EXHIBIT 1.1
December 10, 2004
Mr. Martin A. Thomson
President & CEO
Alpena Bancshares, Inc.
100 South Second
Avenue Alpena, MI 49707
Mr. Martin A. Thomson
President & CEO
Alpena Bancshares, MHC
100 South Second
Avenue Alpena, MI 49707
CONFIDENTIAL
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Re: PROPOSED SECOND STEP STOCK CONVERSION -- ADVISORY,
ADMINISTRATIVE AND MARKETING SERVICES
Dear Mr. Thomson:
Ryan Beck & Co., Inc. ("RBCO") is pleased to submit this engagement letter
setting forth the terms of the proposed engagement between RBCO and Alpena
Bancshares, Inc. (the "Institution") and Alpena Bancshares, MHC (the "MHC") in
connection with the proposed elimination of the MHC and sale of the portion of
the common stock of the Institution currently held by the MHC (the "second step
stock offering".)
1. BACKGROUND ON RYAN BECK
Ryan Beck & Co., 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.
RBCO's Financial Institutions Group is one of the nation's largest such groups
devoted solely to investment banking services for financial institutions.
Mr. Martin A. Thomson
Page 2 of 10
2. SECOND STEP STOCK OFFERING
The Institution is considering reorganization from partial to full public
ownership, selling shares of common stock of the Institution held by the MHC the
("Common Stock") in a subscription offering with any remaining shares sold in a
community offering and any syndicated community offering or underwritten public
offering (collectively the "Offering".) The aggregate value of shares of Common
Stock sold in the Offering will be calculated as the final independent appraisal
times the majority ownership of the MHC. In connection therewith, the
Institution's Board of Directors would adopt a reorganization and stock issuance
plan (the "Plan"). RBCO proposes to act as financial advisor to the Institution
with respect to the reorganization and the Offering and as selling agent with
respect to the Offering. Specific terms of services shall be set forth in an
agency agreement, in the case of the subscription and community offering and a
syndicated community offering or, if appropriate, a public underwriting
agreement (together, the "Definitive Agreement") between RBCO and the
Institution. The Definitive Agreement will include customary representations and
warranties, covenants, conditions, termination provisions and indemnification,
contribution and limitation of liability provisions, all to be mutually agreed
upon by RBCO and the Institution (and its successors).
3. SERVICES TO BE PROVIDED BY RYAN BECK
RBCO provides and helps coordinate advisory, administrative and marketing
services in connection with thrift reorganizations and related stock offerings.
Our existing team has worked together on numerous such transactions.
a. ADVISORY SERVICES - As your investment banker, RBCO will work with you
and your counsel to evaluate financial, marketing and regulatory issues. Our
working knowledge of the law and "lore" of bank regulators, securities
regulators and NASD is essential. Our legal, accounting and regulatory
background is equally important.
Our specific advisory responsibilities include:
- Advise with respect to business planning issues in preparation
for a public offering;
- Advise with respect to the choice of charter and form of
organization;
- Review and advise with respect to the stock issuance plan (e.g.
sizes of benefit plan purchases; max purchase limits for
investors);
- Advise with respect to which trading venue the shares should
trade on;
- Review and provide input with respect to the business plan to be
prepared in connection with the Offering;
- Discuss the appraisal process and analyze the appraisal with the
Board of Directors;
- Participate in drafting the offering document and any depositor
and stockholder proxy materials, and assist in obtaining all
requisite regulatory approvals;
- Develop a marketing plan for the subscription and community
offerings, considering various sales method options, including
direct mail, advertising, community meetings and telephone
solicitation;
- Develop a depositor proxy solicitation plan, to include
telephone calls and mailings;
Mr. Martin A. Thomson
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- RBCO does not offer data processing agent, printing, transfer
agent or stockholder proxy solicitation functions. Costs of such
services will be borne by the Institution and are subject to
agreements signed by the Institution and each service provider.
RBCO will work with the Institution to provide specifications
and assistance in selecting these and any other professionals
that will perform administrative functions in connection with
the offering and the proxy solicitation process;
- Develop a layout for the Stock Information Center (the
"Center"), where stock order and proxy card processing occur;
- Provide a list of equipment, staff and supplies needed for the
Center;
- Draft marketing materials including press releases, letters,
order form, advertisement, Q&A brochure. If a community meeting
or "road show" is anticipated, we will help draft the
presentation - saving the you time and legal expense; and
- Consulting with management, determine whether and when to
conduct a syndicated community offering through assembling a
group of selected broker/dealers (including RBCO) to sell stock
remaining after the community offering, on a best-effort basis.
