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Lake Shore 8-K [lakeshore-8k_0202.htm]
 
Exhibit 10.2

Lake Shore Savings Bank
Employment Agreement

This Employment Agreement (the “Agreement”) is made and entered into as of
January 28, 2011 (the “Effective Date”) by and between Lake Shore Savings Bank,
a federally-chartered savings bank having an office at 128 East 4th Street,
Dunkirk, New York 14048 (the “Bank”) and Daniel P. Reininga (the “Executive”).

INTRODUCTORY STATEMENT

The Bank is a wholly-owned subsidiary of Lake Shore Bancorp, Inc., a
federally-chartered corporation and a mid-tier stock holding company having an
office at 128 East 4th Street, Dunkirk, New York 14048 (the “Company”), which is
majority owned by Lake Shore, MHC mutual holding company.

The Board of Directors of the Bank appointed the Executive as President and
Chief Executive Officer of the Company and the Bank effective as of January 28,
2011.

The Board of Directors of the Bank has concluded that it is in the best
interests of the Bank, the Company and its shareholders to secure continuity in
management and also considers it desirable to establish a working environment
for the Executive which minimizes the personal distractions that might result
from possible business combinations in which the Bank might be involved. For
these reasons, the Board of Directors of the Bank has decided to offer to enter
into this Agreement with the Executive for his future services, and the
Executive has accepted this offer.  In addition, the Company and the Executive
are entering into a separate employment dated January 28, 2011.

This Agreement shall supersede the Amended and Restated Change of Control
Agreement between the Executive, the Bank and the Company dated January 27, 2010
(the “Prior Agreement”).  The terms and conditions which the Bank and the
Executive have agreed to are as follows:

AGREEMENT

Section 1.                      Employment

The Bank hereby continues to employ the Executive, and the Executive hereby
accepts such continued employment, during the period and upon the terms and
conditions set forth in this Agreement.

 
Section 2.
Employment Period; Remaining Unexpired Employment Period

(a)           The term of this Agreement will begin on January 28, 2011 (the
“Employment Commencement Date”) and will continue for thirty-six (36) full
calendar months thereafter, unless extended further as provided in Section 2(b)
(the “Employment Period”).

(b)           Commencing on the first anniversary date of the Employment
Commencement Date (the “Anniversary Date”) and continuing on each Anniversary
Date thereafter, a majority of the members of the Board of Directors of the Bank
(the “Board”) who are not executive officers of the Bank may extend the term of
this Agreement for an additional year such that the remaining term shall be
thirty-six (36) months, unless notice of non-renewal is provided to the
Executive at least fifteen (15) days prior to any such Anniversary Date, in
which case the term of this Agreement will become fixed and will terminate at
the end of the twenty-four (24) months following such Anniversary Date.  Prior
to each Anniversary Date, the members of the Board who are not executive
officers of

 
 

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 the Bank shall conduct a comprehensive performance evaluation and review of the
Executive for purposes of determining whether to extend the term of this
Agreement, and the results thereof will be included in the minutes of the
Board’s meeting.

(c)           Except as otherwise expressly provided in this Agreement, any
reference in this Agreement to the term “Remaining Unexpired Employment Period”
shall mean the remaining portion of the Employment Period, as may be extended
pursuant to Section 2(b).

(d)           Nothing in this Agreement shall be deemed to prohibit the Bank
from terminating the Executive’s employment before the end of the Employment
Period with or without notice for any reason. This Agreement shall determine the
relative rights and obligations of the Bank and the Executive in the event of
any such termination. In addition, nothing in this Agreement shall require the
termination of the Executive’s employment at the expiration of the Employment
Period. Any continuation of the Executive’s employment beyond the expiration of
the Employment Period shall be on an “at-will” basis unless the Bank and the
Executive agree otherwise.

 
Section 3.
Duties

The Executive shall serve as Chief Executive Officer and President of the Bank,
having such power, authority and responsibility and performing such duties as
are prescribed by or under the Bank’s By-Laws and as are customarily associated
with such positions. The Executive shall devote his full business time and
attention (other than during weekends, holidays, approved vacation periods, and
periods of illness or approved leaves of absence) to the business and affairs of
the Bank and the Company and shall use his best efforts to advance their
respective best interests.

