Exhibit 10.8

Amendment

December 1, 2006

 

AMENDMENT TO EMPLOYMENT AGREEMENT

THIS WAIVER OF RIGHTS UNDER and AMENDMENT TO EMPLOYMENT AGREEMENT (“Waiver and
Amendment”) is effective this 1st day of December 2006, between STERLING
FINANCIAL CORPORATION (“Corporation”), and Thomas J. Sposito, II (“Executive”).

WHEREAS, Corporation and Executive executed an Employment Agreement, dated June
14, 2004 (“Employment Agreement”);

WHEREAS, The Pennsylvania State Banking Company and Pennsylvania State Bank were
also parties to the Employment Agreement; and

WHEREAS, the Corporation and Executive desire to amend certain terms of the
Employment Agreement and to limit the parties to the Employment Agreement, as
amended, to Corporation and Executive,

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained in this Amendment, Corporation and Executive, each intending to be
legally bound hereby, do covenant, acknowledge and confirm that:

 

1.

The parties to the Employment Agreement, as amended by this Waiver and
Amendment, will be limited to Corporation and Executive. Any obligations that
Executive owed to The Pennsylvania State Banking Company or Pennsylvania State
Bank under the Employment Agreement, as amended, will be owed to Corporation and
all benefits under the Employment Agreement, as amended, that inured to The
Pennsylvania State Banking Company or Pennsylvania State Bank will inure to
Corporation. All obligations owed by The Pennsylvania State Banking Company or
Pennsylvania State Bank under the Employment Agreement, as amended, will be
assumed by Corporation.

 

2.

This Waiver and Amendment amends Section 1 of the Employment Agreement as set
forth herein.

 

3.

Section 1 of the Employment Agreement is hereby amended to read as follows:

 

(a)

Sterling hereby agrees to employ Executive and Executive hereby agrees to serve
as Chief Banking Officer of Sterling.

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Amendment

December 1, 2006

 

 

(b)

Executive shall devote his full working time and best efforts to the performance
of his responsibilities and duties hereunder and as Chief Banking Officer of
Sterling. During the Term of Employment, Executive shall not, without the prior
consent of the Board of Directors of Sterling, render services as an employee,
independent contractor, or otherwise, whether or not compensated, to any person
or entity other than Sterling, its subsidiaries and affiliates; provided that
Executive may, where involvement in such activities does not individually or in
the aggregate significantly interfere with the performance by Executive of his
duties, (i) render services to charitable organizations, (ii) manage his
personal investments, and (iii) with the prior written permission of the Board
of Directors of Sterling, hold such other directorships or part time academic
appointments or have such other business affiliations as would otherwise be
prohibited under this Section 1.

 

4.

This Waiver and Amendment amends Section 2(a)(vii) of the Employment Agreement
as set forth herein.

 

5.

Section 2(a)(vii) of the Employment Agreement is hereby amended to read as
follows:

Executive’s resignation for “Good Reason.” “Good Reason” shall mean Executive’s
resignation at any time before or on December 31, 2007 for any reason
whatsoever.

 

6.

This Waiver and Amendment amends Section 2(c) of the Employment Agreement as set
forth herein.

 

7.

Section 2(c) of the Employment Agreement is hereby amended to read as follows:

 

(c)

In the event that the term of the employment shall be terminated for any reason
set forth in Section 2(a)(vi) or 2(a)(vii) hereof at any time before June 30,
2007, Executive shall be entitled to receive:

 

8.

The remainder of Section 2(c), specifically subsections (i)-(iv), remain as
originally stated in the Employment Agreement; there are no amendments to these
subsections.

 

9.

This Waiver and Amendment amends Section 2(d) of the Employment Agreement as set
forth herein.

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Amendment

December 1, 2006

 

 

10.

Section 2(d) of the Employment Agreement is hereby amended to read as follows:

 

(c)

In the event that the Term of Employment shall be terminated for any reason set
forth in Section 2(a)(vi) or 2(a)(vii) hereof at any time between July 1, 2007
and December 31, 2007 , Executive shall be entitled to receive:

 

(i)

any salary payable pursuant to section 3(a)(i) hereof which shall have accrued
as of the Termination Date; and

 

(ii)

for the period commencing on the date immediately following the Termination Date
and ending one (1) year later, salary payable at the rate established pursuant
to section 3(a)(i) hereof, in a manner consistent with the normal payroll
practices of Sterling with respect to executive personnel presently in effect or
as they may be modified by Sterling from time to time; and

* * *

 

11.

The remainder of section 2(d), specifically subsection (iii), remains as
originally stated in the Employment Agreement; there are no amendments to
subsection (iii).

 

12.

This Waiver and Amendment amends section 2(e) as set forth herein.

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Amendment

December 1, 2006

 

 

13.

