ESOP LOAN AGREEMENT Dated as of April 4, 2006 Between MUTUAL FEDERAL BANCORP, INC. EMPLOYEE STOCK OWNERSHIP TRUST and MUTUAL FEDERAL BANCORP, INC.
EXHIBIT 10.4
Dated
as
of April 4, 2006
Between
EMPLOYEE
STOCK OWNERSHIP TRUST
and
THIS
ESOP
LOAN AGREEMENT (the “Agreement”), dated as of April 4, 2006, is made and entered
into by and between First Bankers Trust Services, Inc., an Illinois corporation,
not in its individual or corporate capacity, but solely as a directed trustee
(the “Trustee”) of the Mutual Federal Bancorp, Inc. Employee Stock Ownership
Trust (the “Trust”), which implements and forms a part of the Mutual Federal
Bancorp, Inc. Employee Stock Ownership Plan (the “Plan”), and Mutual Federal
Bancorp, Inc., a Federal corporation (the “Company”).
W I T N E S S E T H:
WHEREAS,
the
Company has duly established the Plan and the Trust, and has duly appointed
the
Trustee as a directed trustee under the Trust;
WHEREAS,
the
Company anticipates selling newly issued shares of its common stock in an
initial public offering (the “IPO”);
WHEREAS,
pursuant
to written directions from the Committee under, and as defined in, the Plan,
to
the Trustee, dated April 4, 2006, (the “Committee Directions”), the Trust has
agreed to purchase 87,285 shares of common stock of the Company (the “Company
Stock”) with funds that will be lent to the Trust by the Company;
WHEREAS,
pursuant to the terms and conditions of this Agreement, the Trust desires
to
borrow from the Company, and the Company desires to lend to the Trust, the
amount of Eight Hundred Seventy-Two Thousand Eight Hundred Fifty and No/100
U.S.
Dollars ($872,850.00) (the “ESOP Loan Amount”) on the terms and conditions
hereof; and
WHEREAS,
the
parties hereto intend that the ESOP Loan (as defined herein) shall constitute
an
“exempt loan” within the meaning of section 4975(d)(3) of the Code, Treasury
Regulation section 54.4975-7(b), section 408(b)(3) of ERISA, and Department
of
Labor Regulation section 2550.408b-3 (collectively, the “Exempt Loan Rules”) and
an “Exempt Loan” within the meaning of Section 2.22 of the Plan (or the
applicable provision of an amended version of the Plan or of a successor plan).
NOW,
THEREFORE,
in
consideration of the premises and the mutual covenants and agreements herein
contained and other good and valuable consideration (the receipt, adequacy
and
sufficiency of which each party hereto respectively acknowledges by its
execution hereof), the parties hereto intending legally to be bound do hereby
agree as follows:
ARTICLE I:
DEFINITIONS
AND ACCOUNTING TERMS
SECTION
1.1 Definitions.
In this
Agreement, unless a clear contrary intention appears, capitalized terms used
herein without being defined shall have the meanings ascribed to them in the
Plan.
SECTION
1.2 Computation
of Time Periods.
In this
Agreement, in the computation of periods of time from a specified date to a
later specified date, the word “from” means “from and including” and the words
“to” and “until” each means “to but excluding.”
SECTION
1.3 Accounting
Terms.
For
purposes of this Agreement, all accounting terms not defined herein shall be
construed in accordance with generally accepted accounting principles consistent
with those applied in the preparation of the Company’s financial
statements.
SECTION
1.4 General
Interpretation.
