Document:

Exhibit 10.9

 Exhibit 10.9 
  
 EMPLOYEE STOCK OWNERSHIP PLAN 
  
 OF 
  
 LAKE SHORE BANCORP,
INC. 
  
 Effective as of [January 1, 2006]

 TABLE OF CONTENTS 
  

					
	 	  	 	  	Page

	 	  	Article I	  	 
			
	 	  	Definitions	  	 
			
	 Section 1.1
	  	 Account
	  	7
	 Section 1.2
	  	 Affiliated Employer
	  	7
	 Section 1.3
	  	 Allocation Compensation
	  	7
	 Section 1.4
	  	 Bank
	  	8
	 Section 1.5
	  	 Board
	  	8
	 Section 1.6
	  	 Beneficiary
	  	8
	 Section 1.7
	  	 Change in Control
	  	8
	 Section 1.8
	  	 Code
	  	8
	 Section 1.9
	  	 Committee
	  	8
	 Section 1.10
	  	 Company
	  	8
	 Section 1.11
	  	 Designated Beneficiary
	  	8
	 Section 1.12
	  	 Disability
	  	9
	 Section 1.13
	  	 Discretionary Contribution
	  	9
	 Section 1.14
	  	 Domestic Relations Order
	  	9
	 Section 1.15
	  	 Eligibility Computation Period
	  	9
	 Section 1.16
	  	 Effective Date
	  	10
	 Section 1.17
	  	 Eligible Employee
	  	10
	 Section 1.18
	  	 Eligible Participant
	  	10
	 Section 1.19
	  	 Employee
	  	10
	 Section 1.20
	  	 Employment Commencement Date
	  	10
	 Section 1.21
	  	 ERISA
	  	10
	 Section 1.22
	  	 Exchange Act
	  	10
	 Section 1.23
	  	 Fair Market Value
	  	10
	 Section 1.24
	  	 Financed Share
	  	11
	 Section 1.25
	  	 Five Percent Owner
	  	11
	 Section 1.26
	  	 Forfeitures
	  	11
	 Section 1.27
	  	 Former Participant
	  	11
	 Section 1.28
	  	 General Investment Account
	  	11
	 Section 1.29
	  	 Highly Compensated Employee
	  	11
	 Section 1.30
	  	 Hour of Service
	  	12
	 Section 1.31
	  	 Investment Account
	  	12
	 Section 1.32
	  	 Investment Fund
	  	12
	 Section 1.33
	  	 Loan Repayment Account
	  	12
	 Section 1.34
	  	 Loan Repayment Contribution
	  	12
	 Section 1.35
	  	 Maternity or Paternity Leave
	  	12
	 Section 1.36
	  	 Military Service
	  	13
	 Section 1.37
	  	 Named Fiduciary
	  	13
	 Section 1.38
	  	 Officer
	  	13
	 Section 1.39
	  	 One-Year Break in Service
	  	13

  

 1 

					
	 Section 1.40
	  	Participant	  	13
	 Section 1.41
	  	Participating Employer	  	13
	 Section 1.42
	  	Plan	  	13
	 Section 1.43
	  	Plan Administrator	  	13
	 Section 1.44
	  	Plan Year	  	13
	 Section 1.45
	  	Qualified Domestic Relations Order	  	13
	 Section 1.46
	  	Qualified Military Service	  	14
	 Section 1.47
	  	Qualified Participant	  	14
	 Section 1.48
	  	Retirement	  	14
	 Section 1.49
	  	Retroactive Contribution	  	14
	 Section 1.50
	  	Share	  	14
	 Section 1.51
	  	Share Acquisition Loan	  	14
	 Section 1.52
	  	Share Investment Account	  	14
	 Section 1.53
	  	Tender Offer	  	14
	 Section 1.54
	  	Total Compensation	  	14
	 Section 1.55
	  	Trust	  	15
	 Section 1.56
	  	Trust Agreement	  	15
	 Section 1.57
	  	Trust Fund	  	15
	 Section 1.58
	  	Trustee	  	15
	 Section 1.59
	  	Valuation Date	  	15
	 Section 1.60
	  	Vesting Computation Period	  	15
	 Section 1.61
	  	Year of Eligibility Service	  	15
	 Section 1.62
	  	Year of Vesting Service	  	15
			
	 	  	Article II	  	 
			
	 	  	Participation	  	 
			
	 Section 2.1
	  	Eligibility for Participation	  	15
	 Section 2.2
	  	Commencement of Participation	  	16
	 Section 2.3
	  	Termination of Participation	  	16
			
	 	  	Article III	  	 
			
	 	  	Special Provisions	  	 
			
	 Section 3.1
	  	Military Service	  	16
	 Section 3.2
	  	Maternity or Paternity Leave	  	16
	 Section 3.3
	  	Adjustments to Years of Eligibility Service	  	17
	 Section 3.4
	  	Leave of Absence	  	17
	 Section 3.5
	  	Family and Medical Leave	  	18
	 Section 3.6
	  	Service with Uniformed Forces	  	18

  

 2 

					
	 	  	Article IV	  	 
			
	 	  	Contributions by Participants Not Permitted	  	 
			
	 Section 4.1
	  	 Contributions by Participants Not Permitted
	  	18
			
	 	  	Article V	  	 
			
	 	  	Contributions by the Employer	  	 
			
	 Section 5.1
	  	 In General
	  	18
	 Section 5.2
	  	 Loan Repayment Contributions
	  	18
	 Section 5.3
	  	 Discretionary Contributions
	  	19
	 Section 5.4
	  	 Retroactive Contributions
	  	19
	 Section 5.5
	  	 Time and Manner of Payment
	  	20
			
	 	  	Article VI	  	 
			
	 	  	Share Acquisition Loans	  	 
			
	 Section 6.1
	  	 In General
	  	20
	 Section 6.2
	  	 Collateral; Liability for Repayment
	  	20
	 Section 6.3
	  	 Loan Repayment Account
	  	21
	 Section 6.4
	  	 Release of Financed Shares
	  	22
	 Section 6.5
	  	 Restrictions on Financed Shares
	  	22
			
	 	  	Article VII	  	 
			
	 	  	Allocation of Contributions	  	 
			
	 Section 7.1
	  	 Allocation Among Eligible Participants
	  	23
	 Section 7.2
	  	 Allocation of Released Shares or Other Property
	  	23
	 Section 7.3
	  	 Allocation of Discretionary Contributions
	  	23
			
	 	  	Article VIII	  	 
			
	 	  	Limitations on Allocations	  	 
			
	 Section 8.1
	  	 Optional Limitations on Allocations
	  	23
	 Section 8.2
	  	 General Limitations on Contributions
	  	24

  

 3 

					
			
	 	  	Article IX	  	 
			
	 	  	Vesting	  	 
			
	 Section 9.1
	  	 Vesting
	  	26
	 Section 9.2
	  	 Vesting on Death, Disability, Retirement or Change in Control
	  	26
	 Section 9.3
	  	 Forfeitures on Termination of Employment
	  	26
	 Section 9.4
	  	 Amounts Credited Upon Re-Employment
	  	27
	 Section 9.5
	  	 Allocation of Forfeitures
	  	27
			
	 	  	Article X	  	 
			
	 	  	The Trust Fund	  	 
			
	 Section 10.1
	  	 The Trust Fund
	  	27
	 Section 10.2
	  	 Investments
	  	27
	 Section 10.3
	  	 Distributions for Diversification of Investments
	  	28
	 Section 10.4
	  	 Use of Commingled Trust Funds
	  	29
	 Section 10.5
	  	 Management and Control of Assets
	  	29
			
	 	  	Article XI	  	 
			
	 	  	Valuation of Interests in the Trust Fund	  	 
			
	 Section 11.1
	  	 Establishment of Investment Accounts
	  	29
	 Section 11.2
	  	 Share Investment Accounts
	  	30
	 Section 11.3
	  	 General Investment Accounts
	  	30
	 Section 11.4
	  	 Valuation of Investment Accounts
	  	30
	 Section 11.5
	  	 Annual Statements
	  	30
			
	 	  	Article XII	  	 
			
	 	  	Shares	  	 
			
	 Section 12.1
	  	 Specific Allocation of Shares
	  	31
	 Section 12.2
	  	 Dividends
	  	31
	 Section 12.3
	  	 Voting Rights
	  	31
	 Section 12.4
	  	 Tender Offers
	  	33
			
	 	  	Article XIII	  	 
			
	 	  	Payment of Benefits	  	 
			
	 Section 13.1
	  	 In General
	  	35
	 Section 13.2
	  	 Designation of Beneficiaries
	  	35
	 Section 13.3
	  	 Distributions to Participants and Former Participants
	  	36
	 Section 13.4
	  	 Manner of Payment
	  	37
	 Section 13.5
	  	 Minimum Required Distributions
	  	37

  

 4 

					
	 Section 13.6
	  	 Direct Rollover of Eligible Rollover Distributions
	  	39
	 Section 13.7
	  	 Valuation of Shares Upon Distribution
	  	40
	 Section 13.8
	  	 Put Options
	  	40
	 Section 13.9
	  	 Right of First Refusal
	  	41
			
	 	  	Article XIV	  	 
			
	 	  	Change in Control	  	 
			
	 Section 14.1
	  	 Definition of Change in Control; Pending Change in Control
	  	42
	 Section 14.2
	  	 Vesting on Change of Control
	  	44
	 Section 14.3
	  	 Repayment of Share Acquisition Loan
	  	44
	 Section 14.4
	  	 Plan Termination After Change in Control
	  	44
	 Section 14.5
	  	 Amendment of Section XIV
	  	44
			
	 	  	Article XV	  	 
			
	 	  	Administration	  	 
			
	 Section 15.1
	  	 Named Fiduciaries
	  	45
	 Section 15.2
	  	 Plan Administrator
	  	45
	 Section 15.3
	  	 Committee Responsibilities
	  	46
	 Section 15.4
	  	 Claims Procedure
	  	47
	 Section 15.5
	  	 Claims Review Procedure
	  	48
	 Section 15.6
	  	 Allocation of Fiduciary Responsibilities and Employment of Advisors
	  	48
	 Section 15.7
	  	 Other Administrative Provisions
	  	49
			
	 	  	Article XVI	  	 
			
	 	  	Amendment, Termination and Tax Qualification	  	 
			
	 Section 16.1
	  	 Amendment and Termination by Lake Shore Bancorp, Inc.
	  	49
	 Section 16.2
	  	 Amendment or Termination Other Than by Lake Shore Bancorp, Inc.
	  	50
	 Section 16.3
	  	 Conformity to Internal Revenue Code
	  	50
	 Section 16.4
	  	 Contingent Nature of Contributions
	  	50
			
	 	  	Article XVII	  	 
			
	 	  	Special Rules for Top Heavy Plan Years	  	 
			
	 Section 17.1
	  	 In General
	  	51
	 Section 17.2
	  	 Definition of Top Heavy Plan
	  	51
	 Section 17.3
	  	 Determination Date
	  	52
	 Section 17.4
	  	 Cumulative Accrued Benefits
	  	52
	 Section 17.5
	  	 Key Employees
	  	53
	 Section 17.6
	  	 Required Aggregation Group
	  	53
	 Section 17.7
	  	 Permissible Aggregation Group
	  	54
	 Section 17.8
	  	 Special Requirements During Top Heavy Plan Years
	  	54

  

 5 

					
	 	  	Article XVIII	  	 
			
	 	  	Miscellaneous Provisions	  	 
			
	 Section 18.1
	  	 Governing Law
	  	54
	 Section 18.2
	  	 No Right to Continued Employment
	  	54
	 Section 18.3
	  	 Construction of Language
	  	55
	 Section 18.4
	  	 Headings
	  	55
	 Section 18.5
	  	 Merger with Other Plans
	  	55
	 Section 18.6
	  	 Non-alienation of Benefits
	  	55
	 Section 18.7
	  	 Procedures Involving Domestic Relations Orders
	  	56
	 Section 18.8
	  	 Leased Employees
	  	56
	 Section 18.9
	  	 Status as an Employee Stock Ownership Plan
	  	57

  

 6 

 EMPLOYEE STOCK OWNERSHIP PLAN

  
 OF 
  
 LAKE SHORE BANCORP,
INC. 
  
 Article I 
  
 Definitions 
  
 The following definitions shall apply for the purposes of the Plan, unless a
different meaning is clearly indicated by the context: 
  
 Section 1.1 Account means an account established for each Participant to which is allocated such Participant’s share, if any, of all Financed Shares and other property that are released from the Loan Repayment
Account in accordance with section 6.4, together with his share, if any, of any Discretionary Contributions that may be made by a Participating Employer. 
  
 Section 1.2 Affiliated Employer means the Company; any corporation which is a member of a controlled group of
corporations (as defined in section 414(b) of the Code) that includes the Company; any trade or business (whether or not incorporated) that is under common control (as defined in section 414(c) of the Code) with the Company; any organization
(whether or not incorporated) that is a member of an affiliated service group (as defined in section 414(m) of the Code) that includes the Company; any leasing organization (as defined in section 414(n) of the Code) to the extent that any of its
employees are required pursuant to section 414(n) of the Code to be treated as employees of the Company; and any other entity that is required to be aggregated with the Company pursuant to regulations under section 414(o) of the Code. 
  
 Section 1.3 Allocation Compensation
during any period means the compensation taken into account in determining the allocation of benefits and contributions among Participants and consists of the aggregate compensation received by an Employee from the Employer or any Affiliated
Employer with respect to such period that constitute wages within the meaning of section 3401 of the Code plus the amount by which such Employee’s compensation with respect to such period has been reduced pursuant to a compensation reduction
agreement under the terms of any of the following plans which may be maintained by the Employer: 
  
 (a) a qualified cash or deferred arrangement described in section 401(k) of the Code; 
  
 (b) a salary reduction simplified employee pension plan
described in section 408(k) of the Code; 
  
 (c)
a tax deferred annuity plan described in section 403(b) of the Code; or 
  

 7 

 (d) a cafeteria plan described in section 125 of the Code and a transportation plan
described in Section 132(f) of the Code; but excluding any income related to any award or exercise of a stock option or the award, vesting or payment of dividends with respect to restricted stock. 
  
 In no event, however, shall an Employee’s Allocation Compensation for any calendar year
include any compensation in excess of $220,000, or any such other amount as may be prescribed in accordance with regulations prescribed under section 401(a)(17) of the Code. If there are less than twelve (12) months in the Plan Year, the
$220,000 limitation (as adjusted) shall be prorated by multiplying such limitation by a fraction, the numerator of which is the number of months in the Plan Year and the denominator of which is twelve (12). 
  
 Section 1.4 Bank means Lake Shore
Savings Bank and any successor thereto. 
  
 Section 1.5 Board means the Board of Directors of Lake Shore Bancorp, Inc. 
  
 Section 1.6 Beneficiary means the person or persons designated by a Participant or Former Participant or other person
entitled to a benefit under the Plan, or otherwise determined to be entitled to a benefit under the Plan. If more than one person is designated, each shall have an equal share unless the person making the designation directed otherwise. The word
“person” includes an individual, a trust, an estate or any other person that is permitted to be named as a Beneficiary. 
  
 Section 1.7 Change in Control means an event described in section 14.1. 
  
 Section 1.8 Code means the Internal
Revenue Code of 1986 (including the corresponding provisions of any succeeding law). 
  
 Section 1.9 Committee means the Compensation Committee described in section 15.3. 
  
 Section 1.10 Company means Lake Shore
Bancorp, Inc., a federally-chartered corporation, and any successor thereto. 
  
 Section 1.11 Designated Beneficiary means a natural person designated by a Participant or Former Participant as a Beneficiary under Section 13.2 and shall not include any Beneficiary
designated by a person other than a Participant or Former Participant or any Beneficiary other than a natural person. If a natural person is the beneficiary of a trust which a Participant or Former Participant has named as his Beneficiary, such
natural person shall be treated as a Designated Beneficiary if: (a) the trust is a valid trust under applicable state law (or would be a valid trust except for the fact that it does not have a corpus); (b) the trust is irrevocable or will,
by its terms, become irrevocable upon the death of the Participant or Former Participant; (c) the beneficiaries of the trust who are beneficiaries with respect to the trust’s interest as a Beneficiary are identifiable from the terms of the
trust instrument; and (d) the following information is furnished to the Committee: 
  
 (i) by the Participant or Former Participant, if any distributions are required to be made pursuant to section 13.5 prior to the death of
the Participant or Former Participant and the Participant’s or Former Participant’s spouse is his sole primary Beneficiary, either: (A) a copy of the trust instrument, together with a written undertaking by the Participant or Former
Participant to furnish to the Committee a copy of any subsequent amendment within a reasonable time after such amendment is made; or (B)(I) a list of all of the beneficiaries of the trust (including contingent and remainderman beneficiaries with a
description of the conditions on their entitlement); (II) a certification of the Participant or Former Participant to the effect that, to the best of his knowledge, such list is correct and complete and that the conditions of section 1.11(a),
(b) and (c) are satisfied; (III) a written undertaking to provide a new certification to the extent that an amendment changes any information previously certified; and (IV) a written undertaking to furnish a copy of the trust instrument to
the Committee on demand; and 
  

 8 

 (ii) by the trustee of the trust by October 31st of the first calendar year that begins after the death of the Participant or Former Participant, if any distributions are required to be made
pursuant to section 13.5 after the death of the Participant or Former Participant, either: (A) a copy of the actual trust instrument for the trust; or (B)(I) a final list of all of the beneficiaries of the trust (including contingent and
remainderman beneficiaries with a description of the conditions on their entitlement) as of September 30th of
the first calendar year that begins after the date of death; (II) a certification of the trustee to the effect that, to the best of his knowledge, such list is correct and complete and that the conditions of section 1.11(a), (b) and
(c) are satisfied; and (III) a written undertaking to furnish a copy of the trust instrument to the Committee on demand. 
  
