Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made effective as of the 1st day of
October, 2013 (the “Effective Date”), between PENNS WOODS BANCORP, INC. (‘Penns
Woods”), a Pennsylvania business corporation, LUZERNE BANK (“Luzerne”), a
Pennsylvania banking institution and wholly owned subsidiary of Penns Woods
(Penns Woods and Luzerne are sometimes referred to herein collectively as the
“Employer”), and ROBERT J. GLUNK, an adult individual (“Executive”).

 

W I T N E S S E T H:

 

WHEREAS, Executive has been employed by Penns Woods and Jersey Shore State Bank,
another subsidiary of Penns Woods, as its Senior Vice President and Chief
Operating Officer; and

 

WHEREAS, as a result of an expression of interest by Executive to fill a vacancy
at Luzerne, Luzerne offered to the Executive, and the Executive accepted the
position of President/CEO of Luzerne, while continuing to provide certain
services to Penns Woods; and

 

WHEREAS, it is the desire of Penns Woods that Executive continue Executive’s
employment with Penns Woods, as well as be employed with Penns Woods’
subsidiary, Luzerne, on the terms and conditions set forth herein, in order that
the experience Executive has gained throughout Executive’s career will continue
to be available to Penns Woods, and its subsidiary entity, Luzerne, while
allowing the Executive to grow professionally in a new position; and

 

WHEREAS, Executive is willing to continue such employment, on the terms and
conditions set forth herein.

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:

 

1.                                      Employment. Penns Woods and Luzerne
hereby employ Executive, and Executive hereby accepts employment with Luzerne,
on the terms and conditions set forth in this Agreement.

 

2.                                      Titles and Duties of Executive.
Executive shall perform and discharge well and faithfully such management and
administrative duties as a senior officer of Penns Woods as may be assigned to
Executive from time to time by the President and Chief Executive Officer of
Penns Woods, and as the President/Chief Executive Officer of Luzerne as may be
assigned to Executive from time to time by the Board of Directors of Luzerne.
Executive shall devote Executive’s full time, attention and energies to the
business of the Employer during the Employment Period (as defined in Section 3);
provided, however, that this section shall not be construed as preventing
Executive from (a) investing Executive’s personal assets in enterprises

 

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that do not compete with Penns Woods, Luzerne or any of their majority-owned
subsidiaries (except as an investor owning less than 5% of the stock of a
publicly-owned company), or (b) being involved in any civic, community or other
activities with the prior approval of the President and Chief Executive Officer
of Penns Woods and the Board of Directors of Luzerne.

 

3.                                      Term of Agreement.

 

(a)                                 This Agreement shall be for a period (the
“Employment Period”) commencing on the Effective Date and ending two (2) years
thereafter; provided, however, that, commencing on the second anniversary of the
Effective Date, and on each anniversary thereafter (each an “Annual Renewal
Date”), the Employment Period shall be automatically extended for one
(1) additional year from the applicable Annual Renewal Date, unless Employer or
Executive shall give written notice of nonrenewal to the other party at least
sixty (60) days prior to an Annual Renewal Date, in which event this Agreement
shall terminate at the end of the then existing Employment Period. Neither the
expiration of the Employment Period, nor the termination of this Agreement,
shall affect the enforceability of the provisions of Sections 7, 8 and 9.

 

(b)                                 Notwithstanding the provisions of
Section 3(a), this Agreement shall terminate automatically for Cause (as defined
below) upon fifteen (15) days’ prior written notice (setting forth the section
relied upon and setting forth in reasonable detail the facts and circumstances
claimed to provide the basis for termination for Cause) from the Board of
Directors of Luzerne or the President and Chief Executive Officer of Penns Woods
to Executive, unless such Cause has been cured within such fifteen (15) day
period (if capable of being cured). As used in this Agreement, “Cause” shall
mean any of the following:

 

(i)                                     Executive’s conviction of, or plea of
guilty or nolo contendere to, a felony, a crime of falsehood, or a crime
involving moral turpitude, or the actual incarceration of Executive for a period
of at least thirty (30) days;

 

