WILLOWFINANCIAL BANCORP, INC. AMENDEDAND RESTATED DEFERREDCOMPENSATION PLAN

(d)           “Change in Control” shall mean a change in the ownership of the Company or the Bank, a change in the effective control of the Company or the Bank or a change in the ownership of a substantial portion of the assets of the Company or the Bank, in each case as provided under Section 409A of the Code and the regulations thereunder.

 

(e)           “Committee” shall mean the Compensation Committee of the Board of Directors of the Company.

(f)           “Deferral Account(s)” shall mean Non-Stock-Denominated Deferral Accounts and Stock-Denominated Deferral Accounts, singularly or collectively, as appropriate.  Deferral Accounts will be maintained solely as bookkeeping entries by the Company to evidence the unfunded obligations of the Company hereunder.

(g)           “Disability” shall mean a Participant (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve months; or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company or the Bank (or would have received such benefits for at least three months if the Participant had been eligible to participate in such plan).  The determination of the Board as to Disability shall be binding on a Participant.

 

(h)           “Employee” means any person who is employed by the Company or any of its Subsidiaries, including employees who may also be directors of the Company or its Subsidiaries.

(i)           “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.  References to any provision of the Exchange Act or rule thereunder shall include any successor provisions or rules.

(j)           “Non-Employee Director” means a member of the Board of Directors of the Company or the Board of Directors of the Bank or any successor to such entities who is not an Employee.

(k)           “Non-Stock-Denominated Deferral Account” shall mean the accounts or sub-accounts established and maintained by the Company for specified deferrals made by a Participant pursuant to Article 5 hereof.

(l)           “Participant” shall mean any Non-Employee Director of the Company or the Bank or any Employee of the Company or any Subsidiary who is designated by the Company’s Board of Directors or the Committee as eligible to participate in this Plan and who makes an election to participate in the Plan.

(m)           “Restricted Stock Award” shall mean awards granted pursuant to the Company’s 1999, 2002 and 2005 Recognition and Retention Plans or any similar and/or successor plans.

(n)           “Retirement” shall mean a Separation from Service on or after the age of fifty-five (55).

(o)           “Separation from Service” shall mean a termination of the Participant’s services (whether as an employee or as an independent contractor) to the Company and its Subsidiaries for any reason other than Disability.  Whether a Separation from Service has occurred shall be determined in accordance with the requirements of Section 409A of the Code based on whether the facts and circumstances indicate that the Company, the Bank and the Participant reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Participant would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period.

 

(p)           “Specified Employee” shall mean a key employee as defined in Section 416(i) of the Code (without regard to Section 416(i)(5) of the Code) and as otherwise defined in Section 409A of the Code and the regulations thereunder.

 

(q)           “Stock” shall mean the common stock, with a par value of $0.01 per share, of the Company or any other equity securities of the Company designated by the Committee.

(r)           “Stock-Denominated Awards” shall mean a Restricted Stock Award or similar type of award which has been made pursuant to a plan or arrangement which has been approved by the Company’s shareholders and which is determined by the Committee to be appropriate for deferral under the terms of this Plan.

(s)           “Stock-Denominated Deferral Account” shall mean the accounts or sub-accounts established and maintained by the Company for specified deferrals made by a Participant pursuant to Article 6 hereof.

(t)           “Subsidiary” or “Subsidiaries” means the Bank and any of the subsidiaries of the Company or the Bank which, with the consent of the Board of Directors of the Company, agree to participate in this Plan.

(u)           “Trust” shall mean the trust or trusts established by the Company pursuant to Articles 5 and 6 hereof.

(v)           “Trustee(s)” shall mean the trustee(s) of the Trust(s).

(w)           “Trust Agreement” shall mean the agreement(s) entered into between the Company and the Trustee(s), as amended or restated from time to time.

(x)           “Valuation Date” shall mean the close of business on the last business day of each calendar quarter; provided however, that in the case of a Separation from Service or Disability, the Valuation Date shall mean the close of business on the last business day of the month preceding the date on which a payment is made, and in the case of a Change in Control, the Valuation Date shall be the effective date of such Change in Control.

(y)           “Unforeseeable Emergency” shall mean a severe financial hardship to the Participant resulting from (1) an illness or accident of the Participant, the Participant's spouse, or a dependent of the Participant (within the meaning of Section 152(a) of the Code), (2) a loss of the Participant's property due to casualty, or (3) other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.  The amount of such distribution may not exceed the amounts necessary to satisfy the emergency.  The circumstances that will constitute an “Unforeseeable Emergency” will depend on the facts of each case, but, in any case, payment may not be made in the event that such hardship is or may be relieved:

 

(1)           through reimbursement or compensation by insurance or otherwise;

 

(2)           by liquidation of the Participant’s assets, to the extent that liquidation of such assets would not itself cause severe financial hardship; or

 

(3)           by cessation of deferrals under the Plan.

