EXHIBIT 1.2
[LETTERHEAD OF XXXX, XXXX & CO.]
June 2, 2000
Mr. Xxxxxxx Xxxxxxx
President & Chief Executive Officer
Xxxxxx Financial, Inc.
000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Dear Xx. Xxxxxxx:
We are pleased to submit this engagement letter (the "Agreement") which sets out
the terms of the proposed engagement between Xxxxxx Financial, Inc. (the
"Company") and Xxxx Xxxx & Co., Inc. ("Xxxx Xxxx") and Xxxx Xxxxx Xxxx Xxxxxx,
Incorporated. ("Xxxx Xxxxx") (both together, the "Underwriters") in connection
with the proposed sale of common stock (the "Securities") of Xxxxxx Financial,
Inc. that are held by Xxxxxx Financial M.H.C. It is our understanding that the
Company wishes Xxxx Xxxx and Xxxx Xxxxx to be co-managing underwriters of a
standby firm commitment underwritten public offering (the "Underwriting") and
that Xxxx Xxxx will be the book-running manager and as such, will consult with
Xxxx Xxxxx in the selection of any broker-dealers to serve as members of an
underwriting syndicate and/or selling group.
1. Stock Offering and Acquisition
It is our understanding that the Company's proposed sale of Securities will
be in connection with the conversion of Xxxxxx Financial M.H.C. to stock form
and the related subscription offering and community offering and/or underwritten
public offering (collectively, the "Offering"). Additionally, upon the closing
of the Offering, the Company will simultaneously acquire (the "Acquisition")
another depository institution, York Financial Corporation ("York"). The
Underwriting will consist of Securities not sold in the subscription and
community offerings and not issued to stockholders of York.
Xxxx Xxxx'x services to the Company as financial advisor with respect to
the Acquisition are furnished pursuant to an engagement letter dated August 9,
1999. Xxxx Xxxx'x services as financial advisor and proxy solicitor regarding
the conversion of Xxxxxx Financial M.H.C. and
Mr. Xxxxxxx Xxxxxxx
Xxxxxx Financial, Inc.
Page 2
selling agent with regard to the subscription and community offerings are
furnished pursuant to an engagement letter dated April 7, 2000 ("Subscription
Engagement Agreement").
2. The Underwriting
(a) The Securities will be underwritten on a firm commitment basis by the
co-managers and any additional underwriters that the co-managers may select. The
Underwriters will be granted an over-allotment option of no greater than 15% of
the dollar amount of Securities offered in the Underwriting.
The actual terms of the Underwriting will depend on the outcome of the
Underwriters' due diligence investigation and market conditions at the time of
the Underwriting, but are expected to be similar to those reflected in the
attached preliminary term sheet. The definitive terms will be subject to
negotiation between the Company and the Underwriters just prior to the
commencement of the Underwriting and will be set forth in a definitive
underwriting agreement (the "Underwriting Agreement").
(b) The Underwriters anticipate that their activities would include the
following, as requested from time to time of by the Company:
i. Reviewing the proposed transaction;
ii. Assisting the Company in the Company's determination of appropriate
transaction structure;
iii. Conducting an examination of documents and records pertaining to the
Company, interviewing Company personnel, and making such other
reasonable investigations as the Underwriters deem necessary and
appropriate under the circumstances; and
iv. Performing financial analysis of the Company and comparisons with
other companies in its industry.
(c) The Underwriters intend to conduct the Underwriting only after
execution of the Underwriting Agreement, which will include definitive terms of
the engagement, customary representations and warranties, covenants, conditions,
termination provisions and indemnification, contribution and limitation of
liability provisions, all satisfactory to the Underwriters in their sole
discretion. The Underwriters' willingness to execute the Underwriting Agreement
and conduct the Underwriting will be subject to the approval of their respective
Commitment Committees and to their satisfaction, in their sole discretion and
judgment, with a number of other factors, including, but not limited to the
following:
i. there being no material adverse change in the condition or operation
of the Company or York;
ii. satisfactory disclosure of all relevant financial information in the
disclosure documents and determination that the sale of the Securities
is reasonable given such disclosures;
Mr. Xxxxxxx Xxxxxxx
Xxxxxx Financial, Inc.