(ii)                                  Executive’s failure to follow the good
faith lawful instructions of the Board of Directors of Luzerne or the President
and Chief Executive Officer of Penns Woods, following Executive’s receipt of
written notice of such instructions;

 

(iii)                               Executive’s intentional failure to
substantially perform Executive’s duties to, or on behalf of, Employer, other
than a failure resulting from Executive’s incapacity because of disability;

 

(iv)                              Executive’s intentional violation of any law,
rule or regulation (other than traffic violations or similar offenses),
Executive’s intentional violation of any memorandum of understanding or cease
and desist order of a federal or state banking agency applicable to Penns Woods
or Luzerne, Executive’s intentional violation of any code of conduct

 

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or ethics applicable to officers or employees of Penns Woods or Luzerne, or
Executive’s intentional violation of any material provision of this Agreement;

 

(v)                                 dishonesty on the part of the Executive in
the performance of Executive’s duties or conduct on the part of the Executive
which, in the reasonable judgment of the Board of Directors of Luzerne, brings
public discredit to Penns Woods or Luzerne;

 

(vi)                              Executive’s breach of fiduciary duty, in
connection with Executive’s employment hereunder, which involves personal profit
or which results in demonstrable material injury to Penns Woods or Luzerne; or

 

(vii)                           Executive’s removal or prohibition from being an
institution-affiliated party by a final order of an appropriate federal banking
agency pursuant to Section 8(e) of the Federal Deposit Insurance Act or by the
Pennsylvania Department of Banking pursuant to state law.

 

If this Agreement is terminated for Cause, Executive’s rights under this
Agreement shall cease as of the effective date of such termination.

 

(c)                                  Notwithstanding the provisions of
Section 3(a) of this Agreement, this Agreement shall terminate automatically
upon Executive’s voluntary termination of employment (other than for Good
Reason), retirement at Executive’s election, or Executive’s death, and
Executive’s rights under this Agreement shall cease as of the date of such
voluntary termination, retirement at Executive’s election, or death; provided,
however, that, if Executive dies after Executive delivers a Notice of
Termination (as defined in Section 5(d)), the provisions of Section 17(b) shall
apply.

 

(d)                                 Notwithstanding the provisions of
Section 3(a), this Agreement shall terminate automatically upon Executive’s
disability and Executive’s rights under this Agreement shall cease as of the
date of such termination; provided, however, that, if Executive becomes disabled
after Executive delivers a Notice of Termination, Executive shall be entitled to
receive all of the compensation and benefits provided for in, and for the term
set forth in, Section 5 of this Agreement. For purposes of this Agreement,
disability shall mean Executive’s incapacitation by accident, sickness, or
otherwise which renders Executive mentally or physically incapable of performing
the services required hereunder of Executive for a period of six (6) consecutive
months or twelve (12) months in any two (2) year period.

 

(e)                                  Executive agrees that, in the event
Executive’s employment under this Agreement terminates for any reason, Executive
shall concurrently resign as a director of Penns Woods, Luzerne and any
affiliate of either, if Executive is then serving as a director of any of such
entities.

 

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4.                                      Employment Period Compensation.

 

(a)                                 Salary. During the Employment Period,
Executive shall be paid a base salary at the rate of $165,000.00 per year,
payable at such times as salaries are paid to other senior officers of Luzerne.
The Board of Directors of Luzerne shall review Executive’s base salary annually
and may, from time to time, in its discretion increase Executive’s base salary.
Any and all such increases in base salary shall be deemed to constitute
amendments to this subsection to reflect the increased amounts, effective as of
the dates established for such increases by appropriate corporate action.

 

(b)                                 Discretionary Bonus. During the Employment
Period, Executive shall be entitled to participate in an equitable manner with
other senior management employees of the Employer in such annual or other
periodic bonus programs (if any) as may be maintained from time to time by the
Employer for its executive officers.

 

(c)                                  Vacation and Sick Leave. During the
Employment Period, Executive shall be entitled to such Paid Time Off (“PTO”), to
be utilized for vacation and/or sick days, as may be determined by the personnel
policies of the Employer from time to time in effect, but in no less than five
(5) weeks per annum.  Executive shall not be entitled to receive any additional
compensation from Luzerne for failure to take all of Executive’s entitled PTO,
nor shall Executive be able to accumulate unused PTO from one year to the next.

