BANK OF SMITHTOWN DIRECTOR INCENTIVE RETIREMENT AGREEMENT (Revised for Section 409A Compliance)
Exhibit
99.4
BANK
OF SMITHTOWN
(Revised
for Section 409A Compliance)
THIS
AGREEMENT is made this _________ day of _________________, 2008, by and between
Bank of Smithtown, a state chartered commercial bank, located in Smithtown, New
York (the "Company"), and ________________________ (the
"Director").
INTRODUCTION
In an
effort to reward past service, encourage continued service on the Company’s
Board of Directors, and as a method to attract future Directors, the Company is
willing to provide to the Director a deferred incentive
opportunity. The Company will pay the benefits from its general
assets. This Agreement, which is intended to comply with Section 409A
of the Code and all regulations and guidance issued thereunder, covers awards
(or any portion thereof) made under the prior Director Incentive Retirement
Agreement between the Company and the Director (the “Prior Agreement”) which
were (i) made after December 31, 2004 or (ii) made prior to January 1, 2005 but
only to the extent such awards were not vested on or before December 31,
2004. In addition, this Agreement covers all Earnings with respect to
awards (or any portion thereof) described in (i) and (ii) of this
paragraph. The Agreement also provides for awards made on or after
the effective date. This Agreement does not cover awards made or
vested (whether in whole or in part) prior to January 1, 2005, which continue to
be covered by the Prior Agreement. For purposes of this Agreement,
“Section 409A” shall refer to Section 409A of the Code and all regulations and
guidance issued thereunder.
AGREEMENT
The
Director and the Company agree as follows:
Article
1
Definitions
1.1 Definitions. Whenever
used in this Agreement, the following words and phrases shall have the meanings
specified:
1.1.1 “Annual Fees” means the Board
of Director retainer fees, the Board of Director meeting fees and the Board of
Director committee fees earned by the Director during the calendar
year.
1.1.2 "Change
of Control” means any of the following:
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(i) Merger: The
Company merges into or consolidates with another corporation, or merges
another corporation into the Company and, as a result, less than a
majority of the combined voting power of the resulting corporation
immediately after the merger or consolidation is held by persons who were
stockholders of the Company immediately before the merger or
consolidation;
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(ii)
Acquisition of Significant Share Ownership: A report on
Schedule 13D or another form or schedule (other than Schedule 13G) is
filed or is required to be filed under Sections 13(d) or 14(d) of the
Securities Exchange Act of 1934, if the schedule discloses that the filing
person(s) has or have become the beneficial owner(s) of 25% or more of a
class of the Company’s voting securities, but this clause (b) shall not
apply to beneficial ownership of Company voting shares held in a fiduciary
capacity by an entity of which the Company directly or indirectly
beneficially owns 50% or more of its outstanding voting
securities;
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(iii)
Change in Board Composition: During any period of two
consecutive years, individuals who constitute the Company’s Board of
Directors at the beginning of the two-year period cease for any reason to
constitute at least a majority of the Company’s Board of Directors;
provided, however, that for purposes of this clause (c), each director who
is first elected by the board (or first nominated by the board for
election by stockholders) by a vote of at least two-thirds (2/3) of the
directors who were directors at the beginning of the period shall be
deemed to have been a director at the beginning of the two-year period;
or
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(iv)
Sale of
Assets: The Company sells to a third party all or substantially all of its
assets.
1.1.3 “Code” means the Internal
Revenue Code of 1986, as amended
1.1.4 "Deferral Account" means the
Company’s accounting of the Director’s accumulated Deferrals plus accrued
interest.
1.1.5 "Disability" means the
Director's inability to perform substantially all normal duties of the
Director's position, as determined by the Company's Board of Directors in its
sole discretion. As a condition to any benefits, the Company may
require the Director to submit to such physical or mental evaluations and tests
as the Board of Directors deems appropriate. Notwithstanding the
foregoing, if any provision of this Agreement would cause a payment of deferred
compensation to be made upon the occurrence of the Director’s Disability, then
such payment shall not be made unless such Disability also constitutes a
“disability” within the meaning of Section 409A. Any payment that
would have been made except for the application of the preceding sentence shall
be made in accordance with the time of payment schedule that would have applied
in the absence of a Disability.
1.1.6 “Early Retirement Age” means
the Director’s 55th
birthday, provided he has completed at least 10 Years of Service.
