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EXHIBIT 10.2
AGREEMENT BETWEEN MCALLEN CAPITAL PARTNERS, INC.
AND JACKSONVILLE BANCORP, INC.
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[MCALLEN CAPITAL PARTNERS, INC. LETTERHEAD]
PROPOSAL TO:
JACKSONVILLE
BANCORP,
INC.
JACKSONVILLE, FLORIDA
FOR PROVIDING:
FINANCIAL ADVISORY SERVICES
MAY 1998
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[MCALLEN CAPITAL PARTNERS, INC. LETTERHEAD]
May 29, 1998
▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President
Jacksonville Bancorp, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Dear ▇▇. ▇▇▇▇▇▇:
Based on our recent discussions with you, McAllen Capital Partners,
Inc. ("McAllen Capital" or "MCP") is pleased to present this proposal for an
ongoing advisory relationship with Jacksonville Bancorp, Inc. ("Jacksonville
Bancorp" or the "Company") and its subsidiary, The Jacksonville Bank
("Jacksonville Bank" or the "Bank"). This proposal discusses the elements and
pricing of such an engagement. The following pages describe the scope of our
work, our fee schedule and the estimated time frame of the project. Also
included is some background on MCP and the principal who would be advising you.
I would like to note several important general points discussed with your Board
of Directors and/or you in our recent discussions.
- With the completion of Regency Bancorp's and Federal Trust
Corporation's stock offerings, which were both consummated during the
past six months, we will have participated in 15 successful
transactions involving community banking institutions during the last
five years. These transactions ranged in size from $4 million to over
$100 million in gross proceeds. The majority of these transactions,
however, were less than $15 million, which are the most difficult
transactions to complete. We are not aware of any financial advisory or
investment banking firm that can match this track record. Moreover,
based on our experience with smaller public and private offerings
(under $10 million), we are very confident that most advisors and
investment bankers do not provide the services discussed below.
- Given our investment banking background, commercial banking expertise,
and regulatory knowledge, we can effectively communicate the most
salient aspects of Jacksonville Bancorp's prospective transaction to
the Company's management, directors and the investment community.
- Our background is that of independent and objective advisors who will
work exclusively for the Company. Simply put, our SOLE responsibility
is to make certain the best interests of the Company (and its
shareholders) are always being served -- both today and in the future.
- Finally, we believe strongly enough in the long-term prospects of the
Company that we have developed a fee arrangement that is principally
success fee oriented inasmuch as a significant portion of the payment
is linked to our success in the sale of the stock.
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Jacksonville Bancorp, Inc.
May 29, 1998
Page 2
SCOPE OF THE WORK
Based on our past experience in working with financial institutions, I
believe there are certain fundamental keys to succeeding in the offering we
discussed, specifically, a combination community/public offering. The keys were
summarized in our previous discussions to you, but let us reiterate them for you
again and outline how we would assist in accomplishing each of these. Our
efforts would include, but not be limited to, the following six elements:
(1) DEVELOPING STRATEGIC/CAPITAL PLANS THAT SELL REGULATORS AND
INVESTORS.
This process begins with our analysis of the current strategic
and capital plans, as well as the development of projected
financial and operating data for the Company/Bank. In
addition, we will examine other appropriate background
material and have discussions with the institution's senior
staff. Our analysis of this data will generate a clear
definition of the potential financial resources. It will also
help us understand the current and prospective regional
economic/demographic conditions and competitive operating
environment, as well as, define the true future capabilities
of the institution.
The results of this analysis would be presented in a summary
strategic/capital plan that: a) presents a succinct statement
of corporate goals, direction and objectives; b) represents
realistic and achievable game plan for the post-capitalization
environment; and c) develops regulatory and investor support
for the capital offering. This summary strategic/capital plan
would be incorporated into an informational document
(described below) that would be used to educate and stimulate
interest among the investment community, investment bankers
and investors alike.
(2) DEVELOPING THE COMPANY'S STORY -- HIGHLIGHTING ITS UNIQUE
ATTRIBUTES.
With regard to this key, MCP would develop an informational
document, which would, among other things: (1) establish the
corporate profile of the Company and its role in a
post-capitalization environment; (2) identify those facets of
the Company that will provide long-term investment value; and
(3) focus investor attention towards the ultimate stock
valuation.
This document provides a general description of the Company,
including: an overview of its market (demographics, deposit
growth, market positions of competitive institutions,
financial competitiveness, etc.), its prospective financial
condition and performance (capital status, capital
alternatives, asset quality, quality and predictability of
earnings), its management, and the future potential of the
Company/Bank.