 

(d)                                 Employee Benefit Plans. During the
Employment Period, Executive shall be entitled to participate in and receive the
benefits of any pension or other retirement benefit plan, welfare benefit plan
or similar employee benefit plans or arrangements (including stock option plans,
short- or long-term disability plans, life insurance programs, and health
insurance) made available from time to time to employees of Luzerne in
accordance with the provisions of such plans. The base salary and any bonus
payable to Executive under Section 4 shall be considered covered compensation
for purposes of such plans to the maximum extent permitted by the terms of such
plans. Nothing paid to Executive under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of the
amounts payable to Executive pursuant to Section 4(a) hereof.

 

(e)                                  Expense Reimbursement. Luzerne shall
promptly reimburse Executive, upon submission of appropriate documentation, for
reasonable business expenses, including travel and reasonable entertainment
expenses, incurred by Executive in accordance with the expense reimbursement
policies of Luzerne in effect from time to time.

 

(f)                                   Automobile. During the Employment Period,
Luzerne shall provide Executive with a mid-size automobile selected by Luzerne
(which shall be owned or leased by Luzerne) for the Executive’s business use
(and ancillary personal use). Luzerne will cover all repairs and operating
expenses of said automobile, including the cost of liability insurance,
comprehensive and collision insurance. Upon termination of Executive’s
employment hereunder

 

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for any reason, Executive shall either immediately return the vehicle to Luzerne
or purchase the vehicle (or assume the lease) in accordance with Luzerne’s
vehicle purchase policy. Upon request by Luzerne, Executive shall submit to
Luzerne on a timely basis documentation which defines the percentage of
Executive’s use of the vehicle which was for business purposes.

 

(g)                                  Relocation Bonus. Executive acknowledges
that he has already received a one-time relocation bonus of $10,000.00 from
Employer.

 

(h)                                 Housing Allowance. The Executive shall be
paid a housing allowance of $1,575.00 per month for a term of one (1) year.

 

5.                                      Rights in Event of Termination of
Employment Following a Change in Control.

 

(a)                                 Benefits. If a Change in Control (as defined
below) shall occur and concurrently therewith or during a period of twenty-four
(24) months thereafter Executive’s employment hereunder is terminated by Luzerne
without Cause (other than for the reasons set forth in Section 3(d)) or by
Executive with Good Reason (as defined below), Executive shall be entitled to
receive a lump-sum cash payment, no later than thirty (30) days following the
date of such termination, in an amount equal to two (2.0) times the sum of
Executive’s annual base salary then in effect (or immediately prior to any
reduction resulting in a termination for Good Reason) and (ii) the average of
the last three (3) annual bonuses paid by Luzerne to Executive.

 

(b)                                 Limitation on Benefits. Notwithstanding
anything in this section or elsewhere in this Agreement to the contrary, in the
event the payments and benefits payable hereunder to or on behalf of Executive
(which the parties agree will not include any portion of payments allocated to
the non-compete and non-solicitation provisions of Sections 7 and 9 that are
classified as payments of reasonable compensation for purposes of Section 280G
of the Internal Revenue Code of 1986, as amended (the “Code”)), when added to
all other amounts and benefits payable to or on behalf of Executive, would
result in the loss of a deduction under Code Section 280G, or the imposition of
an excise tax under Code Section 4999, the amounts and benefits payable
hereunder shall be reduced to such extent as may be necessary to avoid such loss
of deduction or imposition of excise tax. In applying this principle, the
reduction shall be made in a manner consistent with the requirements of Code
Section 409A and where two or more economically equivalent amounts are subject
to reduction, but payable at different times, such amounts shall be reduced on a
pro-rata basis. All calculations required to be made under this subsection will
be made by Luzerne’s independent public accountants, subject to the right of
Executive’s professional advisors to review the same. The parties recognize that
the actual implementation of the provisions of this subsection are complex and
agree to deal with each other in good faith to resolve any questions or
disagreements arising hereunder.

 

(c)                                  Exclusive Remedy. The amounts payable
pursuant to this Section 5 shall constitute Executive’s sole and exclusive
remedy in the event of the termination of Executive’s employment in accordance
with Section 5(a).

