[RYAN, BECK & CO. LETTERHEAD]
CONFIDENTIAL
August 20, 1999
Mr. Larry A. Dreyer
President & Chief Executive Officer
American Federal Savings Bank
1400 Prospect Avenue
Helena, MT 59604-4999
Re: Mutual Holding Company Formation - Subscription Enhancement
Administrative Services
Dear Mr. Dreyer:
Ryan, Beck & Co. ("Ryan, Beck") is pleased to submit this engagement letter
setting forth the terms of the proposed engagement between Ryan, Beck and
American Federal Savings Bank, (the "Institution") in connection with the
proposed formation of a mutual holding company and sale of common stock by the
Institution or a middle tier stock corporation which will own 100% of the stock
of the Institution ("Mid Tier").
1. BACKGROUND ON RYAN, BECK
Ryan, Beck, Inc., was organized in 1946 and is one of the nation's leading
investment bankers for financial institutions. The firm is a registered
broker-dealer with the Securities and Exchange Commission, a member of the
National Association of Securities Dealers, Inc., Securities Industry
Association and a member of the Securities Investor Protection Corporation.
Ryan, Beck's corporate finance and research group represents one of the largest
such groups devoted solely to financial institution matters in the country.
Moreover, Ryan, Beck is one of the largest market makers in bank and thrift
stocks.
2. MUTUAL HOLDING COMPANY FORMATION AND STOCK OFFERING
The Institution proposes to form a mutual holding company ("Holding Company")
pursuant to applicable regulations. In connection therewith, the Institution's
Board of Directors will adopt a stock issuance plan (the "Plan") whereby shares
of stock will be offered. In connection with the Institution's mutual holding
company formation and Community Offering, Ryan, Beck proposes to act as
financial advisor to the Institution with respect to the Plan and selling
agent/manager with respect to the offering of the shares of common stock (the
"Common Stock") in the Subscription Offering and Community Offering. Specific
terms of services shall be set forth in a definitive agency agreement (the
"Definitive Agreement") between Ryan, Beck and the Institution to be executed on
the date the offering document is declared effective by the appropriate
regulatory authorities.
Mr. Larry A. Dreyer
August 20, 1999
Page 2
3. SERVICES TO BE PROVIDED BY RYAN, BECK
a. Advisory Services - Thorough planning is essential to a successful
conversion. Ryan, Beck serves as lead coordinator of the marketing and
logistic efforts necessary to prepare for an offering. Our actions are
intended to clearly define responsibilities and timetables, while avoiding
costly surprises. We assume responsibility for the initial preparation of
marketing materials-saving you time and legal expense. Moreover, as your
investment banker, Ryan, Beck will evaluate the financial, marketing and
regulatory issues involved in the Offerings. Our specific responsibilities
include, but are not limited to:
-- Review and advise with respect to the Plan;
-- Review and provide input with respect to the Business Plan to be
prepared in connection with the Reorganization;
-- Participate in drafting the Prospectus and assist in obtaining all
requisite regulatory approvals;
-- Review and opine to the Board of Directors on the adequacy of the
appraisal process;
-- Develop a marketing plan for the Offering including direct mail,
advertising, community meetings and telephone solicitation;
-- Provide specifications and assistance in selecting data processing
assistance, printer and other professionals;
-- Develop an operating plan for the Stock Sale Center (the "Center");
-- Provide a list of equipment and supplies needed for the Center;
-- Draft marketing materials including letters, brochures, slide show
script and advertisements; and
-- Assist in arranging market-makers for post-reorganization trading.
b. Administrative Services and Conversion Center Management - Ryan, Beck
manages your "best efforts" community offering. A successful conversion
requires an enormous amount of attention to detail. Working knowledge and
familiarity with the law and "lore" of bank regulators, Securities and
Exchange Commission and NASD is essential. Ryan, Beck's experience in
managing many thrift conversions will minimize the burden on your
management and disruption to normal banking business. At the same time, our
legal, accounting and regulatory background ensures that details are
attended to in a professional fashion. A conversion requires accurate and
timely record keeping and reporting. Furthermore, customer inquiries must
be handled professionally and accurately. The Conversion Center centralizes
all data and work effort relating to the conversion.
Ryan, Beck will supervise and administer the Conversion Center. We will
train Conversion Center, staff to help record stock orders, answer customer
inquiries and handle special situations as they arise. Conversion Center
activities include, but are not limited to, the following:
-- Provide experienced on-site registered representatives to minimize
disruption of day-to-day business;
-- Identify and organize space for the on-site Conversion Center, the
focal point of conversion activity;
Mr. Larry A. Dreyer
August 20, 1999
Page 3
-- Administer the Conversion Center. All substantive stock and proxy
related matters will be handled by employees of Ryan, Beck.
