exv10w3





Exhibit 10.3


FORM OF

ESOP LOAN AGREEMENT




     THIS LOAN AGREEMENT (“Loan Agreement”) is made and entered into as of [date], by and between
TRUST COMPANY, AS THE TRUSTEE FOR THE MADISON SQUARE FEDERAL SAVINGS BANK EMPLOYEE STOCK OWNERSHIP
PLAN TRUST (“Borrower”), a trust forming part of the Madison Square Federal Savings Bank Employee
Stock Ownership Plan (“ESOP”), and MADISON BANCORP, INC. (“Lender”), a corporation organized and
existing under the laws of Maryland.



W I T N E S S E T H




     WHEREAS, the Borrower is authorized to purchase shares of common stock of Madison Bancorp,
Inc. (“Common Stock”), either directly from Madison Bancorp, Inc. or in open market purchases in an
amount not to exceed [amount] shares of Common Stock.



     WHEREAS, the Borrower is authorized to borrow funds from the Lender for the purpose of
financing authorized purchases of Common Stock; and



     WHEREAS, the Lender is willing to make a loan to the Borrower for such purpose.



     NOW, THEREFORE, the parties agree hereto as follows:



ARTICLE I

Definitions




     The following definitions shall apply for purposes of this Loan Agreement, except to the
extent that a different meaning is plainly indicated by the context:



     Business Day means any day other than a Saturday, Sunday or other day on which banks
are authorized or required to close under federal or local law or regulation.



     Code means the Internal Revenue Code of 1986, as amended (including the corresponding
provisions of any succeeding law).



     Default means an event or condition which would constitute an Event of Default. The
determination as to whether an event or condition would constitute an Event of Default shall be
determined without regard to any applicable requirements of notice or lapse of time.



     ERISA means the Employee Retirement Income Security Act of 1974, as amended (including
the corresponding provisions of any succeeding law).



     Event of Default means an event or condition described in Article 5 of this Loan
Agreement.



     Loan means the loan described in Section 2.1 of this Loan Agreement.



     Loan Documents means, collectively, the Loan Agreement, the Promissory Note and the
Pledge Agreement and all other documents now or hereafter executed and delivered in connection with
such documents, including all amendments, modifications and supplements of or to all such
documents.



 









 





     Pledge Agreement means the agreement described in Section 2.8(a) of this Loan
Agreement.



     Principal Amount means the face amount of the Promissory Note, determined as set forth
in Section 2.1(c) of this Loan Agreement.



     Promissory Note means the promissory note described in Section 2.3 of this Loan
Agreement.



     Register means the register described in Section 2.9 of this Loan Agreement.



ARTICLE II

The Loan; Principal Amount;

Interest; Security; Indemnification




     Section 2.1 The Loan; Principal Amount.



     (a) The Lender hereby agrees to lend to the Borrower such amount, and at such time, as shall
be determined under this Section 2.1; provided, however, that in no event shall the aggregate
amount lent under this Loan Agreement from time to time exceed the greater of (i) [amount] or (ii)
the aggregate amount paid by the Borrower to purchase up to [amount] shares of Common Stock.



     (b) Subject to the limitations of Section 2.1(a), the Borrower shall determine the amounts
borrowed under this Loan Agreement, and the time at which such borrowings are effected. Each such
determination shall be evidenced in a writing which shall set forth the amount to be borrowed and
the date on which the Lender shall disburse such amount, and such writing shall be furnished to the
Lender by notice from the Borrower. The Lender shall disburse to the Borrower the amount specified
in each such notice on the date specified therein or, if later, as promptly as practicable
following the Lender’s receipt of such notice; provided, however, that the Lender shall have no
obligation to disburse funds pursuant to this Agreement following the occurrence of a Default or an
Event of Default until such time as such Default or Event of Default shall have been cured.



     (c) For all purposes of this Loan Agreement, the Principal Amount on any date shall be equal
to the excess, if any, of:




	 	(i)	 	the aggregate amount disbursed by the Lender pursuant to
Section 2.1(b) on or before such date; over
	 
	 	(ii)	 	the aggregate amount of any repayments of such amounts made
before such date.




The Lender shall maintain on the Register a record of, and shall record in the Promissory Note, the
Principal Amount, any changes in the Principal Amount and the effective date of any changes in the
Principal Amount.




     Section 2.2 Interest.



     (a) The Borrower shall pay to the Lender interest on the Principal Amount, for the period
commencing with the first disbursement of funds under this Loan Agreement and continuing until the
Principal Amount shall be paid in full, at the rate of [rate] per annum. Interest payable under
this Agreement shall be computed on the basis of a year of 365 days and



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actual days elapsed (including the first day but excluding the last) occurring during the period to
which the computation relates.




