Exhibit 10.2


 


FORM OF


ESOP LOAN AGREEMENT


THIS LOAN
AGREEMENT (“Loan Agreement”) is made and entered into as of
the ___ day of ________________, 2007, by and between the BRADFORD
BANK EMPLOYEE STOCK OWNERSHIP PLAN TRUST (“Borrower”), a trust
forming part of the Bradford Bank Employee Stock Ownership Plan (“ESOP”), and BRADFORD 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 Bradford
Bancorp, Inc. (“Common Stock”), either directly from Bradford Bancorp, Inc. or
in open market purchases in an amount not to exceed
________________________________ (_______) 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.


Loan means the loan described
in section 2.1.


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).


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


Promissory Note means the
promissory note described in section 2.3.


Register means the register
described in section 2.9.


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) $___________ or (ii) the aggregate amount paid by the Borrower to
purchase up to ________ shares of Common Stock.


(b)           Subject to the limitations of Section
2.1(a), the Borrower shall determine the amounts borrowed under this 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 ___________________ percent (_____%) per annum.  Interest payable under this Agreement shall
be computed on the basis of a year of 365 days and actual days elapsed
(including the first day but excluding the last) occurring during the period to
which the computation relates.



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(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 the 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            Methods
of Payment.


(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.



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(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-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.



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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.  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.



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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 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.



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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.


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.



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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).  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.


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.



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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 (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:


(b)                           If
to the Lender:


Bradford
Bancorp, Inc.


6900
York Road


Baltimore, MD 
21212


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.



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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
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.



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


	
  

  	
  BRADFORD BANK

  
	
   

  	
  EMPLOYEE STOCK OWNERSHIP PLAN TRUST

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Authorized Trust
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BRADFORD BANCORP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Dallas R. Arthur

  
	
   

  	
   

  	
  President and
  Chief Executive Officer

  



 



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FORM OF


PLEDGE AGREEMENT


THIS PLEDGE AGREEMENT (“Pledge
Agreement”) is made as of the _____ day of ______________, 2007, by and between
the BRADFORD BANK EMPLOYEE STOCK OWNERSHIP PLAN TRUST
(“Pledgor”), and BRADFORD 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 Bradford 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 the
Pledgee 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.


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), 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 such 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.


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)           So long as no Default or Event of
Default shall have occurred and be continuing, (i) the Pledgor shall 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) the Pledgor shall be entitled to receive any
and all cash dividends or other distributions paid in respect of the
Collateral.



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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 to the
payment of expenses in connection with the Eligible Collateral, including,
without limitation, reasonable attorneys’ fees and legal expenses, and any
balance of such proceeds may be applied by the Pledgee toward the payment of
such of the Liabilities as are in Default, and in such order of application, as
the Pledgee may from time to time elect. 
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
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 in 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.



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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:


                Bradford Bancorp, Inc.


                6900 York Road


                Baltimore, MD 
21212


 


(b)           If to the Pledgor:


                Bradford Bank


                Employee Stock Ownership Plan Trust


                c/o[TRUSTEE ADDRESS]


 


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 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 qualified leveraged employee stock ownership
plan under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986
(the “Code”), (b) the Trust as exempt from taxation under section 501(a) of the
Code and (c) the Trust 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.



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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.


	
  

  	
  BRADFORD BANK

  
	
   

  	
  EMPLOYEE STOCK OWNERSHIP PLAN TRUST

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Authorized Trust Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BRADFORD BANCORP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Dallas R. Arthur

  
	
   

  	
   

  	
  President and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  



 



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FORM OF


PROMISSORY NOTE


 


FOR VALUE
RECEIVED, the undersigned, BRADFORD
BANK EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the “Borrower”), hereby
promises to pay to the order of BRADFORD BANCORP, INC. (the
“Lender”) up to $_________ 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.


	
  

  	
   

  	
  BRADFORD
  BANK

  
	
   

  	
   

  	
  EMPLOYEE
  STOCK OWNERSHIP PLAN TRUST

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Authorized Trust Officer