Document:

Unassociated Document

Exhibit 10.1

AMENDED AND RESTATED

MONROE BANK & TRUST SUPPLEMENTAL EXECUTIVE

RETIREMENT AGREEMENT

[H. Douglas Chaffin]

 

THIS AMENDED AND RESTATED AGREEMENT is adopted this 25th day of August, 2011, by and between MONROE BANK & TRUST, a state-chartered commercial bank located in Monroe, Michigan (the "Company"), and H. DOUGLAS CHAFFIN (the "Executive").

 

RECITALS

 

Whereas, on the 1st day of July, 2003, the Company and the Executive entered into the Monroe Bank & Trust Supplemental Executive Retirement Agreement (the “SERP”) to encourage the Executive to remain an employee of the Company by providing supplemental retirement benefits to the Executive; and

Whereas, the SERP was Amended and Restated on June 4, 2007, in order to comply with the requirements applicable to deferred compensation arrangements under Section 409A of the Internal Revenue Code and to make certain other changes to the SERP; and

 

Whereas, the Company and the Executive have previously mutually agreed, and the Company’s board of directors approved on February 25, 2010 the amendment of the SERP to provide for the elimination of the otherwise required benefit accrual for the 2010 Plan Year; and

 

Whereas, the Company and the Executive now desire to formally amend the SERP to provide for their agreement as to such previously approved amendment.

 

AGREEMENT

 

The Company and the Executive agree as follows:

 

Article 1

Definitions

 

Whenever used in this Agreement, the following words and phrases shall have the meanings specified:

 

1.1      "Code" means the Internal Revenue Code of 1986, as amended.

 

1.2      "Disability" means that the Executive (a) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, (b) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering Executives of the participant’s employer, or (c) has been determined to be totally disabled by the United States Social Security Administration.

 

  

  

  

 

1.3      "Early Termination" means the Termination of Employment before Normal Retirement Age for reasons other than death, Disability, or Termination for Cause.

 

1.4      "Early Termination Date" means the month, day and year in which Early Termination occurs.

 

1.5      "Effective Date" means July 1, 2003.

1.6       "Final Pay" means the total annual base salary payable to the Executive at the rate in effect at Termination of Employment. Final Pay shall not be reduced for any salary reduction contributions to: (i) cash or deferred arrangements under Section 401(k) of the Code; (ii) a cafeteria plan under Section 125 of the Code; or (iii) a deferred compensation plan that is not qualified under Section 401(a) of the Code.

 

1.7       "Normal Retirement Age" means the Executive's 65th birthday.

 

1.8       "Normal Retirement Date" means the later of the Normal Retirement Age or Termination of Employment.

 

1.9       "Plan Year" means the calendar year ending on December 31.

 

1.10    “Specified Employee” means at any time at which  any stock of the Company is publicly traded on an established securities market or otherwise, a person who is determined to be a key employee (as defined in Section 416(i) of the Code without regard to paragraph 5 thereof) of the Company as of the preceding December 31.

 

1.11       "Termination for Cause" See Article 5.

 

1.12       "Termination of Employment" means the termination of the Executive’s employment with the Company for reasons other than death or Disability.  Whether a Termination of Employment takes place is determined based on the facts and circumstances surrounding the termination of the Executive’s employment and whether the Company and the Executive intend for the Executive to provide significant services for the Company following such termination.  A change in the Executive's employment status will not be considered a Termination of Employment if the Executive continues to provide service to the Company at an annual rate that is fifty percent (50%) or more of the services rendered, on average, during the immediately preceding three full calendar years of employment (or if employed less than three years, such lesser period) and the annual remuneration for such service is fifty percent (50%) or more of the average annual remuneration earned during the final three years of employment (or if less, such lesser period). A change in the Executive’s employment status will be considered a Termination of Employment if as a result of such change the level of bona fide services the Executive continues to provide to the Company decreases to an annual rate that is twenty percent (20%) or less of the service rendered, on average, during the immediately preceding three full calendar years of employment (or, if employed less than three years, such lesser period) and the annual remuneration for such services is twenty percent (20%) or more of the average annual remuneration earned during the final three full calendar years of employment (or, if less, such lesser period).

 

  

  

  

 

Article 2

Benefits During Lifetime

 

2.1 Normal Retirement Benefit. Upon Termination of Employment on or after the Normal Retirement Age for reasons other than death, the Company shall pay to the Executive the benefit described in this Section 2.1 in lieu of any other benefit under this Agreement.

2.1.1 Amount of Benefit. The annual benefit under this Section 2.1 is sixty-five percent (65%) of the Executive's Final Pay, reduced by:

 

	 	
(a)

	
fifty percent (50%) of the primary federal Social Security benefit payable (before earnings reduction) to the Executive or which would be payable if applied for by the Executive upon his Normal Retirement Age; and

 

	 	
(b)

	
the annual amount of benefits payable to the Executive upon his Normal Retirement Age, on a single life annuity basis, attributable to the portion of the Executive's account balances arising from employer contributions (but excluding the portion of such balances arising from employee salary reduction contributions) from the MBT Retirement Plan.

 

	 	
(c)

	
Fixed offset of $20,939 to reflect elimination of any benefit accrual for 2010 Plan year.