     (b) Accrued interest on the Principal Amount shall be payable by the Borrower on the dates set
forth in Schedule I to the Promissory Note. All interest on the Principal Amount shall be paid by
the Borrower in immediately available funds.



     (c) Anything in this Loan Agreement or the Promissory Note to the contrary notwithstanding,
the obligation of the Borrower to make payments of interest shall be subject to the limitation that
payments of interest shall not be required to be made to the Lender to the extent that the Lender’s
receipt thereof would not be permissible under the law or laws applicable to the Lender limiting
rates of interest which may be charged or collected by the Lender. Any such payment referred to in
the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment
date or dates on which the receipt thereof would be permissible under the laws applicable to the
Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred
interest shall not bear interest.



     Section 2.3 Promissory Note.



     The Loan shall be evidenced by the Promissory Note of the Borrower attached hereto as an
exhibit payable to the order of the lender in the Principal Amount and otherwise duly completed.



     Section 2.4 Payment of Trust Loan.



     The Principal Amount of the Loan shall be repaid in accordance with Schedule I to the
Promissory Note on the dates specified therein until fully paid.



     Section 2.5 Prepayment.



     The Borrower shall be entitled to prepay the Loan in whole or in part, at any time and from
time to time; provided, however, that the Borrower shall give notice to the Lender of any such
prepayment; and provided, further, that any partial prepayment of the Loan shall be in an amount
not less than $1,000. Any such prepayment shall be: (a) permanent and irrevocable; (b) accompanied
by all accrued interest through the date of such prepayment; (c) made without premium or penalty;
and (d) applied on the inverse order of the maturity of the installment thereof unless the Lender
and the Borrower agree to apply such prepayments in some other order.



     Section 2.6 Method of Payments.



     (a) All payments of principal, interest, other charges (including indemnities) and other
amounts payable by the Borrower hereunder shall be made in lawful money of the United States, in
immediately available funds, to the Lender at the address specified in or pursuant to this Loan
Agreement for notices to the Lender, on the date on which such payment shall become due. Any such
payment made on such date but after such time shall, if the amount paid bears interest, and except
as expressly provided to the contrary herein, be deemed to have been made on, and interest shall
continue to accrue and be payable thereon until, the next succeeding Business Day. If any payment
of principal or interest becomes due on a day other than a Business Day, such payment may be made
on the next succeeding Business Day, and when paid, such payment shall include interest to the day
on which payment is in fact made.



     (b) Notwithstanding anything to the contrary contained in this Loan Agreement or the
Promissory Note, the Borrower shall not be obligated to make any payment, repayment or pre-



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payment on the Promissory Note if doing so would cause the ESOP to cease to be an employee stock
ownership plan within the meaning of Section 4975(e)(7) of the Code or qualified under Section
401(a) of the Code or cause the Borrower to cease to be a tax exempt trust under Section 501(a) of
the Code or if such act or failure to act would cause the Borrower to engage in any “prohibited
transaction” as such term is defined in the Section 4975(c) of the Code and the regulations
promulgated thereunder which is not exempted by Section 4975(c)(2) or (d) of the Code and the
regulations promulgated thereunder or in Section 406 of ERISA and the regulations promulgated
thereunder which is not exempted by Section 408(b) of ERISA and the regulations promulgated
thereunder; provided, however, that in each case, the Borrower, may act or refrain from acting
pursuant to this Section 2.6(b) on the basis of an opinion of counsel, and any opinion of such
counsel. The Borrower may consult with counsel, and any opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken or suffered or omitted by it
hereunder in good faith and in accordance with such opinion of counsel. Nothing contained in this
Section 2.6(b) shall be construed as imposing a duty on the Borrower to consult with counsel. Any
obligation of the Borrower to make any payment, repayment or prepayment on the Promissory Note or
refrain from taking any other act hereunder or under the Promissory Note which is excused pursuant
to this Section 2.6(b) shall be considered a binding obligation of the Borrower, or both, as the
case may be, for the purposes of determining whether a Default or Event of Default has occurred
hereunder or under the Promissory Note and nothing in this Section 2.6(b) shall be construed as
providing a defense to any remedies otherwise available upon a Default or an Event of Default
hereunder (other than the remedy of specific performance).




     Section 2.7 Use of Proceeds of Loan.



     The entire proceeds of the Loan shall be used solely for acquiring shares of Common Stock, and
for no other purpose whatsoever.



     Section 2.8 Security.



     (a) In order to secure the due payment and performance by the Borrower of all of its
obligations under this Loan Agreement, simultaneously with the execution and delivery of this Loan
Agreement by the Borrower, the Borrower shall:




	 	(i)	 	pledge to the Lender as Collateral (as defined in the
Pledge Agreement), and grant to the Lender a first priority lien on and
security interest in, the Common Stock purchased with the Principal
Amount, by the execution and delivery to the lender of the Pledge
Agreement attached hereto as an exhibit; and
	 
	 	(ii)	 	execute and deliver, or cause to be executed and
delivered, such other agreement, instruments and documents as the
Lender may reasonably require in order to effect the purposes of the
Pledge Agreement and this Loan Agreement.