This
Agreement shall be construed and interpreted so as to maintain the status of
the
Plan as a qualified employee stock ownership plan under sections 401(a) and
4975(e)(7) of the Code, the Trust as exempt from taxation under section 501(a)
of the Code and the ESOP Loan as an “exempt loan” under the Exempt Loan Rules
and under the Plan (collectively, the “Required Legal Status”) and, without
limiting the foregoing, herein:
(a) the
singular includes the plural and vice versa;
(b) “or”
is
not necessarily exclusive and “and” is not necessarily inclusive;
(c) reference
to any person includes such person’s successors and permitted assigns and to a
person in a specified capacity excludes such person in any other
capacity;
(d) reference
to any gender includes each other gender;
(e) reference
to any agreement (including this Agreement), document or instrument means such
agreement, document or instrument as amended or modified and in effect from
time
to time in accordance with the terms thereof and, if applicable, the terms
hereof and, in the case of a promissory note, includes renewals and extensions
thereof and replacements and substitutions therefor;
(f) reference
to any law means such law as amended, modified, codified, superseded, or
reenacted, in whole or in part, and in effect from time to time, and regulations
promulgated thereunder; and
(g) “hereof”,
“hereto” and words of similar import shall be deemed references to this
Agreement as a whole and not to any particular Article or Section
hereof.
ARTICLE II:
ESOP
LOAN; NOTE; PAYMENTS
SECTION
2.1 ESOP
Loan.
Subject
to the completion of the IPO, the Company will lend to the Trust, and the Trust
will borrow from the Company, under this Agreement, the ESOP Loan Amount (the
“ESOP Loan”). Repayment of the ESOP Loan shall be made in accordance with
Sections 2.3 and 2.5 and may be made in accordance with Section 2.4.
Whenever a payment is due on a Saturday, Sunday or legal holiday, such payment
shall be made on the preceding business day.
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SECTION
2.2 Use
of ESOP Loan Proceeds.
The
Trust will use the proceeds of the ESOP Loan only to acquire the shares of
Company Stock in accordance with the Committee Directions.
SECTION
2.3 Principal
Payments.
The
ESOP Loan will be evidenced by a promissory note issued by the Trust (the “ESOP
Note”), appropriately completed and dated and made payable to the order of the
Company in the original principal amount of the ESOP Loan Amount. Principal
payments under the ESOP Loan shall be made in equal quarterly installments
of
$10,910.63 beginning June 30, 2006 and at the end of each calendar year quarter
thereafter (or corresponding to the date when the Company makes contributions
to
the Trust for a Plan Year within the permitted timeframes under section 404
of
the Code); provided, however, that the final principal loan payment shall be
due
no later than March 31, 2026. Payments shall be applied, first, to accrued
and
unpaid interest at the rate described in Section 2.5 below and, then,
applied to unpaid principal hereof. Interest hereon shall be payable as
calculated in Section 2.5 hereof.
SECTION
2.4 Prepayments.
The
Trust may at any time, and from time to time, prepay the ESOP Loan to the
Company; provided,
however,
that no
such prepayment shall be permitted or required if such prepayment would
adversely affect the Required Legal Status of the ESOP Loan. Any
prepayments shall be applied to the outstanding balance of the ESOP Loan, first,
to accrued but unpaid interest and, second, to outstanding principal in reverse
order of maturity.
SECTION
2.5 Interest.
The
Trust will pay accrued interest to the Company on the outstanding unpaid
principal amount of the ESOP Loan on each quarterly principal payment date.
Interest on the ESOP Loan will accrue daily (based on a 365 day year period
with
the actual number of days elapsed) at rate of 7.00% per annum.
ARTICLE III:
SECURITY
SECTION
3.1 Security.
Payment
of the ESOP Note and performance by the Trust of its obligations under this
Agreement and the ESOP Note will be secured by a pledge of, and the grant of
a
security interest in, the shares of Company Stock acquired under the Committee
Directions by the Trust to, and in favor of, the Company under that certain
Stock Pledge Agreement by and between the Company and the Trust, of even date
herewith (the “Stock Pledge Agreement”).
SECTION
3.2 Release
of Company Stock.
Notwithstanding any provision of this Agreement or the Stock Pledge Agreement
to
the contrary contained or implied, as of the last day of each Plan Year (the
“Release Date”), the Company will release from the pledge and security interest
under the Stock Pledge Agreement such shares of Company Stock as must be
allocated to Participants pursuant to the applicable provisions of the Plan
and
as required under the Exempt Loan Rules.
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ARTICLE IV:
REPRESENTATIONS,
WARRANTIES AND COVENANTS
SECTION
4.1 Representations
and Warranties of the Trust.