 

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(d)                                 Good Reason Defined. Executive shall be
considered to have terminated employment hereunder for “Good Reason” if such
termination of employment occurs on or within twenty-four (24) months after a
Change in Control and is on account of any of the following actions by Luzerne
without Executive’s express written consent:

 

(i)                                     A material diminution in Executive’s
authority, duties or other terms or conditions of employment as the same exist
on the date of the Change in Control;

 

(ii)                                  Any reassignment of Executive to a
location greater than 25 miles from the location of Executive’s office on the
date of the Change in Control, unless such new location is closer to Executive’s
primary residence than the location on the date of the Change in Control;

 

(iii)                               Any failure to pay Executive any amounts due
and owing to Executive under Section 4 of this Agreement, which constitutes a
material breach by Employer of this Agreement;

 

(iv)                              Any failure to provide Executive with any
benefits enjoyed by Executive under any of Luzerne’s retirement or pension, life
insurance, medical, health and accident, disability or other material employee
plans in which Executive participated at the time of the Change in Control or
the taking of any action that would materially reduce any of such benefits in
effect at the time of the Change in Control, except for any reductions in
benefits or other actions resulting from changes to or reductions in benefits
applicable to employees generally;

 

(v)                                 Any requirement that Executive travel in the
performance of Executive’s duties on behalf of Luzerne for a significantly
greater period of time during any year than was required of Executive during the
year preceding the year in which the Change in Control occurred, which results
in a material negative change to Executive in the employment relationship; or

 

(vi)                              Any other material breach of this Agreement.

 

Notwithstanding the foregoing, a termination by Executive shall not be for Good
Reason, unless Executive shall have given Penns Woods and Luzerne at least ten
(10) business days written notice (a “Notice of Termination”) specifying the
grounds upon which Executive intends to terminate Executive’s employment
hereunder for Good Reason and such notice is received by Luzerne within ninety
(90) days of the date the event of Good Reason occurred. In addition, any action
or inaction by Penns Woods or Luzerne which is remedied within thirty (30) days
following a Notice of Termination shall not constitute Good Reason for
termination hereunder and shall render such Notice of Termination null and void.

 

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(e)                                  Change in Control Defined. As used in this
Agreement, “Change in Control” shall mean the occurrence of any one of the
following:

 

(i)                                     (A) a merger, consolidation, or division
involving Penns Woods or Luzerne, (B) a sale, exchange, transfer, or other
disposition of substantially all of the assets of Penns Woods or Luzerne, or
(C) a purchase by Penns Woods or Luzerne of substantially all of the assets of
another entity, unless (x) such merger, consolidation, division, sale, exchange,
transfer, purchase or disposition is approved in advance by a majority of the
members of the Board of Directors of Penns Woods who are not interested in the
transaction and (y) a majority of the members of the Board of Directors of the
legal entity resulting from or existing after any such transaction and of the
Board of Directors of such entity’s parent corporation, if any, are former
members of the Board of Directors of Penns Woods or Luzerne;

 

(ii)                                  a “person” or “group” (within the meaning
of Section 13(d) of the Securities Exchange Act of 1934) becomes the “beneficial
owner” (within the meaning of Section 13(d) of the Securities Exchange Act of
1934) of 25% or more of the outstanding shares of common stock of Penns Woods;

 

(iii)                               at any time during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of Penns Woods cease to constitute a majority of such
Board (unless the election or nomination of each new director was approved by a
vote of at least 51% of the directors who were directors at the beginning of
such period); or

 

(iv)                              any other change in control similar in effect
to any of the foregoing and designated as a change in control by the Board of
Directors of Penns Woods or Luzerne.

 

(f)                                   Notwithstanding the foregoing, to the
extent the definition of “Change in Control” as set forth in Section 5(e) does
not amount to a “change in control event” as defined under Treas. Reg. §
1.409A-3(i)(5), then the benefits set forth in Section 5(a) shall be paid at the
same time and in the same form as benefits are paid under Section 6(a).