     (b) The Lender shall release from encumbrance under the Pledge Agreement and transfer to the
Borrower, as of the date on which any payment or repayment of the Principal Amount is made, a
number of shares of Common Stock held as Collateral determined pursuant to the applicable
provisions of the ESOP.



     Section 2.9 Registration of the Promissory Note.



     (a) The Lender shall maintain a Register providing for the registration of the Principal
Amount and any stated interest and of transfer and exchange of the Promissory Note.



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Transfer of the Promissory Note may be effected only by the surrender of the old instrument and
either the reissuance by the Borrower of the old instrument to the new holder or the issuance by
the Borrower of a new instrument to the new holder. The old Promissory Note so surrendered shall
be canceled by the Lender and returned to the Borrower after such cancellation.




     (b) Any new Promissory Note issued pursuant to Section 2.9(a) shall carry the same rights to
interest (unpaid and to accrue) carried by the Promissory Note so transferred or exchanged so that
there will not be any loss or gain of interest on the note surrender. Such new Promissory Note
shall be subject to all of the provisions and entitled to all of the benefits of this Agreement.
Prior to due presentment for registration or transfer, the Borrower may deem and treat the
registered holder of any Promissory Note as the holder thereof for purposes of payment and other
purposes. A notation shall be made on each new Promissory Note of the amount of all payments of
principal and interest theretofore paid.



ARTICLE III

Representations And Warranties Of The Borrower




     The Borrower hereby represents and warrants to the Lender as follows:



     Section 3.1 Power, Authority, Consents.



     The Borrower has the power to execute, deliver and perform this Loan Agreement, the Promissory
Note and Pledge Agreement, all of which have been duly authorized by all necessary and proper
corporate or other action.



     Section 3.2 Due Execution, Validity, Enforceability.



     Each of the Loan Documents, including, without limitation, this Loan Agreement, the Promissory
Note and the Pledge Agreement, has been duly executed and delivered by the Borrower; and each
constitutes the valid and legally binding obligation of the Borrower, enforceable in accordance
with its terms.



     Section 3.3 Properties, Priority of Liens.



     The liens which have been created and granted by the Pledge Agreement constitute valid, first
liens on the properties and assets covered by the Pledge Agreement, subject to no prior or equal
lien.



     Section 3.4 No Defaults, Compliance with Laws.



     The Borrower is not in default in any material respect under any agreement, ordinance,
resolution, decree, bond, note, indenture, order or judgment to which it is a party or by which it
is bound, or any other agreement or other instrument by which any of the properties or assets owned
by it is materially affected.



     Section 3.5 Purchase of Common Stock.



     Upon consummation of any purchase of Common Stock by the Borrower with the proceeds of the
Loan, the Borrower shall acquire valid, legal and marketable title to all of the Common Stock so
purchased, free and clear of any liens, other than a pledge to the Lender of the Common Stock so
purchased pursuant to the Pledge Agreement. Neither the execution and delivery of the Loan
Documents nor the performance of any obligation thereunder violates any provisions of law or
conflicts with or results in a breach of or creates (with or without the giving of notice of lapse
of time, or both) a default under any agreement to which the Borrower is a



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party or by which it is bound or any of its properties is affected. No consent of any federal,
state, or local governmental authority, agency, or other regulatory body, the absence of which
could have a materially adverse effect on the Borrower or the Trustee, is or was required to be
obtained in connection with the execution, delivery, or performance of the Loan Documents and the
transaction contemplated therein or in connection therewith, including without limitation, with
respect to the transfer of the shares of Common Stock purchased with the proceeds of the Loan
pursuant thereto.




     Section 3.6 ESOP; Contributions.



     As of the effective date of the ESOP sponsor’s conversion, the ESOP and the Borrower will be
duly created, organized and maintained by the ESOP sponsor in compliance with all applicable laws,
regulations and rulings. The ESOP will qualify as an “employee stock ownership plan” as defined in
Section 4975(e)(7) of the Code. The ESOP provides that the ESOP sponsor may make contributions to
the ESOP in an amount necessary to enable the Trustee to amortize the Loan in accordance with the
terms of the Promissory Note; provided, however, that no such contributions shall be required if
they would adversely affect the qualification of the ESOP under Section 401(a) of the Code.



     Section 3.7 Trustee.



     The trustee of the ESOP has been duly appointed by the ESOP sponsor.



     Section 3.8 Compliance with Laws; Actions.