 Section 1.12 Disability means a condition of total incapacity, mental or physical, for further performance of duty
with all Participating Employers, which the Committee shall have determined, on the basis of competent medical evidence, is likely to be permanent. 
  
 Section 1.13 Discretionary Contribution means Shares or amounts of money contributed to the Plan by the Participating
Employers in accordance with section 5.3. 
  
 Section 1.14 Domestic Relations Order means a judgment, decree or order (including the approval of a property settlement) that is made pursuant to a state domestic relations or community property law and relates to the
provision of child support, alimony payments, or marital property rights to a spouse, child or other dependent of a Participant or Former Participant. 
  
 Section 1.15 Eligibility Computation Period means, with respect to any person, (a) the 12-consecutive month
period beginning on such person’s Employment Commencement Date and (b) each 12-consecutive month period thereafter which is the Plan Year beginning with the Plan Year in which the anniversary of the date on which the Employee first
performed an Hour of Service. 
  

 9 

 Section 1.16 Effective Date means [January 1, 2006]. 
  
 Section 1.17 Eligible Employee means an
Employee who is eligible for membership in the Plan in accordance with Article II. 
  
 Section 1.18 Eligible Participant means, for any Plan Year, an Employee who is a Participant during all or any part
of such Plan Year and either remains a Participant on the last day of such Plan Year or terminated participation during such Plan Year on account of termination of employment, death, Disability or Retirement; provided, however, that no
Employee shall be an Eligible Participant for the Plan Year that includes the effective date of the transaction pursuant to which the Bank becomes a wholly owned subsidiary of Lake Shore Bancorp, Inc. if he terminates employment for any reason with
all Participating Employers prior to such effective date. 
  
 Section 1.19 Employee means any person, including an officer, who is employed by any Affiliated Employer. 
  

Section 1.20 Employment Commencement Date means the date on which a person first performs an Hour of Service,
except that if an Employee separates from service with the Employer, incurs a One-Year Break in Service and subsequently returns to service with the Employer, his Employment Commencement Date shall be the date on which he first performs an Hour of
Service following the One-Year Break in Service. 
  
 Section 1.21 ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time (including the corresponding provisions of any succeeding law). 
  
 Section 1.22 Exchange Act means the
Securities Exchange Act of 1934, as amended from time to time (including the corresponding provisions of any succeeding law). 
  
 Section 1.23 Fair Market Value on any date means: 
  
 (e) with respect to a Share: 
  
 (i) the final quoted sale price on the date in question (or, if there is no reported sale on such date, on
the last preceding date on which any reported sale occurred) of a Share as reported in the principal consolidated reporting system with respect to securities listed or admitted to trading on the principal United States securities exchange on which
like Shares are listed or admitted to trading; or 
  
 (ii) if like Shares are not listed or admitted to trading on any such exchange, the closing bid quotation with respect to a Share on such date on the National Association of Securities Dealers Automated Quotation System, or, if no such
quotation is provided, on another similar system, selected by the Committee, then in use; or 
  

 10 

 (iii) if sections 1.23(a)(i) and (ii) are not applicable, the fair market value of
a Share as determined by an appraiser independent of the Employer and experienced and expert in the field of corporate appraisal. 
  
 (f) with respect to property other than Shares, the fair market value determined in the manner selected by the Trustee. 
  
 Section 1.24 Financed Share means:
(a) a Share that has been purchased with the proceeds of a Share Acquisition Loan, that has been allocated to the Loan Repayment Account in accordance with section 6.3 and that has not been released in accordance with section 6.4; or (b) a
Share that constitutes a dividend paid with respect to a Share described in section 1.24(a), that has been allocated to the Loan Repayment Account in accordance with section 6.3 and that has not been released in accordance with section 6.4.

  
 Section 1.25 Five Percent
Owner means, for any Plan Year, a person who, during such Plan Year, owned (or was considered as owning for purposes of section 318 of the Code): (a) more than 5% of the value of all classes of outstanding stock of any Affiliated
Employer; or (b) stock possessing more than 5% of the combined voting power of all classes of outstanding stock of any Affiliated Employer. 
  
 Section 1.26 Forfeitures means the amounts forfeited by Participants and Former Participants on termination of
employment prior to full vesting, pursuant to section 9.3, less amounts credited because of re-employment, pursuant to section 9.4. 
  
 Section 1.27 Former Participant means a Participant whose participation in the Plan has terminated pursuant to
section 2.3. 
  
 Section 1.28
General Investment Account means an Investment Account established and maintained in accordance with Article XI. 
  
 Section 1.29 Highly Compensated Employee means, for any Plan Year, an Employee who: 
  
 (i) was a Five Percent Owner at any time during such Plan
Year or any prior Plan Year; or 
  
 (ii) received
Total Compensation during the immediately preceding Plan Year (A) in excess of $95,000 (or such other amount as may be prescribed by the Secretary of the Treasury pursuant to section 401(a)(17) of the Code); and (B) if elected by the Plan
Administrator in such form and manner as the Secretary of the Treasury may prescribe, in excess of the Total Compensation received for such preceding Plan Year by at least 80% of the Employees. 
  
 The determination of who is a Highly Compensated Employee will be made in accordance with
section 414(q) of the Code and the regulations thereunder. The Company has not elected to use the top 20% election mentioned in subparagraph (ii)(B) of this section. 
  

 11 

 Section 1.30 Hour of Service means each hour for which a person is
paid, or entitled to payment, for the performance of duties for any Affiliated Employer, plus: 
  
 (g) each hour for which such person is paid, or entitled to payments by an Affiliated Employer on account of a period during which no
duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence. Hours under this section 1.30(a) shall be calculated and credited pursuant to section 2530.200b-2 of
the Department of Labor’s regulations (or any successor regulation), which are incorporated herein by reference; and 
  
 (h) each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by any Affiliated Employer;
provided, however, that such hours have not previously been credited under other provisions of this section 1.30; and provided, further, that not more than 501 Hours of Service shall be credited under section 1.30(a) to such person on account of a
single continuous period during which such person performs no duties for an Affiliated Employer whether or not such period occurs in a single Plan Year. Hours under this section 1.30(b) shall be credited to the person for the Eligibility or Vesting
Computation Period or Eligibility or Vesting Computation Periods to which the award or agreement pertains, rather than the Eligibility or Vesting Computation Period in which the award, agreement or payment is made. 
  
 Anything in this section 1.30 to the contrary notwithstanding, no Hours of Service shall be
credited for a payment made or due under a plan maintained solely for the purpose of complying with applicable workmen’s compensation or disability insurance laws, or a payment which solely reimburses any person for medical or medically-related
expenses incurred by such person. 
  
 Section
1.31 Investment Account means either a General Investment Account or a Share Investment Account. 
  
 Section 1.32 Investment Fund means any one of the three or more funds as may be established from time to time by the
Committee which, together with any and all Shares and other investments held under the Plan, constitute the Trust Fund. 
  
 Section 1.33 Loan Repayment Account means an account established and maintained in accordance with section 6.3.

  
 Section 1.34 Loan Repayment
Contribution means amounts of money contributed to the Plan by the Participating Employers in accordance with section 5.2. 
  
 Section 1.35 Maternity or Paternity Leave means a person’s absence from work for all Affiliated Employers:
(a) by reason of the pregnancy of such person; (b) by reason of the birth of a child of such person; (c) by reason of the placement of a child with the person in connection with the adoption of such child by such person; or
(d) for purposes of caring for a child of such person immediately following the birth of the child or the placement of the child with such person. 
  

 12 

 Section 1.36 Military Service means service in the armed forces of
the United States, including but not limited to Qualified Military Service. It may also include, if and to the extent that the Board so provides and if all Participants and Former Participants in like circumstances are similarly treated, special
service for the government of the United States and other public service. 
  
 Section 1.37 Named Fiduciary means any person, committee, corporation or organization described in section 15.1. 
  
 Section 1.38 Officer means an Employee who is an administrative executive in regular
and continued service with any Affiliated Employer; provided, however, that at no time shall more than the lesser of (a) 50 Employees or (b) the greater of (i) 3 Employees or (ii) 10% of all Employees be treated as Officers. The
determination of whether an Employee is to be considered an Officer shall be made in accordance with section 416(i) of the Code. 
  
 Section 1.39 One-Year Break in Service means an Eligibility or Vesting Computation Period during which an Employee
fails to complete more than 500 Hours of Service. 
  
 Section 1.40 Participant means any person who has satisfied the eligibility requirements set forth in section 2.1, who has become a Participant in accordance with section 2.2, and whose membership has not terminated
under section 2.3. 
  
 Section 1.41
Participating Employer means the Bank, and any successor thereto and any other Affiliated Employer which, with the prior written approval of the Board of Directors of Lake Shore Bancorp, Inc. and subject to such terms and conditions as
may be imposed by the Board of Directors of Lake Shore Bancorp, Inc., shall adopt this Plan. 
  
 Section 1.42 Plan means the Employee Stock Ownership Plan of Lake Shore Bancorp, Inc., as amended from time to time.

  
 Section 1.43 Plan
Administrator means the Committee or any person, committee, corporation or organization designated in section 15.2, or appointed pursuant to section 15.2, to perform the responsibilities of that office. 
  
 Section 1.44 Plan Year means the period
commencing on the [January 1, 2006] and ending on [December 31, 2006] and each calendar year ending on each December 31st thereafter. 
  
 Section 1.45 Qualified Domestic Relations Order means a Domestic Relations Order that: (a) clearly specifies
(i) the name and last known mailing address of the Participant or Former Participant and of each person given rights under such Domestic Relations Order, (ii) the amount or percentages of the Participant’s or Former Participant’s
benefits under this Plan to be paid to each person covered by such Domestic Relations Order, (iii) the number of payments or the period to which such Domestic Relations Order applies, and (iv) the name of this Plan; and (b) does not
require the payment of a benefit in a form or amount that is (i) not otherwise provided for under the Plan, or (ii) inconsistent with a previous Qualified Domestic Relations Order. 
  

 13 

 Section 1.46 Qualified Military Service means with respect to any
person on any date, any service in the uniformed services of the United States (as defined in chapter 43 of Title 38 of the United States Code) completed prior to such date, but only if, on such date, such person is entitled to re-employment rights
with respect to an Affiliated Employer on account of such service. 
  
 Section 1.47 Qualified Participant means a Participant who has attained age 55 and who has been a Participant of the Plan for at least 10 years. 
  
 Section 1.48 Retirement means any
termination of membership in the Plan at or after the later of (a) the attainment of age 65 and (b) the completion of five (5) Years of Vesting Service. 
  
 Section 1.49 Retroactive Contribution means a contribution made on a retroactive basis
in respect of a period of Qualified Military Service in accordance with section 5.4. 
  
 Section 1.50 Share means a share of any class of stock issued by any Affiliated Employer; provided, however, that
such share is a “qualifying employer security” within the meaning of section 409(l) of the Code and section 407(d)(5) of ERISA. 
  
 Section 1.51 Share Acquisition Loan means a loan obtained by the Trustee in accordance with Article VI. 

 
 Section 1.52 Share Investment
Account means an Investment Account established and maintained in accordance with Article XI. 
  
 Section 1.53 Tender Offer means a tender offer made to holders of any one or more classes of Shares generally, or any
other offer made to holders of any one or more classes of Shares generally to purchase, exchange, redeem or otherwise transfer Shares, whether for cash or other consideration whether or not such offer constitutes a “tender offer” or an
“exchange offer” for purposes of the Exchange Act. 
  
 Section 1.54 Total Compensation during any period means an Employee’s aggregate total compensation paid by the Employer and any Affiliated Employer with respect to such period that
constitutes wages within the meaning of section 3401 of the Code, plus any amounts by which the Employee’s compensation paid by the Employer or any Affiliated Employer has been reduced pursuant to a compensation reduction agreement under the
terms of any qualified cash or deferred arrangement described in section 401(k) of the Code, any salary reduction simplified employee pension plan described in section 408(k) of the Code, any tax deferred annuity plan described in section 403(b) of
the Code, any cafeteria plan described in section 125 of the Code, any transportation program described in Section 132(f) of the Code or any compensation reduction agreement under the terms of any plan described in section 457 of the Code. In
no event, however, shall an Employee’s Total Compensation for any calendar year include any compensation in excess of $220,000 (or such other amount as may be permitted under section 401(a)(17) of the Code). 
  

 14 

 Section 1.55 Trust means the legal relationship created by the Trust
Agreement pursuant to which the Trustee holds the Trust Fund in trust. 
  
 Section 1.56 Trust Agreement means the agreement between the Bank and the Trustee therein named or its successors pursuant to which the Trust Fund shall be held in trust. 
  
 Section 1.57 Trust Fund means the
corpus (consisting of contributions paid over to the Trustee and investments thereof), and all earnings, appreciation or additions thereof and thereto, held by the Trustee under the Trust Agreement in accordance with the Plan, less any depreciation
thereof and any payments made therefrom pursuant to the Plan. 
  
 Section 1.58 Trustee means the Trustee of the Trust Fund from time to time in office. The Trustee shall serve as Trustee until it is removed or resigns from office and is replaced by a successor
Trustee appointed in accordance with the terms of the Trust Agreement. 
  
 Section 1.59 Valuation Date means the last business day of each Plan Year and such other dates as the Plan Administrator may prescribe. 
  
 Section 1.60 Vesting Computation Period
means, with respect to any person, the Plan Year including periods prior to the Effective Date of the Plan. 
  
 Section 1.61 Year of Eligibility Service means an Eligibility Computation Period during which the Employee completed
at least 1,000 Hours of Service. 
  
 Section
1.62 Year of Vesting Service means a Vesting Computation Period during which the Employee completed at least 1,000 Hours of Service. 
  
 Article II 
  
 Participation 
  
 Section 2.1 Eligibility for Participation. 
  
 (a) Only Eligible Employees may be or become Participant of the Plan. An Employee shall be an Eligible Employee if he (i) is employed
by one or more Participating Employers; (ii) has attained age 21; (iii) has completed at least one Year of Eligibility Service; and (iv) is not excluded under section 2.1(b). 
  
 (b) An Employee is not an Eligible Employee if he:

  
 (i) does not receive Allocation Compensation
from at least one Participating Employer; 
  
 (ii) is an Employee who has waived any claim to participation in the Plan; 
  
 (iii) is an Employee or in a unit of Employees covered by a collective bargaining agreement with a Participating Employer where retirement
benefits 

  

 15 

 
were the subject of good faith bargaining, unless such agreement expressly provides that Employees such as he be covered under the Plan; or 
  
 (iv) is a “leased employee” as defined in section
18.8. 
  
 Section 2.2 Commencement
of Participation. 
  
 Every Employee who
is an Eligible Employee on the effective date of the transaction whereby the Bank becomes a wholly owned subsidiary of Lake Shore Bancorp, Inc. shall automatically become a Participant as of the Effective Date. An Employee who becomes an Eligible
Employee after the Effective Date shall automatically become a Participant on the first day of the January, April, July or October coincident with or next following the Eligibility Computation Period in which he becomes an Eligible Employee.

  
 Section 2.3 Termination of
Participation. 
  
 Participation in the
Plan shall cease, and a Participant shall become a Former Participant, upon termination of employment with all Participating Employers, death, Disability or Retirement, failure to return to work upon the expiration of a leave of absence granted
pursuant to section 3.3, becoming an Employee who is excluded under section 2.1(b) or distribution of the entire vested interest in his Account. 
  
 Article III 
  
 Special Provisions 
  
 Section 3.1 Military Service. 
  
 In the case of a termination of employment of any Employee to enter directly into Military Service, the entire period of his absence shall
be treated, for purposes of vesting and eligibility for participation (but not, except as required by law, for purposes of eligibility to share in allocations of contributions in accordance with Article VII), as if he had worked for the Employer
during the period of his absence. In the event of the re-employment of such person by the Employer within a period of not more than six months: 
  
 (a) after he becomes entitled to release or discharge, if he has entered into the armed forces; or 
  
 (b) after such service terminates, if he has entered into
other service defined as Military Service; 
  
 such period, also, shall be deemed
to be Military Service. 
  