 
Section 4.
Cash Compensation

In consideration for the services to be rendered by the Executive hereunder, the
Bank shall pay to him a salary at an initial annual rate of Two Hundred
Twenty-Five Thousand Dollars ($225,000) per year, payable in approximately equal
installments in accordance with the customary payroll practices for senior
officers. The Bank’s Board of Directors shall review the Executive’s annual rate
of salary at such times during the Employment Period as it deems appropriate,
but not less frequently than once every twelve (12) months, and may, in its
discretion, approve a salary increase. In addition to salary, the Executive may
receive other cash compensation from the Bank for services hereunder at such
times, in such amounts and on such terms and conditions as the Board of
Directors of the Bank may determine.

Section 5.                      Employee Benefit Plans and Programs

During the Employment Period, the Executive shall be treated as an employee of
the Bank and shall be entitled to participate in and receive benefits under any
and all qualified or non-qualified retirement, pension, savings, profit-sharing
or stock bonus plans, any and all group life, health (including hospitalization,
medical and major medical), dental, accident and long-term disability insurance
plans, and any other employee benefit and compensation plans (including, but not
limited to, any incentive compensation plans or programs, stock option plans and
restricted stock plans) as may from time to time be maintained by, or cover
employees of, the Bank, in accordance with the terms and conditions of such
employee benefit plans and programs and compensation plans and programs and
consistent with the Bank’s customary practices.

 
Section 6.
Indemnification and Insurance

(a)           To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six (6) years thereafter, the Bank shall
cause the Executive to be covered by and named as an insured under any policy or
contract of insurance obtained by the Bank to insure its directors and officers
against personal liability for acts or omissions in connection with service as
an officer or director of the Company or the Bank or service in other capacities
at its request, provided, however, that any indemnification provided under this
Agreement shall be subject to any applicable indemnification rules of Office of
Thrift Supervision, or any successor

 
 

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to the OTS (collectively, the “OTS”). The coverage provided to the Executive
pursuant to this Section 6 shall be substantially the same as the coverage (if
any) provided to other officers or directors of the Bank.

(b)           To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six (6) years thereafter, the Bank shall
indemnify the Executive against and hold him harmless from any costs, damages,
losses and exposures arising out of a bona fide action, suit or proceeding in
which he may be involved by reason of his having been a director or officer of
the Bank to the fullest extent and on the most favorable terms and conditions
that similar indemnification is offered to any director or officer of the Bank
or any subsidiary or affiliate thereof; provided, however, that any
indemnification provided under this Agreement shall be subject to any applicable
OTS indemnification rules.

(c)           The Executive and the Bank agree that the benefits described in
this Section 6 are intended to be exempt from Section 409A (“Section 409A”) of
the Internal Revenue Code of 1986, as amended (the “Code”) pursuant to Treasury
Regulation Section 1.409A-l(b)(10) as certain indemnification and liability
insurance plans.

 
Section 7.
Outside Activities

The Executive may serve as a member of the boards of directors of such business,
community and charitable organizations as he may disclose to and as may be
approved by the Board of Directors of the Bank (which approval shall not be
unreasonably withheld); provided, however, that such service shall not
materially interfere with the performance of his duties under this Agreement nor
shall it violate any applicable laws or regulations. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Bank and generally applicable to
all similarly situated executives and that such activities are not prohibited by
any applicable laws or regulations.

 
Section 8.
Working Facilities and Expenses

The Executive’s principal place of employment shall be at the Bank’s executive
offices at the address first above written, or at such other location as the
Bank may relocate its executive offices. The Bank shall provide the Executive at
his principal place of employment with a private office, secretarial services
and other support services and facilities suitable to his positions with the
Bank and necessary or appropriate in connection with the performance of his
assigned duties under this Agreement. The Bank shall reimburse the Executive for
his ordinary and necessary business expenses, including, without limitation,
fees for memberships in such clubs and organizations that are reasonable and
appropriate for business purposes as mutually agreed by the Company and the
Executive, and his travel and entertainment expenses incurred in connection with
the performance of his duties under this Agreement, in each case only if such
expenses are presented and approved in accordance with the Bank’s business
reimbursement policy then in effect.

 
Section 9.
Termination Due to Death

The Executive’s employment with the Bank shall terminate, automatically and
without any further action on the part of any party to this Agreement, on the
date of the Executive’s death. In such event:

(a)           The Bank shall pay to the Executive’s estate his earned but unpaid
compensation (including, without limitation, salary and all other items which
constitute wages under applicable law) as of the date of his termination of
employment as defined in Treasury Regulation Section 1.409A- l (h)(1)(ii). This
payment shall be made at the time and in the manner prescribed by law applicable
to the payment of wages but in no event later than thirty (30) days after the
date of the Executive’s termination of employment.