1.1.7 “Early Retirement Date” means
the date that the Director has terminated service after attaining his 55th
birthday but before his 72nd birthday provided he has completed at least 10
Years of Service.
1.1.8 "Earnings” means the Company’s
reported Net Income after taxes.
1.1.9 “Effective Date” means the
date first written above.
1.1.10 "Election Form" means the Form
attached as Exhibit 1.
1.1.11 "Extraordinary Items” means
those items recognized by Generally Accepted Accounting Principles as
extraordinary that substantially affect shareholder equity and/or the Company’s
assets. Examples of such items are stock redemptions, mergers,
acquisitions, stock splits and other items of that nature.
1.1.12 “Return On Equity” means the
Company’s Earnings, adjusted for Extraordinary Items, divided by the Company’s
common stock equity at the end of the same fiscal year.
1.1.13 "Normal Retirement Age" means
the Director’s 72nd birthday.
1.1.14 "Normal Retirement Date" means
the later of the Normal Retirement Age or Termination of Service.
1.1.15 reserved
1.1.16 “Growth of Stock Rate” means
the percentage change in the Company’s fair market value common stock price
(“Stock Price”) over a one-year period, measured on December 31 of each year,
rounded to the nearest tenth of a percent, with a guaranteed minimum of 6% and a
maximum of 12%, cumulatively. Schedule D shows examples of the
“cumulative” impact on the “Growth of Stock Rate”
1.1.17 reserved
1.1.18 "Termination of Service" means
the Director ceasing to be a member of the Company's Board of Directors for any
reason whatsoever.
1.1.19 "Years of Service" means the
total number of twelve-month periods during which the Director served on the
Company’s Board of Directors on a full-time basis, inclusive of any approved
leave of absence.
Article
2
Incentive
2.1 Incentive
Award. Return On Equity (the “XXX”) Earnings determined as of
December 31 of each calendar year shall determine the Director’s Incentive Award
Percentage, in accordance with the attached Schedule A. The chart on
Schedule A is specifically subject to change annually at the sole discretion of
the Company’s Board of Directors. The Incentive Award is calculated
annually by taking the Director’s Annual Fees for the calendar year in which the
XXX and Earnings were calculated times the Incentive Award
Percentage.
2.2 Incentive
Deferral. On March 1 following each calendar year, the Company
shall declare and pay the Incentive Award in the form of compensation and the
Director shall defer such amount to the Deferral Account.
Article
3
Deferral
Account
3.1 Establishing and
Crediting. The Company shall establish a Deferral Account on
its books for the Director, and shall credit to the Deferral Account the
following amounts:
3.1.1 Deferrals. The Incentive
Deferral as determined under Article 2.
3.1.2 Interest. On March 1 following
each calendar year and immediately prior to
the payment of any benefits, interest on the account balance since the preceding
credit under this Section 3.1.2, at an annual rate, compounded monthly, equal to
the Growth of Stock Rate for the same period. However, the annual
rate shall not be less than 6% or greater than 12%.
3.2 Statement of
Accounts. The Company shall provide to the Director, within
one hundred twenty (120) days after each calendar year, a statement setting
forth the Deferral Account balance.
3.3 Accounting Device
Only. The Deferral Account is solely a device for measuring
amounts to be paid under this Agreement. The Deferral Account is not
a trust fund of any kind. The Director is a general unsecured
creditor of the Company for the payment of benefits. The benefits
represent the mere Company promise to pay such benefits. The
Director's rights are not subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by
the Director's creditors
3.4 Unforeseeable
Emergency. Upon the Company’s determination (following
petition by the Director) that the Director has suffered an unforeseeable
emergency as described below, the Company shall (i) terminate the then effective
deferral election of the Director to the extent permitted under Section 409A,
and (ii) distribute to the Director all or a portion of the Deferral Account
balance as determined by the Company, but in no event shall the distribution be
greater than the amount determined by the Company that is necessary to satisfy
the unforeseeable emergency plus amounts necessary to pay taxes reasonably
anticipated as a result of the distribution, after taking into account the
extent to which the unforeseeable emergency is or may be relieved through
reimbursement or compensation by insurance or otherwise or by liquidation of the
Director’s assets (to the extent the liquidation of assets would not itself
cause severe financial hardship); provided, however, that such distribution
shall be permitted solely to the extent permitted under Section
409A. For purposes of this Section, “unforeseeable emergency” means a
severe financial hardship to the Director resulting from (a) an illness or
accident of the Director, the Director’s spouse or a dependent (as defined in
Code Section 152(a)) of the Director, (b) a loss of the Director’s property due
to casualty, or (c) other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Director, each as
determined to exist by the Company.
