EXHIBIT 99.1
RP(R) FINANCIAL, LC.
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Financial Services Industry Consultants
November 4, 2004
Mr. Martin A. Thomson
President and Chief Executive Officer
Alpena Bancshares, Inc.
100 South Second Avenue
Alpena, Michigan 49707-2814
Dear Mr. Thomson:
This letter sets forth the agreement between Alpena Bancshares, Inc.
(the "Company"), subsidiary of Alpena Bancshares MHC, Alpena, Michigan (the
"MHC"), and RP(R) Financial, LC. ("RP Financial") for independent conversion
appraisal services pertaining to the mutual-to-stock conversion of the MHC. 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 and reviews of financial and other documents and records, to gain
insight into the operations, financial condition, profitability, market area,
risks and various internal and external factors of the Company, 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. The appraisal report will describe the Company's business strategies,
market area, prospects for the future and the intended use of proceeds. A peer
group analysis relative to comparable publicly-traded savings and banking
institutions will be conducted for the purpose of determining appropriate
valuation adjustments for the Company relative to the peer group.
We will review pertinent sections of the Company's prospectus and hold
discussions with the Company to obtain necessary data and information for the
appraisal report, including the impact of key deal elements on the pro forma
market value, such as dividend policy, use of proceeds and reinvestment rate,
tax rate, offering expenses, characteristics of stock plans, and the structure
of any contribution to a charitable foundation immediately following the
offering if applicable.
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WASHINGTON HEADQUARTERS
Rosslyn Center Telephone: (703) 528-1700
1700 North Moore Street, Suite 2210 Fax No.: (703) 528-1788
Arlington, VA 22209 Toll-Free No.: (866) 723-0594
www.rpfinancial.com E-Mail: wpommerening@rpfinancial.com
MR. MARTIN A. THOMSON
NOVEMBER 4, 2004
PAGE 2
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 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 $27,500 for these
appraisal services, 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 $17,500 upon delivery of the completed original appraisal
report; and
o $5,000 upon completion of the second step conversion to cover
all subsequent valuation updates that may be required, provided
that the transaction is not delayed for reasons described below.
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 engagement, 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 $5,000 retainer fee towards such payment. RP Financial's standard
billing rates range from $75 per hour for research associates to $300 per hour
for managing directors.
MR. MARTIN A. THOMSON
NOVEMBER 4, 2004
PAGE 3
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 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
MR. MARTIN A. THOMSON
NOVEMBER 4, 2004
PAGE 4
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.
The Company and RP Financial are not affiliated, and neither the Company
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.
MR. MARTIN A. THOMSON
NOVEMBER 4, 2004
PAGE 5
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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.
Sincerely,
/s/ William E. Pommerening
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William E. Pommerening
Chief Executive Officer and
Managing Director
Agreed To and Accepted By: /s/ Martin A. Thomson
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Martin A. Thomson
President and Chief Executive Officer
Upon Authorization by the Board of Directors For:
Alpena Bancshares, Inc., subsidiary of
Alpena Bancshares MHC
Alpena, Michigan
Date Executed: November 19, 2004
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