Alternatively, consulting with management, choose to conduct a
"stand-by" firm commitment public underwriting, including RBCO
and other broker/dealers.
b. ADMINISTRATIVE SERVICES AND STOCK INFORMATION CENTER MANAGEMENT - RBCO
manage all aspects of a thrift reorganization's stock offering and proxy
solicitation. Successful stock sale and vote results require thorough planning
and an enormous amount of attention to detail. Our efforts are meant to avoid
mistakes, costly surprises and lost opportunities. We identify key logistics,
define responsibilities and create timetables to help avoid confusion among the
many members of the working group. An offering also requires accurate and timely
record keeping and reporting. Furthermore, customers must be handled
professionally and their questions must be answered accurately.
The Stock Information Center is the "command center" during a stock offering.
RBCO staff's experience in managing many thrift minority stock offerings and
full conversion offerings will help them minimize the burden on your management
and staff. They will train and supervise the staff that you assign to the Center
to help record stock orders, answer customer inquiries and participate in other
activities of the Center.
Our administrative services include the following:
- Provide experienced on-site RBCO registered representatives to
manage and supervise the Center. All substantive stock offering
and proxy vote matters and customer inquiries will be handled by
RBCO;
- Prepare procedures for processing proxies, stock orders and
cash, and for handling requests for material;
- Provide scripts and training for the telephone team who will
solicit proxies and, if needed, help conduct a stock sales
telemarketing effort;
- Educate the Institution's directors, officers and employees
about the reorganization and Offering, their roles and relevant
securities laws;
- Train branch managers and customer-contact employees on the
proper response to stock purchase and proxy vote inquiries;
Mr. Martin A. Thomson
Page 4 of 10
- Coordinate functions with and between the data processing agent,
printer, transfer agent, stock certificate printer and other
professionals;
- Design and implement procedures for handling IRA and Keogh
orders;
- Supervise Center staff in proxy card and order processing and in
proxy solicitation calling efforts;
- Prepare daily vote and sales reports for management, ensuring
funds received balance to the reports;
- Monitor the proxy vote response and, make any needed revisions
to the calling/reminder mailing plan;
- Manage the pro-ration process in the event of subscription and
community offering oversubscription;
- Coordinate with Nasdaq and DTC to ensure a smooth closing and
stock trading; and
- Provide post-offering subscriber assistance.
c. SECURITIES MARKETING SERVICES - RBCO uses various sales techniques
including direct mail, advertising, community investor meetings, telephone
solicitation, and if necessary, assembling a selling group of broker-dealers for
a syndicated community offering. The sales approach for your stock offering will
be tailored to fit your specific situation, in order to best mange the offering
and attract a stockholder base comprised largely of community-oriented
individuals loyal to the Institution.
Our specific marketing services include:
- If applicable, assist management in developing a list of
potential investors who are viewed as priority prospects;
- The RBCO registered representatives at the Center will seek to
manage the sales function and, if applicable, will solicit
orders from the eligible prospects described above;
- Respond to questions related to information in the offering
document and in any proxy materials, and answer
investment-related questions;
- If the sales plan calls for community meetings, participate in
them. Community meetings can relieve customer anxiety and
generate local publicity for the Offering;
- Continually advise management on sales progress, market
conditions and customer/community responsiveness to the
Offering;
- In case of a best-efforts syndicated community offering, manage
the selling group. Alternatively, manage the underwriters
participating in a "stand-by" firm commitment underwritten
public offering. In either case, we will prepare broker "fact
sheets" and arrange "road shows" for the purpose of stimulating
interest in the stock and informing the brokerage community of
the particulars of the Offering; and
- Contact other market makers to maximize after-market support for
the stock.
4. COMPENSATION
For its services hereunder, the Institution will pay to RBCO a the following
compensation:
a. A reorganization and proxy vote advisory and administrative
services fee of $25,000 in connection with certain services set
forth in section 3.a. and 3.b. hereof. In view of the long
preparation phase prior to commencement of the Offering, this
fee shall be payable
Mr. Martin A. Thomson
Page 5 of 10
as follows: $12,500 upon executing this letter and $12,500 upon
the initial filing of the offering document.
b. A sales fee of one percent (1.00%) of the dollar amount of the
Common Stock sold in the Offering, other than those shares sold
pursuant to subparagraph c. below. No fee shall be payable
pursuant to this subsection in connection with the sale of stock
to officers, directors, employees or immediate family of such
persons ("Insiders") and qualified and non-qualified employee
benefit plans of the Institution or the Insiders. The $25,000
fee will be credited against the sales fee.