     Neither the execution and delivery by the Borrower of this Loan Agreement or any instruments
required thereby, nor compliance with the terms and provisions of any such documents by the lender,
constitutes a violation of any provision of any law or any regulation, order, writ, injunction or
decree of any court or governmental instrumentality, or an event of default under any agreement, to
which the Borrower is a party, to which the Borrower is bound or to which the Borrower is subject,
which violation or event of default would have a material adverse effect on the Borrower. There is
no action or proceeding pending or threatened against either the ESOP or the Borrower before any
court or administrative agency.



ARTICLE IV

Representations And Warranties Of The Lender




     The Lender hereby represents and warrants to the Borrower as follows:



     Section 4.1 Power, Authority, Consents.



     The Lender has the power to execute, deliver and perform this Loan Agreement, the Pledge
Agreement and all documents executed by the Lender in connection with the Loan, all of which have
been duly authorized by all necessary and proper corporate or other action. No consent,
authorization or approval or other action by any governmental authority or regulatory body, and no
notice by the Lender to, or filing by the Lender with, any governmental authority or regulatory
body is required for the due execution, delivery and performance of this Loan Agreement.



     Section 4.2 Due Execution, Validity, Enforceability.



     This Loan Agreement and the Pledge Agreement have been duly executed and delivered by the
Lender, and each constitutes a valid and legally binding obligation of the Lender, enforceable in
accordance with its terms.



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ARTICLE V

Events Of Default




     Section 5.1 Events of Default under Loan Agreement.



     Each of the following events shall constitute an “Event of Default” hereunder:



     (a) Failure to make any payment or mandatory prepayment of principal of the Promissory Note
when due, or failure to make any payment of interest on the Promissory Note not later than five (5)
Business Days after the date when due.



     (b) Failure by the Borrower to perform or observe any term, condition or covenant of this Loan
Agreement or of any of the other Loan Documents, including, without limitation, the Promissory Note
and the Pledge Agreement.



     (c) Any representation or warranty made in writing to the Lender in any of the Loan Documents,
or any certificate, statement or report made or delivered in compliance with this Loan Agreement,
shall have been false or misleading in any material respect when made or delivered.



     Section 5.2 Lender’s Rights upon Event of Default.



     If an Event of Default under this Loan Agreement shall occur and be continuing, the Lender
shall have no rights to assets of the Borrower other than: (a) contributions (other than
contributions of Common Stock) that are made by the ESOP sponsor to enable the Borrower to meet its
obligations pursuant to this Loan Agreement and earnings attributable to the investment of such
contributions and (b) “Eligible Collateral” (as defined in the Pledge Agreement); provided,
however, that: (i) the value of the Borrower’s assets transferred to the Lender following an Event
of Default in satisfaction of the due and unpaid amount of the Loan shall not exceed the amount in
default (without regard to amounts owing solely as a result of any acceleration of the Loan); (ii)
the Borrower’s assets shall be transferred to the Lender following an Event of Default only to the
extent of the failure of the Borrower to meet the payment schedule of the Loan; and (iii) all
rights of the Lender to the Common Stock purchased with the proceeds of the Loan covered by the
Pledge Agreement following an Event of Default shall be governed by the terms of the Pledge
Agreement.



ARTICLE VI

Miscellaneous Provisions




     Section 6.1 Payments Due to the Lender.



     If any amount is payable by the Borrower to the Lender pursuant to any indemnity obligation
contained herein, then the Borrower shall pay, at the time or times provided therefor, any such
amount and shall indemnify the Lender against and hold it harmless from any loss or damage
resulting from or arising out of the nonpayment or delay in payment of any such amount. If any
amounts as to which the Borrower has so indemnified the Lender hereunder shall be assessed or
levied against the Lender, the Lender may notify the Borrower and make immediate payment thereof,
together with interest or penalties in connection therewith, and shall thereupon be entitled to and
shall receive immediate reimbursement therefor from the Borrower, together with interest on each
such amount as provided for in Section 2.2(c) of this Loan Agreement. Notwithstanding any other
provision contained in this Loan Agreement, the covenants and agreements of the Borrower contained
in this Section 6.1 shall survive: (a) payment of the Promissory Note and (b) termination of this
Loan Agreement.



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     Section 6.2 Payments.



     All payments hereunder and under the Promissory Note shall be made without set-off or
counterclaim and in such amounts as may be necessary in order that all such payments shall not be
less than the amounts otherwise specified to be paid under this Loan Agreement and the Promissory
Note, subject to any applicable tax withholding requirements. Upon payment in full of the
Promissory Note, the Lender shall mark such Promissory Note “Paid” and return it to the Borrower.



     Section 6.3 Survival.



     All agreements, representations and warranties made herein shall survive the delivery of this
Loan Agreement and the Promissory Note.



     Section 6.4 Modifications, Consents and Waivers; Entire Agreement.