Article
4
Lifetime
Benefits
4.1 Normal Retirement
Benefit. If the Director terminates service on or after the
Normal Retirement Age for reasons other than
death, the Company shall pay to the Director the benefit described in this
Section 4.1 in lieu of any other benefit under this Agreement.
4.1.1 Amount of
Benefit. The benefit under this Section 4.1 is the Deferral
Account balance on the Director's Normal Retirement Date.
4.1.2
Payment of
Benefit. The Company shall pay the benefit to the Director
commencing on the first day of the month following the Director’s Normal
Retirement Date in the form elected by the Director on the Election
Form. If the Director elects to receive payments in equal monthly
installments, the Company shall continue to credit interest on the remaining account
balance during any applicable installment period fixed at the rate in
effect under
Section 3.1.2 on the date of the Director’s Termination of
Service. If permitted by the Company, but subject to limitations
below, a Director may elect to change the time or form of payment under this
Section 4.1.2 and Sections 4.2.2 or 4.4.2, by submitting a new Election Form to
the Company, provided the following conditions are met: (i) such
change will not take effect until at least twelve (12) months after the date on
which the new election is made and approved by the Company; (ii) if the original
election is pursuant to a specified time or fixed schedule, the change cannot be
made less than twelve (12) months before the date of the first scheduled
original payment, and (iii) in the case of an election related to a payment
other than a payment on account of death, disability, or unforeseeable
emergency, the first payment with respect to which the change is made must be
deferred for a period of not less than five (5) years from the date such payment
would otherwise have been made. Notwithstanding the foregoing, the
Director may submit a new benefit election with respect to his Deferral Account
under this Agreement on or before December 31, 2008 pursuant to transition
relief issued under Section 409A of the Code.
4.2 Early Retirement
Benefit. If the Director terminates service on or after the
Early Retirement Age and before the Normal Retirement Age, and for reasons other
than death or Disability, the Company shall pay to the Director the benefit
described in this 4.2 in lieu of any other benefit under this
Agreement.
4.2.1
Amount of
Benefit. The benefit under this Section 4.2 is the vested
Deferral Account balance on the Director's Early Retirement Date.
4.2.2
Vesting of
Awards. For purposes of this Section 4.2, Incentive Awards
will vest per the attached schedule C.
4.2.3 Payment of
Benefit. The Company shall pay the benefit to the Director in
the form and on the date elected by the Director on the Election
Form. If the Director elects the Deferred Payment Option or to
receive payments in equal monthly installments, the Company shall continue to
credit interest on
the remaining account balance during any applicable installment period
fixed at the rate
in effect under
Section 3.1.2 on the date of the Director’s Termination of Service.
4.2.4 Deferred Payment
Option. Under this Section 4.2, the Director may elect to
defer payment of his Early Retirement Benefit until the date elected by the
Director on the Election Form, not to exceed the first day of the month
following his Normal Retirement Age.
4.3 Early Termination
Benefit. If the Director terminates service before the Early
Retirement Age or Normal Retirement Age for reasons other than death or
Disability, the Company shall pay to the Director the benefit described in the
4.3 in lieu of any other benefits under this Agreement.
4.3.1 Amount of
Benefit. There is no benefit under this Section
4.
4.4 Disability
Benefit. If the Director terminates service for Disability
prior to the Early Retirement Age or Normal Retirement Age, the Company shall
pay to the Director the benefit described in this Section 4.4 in lieu of any
other benefit under this Agreement.
4.4.1 Amount of
Benefit. The benefit under this Section 4.4 is the Deferral
Account balance at Termination of Service.
4.4.2 Payment of Benefit. The
Company shall pay the benefit to the Director commencing on the first day of the
month following the Director’s Normal Retirement Age in the form elected by the
Director on the Election Form. If the Director elects to receive
payments in equal monthly installments, the Company shall continue to credit
interest on the
remaining account balance during any applicable installment period fixed at the rate in
effect under
Section 3.1.2 on the date of the Director’s Termination of Service.