(b)           The Bank shall provide the benefits, if any, due to the
Executive’s estate, surviving dependents or his designated beneficiaries under
the employee benefit plans and programs and compensation plans and programs
maintained for the benefit of the officers and employees of the Bank. The time
and manner of

 
 

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payment or other delivery of these benefits and the recipients of such benefits
shall be determined according to the terms and conditions of the applicable
plans and programs.

The payments and benefits described in Sections 9(a) and (b) shall be referred
to in this Agreement as the “Standard Termination Entitlements.”

 
Section 10.
Termination. Due to Disability

The Bank may terminate the Executive’s employment upon a determination, by vote
of a majority of the members of the Board of Directors of the Bank, acting in
reliance on the written advice of a medical professional acceptable to them,
that the Executive is suffering from a physical or mental impairment which, at
the date of the determination, (i) has prevented the Executive from performing
his assigned duties on a substantially full-time basis for a period of at least
one hundred and eighty (180) days during the one (1) year period ending with the
date of the determination, or (ii) is likely to result in death or prevent the
Executive from performing his assigned duties on a substantially full-time basis
for a period of at least one hundred and eighty (180) days during the one (1)
year period beginning with the date of the determination. In such event:

(a)           The Bank shall pay and deliver to the Executive (or in the event
of his death before payment, to his estate and surviving dependents and
beneficiaries, as applicable) the Standard Termination Entitlements within the
time frames described in Section 9.

(b)           In addition to the Standard Termination Entitlements, the Bank
shall continue to pay the Executive his base salary, at the annual rate in
effect for him immediately prior to the termination of his employment, for a
period ending on the earliest of: (i) the expiration of one hundred and eighty
(180) days after the date of termination of his employment; (ii) the date on
which long-term disability insurance benefits are first payable to him under any
long-term disability insurance plan covering employees of the Bank (the “LTD
Eligibility Date”); (iii) the date of his death; and (iv) the expiration of the
Remaining Unexpired Employment Period (the “Initial Continuation Period”). If
the end of the Initial Continuation Period is neither the LTD Eligibility Date
nor the date of his death, the Bank shall continue to pay the Executive his base
salary, at an annual rate equal to sixty percent (60%) of the annual rate in
effect for him immediately prior to the termination of his employment, during an
additional period ending on the earliest of the LTD Eligibility Date, the date
of his death and the expiration of the Remaining Unexpired Employment Period.

(c)           Notwithstanding anything in this Agreement to the contrary, in the
event the Executive does not cooperate with a medical professional, as described
in Section 10 of this Agreement, or if the Executive does not consent to sharing
the medical professional’s findings with the Board of Directors, no disability
benefit shall be paid to the Executive pursuant to this Agreement.

A termination of employment due to disability under this Section 10 shall be
effected by  notice of termination given to the Executive by the Bank and shall
take effect on the later of the effective date of termination specified in such
notice or the date on which the notice of termination is deemed given to the
Executive.

 
Section 11.
Termination for Cause

(a)           The Bank may immediately terminate the Executive’s employment
during the Employment Period for “Cause”, and such termination shall be deemed
to have occurred for “Cause”, only if the Board of Directors of the Bank, by
majority vote of their entire membership, determines that the Executive should
be discharged because of personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease and desist order, or
any material breach of this Agreement.  A termination of employment due to Cause
under this Section 11 shall be effected by  notice of termination given to the
Executive by the Bank and shall take effect on the later of the effective date
of termination specified in such notice or the date on which the notice of
termination is deemed given to the Executive.

 
 

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(b)           If the Executive is discharged during the Employment Period for
Cause, the Bank shall pay and provide to him (or, in the event of his death, to
his estate, his surviving beneficiaries and his dependents) the Standard
Termination Entitlements only, within the timeframes contained in Section 9.

 
Section 12.
Termination Without Cause

The Bank may terminate the Executive at any time during the Employment Period
and, unless such termination constitutes a termination for Cause:

(a)           The Bank shall pay and deliver to the Executive (or in the event
of his death before payment, to his estate and surviving dependents and
beneficiaries, as applicable) the Standard Termination Entitlements within the
timeframes contained in Section 9.