     No modification, amendment or waiver of or with respect to any provision of this Loan
Agreement, the Promissory Note, the Pledge Agreement, or any of the other Loan Documents, nor
consent to any departure from any of the terms or conditions thereof, shall in any event be
effective unless it shall be in writing and signed by the party against whom enforcement thereof is
sought. Any such waiver or consent shall be effective only in the specific instance and for the
purpose for which given. No consent to or demand on a party in any case shall, of itself, entitle
it to any other or further notice or demand in similar or other circumstances. This Loan Agreement
embodies the entire agreement and understanding between the Lender and the Borrower and supersedes
all prior agreements and understandings relating to the subject matter hereof.



     Section 6.5 Remedies Cumulative.



     Each and every right granted to the Lender hereunder or under any other document delivered
hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be
exercised from time to time. No failure on the part of the Lender or the holder of the Promissory
Note to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor
shall any single or partial exercise of any right preclude any other or future exercise thereof or
the exercise of any other right. The due payment and performance of the obligations under the Loan
Documents shall be without regard to any counterclaim, right of offset or any other claim
whatsoever which the Borrower may have against the Lender and without regard to any other
obligation of any nature whatsoever which the Lender may have to the Borrower, and no such
counterclaim or offset shall be asserted by the Borrower in any action, suit or proceeding
instituted by the Lender for payment or performance of such obligations.



     Section 6.6 Further Assurances; Compliance with Covenants.



     At any time and from time to time, upon the request of the Lender, the Borrower shall execute,
deliver and acknowledge or cause to be executed, delivered and acknowledged, such further documents
and instruments and do such other acts and things as the Lender may reasonably request in order to
fully effect the terms of this Loan Agreement, the Promissory Note, the Pledge Agreement, the other
Loan Documents and any other agreements, instruments and documents delivered pursuant hereto or in
connection with the Loan.



     Section 6.7 Notices.



     Except as otherwise specifically provided for herein, all notice, requests, reports and other
communications pursuant to this Loan Agreement shall be in writing, either by letter



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(delivered by hand or commercial messenger service or sent by registered or certified mail, return
receipt requested, except for routine reports delivered in compliance with Article VI hereof which
may be sent by ordinary first-class mail) or telex or telecopier addressed as follows:





	 	(a)	 	If to the Borrower:




Madison Square Federal Savings Bank Employee Stock Ownership Plan

c/o [Trust Company]

[Address]

Attn: [name]





	 	(b)	 	If to the Lender:




Madison Bancorp, Inc.

9649 Belair Road, Suite 300

Baltimore, MD 21236

Attn: [name]



Any notice, request or communication hereunder shall be deemed to have been given on the day on
which it is delivered by hand or by commercial messenger service, or sent by telex, or telecopier,
to such party at its address specified above, or, if sent by mail, on the third Business Day after
the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the
person or address to whom or which notices are to be given hereunder, by notice duly given
hereunder; provided, however, that any such notice shall be deemed to have been given only when
actually received by the party to whom it is addressed.




     Section 6.8 Counterparts.



     This Loan Agreement may be signed in any number of counterparts which, when taken together,
shall constitute one and the same document.



     Section 6.9 Construction; Governing Law.



     The headings used in the table of contents and in this Loan Agreement are for convenience only
and shall not be deemed to constitute a part hereof. All uses herein of any gender or of singular
or plural terms shall be deemed to include uses of the other genders or plural or singular terms,
as the context may require. All references in this Loan Agreement of an Article or section shall
be to an Article or section of this Loan Agreement, unless otherwise specified. This Loan
Agreement, the Promissory Note, the Pledge Agreement and the other Loan Documents shall be governed
by, and construed and interpreted in accordance with, the laws of the State of Maryland.



     Section 6.10 Severability.



     Wherever possible, each provision of this Loan Agreement shall be interpreted in such manner
as to be effective and valid under applicable law; however, the provisions of this Loan Agreement
are severable, and if any clause or provision hereof shall be held invalid or unenforceable in
whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect
such clause or provision in any other jurisdiction, or any other clause or provisions in this Loan
Agreement in any jurisdiction. Each of the covenants, agreements and conditions contained in this
Loan Agreement are independent, and compliance by a party with any of them shall not excuse
non-compliance by such party with any other. The Borrower shall not take any



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action the effect of which shall constitute a breach or violation of any provision of this Loan
Agreement.




     Section 6.11 Binding Effect: No Assignment or Delegation.



     This Loan Agreement shall be binding upon and inure to the benefit of the Borrower and its
successors and the Lender and its successors and assigns. The rights and obligations of the
Borrower under this Agreement shall not be assigned or delegated without the prior written consent
of the Lender, and any purported assignment or delegation without such consent shall be void.


[Signature page to follow]






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     IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be executed as of the date
first written above.