 

6.                                      Rights in Event of Termination of
Employment absent a Change in Control.

 

(a)                                 Benefits. In the event that Executive’s
employment is involuntarily terminated by Luzerne (other than by reason of
Section 3(d)) without Cause and no Change in Control shall have occurred at the
date of such termination, Executive shall be entitled to receive the following
benefits:

 

(i)                                     Luzerne shall continue to pay
Executive’s then base salary under Section 4(a) for the number of full months
remaining in the Employment Period as of the date of termination of employment.
A final pro rated payment shall be made for any fraction of a month remaining in
the Employment Period as of the date of Executive’s termination of employment.

 

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(ii)                                  For a period of one (1) year following
Executive’s termination, Executive shall be provided, at no charge, with a
continuation of health and medical benefits no less favorable than the health
and medical benefits in effect on the date of termination of the Executive’s
employment. To the extent such benefits cannot be provided under a plan because
Executive is no longer an employee of Luzerne or it is not in Luzerne’s best
interests to provide such benefits due to the applicable nondiscrimination
requirements set forth in Section 1001 of the Patient Protection and Affordable
Care Act, as amended, a dollar amount equal to the after-tax cost (estimated in
good faith by Luzerne) of obtaining such benefits, or substantially similar
benefits, shall be paid to the Employee within thirty (30) days following the
date of termination.

 

(b)                                 Exclusive Remedy. The amounts payable
pursuant to this Section 6 shall constitute Executive’s sole and exclusive
remedy in the event of involuntary termination of Executive’s employment by
Luzerne (other than by reason of Section 3(d)) without Cause in the absence of a
Change in Control.

 

(c)                                  Limitation on Benefits. Notwithstanding
anything herein to the contrary, to the extent the provisions of Code
Section 280G become applicable to payments or benefits to be provided under this
Section 6, the provisions of Section 5(b) shall apply to such payments or
benefits.

 

7.                                      Covenant Not to Compete.

 

(a)                                 Executive covenants and agrees that his
pre-existing employment agreement between the Executive, Penns Woods and Jersey
Shore State Bank dated October 25, 2010, with respect to the his covenant not to
compete remained in full force and effect until the due execution of this
Agreement, and as such, the Executive acknowledges and agrees, after
consultation with his independent legal counsel, that the execution of this
Agreement with the compensation package provided to the Executive and the
restrictive covenants contained herein are considered a contemporaneous exchange
of good and valuable consideration representing a promotion by Executive from
Penns Woods, and as such, the terms and conditions are valid and binding upon
Executive as if this Agreement had been executed on the Effective Date.
Accordingly, Executive hereby acknowledges and recognizes the highly competitive
nature of the business of Penns Woods and Luzerne and accordingly agrees, in
consideration of this Agreement, including without limitation the two-year
initial term hereof, that, during and for the applicable period set forth in
Section 7(c), Executive shall not:

 

(i)                                     be engaged, directly or indirectly,
either for Executive’s own account or as agent, consultant, employee, partner,
officer, director, proprietor, investor (except as an investor owning less than
5% of the stock of a publicly-owned company) or otherwise of any person, firm,
corporation, or enterprise engaged in the banking or financial services business

 

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within twenty-five (25) miles of the mail branch of Luzerne, located on Main
Street, Luzerne, Pennsylvania (the “Non-Competition Area”); or

 

(ii)                                  provide financial or other assistance to
any person, firm, corporation, or enterprise engaged in the banking or financial
services business in the Non-Competition Area.

 

(b)                                 It is expressly understood and agreed that,
although Executive, Penns Woods and Luzerne consider the restrictions contained
in Section 7(a) reasonable for the purpose of preserving for Penns Woods and
Luzerne their goodwill and other proprietary rights, if a final judicial
determination is made by a court or arbitrator having jurisdiction that the time
or territory or any other restriction contained in Section 7(a) is an
unreasonable or otherwise unenforceable restriction against Executive, the
provisions of Section 7(a) shall not be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such other extent
as such court may judicially determine or indicate to be reasonable.