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Jacksonville Bancorp, Inc.
May 29, 1998
Page 3
SCOPE OF THE WORK (CONTINUED)
(2) DEVELOPING THE COMPANY'S STORY ... (CONTINUED)
This document is used to educate and ▇▇▇▇▇▇ the support of the
investment community, investment bankers and investors
(usually a mix of retail and entrepreneurial/high net worth
individuals). In addition, it is used to generate competition
among the investment banking/brokerage community so as to
lower the overall cost of the offering. MCP would actively
participate in the presentations to, negotiations with, and
selection of a team of investment bankers.
(3) DESIGNING EFFECTIVE PRESENTATIONS TAILORED TO THE VARIOUS
TARGET AUDIENCES.
This effort would not only help the Company in its prospective
offering, but would also provide the foundation for its future
investor/public relations efforts. In summary, the effort
provides marketing and sales promotional material designed to
enlighten and gain investor support. MCP creates presentations
of varied sophistication designed to meet the informational
needs of audiences ranging from "community" to
institutional/entrepreneurial investors, and the information
provided tells both the corporate "story", and why the
Company's stock is a compelling investment opportunity.
In this regard, MCP develops presentations that induce
prospective stakeholders (customers, employees and
shareholders). We would, if appropriate, directly participate
in such presentations bringing our independent and objective
perspective on the financial fundamentals and stock valuations
of community banks. We have found that our participation
greatly enhances the "community" offering effort, and
contributes to the public offering as well. This effort
includes assisting with the preparation of certain elements of
the offering prospectus.
(4) STRUCTURING A TRANSACTION THAT ENSURES SHORT-TERM CAPITAL
COMPLIANCE AND LONG-TERM COMPETITIVE VIABILITY.
We have proposed a transaction that incorporates all of the
key considerations of the principal participants (the Company,
its Directors and employees, the regulators and prospective
investors) previously discussed and one that minimizes the
overall cost to the organization. The offering would help
▇▇▇▇▇▇ support and future business from your local market,
while establishing a lower "offering" fee from the
underwriters for this portion of the offering. The public
offering will be used to, among other things, increase the
liquidity and valuation of the Company's stock and increase
the overall awareness of the market.
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Jacksonville Bancorp, Inc.
May 29, 1998
Page 4
SCOPE OF THE WORK (CONTINUED)
(5) EFFECTIVELY MANAGING THE CAPITAL RAISING PROCESS.
McAllen Capital assists the management of nearly every facet
of the capital raising process. We effectively act as the
bank's inside investment banker, advising on formation,
organization and on-going management of the public offering
"team", including attorneys, accountants, investment bankers,
financial printers, transfer agents, etc. Given our track
record of success in community bank transactions, our
participation: (1) provides confidence to the various parties;
(2) lowers the overall cost of the transaction; and (3)
enhances the after-market support of the equity issue.
(6) POST-CAPITALIZATION MONITORING AND PLANNING.
Having participated directly in or analyzing a significant
portion of the recapitalizations, MCP strongly believes that
the first year after the capitalization is a very critical
period. The foundation for the long-term success or failure of
the recapitalization is developed during this time. As such,
we will help Jacksonville Bancorp's Board by assisting in the
monitoring and planning process during this crucial time
frame. Throughout the first post-capitalization year, we will
participate, at Jacksonville Bancorp's request, in Board
meetings and help facilitate the monitoring and planning
process, which is a basic element of the strategic planning
process. One of the principal objectives will be to ensure
that management and the Board of Directors of both the Company
have been fully informed (in a timely and on a cost effective
basis) as to their various strategic alternatives, and that
both groups fully understand what strategies will advance the
after-market support of the stock and maximize long-term
shareholder value.
TIME FRAME
MCP would be prepared to begin the project immediately upon your
approval. We would need approximately two or three weeks to prepare the
appropriate planning and marketing material, assuming that basic data is readily
available from the Company. During this same period, we would begin the
transaction structuring and marketing process, including the
presentations/negotiations to prospective investment bankers/placement agents.
The entire process from start to consummation of the offering could take as
little as three months or as long as four.
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Jacksonville Bancorp, Inc.
May 29, 1998
Page 5
FEE SCHEDULE
Our standard fee schedule for these types of engagements (Elements 1
through 5 above) includes professional fees charged for work done on the
project, plus normal out-of-pocket expenses. Our fee schedule for Element 6
(post-capitalization monitoring and planning) is outlined below.