Section 2(e) is hereby amended to read as follows:

 

(e)

(i) Notwithstanding any other provision hereof to the contrary, in the event any
payments or benefits Executive may become entitled to pursuant to section 2(c)
or 2(d) hereof or any other payments or benefits received or to be received by
Executive in connection with the Merger (whether pursuant to the terms of any
other agreement, plan, arrangement, or otherwise) (collectively the “Severance
Payments”) will be subject to the tax (the “Excise Tax”) imposed by Section 4999
of the Internal Revenue Code of 1986, as amended (the “Code”), Sterling shall
pay to Executive an additional amount (the “Gross-Up Payments”) so that the net
amount retained by Executive, after deduction of the Excise Tax (but before
deduction for any federal, state or local income tax) on the Severance Payments
and after deduction for the aggregate of any federal, state, or local income tax
and Excise Tax upon the Gross-Up Payment, shall be equal to the Severance
Payments. For purposes of determining whether any of the Severance Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (A) the entire
amount of the Severance Payments shall be treated as “parachute payments” within
the meaning of section 280G(b)(2) of the Code and as subject to the Excise Tax,
unless and to the extent, in the written opinion of outside tax counsel selected
by Sterling’s independent accountants and reasonably acceptable to Executive,
such payments (in whole or in part) are not subject to the Excise Tax; and
(B) the value of any non-cash benefits or any deferred payment or benefit
(constituting a part of the Severance Payments) shall be determined by
Sterling’s independent auditors in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation applicable to individuals
(without taking into account surtaxes or loss or reduction of deductions) for
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rates of taxation in the state and
locality of Executive’s residence on the Termination Date. In the event that the
amount of Excise Tax Executive is required to pay is subsequently determined to
be less than the amount taken into account hereunder, Executive shall repay to
Sterling promptly after the time that the amount of such reduction in Excise Tax
is finally determined the amount of the reduction, together with interest on the
amount of such reduction at the rate of six percent per annum from the date of
the Gross-Up Payment, plus, if in the written opinion of outside tax counsel
selected by Sterling’s independent accountants and reasonably acceptable to
Executive, such payment (or a portion thereof) was not taxable income to
Executive when reported or is deductible by Executive for federal income tax
purposes, the net federal income tax benefit Executive actually realized as a
result of making such payment pursuant to this sentence. In the event that the
amount of Excise Tax Executive is required to pay is subsequently determined to
exceed the amount taken into account hereunder, Sterling shall make an
additional Gross-Up Payment in the manner set forth above in respect of such
excess (plus any interest, additions to tax, or penalties payable by Executive
with respect to such excess) promptly after the time that the amount can be
reasonably determined.

(ii) The payments provided for in subsection (i) above, shall be made not later
than the fifth (5th) business day following the Termination Date; provided,
however, that if the amounts of such payments cannot be finally determined on or
before such day, Sterling shall pay to Executive on such day an estimate, as
determined in good faith by Sterling, of the minimum amount of such payments,
and shall pay the remainder of such payments (together with interest at the rate
of six percent per annum) as soon as the amount thereof can be determined. In
the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
Sterling to Executive, payable on the fifth (5th) day after demand by the Bank
(together with interest at the rate of six percent per annum).

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Amendment

December 1, 2006

 

 

14.

This Waiver and Amendment amends section 3(a)(i) as set forth herein.

 

15.

Section 3(a)(i) is hereby amended to read as follows:

3. Compensation. For the services to be performed by Executive for Sterling
under this Agreement, Executive shall be compensation in the following manner:

 

(a)

Salary. During the term of employment:

(i) Sterling shall pay Executive a salary which on an annual basis shall not be
less than $200,000.58, assuming Executive performs competently. Salary shall be
payable in accordance with the normal payroll practice of Sterling with respect
to executive personnel as presently in effect or as may be modified by Sterling
from time to time.

 

16.

This Waiver and Amendment deletes section 4 of the Employment Agreement in its
entirety.

 

17.

Sterling shall provide Executive with a change of control agreement effective
January 1, 2008, provided that Executive’s employment has not otherwise been
terminated.

 

18.

The Employment Agreement shall continue in full force and effect until
terminated, subject to this Waiver and Amendment.

 

19.

This Waiver and Amendment has been executed in accordance with and satisfies the
requirements of Section 11 of the Employment Agreement.

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Amendment

December 1, 2006

 

 

20.

Any notice obligations owed to Executive with respect to this Waiver and
Amendment, pursuant to Section 8 of the Employment Agreement or otherwise, have
been satisfied.

 

21.

The Executive waives any and all rights to claim that this Waiver and Amendment
has not been executed in accordance with the provisions of or is in breach of
the Employment Agreement, including without limitation, the requirements set
forth in Sections 11 and 8 of the Employment Agreement.

 

22.

The modifications and amendments to the Employment Agreement, as set forth in
this Waiver and Amendment, shall not constitute a termination “without cause” as
set forth in section 2(a)(vi) of the Employment Agreement or constitute Good
Reason, as defined in section 2(a)(vii) of the Employment Agreement, for
Executive to terminate the Employment Agreement and Executive waives any and all
rights to claim termination without cause or to terminate the Employment
Agreement for Good Reason as a result of anything contained in this Waiver and
Amendment.

 

23.

This Waiver and Amendment shall be governed by and construed in accordance with
the domestic, internal laws of the Commonwealth of Pennsylvania, without regard
to conflicts of laws principles.

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Amendment

December 1, 2006

 

IN WITNESS WHEREOF, the parties, intending to be legally bound, have executed
this Amendment on the date first written above, by placing their signatures or
having their authorized representatives sign below.