Page 3
iii. the current financial position, earnings performance and future
prospects of the Company;
iv. receipt of a "comfort letter" from the Company's accountants and
Xxxx's accountants containing no exceptions;
v. the condition of the credit and equity markets and particularly as
they relate to securities of financial institutions and the impact on
the advisability of the sale of the Securities;
vi. there being no circumstances that would preclude the Acquisition; and
vii. agreement that the appraisal value used to determine the Offering size
is reasonable in the prevailing market conditions.
(d) The Offering is expected to take place during the third or fourth
quarters of 2000. This timing could be delayed if unexpected circumstances
develop.
(e) From the date hereof until the Offering is terminated, abandoned or
consummated, the Company's and York's financial news releases and filings under
the Securities Exchange Act of 1934 will be provided to the Underwriters, with
ample time to comment thereon, prior to their being filed or made public.
3. Fees and Expenses
(a) Concurrently with the closing of the Offering, the Company shall pay
in cash to the Underwriters a fee (the "Fee") of 7% of the Underwriting's gross
proceeds (including gross proceeds from the exercise of the overallotment
option, if any), provided the Company and the Underwriters shall have entered
into the Underwriting Agreement. Shares sold pursuant to this section shall not
be subject to any fees payable pursuant to the Subscription Engagement
Agreement. The exact amount of such Fee will be negotiated just prior to
execution of the Underwriting Agreement, but shall not exceed 70% of the gross
proceeds of the Underwriting. The Fee is to be paid by means of a discount from
the Public Offering Price described in the preliminary term sheet attached
hereto, or, at Underwriters' option, as a cash fee at the closing of the
Offering. The Underwriters agree that the Fee is contingent on the closing of
the purchase and sale of Securities pursuant to the Underwriting, and the
Company will not be obligated to pay the Fee unless the sale of such Securities
is consummated.
(b) The Company agrees to "carve-out" $75 million of the Common Stock for
the sale by the Underwriters. In the event, however, that all such shares are
unavailable for sale of the Securities are sold in the subscription and
community offerings (including any syndicated community offering), the Company
agrees to pay the Underwriters a standby fee of 1.5% of the Expected Gross
Proceeds described in the preliminary term sheet attached hereto as compensation
for acting as standby underwriters. In the event that the amount of shares to be
sold in the Underwriting is less than the amount described in the preliminary
term sheet, the Company will pay the Underwriters a fee equal to 1.5% of the
difference between the Expected Gross Proceeds and actual gross proceeds
provided the Company and the Underwriters shall have entered into the
Underwriting Agreement. No fee shall be payable under this Section 3(b) unless
the Company's registration statement to issue and sell the Securities has been
declared effective by the SEC.
Mr. Xxxxxxx Xxxxxxx
Xxxxxx Financial, Inc.
Page 4
(c) The Company also agrees to reimburse the Underwriters for their
expenses incurred in connection with their services under this Agreement whether
or not the Offering is consummated, including the fees and disbursements of
Underwriters' legal counsel (the "Expense Reimbursement"). The Underwriters
agree not to incur counsel fees relating to the Public Offering (excluding the
out-of-pocket expenses of legal counsel and any Blue Sky fees and expenses) in
excess of $50,000 without the prior consent of the Company. The Expense
Reimbursement will be billed to the Company and be payable at the closing or
termination of the Offering.
(d) The Company acknowledges and agrees that it will be responsible for
and shall pay all costs and expenses incident to the purchase, sale and delivery
of Securities in the Offering, including, without limitation, all fees and
expenses of filing with the Securities and Exchange Commission and the National
Association of Securities Dealers ("NASD"); all Blue Sky fees and expenses; fees
and disbursements of counsel and accountants for the Company; printing and
advertising costs and the road show costs and expenses of Underwriters and
Company personnel. York and the Company will also be responsible for all costs
of York related to the Acquisition and Offering.