-- Organize and implement all proxy solicitation efforts;
-- Prepare procedures for processing proxies, stock orders and cash, and
for handling requests for information;
-- Ryan, Beck will outsource all conversion agent/data
processing/transfer agent functions;
-- The cost of such services will be borne by the Institution and are
subject to separate agreement but are not expected to exceed $15,000;
-- Provide scripts, training and guidance for the telephone team in
soliciting proxies and in the stock sales telemarketing effort;
-- Educate the Institution's directors, officers and employees about the
conversion, their roles and relevant securities laws;
-- Train branch managers and customer-contact employees on the proper
response to stock purchase inquiries;
-- Train and supervise Conversion Center staff assisting with proxy and
order processing;
-- Prepare daily sales reports for management and ensure funds received
balance to such reports;
-- Coordinate functions with the data processing agent, printer, transfer
agent, stock certificate printer and other professionals;
-- Design and implement procedures for handling IRA and Keogh orders; and
-- Provide post-offering subscriber assistance and management of the
pro-ration process.
c. Securities Marketing Services - Ryan, Beck uses various sales techniques
including direct mail, advertising, community investor meetings, telephone
solicitation, and if necessary, selling group formation. The sales approach
is tailored to fit your specific situation. Our techniques are designed to
attract a stockholder base comprised largely of community oriented
individuals loyal to the Institution.
Our specific actions include, but are not limited to:
-- Assign licensed registered representatives from our staff to work at
the Conversion Center to solicit orders on behalf of the Institution
from eligible prospects who have been targeted as likely and desirable
stockholders;
-- Assist management in developing a list of potential investors who are
viewed as priority prospects;
-- Respond to inquiries concerning the Offering and investment
opportunities;
-- Organize, coordinate and participate in community informational
meetings (if any). These meetings are intended to both relieve
customer anxiety and attract potential investors. The meetings
generate widespread publicity for the conversion while providing local
exposure of the Institution and promoting favorable stockholder
relations;
-- Supervise and conduct a telemarketing campaign to identify prospects
from among the Institution's customer base;
Mr. Larry A. Dreyer
August 20, 1999.
Page 4
-- Continually advise management on market conditions and the community's
responsiveness to the offering; and
-- If appropriate, assemble a selling group of selected local
broker-dealers to assist in selling stock during the offering. In so
doing, prepare broker "fact sheets" and arrange "road shows" for the
purpose of stimulating local interest in the stock and informing the
brokerage community of the particulars of the offering.
4. COMPENSATION
a. For its services hereunder, the Institution will pay to Ryan, Beck a total
inclusive Advisory and Marketing fee of $165,000.
In the event of an undersubscription, Ryan, Beck will form a selling group
of NASD member firms (including Ryan, Beck) under a selected dealer
agreements (the "Selling Group"), a fee equal to six percent (6.0%) in the
aggregate. Ryan, Beck will not commence sales of the stock through members
of the Selling Group without prior approval of the Institution.
Such fees (less the amount of any advance payments) are to be paid to Ryan,
Beck at the closing of the Conversion. The Institution will pay Ryan, Beck
$25,000 upon execution of this letter which will be applied to any fees due
hereunder, including fees payable pursuant to subparagraph (b) below. If,
pursuant to a resolicitation undertaken by the Institution, Ryan, Beck is
required to provide significant additional services, the parties shall
mutually agree to the dollar amount of the additional compensation due (if
any).
b. If (i) the Plan is abandoned or terminated by the Institution; (ii) the
Offerings are not consummated by September 30, 2000, (iii) Ryan, Beck
terminates this relationship because there has been a material adverse
change in the financial condition or operations of the Institution since
June 30, 1999; or (iv) immediately prior to commencement of the Offerings,
Ryan, Beck terminates this relationship for failure to satisfactorily
disclose all relevant information in the disclosure documents or the
existence of market conditions which might render the sale of the shares by
the Institution hereby contemplated inadvisable; Ryan, Beck shall not be
entitled to the fees set forth above under subparagraph (a), but in
addition to reimbursement of its reasonable out-of-pocket expenses as set
forth in paragraph 7 below, shall be entitled to receive for its advisory
and administrative services a fee of $25,000.
5. MARKET MAKING
Ryan, Beck agrees to use its best efforts to maintain a market and to solicit
other broker-dealers to make a market in the Common Stock after the Offering so
that there are at least three market makers for the Common Stock after the
Offering.