To
induce the Company to enter this Agreement and to make the ESOP Loan, the Trust
represents and warrants to the Company as follows:
(a) the
execution, delivery and performance of this Agreement, the ESOP Note and the
Stock Pledge Agreement are within the Trustee’s powers and have been duly
authorized by all necessary action by, or on behalf of, the Trust;
(b) the
ESOP
Loan satisfies all applicable requirements of the Internal Revenue Service
(“IRS”) and United States Department of Labor relating to loans by employers to
employee stock ownership plans and does not constitute a prohibited transaction
under section 4975(c) of the Code or section 406(d) of ERISA which is not exempt
under section 4975(d) of the Code or section 408(b)(3) of ERISA,
respectively;
(c) the
Trust
does not need to obtain any authorization, approval or other action by any
governmental authority or regulatory body, and no notice by the Trust to, or
filing by the Trust with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Trust of this
Agreement, the ESOP Note or the Stock Pledge Agreement;
(d) the
Trustee has, on behalf of the Trust, duly executed and delivered this Agreement,
the ESOP Note and the Stock Pledge Agreement. This Agreement, the ESOP Note
and
the Stock Pledge Agreement are the legal, valid and binding obligations of
the
Trust, enforceable against the Trust in accordance with their respective terms,
except as the same may be limited by bankruptcy, insolvency, moratorium,
reorganization or other laws affecting the enforcement of creditors’ rights
generally now or hereafter in effect, and subject to the availability of
equitable remedies. The Trustee’s execution, delivery and performance of this
Agreement, the ESOP Note and the Stock Pledge Agreement, as well as the
consummation of the transactions contemplated thereunder, will not result in
a
breach or violation of any of the provisions of any agreement or instrument
to
which the Trust is a party or by which the Trust or its assets are bound;
and
(e) the
full
proceeds of the ESOP Loan will be used only to fund the purchase by the Trust
of
shares of the Company Stock in accordance with the Committee Directions as
soon
as practicable after the date hereof.
SECTION
4.2 Representations
and Warranties of the Company.
The
Company represents and warrants or covenants (as the case may be) to the Trust
as follows:
(a) Corporate
Organization, Structure and Existence.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the United States of America, has all requisite corporate
power and authority to carry on its business, and is duly qualified as a foreign
corporation and is in good standing in all other jurisdictions in which such
qualification is required, except where its failure so to qualify would not
have
a material adverse effect on the Company.
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(b) Status
of the Plan and Trust.
The
Plan and Trust have been validly authorized and established by the Company
and
the Company has validly appointed the Committee members under the Plan and
the
Trustee as a directed trustee under the Trust in accordance with due
authorization. The Plan and Trust constitute a legal and valid employee stock
ownership plan within the meaning of section 4975(e)(7) of the Code, the
Plan is qualified under section 401(a) of the Code and Trust is exempt from
taxation under section 501(a) of the Code. The Company will file, within
the remedial amendment period prescribed under section 401(b) of the Code,
with the IRS for a determination letter that the Plan is qualified under
section 401(a) of the Code, is an employee stock ownership plan within the
meaning of section 4975(e)(7) of the Code and that the Trust is exempt from
taxation under section 501(a) of the Code and, in the event that the IRS imposes
conditions for the issuance of such a letter, the Company will comply with
all
such conditions including, without limitation, amending or otherwise modifying
the Plan and Trust.
(c) Continued
Maintenance of Plan and Trust.
The
Company will continue to maintain the existence or the Plan and Trust while
the
ESOP Loan is outstanding, subject to the right of the Company to amend or
terminate the Plan and Trust in accordance with the terms thereof and applicable
law.
(d) No
Conflict, Breach, Etc.
The
consummation of the transactions contemplated by this Agreement and the
fulfillment of the terms and conditions of this Agreement, will not conflict
with, or result in a breach of, any of the terms and provisions of the Company’s
Articles of Incorporation or By-Laws in effect on the date hereof or of any
provision of any indenture, material agreement or other instrument to which
the
Company is a party or by which any of its assets may be bound, or of any
provision of any Federal or state court judgment, writ, decree, order, statute,
rule or governmental regulation applicable to the Company. The execution,
delivery and performance of this Agreement will not result in any such conflict
or breach or constitute a default under any such terms and
provisions.