c. For stock sold by a group of selected dealers (including RBCO)
pursuant to a syndicated community offering solely managed by
RBCO (the "Selling Group"), a fee equal to one percent (1.00%)
of the aggregate dollar amount of Common Stock sold in the
syndicated community offering. The fee payable to RBCO, along
with the fee payable directly by the Institution to the other
selected dealers shall not exceed six percent (6.00%) of the
aggregate dollar amount of Common Stock so sold. Alternatively,
for stock sold by "stand-by" underwriters (including RBCO)
pursuant to a publicly underwritten offering, any "stand-by"
fees will be paid separately by the Institution, and the
underwriting discount will not exceed six percent (6.00%) of the
aggregate dollar amount of Common Stock so sold. In either case,
in consultation with RBCO, the Institution will determine which
NASD member firms will participate and the extent of their
participation. RBCO will not commence sales of the Common Stock
through the Selling Group or underwriters without the prior
approval of the Institution.
d. If, pursuant to a resolicitation of subscribers undertaken by
the Institution, RBCO is required to provide significant
additional services, the parties shall mutually agree to the
dollar amount of any additional compensation due.
The above compensation, less the amount of advance payments described in
subparagraph a., is to be paid to RBCO at the closing of the Offering.
If, after adoption of the Plan, (i) the Plan is abandoned or terminated by the
Institution; (ii) the Offering is not consummated by December 31, 2005; (iii)
RBCO terminates this relationship because there has been a material adverse
change in the financial condition or operations of the Institution since June
30, 2004; or (iv) immediately prior to commencement of the Offering, RBCO
terminates this relationship because in its opinion, which shall have been
formed in good faith after reasonable determination and consideration of all
relevant factors, there has been a failure to satisfactorily disclose all
relevant information in the offering document or other disclosure documents or
market conditions exist which might render the sale of the Common Stock
inadvisable; RBCO shall not be entitled to the compensation set forth above, but
in addition to reimbursement of its reasonable out-of-pocket expenses as set
forth in paragraph 7 below, shall be entitled to payment of $25,000 for its
reorganization and proxy vote advisory services.
5. MARKET MAKING
RBCO agrees to use its best efforts to maintain a market after the Offering and
to solicit other broker-dealers to make a market in the Common Stock at the
conclusion of the Offering.
Mr. Martin A. Thomson
Page 6 of 10
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 applications to banking and
securities regulators and any related exhibits thereto. In this regard, the
Institution and its counsel will prepare an offering document 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, RBCO will, in conjunction with its counsel, conduct an
examination of the relevant documents and records of the Institution and will
make such other reasonable investigations as deemed necessary and appropriate
under the circumstances. The Institution agrees to make all documents, records
and other information deemed necessary by RBCO, or its counsel, available to
them upon reasonable notice. RBCO's counsel will prepare, subject to the
approval of Institution's counsel, the Definitive Agreement. RBCO's counsel will
be selected by RBCO, subject to the approval of the Institution.
7. EXPENSES AND REIMBURSEMENT
The Institution will bear all of its expenses in connection with the
reorganization and the Offering of Common Stock including, but not limited to:
appraisal and business plan preparation; the Institution's attorney fees; NASD
filing fees; "blue sky" legal fees and state filing fees; services of the data
processing agent, transfer agent, financial and stock certificate printers,
auditors and accountants; advertising; postage; "road show" and other syndicated
community offering costs; and all costs of operating the Stock Information
Center, including hiring temporary personnel, if necessary. In the event RBCO
incurs such expenses on behalf of the Institution, the Institution shall
reimburse RBCO for such reasonable fees and expenses regardless of whether the
Reorganization is successfully completed. RBCO will not incur any single expense
of more than $1,000, pursuant to this paragraph without the prior approval of
the Institution.
The Institution also agrees to reimburse RBCO for its reasonable out-of-pocket
expenses, including legal fees and expenses, incurred by RBCO in connection with
the services contemplated hereunder. In the subscription and community offering,
RBCO will not incur legal fees (including the out-of-pocket expenses of counsel)
in excess of $40,000 without the approval of the Institution. RBCO will not
incur reimbursable direct out-of-pocket expenses in excess of $25,000 without
the consent of the Institution. The parties acknowledge, however, that such cap
may be increased by the mutual consent of the Institution and RBCO, including in
the event of a material delay in the Offering which would require an update of
the financial information in tabular form to reflect a period later than that
set forth in the original filing of the offering document. In addition, in the
event of a syndicated community offering, the Institution will reimburse all
reasonable out-of-pocket expenses incurred in connection with that offering
phase. In the event of a publicly underwritten offering, expense reimbursement
terms will be documented in the underwriting agreement. Not later than two days
before closing, RBCO will provide the Institution with a detailed accounting of
all reimbursable expenses of RBCO and its counsel to be paid at closing.