 

ATTEST:

 

STERLING FINANCIAL CORPORATION

/s/ Kathleen A. Prime

 

By: 

/s/ J. Roger Moyer, Jr.

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J. Roger Moyer, Jr.
President and Chief Executive Officer

 

WITNESS:

 

Executive:

/s/ Kathleen A. Prime

 

/s/ Thomas J. Sposito, II

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Thomas J. Sposito, II

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EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) made and entered into this 14th day
of June, 2004, by and among THOMAS J. SPOSITO, II (“Executive”) and PENNSYLVANIA
STATE BANK, a Pennsylvania banking institution having its principal office in
Camp Hill, Pennsylvania (the “Bank”), THE PENNSYLVANIA STATE BANKING COMPANY, a
Pennsylvania corporation having its principal office in Camp Hill, Pennsylvania
(“Pennsylvania”), and STERLING FINANCIAL CORPORATION, a Pennsylvania corporation
having its principal office in Lancaster, Pennsylvania (“Sterling”).

WITNESSETH THAT:

WHEREAS, the Bank is a wholly-owned subsidiary of Pennsylvania;

WHEREAS, the Executive and the Bank are parties to that certain Employment
Agreement dated as of August 7, 2002 (the “2002 Employment Agreement”) pursuant
to which the Bank has agreed to employ the Executive as its President and Chief
Executive Officer;

WHEREAS, the Executive, the Bank and Pennsylvania are parties to that certain
Amendment No. 1 to the 2002 Employment Agreement dated as of March 16, 2004 (the
“2004 Amendment”) pursuant to which the Executive, the Bank and Pennsylvania
agreed to amend the Employment Agreement to add Pennsylvania as an employer
party thereto (the 2002 Employment Agreement and the 2004 Amendment are
hereinafter collectively referred to as the “Pennsylvania Employment
Agreement”);

WHEREAS, the Executive and Pennsylvania are parties to that certain letter
agreement dated as of March 16, 2004 providing for certain benefits to the
Executive upon the termination of the Executive’s employment subsequent to a
change in control of Pennsylvania (the “Pennsylvania Change in Control
Agreement”);

WHEREAS, Pennsylvania and Sterling are parties to that certain Agreement and
Plan of Merger dated as of June 14, 2004 (the “Merger Agreement”) pursuant to
which Pennsylvania will merge with and into Sterling, with Sterling as the
surviving corporation (the “Merger”);

WHEREAS, upon the completion of the Merger, the Bank will become a wholly-owned
subsidiary of Sterling;

WHEREAS, the Merger will constitute a change in control of Pennsylvania under
the Pennsylvania Change in Control Agreement;

WHEREAS, the parties disagree as to whether or not, upon the completion of the
Merger, the conditions precedent to the Executive’s receipt of the benefits
provided under the Pennsylvania Change in Control Agreement will have been
satisfied;

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WHEREAS, the Bank and Sterling desire to resolve such disagreements, terminate
the Pennsylvania Employment Agreement and the Pennsylvania Change in Control
Agreement, and employ the Executive as the President and Chief Executive Officer
of the Bank following the completion of the Merger, all in consideration for and
upon the terms and conditions set forth in this Agreement;

WHEREAS, the Executive desires to resolve such disagreements, terminate the
Pennsylvania Employment Agreement and the Pennsylvania Change in Control
Agreement, accept employment as the President and Chief Executive Officer of the
Bank following the completion of the Merger, all in consideration for and upon
the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements hereinafter set forth, intending to be legally bound, the parties
agree as follows:

1. Employment Responsibilities and Duties.

(a) The Bank hereby agrees to employ Executive and Executive hereby agrees to
serve as President and Chief Executive Officer of the Bank.

(b) Contingent upon Executive qualifying under the Bank’s Bylaws, the Bank
hereby agrees to cause Executive to be elected to the board of directors of the
Bank throughout the Term of Employment (hereinafter defined).

(c) Executive shall devote his full working time and best efforts to the
performance of his responsibilities and duties hereunder and to the retention of
the customer relationships to which the Bank has been a party prior to the date
of this Agreement and the expansion of the customer relationships of the Bank
subsequent to the date of this Agreement. During the Term of Employment,
Executive shall not, without the prior written consent of the Board of Directors
of Sterling, render services as an employee, independent contractor, or
otherwise, whether or not compensated, to any person or entity other than the
Bank or its affiliates; provided that Executive may, where involvement in such
activities does not individually or in the aggregate significantly interfere
with the performance by Executive of his duties or violate the provisions of
section 4 hereof, (i) render services to charitable organizations, (ii) manage
his personal investments, and (iii) with the prior written permission of the
Board of Directors of Sterling, hold such other directorships or part-time
academic appointments or have such other business affiliations as would
otherwise be prohibited under this section 1.