 

2.1.2 Payment of Benefit.   The Company shall pay the Normal Retirement Benefit in 120 equal monthly installments commencing the month following Executive’s Normal Retirement Age.

2.2 Early Termination Benefit. Upon Early Termination, and subject to the completion of the service vesting period provided for in section 2.2.2 hereof by the Executive, the Company shall pay to the Executive the benefit described in this section 2.2 in lieu of any other benefit under this agreement.

2.2.1 Amount of Benefit.

	
  

	
a)

	
The Early Termination Benefit is a monthly benefit payable in 120 equal monthly installments commencing on the first of the month following the Executive’s attainment of age 60 if termination occurs prior to age 60, or in the event of termination after age 60, on the first of the month following termination of employment.  The monthly amount of the Early Termination Benefit shall be calculated according to the methodology set forth on Addendum A, using such actuarial assumptions (which shall include those set forth on Addendum B) as are reasonably determined from time to time by the Company.  In determining the Early Termination Benefit the Early Termination Accrual Balance shall be adjusted for earnings from the December 31 preceding the Executive’s date of early termination to the Early Termination Benefit commencement date as specified in the preceding sentence.

 

  

  

  

 

	
  

	
b)

	
The Early Termination Accrual Balance is an amount as of the December 31 preceding the Executive’s date of Early Termination that is equal to what would have been accumulated with earnings had there been one annual contribution at the end of each calendar year prior to the Executive’s date of Early Termination.  Each such annual contribution amount shall be equal to a level annual contribution necessary to create a fund at the Executive’s Normal Retirement Date sufficient to pay the Executive’s Projected Normal Retirement Benefit and shall be calculated assuming that the Executive’s Projected Normal Retirement Benefit is funded ratably over the period from July 1, 2003 to the Executive’s Normal Retirement Date.  The level annual contribution amount for the short period of July 1, 2003 to December 31, 2003 shall be prorated for that six month period which is less than a full year.

 

	
  

	
(i)

	
The Projected Normal Retirement Benefit is the Normal Retirement Benefit determined under section 2.1 as of the December 31 preceding the Executive’s date of Early Termination using:

 

	
  

	
1.

	
The Executive’s annual base salary at the end of the calendar year preceding the Executive’s date of Early Termination;

 

	
  

	
2.

	
An estimate as of that calendar year-end of the Executive’s Social Security PIA offset at age 65;

 

	
  

	
3.

	
A projection of the retirement plan offset using the MBT Retirement Plan account balance attributed to Company contributions as of that December 31;

 

	
  

	
4.

	
The fixed dollar offset amount referenced under section 2.1.1 (c); and

 

	
  

	
5.

	
The interest rate and actuarial assumptions set forth in Addendum A of the Plan.

 

	
  

	
(ii)

	
For purposes of determining the Early Termination Accrual Balance, the level annual contribution amount shall be treated as if it had been credited at the end of each calendar year and the earnings values shall be calculated on that basis. After the Executive has terminated employment, the Early Termination Accrual Balance shall only be adjusted for earnings at the interest rate specified in Addendum A and no contributions or other contribution-like additions shall be credited to the Early Termination Accrual Balance.  Any subsequent change in the Executive’s Social Security PIA or MBT Retirement Plan account balance attributed to Company contributions after the Executive has terminated employment shall not retroactively change the amount of the Projected Normal Retirement Benefit and the Early Termination Accrual Balance as previously determined.

 

	
  

	
(iii)

	
Addendum A of the Plan sets forth the interest rate to be applied and illustrates the calculation of the Early Termination Accrual Balance.

2.2.2        Vesting of Benefit.  The Early Termination benefit payable under section 2.2 shall be one hundred percent (100%) vested upon the Executive's continued service in the capacity of President and CEO to April 4, 2009.

2.2.3        Executive Distribution Election.  Notwithstanding the above, in the event of termination prior to age 60, the Executive may elect no later than one year prior to attainment of age 60, to defer commencement of the Early Termination Benefit to age 65.

2.3 Disability Benefit. If the Executive terminates employment due to Disability prior to his Normal Retirement Age, the Executive shall become one hundred percent (100%) vested in the benefit payable under Section 2.2.

 

2.3.1 Payment of Benefit. The Disability Benefit in an amount equal to the Early Termination Accrual Balance shall be paid to the Executive in 120 equal monthly installments as determined under 2.2.1 commencing with the month following termination of Employment resulting from Disability.

2.4           Restriction on Timing of Distributions.  Notwithstanding any provision of this Agreement to the contrary, if the Executive is considered a Specified Employee at Termination of Employment under such procedures as established by the Company in accordance with Section 409A of the Code, benefit distributions that are made upon Termination of Employment may not commence earlier than six (6) months after the date of such Termination of Employment.  Therefore, in the event this Section 2.4 is applicable to the Executive, any distribution which would otherwise be paid to the Executive within the first six months following the Termination of Employment shall be accumulated and paid to the Executive in a lump sum on the first day of the seventh month following the Termination of Employment.  All subsequent distributions shall be paid in the manner specified.

 

2.5           Distributions Upon Income Inclusion Under Section 409A of the Code.  Upon the inclusion of any amount into the Executive’s income as a result of the failure of this non-qualified deferred compensation plan to comply with the requirements of Section 409A of the Code, to the extent such tax liability can be covered by the entire amount accrued by the Company with respect to the Company’s obligations hereunder, a distribution shall be made as soon as is administratively practicable following the assertion by the Internal Revenue Service of the plan failure.

