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Draft Esop Loan Commitment Letter

This is an actual contract by BAY State Bancorp.

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Sectors: Banking
Governing Law: Massachusetts, View Massachusetts State Laws
Effective Date: January 01, 1997
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Bay State Federal Savings Bank. 1299 Beacon Street Brookline, Massachusetts 02146

_______________ , 1997


The undersigned,________________________ ("Trustee"), not individually but solely as Trustee under the Bay State Federal Savings Bank Employee Stock Ownership Trust (the "Trust") effective ____________ (the "Borrower"), applies to you for your commitment, subject to all of the terms and conditions hereof and on the basis of the representations hereinafter set forth, to make a loan available to the Borrower as hereinafter set forth. Bay State Funding Corp. is hereinafter referred to as the "Lender". The term "Bank" as used herein refers to the sponsoring employer of the Bay State Federal Savings Bank Employee Stock Ownership Plan (the "ESOP").


1.1 AMOUNT AND TERMS. Subject to and upon the terms and conditions herein set forth, the Lender agrees to lend amounts to the Borrower from time to time during the period of this agreement up to but not including _________(the "Maturity Date") in an aggregate principal amount sufficient to permit the Borrower to acquire a number of shares ("Shares") of common stock, par value $0.01 ("Common Stock") of Bay State Bancorp, Inc., a Delaware corporation, and the Holding Company of the Bank, equal to 8% of the Shares issued in connection with the conversion of the Bank from the mutual to stock form ("Loan Amount").

The Loan is intended to be an "exempt loan" as described in Section 4975(d) of the Internal Revenue Code of 1986, as amended (the "Code"), as defined in Section 54.4975-7(b) of the Treasury Regulations (the "Regulations"), as described in Section 408(b)(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and as described in Department of Labor Regulations Section 2550.408b-3 (collectively, the "Exempt Loan Rules").

1.2 THE NOTE. The disbursement of the Loan pursuant to Section 1.1 hereof shall be made against and evidenced by a promissory note of the Borrower in the form annexed hereto as Exhibit A (the "Note"), such Note to bear interest as hereinafter provided, and to mature in 3 twenty (20) equal annual installments consisting of both principal and interest amortized over a twenty (20) year period in an amount sufficient to repay all borrowed amounts plus interest, commencing on __________________ and on the last day of each and every ___________ each year thereafter, except that the final installment in the amount of all principal and interest not sooner paid shall be due on________________, the final maturity thereof.

Without regard to the principal amount of the Note stated on its face, the actual principal amount at any time outstanding and owed by the Borrower on account of the Note shall be the amount of the disbursement of the Loan made by the Lender under Section 1.1 hereof less all payments of principal actually received by the Lender. The amount of such disbursement made by the Lender and any repayments of principal thereof shall be recorded by the Lender on its books or records or, at its option, endorsed on the reverse side of the Note by the Lender and the unpaid principal balance at any time so recorded or endorsed by the Lender shall be prima facie evidence in any court or other proceedings brought to enforce the Note of the principal amount remaining unpaid thereon.

1.3 EXEMPT LOAN RULES. Notwithstanding anything to the contrary contained in this Loan and Security Agreement (the "Agreement") or in the Note, the Borrower shall be obligated to make repayments of the Loan only to the extent that such repayments when added to the repayments theretofore made during the applicable plan year would not exceed an amount which would cause the limitations of Section 415 of the Code to be exceeded for any ESOP participant.

Except as set forth in the next succeeding sentence and to the extent permitted by applicable law, including, without limitation, the Exempt Loan Rules, the principal amount of the Loan and any interest thereon shall be payable solely from contributions (other than contributions of employer securities) made to the Trust in accordance with the ESOP, and cash dividends received on the Shares, to enable the Borrower to pay its obligations under the Loan and from earnings attributable to the Shares and the investment of such contributions and dividends.

The Lender acknowledges and agrees that it shall have no other recourse against the Borrower for repayment of the Loan and that it shall have no recourse against assets of the ESOP included in the Trust other than pursuant to Sections 3 and 8 hereof.


2.1 INTEREST RATE. The Loan shall bear interest (which the Borrower hereby promises to pay) prior to maturity (whether by lapse of time, acceleration or otherwise) at a rate per annum equal at all times to the Interest Rate as defined in Section 10.3 hereof.

2.2 BASIS AND PAYMENT DATES. All interest accruing on the Note prior to maturity shall be due and payable on a annual basis on the last day of each year (commencing ____________) and at maturity (unless prepaid in whole prior to such date, then on the date of

2 4 such prepayment in whole) and interest accruing after maturity shall be due and payable upon demand. All interest on the Note shall be computed on the basis of a year of 360 days.


3.1 GRANT OF SECURITY INTEREST-PLEDGED SHARES. The Borrower hereby grants, pledges and assigns to the Lender all Shares of the issued and outstanding common stock, par value $.01 per share all of which were either (i) purchased by the Borrower from the proceeds of the disbursement of the Loan; (ii) acquired by the Borrower with the proceeds of a prior exempt loan within the meaning of Section 54.4975-7(b) of the Regulations, and pledged as collateral for such prior exempt loan, where the balance of such prior exempt loan has been repaid with the proceeds of the disbursement of the Loan (the "Pledged Shares" being hereinafter referred to as the "Collateral"). The Pledged Shares shall be evidenced by a stock certificate. The assignment and pledge herein granted and provided for is made and given to secure and shall secure the prompt payment of principal of and interest on the Note as and when the same becomes due and payable and the payment, observance and performance of any and all obligations and liabilities arising under or provided for in this Agreement or the Note or any of them in each instance as the same may be amended or modified and whether now existing or hereafter arising.

