September 17, 1998
Board of Directors
Capitol Federal Savings & Loan Association
000 Xxxxxx Xxxxxx
Xxxxxx, Xxxxxx 00000-0000
Dear Members of the Board:
This letter sets forth the agreement between Capitol Federal Savings & Loan
Association, Topeka, Kansas ("Capitol Federal" or the "Association"), and RP
Financial, LC. ("RP Financial") for the independent appraisal services
pertaining to the Association's formation of a "two-tier" mutual holding company
(the "Reorganization"), including a mid-tier stock holding company and minority
stock offering by the mid-tier stock holding company (the "Stock Offering"). The
specific appraisal services to be rendered by RP Financial are described below.
These appraisal services will be rendered by a team of two to three senior
consultants on staff and will be directed by the undersigned.
Description of Conversion Appraisal Services
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Prior to preparing the valuation report, RP Financial will conduct a
financial due diligence, including on-site interviews of senior management and
reviews of financial and other documents and records, to gain insight into the
Association's operations, financial condition, profitability, market area, risks
and various internal and external factors which impact the pro forma value of
the Association. RP Financial will prepare a written detailed valuation report
of Capitol Federal which will be fully consistent with applicable regulatory
guidelines and standard pro forma valuation practices. The appraisal report will
include an in-depth analysis of the Association's financial condition and
operating results, as well as an assessment of the Association's interest rate
risk, credit risk and liquidity risk. The appraisal report will describe the
Association's business strategies, market area, prospects for the future and the
intended use of proceeds both in the short term and over the longer term. A peer
group analysis relative to publicly-traded savings institutions will be
conducted for the purpose of determining appropriate valuation adjustments
relative to the group. We will review pertinent sections of the applications and
offering documents to obtain necessary data and information for the appraisal,
including the impact of key deal elements on the appraised value, such as
dividend policy, use of proceeds and reinvestment rate, tax rate, conversion
expenses and characteristics of stock plans. The appraisal report will conclude
with a midpoint pro forma value which will establish the range of value, and
reflect the Stock Offering size determined by the Association's Board of
Directors. The appraisal report may be periodically updated throughout the
conversion process and there will be at least one updated valuation prepared at
the time of the closing of the Stock Offering.
Board of Directors
September 17, 1998
Page 2
RP Financial agrees to deliver the valuation appraisal and subsequent
updates, in writing, to Capitol Federal at the above address in conjunction with
the filing of the regulatory application. Subsequent updates will be filed
promptly as certain events occur which would warrant the preparation and filing
of such valuation updates. Further, RP Financial agrees to perform such other
services as are necessary or required in connection with the regulatory review
of the appraisal and respond to the regulatory comments, if any, regarding the
valuation appraisal and subsequent updates.
Fee Structure and Payment Schedule
----------------------------------
Capitol Federal agrees to pay RP Financial a fixed fee of $100,000 for
these appraisal services, plus reimbursable expenses. Payment of these fees
shall be made according to the following schedule:
o $10,000 upon execution of the letter of agreement engaging RP
Financial's appraisal services;
o $80,000 upon delivery of the completed original appraisal report; and
o $10,000 upon completion of the Reorganization and Stock Offering to
cover all subsequent valuation updates that may be required, provided
that the transaction is not delayed for reasons described below.
The Association will reimburse RP Financial for out-of-pocket expenses
incurred in preparation of the valuation. Such out-of-pocket expenses will
likely include travel, printing, telephone, facsimile, shipping, computer and
data services. RP Financial will agree to limit reimbursable expenses in
connection with this engagement and in connection with the preparation of a
regulatory business plan as described in the accompanying letter, subject to
written authorization from the Association to exceed such level.
In the event Capitol Federal shall, for any reason, discontinue the
proposed Reorganization and Stock Offering prior to delivery of the completed
documents set forth above and payment of the respective progress payment fees,
Capitol Federal agrees to compensate RP Financial according to RP Financial's
standard billing rates for consulting services based on accumulated and
verifiable time expenses, not to exceed the respective fee caps noted above,
after giving full credit to the initial retainer fee. RP Financial's standard
billing rates range from $75 per hour for research associates to $250 per hour
for managing directors.
If during the course of the proposed transaction, unforeseen events occur
so as to materially change the nature or the work content of the services
described in this contract, the terms of said contract shall be subject to
renegotiation by Capitol Federal and RP Financial. Such unforeseen events shall
include, but not be limited to, major changes in the conversion regulations,
appraisal guidelines or processing procedures as they relate to appraisals,
major changes in management or procedures, operating policies or philosophies,
and excessive delays or suspension of processing of conversion applications by
the regulators such that completion of the transaction requires the preparation
by RP Financial of a new appraisal or financial projections.
Board of Directors
September 17, 1998
Page 3
Representations and Warranties
------------------------------
Capitol Federal and RP Financial agree to the following:
1. The Association agrees to make available or to supply to RP Financial
such information with respect to its business and financial condition as RP
Financial may reasonably request in order to provide the aforesaid valuation.