2.6           Change in Form or Timing of Distributions.  All changes in the form or timing of distributions hereunder must comply with the following requirements.  The changes:

	
  

	
(a)

	
may not accelerate the time or schedule of any distribution, except as provided in Section 409A of the Code and the regulations thereunder;

 

	
  

	
(b)

	
must, for benefits distributable, delay the commencement of distributions for a minimum of five (5) years from the date the first distribution was originally scheduled to be made;  and

 

	
  

	
(c)

	
must take effect not less than twelve (12) months after the election is made.

  

  

  

Article 3

Death Benefits

 

3.1      Death During Active Service. Upon Termination of Employment of the Executive by reason of death, no benefit shall be payable under this Agreement.  It is acknowledged by the Company and the Executive that while Executive is employed by the Company provision has been made for a death benefit to be payable to the Executive’s beneficiary pursuant to that certain “Monroe Bank & Trust Split Dollar Agreement” dated July 1, 2003, and as amended of even date with this amendment and restatement.

 

3.2      Death During Payment of a Benefit. If the Executive dies after any benefit payments have commenced under Article 2 of this Agreement but before receiving all such payments, the Company shall pay the remaining benefits to the Executive's beneficiary at the same time and in the same amounts they would have been paid to the Executive had the Executive survived.

 

3.3      Death After Termination of Employment But Before Payment of a Benefit Commences. If the Executive is entitled to a benefit under Article 2 of this Agreement, but dies prior to the commencement of said benefit payments, the Company shall pay the same benefit payments to the Executive's beneficiary that the Executive was entitled to prior to death except that the benefit payments shall commence on the first day of the month following the date of the Executive's death.

 

Article 4

Beneficiaries

 

4.1      Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Company. The Executive may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Executive and received by the Company during the Executive's lifetime. The Executive's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive, or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's estate.

 

4.2      Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Company may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Company may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit.

  

  

  

 

Article 5

General Limitations

 

5.1 Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Company shall not pay any benefit under this Agreement if the Company terminates the Executive's employment for:

 

	
  

	
(a)

	
gross negligence or gross neglect of duties;

	 	
(b)

	
commission of a felony or of a gross misdemeanor involving moral turpitude; or

	 	
(c)

	
fraud, disloyalty, dishonesty or willful violation of any law or significant Company policy committed in connection with the Executive's employment and resulting in an adverse effect on the Company.

 

5.2        Suicide or Misstatement. The Company shall not pay any benefit under this Agreement if the Executive commits suicide within three years after the date of this Agreement. In addition, the Company shall not pay any benefit under this Agreement if the Executive has made any material misstatement of fact on an employment application or resume provided to the Company, or on any application for any benefits provided by the Company to the Executive.

 

5.3        Competition After Termination of Employment. The Company shall not pay any benefit under this Agreement if the Executive, within 12 months following Termination of Employment, without the prior written consent of the Company, engages in, becomes interested in, directly or indirectly, as a sole proprietor, as a partner in a partnership, or as a substantial shareholder in a corporation, or becomes associated with, in the capacity of employee, director, officer, principal, agent, trustee or in any other capacity whatsoever, any enterprise conducted in the trading area (a 50 mile radius) of the business of the Company, which enterprise is, or may deemed to be, competitive with any business carried on by the Company as of the date of termination of the Executive's employment or retirement. This section shall not apply following a Change of Control as defined by 7.3(a) hereof.

 

Article 6

Claims and Review Procedures

 

6.1 Claims Procedure. An Executive or beneficiary ("claimant") who has not received benefits under the Agreement that he or she believes should be paid shall make a claim for such benefits as follows:

 

6.1.1           Initiation - Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits.

 

6.1.2           Timing of Company Response. The Company shall respond to such claimant within 90 days after receiving the claim. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision.

 

  

  

  

 

6.1.3           Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

	
  

	
(a)

	
The specific reasons for the denial;

	 	
(b)

	
A reference to the specific provisions of the Agreement on which the denial is based;

 

	 	
(c)

	
A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed;

 

	 	
(d)

	
An explanation of the Agreement's review procedures and the time limits applicable to such procedures; and

 

	 	
(e)

	
A statement of the claimant's right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

 

6.2           Review Procedure.   If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as follows:

 

6.2.1           Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Company's notice of denial, must file with the Company a written request for review.

 

6.2.2           Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits.

 

6.2.3           Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

 

6.2.4           Timing of Company Response. The Company shall respond in writing to such claimant within 60 days after receiving the request for review. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60-day period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision.

 

  

  

  

 

6.2.5           Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

 

	 	
(a)

	
The specific reasons for the denial;

	 	
(b)

	
A reference to the specific provisions of the Agreement on which the denial is based;

	 	
(c)

	
A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits; and

 

	 	
(d)

	
A statement of the claimant's right to bring a civil action under ERISA Section 502(a).

 

Article 7

Amendments and Termination

	
7.1

	
Amendments.  This Agreement may be amended only by a written agreement signed by the Company and the Executive.  However, the Company may unilaterally amend this Agreement to conform with written directives to the Company from its auditors or banking regulators or to comply with legislative changes or tax law, including without limitation Section 409A of the Code and any and all Treasury regulations and guidance promulgated thereunder.

