[LETTERHEAD OF RP FINANCIAL, LC.]
February 5, 2001
Special Committee of the Board of Directors
Essex Bancorp, Inc., Holding Company for
Essex Savings Bank, F.S.B.
Suite 200
Interstate Corporate Center, Building #▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Dear Members of the Special Committee:
This letter sets forth the agreement whereby the Special Committee of the
Board of Directors of Essex Bancorp, Inc., Norfolk, Virginia ("Essex" or
"Bancorp"), the holding company for Essex Savings Bank, F.S.B. (the "Bank"),
hereby engages RP Financial, LC. ("RP Financial") as Bancorp's financial advisor
to render certain valuation and related financial advisory services in
connection with the proposed privatization transaction. In summary, at present
it is contemplated that the privatization transaction will involve a change in
the common stock ownership of Essex, whereby the outstanding shares of common
stock will be repurchased by Bancorp, funded by third party debt, and new shares
of common stock will be issued to warrant-holding preferred shareholders on a
pro rata basis. In connection with the proposed privatization transaction, RP
Financial will render an opinion regarding the fairness, from a financial point
of view, of the price to be paid to the holders of ▇▇▇▇▇'s outstanding shares of
common stock. In rendering its opinion, it is understood that such opinion only
addresses the outstanding shares of common stock, and not the new shares of
common stock to be issued. The nature, timing and fee structure of RP
Financial's services in this regard are described more fully below.
Description of Services
-----------------------
At the present time, the Special Committee of the Essex Board of Directors
considers the privatization transaction to be in the best interests of the
current holders of ▇▇▇▇▇'s outstanding shares of common stock. In connection
with the repurchase of the outstanding shares of common stock (the first step of
the privatization transaction), the Essex Board of Directors will establish a
repurchase price taking into consideration the recommendation of the Special
Committee as well as the valuation analysis to be completed by RP Financial. In
addition, RP Financial will render an opinion regarding the fairness of the
consideration to be paid to the holders of the outstanding shares of common
stock. It is anticipated that such opinion will be included in, or otherwise
referenced in, the proxy or other related shareholder materials to be circulated
to the holders of the outstanding shares of common stock of Essex.
Towards this end, RP Financial will provide an initial preliminary
indication of value to the Special Committee of the Board, which be then be
considered by the Board of Directors' in the
Members of the Special Committee
February 5, 2001
Page 2
anticipated adoption of a resolution to proceed with the privatization
transaction. RP Financial will make a presentation to the Special Committee
regarding its preliminary findings prior to the Board resolution. It is
understood that this initial preliminary indication of value may be disclosed
publicly in Bancorp's press release announcing the privatization transaction.
RP Financial will update the preliminary valuation estimate, as
appropriate, to incorporate updated financial information for Essex, market
pricing data, peer group comparisons, finalized terms of the privatization
transaction, accounting and tax matters and other relevant factors. It is
understood that the Special Committee and the Board will consider RP Financial's
valuation in setting the price for repurchasing the outstanding shares of common
stock. RP Financial will issue an opinion letter regarding the fairness of the
purchase price, from a financial point of view, to be set by the Board for the
repurchase of the outstanding shares of common stock in the privatization
transaction, provided the Special Committee and/or the Board sets a price not
less than the valuation determined by RP Financial. RP Financial will present
its valuation and fairness opinion to the Essex Special Committee and/or Board
just prior to the mailing of the related proxy and other materials to the
holders of the outstanding shares of common stock.
It is understood that RP Financial will not be providing an opinion
addressing legal, regulatory, tax and/or accounting matters, nor will RP
Financial be providing an opinion that such price will be fair to the holders of
the newly issued shares of common stock. Further, it is understood that RP
Financial's valuation and fairness opinion are not to be construed as a
recommendation to either buy or sell Bancorp's outstanding shares of common
stock.
In conducting the financial advisory services outlined above, RP Financial
will conduct a due diligence analysis of Essex, including onsite senior
management interviews and review of financial and other documents. In addition,
RP Financial will provide assistance to Essex in preparing the relevant
applications and/or shareholder materials in connection with the financial
advisory services provided by RP Financial.
Fee Structure
-------------
RP Financial's fee structure has been structured in accordance with the
approach described above, specifically:
. $10,000 fee payable upon execution of this engagement letter;
. $25,000 fee payable upon delivery of the valuation and fairness
opinion just prior to the mailing of the shareholder materials;
. $15,000 payable immediately prior to completing the repurchase of the
outstanding shares of common stock in the privatization transaction;
and,
Members of the Special Committee
February 5, 2001
Page 3
. Reimbursement of out-of-pocket expenses incurred in rendering these
services, but in no event to exceed $5,000 without prior authorization
from Essex.
It is understood that payment of RP Financial's fees will the
responsibility of Bancorp and the Bank. Should RP Financial be requested to
provide other such services in conjunction with this engagement, but not
directly outlined above, ▇▇▇▇▇ will agree to reimburse RP Financial per its
hourly rates for the consultants involved. RP Financial will seek ▇▇▇▇▇'s prior
approval for any such activities. RP Financial's standard hourly rates range
from $250 per hour for managing directors to $75 per hour for research
associates. Out-of-pocket expenses will likely include travel, printing,
binding, telephone, facsimile and shipping/messenger services.
Representations and Warranties
------------------------------
▇▇▇▇▇ and RP Financial agree to the following:
1. ▇▇▇▇▇ 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 financial advisory
services. 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 Essex to RP Financial
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
RP Financial), and if the merger is not consummated or the services of RP
Financial are terminated hereunder, RP Financial shall upon request promptly
return to Essex the original and any copies of such information and will destroy
any analysis or other work derived from such information.
2. Essex hereby represents and warrants to RP Financial that any
information provided to RP Financial does not and will not, to the best of
▇▇▇▇▇'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) ▇▇▇▇▇ 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) actually incurred by RP Financial 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 Essex 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 an
Members of the Special Committee
February 5, 2001
Page 4
authorized officer of Essex to RP Financial or (iii) any action or omission to
act by ▇▇▇▇▇, or ▇▇▇▇▇'s respective officers, directors, employees or agents
which action or omission is willful or negligent. Notwithstanding the
foregoing, ▇▇▇▇▇ will be under no obligation to indemnify RP Financial hereunder
if a court determines that RP Financial was negligent or acted in bad faith or
willfully 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 ▇▇▇▇▇ at the normal hourly
professional rate chargeable by such employee.
(b) RP Financial shall give written notice to Essex of such claim or
facts within twenty 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. In the event Essex elects, within seven 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 ▇▇▇▇▇
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 acknowledgement of Essex or a final judgment
of a court of competent jurisdiction. If ▇▇▇▇▇ does not so elect, RP Financial
shall be paid promptly and in any event within thirty days after receipt by
▇▇▇▇▇ of the notice of the claim.
(c) ▇▇▇▇▇ 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 Essex: (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 Essex 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 Essex and RP
Financial concerning the subject matter addressed herein. This agreement may
not be modified, supplemented or amended except by written agreement executed by
both parties.
Essex and RP Financial are not affiliated, and neither Essex 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.
Members of the Special Committee
February 5, 2001
Page 5
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as indicated
below and returning to RP Financial the original signed copy of this letter,
together with the initial fee of $10,000.
Sincerely,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President and Managing Director
Agreed To and Accepted By:
▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇._______________________________
Chairman of Special Committee
Date Executed: _________________________________
▇▇▇▇ ▇. ▇▇▇▇ __________________________________
Secretary of Special Committee
Date Executed: ___________________________________
For: Essex Bancorp, Inc., Norfolk, Virginia