(b)           During the Remaining Unexpired Employment Period, the Bank shall
provide for the Executive and his dependents continued group life, health
(including hospitalization, medical and major medical), dental, accident and
long-term disability insurance benefits (collectively, the “Insurance Coverage”)
on substantially the same terms and conditions (including any required
premium-sharing arrangements, co-payments and deductibles) in effect for
similarly situated employees of the Bank. The Insurance Coverage provided under
this Section 12(b) may, at the election of the Bank, be secondary to the
coverage provided as part of the Standard Termination Entitlements and to any
employer-paid coverage provided by a subsequent employer or through Medicare,
with the result that benefits under the other coverages will offset the coverage
required by this Section 12(b).  Notwithstanding the foregoing, if the Insurance
Coverage is not permitted by applicable law (including, but not limited to, laws
prohibiting discriminating in favor of highly compensated employees) or to the
extent such coverage will result in an excise tax or additional tax to the
Company, Bank or Executive (other than ordinary income tax) (collectively, the
“Insurance Restrictions”), the Bank shall pay the Executive a lump sum payment
equal to the monthly premiums payable by the Executive to obtain similar
benefits, with such payment made within ten (10) days of the Executive’s
termination of employment, to the extent that such payment does not violate the
insurance restrictions in effect (other than ordinary income tax).

(c)           The Bank shall make a lump sum payment to the Executive (or, in
the event of his death before payment, to his estate), in an amount equal to the
value of the salary, bonus, short-term and long-term cash compensation that the
Executive received in the calendar year preceding that in which the termination
of employment with the Bank occurs divided by twelve (12) and then multiplied by
the number of months remaining in the Remaining Unexpired Employment Period, to
compensate the Executive for the payments the Executive would have received
during the Remaining Unexpired Employment Period. Such lump sum’ shall be paid
in lieu of all other payments of salary, bonus, short-term and long-term
compensation provided for under this Agreement in respect of the period
following any such termination. Such payment shall be made (without discounting
for early payment) within thirty (30) days following the Executive’s termination
of employment.

The payments and benefits described in Sections 12(b) and 12(c) are referred to
in this Agreement as the “Additional Termination Entitlements.”  Notwithstanding
the foregoing, the Executive shall not receive any severance hereunder (above
the Standard Entitlements) unless within 30 days after terminating employment,
the Executive has signed a general release of claims in a form generally
acceptable to the Bank.

 
Section 13.
Resignation

(a)           The Executive may resign from his employment with the Bank at any
time. A resignation under this Section 13 shall be effected by notice of
resignation given by the Executive to the Bank and shall take effect on the
later of the effective date of termination specified in such notice or the date
on which the notice of termination is deemed given by the Executive. The
Executive’s resignation of any of the positions within the Bank or the Company
to which he has been assigned shall be deemed a resignation from all such
positions.

(b)           The Executive’s resignation shall be deemed to be for “Good
Reason” if the effective date of resignation occurs within ninety (90) days
after any of the following; provided that the Executive shall have

 
 

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given notice of the basis for termination for good reason to the Bank, and the
Bank has not fully remedied such basis for termination within thirty (30) days
after such notice is deemed given:

 
(i)
any material change in the Executive's duties, functions, and responsibilities
with the Bank;

 
(ii)
any material reduction of the Executive’s rate of base salary in effect from
time to time, or any failure (other than due to reasonable administrative error
that is cured promptly upon notice) to pay any portion of the Executive’s
compensation as and when due;

 
(iii)
any material breach by the Bank of any material term, condition or covenant
contained in this Agreement; or

 
(iv)
a change in the Executive’s principal place of employment to a place that is not
the principal executive office of the Bank, or a relocation of the Bank’s
principal executive office to a location that is both more than fifty(50) miles
from the Executive’s principal residence and more than fifty (50) miles from the
location of the Bank’s principal executive office on the date of this Agreement.

In all other cases, a resignation by the Executive shall be deemed to be without
Good Reason,

(c)           In the event of the Executive’s resignation before the expiration
of the Employment Period, the Bank shall pay and deliver the Standard
Termination Entitlements within the timeframes contained in Section 9. In
addition, if the Executive’s resignation is deemed to be a resignation with Good
Reason, the Bank shall also pay and deliver the Additional Termination
Entitlements within the timeframes contained in Section 12.