	
7.2

	
Plan Termination Generally.  The Company and Executive may by mutual agreement terminate this Agreement at any time.  The benefit hereunder shall be the entire amount accrued by the Company with respect to the Company’s obligations hereunder.  Except as provided in Section 7.3, the termination of this Agreement shall not cause a distribution of benefits under this Agreement.  Rather, after such termination benefit distributions will be made at the earliest distribution event permitted under Article 2 or Article 3.

	
7.3

	
Plan Terminations Under Section 409A.  Notwithstanding anything to the contrary in Section 7.2, this Agreement may be terminated by the Company, without the consent of the Executive, in the following circumstances, as provided by and subject to the limitations and requirements of IRC 409A and section 1.409A-3(j)(4)(ix) of the IRS Regulations, as now in effect and hereinafter amended.

	
  

	
(a)

	
Within thirty (30) days before or twelve (12) months after a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company as described in Section 409A(a)(2)(A)(v) of the Code (collectively a “Change in Control”), provided that all distributions are made no later than twelve (12) months following such termination of the Agreement and further provided that all the Company's arrangements which are substantially similar to the Agreement are terminated so the Executive and all participants in the similar arrangements are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12) months of the termination of the arrangements; or

 

  

  

  

 

	
  

	
(b)

	
Upon the Company’s termination and liquidation of this Agreement within 12 months of a corporate dissolution or with the approval of a bankruptcy court provided that the amounts deferred under the Agreement are paid and included in the Executive's gross income in the latest of (i) the calendar year in which the Agreement terminates; (ii) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the distribution is administratively practical.

 

In connection with termination as provided in this Section 7.3, the Company shall distribute the Early Termination Accrual Balance by the Company with respect to the Company’s obligations hereunder, determined as of the date of the termination of the Agreement, to the Executive in a lump sum subject to the above terms.

 

Article 8

Miscellaneous

 

8.1      Binding Effect. This Agreement shall bind the Executive and the Company, and their beneficiaries, survivors, executors, successors, administrators and transferees.

 

8.2      No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time.

 

8.3      Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.

 

8.4      Reorganization. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm, or person unless such succeeding or continuing company, firm, or person agrees to assume and discharge the obligations of the Company under this Agreement. Upon the occurrence of such event, the term "Company" as used in this Agreement shall be deemed to refer to the successor or survivor company.

 

8.5      Tax Withholding. The Company shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.

 

8.6      Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of Michigan, except to the extent preempted by the laws of the United States of America.

8.7      Unfunded Arrangement. The Executive and beneficiary are general unsecured creditors of the Company for the payment of benefits under this Agreement. The benefits represent the mere promise by the Company to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Executive's life is a general asset of the Company to which the Executive and beneficiary have no preferred or secured claim.

 

8.8      Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein.

 

8.9      Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to:

 

	 	
(a)

	
Establishing and revising the method of accounting for the Agreement;

	 	
(b)

	
Maintaining a record of benefit payments;

	 	
(c)

	
Establishing rules and prescribing any forms necessary or desirable to administer the Agreement; and

	 	
(d)

	
Interpreting the provisions of the Agreement.

IN WITNESS WHEREOF, the Executive and the Company have signed this Amended and Restated Agreement.

 

	
EXECUTIVE:

	 	
COMPANY:

	 
	  	 	  	 
	
/s/ H. Douglas Chaffin

	 	
/s/ Michael J. Miller

	 
	
H. Douglas Chaffin

	 	
By:  Michael J. Miller

	 
	  	 	
Title: Chairman of the Board of Directors

	 

  

  

  

	
Addendum A - Early Termination Benefit (Refer to Section 2.2)

	 
	
Illustration of benefit calculation (All assumptions are for purposes of illustrating benefit calculation only)

	  	 	  
	
Assumed Early Termination: During 2011

	  	 	  
	  	 	  
	
Step 1 - Calculate Projected Normal Retirement Benefit as of 12/31/2010

	
$295,410

	 	
12/31/10 Base Salary

	
X

	 	
 

	  65% 	 	
Benefit Percent

	
$192,020 

	 	
Base Annual Benefit

	  	 	
Minus Offset amounts

	  17,646	 	
50% of Projected Social Security PIA at age 65

	  	 	
Projected life annuity value of 12/31/10 employer contribution balance under MBT

	33,182 	 	
Retirement Plan

	  	 	
Fixed offset to reflect elimination of 2011

	  20,939 	 	
benefit accrual

	
$120,253

	 	
 Projected Normal Retirement Benefit

	
Step 2 Develop Amortization Schedule Over Executive Career

	  

 

	  	 	 	 	 	
End-of-Year

	 	 	
End-of-Year

	 	 	
End-of-Year

	 
	
Benefit Accrual

	 	
Beginning-Year

	 	 	
Contribution

	 	 	
Interest

	 	 	
Accrual

	 
	
Periods

	 	
Balance

	 	 	
Credit

	 	 	
Credit

	 	 	
Balance

	 
	