 

(c)                                  The provisions of this Section 7 shall be
applicable commencing on the date of this Agreement and ending on one of the
following dates, as applicable:

 

(i)                                     if Executive voluntarily terminates
Executive’s employment (other than for Good Reason) or Executive’s employment is
terminated for Cause in accordance with the provisions of Section 3(b), one
(1) year following the effective date of termination of employment;

 

(ii)                                  if Executive becomes entitled to receive
the payment set forth in Section 5(a), one (1) year following the effective date
of termination of employment;

 

(iii)                               if Executive’s employment is involuntarily
terminated in accordance with the provisions of Section 3(d) or 6, and Executive
actually receives payments under a disability plan or program maintained by
Luzerne or severance payments under Section 6, respectively, the lesser of one
(1) year following the effective date of termination of employment or the period
during which such payments remain in effect;

 

(iv)                              if Executive’s employment terminates as a
result of delivery of a notice of nonrenewal by Luzerne in accordance with
Section 3(a), the ending date of the then existing Employment Period; or

 

(v)                                 if Executive’s employment terminates as a
result of delivery of a notice of nonrenewal by Executive in accordance with
Section 3(a), one (1) year following the ending date of the then existing
Employment Period.

 

8.                                      Unauthorized Disclosure. During the
Employment Period and at any time thereafter, Executive shall not, without the
written consent of the Boards of Directors of Penns

 

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Woods and Luzerne, or persons authorized thereby, knowingly disclose to any
person, other than an employee of Penns Woods or Luzerne, or a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by Executive of Executive’s duties hereunder, any material
confidential information obtained by Executive while in the employ of Luzerne
with respect to Penns Woods’, Luzerne’s or any of their majority-owned
subsidiaries’ services, products, improvements, formulas, designs or styles,
processes, customers, methods of business or any business practices the
disclosure of which could be or would be damaging to Penns Woods, Luzerne or any
such subsidiary; provided, however, that confidential information shall not
include any information known generally to the public (other than as a result of
unauthorized disclosure by Executive or any person with the assistance, consent,
or direction of Executive), or any information that must be disclosed as
required by law.

 

9.                                      Nonsolicitation of Customers and
Employees. Executive hereby agrees that Executive shall not during any period
that Executive is subject to the provisions of Section 7, directly or
indirectly, (i) solicit any customer of Penns Woods, Luzerne or any
majority-owned subsidiary of either of them located in the Non-Competition Area
for any banking or financial services business, or (ii) solicit or hire any
persons who are currently or were within six (6) months prior to Executive’s
termination date employees of Penns Woods, Luzerne or any majority-owned
subsidiary of either of them. Executive also agrees that Executive shall not,
for the period described in the preceding sentence, encourage or induce any of
such customers or employees of Penns Woods, Luzerne or any majority-owned
subsidiary of either of them to terminate their business relationship with any
of such entities.

 

10.                               Remedies. Executive acknowledges and agrees
that the remedy at law of the Employer for a breach or threatened breach of any
of the provisions of Section 7, 8 or 9 would be inadequate and, in recognition
of this fact, in the event of a breach or threatened breach by Executive of any
of the provisions of Section 7, 8 or 9, it is agreed that the Employer shall be
entitled to, without posting any bond, and the Executive agrees not to oppose
any request of the Employer for, equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction,
or any other equitable remedy which may then be available. Nothing contained in
this section shall be construed as prohibiting the Employer from pursuing any
other remedies available to them, at law or in equity, for such breach or
threatened breach.

 

11.                               Arbitration. The Employer and Executive
recognize that, in the event a dispute should arise between them concerning the
interpretation or implementation of this Agreement, lengthy and expensive
litigation will not afford a practical resolution of the issues within a
reasonable period of time. Consequently, each party agrees that all disputes,
disagreements and questions of interpretation concerning this Agreement are to
be submitted for resolution, in Wilkes-Barre, Pennsylvania, to the American
Arbitration Association (the “Association”) in accordance with the Association’s
National Rules for the Resolution of Employment Disputes or other applicable
rules then in effect (“Rules”). The Employer or Executive may initiate an
arbitration proceeding at any time by giving notice to the other in accordance
with the Rules. The Employer and Executive may, as a matter of right, mutually
agree on the appointment of a

 

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particular arbitrator from the Association’s pool. The arbitrator shall not be
bound by the rules of evidence and procedure of the courts of the Commonwealth
of Pennsylvania but shall be bound by the substantive law applicable to this
Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or
gross and obvious error of fact, shall be final and binding upon the parties and
shall be enforceable in courts of proper jurisdiction. Following written notice
of a request for arbitration, the Employer and Executive shall be entitled to an
injunction restraining all further proceedings in any pending or subsequently
filed litigation concerning this Agreement, except as otherwise provided herein
or contemplated by Section 10.