 

ARTICLE 3

ADMINISTRATION

3.1           Committee; Duties.

(a)           Committee Authority.  The Committee shall administer the Plan in accordance with its terms and shall have all powers necessary to accomplish such purpose, including the power and authority to construe and interpret the Plan, to define the terms used herein, to prescribe, amend and rescind rules and regulations, agreements, forms and notices relating to the administration of the Plan, and to make all other determinations necessary or advisable for the administration of the Plan.

(b)           Delegation of Duties; Powers.  The Committee may delegate its duties and responsibilities hereunder, as it deems reasonable and appropriate, to the Administrator.  If an Administrator is appointed by the Committee, such Administrator shall serve at the will of, and may be removed (with or without cause) by the Committee.  Any actions of the Committee or the Administrator with respect to the Plan shall be conclusive and binding upon all persons interested in the Plan, except that any action of the Administrator will not be binding on the Committee.  The Committee and the Administrator may each appoint agents and delegate thereto powers and duties under the Plan, except as otherwise limited by the Plan.

(c)           Limitation of Liability.  Each member of the Committee and the Administrator shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or other employee of the Company or any Subsidiary, the Company’s independent public accountants or any compensation consultant, legal counsel, or other professional retained by the Company to assist in the administration of the Plan.  To the maximum extent permitted by law, no member of the Committee or the Administrator, nor any person to whom ministerial duties have been delegated, shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan.  To the maximum extent permitted by law, the Company shall indemnify the members of the Committee and the Administrator against any and all claims, losses, damages, expenses, including any counsel fees and costs incurred by them, and any liability, including any amounts paid in settlement with the Company’s approval, arising from their action or failure to act.

3.2           Selection of Participants.  The Administrator will notify each person of his or her eligibility to participate and the extent to which such person can participate in the Plan within ten (10) days of the Committee’s designation that such person is so eligible to participate in the Plan.

ARTICLE 4

DEFERRAL ACCOUNTS

4.1           Enrollment Requirements; Deferral Accounts.  Each Participant shall complete, execute and return to the Committee a deferral election and beneficiary designation form prior to the election deadlines set forth in Section 4.2 below.  The Company shall establish a Deferral Account for each Participant which shall be administered pursuant to the terms and provisions of this Plan.

4.2           Timing of Deferral Elections.

(a)           Generally.  An election to defer compensation or awards hereunder must be received by the Administrator prior to the date specified in this Section 4.2 of the Plan.  Any elections to defer (i) salary, director’s fees, cash compensation and annual incentive awards must be made on or prior to the December 31st preceding the calendar year in which such income shall be earned, subject to the exception provided in Section 4.2(b) of the Plan, and (ii) Stock-Denominated Awards must be made on or prior to the December 31st preceding the calendar year in which the restricted stock awards vest.

(b)           New Participant.  Notwithstanding anything in the Plan to the contrary, in the case of the first year in which a Participant becomes eligible to participate in the Plan, elections to defer compensation or awards hereunder may be made within 30 days of the date a Participant first becomes eligible to participate in this Plan with respect to services to be performed subsequent to the election, with such election in each case to be effective as of the immediately following payroll period of the Company.  Under no circumstances may a Participant defer compensation or awards to which the Participant has already attained, at the time of deferral, a legally enforceable right to receive such compensation or awards.

(c)           Non-Stock and Stock-Denominated Deferrals.  With the consent of the Committee, a Participant may elect to defer otherwise taxable compensation, fees or awards which may be in the form of cash or Stock to be received from the Company or a Subsidiary, including salary, director’s fees, annual incentive awards and taxable compensation payable under other plans and programs, employment agreements or other arrangements or as designated by the Committee; provided; however, that a Participant who is an Employee may only defer, with respect to a given year, receipt of only that portion of the Participant’s income that exceeds the FICA maximum taxable wage base plus the amount necessary to satisfy Medicare and all other payroll taxes (other than federal, state or local income tax withholding) imposed on the wages of such Participant from the Company and its Subsidiaries.  In addition to such limitation, the Committee may impose limitations on the amounts permitted to be deferred and other terms and conditions of deferral under this Plan.  Any such limitations, and other terms and conditions of deferral, shall be set forth in the rules relating to this Plan, or election forms, or other forms or instructions approved by the Committee and/or the Administrator.

