[letterhead of Ryan Beck & Co., Inc.]
CONFIDENTIAL
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July 21, 2003
Mr. George Strayton
President and Chief Executive Officer
Provident Bancorp, Inc.
400 Rella Boulevard
Montebello, NY 10901
Mr. George Strayton
President and Chief Executive Officer
Provident Bancorp, MHC
400 Rella Boulevard
Montebello, NY 10901
Re: "Second Step" Conversion - Selling Agent Services, Proxy
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Solicitation & Administrative Services
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Dear George:
Ryan Beck & Co. ("Ryan Beck") is pleased to submit this engagement letter
setting forth the terms of the proposed engagement between Ryan Beck and
Provident Bancorp, Inc. (the "Company") and Provident Bancorp, MHC (the "MHC")
in connection with the proposed "second step" conversion of the MHC and sale of
the common stock of the Company held by the MHC (collectively, the
"Conversion").
1. BACKGROUND ON RYAN BECK
Ryan Beck, was organized in 1946 and is one of the nation's leading
investment bankers for financial institutions. The firm is a registered
broker-dealer with the Securities and Exchange Commission, a member of
the National Association of Securities Dealers, Inc., Securities
Industry Association and a member of the Securities Investor Protection
Corporation. Ryan Beck's Financial Institutions Group, including
corporate finance and research, represents one of the largest such
groups devoted solely to financial institutions matters in the country.
Moreover, Ryan Beck is one of the largest market makers in bank and
thrift stocks.
Mr. George Strayton
July 21, 2003
Page 2
2. SECOND STEP STOCK OFFERING
It is our understanding that the Company or its successor proposes to
issue the shares of common stock of the Company held by the MHC in a
subscription offering with any remaining shares sold in a community
offering (collectively the "Offering"). Shares sold in the Offering
shall represent those shares representing the final independent
appraisal times the adjusted majority ownership interest of the MHC in
the Company. Consequently, shares sold in the Offering do not include
any shares currently held by the minority stockholders of the Company
that will be exchanged for new shares of common stock of the Company or
any successor thereof in the Conversion. For purposes hereof, however,
any unsold shares in the Offering which are used as consideration in
connection with the acquisition (the "Acquisition") of E.N.B. Holding
Company, Inc. (the "Acquiree") or its affiliates by the Company shall
still be considered as shares sold in the Offering. In connection
therewith, the Company's Board of Directors has adopted a Plan of
Conversion and Reorganization (the "Plan") whereby shares of common
stock will be offered for sale in the Offering and issued to Acquiree's
stockholders in the Acquisition. Ryan Beck proposes to act as financial
advisor to the Company with respect to the Plan and selling agent with
respect to the subscription and community offering. Specific terms of
services shall be set forth in a definitive agency agreement (the
"Definitive Agreement") between Ryan Beck and the Company to be
executed as of the date the offering document is declared effective by
the appropriate regulatory authorities. The Definitive Agreement will
include customary representations and warranties, covenants,
conditions, termination provisions and indemnification, contribution
and limitation of liability provisions, all to be mutually agreed upon
by Ryan Beck and the Company (and its successors).
3. SERVICES TO BE PROVIDED BY RYAN BECK
a. Advisory Services - Thorough planning is essential to a successful
offering. Ryan Beck serves as lead coordinator of the marketing and
logistic efforts necessary to prepare for an offering. Our actions are
intended to clearly define responsibilities and timetables, while
avoiding costly surprises. We assume responsibility for the initial
preparation of marketing materials--saving you time and legal expense.
Moreover, as your investment banker, Ryan Beck will evaluate the
financial, marketing and regulatory issues involved in the Offering.