4. Information to be Supplied; Confidentiality
(a) In connection with Underwriters' activities on behalf of the Company,
the Company and York will furnish the Underwriters with all financial and other
information regarding the Company that they reasonably believe appropriate to
their engagement (all such information so furnished by the Company and York,
whether furnished before or after the date of this Agreement, being referred to
herein as the "Information"). The Company and York will provide the
Underwriters with access to the officers, directors, employees, independent
accountants, legal counsel and other advisors and consultants for the Company
and York. The Company recognizes and agrees that the Underwriters:
i. will use and rely primarily on the Information and information
available from generally recognized public sources in performing the
services contemplated by this Agreement without independently
verifying the information or such other information;
ii. do not assume responsibility for the accuracy of the Information or
such other information; and
iii. will not make an appraisal of any assets or liabilities owned or
controlled by the Company or its market competitors.
(b) The Underwriters will maintain the confidentiality of the Information
and, unless and until such information shall have been made publicly available
by the Company or by others without breach of a confidentiality agreement, shall
disclose the Information only as authorized by the Company or as required by law
or by order of a governmental authority or court of competent jurisdiction. In
the event that the Underwriters are legally required to make disclosure
Mr. Xxxxxxx Xxxxxxx
Xxxxxx Financial, Inc.
Page 5
of any of the Information, they will give notice to the Company prior to such
disclosure, to the extent that they can practically do so.
The foregoing paragraph shall not apply to information that:
i. at the time of disclosure by the Company is, or thereafter becomes,
generally available to the public or within the industries in which
the Company or the Underwriters or its affiliates conduct business,
other than as a direct result of a breach by the Underwriters of their
obligations under this Agreement;
ii. prior to or at the time of disclosure by the Company, was already in
the possession of, or conceived by, the Underwriters or any of their
affiliates, or could have been developed by them from information then
in their possession, by the application of other information or
techniques in their possession, generally available to the public, or
available to the Underwriters or their affiliates other than from the
Company;
iii. at the time of disclosure by the Company or thereafter, is obtained by
the Underwriters or any of their affiliates from a third party who the
Underwriters reasonably believe to be in possession of the information
not in violation of any contractual, legal or fiduciary obligation to
the Company with respect to that information; or
iv. is independently developed by the Underwriters or its affiliates.
(c) Nothing in this Agreement shall be construed to limit the ability of
the Underwriters or their affiliates to pursue, investigate, analyze, invest in,
or engage in investment banking, financial advisory or any other business
relationships with, entities other than the Company, notwithstanding that such
entities may be engaged in a business which is similar to or competitive with
the business of the Company, and notwithstanding that such entities may have
actual or potential operations, products, services, plans, ideas, customers or
supplies similar or identical to the Company's, or may have been identified by
the Company as potential merger or acquisition targets or potential candidates
for some other business combination, cooperation or relationship. The Company
expressly acknowledges and agrees that it does not claim any proprietary
interest in the identity of any other entity in its industry or otherwise, and
that the identity of any such entity is not confidential information.
(d) The Company acknowledges that all advice (written or oral) given by
the Underwriters to the Company is intended solely for the benefit and use of
the Company. Other than to the extent required to be reflected in Board and
committee meeting minutes, no advice (written or oral) of the Underwriters
hereunder shall be used, reproduced, disseminated, quoted or referred to at any
time, in any manner, or for any purpose, nor shall any public references to the
Underwriters be made by the Company (or such persons), without the prior written
consent of the Underwriters.
5. Blue Sky
Mr. Xxxxxxx Xxxxxxx
Xxxxxx Financial, Inc.