Mr. Larry A. Dreyer
August 20, 1999
Page 5
6. DOCUMENTS
The Institution and its counsel will complete, file with the appropriate
regulatory authorities and, as appropriate, amend from time to time, the
information to be contained in the Institution's Application for Conversion and
any related exhibits thereto. In this regard, the Institution and its counsel
will prepare an Offering Circular and any other necessary disclosure documents
relating to the offering of the Common Stock in conformance with applicable
rules and regulations. As the Institution's financial advisor, Ryan, Beck will
in conjunction with counsel, conduct an examination of the relevant documents
and records of the Institution and will make such other reasonable investigation
as deemed necessary and appropriate under the circumstances. The Institution
agrees to make all such documents, records and other information deemed
necessary by Ryan, Beck, or its counsel, available to them upon reasonable
request. Ryan, Beck's counsel will prepare, subject to the approval of the
Institution's counsel, the Definitive Agreement. Ryan, Beck's counsel shall be
selected by Ryan, Beck, subject to the approval of the Institution which will
not unreasonably be withheld.
7. EXPENSES AND REIMBURSEMENT
The Institution will bear all of its expenses in connection with the Conversion
and the offering of its Common Stock including, but not limited to, the
Institution's attorney fees, NASD filing fees, "blue sky" legal fees, expenses
for appraisal, auditing and accounting services, advertising expenses, printing
expenses, temporary personnel expenses and the preparation of stock
certificates. In the event Ryan, Beck incurs such expenses on behalf of the
Institution, the Institution shall pay or reimburse Ryan, Beck for such
reasonable fees and expenses regardless of whether the Conversion is
successfully completed. Ryan, Beck will not incur any single expense of more
than $2,000, pursuant to this paragraph without the prior approval of the
Institution.
The Institution. also agrees to reimburse Ryan, Beck for reasonable
out-of-pocket expenses, including legal fees and expenses, incurred by Ryan,
Beck in connection with the services contemplated hereunder. In no event shall
the Institution be required to reimburse Ryan, Beck for more than $25,000 in
legal fees, and $25,000 in other out-of-pocket expenses. The parties
acknowledge, however, that such caps may be exceeded in the event of any
material delay in the Offerings which would require an update of the financial
information in tabular form contained in the Prospectus for a period later than
that set forth in the original Prospectus filing. Not later than three days
before closing, we will provide you with a detailed accounting of all
reimbursable expenses to be paid at closing.
8. BLUE SKY
To the extent required by applicable state law, Ryan, Beck and the Institution
will need to obtain or confirm exemptions, qualifications or registration of the
Common Stock under applicable state securities laws and NASD policies. The cost
of such legal work and related filing fees will be paid by the Institution to
the law firm furnishing such legal work. The Institution will cause the counsel
performing such services to prepare a Blue Sky memorandum related to the
Offerings including Ryan, Beck's participation therein and shall furnish Ryan,
Beck a copy thereof addressed to Ryan, Beck or upon which such counsel shall
state Ryan, Beck may rely.
Mr. Larry A. Dreyer
August 20, 1999
Page 6
9. AVAILABILITY OF "STARS" PROGRAM
As an additional service to the Institution, Ryan, Beck will make available for
a period of 1 year following the completion of the Conversion, advisory services
through the Ryan, Beck Strategic Advisory Services ("STARS") program. If the
Institution elects to avail itself of the STARS program, Ryan, Beck will meet
with the Institution at its request. Ryan, Beck also will provide opinions and
recommendations, upon request, for the areas covered below:
Valuation Analysis
Merger and Acquisition Analysis
Merger and Acquisition Trends
Planning, Forecasting & Competitive Strategy
Capital, Asset & Liability Structure & Management
Stock Repurchase Programs
Dividend Policy
Dividend Reinvestment Programs
Market Development and Sponsorship of Bank Securities
Financial Disclosure
Financial Relations
Financial Reports
Branch Sales and Purchases
Stock Benefit Plan Analysis and Advisory
Stockholder & Investor Relations Presentations & Programs
Fairness Opinions
Scanning of Potential Acquisition Candidates
Based on Published Statement Information
(This screening does not extend to any in-depth merger and
acquisition analyses or studies which are available under Ryan,
Beck's normal fee schedule, and does not include retention of
Ryan, Beck by the Institution for any specific
merger/acquisition situation.)
If the Institution elects to utilize the STARS program Ryan, Beck will waive the
regular retainer fee and hourly charges for this program for the first year. If
the Institution elects to utilize. the Stars Program, the Institution also will
reimburse Ryan, Beck's reasonable out-of-pocket expenses incurred in conjunction
with the performance of these services. Such out-of-pocket expenses shall
include travel, legal and other miscellaneous expenses. Ryan, Beck will not
incur any single expense in excess of $1000 pursuant to this paragraph without
the prior approval of the Institution.
If negotiations for a transaction conducted during the term of the STARS
Advisory Agreement described above result in the execution of a definitive
agreement and/or consummation of a transaction for which Ryan, Beck customarily
would be entitled to a fee for its advisory or other investment banking
services, Ryan, Beck shall receive a contingent advisory fee ("Advisory Fee") in
accordance with the terms of a separate engagement letter with respect to such
transaction.