Our specific responsibilities include:
- Review and advice with respect to the Plan;
- Review and provide input with respect to the Business Plan to be
prepared in connection with the Conversion;
- Participate in drafting the Prospectus and assist in obtaining all
requisite regulatory approvals on terms most favorable to the
Company;
- Review and opine to the Board of Directors on the adequacy of the
appraisal process;
- Develop a marketing plan for the Offering including direct mail,
advertising, community meetings and telephone solicitation;
Mr. George Strayton
July 21, 2003
Page 3
- Provide specifications and assistance in selecting data processing
assistance, financial printer and other professionals;
- Develop an operating plan for the Stock Sale Center (the
"Center");
- Provide a list of equipment and supplies needed for the Center;
- Draft marketing materials including letters, brochures, slide show
script and advertisements; and
- Assist in arranging market-makers for post-reorganization trading.
b. Administrative Services and Stock Sale Center Management - Ryan Beck
will manage all aspects of the Offering. A successful Offering requires
an enormous amount of attention to detail. Working knowledge and
familiarity with the law and "lore" of bank regulators, Securities and
Exchange Commission and National Association of Securities Dealers is
essential. Ryan Beck's experience in managing many mutual holding
company reorganizations and second step conversion offerings will
minimize the burden on your management and disruption to normal banking
business. At the same time, our legal, accounting and regulatory
background ensures that details are attended to in a professional
fashion. The Offering requires accurate and timely record keeping and
reporting. Furthermore, customer inquiries must be handled
professionally and accurately. The Center centralizes all data and work
effort relating to the Offering.
- Provide experienced on-site registered representatives to minimize
disruption of day-to-day business;
- Identify and organize space for the Center, the focal point of
sales and proxy solicitation activity;
- Administer the Center. All substantive stock and proxy related
matters will be handled by employees of Ryan Beck;
- Organize and implement all depositor related proxy solicitation
efforts;
- Prepare procedures for processing proxies, stock orders and cash,
and for handling requests for information;
- Ryan Beck will outsource all reorganization agent/data
processing/transfer agent functions;
- Provide scripts, training and guidance for the telephone team in
soliciting proxies and in the stock sales telemarketing effort;
- Educate the Company's directors, officers and employees about the
Conversion and Offering, their roles and relevant securities laws;
- Train branch managers and customer-contact employees on the proper
response to stock purchase inquiries;
- Train and supervise Center staff assisting with proxy and order
processing;
- Prepare daily sales reports for management and ensure funds
received balance to such reports;
- Coordinate functions with the data processing agent, printer,
transfer agent, stock certificate printer and other professionals;
- Design and implement procedures for handling IRA and other
retirement plan orders; and
- Provide post-offering subscriber assistance and management of the
pro-ration process.
Mr. George Strayton
July 21, 2003
Page 4
c. Securities Marketing Services - Ryan Beck uses various sales techniques
including direct mail, advertising, community investor meetings,
telephone solicitation, and if necessary, selling group formation. The
sales approach is tailored to fit your specific situation. Our
techniques are designed to attract a stockholder base comprised largely
of community-oriented individuals loyal to the Company.
Our specific actions include:
- Assign licensed registered representatives from our staff to work
at the Center to solicit orders on behalf of the Company from
eligible prospects who have been targeted as likely and desirable
stockholders;
- Assist management in developing a list of potential investors who
are viewed as priority prospects;
- Respond to inquiries concerning the Offering and investment
opportunities;
- Organize, coordinate and participate in community informational
meetings. These meetings are intended to both relieve customer
anxiety and attract potential investors. The meetings generate
widespread publicity for the Offering while providing local
exposure of the Company and promoting favorable stockholder
relations;
- Supervise and conduct a telemarketing campaign to identify
prospects from among the Company's customer base;
- Continually advise management on market conditions and the
community's responsiveness to the Offering;
- If appropriate and at the request of the Company, arrange a
syndicated community Offering involving a selling group of
selected broker-dealers acting on a "best efforts" basis to assist
in selling stock during the Offering. In so doing, prepare broker
"fact sheets" and arrange "road shows" for the purpose of
exploring interest in the stock and informing the brokerage
community of the particulars of the Offering;
- Coordinate efforts to maximize after-market support and Company
sponsorship.