4.5 Change of Control Benefit.
Upon a Change of Control while the Director is in the active service of the
Company, the Company shall pay to the Director the benefit described in this
Section 4.5 in lieu of any other benefit under this Agreement.
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4.5.1
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Amount
of Benefit. The benefit under Section 4.5 is the 100% of the
Deferral Account balance on the date of the Director’s Termination of
Service.
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4.5.2
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Payment
of Benefit. The Company shall pay the benefit to the Director
in a lump-sum payment no later than 60 days after the Director’s
Termination of Service.
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Article 5
Death
Benefits
5.1 Death During Active
Service. If the Director dies while in the active service of
the Company, the Company shall pay to the Director's beneficiary the benefit
described in this Section 5.1.
5.1.1 Amount of
Benefit. The benefit under Section 5.1 is the greater of the
Deferral Account balance or the projected retirement benefit as per the attached
Schedule B.
5.1.2 Payment of
Benefit. The Company shall pay the benefit to the beneficiary
in the form elected by the Director on the Election Form. If the
Director elects payments in equal monthly installments, the Company shall
continue to credit interest on the remaining account
balance during any applicable installment period fixed at the rate in
effect under
Section 3.1.2 on the date of the Director’s Termination of Service.
5.2 Death During Benefit
Period. If the Director dies after benefit payments have
commenced under this Agreement but before receiving all such payments, the
Company shall pay the remaining benefits to the Director's beneficiary at the
same time and in the same amounts they would have been paid to the Director had
the Director survived.
5.3 Death After Termination of Service
But Before Benefit Payments Commence. If the Director is
entitled to benefit payments under this Agreement, but dies prior to the
commencement of said benefit payments, the Company shall pay the benefit
payments to the Director’s beneficiary that the Director 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 Director’s death.
Article
6
Beneficiaries
6.1 Beneficiary
Designations. The Director shall designate a beneficiary by
filing a written designation with the Company. The Director may
revoke or modify the designation at any time by filing a new
designation. However, designations will only be effective if signed
by the Director and accepted by the Company during the Director's
lifetime. The Director's beneficiary designation shall be deemed
automatically revoked if the beneficiary predeceases the Director, or if the
Director names a spouse as beneficiary and the marriage is subsequently
dissolved. If the Director dies without a valid beneficiary
designation, all payments shall be made to the Director's estate in a lump
sum.
6.2 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
7
General
Limitations
Notwithstanding any provision of this
Agreement to the contrary, the Company shall not pay any benefit under this
Agreement o the extent the benefit would create an excise tax under the excess
parachute rules of Section 280G of the Code.
Article
8
Claims
and Review Procedures
8.1 Claims
Procedure. The Company shall notify any person or entity that
makes a claim against the Agreement (the “Claimant”) in writing, within ninety
(90) days of Claimant’s written application for benefits, of his or her
eligibility or noneligibility for benefits under the Agreement. If
the Company determines that the Claimant is not eligible for benefits or full
benefits, the notice shall set forth (1) the specific reasons for such denial,
(2) a specific reference to the provisions of the Agreement on which the denial
is based, (3) a description of any additional information or material necessary
for the Claimant to perfect his or her claim, and a description of why it is
needed, and (4) an explanation of the Agreement's claims review procedure and
other appropriate information as to the steps to be taken if the Claimant wishes
to have the claim reviewed. If the Company determines that there are
special circumstances requiring additional time to make a decision, the Company
shall notify the Claimant of the special circumstances and the date by which a
decision is expected to be made, and may extend the time for up to an additional
ninety-day period.
8.2 Review
Procedure. If the Claimant is determined by the Company not to
be eligible for benefits, or if the Claimant believes that he or she is entitled
to greater or different benefits, the Claimant shall have the opportunity to
have such claim reviewed by the Company by filing a petition for review with the
Company within sixty (60) days after receipt of the notice issued by the
Company. Said petition shall state the specific reasons which the
Claimant believes entitle him or her to benefits or to greater or different
benefits. Within sixty (60) days after receipt by the Company of the
petition, the Company shall afford the Claimant (and counsel, if any) an
opportunity to present his or her position to the Company orally or in writing,
and the Claimant (or counsel) shall have the right to review the pertinent
documents. The Company shall notify the Claimant of its decision in writing
within the sixty-day period, stating specifically the basis of its decision,
written in a manner calculated to be understood by the Claimant and the specific
provisions of the Agreement on which the decision is based. If,
because of the need for a hearing, the sixty-day period is not sufficient, the
decision may be deferred for up to another sixty-day period at the election of
the Company, but notice of this deferral shall be given to the
Claimant.