2003

	 	 	0	 	 	 	15,050	 	 	 	0	 	 	 	15,050	 
	
2004

	 	 	15,050	 	 	 	30,544	 	 	 	903	 	 	 	46,497	 
	
2005

	 	 	46,497	 	 	 	30,544	 	 	 	2,790	 	 	 	79,831	 
	
2006

	 	 	79,831	 	 	 	30,544	 	 	 	4,790	 	 	 	115,164	 
	
2007

	 	 	115,164	 	 	 	30,544	 	 	 	6,910	 	 	 	152,618	 
	
2008

	 	 	152,618	 	 	 	30,544	 	 	 	9,157	 	 	 	192,320	 
	
2009

	 	 	192,320	 	 	 	30,544	 	 	 	11,539	 	 	 	234,403	 
	
2010

	 	 	234,403	 	 	 	30,544	 	 	 	14,064	 	 	 	279,011	 
	
2011

	 	 	279,011	 	 	 	30,544	 	 	 	16,741	 	 	 	326,296	 
	
2012

	 	 	326,296	 	 	 	30,544	 	 	 	19,578	 	 	 	376,418	 
	
2013

	 	 	376,418	 	 	 	30,544	 	 	 	22,585	 	 	 	429,547	 
	
2014

	 	 	429,547	 	 	 	30,544	 	 	 	25,773	 	 	 	485,864	 
	
2015

	 	 	485,864	 	 	 	30,544	 	 	 	29,152	 	 	 	545,560	 
	
2016

	 	 	545,560	 	 	 	30,544	 	 	 	32,734	 	 	 	608,837	 
	
2017

	 	 	608,837	 	 	 	30,544	 	 	 	36,530	 	 	 	675,912	 
	
2018

	 	 	675,912	 	 	 	30,544	 	 	 	40,555	 	 	 	747,011	 
	
2019

	 	 	747,011	 	 	 	30,544	 	 	 	44,821	 	 	 	822,375	 
	
2020

	 	 	822,375	 	 	 	30,544	 	 	 	49,343	 	 	 	902,262	 
	
2021

	 	 	902,262	 	 	 	2,478	 	 	 	4,392	 	 	 	909,132	 

 

	
Step 3 Determine Accrual Balance at Year- End Preceding Termination

 

	 	 	 	 	 	
End-of-Year

	 	 	
End-of-Year

	 	 	
End-of-Year

	 
	 Benefit Accrual 	 	Beginning-Year 	 	 	
Contribution

	 	 	
Interest

	 	 	
Accrual

	 
	
Periods

	 	
Balance

	 	 	
Credit

	 	 	
Credit

	 	 	
Balance

	 
	
2003

	 	 	0	 	 	 	15,050	 	 	 	0	 	 	 	15,050	 
	
2004

	 	 	15,050	 	 	 	30,544	 	 	 	903	 	 	 	46,497	 
	
2005

	 	 	46,497	 	 	 	30,544	 	 	 	2,790	 	 	 	79,831	 
	
2006

	 	 	79,831	 	 	 	30,544	 	 	 	4,790	 	 	 	115,164	 
	
2007

	 	 	115,164	 	 	 	30,544	 	 	 	6,910	 	 	 	152,618	 
	
2008

	 	 	152,618	 	 	 	30,544	 	 	 	9,157	 	 	 	192,320	 
	
2009

	 	 	192,320	 	 	 	30,544	 	 	 	11,539	 	 	 	234,403	 
	
2010

	 	 	234,403	 	 	 	30,544	 	 	 	14,064	 	 	 	279,011	 

	
Step 4 Determine monthly benefit amount paid at benefit commencement - age 60

	 
	
12/31/2010 accrual balance of $279,011 grows to $375,197 at age 60 based on stated interest rate  in addendum A.

	 
	
$375,197 is equal in value to $4,136 payable each month, beginning at age 60, over a 120 month  period.

  

  

  

 

Addendum B

 

The following factors will be applied in calculating the participant's benefit accrual, and will be subject to review and modification by the Compensation Committee of the Board:

	
Interest Rate

	
6.00%

	  	  
	
Rate of return on 401(k) account balance

	
6.00%

	  	  
	
Mortality Assumptions

	
1994 GAR Table as defined in

Rev. Ruling 2001-62

	  	  
	
Social Security law In effect at termination

	  
	  	  
	
For purposes of estimating the Social Security PIA:

	  
	  	  
	
Wage Base Increases

	
3.00%

	  	  
	
Average Wage Index

	
2.75%

	  	  
	
CPI

	
2.50%

	  	  
	
Executive's historical wages based on historical national average wage index

	  	  
	
Executive assumed to continue to earn level future wages after termination until age 65Unassociated Document

NATIVE AMERICAN ENERGY GROUP, INC.

108-18 Queens Blvd., Suite 901

Forest Hills, NY11375

Tel: 718 408-2323

Fax: 718 793-4034

FINANCING AGREEMENT

As of July 25, 2011

	
1.

	
Issuer:

	
Native American Energy Group, Inc., a Delaware corporation (“NAGP” or the “Company”).

	  	  	  
	
2.

	
Investors:

	
“Accredited Investors” as defined in Rule 501 of Regulation D of the Securities Act of 1933, including High Capital Funding, LLC (“HCF” or “Lead Investor”).  HCF and the other investors are referred to collectively herein as the “Investors.” The Investors and/or their permitted transferees are also referred to collectively herein as “Holders.”  The names, addresses, and the number of “Bridge Units” (as defined in “5.Securities Offered:” below) being purchased by the Investors are set forth on the signature pages hereto.