Specifically, for Elements 1 through 5, our hourly fees are $150 per
hour worked. Typically, our hourly professional fees would range between $10,000
to $15,000 per month, although the first month would likely be higher due to the
amount of time needed for the front-end effort. Since we are very interested in
continuing to participate in this transaction, we will cap our professional fees
for the first four months of this engagement at $20,000; the entire amount to be
applied to the success fee described below. If the project should go well beyond
this period or our role changes from that of a financial advisor, we would
discuss a new fee arrangement with you.
It is our standard practice to request that each of our clients
maintain a retainer balance with us, against which we charge our fees and
out-of-pocket expenses. In this case, we suggest an initial retainer of $15,000
which will be replenished should the balance in the retainer account fall below
$1,000. At the conclusion of the engagement, we will refund the balance, if any,
in the retainer account. Our fees and out-of-pocket expenses will be billed as
incurred at the end of every month against the retainer account.
For Element 6 of the engagement (Post-Capitalization Monitoring and
Planning), we would charge a nominal professional fee and normal out-of-pocket
expenses. Given our analysis to-date of the Company/Bank and our participation
in the recent capital offerings of community banks (see Capital Raising
Experience below), we would charge a flat fee of $5,000 for the year (or $1,250
for each of the four quarterly Board meetings).
In addition to the professional fees, MCP would receive a success fee
if a successful sale of the shares, or a significant portion thereof, occurs in
a stock offering(s). This success fee would be equal to one and one-half percent
(1.5%) of the gross proceeds from the community and public offerings, which
excludes the amount raised from Directors and employees. For example, if the
gross proceeds were to equal $10 million, our success fee would equal $150,000.
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Jacksonville Bancorp, Inc.
May 29, 1998
Page 6
CORPORATE BACKGROUND - MCALLEN CAPITAL
McAllen Capital sole mission is to provide expert, discrete and
cost-effective advisory services to financial institution managers, directors
and investors. Our firm has a reputation for high quality service, because our
professionals are focused, experienced, work interdependently and produce
successful results.
Our professionals are FOCUSED. McAllen Capital is a specialized
consulting firm providing a select range of financial, economic and management
advisory services exclusively to the financial services industry. Our nationwide
client base includes commercial banks, bank holding companies, thrift
institutions, mortgage banking firms, government regulatory agencies, and
investors in the financial services industry.
Our professionals are EXPERIENCED. Our principals are seasoned
financial service firm professionals. Prior to forming McAllen Capital, our
professionals have worked for or with leading financial service firms, financial
consulting concerns and investment banks. As such, we possess a wealth of
practical industry experience, financial advisory expertise and regulatory
knowledge. In addition, we have, in aggregate, 40 years of financial advisory
and management experience. More specifically, we have a firsthand appreciation
of what it takes to successfully implement organizational change.
Our professionals work INTERDEPENDENTLY. We bring to each engagement an
in-depth understanding of the financial institution's markets, competition,
economics and regulation. In this regard, we act as an independent and objective
counsel to our clients. Yet, we understand that high degree of client consensus,
commitment and involvement are necessary if meaningful results are to be
achieved. Therefore, we work hard to build rich, enduring, and highly productive
partnerships with our clients.
Our professionals PRODUCE SUCCESSFUL RESULTS. By combining our
expertise with our focused and integrated approach, McAllen Capital empowers our
clients to achieve superior economic performance and build sound, efficient
organizations. In short, we help our clients produce practical, concrete results
that optimize financial performance.
With our offices in suburban Washington, D.C., McAllen Capital can stay
abreast of the dynamic regulatory and legislative environment. Our professionals
have an excellent working relationship with all of the major financial
institution regulatory agencies: Federal Deposit Insurance Corporation, Federal
Reserve, Office of the Comptroller of the Currency, Office of Thrift
Supervision, and various state regulators.
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Jacksonville Bancorp, Inc.
May 29, 1998
Page 7
FINANCIAL ADVISORY SERVICES
One of the primary services McAllen Capital provides is effecting
capital and strategic transactions for small to medium size financial
institutions. These transactions include raising both Tier 1 and Tier 2 capital
for insured institutions and providing financial advisory services relating to
mergers and acquisitions. McAllen Capital generally serves insured institutions
with assets of up to $1 billion. The Firm focuses on serving independent banks
for capital transactions and all banks for strategic transactions. Services are
provided to bank holding companies, commercial banks, state-chartered industrial
loan companies, and savings and loan associations.