	 	 	 	 	 
	 	MADISON SQUARE FEDERAL SAVINGS BANK

EMPLOYEE STOCK OWNERSHIP PLAN TRUST



	 	 	 	 
	 	 	 	 
	 	Authorized Trust Officer for [Trust Company] 	 
	 	 	 	 
	 	 	 	 
	 	MADISON BANCORP, INC. 	 
	 	 	 	 
	 	 	 	 
	 	By:  	 	 
	 	 	Duly Authorized Officer 	 
	 	 	 	 



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FORM OF

PLEDGE AGREEMENT





     THIS PLEDGE AGREEMENT (“Pledge Agreement”) is made as of [date], by and between [TRUST
COMPANY], AS TRUSTEE FOR THE MADISON SQUARE FEDERAL SAVINGS BANK EMPLOYEE STOCK OWNERSHIP PLAN
TRUST (“Pledgor”), and MADISON BANCORP, INC. (“Pledgee”).



W I T N E S S E T H




     WHEREAS, this Pledge Agreement is being executed and delivered to the Pledgee pursuant to the
terms of a Loan Agreement (“Loan Agreement”), by and between the Pledgor and the Pledgee;



     NOW, THEREFORE, in consideration of the mutual agreements contained herein and in the Loan
Agreement, the parties hereto do hereby covenant and agree as follows:



     Section 1. Definitions. The following definitions shall apply for purposes of this Pledge
Agreement, except to the extent that a different meaning is plainly indicated by the context; all
capitalized terms used but not defined herein shall have the respective meanings assigned to them
in the Loan Agreement:



     Collateral shall mean the Pledged Shares and, subject to Section 5 hereof, and to the
extent permitted by applicable law, all rights with respect thereto, and all proceeds of such
Pledged Shares and rights.



     ESOP shall mean the Madison Square Federal Savings Bank Employee Stock Ownership Plan.



     Event of Default shall mean an event so defined in the Loan Agreement.



     Liabilities shall mean all the obligations of the Pledgor to the Pledgee, howsoever
created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter
existing, or due or to become due, under the Loan Agreement and the Promissory Note.



     Pledged Shares shall mean all the Shares of Common Stock of Madison Bancorp, Inc.
purchased by the Pledgor with the proceeds of the loan made by the Pledgee to the Pledgor pursuant
to the Loan Agreement, but excluding any such shares previously released pursuant to Section 4 of
this Pledge Agreement.



     Section 2. Pledge. To secure the payment of and performance of all the Liabilities, the
Pledgor hereby pledges to the Pledgee, and grants to the Pledgee, a security interest in, and lien
upon, the Collateral.



 









 





     Section 3. Representations and Warranties of the Pledgor. The Pledgor represents, warrants,
and covenants to the Pledgee as follows:



     (a) the execution, delivery and performance of this Pledge Agreement and the pledging of the
Collateral hereunder do not and will not conflict with, result in a violation of, or constitute a
default under, any agreement binding upon the Pledgor;



     (b) the Pledged Shares are and will continue to be owned by the Pledgor free and clear of any
liens or rights of any other person except the lien hereunder and under the Loan Agreement in favor
of the Pledgee, and the security interest of the Pledgee in the Pledged Shares and the proceeds
thereof is and will continue to be prior to and senior to the rights of all others;



     (c) this Pledge Agreement is the legal, valid, binding and enforceable obligation of the
Pledgor in accordance with its terms;



     (d) the Pledgor shall, from time to time, upon request of the Pledgee, promptly deliver to the
Pledgee such stock powers, proxies, and similar documents, satisfactory in form and substance to
the Pledgee, with respect to the Collateral as the Pledgee may reasonably request; and



     (e) subject to the first sentence of Section 4(b) of this Pledge Agreement, the Pledgor shall
not, so long as any Liabilities are outstanding, sell, assign, exchange, pledge or otherwise
transfer or encumber any of its rights in and to any of the Collateral.



     Section 4. Eligible Collateral.



     (a) As used herein the term “Eligible Collateral” shall mean the amount of Collateral which
has an aggregate fair market value equal to the amount by which the Pledgor is in default (without
regard to any amounts owing solely as the result of an acceleration of the Loan Agreement) or such
lesser amount of Collateral as may be required pursuant to Section 13 of this Pledge Agreement.



     (b) The Pledged Shares shall be released from this Pledge Agreement in a manner conforming to
the requirements of Treasury Regulations Section 54.4975-7(b)(8), as the same may be from time to
time amended or supplemented, and the applicable provisions of the ESOP. Subject to the Treasury
Regulations, the Pledgee may from time to time, after any Default or Event of Default, and without
prior notice to the Pledgor, transfer all or any part of the Eligible Collateral in the name of the
Pledgee or its nominee, without disclosing that such Eligible Collateral is subject to any rights
of the Pledgor and may from time to time, whether before or after any of the Liabilities shall
become due and payable, without notice to the Pledgor, take all or any of the following actions:
(i) notify the parties obligated on any of the Eligible Collateral to make payment to the Pledgee
of any amounts due or due to become due thereunder, (ii) release or exchange all or any part of the
Eligible Collateral, or compromise or extend or renew for any period (whether or not longer than
the original period) any obligations of any nature of any party with respect thereto, and (iii)
take control of any proceeds of the Eligible Collateral.