Page 6
The Underwriters and the Company will need to obtain or confirm exemptions,
qualifications, or registrations of the Securities under applicable state
securities laws and NASD policies. The cost of legal work and related filing
fees will be paid by the Company. The Company will cause the legal counsel
preparing such services to prepare a Blue Sky memorandum related to the
Offering, including the Underwriters' participation therein and shall furnish a
copy addressed to the Underwriters.
6. National Association of Securities Dealers Matters
The Underwriters have an obligation to file certain documents and make
certain representations to the NASD in connection with the Offering. The
Company will provide such information as may be needed for compliance with NASD
requirements. The Underwriters are and will remain through completion of the
Offering members in good standing of the NASD and will comply with NASD
requirements.
7. Market Making and Research
The Underwriters agree to use their best efforts to maintain a market in
the Securities and to provide research coverage of the Company for at least
three years so long as the Securities are publicly traded.
8. Indemnification, Contribution and Limitation of Liability
The Company agrees to indemnify the Underwriters and its controlling
persons, representatives and agents in accordance with the indemnification
provisions set forth in Appendix I, and agrees to the other provisions of
Appendix I, which is incorporated herein by this reference, regardless of
whether the proposed Underwriting is consummated.
9. Obligations
Except as set forth below, this engagement letter is merely a statement of
intent. It is not intended to constitute a binding agreement to enter into an
underwriting agreement. While the parties agree in principle to the contents
hereof and propose to proceed promptly and in good faith to work out
arrangements regarding the Underwriting, any legal obligations between the
Underwriters and the Company shall be only those set forth in (i) section 3,
regarding services, payment of fees and reimbursement of expenses; (ii) section
4, regarding information to be supplied and confidentiality; (iii) section 8
regarding indemnification, contribution and liability; and (iv) as set forth in
a duly negotiated and executed Underwriting Agreement.
10. Independent Contractors; No Fiduciary Duty
The Company acknowledges and agrees that it is a sophisticated business
enterprise and that the Underwriters have been retained pursuant to this
Agreement to act as financial advisors to the Company solely with respect to the
matters set forth herein. In such capacity, the
Mr. Xxxxxxx Xxxxxxx
Xxxxxx Financial, Inc.
Page 7
Underwriters shall act as independent contractors, and any duties of the
Underwriters arising out of the engagement pursuant to this Agreement shall be
contractual in nature and shall be owed solely to the Company. Each party
disclaims any intention to impose any fiduciary duty on the other.
11. Beneficiaries
This Agreement shall inure to the sole and exclusive benefit of the
Underwriters and the Company and the persons referred to in Appendix I and their
respective successors and representatives. The obligations and liabilities
under this Agreement shall be binding upon the Underwriters and the Company.
12. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania applicable to contracts executed and to
be wholly performed therein without giving effect to its conflicts of laws
principles or rules. Any dispute hereunder shall be brought in a court in the
Commonwealth of Pennsylvania.
13. Amendments
This Agreement may be modified or amended, or its provisions waived, only
by an instrument in writing signed by the person or persons against whom
enforcement of this modification, amendment or waiver is sought.
14. Announcements of Underwriters
If the Underwriting is consummated, the Underwriters may, at their option
and expense, place an announcement in such newspapers and periodicals as they
may choose stating that they have so acted, and the capacity in which they
acted.
15. No Commitment
This Agreement does not and will not constitute any agreement, commitment
or undertaking, express or implied on the part of the Underwriters or any of
their affiliates to purchase or to sell any securities or to provide any
financing, and does not ensure the successful arrangement or completion of the
Offering, including Underwriting.
16. Entire Agreement
This Agreement constitutes the entire Agreement between the parties
relating to the Underwriting.
Mr. Xxxxxxx Xxxxxxx
Xxxxxx Financial, Inc.
Page 8
17. Severability
If any portion of this Agreement shall be held or made unenforceable or
invalid by a statute, rule, regulation, decision of a tribunal or otherwise, the
remainder of this Agreement shall not be affected thereby and shall remain in
full force and effect, and, to the fullest extent, the provisions of the
Agreement shall be severable.