Section 14.                      Terms and Conditions of the Additional
Termination Entitlements

The Bank and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any termination of employment are not
capable of accurate measurement and that the Additional Termination Entitlements
constitute reasonable damages under the circumstances and shall be payable
without any requirement of proof of actual damage and without regard to the
Executive’s efforts, if any, to mitigate such damages. The Bank and the
Executive further agree that the Bank may condition the payment and delivery of
the Additional Termination Entitlements on (i) the receipt of the Executive’s
resignation from any and all positions which he holds as an officer, director or
committee member with respect to the Company, the Bank or any subsidiary or
affiliate of either of them, and (ii) a release of the Bank and its officers,
directors, shareholders, subsidiaries and affiliates in form and substance
satisfactory to the Bank, of any liability to the Executive, whether for
compensation or damages, in connection with this Agreement or his employment
with the Bank and the termination of such employment except for the Standard
Termination Entitlements and the Additional Termination Entitlements.

Section 15.                      Termination Upon or Following a Change of
Control

(a)           A “Change of Control” shall be deemed to have occurred upon the
happening of any of the following events:

 
(i)
the consummation of a reorganization, merger or consolidation of the Bank or the
Company with one (1) or more other persons, other than a transaction following
which:

(A)           at least 51% of the equity ownership interests of the entity
resulting from such transaction are beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended
(“Exchange Act”)) in substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 51 % of the outstanding
equity ownership interests in the Bank or the Company; and

(B)           at least 51% of the securities entitled to vote generally in the
election of directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 51% of the securities
entitled to vote generally in the election of directors of the Company or the
Bank;

 
(ii)
the acquisition of all or substantially all of the assets of the Bank or the
Company or beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 25% or more of the outstanding securities of the Bank
or the Company entitled to vote generally in the election of directors by any
person or by any persons acting in concert;

 
(iii)
a complete liquidation or dissolution of the Bank or the Company;

 
(iv)
during any period of two consecutive years, individuals who constitute the
Bank’s or 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 Bank’s or
the Company’s Board of Directors; provided, however, that for purposes of this
clause (iv), each director who is nominated by the board by a vote of at least
two-thirds (2/3) of the directors who were directors at the beginning of the
two-year period shall be deemed to have also been a director at the beginning of
such period; provided, however, that this Section 15(a)(iv) shall only apply if
the Company is not majority owned by Lake Shore, MHC; or

 
(v)
any event which would be described in Section 15(a)(i), (ii), (iii) or (iv) if
the term “Bank” were substituted for the term “Company” therein.

In no event, however, shall a Change of Control be deemed to have occurred as a
result of (i) any acquisition of securities or assets of the Company, the Bank,
or a subsidiary of either of them, by the Company, the Bank, or any subsidiary
of either of them, or by any employee benefit plan maintained by any of them or
(ii) the conversion of Lake Shore, MHC to a stock form company and the issuance
of additional shares of the Company in connection therewith. For purposes of
this Section 15(a), the term “person” shall have the meaning assigned to it
under Sections 13(d)(3) or 14(d)(2) of the Exchange Act.

(b)           For purposes of this Agreement, a “Pending Change of Control”
shall mean: (i) the signing of a definitive agreement for a transaction which,
if consummated, would result in a Change of Control; (ii) the commencement of a
tender offer which, if successful, would result in a Change of Control; or (iii)
the circulation of a proxy statement seeking proxies in opposition to management
in an election contest which, if successful, would result in a Change of
Control.

(c)           In the event the Executive’s employment is terminated following a
Change of Control or a Pending Change of Control, the Executive shall be
entitled to the Additional Termination Entitlements as provided in Section 12(b)
and Section 12(c) of this Agreement; however, for purposes of computing the
Additional Termination Entitlements the Remaining Unexpired Employment Period
shall be deemed to be three (3) full years, subject to the limitations under
Section 30 of this Agreement.

Section 16.                      Covenant Not To Compete

The Executive hereby covenants and agrees that, in the event of his termination
of employment with the Bank prior to the expiration of the Employment Period,
for a period of three (3) years following the date of his termination of
employment with the Bank, he shall not, without the written consent of the Bank,
become an officer, employee, consultant, director or trustee of any savings
bank, savings and loan association, savings and loan holding company, bank or
bank holding company, credit union or any other entity engaged in the business
of accepting deposits or making loans or any direct or indirect subsidiary or
affiliate of any such entity (collectively a “Financial Institution”), that
entails working within 35 miles of an area in which the Company or the Bank
maintains an office; provided, however, that this Section 16 shall not apply if
the Executive is entitled to the Additional Termination Entitlements due to a
Change of Control or after a Pending Change of Control.