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     Section 5. Delivery.



     (a) The Pledgor shall deliver to the Pledgee upon execution of this Pledge Agreement (i)
either (A) certificates for the Pledged Shares, each certificate duly signed in blank by the
Pledgor or accompanied by a stock transfer power duly signed in blank by the Pledgor and each such
certificate accompanied by all required documentary or stock transfer tax stamps or (B) if the
Trustee does not yet have possession of the Pledged Shares, an assignment by the Pledgor of all the
Pledgor’s rights to and interest in the Pledged Shares and (ii) an irrevocable proxy, in form and
substance satisfactory to the Pledgee, signed by the Pledgor with respect to the Pledged Shares.



     (b) Subject to the provisions of Section 6 of this Pledge Agreement, the Pledgor shall (i) be
entitled to exercise any and all voting and other rights pertaining to the Collateral or any part
thereof for any purpose not inconsistent with the terms of this Pledge Agreement, and (ii) be
entitled to receive any and all cash dividends or other distributions paid in respect of the
Collateral.



     Section 6. Events of Default.



     (a) If a Default or Event Default shall be existing, in addition to the rights it may have
under the Loan Agreement, the Promissory Note, and this Pledge Agreement, or by virtue of any other
instrument, (i) the Pledgee may exercise, with respect to the Eligible Collateral, from time to
time, any rights and remedies available to it under the Uniform Commercial Code as in effect from
time to time in the State of Maryland or otherwise available to it and (ii) the Pledgee shall have
the right, for and in the name, place and stead of the Pledgor, to execute endorsement,
assignments, stock powers and other instruments of conveyance or transfer with respect to all or
any of the Eligible Collateral. Written notification of intended disposition of any of the
Eligible Collateral shall be given by the Pledgee to the Pledgor at least three (3) business days
before such disposition. Subject to Section 13 below, any proceeds of any disposition of Eligible
Collateral may be applied by the Pledgee toward the payment of such of the Liabilities as are in
Default. No action of the Pledgee permitted hereunder shall impair or affect its rights in and to
the Eligible Collateral. All rights and remedies of the Pledgee expressed hereunder are in
addition to all other rights and remedies possessed by it, including, without limitation, those
contained in the documents referred to in the definition of Liabilities in Section 1 hereof.



     (b) In any sale of any of the Eligible Collateral after a Default or an Event of Default shall
have occurred, the Pledgee is hereby authorized to comply with any limitation or restriction in
connection with such sale as it may be advised by counsel if necessary in order to avoid violation
of applicable law (including, without limitation, compliance with such procedures as may restrict
the number of prospective bidders and purchasers or further restrict such prospective bidders or
purchasers to persons who will represent and agree that they are purchasing for their own account
for investment and not with a view to the distribution or resale of such Eligible Collateral), or
in order to obtain such required approval of the sale or of the purchase by any governmental
regulatory authority or official, and the Pledgor further agrees that such compliance shall not
result in such sale’s being considered or deemed not to have been made in a commercially reasonable
manner, nor shall the Pledgee be liable or accountable to the Pledgor



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for any discount allowed by reason of the fact that such Eligible Collateral is sold in compliance
with any such limitation or restriction.




     Section 7. Payment in Full. Upon the payment in full of all outstanding Liabilities, this
Pledge Agreement shall terminate and the Pledgee shall forthwith assign, transfer and deliver to
the Pledgor, against receipt and without recourse to the Pledgee, all Collateral then held by the
Pledgee pursuant to the Pledge Agreement.



     Section 8. No Waiver. No failure or delay on the part of the Pledgee in exercising any right
or remedy hereunder or under any other document which confers or grants any rights to the Pledgee
in respect of the Liabilities shall operate as a waiver thereof nor shall any single or partial
exercise of any such rights or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy of the Pledgee.



     Section 9. Binding Effect; No Assignment or Delegation. This Pledge Agreement shall be
binding upon and inure to the benefit of the Pledgor, the Pledgee and their respective successors
and assigns, except that the Pledgor may not assign or transfer its rights hereunder without the
prior written consent of the Pledgee (which consent shall not unreasonably be withheld). Each duty
or obligation of the Pledgor to the Pledgee pursuant to the provisions of this Pledge Agreement
shall be performed in favor of any person or entity designated by the Pledgee, and any duty or
obligation of the Pledgee to the Pledgor may be performed by any other person or entity designated
by the Pledgee.