(e) Administration
of Plan and Trust.
The
Company will comply in all material respects with the terms of the Plan, the
Trust and the Code and ERISA (and any other applicable law) with respect to
the
manner in which its administers the Plan and Trust.
(f) Contributions
to the Plan and Trust.
The
Company (or Participating Employers under, and as defined in, the Plan) will
make contributions to the Trust in amounts which, together with any permissible
dividends paid by the Company to the Trust on the shares of Company Stock,
are
sufficient to enable the Trust to pay all accrued interest and scheduled
principal on the ESOP Note, as and when such obligations become
due.
(g) No
Action, Suit or Proceeding.
There
is no action, suit or proceeding pending against, or threatened against or
affecting, the Company before any governmental or nongovernmental body which
relates to the transactions contemplated by this Agreement.
(h) No
Authorization or Approval.
No
authorization or approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required for the due execution,
delivery and performance by the Company of the Agreement.
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(i) Enforceability.
This
Agreement, the Stock Pledge Agreement and the Plan and Trust documents are
the
legal, valid and binding obligations of the Company enforceable in accordance
with their terms, except as the same may be limited by bankruptcy, insolvency,
moratorium, reorganization or other laws affecting the enforcement of creditors’
rights generally now or hereafter in effect, and subject to the availability
of
equitable remedies.
ARTICLE V:
CONDITIONS
PRECEDENT
SECTION
5.1 Documentation
Conditions Precedent.
The
obligation of the Company to make the ESOP Loan is expressly conditioned on
the
conditions precedent contained in Section 5.2, and that the Company shall,
as another condition precedent, have received duly executed and dated original
copies of each of the following documents (in form and substance satisfactory
to
the Company in its sole discretion):
(a) this
Agreement;
(b) the
ESOP
Note; and
(c) the
Stock
Pledge Agreement.
SECTION
5.2 Other
Conditions Precedent.
In
addition to the conditions precedent contained in Section 5.1, the obligation
of
the Company to make the ESOP Loan is subject to the following conditions
precedent:
(a) the
representations and warranties made by the Trust herein shall be true and
correct in all material respects;
(b) no
Event
of Default shall have occurred and be continuing; and
(c) the
successful completion of the IPO on such terms and conditions deemed
satisfactory to the Company in its sole discretion.
ARTICLE VI:
EVENTS
OF DEFAULT AND THEIR EFFECT
SECTION
6.1 Events
of Default; Effect.
If
default (and continuance thereof for ten business days) in the payment when
due
of any principal of, or interest on, the ESOP Note occurs (an “Event of
Default”), unless the effect thereof as an Event of Default has been waived in
writing by the Company or the Company has failed to comply with Section 4.2(f),
then the Company may declare the ESOP Note to be due and payable, whereupon
the
ESOP Note shall become immediately due and payable, without presentment, demand,
protest or further notice of any kind to the Trust or other action by the
Company of any kind whatsoever, all of which actions the Trust hereby expressly
waives to the maximum extent permitted by law. The Company shall promptly
advise the Trust of any such declaration, but failure to do so or delay in
doing
so shall not impair the effect of such declaration. Notwithstanding
anything to the contrary herein, in the ESOP Note or the Stock Pledge Agreement
contained or implied, in the Event of Default with respect to the ESOP Loan
by
the Trust, the value of Trust assets transferred to a “disqualified person” (as
defined in section 4975(e)(2) of the Code) or a “party in
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interest”
(as defined in section 3(14) of ERISA) in satisfaction thereof shall not exceed
the amount of such default (without regard to amounts owing solely as the result
of an acceleration under this Section 6.1). In addition, such a
transfer of such Trust assets shall only occur upon, and to the extent of the
failure of the Trust to meet the principal and interest payment schedules of
the
ESOP Loan provided in Section 2.3 and Section 2.5 of this
Agreement.