 

12.                               Legal Expenses. If either party obtains a
judgment, award or settlement which enforces a material disputed right or
benefit under this Agreement, the losing party shall pay to successful party,
within ten (10) days after demand therefor, all legal fees and expenses incurred
by the successful party in seeking to obtain or enforce such right or benefit.

 

13.                               Notices. Except as otherwise provided in this
Agreement, any notice required or permitted to be given under this Agreement
shall be deemed properly given if in writing and if mailed by registered or
certified mail, postage prepaid with return receipt requested, to Executive’s
residence (as then reflected in the personnel records of Luzerne) in the case of
notices to Executive, and to the then principal offices of Luzerne, in care of
the then Chairman of the Board of Luzerne and the President in the case of
notices to Luzerne.

 

14.                               Waiver. No provision of this Agreement may be
modified, waived, or discharged unless such waiver, modification, or discharge
is agreed to in writing and signed by Executive and the Chairman of the Board of
Luzerne. No waiver by any party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.

 

15.                               Assignment. This Agreement shall not be
assignable by any party, except by the Employer to any affiliated company or to
any successor in interest to its businesses.

 

16.                               Entire Agreement; Effect on Prior Agreements.
This Agreement contains the entire agreement of the parties relating to the
subject matter of this Agreement and supersedes and replaces any prior written
or oral agreements between them respecting the within subject matter.

 

17.                               Successors; Binding Agreement.

 

(a)                                 The Employer will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the businesses and/or assets of Penns Woods
and/or Luzerne to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Employer would be required to
perform it if no such succession had taken place. Failure by the Employer to
obtain such assumption and

 

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agreement prior to the effectiveness of any such succession shall constitute a
material breach of this Agreement and the provisions of Section 5 (relating to
termination of employment following a Change in Control) shall apply as though a
Notice of Termination was authorized and had been timely given. As used in this
Agreement, “Penns Woods”, and “Luzerne” shall mean Penns Woods and Luzerne, as
defined previously, and any successor to their respective businesses and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law or otherwise.

 

(b)                                 This Agreement shall inure to the benefit of
and be enforceable by Executive’s personal or legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees. If Executive should
die after a Notice of Termination is delivered by Executive, or following
termination of Executive’s employment without Cause, and any amounts would be
payable to Executive under this Agreement if Executive had continued to live,
all such amounts shall be paid in accordance with the terms of this Agreement to
Executive’s devisee, legatee, or other designee, or, if there is no such person,
to Executive’s estate. The preceding sentence shall also apply to the last
clause of Section 3(c).

 

18.                               No Mitigation or Offset. Executive shall not
be required to mitigate the amount of any payment or benefit provided for in
this Agreement by seeking employment or otherwise. Further, there shall be no
offset against any amount or benefit payable or provided hereunder following
Executive’s termination of employment solely by reason of Executive’s employment
with another employer.

 

19.                               Validity. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.

 

20.                               Applicable Law. This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania, without regard to its conflict of laws principles.

 

21.                               Headings. The section headings of this
Agreement are for convenience only and shall not control or affect the meaning
or construction, or limit the scope or intent, of any of the provisions of this
Agreement.

 

22.                               Number. Words used herein in the singular form
shall be construed as being used in the plural form, as the context requires,
and vice versa.

 

23.                               Regulatory Matters. The obligations of Luzerne
under this Agreement shall in all events be subject to any required limitations
or restrictions imposed by or pursuant to the Federal Deposit Insurance Act or
the Pennsylvania Banking Code of 1965 as the same may be amended from time to
time.

 

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24.                               Tax Withholding. All payments made and
benefits provided hereunder shall be subject to such federal, state and local
tax withholding as may be required by law.