 Section 3.2
Maternity or Paternity Leave. 
  
 (a) Subject to section 3.2(c), in the event of an Employee’s absence from work in the service of the Employer and all Affiliated Employers for a period: 
  
 (i) that commences on or after October 1, 1985; 
  

 16 

 (ii) for which the person is not paid or entitled to payment by the Employer or any
Affiliated Employer; and 
  
 (iii) that
constitutes Maternity or Paternity Leave; 
  
 then the rules of section 3.2(b)
shall apply. 
  
 (b) In cases of absence
described in section 3.2(a), solely for purposes of determining whether a One-Year Break in Service has occurred, the person shall be credited for the period of an absence described in section 3.2(a) with the number of Hours of Service equal to the
lesser of: 
  
 (i) (A) the number of Hours
of Service that would have been credited to the person if he had continued working for the Bank or an Affiliated Employer during the period of such absence, or (B) if the number of Hours of Service prescribed under section 3.2(b)(i)(A) cannot
be determined, 8 Hours of Service for each working day during the period of absence; or 
  
 (ii) 501 Hours of Service. 
  
 Such credit shall be given during the Computation Period during which such absence began, if necessary to prevent a One-Year Break in Service from
occurring during such Computation Period, and in all other cases, such credit shall be given during the immediately following Computation Period. 
  
 (c) Notwithstanding anything in the Plan to the contrary, this section 3.2 shall not apply unless the person furnishes to the Plan
Administrator such information as the Plan Administrator may reasonably require in order to establish (i) that the person’s absence is one described in section 3.2(a), and (ii) the number of working days during such absence.

  
 Section 3.3 Adjustments to Years
of Eligibility Service. 
  
 The Years of
Eligibility Service of an Employee who returns to the employment of the Employer or any Affiliated Employer following a separation from service shall include his Years of Eligibility Service prior to such separation from service, and such an
Employee shall be readmitted to participation immediately upon his return to service if he is then an Eligible Employee. 
  
 Section 3.4 Leave of Absence. 
  
 In the event of temporary absence from work in the service of the Employer and all Affiliated Employers for
any period for which a Participant shall have been granted a leave of absence by the Employer, the entire period of his absence shall be treated for purposes of vesting and eligibility for participation (but not for purposes of eligibility to share
in the allocation of contributions in accordance with Article VII), as if he had worked for the Employer during the period of his absence. Absence from work for a period greater than, or failure to return to work upon the expiration of, the period
of leave of absence granted by the Employer shall terminate 

  

 17 

 
participation in the Plan as of the date on which such period ended. In granting leaves of absence for purposes of the Plan, all Employees in like
circumstances shall be similarly treated. 
  
 Section 3.5 Family and Medical Leave. 
  
 In the event of absence for a period recognized a family and medical leave under the federal Family and Medical Leave Act of 1992, the period of such absence shall be recognized for purposes of vesting and eligibility
to participate to the full extent required by law. 
  
 Section 3.6 Service with Uniformed Forces. 
  
 Periods of service with the uniformed forces of the United States shall be treated in the manner required pursuant to section 414(u) of the Code. 
  
 Article IV 
  
 Contributions by Participants Not Permitted 
  
 Section 4.1 Contributions by Participants Not Permitted. 
  
 Participants shall not be required, nor shall they be
permitted, to make contributions to the Plan. 
  
 Article V

  
 Contributions by the Employer 
  
 Section 5.1 In General. 
  
 Subject to the limitations of Article VIII, for each Plan
Year, the Participating Employers shall contribute to the Plan the amount, if any, determined by the Board of Directors of Lake Shore Bancorp, Inc., but in no event less than the amount described in section 5.2(a). The amount contributed for any
Plan Year shall be treated as a Loan Repayment Contribution, a Discretionary Contribution, or a combination thereof, in accordance with the provisions of this Article V. 
  
 Section 5.2 Loan Repayment Contributions. 
  
 For each Plan Year, a portion of the Participating
Employers’ contributions, if any, to the Plan equal to the sum of: 
  
 (i) the minimum amount required to be added to the Loan Repayment Account in order to provide adequate funds for the payment of the principal and interest then required to be repaid under the terms of any outstanding
Share Acquisition Loan obtained by the Trustee; plus 
  
 (j) the additional amount, if any, designated by the Committee to be applied to the prepayment of principal or interest under the terms of any outstanding Share Acquisition Loan obtained by the Trustee; 

  

 18 

 
shall be treated as a Loan Repayment Contribution for such Plan Year. A Loan Repayment Contribution for a Plan Year shall be allocated to the Loan Repayment
Account and shall be applied by the Trustee, in the manner directed by the Committee, to the payment of accrued interest and to the reduction of the principal balance of any Share Acquisition Loan obtained by the Trustee that is outstanding on the
date on which the Loan Repayment Contribution is made. To the extent that a Loan Repayment Contribution for a Plan Year results in a release of Financed Shares in accordance with section 6.4, such Shares shall be allocated among the Accounts of
Eligible Participants for such Plan Year in accordance with section 7.2. 
  
 Section 5.3 Discretionary Contributions. 
  
 In the event that the amount of the Participating Employers’ contributions to the Plan for a Plan Year exceeds the amount of the Loan
Repayment Contributions for such Plan Year, such excess shall be treated as a Discretionary Contribution and shall be allocated among the Accounts of the Eligible Participants for such Plan Year in accordance with section 7.3. 
  
 Section 5.4 Retroactive Contributions.

  
 A Participating Employer shall make a
Retroactive Contribution in respect of any individual previously employed by it who is re-employed by any Affiliated Employer after December 12, 1994 following the completion of a period of Qualified Military Service. Such Retroactive
Contribution shall be made in the following manner for each Plan Year that includes any part of the period of Qualified Military Service: 
  
 (k) An allocation percentage shall be computed by dividing (i) the sum of the Fair Market Value of all Financed Shares allocated to
Eligible Participants for such Plan Year plus the dollar amount of all Discretionary Contributions made in cash for such Plan Year plus the Fair Market Value of all Discretionary Contributions made in Shares for such Plan Year, divided by
(ii) the aggregate amount of Allocation Compensation used in the allocation for such Plan Year. Fair Market Value for such purposes shall be determined as of the last day of the Plan Year. 
  
 (l) A notional allocation shall be determined by multiplying
(A) the percentage determined under section 5.4(a) by (B) the Allocation Compensation which the individual would have had for such Plan Year if he had remained in the service of his Participating Employer in the same capacity and earning
Allocation Compensation and Total Compensation at the annual rates in effect immediately prior to the commencement of the Qualified Military Leave (or, if such rates are not reasonably certain, at an annual rate equal to the actual Allocation
Compensation and Total Compensation, respectively, paid to him for the 12-month period immediately preceding the Qualified Military Service). 
  
 (m) An actual Retroactive Contribution for the Plan Year shall be determined by computing the excess of (A) the notional allocation
determined under section 5.4(b) over (B) the sum of the dollar amount of any Discretionary Contribution in cash, the Fair Market Value of any Discretionary Contribution in 

  

 19 

 
Shares and the Fair Market Value of any Financed Shares actually allocated to such individual for such Plan Year. 
  
 Section 5.5 Time and Manner of Payment.

  
 (a) Payment of contributions made pursuant to
this Article V shall be made: (i) in cash, in the case of a Loan Repayment Contribution; and (ii) in cash, in Shares, or in a combination of cash and Shares, in the case of an Discretionary Contribution or a Retroactive Contribution.

  
 (b) Contributions made pursuant to this
Article V for a Plan Year shall be paid to the Trust Fund on or before the due date (including any extensions thereof) of the Employer’s federal income tax return for its taxable year during which such Plan Year ends. All such contributions
shall be allocated to the Accounts of the Eligible Participants in the case of a Discretionary Contribution, to the Account of the Participant for whom it is made in the case of a Retroactive Contribution, and to the Loan Repayment Account in the
case of a Loan Repayment Contribution, as soon as is practicable following the payment thereof to the Trust Fund. 
  
 Article VI 
  
 Share Acquisition Loans 
  
 Section 6.1 In General. 
  
 The Committee may, with the prior approval of the Board of Directors of Lake Shore Bancorp, Inc., direct the Trustee to obtain a Share Acquisition Loan on behalf of the Plan, the proceeds of which shall be applied on the earliest
practicable date: 
  
 (n) to purchase Shares; or

  
 (o) to make payments of principal or
interest, or a combination of principal and interest, with respect to such Share Acquisition Loan; or 
  
 (p) (c) to make payments of principal and interest, or a combination of principal and interest, with respect to a previously obtained
Share Acquisition Loan that is then outstanding. 
  
 Any such Share Acquisition
Loan shall be obtained on such terms and conditions as the Committee may approve; provided, however, that such terms and conditions shall provide for the payment of interest at no more than a reasonable rate and shall permit such Share Acquisition
Loan to satisfy the requirements of section 4975(d)(3) of the Code and section 408(b)(3) of ERISA. 
  
 Section 6.2 Collateral; Liability for Repayment. 
  
 (a) The Committee may direct the Trustee to pledge, at the time a Share Acquisition Loan is obtained, the
following assets of the Plan as collateral for such Share Acquisition Loan: 
  
 (i) any Shares purchased with the proceeds of such Share Acquisition Loan and any earnings attributable thereto; 
  

 20 

 (ii) any Financed Shares then pledged as collateral for a prior Share Acquisition Loan
which is repaid with the proceeds of such Share Acquisition Loan and any earnings attributable thereto; and 
  
 (iii) pending the application thereof to purchase Shares or repay a prior Share Acquisition Loan, the proceeds of such Share Acquisition
Loan and any earnings attributable thereto. 
  
 Except as specifically provided in
this section 6.2(a), no assets of the Plan shall be pledged as collateral for the repayment of any Share Acquisition Loan. 
  
 (b) No person entitled to payment under a Share Acquisition Loan shall have any right to the assets of the Plan except for: 
  
 (i) Financed Shares that have been pledged as collateral for
such Share Acquisition Loan pursuant to section 6.2(a); 
  
 (ii) Loan Repayment Contributions made pursuant to section 5.2; and 
  
 (iii) earnings attributable to Financed Shares described in section 6.2(b)(i) and to Loan Repayment Contributions described in section
6.2(b)(ii). 
  
 Except in the event of a default or a refinancing pursuant to
which an existing Share Acquisition Loan is repaid or as provided in section 14.3, the aggregate amount of all payments of principal and interest made by the Trustee with respect to all Share Acquisition Loans obtained on behalf of the Plan shall at
no time exceed the aggregate amount of all Loan Repayment Contributions theretofore made plus the aggregate amount of all earnings (other than dividends paid in the form of Shares) attributable to Financed Shares and to such Loan Repayment
Contributions. 
  
 (c) Any Share Acquisition Loan
shall be without recourse against the Plan and Trust. 
  
 Section 6.3 Loan Repayment Account. 
  
 In the event that one or more Share Acquisition Loans shall be obtained, a Loan Repayment Account shall be established under the Plan. The Loan Repayment Account shall be credited with all Shares acquired with the
proceeds of a Share Acquisition Loan, all Loan Repayment Contributions and all earnings (including dividends paid in the form of Shares) or appreciation attributable to such Shares and Loan Repayment Contributions. The Loan Repayment Account shall
be charged with all payments of principal and interest made by the Trustee with respect to any Share Acquisition Loan, all Shares released in accordance with section 6.4 and all losses, depreciation or expenses attributable to Shares or to other
property credited thereto. The Financed Shares, as well as any earnings thereon, shall be allocated to such Loan Repayment Account and shall be accounted for separately from all other amounts or property contributed under the Plan. 
  

 21 

 Section 6.4 Release of Financed Shares. 
  
 As of the last day of each Plan Year during which a Share
Acquisition Loan is outstanding, a portion of the Financed Shares purchased with the proceeds of such Share Acquisition Loan and allocated to the Loan Repayment Account shall be released. The number of Financed Shares released in any such Plan Year
shall be equal to the amount determined according to one of the following methods: 
  
 (a) by computing the product of: (i) the number of Financed Shares purchased with the proceeds of such Share Acquisition Loan and
allocated to the Loan Repayment Account immediately before the release is effected; multiplied by (ii) a fraction, the numerator of which is the aggregate amount of the principal and interest payments (other than payments made upon the
refinancing of a Share Acquisition Loan as contemplated by section 6.1(c)) made with respect to such Share Acquisition Loan during such Plan Year, and the denominator of which is the aggregate amount of all principal and interest remaining to be
paid with respect to such Share Acquisition Loan as of the first day of such Plan Year; or 
  
 (b) by computing the product of: (i) the number of Financed Shares purchased with the proceeds of such Share Acquisition Loan and
allocated to the Loan Repayment Account immediately before the release is effected; multiplied by (ii) a fraction, the numerator of which is the aggregate amount of the principal payments (other than payments made upon the refinancing of a
Share Acquisition Loan as contemplated by section 6.1(c)) made with respect to such Share Acquisition Loan during such Plan Year, and the denominator of which is the aggregate amount of all principal remaining to be paid with respect to such Share
Acquisition Loan as of the first day of such Plan Year; provided, however, that the method described in this section 6.4(b) may be used only if the Share Acquisition Loan does not extend for a period in excess of 10 years after the date of
origination and only to the extent that principal payments on such Share Acquisition Loan are made at least as rapidly as under a loan of like principal amount with a like interest rate and term requiring level amortization of principal and
interest. 
  
 The method to be used shall be specified in the documents governing
the Share Acquisition Loan or, if not specified therein, prescribed by the Committee, in its discretion. In the event that property other than, or in addition to, Financed Shares shall be held in the Loan Repayment Account and pledged as collateral
for a Share Acquisition Loan, then the property to be released pursuant to this section 6.4 shall be property having a Fair Market Value determined by applying the method to be used to the Fair Market Value of all property pledged as collateral for
such Share Acquisition Loan; provided, however, that no property other than Financed Shares shall be released pursuant to this section 6.4 unless all Financed Shares have previously been released. 
  
 Section 6.5 Restrictions on Financed
Shares. 
  
 Except to the extent required
under any applicable law, rule or regulation, no Shares purchased with the proceeds of a Share Acquisition Loan shall be subject to a put, call or 

  

 22 

 
other option, or to any buy-sell or similar arrangement, while held by the Trustee or when distributed from the Plan. The provisions of this section 6.5
shall continue to apply in the event that this Plan shall cease to be an employee stock ownership plan, within the meaning of section 4975(e)(7) of the Code. 
  
 Article VII 
  
 Allocation of Contributions 
  
 Section 7.1 Allocation Among Eligible Participants. 
  
 Subject to the limitations of Article VIII, Discretionary Contributions for a Plan Year made in accordance
with section 5.3 and Financed Shares and other property that are released from the Loan Repayment Account for a Plan Year in accordance with section 6.4 shall be allocated among the Eligible Participants for such Plan Year, in the manner provided in
this Article VII. 
  
 Section 7.2
Allocation of Released Shares or Other Property. 
  
 Subject to the limitations of Article VIII, in the event that Financed Shares or other property are released from the Loan Repayment Account for a Plan Year in accordance with section 6.4, such released Shares or
other property shall be allocated among the Accounts of the Eligible Participants for the Plan Year in the proportion that each such Eligible Participant’s Allocation Compensation for the portion of such Plan Year during which he was a
Participant bears to the aggregate of such Allocation Compensation of all Eligible Participants for such Plan Year. 
  
 Section 7.3 Allocation of Discretionary Contributions. 
  
 Subject to the limitations of Article VIII, in the event that the Participating Employers make Discretionary
Contributions for a Plan Year, such Discretionary Contributions shall be allocated among the Accounts of the Eligible Participants for such Plan Year in the proportion that each such Eligible Participant’s Allocation Compensation for the
portion of such Plan Year during which he was a Participant bears to the aggregate of such Allocation Compensation of all Eligible Participants for such Plan Year. 
  
 Article VIII 
  
 Limitations on Allocations 
  
 Section 8.1 Optional Limitations on Allocations. 
  
 If, for any Plan Year, the application of sections 7.2 and 7.3 would result in more than one-third of the
number of Shares or of the amount of money or property to be allocated thereunder being allocated to the Accounts of Eligible Participants for such Plan Year who are also Highly Compensated Employees for such Plan Year, then the Committee may, but
shall not be required to, direct that this section 8.1 shall apply in lieu of sections 7.2 and 7.3. If the Committee gives such a direction, then the Committee shall impose a maximum dollar limitation 

  

 23 

 
on the amount of Allocation Compensation that may be taken into account for each Eligible Participant. The dollar limitation which shall be imposed shall be
the limitation which produces the result that the aggregate Allocation Compensation taken into account for Eligible Participant who are Highly Compensated Employees, constitutes exactly one-third of the aggregate Allocation Compensation taken into
account for all Eligible Participants. 
  
 Section 8.2 General Limitations on Contributions. 
  