McAllen Capital may solicit the assistance of private brokerage firms
that assist sophisticated retail and small capitalization institutional
customers, if it is deemed necessary for a particular transaction. MCP will
assist such companies in providing both retail and institutional research to
individuals and portfolio managers who invest in financial service companies.
McAllen Capital focuses exclusively on common, convertible, and straight debt
securities, as opposed to municipals, mutual funds and limited partnerships.
Through MCP's institutional quality research and presentations, McAllen Capital
can illuminate unappreciated, under-followed small capitalization stocks that
provide compelling investment opportunities.
In the area of capital raising, McAllen Capital believes in
"building-block offerings", that is financing the growth of its clients over
time through a series of well-timed, well-structured capital financings. In
addition, we believe that whenever possible, the stock distribution should be
well-balanced, involving retail, entrepreneurial and institutional accounts, and
the creation of underwriting syndicates of local and regional brokerage firms.
McAllen Capital targets $4 million to $15 million offerings for independent
community banks/thrifts. Our investment banking competitors generally will not
manage offerings of this size. Moreover, other local and regional-based
investment banking firms have been less active in raising capital for banks or
other financial service companies.
MCALLEN CAPITAL'S FINANCIAL ADVISORY EXPERIENCE
During the last 25 years, we have provided senior level financial
advisory and investment banking services to financial institution managers,
directors and investors, including bank holding companies, commercial banks,
thrift institutions, mortgage bankers and credit finance companies. The
financial advisory transactions have included mergers/acquisitions,
divestitures, branch transactions, mutual-to-stock conversions, and other
capital raising transactions, including recapitalizations. Other assignments
have included providing fairness opinions, portfolio valuations, profitability
analyses, strategic/corporate development planning, and investment advisory
studies. Our professionals have prepared numerous analyses of debt and equity
issues of financial service firms and presented this material to retail,
entrepreneurial and institutional clients.
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Jacksonville Bancorp, Inc.
May 29, 1998
Page 8
MCALLEN CAPITAL'S CAPITAL RAISING EXPERIENCE
For more than a decade, our professionals have participated in dozens
of capital raising efforts that ranged in size from $4 million to more than $150
million. In recent years, we have focused on smaller capital
formation/enhancement transactions, by raising funds for both troubled and
healthy financial institutions. These smaller transactions, between $4 million
and $15 million, however, are the MOST difficult to complete. Nevertheless,
during the past five years, we completed 15 such offerings for community banks,
a distinction that sets us apart from any major or regional investment banking
firm.
During the last five years, we have helped our clients raise gross
proceeds approaching $400 million through public and private offerings.
Moreover, our knowledge of the capital markets is nationwide in scope. McAllen
Capital has helped raise capital for clients from New England to Southern
California.
SUMMARY
We hope we get the chance to assist you in this project. McAllen
Capital knows the process, the markets and all of the possible participants. We
are a results driven firm, and our record of achieving success with these types
of transactions is outstanding. If you have any questions, please contact ▇▇▇▇
▇▇▇▇ or me at (▇▇▇) ▇▇▇-▇▇▇▇ or (▇▇▇) ▇▇▇-▇▇▇▇, respectively. Our standard
confidentiality and indemnification clauses are attached.
Sincerely,
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Senior Vice President
Attachment
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Jacksonville Bancorp, Inc.
May 29, 1998
Page 9
If the terms described in this letter are satisfactory, please sign in
the space provided below and return a copy along with a check for $15,000 to
McAllen Capital Partners, Inc.
ACCEPTED:
Jacksonville Bancorp, Inc.
BY: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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TITLE: President & CEO
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DATE: June 10, 1998
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Jacksonville Bancorp, Inc.
May 29, 1998
Page 10
MCALLEN CAPITAL
CONFIDENTIALITY AND INDEMNIFICATION CLAUSES
The Company and McAllen Capital agree to the following:
1. The Company agrees to make available or to supply to McAllen
Capital such information with respect to its business and financial condition as
McAllen Capital may reasonably request in order to provide the aforesaid
financial advisory services. Such information heretofore or hereafter supplied
or made available to McAllen Capital shall include: annual financial statements,
periodic regulatory filings and material agreements, debt instruments, off
balance sheet assets or liabilities, commitments and contingencies, unrealized
gains or losses and corporate books and records. All information provided by the
Company to McAllen Capital shall remain strictly confidential (unless such
information is otherwise made available to the public other than as a result of
a breach of this Agreement by McAllen Capital), and if the transaction is not
consummated or the services of McAllen Capital are terminated hereunder, McAllen
Capital shall upon request promptly return to the Company the original and any
copies of such information and will destroy any analysis or other work derived
from such information.