ARTICLE VII:
GENERAL
SECTION
7.1 Waivers;
Amendments.
No
delay on the part of the Company or any holder of the ESOP Note in the exercise
of any right, power or remedy shall operate as a waiver thereof, nor shall
any
single or partial exercise by any of them of any right, power or remedy preclude
other or further exercise thereof, or the exercise of any other right, power
or
remedy. No amendment, modification or waiver of, or consent with respect
to, any provision of this Agreement, the ESOP Note or the Stock Pledge Agreement
shall in any event be effective unless the same shall be in writing and signed
and delivered by the Company (or other holder of the ESOP Note), signed and
agreed to by the Trust, and then any such amendment, modification, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION
7.2 Confirmations;
Information.
The
Company (or other holder of the ESOP Note) and the Trust agree from time to
time, upon written request received by it from the other, to confirm to the
other in writing the aggregate unpaid principal balance then outstanding under
the ESOP Note and the rate or rates of interest from time to time payable with
respect thereto.
SECTION
7.3 Captions.
Section
captions used in this Agreement are for convenience only, and shall not affect
the construction of this Agreement.
SECTION
7.4 Governing
Law; Interpretation.
This
Agreement shall be deemed to be a contract made under, and governed by, the
laws
of the State of Illinois (without regard to its conflict of laws principles),
to
the extent that such laws are not preempted by the laws of the United States
of
America. Wherever possible each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
SECTION
7.5 Binding
Agreement; Assignment.
This
Agreement, and the terms, covenants and conditions hereof, shall be binding
upon
and inure to the benefit of the parties hereto, and their respective successors
and assigns.
ARTICLE VIII:
LIMITED
RECOURSE
SECTION
8.1 Limited
Recourse.
Notwithstanding anything to the contrary contained herein or in the ESOP Note,
the Stock Pledge Agreement or any other instrument, agreement or document
contained or implied, the obligations of the Trust under this Agreement, the
ESOP Note and the Stock Pledge Agreement (collectively, the “ESOP Loan
Obligations”) shall be
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enforceable
to the extent permitted under the Exempt Loan Rules. Accordingly, recourse
against the Trust is limited to the extent of (a) the Collateral (as
defined in the Stock Pledge Agreement) not theretofore released (or entitled
to
be released) from the pledge and security interest under the Stock Pledge
Agreement as provided in Section 3.2 hereof; (b) contributions (other than
contributions of Company Stock) made to the Trust by the Company in accordance
with the Plan to enable the Trust to pay and satisfy the ESOP Loan Obligations;
(c) dividends, earnings or distributions on the shares of Company Stock
held in the Suspense Account; or (d) other permissible sources under applicable
law (as may be in effect now or in the future). No other recourse shall be
had
to, or against the, Trust or the assets thereof for any deficiency judgment
against the Trust for the purpose of obtaining payment or other satisfaction
of
the ESOP Loan Obligations.
SECTION
8.2 No
Personal Recourse Against Trustee.
The
execution and delivery of this Agreement, and the performance by the Trustee
of
its obligations under this Agreement and under the terms of the Plan and Trust
have been, or will be, effected by the Trustee solely in its capacity as
Trustee, and not in its individual or corporate capacity. Nothing in this
Agreement shall be interpreted to increase, decrease or modify in any manner
any
personal liability of the Trustee to the Company or its successor and assigns,
or to any trustee, representative or other claimant by right of Company
resulting from the Trustee’s performance of its duties and the constituent
instruments of the Plan or Trust, and no personal liability shall be asserted
or
enforceable against it by reason of any of the covenants, statements,
representations or warranties contained in this Agreement.
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IN
WITNESS WHEREOF,
the
parties have caused this Agreement to be duly executed and delivered by their
respective duly authorized representatives as of date and year first written
above.
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FIRST
BANKERS TRUST SERVICES, INC., not in its individual or corporate
capacity, but solely in its capacity as the Trustee of the Mutual
Federal
Bancorp, Inc. Employee Stock Ownership Trust
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Its:
Trust Officer
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Its:
Chief Executive Officer and
President
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