2. Term of Employment.

(a) The term of Executive’s employment under this Agreement (“Term of
Employment”) shall be the period commencing on the Effective Date of the Merger
as defined in the Merger Agreement (hereinafter, the “Commencement Date”), and
continue until the Termination Date, which shall mean the earliest to occur of:

(i) January 16, 2008; or

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(ii) the death of Executive; or

(iii) Executive’s inability to perform his duties hereunder, as a result of
physical or mental disability as reasonably determined by the personal physician
of Executive, for a period of at least 180 consecutive days or for at least 180
days during any period of twelve consecutive months during the Term of
Employment; or

(iv) the discharge of Executive by the Bank “for cause,” which shall mean one or
more of the following:

(A) any willful or gross misconduct by Executive with respect to the business
and affairs of the Bank, or with respect to any of its affiliates for which
Executive is assigned material responsibilities or duties;

(B) the conviction of Executive of a felony (after the earlier of the expiration
of any applicable appeal period without perfection of an appeal by Executive or
the denial of any appeal as to which no further appeal or review is available to
Executive) whether or not committed in the course of his employment by the Bank;

(C) Executive’s willful neglect, failure, or refusal to carry out his duties
hereunder in a reasonable manner (other than any such failure resulting from
disability or death or from termination by Executive for Good Reason, as
hereinafter defined);

(D) the breach by Executive of any representation or warranty in section 7(a)
hereof or of any agreement contained in sections 1, 5, 6, or 7(b) hereof, which
breach is material and adverse to the Bank or any of its affiliates for which
Executive is assigned material responsibilities or duties; or

(E) for purposes of section 4 hereof, as defined in section 4(c) hereof; or

(v) Executive’s resignation from his position as President and Chief Executive
Officer of the Bank other than for “Good Reason,” as hereinafter defined; or

(vi) the termination of Executive’s employment by the Bank “without cause,”
which shall be for any reason other than those set forth in subsections (i),
(ii), (iii), (iv), (v) or (vii) of this section 2(a), at any time, upon the
thirtieth (30th) day following prior written notice to Executive from the Bank
or Sterling; or

(vii) Executive’s resignation for “Good Reason.” “Good Reason” shall mean, (A)
Executive’s resignation at any time during the two (2) year period commencing on
the Commencement Date for any reason whatsoever or, (B) without Executive’s
express written consent, reassignment of Executive to a position other than as
President and Chief Executive Officer of the Bank other than “for cause,” or a
decrease in the amount of Executive’s salary from the amount established in
section 3(a) hereof, or, (C) for purposes of section 4 hereof, as defined in
section 4(a)(iv) hereof.

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(b) In the event that the Term of Employment shall be terminated for any reason
other than that set forth in section 2(a)(vi) or 2(a)(vii) hereof, Executive
shall be entitled to receive, upon the occurrence of any such event:

(i) any salary payable pursuant to section 3(a)(i) hereof which shall be accrued
as of the Termination Date; and

(ii) such rights as Executive shall have accrued as of the Termination Date
under the terms of any plans, programs or arrangements in which he participates
pursuant to section 3(b) hereof, any right to reimbursement for expenses accrued
as of the Termination Date payable pursuant to section 3(g) hereof, and the
right to receive the cash equivalent of paid annual vacation, personal and sick
leave accrued as of the Termination Date pursuant to section 3(c) hereof.

(c) In the event that the Term of Employment shall be terminated for any reason
set forth in section 2(a)(vi) or 2(a)(vii) hereof at any time during the two (2)
year period commencing on the Commencement Date, Executive shall be entitled to
receive:

(i) any salary payable pursuant to section 3(a)(i) hereof which shall have
accrued as of the Termination Date; and

(ii) severance pay in an amount equal to two (2) times Executive’s “Base
Amount,” which for purposes of this section 2(c)(ii) means Executive’s average
annual compensation includible in gross income for federal income tax purposes
for the three (3) years immediately preceding the year in which the Commencement
Date occurs, including base salary, non-deferred amounts under annual incentive,
long-term performance, and profit sharing plans, distributions of previously
deferred amounts under such plans, and ordinary income recognized with respect
to stock options. The Executive, at Executive’s election, will be paid the
severance pay in either (i) 24 equal monthly installments, or (ii) a lump sum
equal to the present value of the amounts payable under this subsection;
commencing within 30 days after his termination of employment. For purposes of
the preceding sentence, present value will be determined by using the short-term
applicable federal rate under Section 1274 of the Internal Revenue Code of 1986,
as amended (the “Code”), in effect on the Termination Date. For purposes of this
subsection, to the extent necessary, base salary and bonuses with any
predecessor of Sterling or the Bank shall be taken into account; and

(iii) for one year after the Termination Date, continued participation in all
non-cash employee benefit plans, programs or arrangements (including, without
limitation, pension and retirement plans and arrangements, stock option plans,
life insurance and health and accident plans and arrangements, medical insurance
plans, disability plans, and vacation plans) in which Executive was entitled to
participant immediately prior to the Termination Date, provided that Executive’s
continued participation is possible after termination under the general terms
and provisions of such plans, programs, and arrangements, and further provided,
however, that if Executive becomes eligible to participate in a benefit plan,
program or arrangement of another employer which confers substantially the same
benefits upon Executive, Executive shall cease to receive benefits under this
subsection in respect of such plan, program or arrangement. In the event
Executive’s participation in any such plan, program or arrangement is barred,
the Bank or Sterling, as the case may be, shall arrange to provide to Executive
benefits substantially similar to those which Executive would have received
under such plans, programs or arrangements; and

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(iv) such rights as Executive may have accrued as of the Termination Date under
the terms of any plans, programs or arrangements in which Executive participates
pursuant to section 3(b) hereof, any right to reimbursement for expenses accrued
as of the Termination Date payable pursuant to section 3(g) hereof, and the
right to receive the cash equivalent of paid time off accrued as of the
Termination Date pursuant to section 3(c) hereof.