 (a) No amount shall be allocated to a Participant’s Account under this Plan for any Limitation Year to the extent that such an
allocation would result in an Annual Addition of an amount greater than the lesser of (i) $44,000 (or such other amount as is permissible under section 415(c)(1)(A) of the Code), or (ii) 100% of the Participant’s Total Compensation
for such Limitation Year. 
  
 (b) For purposes of
this section 8.2, the following special definitions shall apply: 
  
 (i) Annual Addition means the sum of the following amounts allocated on behalf of a Participant for a Limitation Year: 
  
 (A) all contributions by the Employer (including contributions made under a salary reduction agreement
pursuant to sections 401(k), 408(k) or 403(b) of the Code) under any qualified defined contribution plan or simplified employee pension (other than this Plan) maintained by the Employer, as well as the Participant’s allocable share, if any, of
any forfeitures under such plans as well as amounts allocated to an individual medical benefit account, as defined in section 415(l)(2) of the Code, which is part of a pension or annuity plan maintained by the Employer; plus 
  
 (B) the sum of all of the nondeductible voluntary
contributions under any other qualified defined contribution plan (whether or not terminated) maintained by the Employer; 
  
 (C) all Discretionary Contributions under this Plan; plus 
  
 (D) except as hereinafter provided in this section 8.2(b)(i), a portion of the Employer’s Loan
Repayment Contributions to the Plan for such Limitation Year which bears the same proportion to the total amount of the Employer’s Loan Repayment Contributions for the Limitation Year that the number of Shares (or the Fair Market Value of
property other than Shares) allocated to the Participant’s Account pursuant to section 7.2 or 8.1, whichever is applicable, bears to the aggregate number of Shares (or Fair Market Value of property other than Shares) so allocated to all
Participants for such Limitation Year. 
  
 Notwithstanding
section 8.2(b)(i)(D), if, for any Limitation Year, the aggregate amount of Discretionary Contributions allocated to the Accounts of the individuals who are Highly Compensated Employees for such Limitation Year, when added to such Highly Compensated
Employees’ allocable share of any Loan 

  

 24 

 
Repayment Contributions for such Limitation Year, does not exceed one-third of the total of all Discretionary Contributions and Loan Repayment Contributions
for such Limitation Year, then that portion, if any, of the Loan Repayment Contributions for such Limitation Year that is applied to the payment of interest on a Share Acquisition Loan shall not be included as an Annual Addition. In no event shall
any Financed Shares, any dividends or other earnings thereon, any proceeds of the sale thereof or any portion of the value of the foregoing be included as an Annual Addition. No catch-up elective deferrals under section 414(v) of the Code shall be
included as an Annual Addition. 
  
 (ii)
Employer means Lake Shore Bancorp, Inc., and all members of a controlled group of corporations, as defined in section 414(b) of the Code, as modified by section 415(h) of the Code, all commonly controlled trades or businesses, as
defined in section 414(c) of the Code, as modified by section 415(h) of the Code, all affiliated service groups, as defined in section 414(m) of the Code, of which Lake Shore Bancorp, Inc. is a member, as well as any leasing organization, as defined
in section 18.8, that employs any person who is considered an employee under section 18.8 and any other entity that is required to be aggregated with the Employer pursuant to regulations under section 414(o) of the Code. 
  
 (iii) Limitation Year means the Plan Year.

  
 (c) When an individual’s Annual Addition
to this Plan must be reduced to satisfy the limitations of section 8.2(a), such reduction shall be applied to Discretionary Contributions and to Shares allocated as a result of a Loan Repayment Contribution which are included as an Annual Addition
in such order as shall result in the smallest reduction in the number of Shares allocable to the Individual’s Account. The amount by which any Individual’s Annual Addition to this Plan is reduced shall be allocated in accordance with
Articles V and VII as a contribution by the Participating Employers in the next succeeding Limitation Year. 
  
 (d) Prior to determining an individual’s actual Total Compensation for a Limitation Year, the Participating Employer may determine
the limitations under this section 8.2 for an individual on the basis of a reasonable estimation of the individual’s Total Compensation for the Limitation Year that is uniformly determined for all individuals who are similarly situated. As soon
as it is administratively feasible after the end of the Limitation Year, the limitations of this section 8.2 shall be determined on the basis of the individual’s actual Total Compensation for the Limitation Year. 
  

 25 

 Article IX 
  

Vesting 
  
 Section 9.1 Vesting. 
  
 Subject to the provisions of sections 9.2 and 14.1(a), the balance credited to each Participant’s Account shall become vested in
accordance with the following schedule: 
  

				
	 Years of Vesting Service

	  	Vested Percentage

	 
	 less than 2 years
	  	0	%
	 2 years
	  	20	%
	 3 years
	  	40	%
	 4 years
	  	60	%
	 5 years
	  	80	%
	 6 or more years
	  	100	%

  
 Section 9.2 Vesting on Death, Disability, Retirement or Change in Control. 
  
 Any previously unvested portion of the remainder of the balance credited to the Account of a Participant or of a person who is a Former
Participant solely because he is excluded from membership under section 2.1(b) shall become fully vested immediately upon his attainment of age 65 while employed by any Applicable Employer, or, if earlier, upon the termination of his employment with
all Affiliated Employers by reason of death, Disability, Retirement or upon the occurrence of a Change in Control. 
  
 Section 9.3 Forfeitures on Termination of Employment. 
  
 Upon the termination of employment of a Participant or Former Participant for any reason other than death,
Disability or Retirement, that portion of the balance credited to his Account which is not vested at the date of such termination shall be forfeited upon the earliest of (a) full distribution of the vest portion of the Account or (b) the
fifth anniversary following the date of re-employment. The proceeds of such forfeited amounts, reduced by any amounts required to be credited because of re-employment pursuant to section 9.4, shall be treated as Forfeitures and shall be disposed of
as provided in section 9.5. If no portion of the balance credited to an Account of a Participant or Former Participant is vested as of the date of his termination of employment, a distribution of $0, representing full distribution of the Account,
shall be deemed to have been made to the Participant or Former Participant on such date. 
  

 26 

 Section 9.4 Amounts Credited Upon Re-Employment. 
  
 If an Employee forfeited any amount of the balance credited
to his Account upon his termination of employment, and is re-employed by any Affiliated Employer prior to the occurrence of five consecutive One-Year Breaks in Service, then: 
  
 (i) an amount equal to the Fair Market Value of the Shares forfeited, determined as of the date of
forfeiture; and 
  
 (ii) the amount credited to
his General Investment Account that was forfeited, determined as of the date of forfeiture; 
  
 shall be credited back to his Account; provided however, that the Employee repays the amount distributed to him from his Account as a result of such termination no later than the fifth anniversary of his re-employment
or the end of the fifth Plan Year to begin after such distribution, whichever is earlier. Such amounts to be re-credited shall be obtained from the proceeds of the forfeited amounts redeemed pursuant to section 9.3 during the Plan Year in which the
repayment is made, unless such proceeds are insufficient, in which case the Employee’s Employer shall make an additional contribution in the amount of such deficiency. Form purposes of this section 9.4, a Participant or Former participant who
received a distribution of $0, shall be deemed to have made repayment on the date of re-employment with an Employer. 
  
 Section 9.5 Allocation of Forfeitures. 
  
 Any Forfeitures that occur during a Plan Year shall be used to reduce the contributions required of the
Employer under the Plan in the next Plan Year and shall be treated as Loan Repayment Contributions and Discretionary Contributions in the proportions designated by the Committee in accordance with Article V. 
  
 Article X 
  
 The Trust Fund 
  
 Section 10.1 The Trust Fund. 
  
 The Trust Fund shall be held and invested under the Trust Agreement with the Trustee. The provisions of the
Trust Agreement shall vest such powers in the Trustee as to investment, control and disbursement of the Trust Fund, and such other provisions not inconsistent with the Plan, including provision for the appointment of one or more “investment
managers” within the meaning of section 3(38) of ERISA to manage and control (including acquiring and disposing of) all or any of the assets of the Trust Fund, as the Board may from time to time authorize. Except as required by ERISA, no bond
or other security shall be required of any Trustee at any time in office. 
  
 Section 10.2 Investments. 
  
 Except to the extent provided to the contrary in section 10.3, the Trust Fund shall be invested in: 
  
 (i) Shares; 
  

 27 

 (ii) such Investment Funds as may be established from time to time by the Committee; and

  
 (iii) such other investments as may be
permitted under the Trust Agreement; 
  
 in such proportions as shall be
determined by the Committee or, if so provided under the Trust Agreement, as directed by one or more investment managers or by the Trustee, in its discretion; provided, however, that the investments of the Trust Fund shall consist primarily of
Shares. Notwithstanding the immediately preceding sentence, the Trustee may temporarily invest the Trust Fund in short-term obligations of, or guaranteed by, the United States Government or an agency thereof, or may retain uninvested, or sell
investments to provide, amounts of cash required for purposes of the Plan. 
  
 Section 10.3 Distributions for Diversification of Investments. 
  
 (a) Notwithstanding section 10.2, each Qualified Participant may: 
  
 (i) during the first 90 days of each of the first five Plan Years to begin after the Plan Year in which he
first becomes a Qualified Participant, elect that such percentage of the balance credited to his Account as he may specify, but in no event more than 25% of the balance credited to his Account, be either distributed to him pursuant to this section
10.3(a)(i) or transferred to the 401(k) plan maintained by Lake Shore Savings Bank to the extent permitted by such plan, no later than 90 days after the last day that such election may be made; and 
  
 (ii) during the first 90 days of the sixth Plan Year to
begin after the Plan Year in which he first becomes a Qualified Participant or of any Plan Year thereafter, elect that such percentage of the balance credited to his Account as he may specify, but in no event more than 50% of the balance credited to
his Account, be either distributed to him pursuant to this section 10.3(a)(ii) or transferred to the 401(k) Plan maintained by Lake Shore Savings Bank to the extent permitted by such plan, no later than 90 days after the last day that such election
may be made. 
  
 For purposes of an election under this section 10.3, the balance
credited to a Participant’s Account shall be the balance credited to his Account determined as of the last Valuation Date to occur in the Plan Year immediately preceding the Plan Year in which such election is made and the 25% and 50%
limitations shall apply to such balance after the balance has been reduced by the amount of all amounts distributed or transferred to the 401(k) Plan maintained by Lake Shore Savings Bank under this section 10.3. 
  
 (b) An election made under section 10.3(a) shall be made in
writing, in the form and manner prescribed by the Plan Administrator, and shall be filed with the Plan Administrator during the election period specified in section 10.3(a). As soon as is practicable, and in no case later than 90 days following the
end of the election period during which such 

  

 28 

 
election is made, the Plan Administrator shall take such actions as are necessary to cause the specified percentage of the balance credited to the Account of
the Qualified Participant making the election to be distributed to such Qualified Participant. 
  
 (c) An election made under section 10.3(a) may be changed or revoked at any time during the election period described in section 10.3(a)
during which it is initially made. In no event, however, shall any election under this section 10.3 result in more than 25% of the balance credited to the Participant’s Account being distributed to the Participant or transferred to the 401(k)
Plan maintained by Lake Shore Savings Bank, if such election is made during a Plan Year to which section 10.3(a)(i) applies, or result in more than 50% of the balance distributed to the Participant or transferred to the 401(k) Plan maintained by
Lake Shore Savings Bank, if such election is made during the Plan Year to which section 10.3(a)(ii) applies or thereafter. 
  
 Section 10.4 Use of Commingled Trust Funds. 
  
 Subject to the provisions of the Trust Agreement, amounts held in the Trust Fund may be invested in:

  
 (a) any commingled or group trust fund
described in section 401(a) of the Code and exempt under section 501(a) of the Code; or 
  
 (b) any common trust fund exempt under section 584 of the Code maintained exclusively for the collective investment of the assets of
trusts that are exempt under section 501(a) of the Code; provided that the trustee of such commingled, group or common trust fund is a bank or trust company. 
  

Section 10.5 Management and Control of Assets. 
  
 All assets of the Plan shall be held by the Trustee in trust for the exclusive benefit of Participants,
Former Participants and their Beneficiaries. No part of the corpus or income of the Trust Fund shall be used for, or diverted to, purposes other than for the exclusive benefit of Participants, Former Participants and their Beneficiaries, and for
defraying reasonable administrative expenses of the Plan and Trust Fund. No person shall have any interest in or right to any part of the earnings of the Trust Fund, or any rights in, to or under the Trust Fund or any part of its assets, except to
the extent expressly provided in the Plan. 
  
 Article XI

  
 Valuation of Interests in the Trust Fund 

 
 Section 11.1 Establishment of Investment
Accounts. 
  
 The Plan Administrator
shall establish, or cause to be established, for each person for whom an Account is maintained a Share Investment Account and a General Investment Account. Such Share Investment Accounts and General Investment Accounts shall be maintained in
accordance with this Article XI. 
  

 29 

 Section 11.2 Share Investment Accounts. 
  
 The Share Investment Account established for a person in
accordance with section 11.1 shall be credited with: (a) all Shares allocated to such person’s Account; (b) all Shares purchased with amounts of money or property allocated to such person’s Account; (c) all dividends paid in
the form of Shares with respect to Shares credited to his Account; and (d) all Shares purchased with amounts credited to such person’s General Investment Account. Such Share Investment Account shall be charged with all Shares that are sold
or exchanged to acquire other investments or to provide cash and with all Shares that are distributed in kind. 
  
 Section 11.3 General Investment Accounts. 
  
 The General Investment Account that is established for a person in accordance with section 11.1 shall be
credited with: (a) all amounts, other than Shares, allocated to such person’s Account; (b) all dividends paid in a form other than Shares with respect to Shares credited to such person’s Share Investment Account; (c) the
proceeds of any sale of Shares credited to such person’s Share Investment Account; and (d) any earnings attributable to amounts credited to such person’s General Investment Account. Such General Investment Account shall be charged
with all amounts credited thereto that are applied to the purchase of Shares, any losses or depreciation attributable to amounts credited thereto, any expenses allocable thereto and any distributions of amounts credited thereto. 
  
 Section 11.4 Valuation of Investment
Accounts. 
  
 (a) The Plan Administrator
shall determine, or cause to be determined, the aggregate value of each person’s Share Investment Account as of each Valuation Date by multiplying the number of Shares credited to such Share Investment Account on such Valuation Date by the Fair
Market Value of a Share on such Valuation Date. 
  
 (b) As of each Valuation Date, the Accounts of each Participant shall be separately adjusted to reflect their proportionate share of any appreciation or depreciation in the fair market value of the Investment Funds, any income earned by the
Investment Funds and any expenses incurred by the Investment Funds, as well as any contributions, withdrawals or distributions and investment transfers not posted as of the last Valuation Date. 
  
 Section 11.5 Annual Statements.

  
 There shall be furnished, by mail or
otherwise, at least once in each Plan Year to each person who would then be entitled to receive all or part of the balance credited to any Account if the Plan were then terminated, a statement of his interest in the Plan as of such date as shall be
selected by the Plan Administrator, which statement shall be deemed to have been accepted as correct and be binding on such person unless the Plan Administrator receives written notice to the contrary within 30 days after the statement is mailed or
furnished to such person. 
  

 30 

 Article XII 
  
 Shares 
  
 Section 12.1 Specific Allocation of Shares. 
  
 All Shares purchased under the Plan shall be specifically allocated to the Share Investment Accounts of
Participants, Former Participants and their Beneficiaries in accordance with section 11.2, with the exception of Financed Shares, which shall be allocated to the Loan Repayment Account. 
  
 Section 12.2 Dividends. 
  
 (a) Dividends paid with respect to Shares held under the Plan shall be credited to the Loan Repayment
Account, if paid with respect to Financed Shares. Such dividends shall be: (i) applied to the payment of principal and accrued interest with respect to any Share Acquisition Loan, if paid in cash; or (ii) held in the Loan Repayment Account
as Financed Shares for release in accordance with section 6.4, if paid in the form of Shares. 
  
 (b) Dividends paid with respect to Shares allocated to a person’s Share Investment Account shall be credited to such person’s
Share Investment Account. Cash dividends credited to a person’s General Investment Account shall be, at the direction of the Committee, either: (i) held in such General Investment Account and invested in accordance with sections 10.2 and
11.3; (ii) distributed immediately to such person; (iii) distributed to such person within 90 days of the close of the Plan Year in which such dividends were paid; (iv) used to make payments of principal or interest on a Share
Acquisition Loan; provided, however, that the Fair Market Value of Financed Shares released from the Loan Repayment Account as a result of such payment equals or exceeds the amount of the dividend; or (v) either held as provided in section
12.2(b)(i) or distributed as provided in section 12.2(b)(ii), as each person shall elect for his own Account. 
  
 Section 12.3 Voting Rights. 
  