 

25.                               Compliance with Code Section 409A.

 

(a)                                 Notwithstanding anything in this Agreement
to the contrary, the receipt of any benefits under this Agreement as a result of
a termination of employment shall be subject to satisfaction of the condition
precedent that Executive undergo a “separation from service” within the meaning
of Treas. Reg. § 1.409A- 1 (h)  or any successor thereto. In addition, if
Executive is deemed to be a “specified employee” within the meaning of that term
under Code Section 409A(a)(2)(B), then with regard to any payment or the
provisions of any benefit that is required to be delayed pursuant to Code
Section 409A(a)(2)(B), such payment or benefit shall not be made or provided
prior to the earlier of (i) the expiration of the six (6) month period measured
from the date of Executive’s “separation from service” (as such term is defined
in Treas. Reg. § 1.409A- 1(h)), or (ii) the date of Executive’s death (the
“Delay Period”). Within ten (10) days following the expiration of the Delay
Period, all payments and benefits delayed pursuant to this section (whether they
would have otherwise been payable in a single sum or in installments in the
absence of such delay) shall be paid or reimbursed to Executive in a lump sum,
and any remaining payments and benefits due under this Agreement shall be paid
or provided in accordance with the normal payment dates specified for them
herein. To the extent that the foregoing applies to the provision of any ongoing
welfare benefits to Executive that would not be required to be delayed if the
premiums therefore were paid by Executive, Executive shall pay the full costs of
premiums for such welfare benefits during the Delay Period and Luzerne shall pay
Executive an amount equal to the amount of such premiums paid by Executive
during the Delay Period within ten (10) days after the conclusion of such Delay
Period.

 

(b)                                 Except as otherwise expressly provided
herein, to the extent any expense reimbursement or other in-kind benefit is
determined to be subject to Code Section 409A, the amount of any such expenses
eligible for reimbursement or in-kind benefits in one calendar year shall not
affect the expenses eligible for reimbursement or in-kind benefits in any other
taxable year (except under any lifetime limit applicable to expenses for medical
care), in no event shall any expenses be reimbursed or in-kind benefits be
provided after the last day of the calendar year following the calendar year in
which Executive incurred such expenses or received such benefits, and in no
event shall any right to reimbursement or in-kind benefits be subject to
liquidation or exchange for another benefit.

 

(c)                                  Any payments made pursuant to Sections 5
and 6, to the extent of payments made from the date of termination through
March 15th of the calendar year following such date, are intended to constitute
separate payments for purposes of Treas. Reg. § 1.409A-2(b)(2) and thus payable
pursuant to the “short-term deferral” rule set forth in Treas. Reg. § 1.409A-1
(b)(4); to the extent such payments are made following said March 15th, they are
intended to constitute separate payments for purposes of Treas. Reg. §1
.409A-2(b)(2) made upon an involuntary termination from service and payable
pursuant to Treas. Reg. §1

 

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.409A-1(b)(9)(iii), to the maximum extent permitted by said provision.
Notwithstanding the foregoing, if Luzerne determines that any other payments
hereunder fail to satisfy the distribution requirement of
Section 409A(a)(2)(A) of the Internal Revenue Code of 1986, as amended (the
“Code”), the payment of such benefit shall be delayed to the minimum extent
necessary so that such payments are not subject to the provisions of Code
Section 409A(a)(1).

 

(d)                           To the extent it is determined that any benefits
described in Section 6(b) are taxable to Executive, they are intended to be
payable pursuant to Treas. Reg. §1.409A-l(b)(9)(v), to the maximum extent
permitted by said provision.

 

IN WITNESS WHEREOF, the parties have executed this Agreement, or caused it to be
executed, as of the date first above written.

 

PENNS WOODS BANKCORP, INC.

 

 

 

 

 

By:

/s/ Richard Grafmyre

 

 

Richard Grafmyre, President/CEO

 

 

 

LUZERNE BANK

 

 

 

 

 

By:

/s/ Joseph E. Kluger

 

 

Joseph E. Kluger, Chairman

 

 

 

 

 

/s/ Robert J. Glunk

 (SEAL)

Robert J. Glunk

 

 

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