(d) In the event that the Term of Employment shall be terminated for any reason
set forth in section 2(a)(vi) or 2(a)(vii) (B) or (C) hereof at any time after
the expiration of the two (2) year period commencing on the Commencement Date,
Executive shall be entitled to receive:

(i) any salary payable pursuant to section 3(a)(i) hereof which shall have
accrued as of the Termination Date; and

(ii) for the period commencing on the date immediately following the Termination
Date and ending upon and including January 16, 2008, salary payable at the rate
established pursuant to section 3(a)(i) hereof, in a manner consistent with the
normal payroll practices of the Bank with respect to executive personnel as
presently in effect or as they may be modified by the Bank from time to time;
and

(iii) such rights as Executive may have accrued as of the Termination Date under
the terms of any plans, programs or arrangements in which Executive participates
pursuant to section 3(b) hereof, any right to reimbursement for expenses accrued
as of the Termination Date payable pursuant to section 3(g) hereof, and the
right to receive the cash equivalent of paid time off accrued as of the
Termination Date pursuant to section 3(c) hereof.

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(e) (i) Notwithstanding any other provision hereof to the contrary, in the event
any payments or benefits Executive may become entitled to pursuant to section
2(c) hereof or any other payments or benefits received or to be received by
Executive in connection with the Merger or termination of Executive’s employment
within two (2) years after the Commencement Date (whether pursuant to the terms
of any other agreement, plan, arrangement, or otherwise) (collectively the
“Severance Payments”) will be subject to the tax (the “Excise Tax”) imposed by
section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), the
Bank shall pay to Executive an additional amount (the “Gross-Up Payments”) so
that the net amount retained by Executive, after deduction of the Excise Tax
(but before deduction for any federal, state or local income tax) on the
Severance Payments and after deduction for the aggregate of any federal, state,
or local income tax and Excise Tax upon the Gross-Up Payment, shall be equal to
the Severance Payments. For purposes of determining whether any of the Severance
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(A) the entire amount of the Severance Payments shall be treated as “parachute
payments” within the meaning of section 280G(b)(2) of the Code and as subject to
the Excise Tax, unless and to the extent, in the written opinion of outside tax
counsel selected by Sterling’s independent accountants and reasonably acceptable
to Executive, such payments (in whole or in part) are not subject to the Excise
Tax; and (B) the value of any non-cash benefits or any deferred payment or
benefit (constituting a part of the severance Payments) shall be determined by
Sterling’s independent auditors in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation applicable to individuals
(without taking into account surtaxes or loss or reduction of deductions) for
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rates of taxation in the state and
locality of Executive’s residence on the Termination Date. In the event that the
amount of Excise Tax Executive is required to pay is subsequently determined to
be less than the amount taken into account hereunder, Executive shall repay to
the Bank promptly after the time that the amount of such reduction in Excise Tax
is finally determined the amount of the reduction, together with interest on the
amount of such reduction at the rate of six percent per annum from the date of
the Gross-Up Payment, plus, if in the written opinion of outside tax counsel
selected by Sterling’s independent accountants and reasonably acceptable to
Executive, such payment (or a portion thereof) was not taxable income to
Executive when reported or is deductible by Executive for federal income tax
purposes, the net federal income tax benefit Executive actually realized as a
result of making such payment pursuant to this sentence. In the event that the
amount of Excise Tax Executive is required to pay is subsequently determined to
exceed the amount taken into account hereunder, the Bank shall make an
additional Gross-Up Payment in the manner set forth above in respect of such
excess (plus any interest, additions to tax, or penalties payable by Executive
with respect to such excess) promptly after the time that the amount can be
reasonably determined.

(ii) The payments provided for in subsection (i) above, shall be made not later
than the fifth (5th) business day following the Termination Date; provided,
however, that if the amounts of such payments cannot be finally determined on or
before such day, the Bank shall pay to Executive on such day an estimate, as
determined in good faith by the Bank, of the minimum amount of such payments,
and shall pay the remainder of such payments (together with interest at the rate
of six percent per annum) as soon as the amount thereof can be determined. In
the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
the Bank to Executive, payable on the fifth (5th) day after demand by the Bank
(together with interest at the rate of six percent per annum).

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3. Compensation. For the services to be performed by Executive for the Bank
under this Agreement, Executive shall be compensated in the following manner:

(a) Salary. During the Term of Employment:

(i) the Bank shall pay Executive a salary which, on an annual basis, shall not
be less than $167,200, assuming Executive performs competently. Salary shall be
payable in accordance with the normal payroll practices of Sterling with respect
to executive personnel as presently in effect or as they may be modified by
Sterling from time to time.

(ii) Executive shall be eligible to be considered for salary increases, upon
review, in accordance with the compensation policies of Sterling with respect to
executive personnel as presently in effect or as they may be modified by
Sterling from time to time.