Section 17.                      Confidentiality

Unless he obtains the prior written consent of the Bank, the Executive shall
keep confidential and shall refrain from using for the benefit of himself, or
any person or entity other than the Bank or the Company or any entity which is a
subsidiary of the Company or of which the Company is a subsidiary, any material
document or information obtained from the Company, or from its parent or
subsidiaries, in the course of his employment with any of them concerning their
properties, operations or business (unless such document or information is
readily ascertainable from public or published information or trade sources or
has otherwise been made available to the public through no fault of his own)
until the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this Section 17 shall prevent the Executive,
with or without the Bank’s consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding to the extent that such participation or
disclosure is required under applicable law.

Section 18.                      Solicitation

The Executive hereby covenants and agrees that, for a period of three (3) years
following his termination of employment with the Company or the Bank, he shall
not, without the written consent of the Bank, either directly or indirectly:

(a)           solicit, offer employment to, or take any other action intended,
or that a reasonable person acting in like circumstances would expect, to have
the effect of causing any officer or employee of the Company, the Bank or any of
their respective subsidiaries or affiliates to terminate his or her employment
and accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to any Financial Institution doing
business within the area specified in Section 16;

(b)           provide any information, advice or recommendation with respect to
any such officer or employee of any Financial Institution doing business within
the area specified in Section 16 that is intended, or that a reasonable person
acting in like circumstances would expect, to have the effect of causing any
officer or employee of the Company, the Bank, or any of their respective
subsidiaries or affiliates to terminate his employment and accept employment or
become affiliated with, or provide services for compensation in any capacity
whatsoever to, any Financial Institution doing business within the area
specified in Section 16;

(c)           solicit, provide any information, advice or recommendation or take
any other action intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any customer of the
Company or the Bank to terminate an existing business or commercial relationship
with the Company or the Bank;

provided however, that this Section 18 shall not apply if the Executive is
entitled to the Additional Termination Entitlements due to a Change of Control
or after a Pending Change of Control.

Section 19.                      No Effect on Employee Benefit Plans or Programs

The termination of the Executive’s employment during the term of this Agreement
or thereafter, whether by the Bank or by the Executive, shall have no effect on
the rights and obligations of the parties hereto under the Company’s or the
Bank’s qualified or non-qualified retirement, pension, savings, thrift,
profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Company or the Bank from time to time; provided, however, that nothing in
this Agreement shall be deemed to duplicate any compensation or benefits
provided under any agreement, plan or program covering the Executive to which
the Bank or the Company is a party and any

 
 

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duplicative amount payable under any such agreement, plan or program shall be
applied as an offset to reduce the amounts otherwise payable hereunder.

Section 20.                      Successors and Assigns

This Agreement will inure to the benefit of and be binding upon the Executive,
his legal representatives and testate or intestate distributees, and the Bank
and their respective successors and assigns, including any successor by merger
or consolidation or a statutory receiver or any other person or firm or
corporation to which all or substantially all of the assets and business of the
Bank may be sold or otherwise transferred. Failure of the Bank to obtain from
any successor its express written assumption of the Bank’s obligations hereunder
at least sixty (60) days in advance of the scheduled effective date of any such
succession shall be deemed a material breach of this Agreement.

Section 21.                      Notices

Any communication required or permitted to be given under this Agreement,
including any notice, direction, designation, consent, instruction, objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is delivered personally, or five (5) days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below or at such other address as one (1) such
party may by written notice specify to the other party:

If to the Executive:

To the last address for the Executive contained in the records of the Company or
Bank

If to the Bank:

Lake Shore Savings Bank

128 East 4th Street

Dunkirk, New York 14048

 
Attention:
Chairman, Compensation Committee

 
of the Board of Directors

Section 22.                      Waiver

Failure to insist upon strict compliance with any of the terms, covenants or
conditions hereof shall not be deemed a waiver of such term, covenant, or
condition. A waiver of any provision of this Agreement must be made in writing,
designated as a waiver, and signed by the party against whom its enforcement is
sought. Any waiver or relinquishment of any right or power hereunder at any one
or more times shall not be deemed a waiver or relinquishment of such right or
power at any other time or times.

Section 23.                      Counterparts

This Agreement may be executed in two (2) or more counterparts, each of which
shall be deemed an original, and all of which shall constitute one and the same
Agreement.

