Documented
expenses for "Blue Sky" survey, any required state filing registrations and
filing fees disbursements and expenses, shall be paid directly by Flagstar Trust
and shall not be part of the $100,000 legal fee and out-of-pocket reimbursement
and will be subject to negotiation in advance, between Flagstar Trust and
Honigman Miller Schwartz and Cohn ("Blue Sky Counsel").
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Roney Capital Markets Letter of Intent Investment Banking
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FLAGSTAR TRUST
LETTER OF INTENT
FEBRUARY 15, 1999
PAGE 4 OF 6
Flagstar Trust shall have the right to cancel the Offering or terminate
this Letter of Intent at any time without further recourse; provided, however,
that any such cancellation or termination by Flagstar Trust shall not affect the
Bank's, Bancorp's or Flagstar Trust's obligation to pay the out-of-pocket
expense reimbursements (as capped above, i.e., not to exceed $100,000) and the
legal fees and disbursements of Blue Sky Counsel.
9. SALE OF ADDITIONAL SHARES IN THE PUBLIC MARKET
For a period of 180 days after the effective date of the Registration
Statement, Bancorp, the Bank and their executive officers and directors would
agree not to make any sales of the Flagstar Trust's Preferred Securities without
the consent of Roney Capital Markets.
10. TIMING OF THE OFFERING
We and our counsel are prepared to begin work with Flagstar Trust and
its counsel toward preparation and filing of the Registration Statement with the
SEC as soon as possible. Following the filing of the Registration Statement, we
would move forward promptly with the formation of an underwriting syndicate or
selling group, to include a select group of firms capable of providing
complementary distribution. We would consult with you as to firms to be included
in the syndicate and selling group.
The marketing program would be designed cooperatively by the Managing
Underwriters and Flagstar Trust, and will reflect the need to balance
management's work schedule with the necessary exposure required for the
underwriting.
After the initial filing, we would expect that a period of up to four
to six weeks would be required for review by the SEC of the Registration
Statement and any necessary amendments thereto, and that a marketing program
would run simultaneously with SEC review. The marketing program would be
completed prior to the time the Registration Statement is declared effective.
11. AUDITORS AND FINANCIAL STATEMENTS
The Registration Statement would contain financial information of
Bancorp, the Bank, and Flagstar Trust. For two years from the effective date of
the Registration Statement, Bancorp would furnish the Managing Underwriters and
investors with quarterly unaudited financial statements and copies of all
reports filed with the SEC covering both Bancorp and Flagstar Trust. The
Managing Underwriters will also require a comfort letter from Grant Thornton,
LLP in relation to the Registration Statement.
12. ACCESS TO INFORMATION
In connection with the preparation of the Registration Statement and
other matters pertaining to the Offering, Bancorp, the Bank and Flagstar Trust,
their officers, accountants and counsel shall furnish to us and our counsel on a
timely basis for our use in connection with the Offering such information and
documents as we or they may reasonably request. In addition,
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Roney Capital Markets Letter of Intent Investment Banking
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FLAGSTAR TRUST
LETTER OF INTENT
FEBRUARY 15, 1999
PAGE 5 0F 6
management would be available for consultation and meetings until the closing of
the Offering.
13. UNDERTAKING TO GIVE NOTICE OF EVENTS
In providing this letter, we have assumed no material changes from the
information provided us to date and that no information of a material adverse
nature may come up in the completion of due diligence. Until the signing of the
Underwriting Agreement, Flagstar Trust and the Bank will notify us of any
business or operating events which might materially adversely affect the
Offering or the status of Bancorp, the Bank, or Flagstar Trust and will give
serious consideration to the Managing Underwriters' recommendation as to the
required disclosures relating thereto.
14. UNDERWRITING AGREEMENT
The terms of the Offering would be negotiated between the Managing
Underwriters and Flagstar Trust immediately prior to the effective date of the
Registration Statement. Matters regarding the Offering and other matters between
Flagstar Trust and Bancorp and the Managing Underwriters, would be subject to
the terms and conditions of an Underwriting Agreement to be signed concurrently
with the effective date of the Registration Statement. The Underwriting
Agreement would contain terms and conditions usual and customary for a
transaction of this nature, as negotiated between Flagstar Trust and Bancorp and
the Managing Underwriters, including indemnification and contribution clauses
acceptable to Flagstar Trust, Bancorp and the Managing Underwriters.
15. NON-BINDING LETTER
This Letter of Intent is only a brief outline of the proposed financing
and, with the exception of paragraph 8, is merely an expression of our present
intention concerning the proposed Offering along the lines indicated. While it
is the present mutual intention of the parties that a public offering of
Flagstar Trust's Preferred Securities be made, this Letter of Intent shall not
in any way be construed as a commitment by the Managing Underwriters to proceed
with a public offering or purchase or sell the Preferred Securities and the
Managing Underwriters may, in their sole judgment and discretion, determine at
any time not to proceed with the Offering, in which event no party shall have
any liability under this Letter of Intent, except as otherwise provided in
paragraph 8. With the exception of paragraph 8 which shall be enforceable in
accordance with its terms, this Letter of Intent does not constitute a binding
contract or represent or create any legally binding obligations of the Managing
Underwriters, Bancorp, the Bank, Flagstar Trust or any of their partners,
officers, directors, agents or affiliates, which obligations would arise only
upon the signing of a definitive Underwriting Agreement.
With the exception of paragraph 8 the Offering is conditioned in its
entirety upon, and a binding contract will come into existence only upon,
execution and delivery of the Underwriting
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Roney Capital Markets Letter of Intent Investment Banking
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FLAGSTAR TRUST
LETTER OF INTENT
FEBRUARY 15, 1999
PAGE 6 OF 6
Agreement between the Managing Underwriters, Flagstar Trust and Bancorp in form
and substance satisfactory to Flagstar Trust, Bancorp and the Managing
Underwriters. This Letter of Intent shall not be construed as the Underwriting
Agreement nor as an agreement to enter into an underwriting agreement. The
Offering is also conditioned upon compliance by Flagstar Trust and Bancorp with
the terms contained in such Underwriting Agreement which will include standard
indemnification and a tax opinion from Grant Thornton, LLP or counsel acceptable
to the Managing Underwriters relating to, among other things, the tax status of
Flagstar Trust.
We are pleased to have the opportunity to work with you on this
important financing.
If this Letter of Intent accurately reflects your present understanding
of our mutual intentions, please have an authorized officer sign the enclosed
copy of this letter and return it to us. We will then move forward with our
counsel to begin work with you regarding this important financing.
Very truly yours,
Roney Capital Markets McDonald Investments Inc.
By:/s/ John C. Donnelly By: /s/ Kristin Whiting
Its: Managing Director Its: Vice President
STIfel, Nicolaus & Company, Incorporated
JWGenesis Capital Markets, LLC
By: /s/ Mark Ross By: /s/ Harvey Morgan
Its: Vice President Its: Executive Managing
Director
ACCEPTED AND APPROVED:
Flagstar Bancorp, Inc.
By: /s/ Michael Carrie
Its: Executive Vice President/ Chief Financial Officer
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FLAGSTAR TRUST
LETTER OF INTENT
FEBRUARY 15, 1999
PAGE 7 OF 6
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