4. COMPENSATION
a. For its services hereunder, the Company will pay to Ryan Beck the
following compensation in connection with the Conversion and Offering.
(1) An advisory and management fee of $50,000 in connection with the
advisory, administrative and proxy solicitation services set forth in
section 3.a. and 3.b. hereof (the "Management Fee"). The Management Fee
shall be payable as follows: $25,000 upon signing this agreement and
$25,000 upon the initial filing of the Registration Statement.
(2) A fee of one percent (1.00%) of the dollar amount of the common
stock sold in the Offering. Notwithstanding the foregoing, no fee shall
be payable in connection with:
Mr. George Strayton
July 21, 2003
Page 5
(i) the sale of common stock to officers, directors, employees or
the immediate family of such persons ("Insiders"), or to tax
qualified and non-qualified employee benefit plans of the
Company or its affiliates;
(ii) the issuance of new shares of common stock in the Conversion
to the Company's common stockholders in exchange for their
existing shares of the Company's common stock;
(iii) the issuance of shares of the Company's common stock to any
charitable foundation established by the Company or Provident
Bank; or
(iv) the issuance of shares of the Company's common stock to
stockholders of Acquiree in an amount necessary to complete
the Conversion at the minimum of the offering range where such
shares have been offered first for sale in a subscription and
community offering and the community offering has been
extended at the request of the Company to complete the sale of
such shares.
(3) For stock sold by a group of NASD member firms (which will include
Ryan Beck & Co.) pursuant to a syndicated community offering solely
managed by Ryan Beck (the "Selling Group"), a fee equal to one percent
(1.00%), which fee along with the fee payable directly by the Company
to selected dealers shall not exceed six percent (6.00%) in the
aggregate. In consultation with Ryan Beck, the Company shall be
authorized to determine which NASD member firms participate in the
syndicated community offering and the extent of their participation.
Ryan Beck will not commence sales of the stock through members of the
Selling Group without the specific prior approval of the Company.
Such fees (less the amount of any advance payments) are to be paid to
Ryan Beck at the closing of the Offering. If, pursuant to a
resolicitation undertaken by the Company, Ryan Beck is required to
provide significant additional services, or expend significant
additional time, the parties shall mutually agree to the dollar amount
of the additional compensation due.
b. If (i) the Plan is abandoned or terminated by the Company; (ii) the
Offering is not consummated by June 30, 2004; (iii) Ryan Beck
terminates this relationship because there has been a material adverse
change in the financial condition or operations of the Company since
March 31, 2003; or (iv) immediately prior to commencement of the
Offering, Ryan Beck terminates this relationship because in its
opinion, which shall have been formed in good faith after reasonable
determination and consideration of all relevant factors, there has been
a failure to satisfactorily disclose all relevant information in the
disclosure documents or the existence of market conditions which might
render the sale of the shares by the Company hereby contemplated
inadvisable; Ryan Beck shall not be entitled to the fees set forth
above under subparagraph (a), but in addition to reimbursement of its
reasonable out-of-pocket expenses as set forth in paragraph 6 below,
shall be entitled to retain the Management Fee already paid.
Mr. George Strayton
July 21, 2003
Page 6
5. DOCUMENTS
The Company and its counsel will complete, file with the appropriate
regulatory authorities and, as appropriate, amend from time to time,
the information to be contained in the Company's applications to
banking and securities regulators and any related exhibits thereto. In
this regard, the Company and its counsel will prepare a prospectus and
any other necessary disclosure documents relating to the offering of
the common stock in conformance with applicable rules and regulations.
As the Company's financial advisor, Ryan Beck will in conjunction with
counsel, conduct an examination of the relevant documents and records
of the Company and will make such other reasonable investigation as
deemed necessary and appropriate under the circumstances. The Company
agrees to make all such documents, records and other information deemed
necessary by Ryan Beck, or its counsel, available to them upon
reasonable request. Ryan Beck's counsel will prepare, subject to the
approval of the Company's counsel, the Definitive Agreement. Ryan
Beck's counsel shall be selected by Ryan Beck, subject to the approval
of the Company.