(a) Each person shall direct the manner in which all voting rights appurtenant to Shares allocated to his Share Investment Account will
be exercised, provided that such Shares were allocated to his Share Investment Account as of the applicable record date. Such person shall, for such purpose, be deemed a “named fiduciary” within the meaning of section 402(a)(2) of ERISA.
Such a direction shall be given by completing and filing with the inspector of elections, the Trustee or such other person who shall be independent of the Participating Employers as the Committee shall designate, at least 10 days prior to the date
of the meeting of holders of Shares at which such voting rights will be exercised, a written direction in the form and manner prescribed by the Committee. The inspector of elections, the Trustee or such other person designated by the Committee shall
tabulate the directions given on a strictly confidential basis, and shall provide the Committee with only the final results of the tabulation. The final results of the tabulation shall be followed by the Committee in directing the Trustee as to the
manner in which such voting rights shall be exercised. The Plan Administrator shall make a reasonable effort to furnish, or cause to be furnished, to each person for whom a Share Investment Account is maintained all annual reports, proxy materials
and other information 

  

 31 

 
known by the Plan Administrator to have been furnished by the issuer of the Shares, or by any solicitor of proxies, to the holders of Shares. 
  
 (b) To the extent that any person shall fail to give
instructions with respect to the exercise of voting rights appurtenant to Shares allocated to his Share Investment Account: 
  
 (i) the Trustee shall, with respect to each matter to be voted upon: (A) cast a number of affirmative votes equal to the product of
(I) the number of allocated Shares for which no written instructions have been given, multiplied by (II) a fraction, the numerator of which is the number of allocated Shares for which affirmative votes will be cast in accordance with written
instructions given as provided in section 12.3(a) and the denominator of which is the aggregate number of affirmative and negative votes which will be cast in accordance with written instructions given as aforesaid, and (B) cast a number of
negative votes equal to the excess (if any) of (I) the number of allocated Shares for which no written instructions have been given over (II) the number of affirmative votes being cast with respect to such allocated Shares pursuant to section
12.3(b)(i)(A); or 
  
 (ii) if the Trustee shall
determine that it may not, consistent with its fiduciary duties, vote the allocated Shares for which no written instructions have been given in the manner described in section 12.3(b)(i), it shall vote such Shares in such manner as it, in its
discretion, may determine to be in the best interests of the persons to whose Share Investment Accounts such Shares have been allocated. 
  
 (c) (i) The voting rights appurtenant to Financed Shares shall be exercised as follows with respect to each matter as to which
holders of Shares may vote: 
  
 (A) a number of
votes equal to the product of (I) the total number of votes appurtenant to Financed Shares allocated to the Loan Repayment Account on the applicable record date; multiplied by (II) a fraction, the numerator of which is the total number of
affirmative votes cast by Participants, Former Participants and the Beneficiaries of deceased Former Participants with respect to such matter pursuant to section 12.3(a) and the denominator of which is the total number of affirmative and negative
votes cast by Participants, Former Participants and the Beneficiaries of deceased Former Participants, shall be cast in the affirmative; and 
  
 (B) a number of votes equal to the excess of (I) the total number of votes appurtenant to Financed Shares allocated to the Loan
Repayment Account on the applicable record date, over (II) the number of affirmative votes cast pursuant to section 12.3(c)(i)(A) shall be cast in the negative. 
  

To the extent that the Financed Shares consist of more than one class of Shares, this section 12.3(c)(i) shall be applied separately with respect to each class of
Shares. 
  
 (ii) If voting rights are to be
exercised with respect to Financed Shares as provided in section 12.3(c)(i)(A) and (B) at a time when there are no Shares allocated to the Share Investment Accounts of Participants, Former Participants and the Beneficiaries 

  

 32 

 
of deceased Former Participants, then the voting rights appurtenant to Financed Shares shall be exercised as follows with respect to each matter as to which
holders of Shares may vote: 
  
 (A) Each person
who is a Participant on the applicable record date will be granted a number of votes equal to the quotient, rounded to the nearest integral number, of (I) such Participant’s Allocation Compensation for the Plan Year ending on or
immediately prior to such record date (or for the portion of such Plan Year during which he was a Participant); divided by (II) $1,000.00; and 
  
 (B) a number of votes equal to the product of (I) the total number of Financed Shares allocated to the Loan Repayment Account on the
applicable record date; multiplied by (II) a fraction, the numerator of which is the total number of votes that are cast in the affirmative with respect to such matter pursuant to section 12.3(c)(ii)(A) and the denominator of which is the total
number of votes that are cast either in the affirmative or in the negative with respect to such matter pursuant to section 12.3(c)(ii)(A), shall be cast in the affirmative; and 
  
 (C) a number of votes equal to the excess of (I) the total number of Financed Shares allocated to the
Loan Repayment Account on the applicable record date, over (II) the number of affirmative votes cast with respect to such matter pursuant to section 12.3(c)(ii)(B), shall be cast in the negative. 
  
 To the extent that the Financed Shares consist of more than one class of Shares, this section
12.3(c)(ii) shall be applied separately with respect to each class of Shares. 
  
 Section 12.4 Tender Offers. 
  
 (a) Each person shall direct whether Shares allocated to his Share Investment Account will be delivered in response to any Tender Offer.
Such person shall, for such purpose, be deemed a “named fiduciary” within the meaning of section 402(a)(2) of ERISA. Such a direction shall be given by completing and filing with the Trustee or such other person who shall be independent of
the Participating Employers as the Committee shall designate, at least 10 days prior to the latest date for exercising a right to deliver Shares pursuant to such Tender Offer, a written direction in the form and manner prescribed by the Committee.
The Trustee or other person designated by the Committee shall tabulate the directions given on a strictly confidential basis, and shall provide the Committee with only the final results of the tabulation. The final results of the tabulation shall be
followed by the Committee in directing the number of Shares to be delivered. The Plan Administrator shall make a reasonable effort to furnish, or cause to be furnished, to each person for whom a Share Investment Account is maintained, all
information known by the Plan Administrator to have been furnished by the issuer or by or on behalf of any person making such Tender Offer, to the holders of Shares in connection with such Tender Offer. 
  

 33 

 (b) To the extent that any person shall fail to give instructions with respect to Shares
allocated to his Share Investment Account: 
  
 (i) the Trustee shall (A) tender or otherwise offer for purchase, exchange or redemption a number of such Shares equal to the product of (I) the number of allocated Shares for which no written instructions have been given,
multiplied by (II) a fraction, the numerator of which is the number of allocated Shares tendered or otherwise offered for purchase, exchange or redemption in accordance with written instructions given as provided in section 12.4(a) and the
denominator of which is the aggregate number of allocated Shares for which written instructions have been given as aforesaid, and (B) withhold a number of Shares equal to the excess (if any) of (I) the number of allocated Shares for which
no written instructions have been given over (II) the number of Shares being tendered or otherwise offered pursuant to section 12.4(b)(i)(A); or 
  
 (ii) if the Trustee shall determine that it may not, consistent with its fiduciary duties, exercise the tender or other rights appurtenant
to allocated Shares for which no written instructions have been given in the manner described in section 12.4(b)(i), it shall tender, or otherwise offer, or withhold such Shares in such manner as it, in its discretion, may determine to be in the
best interests of the persons to whose Share Investment Accounts such Shares have been allocated. 
  
 (c) In the case of any Tender Offer, any Financed Shares held in the Loan Repayment Account shall be dealt with as follows: 
  
 (i) If such Tender Offer occurs at a time when there are no
Shares allocated to the Share Investment Accounts of Participants, Former Participants and the Beneficiaries of deceased Former Participants, then the disposition of the Financed Shares shall be determined as follows: 
  
 (A) each person who is a Participant on the applicable
record date will be granted a number of tender rights equal to the quotient, rounded to the nearest integral number, of (I) such Participant’s Allocation Compensation for the Plan Year ending on or immediately prior to such record date (or
for the portion of such Plan Year during which he was a Participant), divided by (II) $1,000.00; and 
  
 (B) on the last day for delivering Shares or otherwise responding to such Tender Offer, a number of Shares equal to the product of
(I) the total number of Financed Shares allocated to the Loan Repayment Account on the last day of the effective period of such Tender Offer; multiplied by (II) a fraction, the numerator of which is the total number of tender rights exercised
in favor of the delivery of Shares in response to the Tender Offer pursuant to section 12.4(c)(i)(A) and the denominator of which is the total number of tender rights that are exercisable in response to the Tender Offer pursuant to section
12.4(c)(i)(A), shall be delivered in response to the Tender Offer; and 
  
 (C) a number of Shares equal to the excess of (I) the total number of Financed Shares allocated to the Loan Repayment Account on the last day of the effective period of such Tender Offer; over (II) the number of
Shares to be 

  

 34 

 
delivered in response to the Tender Offer pursuant to section 12.4(c)(i)(B), shall be withheld from delivery. 
  
 (ii) If such Tender Offer occurs at a time when the voting
rights appurtenant to such Financed Shares are to be exercised in accordance with section 12.3(c)(i), then: 
  
 (A) on the last day for delivering Shares or otherwise responding to such Tender Offer, a number of Financed Shares equal to the product
of (I) the total number of Financed Shares allocated to the Loan Repayment Account on the last day of the effective period of such Tender Offer; multiplied by (II) a fraction, the numerator of which is the total number of Shares delivered from
the Share Investment Accounts of Participants, Former Participants and the Beneficiaries of deceased Former Participants in response to such Tender Offer pursuant to section 12.4(a), and the denominator of which is the total number of Shares
allocated to the Share Investment Accounts of Participants, Former Participants and Beneficiaries of deceased Former Participants immediately prior to the last day for delivering Shares or otherwise responding to such Tender Offer, shall be
delivered; and 
  
 (B) a number of Financed
Shares equal to the excess of (I) the total number of Financed Shares allocated to the Loan Repayment Account on the last day for delivering Shares or otherwise responding to such Tender Offer; over (II) the number of Financed Shares to be
delivered pursuant to section 12.4(c)(ii)(A), shall be withheld from delivery. 
  
 To the extent that the Financed Shares consist of more than one class of Shares, this section 12.4(c) shall be applied separately with respect to each class of Shares. 
  
 Article XIII 
  
 Payment of Benefits 
  
 Section 13.1 In General.

  
 The balance credited to a
Participant’s or Former Participant’s Account under the Plan shall be paid only at the times, to the extent, in the manner and to the persons provided in this Article XIII. 
  
 Section 13.2 Designation of Beneficiaries. 
  
 (a) Subject to section 13.2(b), any person entitled to a
benefit under the Plan may designate a Beneficiary to receive any amount to which he is entitled that remains undistributed on the date of his death. Such person shall designate his Beneficiary (and may change or revoke any such designation) in
writing in the form and manner prescribed by the Plan Administrator. Such designation, and any change or revocation thereof, shall be effective only if 

  

 35 

 
received by the Plan Administrator prior to such person’s death and shall become irrevocable upon such person’s death. 
  
 (b) A Participant or Former Participant who is married shall
automatically be deemed to have designated his spouse as his Beneficiary, unless, prior to the time such designation would, under section 13.2(a), become irrevocable: 
  
 (i) the Participant or Former Participant designates an additional or a different Beneficiary in accordance
with this section 13.2; and 
  
 (ii) (A) the
spouse of such Participant or Former Participant consents to such designation in a writing that acknowledges the effect of such consent and is witnessed by a Plan representative or a notary public; or (B) the spouse of such Participant or
Former Participant has previously consented to such designation by signing a written waiver of any right to consent to any designation made by the Participant or Former Participant, and such waiver acknowledged the effect of the waiver and was
witnessed by a Plan representative or a notary public; or (C) it is established to the satisfaction of a Plan representative that the consent required under section 13.2(b)(ii)(A) may not be obtained because such spouse cannot be located or
because of other circumstances permitted under regulations issued by the Secretary of the Treasury. 
  
 (c) In the event that a Beneficiary entitled to payments hereunder shall die after the death of the person who designated him but prior to
receiving payment of his entire interest in the Account of the person who designated him, then such Beneficiary’s interest in the Account of such person, or any unpaid balance thereof, shall be paid as provided in section 13.3 to the
Beneficiary who has been designated by the deceased Beneficiary, or if there is none, to the executor or administrator of the estate of such deceased Beneficiary, or if no such executor or administrator is appointed within such time as the Plan
Administrator, in his sole discretion, shall deem reasonable, to such one or more of the spouse and descendants and blood relatives of such deceased Beneficiary as the Plan Administrator may select. If a person entitled to a benefit under the Plan
and any of the Beneficiaries designated by him shall die in such circumstances that there shall be substantial doubt as to which of them shall have been the first to die, for all purposes of the Plan, the person who made the Beneficiary designation
shall be deemed to have survived such Beneficiary. 
  
 (d) If no Beneficiary survives the person entitled to the benefit under the Plan or if no Beneficiary has been designated by such person, such benefit shall be paid to the executor or administrator of the estate of such person, or if no
such executor or administrator is appointed within such time as the Plan Administrator, in his sole discretion, shall deem reasonable, to such one or more of the spouse and descendants and blood relatives of such deceased person as the Plan
Administrator may select. 
  
 Section 13.3
Distributions to Participants and Former Participants. 
  
 (a) Except as provided in section 13.5, the vested portion of the balance credited to a Former Participant’s Account shall be
distributed to him in a single distribution as 

  

 36 

 
of the last Valuation Date to occur in the Plan Year in which he terminates employment with all Affiliated Employers or the Plan Year in which he attains age
65, whichever is later; provided, however, that if the Former Participant elects, at such time and in such manner as the Plan Administrator may prescribe, that distribution be made as of an earlier Valuation Date that coincides with or follows his
termination of employment with all Affiliated Employers, distribution shall be made as of such earlier Valuation Date and if the entire vested balance credited to a Former Participant’s Accounts is not more than $1,000 then the full vested
amount shall be paid as of the earliest practicable Valuation Date following his termination of employment. The actual distribution shall be made within sixty days after the applicable Valuation Date. If an Account of a Participant or Former
Participant does not contain any vested amounts as of the date of his termination of employment with all Affiliated Employers, a distribution of $0, representing a full distribution of the Account, shall be deemed to have been made to the
Participant or Former Participant on such date. 
  
 (b) In the event of the death of a Participant or Former Participant before the date of actual distribution of the vested portion of the balance credited to his Account, such vested portion shall be distributed to his Beneficiary in a
single distribution as of the first Valuation Date to occur following the latest of (i) the date on which the Plan Administrator is notified of the Participant’s or Former Participant’s death; and (ii) the date on which the Plan
Administrator determines the identity and location of the Participant’s or Former Participant’s Beneficiary or Beneficiaries. The actual distribution shall be made within sixty days after the applicable Valuation Date. 
  
 Section 13.4 Manner of Payment.

  
 Distributions made pursuant to section
13.3 or section 13.5 shall be made, in accordance with the written direction of the person requesting the payment, in whole Shares, in cash, or in a combination of cash and whole Shares. Such written direction shall be given in such form and manner
as the Plan Administrator may prescribe. If no such direction is given, then payment shall be made in the maximum number of whole Shares that may be acquired with the amount of the payment, plus, if necessary, an amount of money equal to any
remaining amount of the payment that is less than the Fair Market Value of a whole Share. 
  
 Section 13.5 Minimum Required Distributions. 
  
 (a) Required minimum distributions of a Participant’s or Former Participant’s Account shall
commence no later than: 
  
 (i) if the
Participant or Former Participant was not a Five Percent Owner at any time during the Plan Year ending in the calendar year in which he attained age 70 1/2, during any of the four preceding Plan Years or during any subsequent years, the later of (A) the calendar year in which he attains or attained age 70 1/2 or (B) the calendar year in which he terminates employment with all Affiliated Employers; or 
  
 (ii) if the Participant or Former Participant attains age
70 1/2 after December 31, 1998 and is or was a Five Percent Owner at any time during the 

  

 37 

 
Plan Year ending in the calendar year in which he attained age 70 1/2, during any of the four preceding Plan Years or during any subsequent years, the later of (A) the calendar year in which he attains age 70 1/2 or (B) the calendar year in which he first becomes a Five Percent Owner. 
  
 (b) The required minimum distributions contemplated by section 13.5(a) shall be made as follows: 

 
 (i) The minimum required distribution to be made for the
calendar year for which the first minimum distribution is required shall be no later than April 1st of the immediately following calendar year and shall be equal to the quotient obtained by dividing (A) the vested balance credited to the
Participant’s or Former Participant’s Account as of the last Valuation Date to occur in the calendar year immediately preceding the calendar year in which the first minimum distribution is required (adjusted to account for any additions
thereto or subtractions therefrom after such Valuation Date but on or before December 31st of such calendar year); by (B) the Participant’s or Former Participant’s life expectancy (or, if his Beneficiary is a Designated
Beneficiary, the joint life and last survivor expectancy of him and his Beneficiary); and 
  
 (ii) the minimum required distribution to be made for each calendar year following the calendar year for which the first minimum
distribution is required shall be made no later than December 31st of the calendar year for which the distribution is required and shall be equal to the quotient obtained by dividing (A) the vested balance credited to the
Participant’s or Former Participant’s Account as of the last Valuation Date to occur in the calendar year prior to the calendar year for which the distribution is required (adjusted to account for any additions thereto or subtractions
therefrom after such Valuation Date but on or before December 31st of such calendar year and, in the case of the distribution for the calendar year immediately following the calendar year for which the first minimum distribution is required,
reduced by any distribution for the prior calendar year that is made in the current calendar year); by (B) the Participant’s or Former Participant’s life expectancy (or, if his Beneficiary is a Designated Beneficiary, the joint life
and last survivor expectancy of him and his Beneficiary). 
  