     Section 10. Governing Law. This Pledge Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland applicable to agreements to be performed wholly
within the State of Maryland.



     Section 11. Notices. All notices, requests, instructions or documents hereunder shall be in
writing and delivered personally or sent by United States mail, registered or certified, return
receipt requested, with proper postage prepaid as follows:




	 	(a)	 	If to the Pledgee:




Madison Bancorp, Inc.

9649 Belair Road, Suite 300

Baltimore, Maryland 21236

Attn: [name]





	 	(b)	 	If to the Pledgor:




Madison Square Federal Savings Bank Employee Stock Ownership Plan Trust

c/o [Trust Company]

[Address]

Attn: [name]



or at such other address as either of the parties may designate by written notice to the other
party. If delivered personally, the date on which a notice, request, instruction or document is
delivered shall be the date on which such delivery is made, and, if delivered by mail, the date on
which such notice, request, instruction, or document is deposited in the mail shall be the date of






4









 







delivery. Each notice, request, instruction or document shall bear the date on which it is
delivered.




     Section 12. Interpretation. Wherever possible each provision of this Pledge Agreement shall
be interpreted in such manner as to be effective and valid under applicable law, but if any
provision herein 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 hereof.



     Section 13. Construction. All provisions hereof shall be construed so as to maintain (a) the
ESOP as a tax-qualified, leveraged employee stock ownership plan under Section 401(a) and
4975(e)(7) of the Internal Revenue Code of 1986, as amended (the “Code”), (b) the ESOP Trust as
exempt from taxation under Section 501(a) of the Code and (c) the loan as an exempt loan under
Section 54.4975-7(b) of the Treasury Regulations and as described in Department of Labor Regulation
Section 2550.408b-3.



[Signature page to follow]






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     IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the parties hereto as of
the day and year first above written.



	 	 	 	 	 
	 	MADISON SQUARE FEDERAL SAVINGS BANK

EMPLOYEE STOCK OWNERSHIP PLAN TRUST



 	 
	 	 	 	 
	 	 	 	 
	 	Authorized Trust Officer for [Trust Company] 	 
	 	 	 	 
	 	 	 	 
	 	MADISON BANCORP, INC. 	 
	 	 	 	 
	 	 	 	 
	 	By:  	 	 
	 	 	Duly Authorized Officer 	 
	 	 	 	 



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FORM OF

PROMISSORY NOTE





     FOR VALUE RECEIVED, the undersigned, [TRUST COMPANY], AS TRUSTEE
FOR THE MADISON SQUARE FEDERAL SAVINGS BANK EMPLOYEE STOCK
OWNERSHIP PLAN TRUST (the “Borrower”), hereby promises to pay to the order of
MADISON BANCORP, INC. (the “Lender”) up to two million, [amount] payable in
accordance with the Loan Agreement made and entered into between the
Borrower and the Lender of even date herewith (“Loan Agreement”) pursuant to which this Promissory Note is
issued.



     The Principal Amount of this Promissory Note shall be payable in accordance with the
schedule attached hereto (“Schedule I”).



     This Promissory Note shall bear interest at the rate per annum set forth or established
under the Loan Agreement, such interest to be payable in accordance with Schedule I.



     Anything herein to the contrary notwithstanding, the obligation of the Borrower to make
payments of interest shall be subject to the limitation that payments of interest shall not be
required to be made to the Lender to the extent that the Lender’s receipt thereof would not be
permissible under the law or laws applicable to the Lender limiting rates on interest which may be
charged or collected by the Lender. Any such payments on interest which are not made as a
result of the limitation referred to in the preceding sentence shall be made by the Borrower to the
Lender on the earliest interest payment date or dates on which the receipt thereof would be
permissible under the laws applicable to the Lender limiting rates of interest which may be
charged or collected by the Lender. Such deferred interest shall not bear interest.



     Payments of both principal and interest on this Promissory Note are to be made at the principal office of the Lender or such other place as the holder hereof shall designate to the Borrower in writing, in lawful money of the United States of America in immediately available funds.



     Failure to make any payments of principal on this Promissory Note when due, or failure to make any payment of interest on this Promissory Note not later than five (5) Business Days after the date when due, shall constitute a default hereunder, whereupon the principal amount of accrued interest on this Promissory Note shall immediately become due and payable in accordance with the terms of the Loan Agreement.



     This Promissory Note is secured by a Pledge Agreement between the Borrower and the Lender of even date herewith and is entitled to the benefits thereof.



	 	 	 	 	 
	 	MADISON SQUARE FEDERAL SAVINGS BANK

EMPLOYEE STOCK OWNERSHIP PLAN TRUST


 	 
	 	 	 
	 	 	 
	 	Authorized Trust Officer for [Trust Company]