Section 24.                      Governing Law

This Agreement shall be governed by the laws of the State of New York but only
to the extent not superseded by federal law.

 
 

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Section 25.                      Headings and Construction

The headings of sections in this Agreement are for convenience of reference only
and are not intended to qualify the meaning of any section. Any reference to a
section number shall refer to a section of this Agreement, unless otherwise
stated.

Section 26.                      Entire Agreement; Modifications

This instrument contains the entire agreement of the parties relating to the
subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof, including the Prior Agreement. No modifications of this Agreement shall
be valid unless made in writing and signed by the parties hereto.
Notwithstanding the preceding sentence, this Agreement shall be construed and
administered in such manner as shall be necessary to effect compliance with
Section 409A and the Insurance Restrictions and shall be subject to amendment in
the future, in such manner as the Company and the Bank may deem necessary or
appropriate to effect such compliance; provided that any such amendment shall
preserve for the Executive the benefit originally afforded pursuant to this
Agreement.

 
 

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Section 27.                      Survival

The provisions of Sections 6, 16, 17, 18 and 19 shall survive the expiration of
the Employment Period or termination of the Agreement.

Section 28.                      Disputes; Arbitration

Any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by binding arbitration, as an alternative to civil
litigation and without any trial by jury to resolve such claims, conducted by a
single arbitrator, mutually acceptable to the Bank and Executive, sitting in a
location selected by the Bank within fifty (50) miles from the main office of
the Bank, in accordance with the rules of the American Arbitration Association’s
National Rules for the Resolution of Employment Disputes (“National Rules”) then
in effect.  Judgment may be entered on the arbitrator’s award in any court
having jurisdiction.

To the extent that such payment(s) may be made without triggering penalty under
Code Section 409A, all reasonable legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank, provided that the dispute or
interpretation has been settled by Executive and the Bank or resolved in
Executive’s favor, and such reimbursement shall occur no later than sixty (60)
days after the end of the year in which the dispute is settled or resolved in
Executive’s favor.

Section 29.                      Required Regulatory Provisions

The following provisions are included for the purposes of complying with various
laws, rules and regulations applicable to the Bank:

(a)           Notwithstanding anything herein contained to the contrary, in no
event shall the aggregate amount of compensation payable to the Executive under
Section 12(b) hereof exceed three (3) times the Executive’s average annual
compensation (within the meaning of OTS Examination Handbook, Thrift Activities
§ 310 or any successor thereto) for the last five (5) consecutive calendar years
to end prior to his termination of employment with the Bank (or for his entire
period of employment with the Bank if less than five (5) calendar years). The
compensation payable to the Executive hereunder shall be further reduced (but
not below zero) if such reduction would avoid the assessment of excise taxes on
excess parachute payments (within the meaning of Section 280G of the Code).

(b)           Notwithstanding anything herein contained to the contrary, any
payments made to the Executive by the Bank, whether pursuant to this Agreement
or otherwise, are subject to and conditioned upon their compliance with Section
18(k) of the Federal Deposit Insurance Act (“FDI Act”), 12 U.S.C. § 1828(k), and
any regulations promulgated thereunder, including FDIC regulation 12 C.F.R. Part
359, Golden Parachute and Indemnification Payments.

(c)           Notwithstanding anything herein contained to the contrary, the
Bank’s Board of Directors may terminate the Executive’s employment at any time,
but any termination by the Bank’s Board of Directors other than termination for
Cause, shall not prejudice the Executive’s right to compensation or other
benefits under this Agreement. The Executive shall have no right to receive
compensation or other benefits for any period after termination for Cause.

(d)           Notwithstanding anything herein contained to the contrary, if the
Executive is suspended from office and/or temporarily prohibited from
participating in the conduct of the affairs of the Bank pursuant to a notice
served under Section 8(e)(3) or 8(g)(1) of the FDI Act, 12 U.S.C. §1818(e)(3) or
1818(g)(1), the Bank’s obligations under this Agreement shall be suspended as of
the date of service of such notice, unless stayed by appropriate proceedings. If
the charges in such notice are dismissed, the Bank, in its discretion, may (i)
pay to the Executive all or part of the compensation withheld while the Bank’s
obligations hereunder were suspended and (ii) reinstate, in whole or in part,
any of the obligations which were suspended.