6. EXPENSES AND REIMBURSEMENT
The Company will bear all of its expenses in connection with the
Conversion and the Offering of its common stock including, but not
limited to, the Company's attorney fees, NASD filing fees, "blue sky"
legal fees, expenses for appraisal, auditing and accounting services,
advertising expenses, printing expenses, "road show" expenses,
syndicate related expenses, temporary personnel expenses and the
preparation of stock certificates. In the event Ryan Beck incurs such
expenses on behalf of the Company, the Company shall pay or reimburse
Ryan Beck for such reasonable fees and expenses regardless of whether
the Conversion is successfully completed.
The Company also agrees to reimburse Ryan Beck for reasonable
out-of-pocket expenses, including legal fees and expenses, incurred by
Ryan Beck in connection with the services contemplated hereunder. Ryan
Beck will not incur legal fees (excluding legal out-of-pocket expenses)
in excess of $60,000 without the approval of the Company. Other
out-of-pocket expenses directly incurred by Ryan Beck will not exceed
$15,000, without the approval of the Company. The parties acknowledge,
however, that such caps may be increased by the mutual consent of the
Company and Ryan Beck in the event of any material delay in the
Offering which would require an update of the financial information in
tabular form contained in the Prospectus for a period later than June
30, 2003. Not later than two days before closing, we will provide you
with a detailed accounting of all reimbursable expenses to be paid at
closing.
7. MARKET MAKING
Ryan Beck agrees to use its best efforts to maintain a market and if
necessary solicit other broker dealers to make a market in the Common
Stock after the Conversion.
Mr. George Strayton
July 21, 2003
Page 7
8. INFORMATION TO BE SUPPLIED; DOCUMENTS AND CONFIDENTIALITY
a. The Company acknowledges that all advice (written or oral) given by
Ryan Beck to the Company is intended solely for the benefit and use of
the Company. Other than to the extent required to be reflected in Board
and committee meeting minutes, no advice (written or oral) of Ryan Beck
hereunder shall be used, reproduced, disseminated, quoted or referred
to at any time, in any manner, or for any purpose, nor shall any public
references to Ryan Beck be made by the Company (or such persons),
without the prior written consent of Ryan Beck.
b. In connection with Ryan Beck's activities on behalf of the Company, the
Company will furnish Ryan Beck with all financial and other information
regarding the Company that Ryan Beck reasonably believes appropriate to
its assignment (all such information so furnished by the Company,
whether furnished before or after the date of this agreement, being
referred to herein as the "Information"). The Company will provide Ryan
Beck with access to the officers, directors, employees, independent
accountants, legal counsel and other advisors and consultants for the
Company. The Company recognizes and agrees that Ryan Beck:
i. will use and rely primarily on the Information and
information available from generally recognized
public sources in performing the services
contemplated by this agreement without independently
verifying the Information or such other information;
ii. does not assume responsibility for the accuracy of
the Information or such other information; and
iii. will not make an appraisal of any assets or
liabilities owned or controlled by the Company or its
market competitors.
c. Ryan Beck will maintain the confidentiality of the Information and will
use the Information only in connection with the provision of services
under this agreement and, unless and until such information shall have
been made publicly available by the Company or by others without breach
of a confidentiality agreement, shall disclose the Information only as
authorized by the Company in writing or as required by law or by order
of a governmental authority or court of competent jurisdiction. In the
event that Ryan Beck is legally required to make disclosure of any of
the Information, Ryan Beck will give notice to the Company prior to
such disclosure, to the extent that Ryan Beck can practically do so.
