RP(R) FINANCIAL, LC.
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Financial Services Industry Consultants
November 18, 2004
Xx. Xxxxxx X. XxXxxxxxx
President and Chief Executive Officer
Brooklyn Federal Savings Bank
00 Xxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000-0000
Dear Xx. XxXxxxxxx:
This letter sets forth the agreement between Brooklyn Federal Savings
Bank, Brooklyn, New York ("Brooklyn Federal"), and RP(R) Financial, LC. ("RP
Financial") for the independent appraisal services pertaining to Brooklyn
Federal's reorganization into a "two-tier" mutual holding company (the
"Reorganization"), including the formation of 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
consultants on staff and will be directed by the undersigned.
DESCRIPTION OF CONVERSION APPRAISAL SERVICES
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
Brooklyn Federal's operations, financial condition, profitability, market area,
risks and various internal and external factors which impact the pro forma value
of Brooklyn Federal. RP Financial will prepare a written detailed valuation
report of Brooklyn Federal that will be fully consistent with applicable
regulatory guidelines and standard pro forma valuation practices. The appraisal
report will include an in-depth analysis of Brooklyn Federal's financial
condition and operating results, as well as an assessment of Brooklyn Federal's
interest rate risk, credit risk and liquidity risk. The appraisal report will
describe Brooklyn Federal'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 pro forma value to establish the range of value, and
reflect the Stock Offering size determined by Brooklyn Federal'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.
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WASHINGTON HEADQUARTERS
Rosslyn Center Telephone: (000) 000-0000
0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000 Fax No.: (000) 000-0000
Arlington, VA 22209 Toll-Free No.: (000) 000-0000
xxx.xxxxxxxxxxx.xxx E-Mail: xxxxxxxxxxxx@xxxxxxxxxxx.xxx
XX. XXXXXX X. XXXXXXXXX
NOVEMBER 18, 2004
PAGE 2
RP Financial agrees to deliver the valuation appraisal and subsequent
updates, in writing, to Brooklyn 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
Brooklyn Federal agrees to pay RP Financial fees for preparation and
delivery of the original appraisal report and subsequent appraisal updates as
shown in the detail below, plus reimbursable expenses. Payment of these fees
shall be made according to the following schedule:
o $5,000 upon execution of the letter of agreement engaging RP
Financial's appraisal services;
o $25,000 upon delivery of the completed original appraisal
report; and
o $5,000 upon completion of the Reorganization and Stock Offering.
Brooklyn Federal 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 Brooklyn Federal to exceed such level.
In the event Brooklyn 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,
Brooklyn 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 $300 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 Brooklyn 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.
XX. XXXXXX X. XXXXXXXXX
NOVEMBER 18, 2004
PAGE 3
REPRESENTATIONS AND WARRANTIES
Brooklyn Federal and RP Financial agree to the following:
1. Brooklyn Federal 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 Brooklyn Federal 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 Brooklyn Federal
the original and any copies of such information.
2. Brooklyn Federal hereby represents and warrants to RP Financial
that any information provided to RP Financial does not and will not, to the best
of Brooklyn Federal'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) Brooklyn Federal 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) brought by third parties 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
Brooklyn Federal 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 Brooklyn Federal to RP
Financial; or (iii) any action or omission to act by Brooklyn Federal, or
Brooklyn Federal's respective officers, Directors, employees or agents which
action or omission is willful or negligent. Brooklyn Federal 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 Brooklyn Federal at the normal hourly professional rate chargeable by
such employee.
(b) RP Financial shall give written notice to Brooklyn Federal 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 Brooklyn Federal elects, within ten
business days of the receipt of the original notice thereof, to contest such
XX. XXXXXX X. XXXXXXXXX
NOVEMBER 18, 2004
PAGE 4
claim by written notice to RP Financial, RP Financial will be entitled to be
paid any amounts payable by Brooklyn Federal hereunder within five days after
the final determination of such contest either by written acknowledgement of
Brooklyn Federal or a final judgment (including all appeals therefrom) of a
court of competent jurisdiction. If Brooklyn Federal does not so elect, RP
Financial shall be paid promptly and in any event within thirty days after
receipt by Brooklyn Federal of the notice of the claim.
(c) Brooklyn Federal 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 Brooklyn Federal: (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; provided, however, that Brooklyn Federal shall
not be required to make any such advance payment if Brooklyn Federal furnishes
to RP Financial a written statement of Brooklyn Federal's reasonable good faith
belief that RP Financial is not entitled to indemnification hereunder. Brooklyn
Federal 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 Brooklyn Federal to RP Financial of its election to assume the
defense thereof, Brooklyn Federal 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 Brooklyn Federal
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 Brooklyn Federal which will represent RP Financial in any such
action or proceeding and Brooklyn Federal 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 Brooklyn Federal 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. Brooklyn Federal 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 Brooklyn Federal 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 Brooklyn Federal 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
XX. XXXXXX X. XXXXXXXXX
NOVEMBER 18, 2004
PAGE 5
RP Financial's engagement(s). This agreement constitutes the entire
understanding of Brooklyn Federal and RP Financial concerning the subject matter
addressed herein, and such contract shall be governed and construed in
accordance with the laws of the Commonwealth of Virginia. This agreement may not
be modified, supplemented or amended except by written agreement executed by
both parties.
Brooklyn Federal and RP Financial are not affiliated, and neither
Brooklyn 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 $5,000.
Very truly yours,
/s/ Xxxxxxx X. Xxxxxxxxxxx
Xxxxxxx X. Xxxxxxxxxxx
Chief Executive Officer and
Managing Director
Agreed To and Accepted By: /s/ Xxxxxx X. Xx Xxxxxxx
President and Chief Executive Officer
Upon Authorization by the Board of Directors For: Brooklyn Federal Savings Bank
Brooklyn, New York
Date Executed: November 23, 2004