(iii) Executive shall be entitled to receive annual performance bonuses, in
accordance with the Sterling bonus program(s) as in effect from time to time
during the Term of Employment under such terms as may be applicable to officers
of Executive’s rank employed by Sterling or its affiliates.

(b) Employee Benefit Plans or Arrangements. During the Term of Employment,
Executive shall be entitled to participate in all employee benefit plans of
Sterling as presently in effect or as they may be modified by Sterling from time
to time, under such terms as may be applicable to officers of Executive’s rank
employed by Sterling or its affiliates, including, without limitation, plans
providing retirement benefits, stock options, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance, provided
that there be no duplication of such benefits as are provided under any other
provision of this Agreement.

(c) Paid Time Off. During the Term of Employment, Executive shall be entitled to
paid time off in accordance with the policies of Sterling as in effect as of the
Commencement Date or as may be modified by Sterling from time to time as may be
applicable to officers of Executive’s rank employed by Sterling or its
affiliates; provided that Executive shall be entitled to no less than
twenty-five (25) days under Sterling’s paid time off program.

(d) Automobile. During the Term of Employment, Executive shall be entitled to
the use of an automobile owned or leased by the Bank, the make, model, and year
of which

automobile shall be appropriate to an officer of Executive’s rank employed by
Sterling or its affiliates. The Bank shall be responsible for all expenses of
ownership and use of such automobile, subject to reimbursement of expenses for
personal use in accordance with section 3(f).

(e) Country Club Dues. Executive shall be reimbursed for an initiation fee, dues
and assessments incurred in relation to a full membership in a country club
mutually agreed upon by Executive and Sterling.

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(f) Withholding. All compensation to be paid to Executive hereunder shall be
subject to required withholding and other taxes.

(g) Expenses. During the Term of Employment, Executive shall be reimbursed for
reasonable travel and other expenses (including telecommunications equipment)
incurred or paid by Executive in connection with the performance of his services
under this Agreement, upon presentation of expense statements or vouchers or
such other supporting information as may from time to time be required, in
accordance with such policies of Sterling as are in effect as of the
Commencement Date and as may be modified by Sterling from time to time, under
such terms as may be applicable to officers of Executive’s rank employed by
Sterling or its affiliates.

(h) Trade Association/Continuing Education Meetings. The Bank shall pay for all
expenses incurred by the Executive to attend one trade association or continuing
education meeting per year.

4. Sterling Change in Control.

(a) Termination for Good Reason after Sterling Change in Control. If a Sterling
Change in Control (as defined in section 4(a)(ii) hereof) occurs and, in
anticipation thereof, concurrently therewith or thereafter during the Term of
Sterling Change in Control (as defined in section 4(a)(iii) hereof) an event
constituting Good Reason (as defined in section 4(a)(iv) hereof) also occurs
with respect to the Executive, Executive may terminate Executive’s employment in
accordance with the provisions of section 4(a)(i) hereof and, thereupon, will
become entitled to the payments described in section 4(b) hereof.

(i) Notice of Termination. Upon the occurrence of a Sterling Change in Control
and an event of Good Reason as contemplated by section 4(a) above, the Executive
may, within 90 days after the occurrence of any such event of Good Reason,
resign from employment by a notice in writing (“Notice of Termination”)
delivered to Sterling, whereupon Executive will become entitled to the payments
described in section 4(b) hereof. In the case of a termination described in
section 4(a)(iv)(A) hereof, the Executive will confirm Executive’s involuntary
termination, in writing, within 90 days after the date of such termination, and
such confirmation will be deemed a Notice of Termination.

(ii) Sterling Change in Control Defined. As used in this section 4, the term
“Sterling Change in Control” means any of the following:

(A) any “person” (as such term is used in Sections 13(d) and 14(d)(2) of the
Securities and Exchange Act of 1934 (the “Exchange Act”)), other than Sterling,
the Bank, a subsidiary of Sterling or the Bank, an employee benefit plan of
Sterling or the Bank or a subsidiary of Sterling or the Bank, (including a
related trust), becomes the beneficial owner (as determined pursuant to Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of Sterling
or the Bank representing more than 20% of the combined voting power of
Sterling’s or the Bank’s, as the case may be, then outstanding securities;

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(B) the occurrence of, or execution of an agreement providing for, a sale of all
or substantially all of the assets of Sterling or the Bank to an entity which is
not a direct or indirect subsidiary of Sterling or the Bank;

(C) the occurrence of, or execution of an agreement providing for, a
reorganization, merger, consolidation or similar transaction involving Sterling
or the Bank, unless (A) the shareholders of Sterling or the Bank, as the case
may be, immediately prior to the consummation of any such transaction will
initially own securities representing a majority of the voting power of the
surviving or resulting corporation, and (B) the directors of Sterling or the
Bank, as the case may be, immediately prior to the consummation of any such
transaction will initially represent a majority of the directors of the
surviving or resulting corporation; or

(D) any other event which is at any time irrevocably designated as a “Sterling
Change in Control” for purposes of this Agreement by resolution adopted by a
majority of the then non-employee directors of Sterling.