The foregoing paragraph shall not apply to information that:
i. at the time of disclosure by the Company is, or
thereafter becomes, generally available to the
public, other than as a result of a breach by Ryan
Beck of its obligations under this agreement;
ii. prior to or at the time of disclosure by the Company,
was already in the possession of, or conceived by,
Ryan Beck or any of its affiliates, or could have
been developed by them from information then in their
possession, by the application of other information
or techniques in their possession, generally
Mr. George Strayton
July 21, 2003
Page 8
available to the public, or available to Ryan Beck or
its affiliates other than from the Company, which can
be demonstrated by Ryan Beck;
iii. at the time of disclosure by the Company or
thereafter, is obtained by Ryan Beck or any of its
affiliates from a third party who Ryan Beck
reasonably believes to be in possession of the
information not in violation of any contractual,
legal or fiduciary obligation to the Company with
respect to that information; or
iv. is independently developed by Ryan Beck or its
affiliates.
d. Upon any termination of its engagement hereunder, Ryan Beck shall
promptly deliver to the Company all materials specifically produced for
it and will return to the Company all Information provided to Ryan Beck
during the course of its engagement hereunder.
e. Nothing in this agreement shall be construed to limit the ability of
Ryan Beck or its affiliates to pursue, investigate, analyze, invest in,
or engage in investment banking, financial advisory or any other
business relationships with, entities other than the Company,
notwithstanding that such entities may be engaged in a business which
is similar to or competitive with the business of the Company, and
notwithstanding that such entities may have actual or potential
operations, products, services, plans, ideas, customers or supplies
similar or identical to the Company, or may have been identified by the
Company as potential merger or acquisition targets or potential
candidates for some other business combination, cooperation or
relationship. The Company expressly acknowledges and agrees that it
does not claim any proprietary interest in the identity of any other
entity in its industry or otherwise, and that the identity of any such
entity is not confidential information.
9. BLUE SKY
To the extent required by applicable state law, Ryan Beck and the
Company will need to obtain or confirm exemptions, qualifications or
registration of the Common Stock under applicable state securities laws
and NASD policies. Such work will be performed by the Company's counsel
and the cost of such legal work and related filing fees will be paid by
the Company. The Company will cause the counsel performing such
services to prepare a Blue Sky memorandum related to the Offering
including Ryan Beck's participation therein and shall furnish Ryan Beck
a copy thereof addressed to Ryan Beck or upon which such counsel shall
state Ryan Beck may rely.
10. AVAILABILITY OF "STARS" PROGRAM
As an additional service to the Company, Ryan Beck will make available
for a period of 1 year following the completion of the Offering,
advisory services through the Ryan Beck Strategic Advisory Services
("STARS") program. The undersigned will serve as the senior
relationship manager for this program. If the Company elects to avail
itself of the STARS program, Ryan Beck will meet with the Company at
its request. Ryan Beck also will provide opinions and recommendations,
upon request, for the areas covered below:
Mr. George Strayton
July 21, 2003
Page 9
Valuation Analysis
Merger and Acquisition Planning and Analysis
Merger and Acquisition Trends
Planning, Forecasting & Competitive Strategy
Capital, Asset & Liability Structure & Management
Stock Repurchase Programs
Dividend Policy
Dividend Reinvestment Programs
Market Development and Sponsorship of Bank Securities
Financial Disclosure
Financial Relations
Financial Reports
Branch Sales and Purchases
Stock Benefit Plan Analysis and Advisory
Stockholder & Investor Relations Presentations & Programs
Fairness Opinions
Scanning of Potential Acquisition Candidates
Based on Published Statement Information
(This screening does not extend to any in-depth merger and acquisition
analyses or studies which are available under Ryan Beck's normal fee
schedule, and does not include retention of Ryan Beck by the Company
for any specific merger/acquisition situation.)
If the Company elects to utilize the STARS program Ryan Beck will waive
the regular retainer fee and hourly charges for this program for the
first year. The Company also will reimburse Ryan Beck's reasonable
out-of-pocket expenses incurred in conjunction with the performance of
these services. Such out-of-pocket expenses shall include travel, legal
and other miscellaneous expenses. Ryan Beck will not incur any single
expense in excess of $2,000 pursuant to this paragraph without the
prior approval of the Company.