	  	  	  
	
3.

	
Placement Agent(s):

	
The Company may engage one or more non-exclusive placement agents (the “Placement Agents”) which are registered as brokers or dealers with the United States Securities and Exchange Commission (“SEC”) and members of the Financial Industry Regulatory Authority, Inc. (“FINRA”);the Securities Investor Protection Corporation (“SIPC”), and the National Investment Banking Association (“NIBA”). Any exception requires the approval of the Company and the Lead Investor.

	  	  	  
	
4.

	
Escrow Agent:

	
The Company and the Investors hereby appoint David A. Rapaport, Executive VP & General Counsel of the Lead Investor, to serve as escrow agent (“Escrow Agent”) hereunder, and the Escrow Agent hereby accepts such appointment subject to the terms and conditions of the Escrow Terms attached hereto as Exhibit A.

	  	  	  
	
5.

	
Securities Offered:

	
Up to 24 Bridge Units for a maximum offering of $600,000, each unit comprised of a $25,000 Bridge Note (in the form of Exhibit B attached hereto) and 50,000 shares of NAGP restricted common stock (the “Bridge Shares”). Fractional units may be issued at the sole discretion of the Lead Investor.  Up to six additional Bridge Units may be issued at the request of the Company with the approval of the Lead Investor.  There is no minimum number of Bridge Units.

	  	  	  
	
6.

	
Interest:

	
(a)6.25% per annum during the initial term of the Bridge Note payable at the Maturity Date (as defined in “7. Maturity:” below);

	  	  	  
	  	  	
(b) 8.25% per annum during any Extension Period (as defined in “7.Maturity:” below), payable at the end of each Extension Period; and

	  	  	  
	  	  	
(c) 12.25%per annum default interest rate after the final Extension Period, payable monthly.

 

  

1

  

 

	
7.

	
Maturity:

	
(a)The entire principal amount of the Bridge Notes and all accrued and unpaid interest thereon is due and payable upon the earlier of (i) September 30, 2011, or within two business days following the closing of any and all other equity and/or debt financing totaling $3,000,000 or more (“Permanent Financing”)(the “Maturity Date”); provided that NAGP shall make mandatory prepayments on the Bridge Notes equal to 25% of the gross proceeds received from each closing of the first $3,000,000 of Permanent Financing, which shall be applied to the outstanding principal. Such mandatory prepayments shall be paid to the Escrow Agent for the benefit of the Holders of Bridge Notes on a pro rata basis.

	  	  	  
	  	  	
(b)The Bridge Notes may be prepaid at any time without premium or penalty.

	  	  	  
	  	  	
(c)In the event the Company shall not have closed on a cumulative total of $3,000,000 or more of Permanent Financing on or before September 30, 2011, the Company shall have the right to extend the Maturity Date for up to two additional one month periods (each an “Extension Period”), until November 30, 2011 (each an “Extended Maturity Date”), by providing written notice of such extension to the Placement Agents, the Lead Investor, and the Escrow Agent within three business days prior to any Maturity Date or Extended Maturity Date.

	  	  	  
	
8.

	
Purchase Price:

	
The aggregate purchase price (“Purchase Price”) of a Bridge Unit shall be the principal amount of a Bridge Note.  For federal income tax purposes, the Company will allocate 80% of the purchase price to the Bridge Note and 20% of the purchase price to the Bridge Shares.  The portion allocated to the Bridge Shares will be treated as “original issue discount.”

	  	  	  
	
9.

	
Security:

	
Repayment of the Bridge Notes shall be secured by: (i) a first lien on the oil and gas leases and related equipment (excluding the mobile drilling rig owned by the Company)identified on Schedule A attached hereto;  and (ii) a first lien on lease(s) for water disposal well(s) acquired after the date hereof which are intended to be used for the wells identified on Schedule A, to be evidenced by a mortgage and security agreement (including UCC 1 filings) (the “Security Documents”) acceptable in form and substance to the Lead Investor, in its sole discretion. The Lead Investor is appointed as the agent of the Investors with full authority to exercise any and all rights and remedies of the Investors under this Financing Agreement, the Bridge Notes and the Security Documents, and to modify or amend this Financing Agreement, the Bridge Notes and/or the Security Documents, in any and all respects, with the consent of the Company. However, the Lead Investor shall not have the authority to reduce the principal amount owing under the Bridge Notes without the written consent of at least seventy-five percent in interest of the Investors, except as part of a compromise and/or settlement of claims against the Company arising from a default under the Bridge Notes.

	  	  	  
	
10.

	
Expenses:

	
The Company agrees that it shall be responsible for the expenses of this transaction, including without limitation expenses incurred by the Escrow Agent, the fees and expenses of preparing and filing the Security Documents, and the fees and expenses of its counsel; provided that it shall not be responsible for any fees of the Lead Investor’s General Counsel. The Company shall also be responsible for any fees and/or expenses for the collection of the Bridge Notes.

 

  

2

  

	
11.

	
Transfer

	  
	  	
and Assignment:

	
Investors shall have the right, subject to applicable securities laws, to transfer and/or assign the Bridge Notes, and/or the Bridge Shares.

	  	  	  
	
12.