(iii) Term of Sterling Change in Control Defined. Notwithstanding that the Term
of Employment under this Agreement may terminate prior thereto, the term “Term
of Sterling Change in Control”, as used in this section 4, means the period
commencing two (2) years after the Commencement Date and terminating on December
31, 2010, provided that on such date, and each December 31 thereafter, the Term
of Sterling Change in Control shall be automatically extended for an additional
calendar year, unless either party gives written notice to the other, by no
later than the preceding November 30, that it does not concur in such extension,
and unless Executive’s employment with the Bank has been sooner terminated.

(iv) Good Reason Defined. As used in this section 4, the term “Good Reason”
means any of the following events:

(A) the involuntary termination of the Executive, other than “for cause” as
defined in section 4(c) hereof or by reason of “disability” as contemplated by
section 4(e) hereof;

(B) a reduction in the Executive’s title, responsibility (including reporting
responsibility) or authority as in effect immediately prior to the Sterling
Change in Control; provided, however, that the assignment of the Executive to a
position with a reasonably similar title, responsibility and authority will not
constitute an event of Good Reason if the Executive’s actual or targeted
compensation in such new position is not less than the Executive’s actual and
targeted compensation immediately prior to the Sterling Change in Control;

(C) the assignment to the Executive of duties inconsistent with Executive’s
position immediately prior to the Sterling Change in Control, except for an
assignment of duties consistent with a position permitted in clause (B) above;

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(D) a reduction in the Executive’s annual base salary in effect immediately
prior to the Sterling Change in Control;

(E) reassignment of the Executive to a principal office which is more than 30
miles from the Executive’s principal office in Camp Hill, Pennsylvania;

(F) the failure to provide the Executive with welfare, pension, incentive
compensation, fringe and other benefits to which Executive was entitled
immediately prior to the Sterling Change in Control, unless such failure occurs
by reason of a reduction or change in such benefits for employees generally or
similarly situated executive employees of the corporation which is the
acquiring, resulting or successor corporation in the Sterling Change in Control
(or an affiliate thereof); or

(G) any material breach of this Agreement by the Bank or Sterling which is not
cured within thirty (30) days after receipt of written notice of such breach
from the Executive.

(b) Rights in the Event of Certain Terminations Following Sterling Change in
Control. In the event the Executive validly and timely delivers a Notice of
Termination to Sterling, the Executive will be entitled to receive the following
payments and benefits:

(i) Basic Payments. The Executive will be paid an amount equal to two and
one-half (2.5) times the Base Amount. “Base Amount”, for purposes of this
section 4(b)(i) shall mean an amount equal to the average annual compensation
payable by Sterling and the Bank to the Executive and includable by the
Executive in gross income for the most recent five (5) taxable years, or such
shorter period as the Executive shall have been employed by Sterling and the
Bank, ending before the date on which the Sterling Change of Control occurred.
The Executive, at Executive’s election, will be paid the Basic Payments in
either (i) 30 equal monthly installments, or (ii) a lump sum equal to the
present value of the amounts payable under this subsection; commencing within 30
days after his termination of employment. For purposes of the preceding
sentence, present value will be determined by using the short-term applicable
federal rate under Section 1274 of the Internal Revenue Code of 1986, as amended
(the “Code”), in effect on the Termination Date. For purposes of this
subsection, to the extent necessary, base salary and bonuses with any
predecessor of Sterling, the Bank or an affiliate thereof shall be taken into
account.

(ii) Supplemental Payment in Lieu of Certain Benefits. In lieu of continued
pension, welfare and other benefits, a one-time lump sum cash payment equaling
25% of the Basic Payments calculated above will be paid to the Executive within
30 days following the Termination Date.

(iii) Stock Options. Upon a Sterling Change in Control, all stock options
theretofore granted to the Executive by Sterling and not previously exercisable
shall become fully exercisable to the same extent and in the same manner as if
they had become exercisable by passage of time or by virtue of Sterling or the
Bank achieving certain performance objectives in accordance with the relevant
provisions of any plan and any agreement.

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(iv) Section 280G. Notwithstanding any other provisions of this section 4 or any
other agreement entered into by the Executive with the Bank or Sterling (“Other
Agreement”), and notwithstanding any formal or informal plan or other
arrangement heretofore or hereafter adopted by the Bank or Sterling for the
direct or indirect provision of compensation to the Executive (including groups
of participants or beneficiaries of which the Executive is a member), whether or
not such compensation is deferred, is in cash, or is in the form of a benefit to
or for the Executive (a “ Benefit Plan”), the Executive shall not have any right
to receive any payment or other benefit under this section 4, any Other
Agreement, or any Benefit Plan if such payment or benefit, taking into account
all other payments or benefits to or for the Executive under this section 4, all
Other Agreements, and all Benefit Plans, would cause any payment to the
Executive under this Agreement to be considered a “parachute payment” within the
meaning of Section 280G of the Code as then in effect (a “Parachute Payment”).
In the event that the receipt of any such payment or benefit under this section
4, any Other Agreement, or any Benefit Plan would cause the Executive to be
considered to have received a Parachute Payment under this Agreement, then the
Executive shall have the right, in the Executive’s sole discretion, to designate
those payments or benefits under this section 4, any Other Agreements and/or any
Benefit Plans, which should be reduced or eliminated so as to avoid having the
payment to the Executive under this section 4 to be deemed to be a Parachute
Payment.