11. INDEMNIFICATION
The Definitive Agreement will provide for indemnification of the type
usually found in underwriting agreements as to certain liabilities,
including liabilities under the Securities Act of 1933. The Company
also agrees to defend, indemnify and hold harmless Ryan Beck and its
officers, directors, employees and agents against all claims, losses,
actions, judgments, damages or expenses, including but not limited to
reasonable attorneys' fees, arising solely out of the engagement
described herein, except that such indemnification shall not apply to
Ryan Beck's own bad faith, willful misconduct or gross negligence.
12. NASD MATTERS
Ryan Beck has an obligation to file certain documents and to make
certain representations to the National Association of Security Dealers
("NASD") in connection with the Conversion. The Company agrees to
Mr. George Strayton
July 21, 2003
Page 10
cooperate with Ryan Beck and provide such information as may be
necessary for Ryan Beck to comply with all NASD requirements applicable
to it in connection with its participation as contemplated herein in
the Conversion. Ryan Beck is and will remain through completion of the
Conversion a member in a good standing of the NASD and will comply with
all applicable NASD requirements.
13. OBLIGATIONS
a. Except as set forth below, this engagement letter is merely a statement
of intent. While Ryan Beck and the Company agree in principle to the
contents hereof and propose to proceed promptly and in good faith to
work out the arrangements with respect to the Conversion, any legal
obligations between Ryan Beck and the Company shall be only: (i) those
set forth herein in paragraphs 3 and 4 regarding services and
compensation; (ii) those set forth in paragraph 6 regarding
reimbursement for certain expenses; (iii) those set forth in paragraph
11 regarding indemnification; (iv) those set forth in paragraph 8
regarding confidentiality; and (v) as set forth in a duly negotiated
and executed Definitive Agreement.
b. The obligation of Ryan Beck to enter into the Definitive Agreement
shall be subject to there being, in Ryan Beck's opinion, which shall
have been formed in good faith after reasonable determination and
consideration of all relevant factors: (i) no material adverse change
in the condition or operation of the Company; (ii) satisfactory
disclosure of all relevant information in the disclosure documents and
a determination that the sale of stock is reasonable given such
disclosures; (iii) no market conditions which might render the sale of
the shares by the Company hereby contemplated inadvisable; and (iv)
agreement that the price established by the independent appraiser is
reasonable under then prevailing market conditions.
14. INDEPENDENT CONTRACTOR; NO FIDUCIARY DUTY
The Company acknowledges and agrees that it is a sophisticated business
enterprise and that Ryan Beck has been retained pursuant to this
agreement to act as financial advisor to the Company solely with
respect to the matters set forth herein. In such capacity, Ryan Beck
shall act as an independent contractor, and any duties of Ryan Beck
arising out of its engagement pursuant to this agreement shall be
contractual in nature and shall be owed solely to the Company. Each
party disclaims any intention to impose any fiduciary duty on the
other.
15. GOVERNING LAW
This agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to contracts executed and
to be wholly performed therein without giving effects to its conflicts
of laws principles or rules. Any dispute hereunder shall be brought in
a court in the State of New York.
Mr. George Strayton
July 21, 2003
Page 11
16. WAIVER OF TRIAL BY JURY
EACH OF RYAN BECK AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF THIS
AGREEMENT.
Please acknowledge your agreement to the foregoing by signing in the place
provided below and returning one copy of this letter to our office together with
the retainer payment in the amount of $25,000. We look forward to working with
you.
RYAN BECK & CO., INC.
BY: \s\ BEN A. PLOTKIN
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Ben A. Plotkin
Chairman & Chief Executive Officer
Accepted and Agreed to This 24 Day of July, 2003.
PROVIDENT BANCORP, INC.
BY: \s\ GEORGE STRAYTON
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George Strayton
President & Chief Executive Officer
PROVIDENT BANCORP, MHC
BY: \s\ GEORGE STRAYTON
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George Strayton
President & Chief Executive Officer