[letterhead of RP Financial, LC.]
July 9, 2003
Xx. Xxxxxx Xxxxxxxx
President and Chief Executive Officer
Provident Bancorp, Inc.
000 Xxxxx Xxxxxxxxx
Xxxxxxxxxx, Xxx Xxxx 00000-0000
Dear Xx. Xxxxxxxx:
This letter sets forth the agreement between Provident Bancorp, Inc.
("Provident" or the "Company"), subsidiary of Provident Bancorp, MHC,
Montebello, New York (the "MHC"), and RP Financial, LC. ("RP Financial") for
independent conversion appraisal services pertaining to the mutual-to-stock
conversion of the MHC and the simultaneous acquisition of E.N.B. Holding
Company, Inc. ("ENB"). The specific appraisal services to be rendered by RP
Financial are described below. These appraisal services will be rendered by a
team of two senior consultants on staff and will be directed by the undersigned.
Description of Appraisal Services
---------------------------------
In conjunction with preparing the appraisal report, RP Financial will
conduct a financial due diligence, including on-site interviews of senior
management, reviews of financial and other documents and records, and an
analysis of the pro forma impact of the ENB acquisition and the cash and stock
contribution to a charitable foundation, to gain insight into the operations,
financial condition, profitability, market area, risks and various internal and
external factors of Provident, all of which will be considered in estimating the
pro forma market value of the Company. RP Financial will prepare a detailed
written valuation report of the Company that will be fully consistent with
applicable federal regulatory guidelines and standard pro forma valuation
practices. The appraisal report will include an analysis of the Company's
financial condition and operating results, as well as an assessment of the
Company's interest rate risk, credit risk and liquidity risk, incorporating the
anticipated impact from the ENB acquisition. The appraisal report will describe
the Company's business strategies, market area, prospects for the future, impact
of the ENB transaction, the impact of the Foundation and the intended use of
proceeds. A peer group analysis relative to comparable publicly-traded savings
institutions will be conducted for the purpose of determining appropriate
valuation adjustments for the Company relative to the peer group.
We will ascertain from the Company certain information pertaining to
the structure of the conversion transaction, all which will be incorporated into
the valuation, including the impact of key deal elements on the pro forma market
value, such as dividend policy, use of proceeds and
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July 9, 2003
Page 2
reinvestment rate, tax rate, offering expenses, characteristics of stock plans
and contribution to the charitable foundation. We will also consider the pro
forma impact of the ENB acquisition, including the pro forma impact on equity
and earnings.
The appraisal report will establish a midpoint pro forma market value.
The appraisal report may be periodically updated throughout the conversion
process as appropriate. There will be at least one updated valuation that would
be prepared at the time of the closing of the stock offering. RP Financial
agrees to deliver the original appraisal report and subsequent updates, in
writing, to the Company at the above address in conjunction with the filing of
the regulatory applications. 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. RP Financial expects to formally
present the original appraisal report, including the appraisal methodology, peer
group selection and assumptions, to the Board of Directors for review and
acceptance.
Fee Structure and Payment Schedule
----------------------------------
The Company agrees to pay RP Financial a fixed fee of $150,000 for
preparation of the original appraisal and $10,000 per updated appraisal, 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 $140,000 upon delivery of the original appraisal report concurrent
with filing the regulatory applications; and
o $10,000 upon delivery of each updated appraisal (there will be at
least one updated appraisal prepared concurrent with the end of
the offering).
The Company will reimburse RP Financial for reasonable 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
conjunction with the appraisal and business planning engagements, subject to
written authorization from the Company to exceed such level.
In the event the Company shall, for any reason, discontinue the
proposed transaction prior to delivery of the completed documents set forth
above and payment of the respective progress payment fees, the Company 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 applying full credit to the
initial $10,000
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July 9, 2003
Page 3
retainer fee towards such payment. RP Financial's standard billing rates range
from $75 per hour for research associates to $275 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 the Company 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 conversion
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 conversion
transaction requires the preparation by RP Financial of a new appraisal.
Representations and Warranties
------------------------------
The Company and RP Financial agree to the following:
1. The Company 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 Company to RP
Financial shall remain strictly confidential (unless such information is
otherwise made available to the public), and if the conversion is not
consummated or the services of RP Financial are terminated hereunder, RP
Financial shall upon request promptly return to the Company the original and any
copies of such information.
2. The Company hereby represents and warrants to RP Financial that any
information provided to RP Financial does not and will not, to the best of the
Company's knowledge, at the times it is provided to RP Financial, contain any
untrue statement of a material fact or in response to informational requests by
RP Financial 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 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,
reasonable attorneys fees, 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 Company
to RP Financial, either orally or in writing; (ii) the omission or alleged
omission of a material fact
Xx. Xxxxxx Xxxxxxxx
July 9, 2003
Page 4
from the financial statements or other information furnished or otherwise made
available by the Company to RP Financial; or (iii) any action or omission to act
by the Company, or the Company's respective officers, directors, employees or
agents, which action or omission is undertaken in bad faith or is negligent. The
Company 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. Reasonable time devoted by RP
Financial 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.
(b) RP Financial shall give written notice to the Company of such
claim or facts within thirty days of the assertion of any claim or discovery of
material facts upon which the RP Financial intends to base a claim for
indemnification hereunder, including the name of counsel that RP Financial
intends to engage in connection with any indemnification related matter. 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 RP Financial, the
Company shall not be obligated to make payments under Section 3(c), but RP
Financial 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
annual rate of prime plus two percent within five days after the final
determination of such contest either by written acknowledgement of the Company
or a final judgment of a court of competent jurisdiction, unless it is
determined in accordance with Section 3(c) hereof that RP Financial is not
entitled to indemnity hereunder. If the Company does not so elect to contest a
claim for indemnification by RP Financial hereunder, RP Financial shall (subject
to the Company's receipt of the written statement and undertaking under Section
3(c) hereof) be paid promptly and in any event within thirty days after receipt
by the Company of billing statements or invoices for which RP Financial is
entitled to reimbursement under Section 3(c) hereof.
(c) Subject to the Company's right to contest under Section 3(b)
hereof, the Company 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 Company: (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.
(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, RP Financial shall have all remedies available at law or in equity to
enforce such obligation.
This agreement constitutes the entire understanding of the Company 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.
Xx. Xxxxxx Xxxxxxxx
July 9, 2003
Page 5
Provident and RP Financial are not affiliated, and neither Provident
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
Xxxxxx X. Xxxxxxx
President and Managing Director
Agreed To and Accepted By: Xxxxxx Xxxxxxxx /s/ XXXXXX XXXXXXXX
------------------------------
President and Chief Executive Officer
Upon Authorization by the Board of Directors For: Provident Bancorp, Inc.,
subsidiary of Provident
Bancorp, MHC
Montebello, New York
Date Executed: 7-25-03
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