(d)           Subsequent Deferral Elections.  A Participant may not elect to change his or her deferral election that is in effect for a calendar year.  The Committee and/or Administrator may, in its discretion, permit a Participant to change his or her deferral election for a subsequent calendar year, provided that the subsequent deferral election is made on or prior to the December 31st preceding the calendar year in which such income shall be earned.

4.3           Prior Payment Elections.  At the time of a Participant’s initial deferral election, such Participant shall also elect the number of installments (but not to exceed ten (10) annual installment payments) in which the settlement of his or her Deferral Account shall be completed.  Any payment elections made by a Participant before January 1, 2005 shall continue in effect until such time as the Participant makes a subsequent payment election pursuant to Section 4.4 below and such payment election becomes effective as set forth below.  If no payment election was previously made, then the current payment election shall be deemed to be ten (10) annual installment payments.

4.4           Transitional Elections Prior to 2009.  On or before December 31, 2008, if the Participant wishes to change his payment election, the Participant may do so by completing a payment election form approved by the Company, provided that any such election (i) must be made at least 12 months before the date on which benefit payments due to a Separation from Service or upon a fixed date are scheduled to commence, (ii) must be made before the Participant has a Separation from Service or a termination of employment or service due to Disability, (iii) shall not take effect before the date that is 12 months after the date the election is made and accepted by the Company with respect to payments to be made due to a Separation from Service or upon a fixed date, (iv) does not cause a payment that would otherwise be made in the year of the election to be delayed to a later year, and (v) does not accelerate into the year in which the election is made a payment that is otherwise scheduled to be made in a later year.

4.5           No Changes in Payment Elections After 2008.  No Participant shall be permitted to change his payment election on or after January 1, 2009.

ARTICLE 5

NON-STOCK DENOMINATED AWARDS

5.1           Deferral Accounts For Non-Stock-Denominated Awards. The following provisions will apply to Deferral Accounts other than those established under Article 6:

(a)           Establishment; Crediting of Amounts Deferred.  A  Non-Stock-Denominated Deferral Account will be established for each Participant for any deferrals made by a Participant hereunder.  The amount of compensation or awards deferred with respect to each Non-Stock-Denominated Deferral Account will be credited to such account as of the date on which such amounts would have been paid to the Participant but for deferral hereunder.  Amounts credited to a Non-Stock-Denominated Deferral Account shall be deemed to be invested in such hypothetical investment vehicles as selected by the Participant from the list authorized by the Committee pursuant to Section 5.1(b) hereof.  The amounts of hypothetical income and appreciation and depreciation in the value of such accounts will be credited and debited to such accounts from time to time.  Unless otherwise determined by the Committee, amounts credited to a Non-Stock-Denominated Deferral Account shall be deemed invested in such hypothetical investment vehicles within fifteen (15) business days following the month-end in which the deferral occurs.

(b)           Hypothetical Investment Vehicles.  The Committee shall establish one or more hypothetical investment vehicles under this Plan and may add to or change or discontinue any hypothetical investment vehicle included in the list of available hypothetical investment vehicles in its absolute discretion, provided, however, that the list of hypothetical investment vehicles for the Non-Stock Denominated Deferral Account shall not include any investment or hypothetical investment in the Company’s Stock.

(c)           Allocation and Reallocation of Hypothetical Investments.  A Participant may allocate amounts credited to his or her Non-Stock-Denominated Deferral Account to one or more of the hypothetical investment vehicles authorized under the Plan.  Subject to the rules established by the Administrator, a Participant may reallocate amounts credited to his or her Non-Stock-Denominated Deferral Account (to be effective as of the Valuation Date immediately following the Participant’s election) to one or more of such hypothetical investment vehicles, by filing with the Administrator a notice,  in such form as may be specified by the Administrator.  The Committee or Administrator may restrict allocations or reallocations by specified Participants into or out of specified investment vehicles or specify minimum amounts that may be allocated or reallocated by Participants; however, any such allocation or reallocation shall be made in accordance with all applicable provisions of the Exchange Act and the regulations promulgated thereunder, including but not limited to, Section 16(b) and the regulations thereunder.

(d)           Investment Return.  In order to simulate an investment return for the amounts held in each Participant’s Non-Stock-Denominated Deferral Account, the account balance shall be reduced for the reasonable transaction costs associated with the Participant’s investment directions and be adjusted to recognize the hypothetical income, appreciation and depreciation generated by the hypothetical investments that the Non-Stock-Denominated Deferral Account is deemed to be invested in.