 (c) For purposes of section 13.5(b) during the Participant’s or Former Participant’s lifetime, life expectancy shall be equal to: 
  
 (i) the distribution period in the Uniform Lifetime Table set forth in section 1.401(a)(9)-9 of the Treasury
regulations, using the Participant’s age as of the Participant’s birthday in such calendar year; or 
  
 (ii) if the Participant’s spouse is the sole Designated Beneficiary and the spouse is more than ten years younger than the
Participant, the number in the Joint and Last Survivor Table set forth in section 1.401(a)(9)-9 of the Treasury 

  

 38 

 
regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in such calendar year.

  
 (d) Payment of the distributions required to
be made to a Participant or Former Participant under this section 13.5 shall be made in accordance with section 13.4. 
  
 Section 13.6 Direct Rollover of Eligible Rollover Distributions. 
  
 (a) A Distributee may elect, at the time and in the manner
prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. 
  
 (b) The following rules shall apply with respect to Direct
Rollovers made pursuant to this section 13.6: 
  
 (i) A Distributee may only elect to make a Direct Rollover of an Eligible Rollover Distribution if such Eligible Rollover Distribution (when combined with other Eligible Rollover Distributions made or to be made in the same calendar year)
is reasonably expected to be at least $200; 
  
 (ii) If a Distributee elects a Direct Rollover of a portion of an Eligible Rollover Distribution, that portion must be equal to at least $500; and 
  
 (iii) A Distributee may not divide his or her Eligible Rollover Distribution into separate distributions to be transferred to two or more
Eligible Retirement Plans. 
  
 (c) For purposes
of this section 13.6 and any other applicable section of the Plan, the following definitions shall have the following meanings: 
  
 (i) Direct Rollover means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 
  
 (ii) Distributee means an Employee or former
Employee. In addition, the Employee’s or former Employee’s surviving spouse and the Employee’s spouse or former spouse who is the alternate payee under a Qualified Domestic Relations Order are considered Distributees with regard to
the interest of the spouse or former spouse. 
  
 (iii) Eligible Retirement Plan means an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) or the Code, an annuity plan described in section
403(a) of the Code, a qualified trust described in section 401(a) of the Code an annuity contract described in section 403(b) of the Code or an eligible deferred compensation plan under section 457(b) of the Code which is maintained by a state,
political subdivision of a state, or an agency or instrumentality of a state or political subdivision thereof and which agrees to separately account for amounts 

  

 39 

 
transferred into such plan from this Plan, that accepts the Distributee’s Eligible Rollover Distribution. 
  
 (iv) Eligible Rollover Distribution means any
distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee’s designated Beneficiary, or for a specified period of ten (10) years or more; any
distribution to the extent such distribution is required under section 401(a)(9) of the Code; and any distribution made on account of hardship. A portion of a distribution that is includible in the gross income of the Distributee that is treated as
an Eligible Rollover Distribution may only be transferred in a direct rollover to an Eligible Retirement Plan that agrees to separately account for such portion of the distribution. This section 13.6 shall not apply to any Eligible Rollover
Distributions during the year that are reasonably expected (as determined by the Committee) to total less than $200. In no even shall any withdrawal during service that is made on account of hardship be considered an Eligible Rollover Distribution.
This section 13.6 shall be interpreted to comply with the provisions of section 401(a)(31) of the Code. 
  
 Section 13.7 Valuation of Shares Upon Distribution. 
  
 Notwithstanding any contrary provision in this Article XIII,
in the event that all or a portion of a payment of a distribution is to be made in cash, the recipient shall only be entitled to receive the proceeds of the Shares allocated to his Account that are sold in connection with such distribution and which
are valued as of the date of such sale. 
  
 Section 13.8 Put Options. 
  
 (a) Subject to section 13.8(c) and except as provided otherwise in section 13.8(b), each Participant or Former Participant to whom Shares are distributed under the Plan, each Beneficiary of a deceased Participant or
Former Participant, including the estate of a deceased Participant or Former Participant, to whom Shares are distributed under the Plan, and each person to whom such a Participant, Former Participant or Beneficiary gives Shares that have been
distributed under the Plan shall have the right to require Lake Shore Bancorp, Inc. to purchase from him all or any portion of such Shares. A person shall exercise such right by delivering to Lake Shore Bancorp, Inc. a written notice, in such form
and manner as Lake Shore Bancorp, Inc. may by written notice to such person prescribe, setting forth the number of Shares to be purchased by Lake Shore Bancorp, Inc., the number of the stock certificate evidencing such person’s ownership of
such Shares, and the effective date of the purchase. Such notice shall be given at least 30 days in advance of the effective date of purchase, and the effective date of purchase specified therein shall be, either within the 60 day period that begins
on the date on which the Shares to be purchased by Lake Shore Bancorp, Inc. were distributed from the Plan or within the 60 day period that begins on the first day of the Plan Year immediately following the Plan Year in which the Shares to be
purchased by Lake Shore Bancorp, Inc. are distributed from the Plan. As soon as practicable following its receipt of such a notice, Lake Shore Bancorp, Inc. 

  

 40 

 
shall take such actions as are necessary to purchase the Shares specified in such notice at a price per Share equal to the Fair Market Value of a Share
determined as of the Valuation Date coincident with or immediately preceding the effective date of the purchase. 
  
 (b) Lake Shore Bancorp, Inc. shall have no obligation to purchase any Share (i) pursuant to a notice that is not timely given, or on
an effective date of purchase that is not within the periods prescribed in section 13.8(a), or (ii) during a period in which Shares are publicly traded on an established market. 
  
 Section 13.9 Right of First Refusal. 
  
 (a) For any period during which Shares are not publicly
traded on an established market, no person who owns Shares that were distributed from the Plan, other than a person to whom such Shares were sold in compliance with this section 13.9, shall sell such Shares to any person other than Lake Shore
Bancorp, Inc. without first offering to sell such Shares to Lake Shore Bancorp, Inc. in accordance with this section 13.9. 
  
 (b) In the event that a person to whom this section 13.9 applies shall receive and desire to accept from a person other than Lake Shore
Bancorp, Inc. an offer to purchase Shares to which this section 13.9 applies, he shall furnish to Lake Shore Bancorp, Inc. a written notice which shall: 
  
 (i) include a copy of such offer to purchase; 
  
 (ii) offer to sell to Lake Shore Bancorp, Inc. the Shares subject to such offer to purchase at a price per Share that is equal to the
greater of: 
  
 (A) the price per Share
specified in such offer to purchase; or 
  
 (B)
the Fair Market Value of a Share as of the Valuation Date coincident with or immediately preceding the date of such notice; 
  
 and otherwise upon the same terms and conditions as those specified in such offer to purchase; and 
  
 (iii) include an indication of his intention to accept such
offer to purchase if Lake Shore Bancorp, Inc. does not accept his offer to sell. 
  
 Such person shall refrain from accepting such offer to purchase for a period of fourteen days following the date on which such notice is given. 
  
 (c) Lake Shore Bancorp, Inc. shall have the right to purchase the Shares covered by the offer to sell contained in a notice given pursuant
to section 13.9(b), on the terms and conditions specified in such notice, by written notice given to the party making the offer to sell not later than the fourteenth day after the notice described in section 13.9(b) is given. If Lake Shore Bancorp,
Inc. does not give such a notice during the prescribed fourteen day period, then the person owning such Shares may accept the offer to purchase described in the notice. 
  

 41 

 Article XIV 
  
 Change in Control 
  
 Section 14.1 Definition of Change in Control; Pending Change in Control. 
  
 (a) A Change in 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 Company with one 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 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; 
  
 (ii) the acquisition of all or substantially all of the assets of 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 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
Company; 
  
 (iv) the occurrence of any event if,
immediately following such event, at least 50% of the members of the Board of Directors of the Company do not belong to any of the following groups: 
  
 (A) individuals who were members of the Board of Directors of the Company on the date of this Agreement; or 
  

 42 

 (B) individuals who first became members of the Board of Directors of the Company after
the date of this Agreement either: 
  
 (1) upon
election to serve as a member of the Board of Directors of the Company by affirmative vote of three-quarters of the members of such board, or of a nominating committee thereof, in office at the time of such first election; or 
  
 (2) upon election by the shareholders of the Board of
Directors of the Company to serve as a member of such board, but only if nominated for election by affirmative vote of three-quarters of the members of the Board of Directors of the Company, or of a nominating committee thereof, in office at the
time of such first nomination; 
  
 provided, however,
that such individual’s election or nomination did not result from an actual or threatened election contest or other actual or threatened solicitation of proxies or consents other than by or on behalf of the Board of Directors of the Company;
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) A Pending Change of Control shall be deemed to have occurred upon the happening of any of the following events: 
  
 (i) approval by the stockholders of Lake Shore Bancorp, Inc.
of a transaction, or a plan for the consummation of a transaction, which, if consummated, would result in a Change in Control; 
  
 (ii) approval by the Board of Directors of Lake Shore Bancorp, Inc. of a transaction, or a plan for the consummation of a transaction,
which, if consummated, would result in a Change in Control; 
  
 (iii) the commencement of a tender offer (within the meaning of section 14(d)(i) of the Exchange Act, as amended) for securities issued by Lake Shore Bancorp, Inc., which, if completed, would result in a Change in
Control; 
  

 43 

 (iv) the furnishing or distribution of a proxy statement or other document, whether or
not in opposition to management, soliciting proxies, consents or authorizations (within the meaning of section 14 of the Exchange Act) in respect of securities issued by Lake Shore Bancorp, Inc. in favor of any election, transaction or other action
which, if effected, would result in a Change in Control; or 
  
 (v) any event which would be described in Sections 14.1(b)(i), (ii), (iii) or (iv) if “Lake Shore Savings Bank” were substituted for “Lake Shore Bancorp, Inc.” therein. 
  
 Section 14.2 Vesting on Change of
Control. 
  
 Notwithstanding any
other provision of the Plan, upon the effective date of a Change in Control, the Account of each person who would then, upon termination of the Plan, be entitled to a benefit, shall be fully vested and nonforfeitable. 
  
 Section 14.3 Repayment of Share Acquisition
Loan. 
  
 Notwithstanding any
other provision of the Plan, upon the occurrence of a Change in Control, the Committee shall direct the Trustee to sell a sufficient number of shares of Stock to repay any outstanding Share Acquisition Loan, all remaining Shares which had been
unallocated (or the proceeds from the sale thereof, if applicable) shall be allocated among the accounts of all individuals with undistributed Account balances on the effective date of such Change in Control who are employed by the Company or Bank
on the effective date of such Change of Control. Such allocation of Shares or proceeds shall be in proportion to the balance credited to their Accounts immediately prior to such allocation. 
  
 Section 14.4 Plan Termination After Change in
Control. 
  
 Notwithstanding any
other provision of the Plan, after repayment of the loan and allocation of Shares or proceeds as provided in Section 14.3, the Plan shall be terminated and all amounts shall be distributed as soon as practicable. 
  
 Section 14.5 Amendment of Section
XIV. 
  
 Notwithstanding any other
provision of the Plan, this Section 14 of the Plan may not be amended after the earliest date on which a Change in Control or Pending Change in Control occurs, except (i) to the extent any amendment is required by the Internal Revenue
Service as a condition to the continued treatment of the Plan as a tax-qualified plan under section 401(a) of the Code or (ii) to the extent that the Company, in its sole discretion, determines than any such amendment is necessary in order to
permit any transaction to which the Company, and/or its parent or affiliate, is or proposes to be a party to qualify for “pooling of interests” accounting treatment. 
  

 44 

 Article XV 
  

Administration 
  
 Section 15.1 Named Fiduciaries. 
  
 The term “Named Fiduciary” shall mean (but only to the extent of the responsibilities of each of
them) the Plan Administrator, the Committee, the Board and the Trustee. This Article XV is intended to allocate to each Named Fiduciary the responsibility for the prudent execution of the functions assigned to him or it, and none of such
responsibilities or any other responsibility shall be shared by two or more of such Named Fiduciaries. Whenever one Named Fiduciary is required by the Plan or Trust Agreement to follow the directions of another Named Fiduciary, the two Named
Fiduciaries shall not be deemed to have been assigned a shared responsibility, but the responsibility of the Named Fiduciary giving the directions shall be deemed his sole responsibility, and the responsibility of the Named Fiduciary receiving those
directions shall be to follow them insofar as such instructions are on their face proper under applicable law. 
  
 Section 15.2 Plan Administrator. 
  
 There shall be a Plan Administrator, who shall be the [Director of Human Resources] of Lake Shore Savings
Bank, or such Employee or officer as may be designated by the Committee, as hereinafter provided, and who shall, subject to the responsibilities of the Committee and the Board, have the responsibility for the day-to-day control, management,
operation and administration of the Plan (except trust duties). The Plan Administrator shall have the following responsibilities: 
  
 (a) To maintain records necessary or appropriate for the administration of the Plan; 
  
 (b) To give and receive such instructions, notices,
information, materials, reports and certifications to the Trustee as may be necessary or appropriate in the administration of the Plan; 
  
 (c) To prescribe forms and make rules and regulations consistent with the terms of the Plan and with the interpretations and other actions
of the Committee; 
  
 (d) To require such proof
of age or evidence of good health of an Employee, Participant or Former Participant or the spouse of either, or of a Beneficiary as may be necessary or appropriate in the administration of the Plan; 
  
 (e) To prepare and file, distribute or furnish all reports,
plan descriptions, and other information concerning the Plan, including, without limitation, filings with the Secretary of Labor and communications with Participants, Former Participants and other persons, as shall be required of the Plan
Administrator under ERISA; 
  

 45 

 (f) To determine any question arising in connection with the Plan, and the Plan
Administrator’s decision or action in respect thereof shall be final and conclusive and binding upon the Employer, the Trustee, Participants, Former Participants, Beneficiaries and any other person having an interest under the Plan; provided,
however, that any question relating to inconsistency or omission in the Plan, or interpretation of the provisions of the Plan, shall be referred to the Committee by the Plan Administrator and the decision of the Committee in respect thereof shall be
final; 
  
 (g) Subject to the provisions of
section 15.5, to review and dispose of claims under the Plan filed pursuant to section 15.4; 
  
 (h) If the Plan Administrator shall determine that by reason of illness, senility, insanity, or for any other reason, it is undesirable to
make any payment to a Participant, Former Participant, Beneficiary or any other person entitled thereto, to direct the application of any amount so payable to the use or benefit of such person in any manner that he may deem advisable or to direct in
his discretion the withholding of any payment under the Plan due to any person under legal disability until a representative competent to receive such payment in his behalf shall be appointed pursuant to law; 
  
 (i) To discharge such other responsibilities or follow such
directions as may be assigned or given by the Committee or the Board; and 
  
 (j) To perform any duty or take any action which is allocated to the Plan Administrator under the Plan. 
  
 The Plan Administrator shall have the power and authority necessary or appropriate to carry out his responsibilities. The Plan
Administrator may resign only by giving at least 30 days’ prior written notice of resignation to the Committee, and such resignation shall be effective on the date specified in such notice. 
  
 Section 15.3 Committee
Responsibilities. 
  
 The Committee
shall, subject to the responsibilities of the Board, have the following responsibilities: 
  
 (a) To review the performance of the Plan Administrator; 
  
 (b) To hear and decide appeals, pursuant to the claims procedure contained in section 15.5 of the Plan,
taken from the decisions of the Plan Administrator; 
  
 (c) To hear and decide questions, including interpretation of the Plan, as may be referred to the Committee by the Plan Administrator; 
  

 46 

 (d) To review the performance of the Trustee and such investment managers as may be
appointed in or pursuant to the Trust Agreement in investing, managing and controlling the assets of the Plan; 
  
 (e) To the extent required by ERISA, to establish a funding policy and method consistent with the objectives of the Plan and the
requirements of ERISA, and to review such policy and method at least annually; 
  
 (f) To report and make recommendations to the Board regarding changes in the Plan, including changes in the operation and management of
the Plan and removal and replacement of the Trustee and such investment managers as may be appointed in or pursuant to the Trust Agreement; 
  
 (g) To designate an Alternate Plan Administrator to serve in the event that the Plan Administrator is absent or otherwise unable to
discharge his responsibilities; 
  
 (h) To remove
and replace the Plan Administrator or Alternate, or both of them, and to fill a vacancy in either office; 
  
 (i) To the extent provided under and subject to the provisions of the Trust Agreement, to appoint “investment managers” as
defined in section 3(38) of ERISA to manage and control (including acquiring and disposing of) all or any of the assets of the Plan; 
  
 (j) With the prior approval of the Board, to direct the Trustee to obtain one or more Share Acquisition Loans; 
  
 (k) To develop and provide procedures and forms necessary to
facilitate voting and tendering directions on a confidential basis; 
  
 (l) To discharge such other responsibilities or follow such directions as may be assigned or given by the Board; and 
  
 (m) To perform any duty or take any action which is allocated to the Committee under the Plan. 
  