Mr. Martin A. Thomson
Page 7 of 10
8. BLUE SKY
To the extent required by applicable state law, RBCO and the Institution must
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 state filing fees will be paid by the Institution to the law
firm furnishing such legal work. The Institution will instruct the counsel
performing such services to prepare a Blue Sky memorandum related to the
Offering including RBCO's participation therein and shall furnish RBCO a copy
thereof, regarding which such counsel shall state RBCO may rely.
9. AVAILABILITY OF "STARS" PROGRAM
As an additional service to the Institution, RBCO will make available for a
period of 5 years following the completion of the Offering, advisory services
through the RBCO Strategic Advisory Services ("STARS") program. The undersigned
will serve as the senior relationship manager for this program. If the
Institution elects to avail itself of the STARS program, RBCO will meet with the
Institution at its request. RBCO also will provide opinions and recommendations,
upon request, for the areas covered below:
Valuation Analysis
Merger and Acquisition Planning and 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
RBCO's normal fee schedule, and does not include retention of
RBCO by the Institution for any specific merger/acquisition
situation.)
If the Institution elects to utilize the STARS program RBCO will waive the
regular retainer fee and hourly charges for this program for the first five
years. The Institution also will reimburse RBCO'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
Mr. Martin A. Thomson
Page 8 of 10
miscellaneous expenses. RBCO will not incur any single expense in excess of
$1,000 pursuant to this paragraph without the prior approval of the Institution.
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 RBCO and its officers, directors, employees
and agents against all claims, losses, actions, judgments, damages or expenses,
including but not limited to reasonable attorney fees, arising solely out of the
engagement described herein, except that such indemnification shall not apply to
RBCO's own bad faith, willful misconduct or gross negligence.
11. CONFIDENTIALITY
To the extent consistent with legal requirements and except as otherwise set
forth in the offering document, all information given to RBCO by the
Institution, unless publicly available or otherwise available to RBCO without
restriction to breach of any confidentiality agreement ("Confidential
Information"), will be held by RBCO in confidence and will not be disclosed to
anyone other than RBCO's agents without the Institution's prior approval or used
for any purpose other than those referred to in this engagement letter. Upon the
termination of its engagement, RBCO, at the request of the Institution, will
promptly deliver to the Institution all materials specifically produced for it
and will return to the Institution all Confidential Information provided to RBCO
during the course of its engagement.
12. NASD MATTERS
RBCO has an obligation to file certain documents and to make certain
representations to the National Association of Security Dealers ("NASD") in
connection with the Offering. The Institution agrees to cooperate with RBCO and
provide such information as may be necessary for RBCO to comply with all NASD
requirements applicable to its participation in the Offering. RBCO is and will
remain through completion of the Offering a member in a good standing of the
NASD and will comply with all applicable NASD requirements.
13. OBLIGATIONS
Except as set forth below, this engagement letter is merely a statement of
intent. While RBCO 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 Offering, any legal obligations between RBCO 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; (iv) those set forth in paragraph 11 regarding
confidentiality; and (v) as set forth in a duly negotiated and executed
Definitive Agreement.
Mr. Martin A. Thomson
Page 9 of 10
The obligation of RBCO to enter into the Definitive Agreement shall be subject
to there being, in RBCO'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.
14. INDEPENDENT CONTRACTOR; NO FIDUCIARY DUTY
The Institution acknowledges and agrees that it is a sophisticated business
enterprise and that RBCO has been retained pursuant to this engagement letter to
act as financial advisor to the Institution solely with respect to the matters
set forth herein. In such capacity, RBCO will act as an independent contractor,
and any duties of RBCO arising out of this engagement pursuant to this letter
shall be contractual in nature and shall be owed solely to the Institution. Each
party disclaims any intention to impose any fiduciary duty on the other.
15. GOVERNING LAW
This engagement letter shall be governed by and construed in accordance with the
laws of the State of New Jersey applicable to contracts executed and to be
wholly performed therein without giving effects to its conflicts of laws
principles or rules. Any dispute here under shall be brought in a court in the
State of New Jersey.
16. WAIVER OF TRIAL BY JURY
BOTH RBCO AND THE INSTITUTION WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING, CLAIM OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
RELATED TO OR ARISING OUT OF THIS AGREEMENT.
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 $12,500. We look forward to working with
you.
RYAN BECK & CO., INC.
BY: /s/ Michael A. Schechter
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Michael A. Schechter
Vice President
Mr. Martin A. Thomson
Page 10 of 10
Accepted and Agreed to This 19TH Day of NOVEMBER, 2004
BY: /s/ Martin A. Thomson
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Martin A. Thomson
President & Chief Executive Officer
Alpena Bancshares, Inc.
BY: /s/ Martin A. Thomson
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Martin A. Thomson
President & Chief Executive Officer
Alpena Bancshares, MHC
Cc: Eric Luse