(e)           Trusts.  The Committee may, in its discretion, establish one or more Trusts and deposit therein amounts of cash, Stock, or other property not exceeding the amount of the Company’s obligations with respect to the Participants’ Non-Stock-Denominated Deferral Account established under Article 5 hereof.

ARTICLE 6

STOCK-DENOMINATED AWARDS

6.1           Deferral Accounts For Stock-Denominated Awards.  The following provisions will apply to Deferral Accounts other than those established under Article 5:

(a)           Establishment.  Subject to any terms and conditions imposed by the Committee, Participants may elect to defer, under the Plan, amounts which would otherwise be taxable income of a Participant as a result of the exercise, earning, vesting, or such similar event with respect to Stock-Denominated Awards.  In connection with such deferral of a Stock-Denominated Award, a Stock-Denominated Deferral Account shall be established for such Participant.  On terms determined by the Committee, the Stock-Denominated Deferral Account will, as of the date that taxable income from a Stock-Denominated Award would otherwise be recognized by a Participant,  be credited with a number of share units corresponding to the number of shares of Stock represented in the amount of Stock-Denominated Award being deferred hereunder.  With respect to any fractional shares, the Committee or the Administrator may pay such fractional shares to the Participant in cash or credit the Participant’s Non-Stock-Denominated Deferral Account with such amount in lieu of depositing such fractional shares into the Stock-Denominated Deferral Account.

(b)           Investment Return.  Hypothetical appreciation and depreciation in the value of the Stock-Denominated Deferral Account shall be equal to the actual appreciation and depreciation of the Stock.  Cash dividends and distributions with respect to share units in the Stock-Denominated Deferral Account shall be credited to a Participant’s Stock-Denominated Deferral Account in the form of additional share units.

(c)           Allocation of Hypothetical Investment.  Stock-Denominated Awards deferred pursuant to this Article 6 shall continuously be deemed invested in Stock share units until  settlement of the Stock-Denominated Deferral Account pursuant to Article 7 hereof, and the Participant shall not be entitled to reallocate Stock-denominated deferrals into any other hypothetical investments.

(d)           Trusts.  The Committee may, in its discretion, establish one or more Trusts (including sub-accounts under such Trusts), and deposit therein amounts of cash, Stock, or other property not exceeding the amount of the Company’s obligations with respect to the Participants’ Stock-Denominated Deferral Accounts established under Article 6.

(e)           Voting of Plan Shares.  Stock-Denominated Awards deferred under the Plan shall be voted by the Trustee in its discretion giving consideration to, among other factors, any instructions which the Trustee may have received from a Participant.

ARTICLE 7

PAYMENT OF DEFERRAL ACCOUNTS

7.1           Payment Events.

 

(a)           Payment Events Elected by Participants.  Each Participant shall be entitled to payment of his or her Deferral Account(s) as of the earliest to occur of the following events selected by a Participant on his deferral election form (hereinafter “Participant Elected Event”), unless one of the events specified in Section 7.1(b) or (c) occurs first:

 

(i)	Retirement (as defined in Section 2.1(n) above),

 

         (ii)   Disability (as defined in Section 2.1(g) above), or

 

(iii)

In-service distribution on one or more fixed dates as specified on a deferral election form.

 

(b)           Occurrence of Unforeseeable Emergency.  In addition to the above Participant Elected Events, the Committee may, in its sole and absolute discretion, allow a Participant to withdraw amounts from his/her Deferral Account(s) upon the occurrence of an Unforeseeable Emergency, as defined in Section 2.1(y) of this Plan.  A Participant may request a distribution due to an Unforeseeable Emergency by submitting a written request to the Committee accompanied by evidence to demonstrate that the circumstances being experienced qualify as an Unforeseeable Emergency.  Any withdrawal approved by the Committee shall not exceed the amount necessary to meet the Unforeseeable Emergency.

(c)           Automatic Lump Sum Distributions.  Notwithstanding anything in the Plan or any prior Participant election to the contrary, payments in settlement of a Deferral Account shall be made in a single lump sum payment following the occurrence of any of the following events, even if a Participant had elected to receive one or more installment payments upon any of the Participant Elected Events specified in Section 7.1(a) above:

(i)

if a Participant has a Separation from Service for any reason other than Retirement or Disability, such Participant’s Deferral Account(s) shall be paid in a single lump payment within fifteen (15) business days following the occurrence of such Separation from Service, except that if the Participant is deemed to be a Specified Employee at the time of such Separation from Service, then the lump sum payment shall be made on the first day of the month following the lapse of six months after the Separation from Service, and

(ii)

if a Change in Control occurs, then each Participant’s Deferral Account(s) shall be paid in a single lump sum payment within fifteen (15) business days following the occurrence of such Change in Control.