Article
9
Amendments
and Termination
This Agreement may be amended or
terminated only by a written agreement signed by the Company.
Article
10
Miscellaneous
10.1 Binding
Effect. This Agreement shall bind the Director and the
Company, and their beneficiaries, survivors, executors, successors,
administrators and transferees.
10.2 No Guarantee of
Service. This Agreement is not a contract for
services. It does not give the Director the right to remain a
Director of the Company, nor does it interfere with the shareholders' rights to
replace the Director. It also does not require the Director to remain
a Director nor interfere with the Director's right to terminate services at any
time.
10.3 Non-Transferability. Benefits
under this Agreement cannot be sold, transferred, assigned, pledged, attached or
encumbered in any manner.
10.4 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.
10.5 Tax
Withholding. The Company shall withhold any taxes that are
required to be withheld from the benefits provided under this
Agreement.
10.6 Applicable Law. The Plan and
all rights hereunder shall be governed by and construed according to the laws of
New York, except to the extent preempted by the laws of the United States of
America; provided, however, that with respect to the Policies owned by the
Company or any insurable interest issues, the laws of Delaware shall
govern.
10.7 Unfunded
Arrangement. The Director 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 Director's life is a general asset of the Company to which the Director
and beneficiary have no preferred or secured claim.
10.8 Recovery of Estate
Taxes. If the Director’s gross estate for federal estate tax
purposes includes any amount determined by reference to and on account of this
Agreement, and if the beneficiary is other than the Director’s estate, then the
Director’s estate shall be entitled to recover from the beneficiary receiving
such benefit under the terms of the Agreement, an amount by which the total
estate tax due by the Director’s estate, exceeds the total estate tax which
would have been payable if the value of such benefit had not been included in
the Director’s gross estate. If there is more than one person
receiving such benefit, the right of recovery shall be against each such
person. In the event the beneficiary has a liability hereunder, the
beneficiary may petition the Company for a lump sum payment in an amount not to
exceed the beneficiary’s liability hereunder.
10.9 Entire
Agreement. This Agreement constitutes the entire agreement
between the Company and the Director as to the subject matter
hereof. No rights are granted to the Director by virtue of this
Agreement other than those specifically set forth herein.
10.10 Administration. The Company
shall have powers which are necessary to administer this Agreement, including
but not limited to:
10.10.1 Interpreting
the provisions of the Agreement;
10.10.2 Establishing
and revising the method of accounting for the Agreement;
10.10.3 Maintaining
a record of benefit payments; and
10.10.4 Establishing
rules and prescribing any forms necessary or desirable to administer the
Agreement.
10.11 Designated
Fiduciary. For purposes of the Employee Retirement Income
Security Act of 1974, if applicable, the Company shall be the named fiduciary
and plan administrator under the Agreement. The named fiduciary may
delegate to others certain aspects of the management and operation
responsibilities of the plan including the service of advisors and the
delegation of ministerial duties to qualified individuals.
10.12 Specified Employees. Despite any
contrary provision of this Agreement, if, when the Director’s service
terminates, the Director is a “specified employee,” as defined in Section 409A
of the Code, and if any payments under this Agreement will result in additional
tax or interest to the Director because of Section 409A, the Director shall not
be entitled to payment until the earliest of (i) the date that is at least six
months after termination of the Director’s employment for reasons other than the
Director’s death, (ii) the date of the Director’s death, or (iii) any earlier
date that does not result in additional tax or interest to the Director under
Section 409A. If any provision of this Agreement would subject the
Director to additional tax or interest under Section 409A, the Company shall
reform the provision. However, the Company shall maintain to the maximum extent
practicable the original intent of the applicable provision without subjecting
the Director to additional tax or interest
IN
WITNESS WHEREOF, the Director and a duly authorized Company officer have signed
this Agreement.
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DIRECTOR:
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COMPANY:
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Bank
of Smithtown
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[NAME
OF DIRECTOR]
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By:
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Title:
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