18. Headings
The descriptive headings of the paragraphs, subparagraphs and Appendixes of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement and shall not affect in any way the meaning or interpretations of
this Agreement.
19. Failure or Delay; No Waiver
It is understood and agreed that failure or delay by either the Company or
the Underwriters in exercising any right, power or privilege hereunder shall not
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege hereunder.
20. Waiver of Trial by Jury
EACH OF THE UNDERWRITERS AND THE COMPANY WAIVES 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.
Mr. Xxxxxxx Xxxxxxx
Xxxxxx Financial, Inc.
Page 9
If the foregoing terms correctly set forth our agreement, please sign and return
to us a duplicate copy of this Agreement. We look forward to working with you
toward the successful conclusion of this engagement.
Very truly yours,
Confirmed and accepted as of
this ____ day of _____, 2000
XXXX, XXXX & CO., INC. XXXXXX FINANCIAL, INC.
/s/ X. X. Xxxxxxx /s/ Xxxxxxx Xxxxxxx
By: ------------------------------------- By: ------------------------------
Xxx X. Xxxxxxx Xxxxxxx Xxxxxxx
President & Chief Executive Officer President & Chief Executive
Officer
XXXX XXXXX XXXX XXXXXX, INCORPORATED.
By: /s/ Xxxx X. Xxxxxxx
------------------------------------
Xxxx X. Xxxxxxx
_____________________________________
Managing Director
Corpfin/Banks/Xxxxxx/Public Offering Engagement Letter
APPENDIX I
----------
The Company agrees to indemnify and hold harmless the Underwriters, their
officers, directors, employees, agents, and counsel, and each person, if any,
who controls the Underwriters within the meaning of Section 15 of the Securities
Act of 1933 or Section 20(a) of the Securities Exchange Act of 1934, against any
loss, liability, claim, damage, and expense whatsoever (which shall include, but
not be limited to amounts incurred in investigating, preparing, or defending
against any litigation, commenced or threatened, or any claim or investigation
whatsoever and any and all amounts paid in settlement of any claim or
litigation), as and when incurred, arising out of, based upon, or in connection
with (i) any untrue statement or alleged untrue statement of a material fact or
any omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, contained in
(A) any preliminary prospectus, the registration statement filed with the
Securities and Exchange Commission, or the prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto or in any
document incorporated by reference therein or required to be delivered with any
preliminary prospectus or the prospectus or (B) in any application or other
document or communication (collectively called an "application") executed by or
on behalf of the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify the
securities being sold under the "blue sky" or securities laws thereof or filed
with the Securities and Exchange Commission or any securities exchange; unless
such statement or omission was made in reliance upon and in conformity with
written information concerning the Underwriters, the underwriting agreement or
the compensation of the Underwriters furnished to the Company by or on behalf of
the Underwriters expressly for inclusion in any preliminary prospectus, the
registration statement, or the prospectus, or any amendment or supplement
thereto, or in any application, as the case may be, or (ii) any breach of any
representation, warranty, covenant, or agreement of the Company contained in the
underwriting agreement. For purposes of this section, the term "expense" shall
include, but not be limited to, counsel fees and costs, court costs, out-of-
pocket costs and compensation for the time spent by the Underwriters' directors,
officers, employees and counsel according to his or her normal hourly billing
rates. The indemnification provisions shall also extend to all affiliates of
the Underwriters, their respective directors, officers, employees, legal
counsel, agents and controlling persons within the meaning of the federal
securities laws. The foregoing agreement to indemnify shall be in addition to
any liability the Company may otherwise have to the Underwriters or the persons
entitled to the benefit of these indemnification provisions.