Such information heretofore or hereafter supplied or made available to RP
Financial 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 Association to RP
Financial shall remain strictly confidential (unless such information is
otherwise made available to the public), and if the Reorganization and Stock
Offering are not consummated or the services of RP Financial are terminated
hereunder, RP Financial shall upon request promptly return to the Association
the original and any copies of such information.
2. The Association hereby represents and warrants to RP Financial that any
information provided to RP Financial does not and will not, to the best of the
Association's knowledge, at the times it is provided to RP Financial, 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 Association agrees that it will indemnify and hold harmless RP
Financial, any affiliates of RP Financial, the respective directors, officers,
agents and employees of RP Financial or their successors and assigns who act for
or on behalf of RP Financial in connection with the services called for under
this agreement (hereinafter referred to as "RP Financial"), 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) 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 the Association to RP Financial, 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 the Association to RP Financial; or (iii) any action or omission to
act by the Association, or the Association's respective officers, Directors,
employees or agents which action or omission is willful or negligent. The
Association will be under no obligation to indemnify RP Financial hereunder if a
court determines that RP Financial was negligent or acted in bad faith with
respect to any actions or omissions of RP Financial related to a matter for
which indemnification is sought hereunder. Any time devoted by employees of RP
Financial to situations for which indemnification is provided hereunder, shall
be an indemnifiable cost payable by the Association at the normal hourly
professional rate chargeable by such employee.
Board of Directors
September 17, 1998
Page 4
(b) RP Financial shall give written notice to the Association of such
claim or facts within thirty days of the assertion of any claim or
discovery of material facts upon which RP Financial intends to base a claim
for indemnification hereunder. In the event the Association elects, within
ten business days of the receipt of the original notice thereof, to contest
such claim by written notice to RP Financial, RP Financial will be entitled
to be paid any amounts payable by the Association hereunder within five
days after the final determination of such contest either by written
acknowledgement of the Association or a final judgment (including all
appeals therefrom) of a court of competent jurisdiction. If the Association
does not so elect, RP Financial shall be paid promptly and in any event
within thirty days after receipt by the Association of the notice of the
claim.
(c) The Association shall pay for or reimburse the reasonable
expenses, including attorneys' fees, incurred by RP Financial in advance of
the final disposition of any proceeding within thirty days of the receipt
of such request if RP Financial furnishes the Association: (1) a written
statement of RP Financial'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. The
Association may assume the defense of any claim (as to which notice is
given in accordance with 3(b)) with counsel reasonably satisfactory to RP
Financial, and after notice from the Association to RP Financial of its
election to assume the defense thereof, the Association will not be liable
to RP Financial for any legal or other expenses subsequently incurred by RP
Financial (other than reasonable costs of investigation and assistance in
discovery and document production matters). Notwithstanding the foregoing,
RP Financial shall have the right to employ their own counsel in any action
or proceeding if RP Financial shall have concluded that a conflict of
interest exists between the Association and RP Financial which would
materially impact the effective representation of RP Financial. In the
event that RP Financial concludes that a conflict of interest exists, RP
Financial shall have the right to select counsel reasonably satisfactory to
the Association which will represent RP Financial in any such action or
proceeding and the Association shall reimburse RP Financial for the
reasonable legal fees and expenses of such counsel and other expenses
reasonably incurred by RP Financial. In no event shall the Association be
liable for the fees and expenses of more than one counsel, separate from
its own counsel, for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same allegations or circumstances. The Association will
not be liable under the foregoing indemnification provision in respect of
any compromise or settlement of any action or proceeding made without its
consent, which consent shall not be unreasonably withheld.
(d) In the event the Association does not pay any indemnified loss or
make advance reimbursements of expenses in accordance with the terms of
this agreement, RP Financial shall have all remedies available at law or in
equity to enforce such obligation.
It is understood that, in connection with RP Financial's above-mentioned
engagement, RP Financial may also be engaged to act for the Association in one
or more additional capacities, and that the terms of the original engagement may
be incorporated by reference in one or more separate agreements. The provisions
of Paragraph 3 herein shall apply to the original engagement, any such
additional engagement, any modification of the original engagement or such
additional engagement and shall remain in full force and effect following the
completion or termination of RP Financial's engagement(s). This agreement
constitutes the entire understanding of the Association and RP Financial
concerning the subject matter addressed herein, and such contract shall be
governed and construed in accordance with the laws of the State of Virginia.
This agreement may not be modified, supplemented or amended except by written
agreement executed by both parties.
Board of Directors
September 17, 1998
Page 5
Capitol Federal and RP Financial are not affiliated, and neither Capitol
Federal nor RP Financial has an economic interest in, or is held in common with,
the other and has not derived a significant portion of its gross revenues,
receipts or net income for any period from transactions with the other.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as indicated
below and returning to RP Financial a signed copy of this letter, together with
the initial retainer fee of $10,000.
Sincerely,
/s/ Xxxxxx X. Xxxxxxx
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Xxxxxx X. Xxxxxxx
President and Managing Director
Agreed To and Accepted By: /s/ Xxxx X. Xxxxx
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Xxxx X. Xxxxx
President
Upon Authorization by the Board of Directors For:
Capitol Federal Savings & Loan Association
Topeka, Kansas
Date Executed: November 16, 1998
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