	
Closing(s):

	
(a) Closing(s) shall be held from time to time at the mutual agreement of the Company, the Escrow Agent and the Lead Investor.

	  	  	  
	  	  	
(b Commencing six months from the date upon which an Investor has acquired Bridge Shares, the Company shall bear the cost of any legal opinion required by the Company and/ or Pacific Stock Transfer, Inc. (or its then transfer agent) to remove the 144 restrictive legend from the certificate(s) for such Bridge Shares to enable a sale of such shares in accordance with SEC Rule 144.

	  	  	  
	  	  	
(c) The Lead Investor has, prior to the first Closing, made advances to the Company, each evidenced by a demand promissory note with interest at the rate of 6.25%.  At the first Closing, the Lead Investor shall be paid an amount which is the total of all of such demand notes including interest accrued to that date. Should the Lead Investor make any advances to the Company subsequent to the first Closing or any subsequent Closing, it shall be paid an amount which is the total of all then outstanding subsequent advances including interest accrued to the date of each subsequent Closing.

	  	  	  
	  	  	
(d)At each Closing, the Escrow Agent shall upon the written instructions of the Lead Investor: (i) transfer to the Lead Investor the principal and interest owing to it from NAGP as set forth in Section 12(c) above;(ii) transfer to the Placement Agent(s) any fees and/or expenses to which they are then entitled; (iii) transfer the balance of the Purchase Price funds to NAGP; and (iv) deliver the Bridge Notes and the certificates for the Bridge Shares to the Investors.

	  	  	  
	
13.

	
SEC Reporting:

	
The Company will maintain the registration of its common stock under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”), and will file all reports required by the Exchange Act in a timely manner for as long as any Investor still owns Bridge Shares.  The Company’s SEC filings, including its Form 10KA for the year ended December 31, 2010, and its Form 10Q for the quarter ended March 31, 2011 are available on the SEC’s website www.(sec.gov) and on the Company website (www.nativeamericanenergy.com).

	  	  	  
	
14.

	
Events of Default:

	
To include breach of any of the representations and warranties and covenants contained in any of the Further Documents (as defined in “16.Binding Agreement:” below).

	  	  	  
	
15.

	
Jurisdiction

	  
	  	
&Choice of Law:

	
All transaction documents shall be governed by and construed under the laws of the state of New York as applied to agreements entered into and to be performed entirely within such state, without giving effect to principles of conflicts of law.  The parties irrevocably consent to the jurisdiction and venue of the state and federal courts located in the City of New York in connection with any action relating to this transaction.

  

3

  

	
16.

	
Binding Agreement:

	
All parties executing this Financing Agreement shall be legally bound by the above terms, and by the terms of the further documents, including without limitation, the Escrow Terms (Exhibit A), the Bridge Notes (Exhibit B), Security Documents, Subscription Agreements and Accredited Investor Questionnaires(“Further Documents”).  Investors agree to execute any Further Documents when requested.  In the event there are any conflicts between any term of this Financing Agreement and any term of any Further Documents, the terms of this Financing Agreement shall apply.  This Financing Agreement may be signed in two or more counterparts, all of which taken together shall constitute an original.  Facsimile and/or electronic signatures shall be deemed to be original signatures.

	
NATIVE AMERICAN ENERGY GROUP, INC.

	  	  
	  	  	  
	
By:

	
/s/ Joseph G. D’Arrigo

	  	
Date: July 27, 2011

	
Joseph G. D’Arrigo, Chairman & CEO

	  	  
	  	  	  
	  	  	  
	
ESCROW AGENT

	  	  
	  	  	  
	
/s/ David A. Rapaport

	  	
Date: July 27, 2011

	
David A. Rapaport

	  	  
	  	  	  
	
333 Sandy Springs Circle, Suite 230

	  	  
	
Atlanta, GA30328

	  	  
	
Tel:  404 257-9150

	  	  
	
Fax:  866 835-9632

	  	  
	
Email: drapaport@highcapus.com

	  	  

 

  

4

  

SIGNATURES OF INVESTORS ON FOLLOWING PAGES

	
HIGH CAPITAL FUNDING, LLC

	
Number of Bridge Units:_______________

	  	  
	  	
Subscription Amount: $_______________

	
By:  /s/ Frank E. Hart

	  	
Date:    July 27, 2011

	
Frank E. Hart, President

	  	  
	
Profit Concepts, Ltd., Manager

	  	  

	
333 Sandy Springs Circle, Suite 230

	
Atlanta, GA30328

	
Tel:  404 257-9150

	
Fax: 404 257-9125

	
Email: ldowd@highcapus.com

	
Tax ID#/SS#:    13-3921591

 

  

5

  

EXHIBIT A

ESCROW TERMS

David A. Rapaport, Esq.

333 Sandy Springs Circle, Suite 230

Atlanta, GA  30328

Dear Mr. Rapaport:

The undersigned signatory(ies) to the Financing Agreement, dated as of July 25, 2011(the “Financing Agreement”) to which these Escrow Terms are attached as Exhibit A hereby appoints you as my (our) Escrow Agent, and you hereby accept such appointment, to act on my (our) behalf in connection with my (our) purchase and ownership of Bridge Units (comprised of Bridge Notes & Bridge Shares) being delivered to you as Escrow Agent in accordance with the terms of the Financing Agreement. You are authorized to hold, and to disburse in accordance with the terms of the Financing Agreement, funds remitted to you for the purchase of Bridge Units. You are further authorized and directed to hold for my (our) benefit my (our) interest in the Bridge Notes and Bridge Shares. Unless otherwise provided herein all italicized terms shall have the meanings ascribed to them in the Financing Agreement.

