Exhibit No. 99.1 BANK OF SMITHTOWN EXECUTIVE INCENTIVE RETIREMENT AGREEMENT (Revised for Section 409A Compliance)
Exhibit
No. 99.1
BANK
OF SMITHTOWN
(Revised
for Section 409A Compliance)
THIS
AGREEMENT is made this _________ day of _________________, 2008, by and between
Bank of Smithtown, a New York State chartered bank, located in Smithtown, NY,
(the "Company"), and ________________________ (the "Executive").
INTRODUCTION
To
encourage the Executive to remain an employee of the Company, the Company is
willing to provide to the Executive 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 Executive Incentive Retirement
Agreement between the Company and the Executive (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
Executive 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 “Base Salary" means the total
annual base salary payable to the Executive at the rate in effect on the date
specified. Base Salary shall not be reduced for any salary reduction
contributions: (i) to cash or deferred arrangements under Section 401(k) of the
Code; (ii) to a cafeteria plan under Section 125 of the Code; or (iii) to a
deferred compensation plan that is not qualified under Section 401(a) of the
Code.
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;
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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 Executive’s accumulated Deferrals plus accrued
interest.
1.1.5 "Disability" means the
Executive's inability to perform substantially all normal duties of the
Executive'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 Executive 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 Executive’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 Executive’s 55th
birthday, provided he has completed at least 15 Years of Service.
1.1.7 “Early Retirement Date” means
the date that the Executive has terminated employment after attaining his
55th
birthday but before his 65th
birthday provided he has completed at least 15 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 Executive’s 65th
birthday.
1.1.14 "Normal Retirement Date" means
the later of the Normal Retirement Age or Termination of
Employment.
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 "Termination of Employment"
means the Executive ceasing to be employed by the Company for any reason
whatsoever, voluntary or involuntary, other than by reason of an approved leave
of absence. For purposes of determining whether the Executive is
entitled to a distribution of the Executive’s Deferral Account, other than in
connection with the Executive’s termination of employment by reason of death or
Disability, the Executive’s termination of employment must constitute a
“separation from service” for purposes of Section
409A of the Code. Whether a separation from service has
occurred shall be determined in accordance with the requirements of Section 409A
of the Code based on whether the facts and circumstances indicate that the
Company and the Executive reasonably anticipated that no further services would
be performed after a certain date or that the level of bona fide services the
Executive would perform after such date (whether as an employee or as an
independent contractor) would permanently decrease to no more than twenty
percent (20%) of the average level of bona fide services performed (whether as
an employee or an independent contractor) over the immediately preceding thirty
six (36) month period
1.1.18 "Years of Service" means the
total number of twelve-month periods during which the Executive is employed on a
full-time basis by the Company, inclusive of any approved leave of
absence.
Article
2
Incentive
2.1 Incentive Award. Return On
Equity (the “XXX”) determined as of December 31 of each calendar year shall
determine the Executive’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
Executive’s Base Salary for the calendar year in which the XXX was 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
Executive 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 Executive, 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 growth rate
shall not be less than Six Percent (6%) or greater than 12%
3.2 Statement of
Accounts. The Company shall provide to the Executive, 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 Executive 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
Executive's rights are not subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by
the Executive's creditors.
Article
4
Lifetime
Benefits
4.1 Normal Retirement
Benefit. If the Executive terminates 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 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 Executive's Normal Retirement Date.
4.1.2 Payment of
Benefit. The Company shall pay the benefit to the Executive
commencing on the first day of the month following the Executive’s Normal
Retirement Date in the form elected by the Executive on the Election
Form. If the Executive 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 Executive’s Termination of
Employment. If permitted by the Company, but subject to limitations
below, the Executive may elect to change the time or form of payment under this
Section 4.1.2 and Sections 4.1.4 and 4.1.5, 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
Executive 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.
4.2 Early Retirement
Benefit. If the Executive terminates employment 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 Executive 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
portion of the Deferral Account balance on the Executives Termination of
employment.
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 Executive in
the form and at the time elected by the Executive on the Election
Form. If the Executive 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 Executive’s Termination of
Employment.
4.3 Early Termination
Benefit. If the Executive terminates employment before the
Early Retirement Age for reasons other than death or Disability, the Company
shall pay to the Executive the benefit described in the 4.3.1 in lieu of any
other benefits under this Agreement.
4.3.1 Amount of Benefit. There
shall be no benefit under section 4.3.
4.4 Disability
Benefit. If the Executive terminates employment for Disability
prior to the Early Retirement Age or Normal Retirement Age, the Company shall
pay to the Executive 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 Employment.
4.4.2 Payment of Benefit. The
Company shall pay the benefit to the Executive commencing on the first day of
the month following the Executive’s Termination of Employment by reason of
Disability in the form elected by the Executive on the Election
Form. If the Executive 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 Executive’s Termination of
Employment.
4.5 Change of Control
Benefit. Upon a Change of Control while the Executive is in
the active service of the company, the Company shall pay to the Executive 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
Executives 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
Executive in a lump-sum payment no later than 60 days after the
Executive’s Termination of Service.
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4.6 Unforeseeable
Emergency. Upon the Company’s determination (following
petition by the Executive) that the Executive has suffered an unforeseeable
emergency as described below, the Company shall (i) terminate the then effective
deferral election of the Executive to the extent permitted under Section 409A,
and (ii) distribute to the Executive 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
Executive’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 Executive resulting from (a) an illness or accident of the
Executive, the Executive’s spouse or a dependent (as defined in Code Section
152(a)) of the Executive, (b) a loss of the Executive’s property due to
casualty, or (c) other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Executive, each as
determined to exist by the Company.
Article
5
Death
Benefits
5.1 Death During Active
Service. If the Executive dies while in the active service of
the Company, the Company shall pay to the Executive'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 commencing on the first day of
the month following the Executive’s death in the form elected by the Executive
on the Election Form. If the Executive 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 Executive’s Termination of
Employment.
5.2 Death During Benefit
Period. If the Executive dies after benefit payments have
commenced under 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.
5.3 Death After Termination of
Employment But Before Benefit Payments Commence. If the Executive 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 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
6
Beneficiaries
6.1 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 accepted 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 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 if the Company terminates the Executive's employment for any of the
following reasons (i) gross negligence or gross neglect of duties; (ii)
commission of a felony or of a gross misdemeanor involving moral turpitude; or
(iii) 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.
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 Executive and the
Company, and their beneficiaries, survivors, executors, successors,
administrators and transferees.
10.2 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.
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.
10.7 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.
10.8 Recovery of Estate
Taxes. If the Executive’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 Executive’s estate, then the
Executive’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 Executive’s estate, exceeds the total estate tax which
would have been payable if the value of such benefit had not been included in
the Executive’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 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.
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 employment of advisors and the
delegation of ministerial duties to qualified individuals.
10.12 Specified Employees. Despite any
contrary provision of this Agreement, if, when an Executive’s service
terminates, the Executive 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 Executive because of Section 409A, the Executive shall
not be entitled to payment until the earliest of (i) the date that is at least
six months after termination of the Executive’s employment for reasons other
than the Executive’s death, (ii) the date of the Executive’s death, or (iii) any
earlier date that does not result in additional tax or interest to the Executive
under Section 409A. If any provision of this Agreement would subject
the Executive 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 Executive to additional tax or interest
IN
WITNESS WHEREOF, the Executive and a duly authorized Company officer have signed
this Agreement.
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EXECUTIVE:
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COMPANY:
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Bank
of Smithtown
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By:
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Title:
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