 
 

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(e)           Notwithstanding anything herein contained to the contrary, if the
Executive is removed and/or permanently prohibited from participating in the
conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or
8(g)(1) of the FDI Act, 12 U.S.C. §1818(e)(4) or (g)(1), all prospective
obligations of the Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights and obligations of the Bank and the
Executive shall not be affected.

(f)           Notwithstanding anything herein contained to the contrary, if the
Bank is in default (within the meaning of Section 3(x)(1) of the FDI Act, 12
U.S.C. §1813(x)(1), all prospective obligations of the Bank under this Agreement
shall terminate as of the date of default, but vested rights and obligations of
the Bank and the Executive shall not be affected.

(g)           Notwithstanding anything herein contained to the contrary, all
prospective obligations of the Bank hereunder shall be terminated, except to the
extent that a continuation of this Agreement is necessary for the continued
operation of the Bank: (i) by the Director of the OTS or his designee or the
Federal Deposit Insurance Corporation (“FDIC”), at the time the FDIC enters into
an agreement to provide assistance to or on behalf of the Bank under the
authority contained in Section 13(c) of the FDI Act, 12 U.S.C. § 1823(c); or
(ii) by the Director of the OTS or his designee at the time such Director or
designee approves a supervisory merger to resolve problems related to the
operation of the Bank or when the Bank is determined by such Director to be in
an unsafe or unsound condition. The vested rights and obligations of the parties
shall not be affected.

If and to the extent that any of the foregoing provisions shall cease to be
required or by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.

Section 30.                      Payments to Specified Employees

Notwithstanding anything in this Agreement to the contrary, if at the time of
Executive’s “separation from service” (within the meaning of Section 409A and
Treas. Reg. §1.409A-1(h)), the Executive is a “specified employee” (within the
meaning of Section 409A and Treas. Reg. §1.409A-1(i)(1)), the Bank will not pay
or provide any “Specified Benefits” (as defined herein) until after the end of
the sixth calendar month beginning after the Executive’s separation from service
(the “409A Suspension Period”); provided, however, that to the extent the 409A
Suspension Period is imposed as a result of a Change of Control as defined in
Section 15(a), the resulting Specified Benefits shall be paid into a rabbi trust
for the benefit of the Executive as if the 409A Suspension Period was not
imposed, with such amounts then being distributed to the Executive within
fourteen (14) days after the 409A Suspension Period ends. For purposes of this
Agreement, “Specified Benefits” are any amounts or benefits that would be
subject to taxation under Section 409A if the Bank or the Company were to pay
them, pursuant to this Agreement, on account of the Executive’s separation from
service (and without the delay contemplated by this paragraph).

Section 31.                      Involuntary Termination Payments to Employees
(Safe Harbor)

To the extent allowable under Section 409A, in the event a payment is made to an
employee upon an involuntary termination of employment, as deemed pursuant to
this Agreement, such payment will not be subject to Section 409A provided that
such payment does not exceed two (2) times the lesser of (i) the sum of the
Executive’s annualized compensation based on the taxable year immediately
preceding the year in which termination of employment occurs or (ii) the maximum
amount that may be taken into account under a qualified plan pursuant to Section
401(a)(17) of the Code for the year in which the Executive terminates service
(the “Safe Harbor Amount”). However, if such payment exceeds the Safe Harbor
Amount, only the amount in excess of the Safe Harbor Amount will be subject to
Section 409A. In addition, if such Executive is considered a specified employee,
such payment in excess of the Safe Harbor Amount will have its timing delayed
and will be subject to the 409A Suspension Period as provided in Section 31 of
this Agreement.

 
 

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Section 32.                      Non-Duplication

In the event that the Executive shall perform services for the Company or any
other direct or indirect subsidiary of the Company, other than the Bank, any
compensation or benefits provided to the Executive by such other employer shall
be applied to offset the obligations of the Bank hereunder, it being intended
that this Agreement set forth the aggregate compensation and benefits payable to
the Executive for all services to the Bank and all of its direct or indirect
subsidiaries.

 
 

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IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed and the
Executive has hereunto set his hand, all as of the day and year first above
written.

   
/s/ Daniel P. Reininga
   
Daniel p. Reininga
                 
Attest:
 
Lake Shore Savings Bank
                   
By:
/s/ Lori Danforth
 
By:
/s/ Michael E. Brunecz
Name:
Lori Danforth
 
Name:
Michael E. Brunecz
Title:
Assistant Corporate Secretary
 
Title:
Chairman of the Board

[Seal]