Mr. Larry A. Dreyer
August 20, 1999
Page 7
10. INDEMNIFICATION
The Definitive Agreement will provide for indemnification of the type usually
found in underwriting agreements as to certain liabilities, including
liabilities under the Securities Act of 1933. The Institution also agrees to
defend, indemnify and hold harmless Ryan, Beck and its officers, directors,
employees and agents against all claims, losses, actions, judgments, damages or
expenses, including but not limited to reasonable attorneys' fees, arising
solely out of the engagement described herein, except that such indemnification
shall not apply to Ryan, Beck's own bad faith, willful misconduct or negligence.
11. CONFIDENTIALITY
To the extent consistent with legal requirements and except as otherwise set
forth in the Prospectus, all information given to Ryan, Beck by the Institution,
unless publicly available or otherwise available to Ryan, Beck without
restriction to breach of any confidentiality agreement ("Confidential
Information"), will be held by Ryan, Beck in confidence and will not be
disclosed to anyone other than Ryan, Beck's agents without the Institution's
prior approval or used for any purpose other than those referred to in this
engagement letter. Upon any termination of its engagement, Ryan, Beck shall
promptly deliver to the Institution all materials specifically produced for it
and will return to the Institution all Confidential Information provided to
Ryan, Beck during the course of its engagement hereunder.
12. ARBITRATION
Any claims, controversies, demands, disputes or differences between or among the
parties hereto or any persons bound hereby arising out of, or by virtue of, or
in connection with, or otherwise relating to this Agreement shall be submitted
to and settled by arbitration conducted in Livingston, NJ before one or three
arbitrators, each of whom shall be knowledgeable in the field of securities law
and investment banking. Such arbitration shall otherwise be conducted in
accordance with the rules then obtaining of the American Arbitration
Association. The parties hereto agree to share equally the responsibility for
all fees of the arbitrators, abide by any decision rendered as final and
binding, and waive the right to appeal the decision or otherwise submit the
dispute to a court of law for a jury or non-jury trial. The parties hereto
specifically agree that neither party may appeal or subject the award or
decision of any such arbitrator to appeal or review in any court of law or in
equity or by any other tribunal, arbitration system or otherwise. Judgment upon
any award granted by such an arbitrator may be enforced in any court having
jurisdiction thereof.
13. NASD MATTERS
Ryan, Beck has an obligation to file certain documents and to make certain
representations to the National Association of Security Dealers ("NASD") in
connection with the Conversion. The Institution agrees to cooperate with Ryan,
Beck and provide such information as may be reasonably requested and necessary
for Ryan, Beck to comply with all NASD requirements applicable to it in
connection with its participation as contemplated herein in the Conversion.
Ryan, Beck is and will remain through completion of the Conversion a member in a
good standing of the NASD and will comply with all applicable NASD requirements.
Mr. Larry A. Dreyer
August 20, 1999
Page 8
14. OBLIGATIONS
(a) Except as set forth below, this engagement letter is merely a statement of
intent. While Ryan, Beck and the Institution agree in principle to the
contents hereof and propose to proceed promptly and in good faith to work
out the arrangements with respect to the Conversion, any legal obligations
between Ryan, Beck and the Institution shall be only: (i) those set forth
herein in paragraphs 2, 3 and 4 regarding services and payments; (ii) those
set forth in paragraph 7 regarding reimbursement for certain expenses;
(iii) those set forth in paragraph 10 regarding indemnification; and (iv)
as set forth in a duly negotiated and executed Definitive Agreement.
(b) The obligation of Ryan, Beck to enter into the Definitive Agreement shall
be subject to there being, in Ryan, Beck's opinion, which shall have been
formed in good faith after reasonable determination and consideration of
all relevant factors: (i) no material adverse change in the condition or
operation of the Institution; (ii) satisfactory disclosure of all relevant
information in the disclosure documents and a determination that the sale
of stock is
reasonable given such disclosures; (iii) no market conditions which might
render the sale of the shares by the Institution hereby contemplated
inadvisable; and (iv) agreement that the price established by the
independent appraiser is reasonable in the then prevailing market
conditions.
Please acknowledge your agreement to the foregoing by signing in the place
provided below and returning one copy of this letter to our office together with
the retainer payment in the amount of $25,000. We look forward to working with
you.
RYAN, BECK & CO., INC.
BY: /s/Robin L. Poliner
-----------------------
Robin L. Poliner
First Vice President
Accepted and Agreed to This ______ Day of August, 1999
AMERICAN FEDERAL SAVINGS BANK
BY: /s/Larry A. Dreyer
---------------------------
Larry A. Dreyer
President & Chief Executive Officer