 The Committee shall have the power and authority necessary
or appropriate to carry out its responsibilities. 
  
 Section 15.4 Claims Procedure. 
  
 Any claim relating to benefits under the Plan shall be filed with the Plan Administrator on a form prescribed by him. If a claim is denied in whole or in part, the Plan Administrator shall give the claimant written
notice of such denial, which notice shall specifically set forth: 
  
 (a) The reasons for the denial; 
  

 47 

 (b) The pertinent Plan provisions on which the denial was based; 
  
 (c) Any additional material or information necessary for the
claimant to perfect his claim and an explanation of why such material or information is needed; and 
  
 (d) An explanation of the Plan’s procedure for review of the denial of the claim. 
  
 In the event that the claim is not granted and notice of denial of a claim is not furnished
by the 30th day after such claim was filed, the claim shall be deemed to have been denied on that day for the purpose of permitting the claimant to request review of the claim. 
  
 Section 15.5 Claims Review Procedure. 
  
 Any person whose claim filed pursuant to section 15.4 has
been denied in whole or in part by the Plan Administrator may request review of the claim by the Committee, upon a form prescribed by the Plan Administrator. The claimant shall file such form (including a statement of his position) with the
Committee no later than 60 days after the mailing or delivery of the written notice of denial provided for in section 15.4, or, if such notice is not provided, within 60 days after such claim is deemed denied pursuant to section 15.4. The claimant
shall be permitted to review pertinent documents. A decision shall be rendered by the Committee and communicated to the claimant not later than 30 days after receipt of the claimant’s written request for review. However, if the Committee finds
it necessary, due to special circumstances (for example, the need to hold a hearing), to extend this period and so notifies the claimant in writing, the decision shall be rendered as soon as practicable, but in no event later than 120 days after the
claimant’s request for review. The Committee’s decision shall be in writing and shall specifically set forth: 
  
 (a) The reasons for the decision; and 
  
 (b) The pertinent Plan provisions on which the decision is based. 
  
 Any such decision of the Committee shall be binding upon the claimant and the Employer, and the Plan Administrator shall take appropriate
action to carry out such decision. 
  
 Section
15.6 Allocation of Fiduciary Responsibilities and Employment of Advisors. 
  
 Any Named Fiduciary may: 
  
 (a) Allocate any of his or its responsibilities (other than trustee responsibilities) under the Plan to such other person or persons as he
or it may designate, provided that such allocation and designation shall be in writing and filed with the Plan Administrator; 
  
 (b) Employ one or more persons to render advice to him or it with regard to any of his or its responsibilities under the Plan; and

  
 (c) Consult with counsel, who may be counsel
to the Employer. 
  

 48 

 Section 15.7 Other Administrative Provisions. 
  
 (a) Any person whose claim has been denied in whole or in
part must exhaust the administrative review procedures provided in section 15.5 prior to initiating any claim for judicial review. 
  
 (b) No bond or other security shall be required of a member of the Committee, the Plan Administrator, or any officer or Employee of the
Employer to whom fiduciary responsibilities are allocated by a Named Fiduciary, except as may be required by ERISA. 
  
 (c) Subject to any limitation on the application of this section 15.7(c) pursuant to ERISA, neither the Plan Administrator, nor a member
of the Committee, nor any officer or Employee of the Employer to whom fiduciary responsibilities are allocated by a Named Fiduciary, shall be liable for any act of omission or commission by himself or by another person, except for his own individual
willful and intentional malfeasance. 
  
 (d) The
Plan Administrator or the Committee may, except with respect to actions under section 15.5, shorten, extend or waive the time (but not beyond 60 days) required by the Plan for filing any notice or other form with the Plan Administrator or the
Committee, or taking any other action under the Plan. 
  
 (e) The Plan Administrator or the Committee may direct that the costs of services provided pursuant to section 15.6, and such other reasonable expenses as may be incurred in the administration of the Plan, shall be paid out of the funds of
the Plan unless the Employer shall pay them. 
  
 (f) Any person, group of persons, committee, corporation or organization may serve in more than one fiduciary capacity with respect to the Plan. 
  
 (g) Any action taken or omitted by any fiduciary with respect to the Plan, including any decision, interpretation, claim denial or review
on appeal, shall be conclusive and binding on all interested parties and shall be subject to judicial modification or reversal only to the extent it is determined by a court of competent jurisdiction that such action or omission was arbitrary and
capricious and contrary to the terms of the Plan. 
  
 Article
XVI 
  
 Amendment, Termination and Tax Qualification

  
 Section 16.1 Amendment and
Termination by Lake Shore Bancorp, Inc. 
  
 The Participating Employers expect to continue the Plan indefinitely, but specifically reserve the right, in their sole discretion, at any time, by appropriate action of their respective boards of directors or other authorized officials ,
to amend, in whole or in part, any or all of the provisions of the Plan and to terminate the Plan at any time. Subject to the provisions of section 16.2, no such amendment or termination shall permit any part of the Trust Fund to be 

  

 49 

 
used for or diverted to purposes other than for the exclusive benefit of Participants, Former Participants, Beneficiaries or other persons entitled to
benefits, and no such amendment or termination shall reduce the accrued benefit of any Participant, Former Participant, Beneficiary or other person who may be entitled to benefits, without his consent. In the event of a termination or partial
termination of the Plan, or in the event of a complete discontinuance of the Participating Employer’s contributions to the Plan, the Accounts of each affected person shall forthwith become nonforfeitable and shall be payable in accordance with
the provisions of Article XIII. 
  
 Section
16.2 Amendment or Termination Other Than by Lake Shore Bancorp, Inc. 
  
 In the event that a corporation or trade or business other than Lake Shore Bancorp, Inc. shall adopt this Plan, such corporation or trade
or business shall, by adopting the Plan, empower Lake Shore Bancorp, Inc., to amend or terminate the Plan, insofar as it shall cover employees of such corporation or trade or business, upon the terms and conditions set forth in section 16.1;
provided, however, that any such corporation or trade or business may, by action of its board of directors or other governing body, amend or terminate the Plan, insofar as it shall cover employees of such corporation or trade or business, at
different times and in a different manner. In the event of any such amendment or termination by action of the board of directors or other governing body of such a corporation or trade or business, a separate plan shall be deemed to have been
established for the employees of such corporation or trade or business, and the assets of such plan shall be segregated from the assets of this Plan at the earliest practicable date and shall be dealt with in accordance with the documents governing
such separate plan. 
  
 Section 16.3
Conformity to Internal Revenue Code. 
  
 The Participating Employers have established the Plan with the intent that the Plan and Trust will at all times be qualified under section 401(a) and exempt under section 501(a) of the Code and with the intent that contributions under the
Plan will be allowed as deductions in computing the net income of the Participating Employers for federal income tax purposes, and the provisions of the Plan and Trust Agreement shall be construed to effectuate such intentions. Accordingly,
notwithstanding anything to the contrary hereinbefore provided, the Plan and the Trust Agreement may be amended at any time without prior notice to Participants, Former Participants, Beneficiaries or any other persons entitled to benefits, if such
amendment is deemed by the Board to be necessary or appropriate to effectuate such intent. 
  
 Section 16.4 Contingent Nature of Contributions. 
  
 (a) All Discretionary Contributions to the Plan are conditioned upon the issuance by the Internal Revenue
Service of a determination that the Plan and Trust are qualified under section 401(a) of the Code and exempt under section 501(a) of the Code. If the Participating Employers apply to the Internal Revenue Service for such a determination within 90
days after the date on which it files its federal income tax return for its taxable year that includes the last day of the Plan Year in which the Plan is adopted, and if the Internal Revenue Service issues a determination that the Plan and Trust are
not so qualified or exempt, all Discretionary Contributions made by the Participating Employers prior to the date of receipt of 

  

 50 

 
such a determination may, at the election of the Participating Employers, be returned to the Participating Employers within one year after the date of such
determination. 
  
 (b) All Discretionary
Contributions and Loan Repayment Contributions to the Plan are made upon the condition that such Discretionary Contributions and Loan Repayment Contributions will be allowed as a deduction in computing the net income of the Employer for federal
income tax purposes. To the extent that any such deduction is disallowed, the amount disallowed may, at the election of the Participating Employers, be returned to the Participating Employers within one year after the deduction is disallowed.

  
 (c) Any contribution to the Plan made by the
Participating Employers as a result of a mistake of fact may, at the election of the Participating Employers, be returned to the Participating Employers within one year after such contribution is made. 
  
 Article XVII 
  
 Special Rules for Top Heavy Plan Years 
  
 Section 17.1 In General. 
  
 As of the Determination Date for each Plan Year, the Plan
Administrator shall determine whether the Plan is a Top Heavy Plan in accordance with the provisions of this Article XVII. If, as of such Determination Date, the Plan is a Top Heavy Plan, then the Plan Year immediately following such Determination
Date shall be a Top Heavy Plan Year and the special provisions of this Article XVII shall be in effect; provided, however, that if, as of the Determination Date for the Plan Year in which the Effective Date occurs, the Plan is a Top Heavy Plan, such
Plan Year shall be a Top Heavy Plan Year, and the provisions of this Article XVII shall be given retroactive effect for such Plan Year. 
  
 Section 17.2 Definition of Top Heavy Plan. 
  
 (a) Subject to section 17.2(c), the Plan is a Top Heavy Plan if, as of a Determination Date: (i) it is
not a member of a Required Aggregation Group, and (ii)(A) the sum of the Cumulative Accrued Benefits of all Key Employees exceeds 60% of (B) the sum of the Cumulative Accrued Benefits of all Employees (excluding former Key Employees), former
Employees (excluding former Key Employees and other former Employees who have not performed any services for the Employer or any Affiliated Employer during the immediately preceding Plan Year), and their Beneficiaries. 
  
 (b) Subject to section 17.2(c), the Plan is a Top Heavy Plan
if, as of a Determination Date: (i) the Plan is a member of a Required Aggregation Group, and (ii)(A) the sum of the Cumulative Accrued Benefits of all Key Employees under all plans that are members of the Required Aggregation Group exceeds 60%
of (B) the sum of the Cumulative Accrued Benefits of all Employees (excluding former Key Employees), former Employees (excluding former Key Employees and other former Employees who have not performed any services for the Employer or any
Affiliated Employer during the immediately preceding Plan Year), and their Beneficiaries under all plans that are members of the Required Aggregation Group. 
  

 51 

 (c) Notwithstanding sections 17.2(a) and 17.2(b), the Plan is not a Top Heavy Plan if, as
of a Determination Date: (i) the Plan is a member of a Permissible Aggregation Group, and (ii)(A) the sum of the Cumulative Accrued Benefits of all Key Employees under all plans that are members of the Permissible Aggregation Group does not
exceed 60% of (B) the sum of the Cumulative Accrued Benefits of all Employees (excluding former Key Employees), former Employees (excluding former Key Employees and other former Employees who have not performed any services for the Employer or
any Affiliated Employer during the immediately preceding Plan Year), and their Beneficiaries under all plans that are members of the Permissible Aggregation Group. 
  
 Section 17.3 Determination Date. 
  
 The Determination Date for the Plan Year in which the
Effective Date occurs shall be the last day of such Plan Year, and the Determination Date for each Plan Year beginning after the Plan Year in which the Effective Date occurs shall be the last day of the preceding Plan Year. The Determination Date
for any other qualified plan maintained by the Employer for a plan year shall be the last day of the preceding plan year of each such plan, except that in the case of the first plan year of such plan, it shall be the last day of such first plan
year. 
  
 Section 17.4 Cumulative
Accrued Benefits. 
  
 (a) An
individual’s Cumulative Accrued Benefits under this Plan as of a Determination Date are equal to the sum of: 
  
 (i) the balance credited to such individual’s Account under this Plan as of the most recent Valuation Date preceding the
Determination Date; 
  
 (ii) the amount of any
Discretionary Contributions or Loan Repayment Contributions made after such Valuation Date but on or before the Determination Date; and 
  
 (iii) the amount of any distributions of such individual’s Cumulative Accrued Benefits under the Plan (including distributions under
terminated plans that would have been included in the Required Aggregation Group if not terminated) during the five-year period (for in-service distributions) or one-year period (for all distributions other than in-service distributions) ending on
the Determination Date. 
  
 For purposes of this section 17.4(a), the computation
of an individual’s Cumulative Accrued Benefits, and the extent to which distributions, rollovers and transfers are taken into account, will be made in accordance with section 416 of the Code and the regulations thereunder. 
  
 (b) For purposes of this Plan, the term “Cumulative
Accrued Benefits” with respect to any other qualified plan, shall mean the cumulative accrued benefits determined for purposes of section 416 of the Code under the provisions of such plans. 
  

 52 

 (c) For purposes of determining the top heavy status of a Required Aggregation Group or a
Permissible Aggregation Group, the Cumulative Accrued Benefits under this Plan and the Cumulative Accrued Benefits under any other plan shall be determined as of the Determination Date that falls within the same calendar year as the Determination
Dates for all other members of such Required Aggregation Group or Permissible Aggregation Group. 
  
 Section 17.5 Key Employees. 
  

(a) For purposes of the Plan, the term Key Employee means any employee or former employee of the Employer or any Affiliated Employer
who is at any time during the current Plan Year: 
  
 (i) a Five Percent Owner; 
  
 (ii) a
person who would be described in section 1.25 if the number “1%” were substituted for the number “5%” in section 1.25 and who has an annual Total Compensation from the Employer and any Affiliated Employer of more than $150,000;
or 
  
 (iii) an Officer of the Employer or any
Affiliated Employer who has an annual Total Compensation greater than $135,000 (or any greater amount as specified in section 416(i)(1)(A)(i) of the Code) for the Plan Year. 
  
 (b) For purposes of section 17.5(a): 
  
 (i) for purposes of section 17.5(a)(iii), in the event the Employer or any Affiliated Employer has more
officers than are considered Officers, the term Key Employee shall mean those officers, up to the maximum number, with the highest annual compensation in any one of the five consecutive Plan Years ending on the Determination Date; and 
  
 (ii) for purposes of section 17.5(a)(ii), if two or more
persons have equal ownership interests in the Employer, each such person shall be considered as having a larger ownership interest than any such person with a lower annual compensation from the Employer or any Affiliated Employer. 
  
 (c) For purposes of section 17.5(a): (i) a
person’s compensation from Affiliated Employers shall be aggregated, but his ownership interests in Affiliated Employers shall not be aggregated; (ii) an employee shall only be deemed to be an officer if he has the power and responsibility
of a person who is an officer within the meaning of section 416 of the Code; and (iii) the term Key Employee shall also include the Beneficiary of a deceased Key Employee. 
  
 Section 17.6 Required Aggregation Group. 
  
 For purposes of this Article XVII, a Required Aggregation
Group shall consist of (a) this Plan; (b) any other qualified plans currently maintained (or previously maintained and terminated within the five year period ending on the Determination Date) by the Employer and any Affiliated Employers
that cover Key Employees; and (c) any other qualified plans currently 

  

 53 

 
maintained (or previously maintained and terminated within the five year period ending on the Determination Date) by the Employer or any Affiliated Employers
that cover Key Employees that are required to be aggregated for purposes of satisfying the requirements of sections 401(a)(4) or 410(b) of the Code. 
  
 Section 17.7 Permissible Aggregation Group. 
  
 For purposes of this Article XVII, a Permissible Aggregation Group shall consist of (a) the Required
Aggregation Group and (b) any other qualified plans maintained by the Employer and any Affiliated Employers; provided, however, that the Permissible Aggregation Group must satisfy the requirements of sections 401(a)(4) and 410(b) of the Code.

  
 Section 17.8 Special
Requirements During Top Heavy Plan Years. 
  
 Notwithstanding any other provision of the Plan to the contrary, for each Top Heavy Plan Year, in the case of a Participant (other than a Key Employee) on the last day of such Top Heavy Plan Year who is not also a participant in another
qualified plan which satisfies the minimum contribution and benefit requirements of section 416 of the Code with respect to such Participant, the sum of the Discretionary Contributions and Loan Repayment Contributions made with respect to such
Participant, when expressed as a percentage of his Total Compensation for such Top Heavy Plan Year, shall not be less than 3% of such Participant’s Total Compensation for such Top Heavy Plan Year or, if less, the highest combined rate,
expressed as a percentage of Total Compensation at which Discretionary Contributions and Loan Repayment Contributions were made on behalf of a Key Employee for such Top Heavy Plan Year. The Employer shall make an additional contribution to the
Account of each Participant to the extent necessary to satisfy the foregoing requirement. 
  
 Article XVIII 
  
 Miscellaneous Provisions 
  
 Section 18.1 Governing Law. 
  