2. The Company hereby represents and warrants to McAllen Capital
that any information provided to McAllen Capital does not and will not, to the
best of the Company's knowledge, at the times it is provided to McAllen Capital,
contain any untrue statement of a material fact or fail to state a material fact
necessary to make the statements therein not false or misleading in light of the
circumstances under which they were made.
3. (a) The Company agrees that it will indemnify and hold
harmless McAllen Capital, any affiliates of McAllen Capital, the respective
directors, officers, agents and employees of McAllen Capital or their successors
and assigns who act for or on behalf of McAllen Capital in connection with the
services called for under this agreement (hereinafter referred to as "McAllen
Capital"), from and against any and all losses, claims, damages and liabilities
(including, but not limited to, all losses and expenses in connection with
claims under the federal securities laws) actually incurred by McAllen Capital
and attributable to: (i) any untrue statement or alleged untrue statement of a
material fact contained in the financial statements or other information
furnished or otherwise provided by an authorized officer of the Company to
McAllen Capital, either orally or in writing, (ii) the omission or alleged
omission of a material fact from the financial statements or other information
furnished or otherwise made available by an authorized officer of the Company to
McAllen Capital; (iii) any alleged action or omission to act by the Company, or
the Company's respective officers, directors, employees or agents which alleged
action or omission is willful or negligent; or (iv) McAllen Capital incurs legal
expenses in defending other work product provided for the Company.
Notwithstanding the foregoing, the Company will be under no obligation to
indemnify McAllen Capital hereunder if a court determines that McAllen Capital
was negligent or acted in bad faith or willfully with respect to any actions or
omissions of McAllen Capital related to a matter for which indemnification is
sought hereunder. Any time devoted by employees of McAllen Capital to situations
for which indemnification is provided hereunder, shall be an indemnifiable cost
payable by the Company at the normal hourly professional rate chargeable by such
employee.
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Jacksonville Bancorp, Inc.
May 29, 1998
Page 11
MCALLEN CAPITAL
CONFIDENTIALITY AND INDEMNIFICATION CLAUSES
3. (b) McAllen Capital shall give written notice to the Company
of such claim or facts within twenty days of the assertion of any claim or
discovery of material facts upon which the McAllen Capital intends to base a
claim for indemnification hereunder. In the event the Company elects, within
seven days of the receipt of the original notice thereof, to contest such claim
by written notice to McAllen Capital, McAllen Capital will be entitled to be
paid any amounts payable by the Company hereunder, together with interest on
such costs from the date incurred at the rate of the prime rate per annum within
five days after the final determination of such contest either by written
acknowledgment of the Company or a final judgment of a court of competent
jurisdiction. If the Company does not so elect, McAllen Capital shall be paid
promptly and in any event within thirty days after receipt by the Company of the
notice of the claim.
(c) The Company shall pay for or reimburse the reasonable
expenses, including attorneys' fees, incurred by McAllen Capital in advance of
the final disposition of any proceeding within thirty days of the receipt of
such request if McAllen Capital furnishes the Company: (1) a written statement
of McAllen Capital's good faith belief that it is entitled to indemnification
hereunder; and (2) a written undertaking to repay the advance if it ultimately
is determined in a final adjudication of such proceeding that it or he is not
entitled to such indemnification.
(d) In the event the Company does not pay any indemnified loss
or make advance reimbursements of expenses in accordance with the terms of this
agreement, McAllen Capital shall have all remedies available at law or in equity
to enforce such obligation.
(e) The Company shall pay for or reimburse McAllen Capital for
all costs and expenditures payable by McAllen Capital in connection with the
engagement of third parties, including but not limited to compensation for such
services, reimbursement of expenses and any indemnification rights, all within
seven (7) days of the receipt of a request for payment thereof from McAllen
Capital.
It is understood that, in connection with McAllen Capital's
above-mentioned engagement, McAllen Capital may also be engaged to act for the
Company in one or more additional capacities, and that the terms of the original
engagement may be embodied in one or more separate agreements. This agreement
constitutes the entire understanding of the Company and McAllen Capital
concerning the subject matter addressed herein. This agreement may not be
modified, supplemented or amended except by written agreement executed by both
parties.