The Underwriters agree to indemnify and hold harmless the Company, its
directors, officers who signed the registration statement, and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act of 1933 or Section 20(a) of the Securities Exchange Act of 1934, against any
and all loss, liability, claim, damage and expense described in the indemnity
contained in subsection (a) above, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
registration statement (or any amendment thereto) or any preliminary prospectus
or the prospectus (or any amendment or supplement thereto) in reliance upon and
in conformity with written information about the Underwriters, the underwriting
agreement, or the compensation of the Underwriters, furnished to the Company by
the Underwriters expressly for use in the registration statement (or any
amendment thereto) or such preliminary prospectus or the prospectus (or any
amendment or supplement thereto).
An indemnified party shall give prompt notice to the indemnifying party if any
action, suit, proceeding or investigation is commenced in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve the indemnifying party from its obligations to indemnify
hereunder. If it so elects within a reasonable time after receipt of such
notice, an indemnifying party may assume the defense of such action, including
the employment of counsel satisfactory to the indemnified parties) and payment
of all expenses of the indemnified party in connection with such action. Such
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless the employment of such
counsel shall have been authorized in writing by the indemnifying party in
connection with the defense of such action or the indemnifying party shall not
have promptly employed counsel satisfactory to such indemnified party or parties
or such indemnified party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
one or more of the indemnifying parties, in any of which events such fees and
expenses shall be borne by the indemnifying party and the indemnifying party
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties. The Company shall be liable for any settlement of
any claim against the Underwriters (or their directors, officers, employees,
affiliates or controlling persons), made with the Company's written consent,
which consent shall not be unreasonably withheld. The Company shall not,
without the written consent of the Underwriters, settle or compromise any claim
against it based upon circumstances giving rise to an indemnification claim
against the Company hereunder unless such settlement or compromise provides that
the Underwriters and the other indemnified parties shall be unconditionally and
irrevocably released from all liability in respect of such claim.
In order to provide for just and equitable contribution, if a claim for
indemnification pursuant to these indemnification provisions is made but it is
found in a final judgment by a court that such indemnification may not be
enforced in such case, even though the express provisions hereof provide for
indemnification in such case, then the Company, on the one hand, and the
Underwriters, on the other hand, shall contribute to the amount paid or payable
by such indemnified persons as a result of such loss, liability, claim, damage
and expense in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Underwriters, on the
other hand, from the Underwriting, and also the relative fault of the Company,
on the one hand, and the Underwriters, on the other hand, in connection with the
statements, acts or omissions which resulted in such loss, liability claim,
damage and expense, and any other relevant equitable considerations shall also
be considered. No person found liable for a fraudulent misrepresentation or
omission shall be entitled to contribution from any person who is not also found
liable for such fraudulent misrepresentation or omission. Notwithstanding the
foregoing, the Underwriters shall not be obligated to contribute any amount
hereunder that exceeds the amount of the underwriting discount retained by it.
The indemnity and contribution agreements contained herein are in addition to
any liability which the Company may otherwise have to the Underwriters.
Neither termination nor completion of the engagement of the Underwriters nor any
investigation made by or on behalf of the Underwriters shall affect the
indemnification obligations of the Company or the Underwriters hereunder, which
shall remain and continue to be operative and in full force and effect.
Xxxxxx Financial, Inc.
Common Stock
Preliminary Summary of Principal Terms of Underwriting
Issuer: Xxxxxx Financial, Inc.
Security Common Stock
Underwritten Size: The Underwriters intend to purchase all shares
required to be sold pursuant to independent
appraisal and applicable regulations that have not
otherwise been sold in the subscription, local
community offering or otherwise issued as merger
exchange shares issued to York. Subject to the
subscription rights exercised by Xxxxxx
depositors, the Company agrees to "carve-out" $75
million of the Common Stock for sale by the
Underwriters.
Overallotment Option: 15% of Underwritten Size
Public Offering Price: Expected to be $10 per share
Underwriting Discount: Expected to be 7% of gross proceeds, including
overallotment shares, if any.
Expected Gross Proceeds: $75 million