 The Plan shall be construed, administered and enforced according to the laws of the State of New York without giving effect to the conflict of laws principles thereof, except to the extent that such laws are preempted
by federal law. 
  
 Section 18.2 No
Right to Continued Employment. 
  
 Neither the establishment of the Plan, nor any provisions of the Plan or of the Trust Agreement establishing the Trust Fund nor any action of the Plan Administrator, the Committee or the Trustee, shall be held or construed to confer upon
any Employee any right to a continuation of employment by any Affiliated Employer. Each Affiliated Employer reserves the right to dismiss any Employee or otherwise deal with any Employee to the same extent as though the Plan had not been adopted.

  

 54 

 Section 18.3 Construction of Language. 
  
 Wherever appropriate in the Plan, words used in the singular
may be read in the plural, words used in the plural may be read in the singular, and words importing the masculine gender may be read as referring equally to the feminine and the neuter. Any reference to an Article or section number shall refer to
an Article or section of the Plan, unless otherwise indicated. 
  
 Section 18.4 Headings. 
  
 The headings of Articles and sections are included solely for convenience of reference. If there is any conflict between such headings and the text of the Plan, the text shall control. 
  
 Section 18.5 Merger with Other Plans.

  
 The Plan shall not be merged or consolidated
with, nor transfer its assets or liabilities to, any other plan unless each Participant, Former Participant, Beneficiary and other person entitled to benefits, would (if that plan then terminated) receive a benefit immediately after the merger,
consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive if the Plan had terminated immediately before the merger, consolidation or transfer. 
  
 Section 18.6 Non-alienation of
Benefits. 
  
 (a) Except as provided in
section 18.6(b) and (c), the right to receive a benefit under the Plan shall not be subject in any manner to anticipation, alienation or assignment, nor shall such right be liable for or subject to debts, contracts, liabilities or torts. Should any
Participant, Former Participant or other person attempt to anticipate, alienate or assign his interest in or right to a benefit, or should any person claiming against him seek to subject such interest or right to legal or equitable process, all the
interest or right of such Participant or Former Participant or other person entitled to benefits in the Plan shall cease, and in that event such interest or right shall be held or applied, at the direction of the Plan Administrator, for or to the
benefit of such Participant or Former Participant, or other person or his spouse, children or other dependents in such manner and in such proportions as the Plan Administrator may deem proper. 
  
 (b) This section 18.6 shall not prohibit the Plan
Administrator from recognizing a Domestic Relations Order that is determined to be a Qualified Domestic Relations Order in accordance with section 18.7. 
  
 (c) Notwithstanding anything in the Plan to the contrary, a Participant’s, Former Participant’s or Beneficiary’s Accounts
under the Plan may be offset by any amount such Participant, Former Participant or Beneficiary is required or ordered to pay to the Plan if: 
  
 (i) the order or requirement to pay arises: (A) under a judgment issued on or after August 5, 1997 of conviction for a crime
involving the Plan; (B) under a civil judgment (including a consent order or decree) entered by a court on or 

  

 55 

 
after August 5, 1997 in an action brought in connection with a violation (or alleged violation) of part 4 of subtitle B of title I of ERISA; or
(C) pursuant to a settlement agreement entered into on or after August 5, 1997 between the Participant, Former Participant or Beneficiary and one or both of the United States Department of Labor and the Pension Benefit Guaranty Corporation
in connection with a violation (or alleged violation) of part 4 of subtitle B of title I of ERISA by a fiduciary or any other person; and 
  
 (ii) the judgment, order, decree or settlement agreement expressly provides for the offset of all or part of the amount ordered or
required to be paid to the Plan against the Participant’s, Former Participant’s or Beneficiary’s benefits under the Plan. 
  
 Section 18.7 Procedures Involving Domestic Relations Orders. 
  
 Upon receiving a Domestic Relations Order, the Plan
Administrator shall segregate in a separate account or in an escrow account or separately account for the amounts payable to any person pursuant to such Domestic Relations Order, pending a determination whether such Domestic Relations Order
constitutes a Qualified Domestic Relations Order, and shall give notice of the receipt of the Domestic Relations Order to the Participant or Former Participant and each other person affected thereby. If, within 18 months after receipt of such
Domestic Relations Order, the Plan Administrator, a court of competent jurisdiction or another appropriate authority determines that such Domestic Relations Order constitutes a Qualified Domestic Relations Order, the Plan Administrator shall direct
the Trustee to pay the segregated amounts (plus any interest thereon) to the person or persons entitled thereto under the Qualified Domestic Relations Order. If it is determined that the Domestic Relations Order is not a Qualified Domestic Relations
Order or if no determination is made within the prescribed 18-month period, the segregated amounts shall be distributed as though the Domestic Relations Order had not been received, and any later determination that such Domestic Relations Order
constitutes a Qualified Domestic Relations Order shall be applied only with respect to benefits that remain undistributed on the date of such determination. The Plan Administrator shall be authorized to establish such reasonable administrative
procedures as he deems necessary or appropriate to administer this section 18.7. This section 18.7 shall be construed and administered so as to comply with the requirements of section 401(a)(13) of the Code. 
  
 Section 18.8 Leased Employees.

  
 (a) Subject to section 18.8(b), a leased
employee shall be treated as an Employee for purposes of the Plan. For purposes of this section 18.8, the term “leased employee” means any person (i) who would not, but for the application of this section 18.8, be an Employee and
(ii) who pursuant to an agreement between the Employer and any other person (“leasing organization”) has performed for the Employer (or for the Employer and related persons determined in accordance with section 414(n)(6) of the Code),
on a substantially full-time basis for a period of at least one year, services performed under the primary direction or control of the Employer. 
  

 56 

 (b) For purposes of the Plan: 
  
 (i) contributions or benefits provided to the leased
employee by the leasing organization which are attributable to services performed for the Employer shall be treated as provided by the Employer; and 
  
 (ii) section 18.8(a) shall not apply to a leased employee if: 
  
 (a) the number of leased employees performing services for the Employer does not exceed 20% of the number of
the Employer’s Employees who are not Highly Compensated Employees; and 
  
 (b) such leased employee is covered by a money purchase pension plan providing (I) a nonintegrated contribution rate of at least 10% of the leased employee’s compensation; (II) immediate participation; (III)
full and immediate vesting; and (IV) coverage for all of the employees of the leasing organization (other than employees who perform substantially all of their services for the leasing organization). 
  
 Section 18.9 Status as an Employee Stock
Ownership Plan. 
  
 It is intended that
the Plan constitute an “employee stock ownership plan,” as defined in section 4975(e)(7) of the Code and section 407(d)(6) of ERISA. The Plan shall be construed and administered to give effect to such intent. 
  
 IN WITNESS
WHEREOF, this Plan has been executed by the undersigned officer of Lake Shore Bancorp, Inc. pursuant to authority given by resolution of the Board of Directors. 
  

			
	LAKE SHORE BANCORP, INC.
		
	 By
	 	 
	 Name:
	 	 
	 Title:
	 	 

  

 57THIRD ADDENDUM
                                       TO
                                CREDIT AGREEMENT

THIS THIRD ADDENDUM to Credit Agreement ("Third Addendum") is made as of the
28th day of December, 2005, by Wells Fargo Bank, National Association (the
"Bank") and American CareSource Holdings, Inc. (the "Borrower").

Recitals:

A.    The Bank and the Borrower entered into a Credit Agreement, with an
      Effective Date of December 1, 2004 ("Credit Agreement"), as amended by a
      First Addendum to Credit Agreement dated February 2, 2005, and by a Second
      Addendum to Credit Agreement dated August 9, 2005, pursuant to which the
      Bank made available to the Borrower a $3,000,000.00 revolving line of
      credit for general business purposes. Borrowings under the Line are
      currently evidenced by a $4,000,000.00 promissory note, dated August 9,
      2005 ("Existing Revolving Note").

B.    As of December 23, 2005, there is owed on the Existing Revolving Note the
      principal amount of Three Million Four Hundred Fifty Thousand Dollars
      ($3,450,000.00) plus accrued, unpaid interest.

C.    The Borrower has requested that the Bank increase the Line to Five Million
      Dollars ($5,000,000.00).

D.    The Borrower has requested that the Bank extend the Line Availability
      Period to March 31, 2007.

E.    The Bank and the Borrower wish to amend the Credit Agreement pursuant to
      the terms of this Third Addendum.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein it is agreed:

1.    All terms not otherwise defined in this Third Addendum shall have the
      meaning given to such term in the Credit Agreement, as amended. The
      recital paragraphs are hereby incorporated as though fully set forth in
      this Third Addendum.

2.    Notwithstanding the execution of the Credit Agreement or any addendum
      thereto, or the delivery of all documents in furtherance thereof, the
      obligation of the Bank to make any advance on the Line and this Third
      Addendum becoming effective shall be subject to the timely satisfaction of
      the following conditions precedent:

      a)    No event of default or event which will mature into an event of
            default, shall have occurred and be continuing.

                                        1
<PAGE>

      b)    The representations and warranties of the Borrower contained in the
            Documents shall be true and correct as of the date of any advance on
            the Line.

      c)    The Borrower shall have delivered to the Bank copies, duly certified
            as of the date of this Third Addendum by the Borrower's secretary of
            (i) the resolutions of Borrower's board of directors authorizing the
            execution and delivery of this Third Addendum and the Documents
            required by this Third Addendum, (ii) all documents evidencing other
            necessary Borrower action, and (iii) all approvals or consents
            required, if any, with respect to the Documents.

      d)    The Borrower shall have delivered to the Bank a certificate of its
            secretary certifying the name(s) of the person(s) authorized to sign
            this Third Addendum and the Documents, and all other documents and
            certificates of the Borrower to be delivered hereunder, together
            with the true signatures of such person(s).

      e)    The Borrower shall have delivered the Documents and the agreements
            listed below, each of which shall be in a form and content
            satisfactory to the Bank, executed by the parties specified therein,
            and all other documents, certificates, opinions and statements
            requested by the Bank:

            i)    This Third Addendum.

            ii)   The revolving note attached hereto as Exhibit "A" ("New
                  Revolving Note") which shall evidence the Borrower's
                  obligation to repay advances made under the Line (as defined
                  below). Upon this Third Addendum becoming effective, the New
                  Revolving Note will replace, but not be deemed to satisfy, the
                  Existing Revolving Note.

      f)    The Bank shall have received the standby letters of credit
            (collectively, the "Letters of Credit") described below, in a form
            satisfactory to the Bank, with an expiration date of June 30, 2007:

            i)    Issued by Manufacturers and Traders Trust Company on account
                  of Derace L. Schaffer in the amount of $975,000.00; and

            ii)   Issued by West Bank on account of Matthew P. Kinley in the
                  amount of $100,000.00.

      g)    The Bank shall have received from John Pappajohn the (i) Consent to
            Third Addendum of Credit Agreement, Ratification of Guaranty and
            Waiver of Claims attached hereto as Exhibit "B" ("Pappajohn
            Consent") and (ii) the guaranty attached to the Pappajohn Consent as
            Exhibit "A" ("Pappajohn Guaranty").

      h)    The Bank shall have received a letter, in the form attached as
            Exhibit "C" (the "Guarantors' Letter"), from all of the Facility
            Guarantors (as that term is defined in such letter).

                                        2
<PAGE>

      i)    The Bank shall have received from Derace L. Schaffer the Consent to
            Third Addendum of Credit Agreement, Ratification of Guaranty and
            Waiver of Claims attached hereto as Exhibit "D" ("Schaffer
            Consent").

      j)    The Bank shall have received from Matthew P. Kinley the Consent to
            Third Addendum of Credit Agreement, Ratification of Guaranty and
            Waiver of Claims attached hereto as Exhibit "E" ("Kinley Consent").

      K)    The Borrower shall have reimbursed the Bank for all expenses
            incurred by it in connection with this Third Addendum, including but
            not limited to, attorney's fees.

3.    The Letters of Credit, Pappajohn Consent, Pappajohn Guaranty, Guarantors'
      Letter, Schaffer Consent and Kinley Consent are hereinafter deemed to be
      included in and a part of the "Security Documents" described in Exhibit A
      to the Credit Agreement.

4.    Section 1.1 (Line Credit Amount) of the Credit Agreement is hereby deleted
      and the following new Section 1.1 is substituted in lieu thereof:

            1.1 Line of Credit Amount. During the Line Availability Period
            defined below, the Bank agrees to provide a revolving line of credit
            (the "Line") to the Borrower. Outstanding amounts under the Line
            will not, at any one time, exceed FIVE MILLION DOLLARS AND 00/100
            DOLLARS ($5,000,000.00).

5.    Section 1.2 (Line Availability Period) of the Credit Agreement is hereby
      deleted and the following new Section 1.2 is substituted in lieu thereof:

            1.2 Line Availability Period. The "Line Availability Period" will
            mean the period, of time from the Effective Date or the date on
            which all conditions precedent described in this Agreement have been
            met, whichever is earlier, through and including March 31, 2007 (the
            "Line Expiration Date"),

6.    The Borrower does hereby release and forever discharge Wells Fargo Bank,
      National Association, Wells Fargo & Company, and their respective
      affiliates and their officers, directors, attorneys, agents, employees,
      successors and assigns from all causes of action, suits, claims and
      demands of every kind and character, liquidated or unliquidated, fixed,
      contingent, direct or indirect without limit, including any action in law
      or equity, which the Borrower now has or may ever have had against them,
      if the circumstances giving rise to such causes of action, suits, claims
      and demands arose prior to the date of this Third Addendum.

7.    Except as modified by this Third Addendum, all the terms and conditions of
      the Credit Agreement, as amended, shall remain in full force and effect.

                                       3
<PAGE>

8.    The Credit Agreement, as amended, embodies the entire agreement and
      understanding between the Borrower and the Bank with respect to the
      subject matter thereof and supersedes all prior agreements and
      understandings among such parties with respect to the subject matters
      thereof.

IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR
ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED.
YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
THIS NOTICE ALSO APPLIES TO ANY OTHER CREDIT AGREEMENTS (EXCEPT CONSUMER LOANS
OR OTHER EXEMPT TRANSACTIONS) NOW IN EFFECT BETWEEN YOU AND THIS LENDER.

THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT HE
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENT
CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS, WHETHER VERBAL OR WRITTEN, OR ACTIONS OF EITHER
PARTY.

IN WITNESS WHEREOF, the parties have executed this Third Addendum as of the day
and year first above written.

AMERICAN CARESOURCE HOLDINGS, INC.

By  /s/ David S. Boone
    --------------------------------
Its CFO & Secretary
    --------------------------------

WELLS FARGO BANK, NATIONAL ASSOCIATION

By /s/ Mark E. Conway
   ---------------------------------
   Mark E. Conway, Vice President

                                        4
<PAGE>

                                    EXHIBIT A

[LOGO] Wells Fargo Bank,
       National Association                                    Revolving Note

--------------------------------------------------------------------------------

$5,000,000.00                                                  December 28, 2005

FOR VALUE RECEIVED, American CareSource Holdings, Inc. (the "Borrower") promises
to pay to the order of Wells Fargo Bank, National Association (the "Bank"), at
its principal office or such other address as the Bank or holder may designate
from time to time, the principal sum of FIVE MILLION AND 00/100 DOLLARS
($5,000,000.00), or the amount shown on the Bank's records to be outstanding,
plus interest (calculated on the basis of actual days elapsed in a 360-day year)
accruing on the unpaid balance at the annual interest rate defined below. Absent
manifest error the Bank's records will be conclusive evidence of the principal
and accrued interest owing hereunder.

This Revolving Note is issued pursuant to a Third Addendum to credit Agreement
of even date herewith between the Bank and the Borrower (the "Agreement"). The
Agreement, and any amendments or substitutions thereto, contain additional terms
and conditions including default and acceleration provisions. The terms of the
Agreement are incorporated into this Revolving Note by reference. Capitalized
terms not expressly defined herein shall have the meanings given them in the
Agreement.

INTEREST RATE

Base Rate. The principal balance outstanding under this Revolving Note will bear
interest at an annual rate equal to the Base Rate, floating (the "Base Rate
Option"). The Base Rate is the "base" or "prime" rate of interest established by
the Bank from time to time at its principal office in Des Moines, Iowa.

REPAYMENT TERMS

Interest. Interest will be payable on the last day of each month, beginning
January 31, 2006.

Principal. Principal, and any unpaid interest, will be payable in a single
payment due on March 31, 2001.

ADDITIONAL TERMS AND CONDITIONS. The Borrower agrees to pay all costs of
collection, including reasonable attorneys' fees and legal expenses incurred by
the Bank in the event this Revolving Note is not duly paid. Demand, presentment,
protest end notice of nonpayment and dishonor of this Revolving Note are
expressly waived. This Revolving Note will be governed by the substantive laws
of the State of Iowa.

AMERICAN CARESOURCE HOLDINGS, INC.

By  /s/ David S. Boone
    --------------------------------
Its CFO & Secretary
    --------------------------------

                                        1

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