3.2 FURTHER ASSURANCES. The Borrower covenants and agrees that it will at any time and from time to time as requested by the Lender execute and deliver such further instruments and do and perform such other acts as the Lender may reasonably deem necessary or desirable to provide for or perfect the lien of the Lender in the Collateral hereunder.

3.3 VOTING. Upon the occurrence of a Default or an Event of Default hereunder, the Lender shall have the right to transfer the Collateral or any part thereof into its name or into the name of its nominee. The Lender shall not be entitled to vote the Pledged Shares unless and until an Event of Default has occurred and so long as the same shall not have been waived by the Lender.

3.4 PARTIAL RELEASES. The Lender agrees, provided always that no Default or Event of Default shall have occurred and be continuing, as promptly as is practicable after__________ in each year (the period commencing__________ and ending____________ and each subsequent 12-month period ending on_________ being hereinafter referred to as a "Plan Year"), to release that number of Pledged Shares then being held to secure the Loan which is equal to the number of such Pledged Shares held as of the last day of the Plan Year multiplied by a fraction, the numerator of which is the aggregate amount of all principal and interest payments made on the Note during the Plan Year and the denominator of which is the sum of the numerator plus the unpaid principal and interest of the Note as of the last day of such Plan Year.


4.1 PLACE AND APPLICATION. All payments of principal, interest, fees and all other amounts payable hereunder shall be made to the Lender at 1299 Beacon Street, Brookline, Massachusetts 02146 for the account of the Lender (or at such other place for the account of the Lender as the Lender may from time to time in writing specify to the Borrower) in immediately available and freely transferable funds at the place of payment. All payments shall be paid in full without setoff or counterclaim and without reduction for and free from any and all taxes, levies, duties, fees, charges, deductions, withholdings, restrictions or conditions of any nature imposed by any government or any political subdivision or taxing authority thereof.

4.2 PREPAYMENTS. The Borrower shall have the privilege of prepaying in whole or in part the Note at any time upon giving three (3) Business Days' prior notice to the Lender, each such prepayment to be made by the payment of the principal amount to be prepaid and accrued interest thereon to the date fixed for prepayment. All such prepayments shall be made without premium or penalty. Prepayments shall first be applied to the several installments of the Note in the inverse order of their respective maturities.


The Borrower represents and warrants to the Lender as follows:

5.1 The Trust is a duly organized, validly existing employee stock ownership trust.

5.2 The proceeds of the disbursement of the Loan shall be applied in their entirety to the payment of the purchase price for the Pledged Shares.

5.3 The Borrower has full right, power and authority to enter into this Agreement, to make the borrowings hereunder provided for, to issue the Note in evidence thereof and to perform each and all of the matters and things herein and therein provided for and this Agreement does not, and the Note when issued will not, nor will the performance or observance by the Borrower of any of the matters or things herein or therein provided, contravene any provision of law or the Trust or any other covenant or agreement affecting the Trust or any of its assets. As of the date of the disbursement of the Loan, the Pledged Shares will be fully paid and non-assessable and the Pledged Shares will be owned by the Borrower free and clear of all liens, charges and encumbrances whatsoever, except for any lien of Lender provided for herein.

5.4 Except as disclosed to the Lender in writing, there is no litigation or governmental proceeding pending, nor to the knowledge of the Borrower threatened, against the ESOP and Trust.

5.5 The ESOP and Trust have no material liabilities, whether absolute or contingent, except for those heretofore disclosed to the Lender.


The Lender represents and warrants that:

6.1 The Lender is a corporation duly organized under the laws of the State of Delaware, and is validly existing and in good standing under the laws of the State of Delaware. The Lender has full power and authority and legal right to make and perform this Agreement.

6.2 The execution, delivery and performance by the Lender of this Agreement have been duly authorized by all necessary action by the Lender and is not and will not violate any provisions of law applicable to the Lender, any rules, regulations or orders applicable to the Lender or any judgments or decrees binding upon the Lender. This Agreement is a valid and legally binding obligation of the Lender enforceable against the Lender in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting credits' rights generally and the general principles of equity (regardless of whether considered in a proceeding at law or in equity).

6.3 No authorizations, approvals or consents of, and no filings or registrations with, any governmental regulatory authority or agency are required for the execution, delivery or performance by the Lender of this Agreement, or any transaction contemplated hereby, or for the validity or enforceability against the Lender hereof except as have already been received or accomplished.

6.4 The execution, delivery and performance of the Agreement and the consummation of the transactions contemplated hereby will not violate, conflict with or constitute a default under (i) any of the provisions of the Lender's Certificate of Incorporation or Bylaws, (ii) any provision of any agreement, instrument, order, arbitration award, judgment or decree to which the Lender is a party or by which it is or its assets are bound (iii) any statute, rule or regulation of any federal, state or local government or agency applicable to the Lender, except in any such case (i), (ii), (iii) above, for any such conflicts, violations, defaults which either individually or in the aggregate do not have a material adverse effect on the business properties of the Lender and its subsidiaries, taken as a whole.

6.5 The Bank has taken such actions as are required by applicable law to be taken by it to establish the ESOP and the Trust.

6.6 There is no action, suit, investigation or proceeding pending, or to the best knowledge of the Bank, threatened against or affecting the ESOP before any court or governmental departmen
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