(d)           Payment Events.  Each of the events specified in Sections 7.1(a), (b) and (c) above is herein referred to as a “Payment Event,” and all of such events are collectively referred to herein as “Payment Events.”

7.2           Form of Payment.  Upon initially electing to participate in the Plan, a Participant shall also select on a deferral election form, the form in which his non-Stock-Denominated Deferral Account is to be paid to him/her following a Payment Event.  The Company shall settle a Participant’s Deferral Account, and discharge all of its obligations to pay deferred compensation under the Plan with respect to such Deferral Account, as follows: (i) by payment of cash or, at the Participant’s election, in the form of the securities underlying the hypothetical investment vehicle(s) established under Article 5 for amounts credited to a Non-Stock-Denominated Deferral Account; and (ii) by delivery of Stock for Stock-Denominated Awards.  If a Participant does not select the form of payment of his Non-Stock-Denominated Deferral Account, then such account shall be paid in cash,

 

7.3           Timing of Payments.  Within sixty (60) days after the occurrence of a Payment Event, the Company shall commence payment to the Participant or the Participant’s designated Beneficiary or legal representative, as the case may be, of the Participant’s Deferral Account, except as set forth below.  The Deferral Account shall be paid in the form specified pursuant to 7.2 above. Notwithstanding anything in the Plan to the contrary, if a Participant is deemed to be a Specified Employee at the time of Retirement, then any payments made on account of Retirement will be made or will commence on the first day of the month following the lapse of six (6) months after the date of the Retirement (or, if earlier, upon the death of a Participant following the date of Retirement).  If payments are to made in the form of annual installments and are delayed as set forth in the preceding sentence, then (a) the number of annual installments shall remain the same, (b) the amount of the annual payments shall be calculated based on the commencement date being the first day of the month following the lapse of six months after the date of the Retirement, and (c) the annual payments shall be paid commencing as of the date set forth in the preceding sentence.

 

         7.4           Amount of Each Annual Installment.  The dollar amount of each annual installment paid to a Participant or his or her Beneficiaries shall be determined by multiplying the value of the Participant’s Deferral Account as of the close of business on the Valuation Date preceding such payment by a fraction.  The numerator of the fraction shall in all cases be one, and the denominator of the fraction shall be the number of annual installments remaining to be paid to the Participant or his or her Beneficiaries, including the annual installment for which the calculation is being made. For example, if a Participant elected to receive 10 annual installments, the amount of the first annual installment shall be 1/10th of the Participant’s Deferral Account, the second annual installment shall be 1/9th of the then remaining Deferral Account, and so on.

 

ARTICLE 8

SECTION 16 OF THE EXCHANGE ACT

8.1           Compliance with Section 16.  With respect to a Participant who is then subject to the reporting requirements of Section 16(a) of the Exchange Act:

(a)

Any function of the Committee under the Plan relating to such Participant shall be performed solely by the Committee if and to the extent required to ensure the availability of an exemption under Rule 16b-3 or exclusion under Rule 16a-1(c) for such Participant with respect to the Plan.

(b)

Participants may not reallocate amounts credited to any Stock-Denominated Deferral Account established pursuant to Article 6 hereof.

(c)

To the extent necessary so that transactions by and the rights of such a Participant under the Plan are excluded from reporting under Rule 16a-1(c) (unless acknowledged by the Participant in writing with respect to a specified transaction not to be excluded), if any provision of this Plan or any rule, election form or other form, or instruction does not comply with the requirements of such rule as then applicable to such transaction or right under the Plan, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.

(d)

To the extent any transaction is not excluded from reporting under Rule 16a-1(c), the Administrator shall provide such information to the Participant that is required for the Participant’s compliance with Rule 16a-3(g)(1) within the applicable time periods.

ARTICLE 9

CLAIMS PROCEDURE

(i)	The specific reasons for the denial;

(ii)	A reference to the provision of the Plan upon which the denial is based;

(iii)

A description of any additional information or material that the Claimant must provide in order to perfect the claim;

(iv)	An explanation of why such additional material or information is necessary;

(v)	Notice that the Claimant has a right to request a review of the claim denial and information on the steps to be taken if the Claimant wishes to request a review of the claim denial; and

(vi)	A statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA, following a denial on review of the initial denial.