1. The Escrow Agent’s duties hereunder may be altered, amended, modified or revoked only by a writing signed by Investor and the Escrow Agent.

2.  The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by the Escrow Agent to be genuine and to have been signed or presented by the property party or parties.  The Escrow Agent shall not be personally liable for any act the Escrow Agent may do or omit to do hereunder as Escrow Agent while acting in good faith, except for fraud, willful misconduct, or gross negligence, and any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow Agent’s attorneys-at-law shall be evidence of such good faith.

3.  The reasonable costs and/or disbursements of the Escrow Agent chargeable in respect of services provided in the capacity as Escrow Agent pursuant to these Escrow Terms will be the responsibility of NAGP.  The Escrow Agent shall not charge any fees for his services as Escrow Agent.

4.  Subject to the terms of the Financing Agreement, the Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court.  In case the Escrow Agent obeys or complies with any such order, judgment or decree, the Escrow Agent shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.

5.  The Escrow Agent shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Bridge Notes, or the Bridge Shares or any other documents or papers deposited or called for hereunder.

6.  The Escrow Agent shall be entitled to employ such legal counsel and other experts with the prior written consent of the Company as the Escrow Agent may deem necessary to properly advise the Escrow Agent in connection with the Escrow Agent’s duties hereunder. The Escrow Agent may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefore.  The Escrow Agent is the Executive Vice President and General Counsel of High Capital Funding, LLC ("HCF"), the Lead Investor, and has acted as legal counsel for HCF in connection with the Financing Agreement and may continue to act as legal counsel for HCF and/or its affiliates from time to time, notwithstanding its duties as Escrow Agent hereunder.  Investor waives any and all claims and allegations of conflict in relation to the Escrow Agent’s continued representation of HCF and/or its affiliates as its attorney.

  

A-1

  

7.  The Escrow Agent’s responsibilities as Escrow Agent hereunder shall terminate if the Escrow Agent shall resign with three (3) business days prior written notice to Investors and NAGP.  In the event of any such resignation, a majority in interest of the Investors may, but shall not be required to, appoint a successor Escrow Agent.

8.  If the Escrow Agent reasonably requires other or further instruments in connection with these Escrow Terms or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.

9.  It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the property held by the Escrow Agent hereunder, the Escrow Agent is authorized and directed in the Escrow Agent’s sole discretion (1) to retain in the Escrow Agent’s possession without liability to anyone all or any part of such property until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but the Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings or (2) to deliver the property held by the Escrow Agent hereunder to a state or federal court having competent subject matter jurisdiction in accordance with the applicable procedure therefore.

10. The Investors and NAGP agree to indemnify and hold harmless the Escrow Agent from any and all claims, liabilities, costs or expenses in any way arising from or relating to the duties or performance of the Escrow Agent hereunder other than any such claim, liability, cost or expense to the extent the same shall have been determined by final, unappealable judgment of a court of competent jurisdiction to have resulted from fraud, gross negligence or willful misconduct of the Escrow Agent.

11.  In the event of any action or proceeding brought by any party against another under these Escrow Terms  the prevailing party or parties shall be entitled to recover all expenses incurred through the date of final collection, including without limitation, all attorneys’ fees.

12.  Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given upon personal delivery, overnight courier, facsimile, email or other form of electronic transmission, or three business days after deposit in the United States Postal Service, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the addresses listed below their signature, or at such other addresses as a party may designate by ten days advance written notice to each of the other parties hereto.

13.  This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns and shall be governed by the laws of the State of New York without giving effect to principles governing the conflicts of laws.  Facsimile transmissions of the signatures to these instructions shall be legal and binding on all parties hereto.

14. NAGP shall be entitled to rely upon the authority of Escrow Agent under these Escrow Terms unless and until NAGP is notified in writing by Escrow Agent and/or a majority in interest of Investors that such authority has been terminated and/or revoked in conformity with the terms herein.

15. These Escrow Terms supersede all prior oral and/or written agreements concerning the subject matter hereof.

  

A-2

  

EXHIBIT B

FORM OF BRIDGE NOTE

  

  

  

SCHEDULE A

OIL & GAS LEASES& RELATED EQUIPMENT

	
Schedule A-1:

	
Beery 2-24 & Beery 22-24 – Two oil wells located on 320 acres (N/2 of Sec.24-23N-49E) in McCone County, Montana.

	  	  
	
Schedule A-2:

	
Wright 5-35 – One oil well is located on 160 acres (SW NW of Sec.35-24N-46E) in McCone County, Montana.

	  	  
	
Schedule A-3:

	
Sandvick 1-11 – One oil well is located on 160 acres (SW NW of Sec.11-31N-44E) in Valley Montana.

	  	  
	
Schedule A-4:

	
Cox 7-1 – One oil well is located on 80 acres (NE NE/4 of Sec.7-29N-50E) in Roosevelt County, Montana

	  	  
	
Schedule A-5

	
New equipment for all wells

 

Schedule A Page 1

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