(c) Termination For Cause. Notwithstanding any other provisions of this
Agreement to the contrary, section 4 of this Agreement and the respective rights
and obligations of the parties thereunder will terminate automatically upon
termination of the Executive’s employment by the Bank or Sterling for cause. As
used in this section 4, the term “for cause” means:

(i) prior to a Sterling Change in Control, termination for any reason; and

(ii) concurrent with or following a Sterling Change in Control, termination
following, (A) the Executive’s conviction or plea of guilty or nolo contendere
to a felony, a crime of falsehood, or a crime involving fraud or moral
turpitude, or the actual incarceration of the Executive for a period of 45
consecutive days, (B) the Executive’s failure to follow the lawful instructions
of the Bank or Sterling after receipt of written notice of such instructions
from an appropriate corporate official, other than a failure resulting from the
Executive’s incapacity because of physical or mental illness, or (C) a
government regulatory agency recommends or orders in writing that the employment
of the Executive be so terminated.

(d) Voluntary Termination, Retirement or Death. Notwithstanding any other
provisions of this Agreement to the contrary, section 4 of this Agreement and
the respective rights and obligations of the parties thereunder will terminate
automatically upon the voluntary termination of the Executive’s employment
(other than in accordance with section 4(a) of this Agreement), Executive’s
retirement or Executive’s death; provided, however, that if the Executive dies
after a Notice of Termination is delivered by Executive in accordance with
section 4(a)(i) of this Agreement, the payments described in section 4(b) of
this Agreement will nonetheless be made to the person or persons determined
pursuant to section 17(b) hereof.

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(e) Disability. Notwithstanding any other provisions of this Agreement to the
contrary, section 4 of this Agreement and the respective rights and obligations
of the parties thereunder will terminate automatically upon the termination of
the Executive’s employment by reason of disability; provided, however, that if
the Executive becomes disabled after a Notice of Termination is delivered by
Executive in accordance with section 4(a)(i) of this Agreement, Executive will
nonetheless be entitled to receive the payments described in section 4(b) of
this Agreement. The term “disability” as used in this section 4(e) means
incapacitation, by accident, sickness or otherwise, such that the Executive is
rendered unable to perform the services required of Executive by Executive’s
then position with the Bank for a period for six (6) consecutive months.

5. Confidential Business Information; Non-Competition.

(a) Executive acknowledges that certain business methods, creative techniques,
and technical data of Sterling, the Bank and their affiliates and the like are
deemed by Sterling and the Bank to be and are in fact confidential business
information of Sterling, the Bank and their affiliates. Such confidential
information includes but is not limited to procedures, methods, sales
relationships developed while in the service of Sterling, the Bank and their
affiliates, knowledge of customers and their requirements, marketing plans,
marketing information, studies, forecasts, and surveys, competitive analyses,
mailing and marketing lists, new business proposals, lists of vendors,
consultants, and other persons who render service or provide material to
Sterling, the Bank or their affiliates, and compositions, ideas, plans, and
methods belonging to or related to the affairs of Sterling, the Bank or their
affiliates. In this regard, Sterling and the Bank assert proprietary rights in
all of their business information and that of their affiliates except for such
information as is clearly in the public domain. Notwithstanding the foregoing,
information that would be generally known or available to persons skilled in
Executive’s fields shall be considered to be “clearly in the public domain” for
the purposes of the preceding sentence. Executive agrees that Executive will not
disclose or divulge to any third party, except as may be required by Executive’s
duties hereunder, by law, regulation, or order of a court or government
authority, or as directed by Sterling or the Bank, nor shall Executive use, to
the detriment of Sterling, the Bank or their affiliates, such confidential
information obtained during the course of Executive’s employment by the Bank in
any business or on behalf of any business competitive with or substantially
similar to any business of the Bank or Sterling. The foregoing shall not be
construed as restricting Executive from disclosing such information to the
employees of the Bank, Sterling or their affiliates.

(b) Executive hereby acknowledges and recognizes the highly competitive nature
of the business of Sterling and the Bank and accordingly agrees that, during the
Term of Employment with the Bank and for two (2) years following termination of
the Term of Employment for any reason set forth in section 2(a)(vii)(A) hereof
then, in consideration of the benefits to which Executive would then be entitled
pursuant to section 2(c) hereof, Executive shall not, except as otherwise
permitted in writing by Sterling and the Bank:

(i) be engaged, directly or indirectly, either for his 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 (1) the
banking (including financial or bank holding company) or financial services
industry, or (2) any other activity in which Sterling or the Bank or any of
their subsidiaries or affiliates, other than Town and Country, Inc. and/or
Equipment Finance, Inc., are engaged during the Term of Employment and remain so
engaged on the Termination Date, in Cumberland, Dauphin, Lancaster and York
Counties (the “Non-Competition Area”); or

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(ii) provide financial or other assistance to any person, firm, corporation, or
enterprise engaged in (1) the banking (including financial or bank holding
company) or financial services industry, or (2) any other activity in which
Sterling, the Bank or any of their subsidiaries or affiliates, other than Town
and Country, Inc. and/or Equipment finance, Inc., are engaged during the Term of
Employment and remain so engaged on the Termination Date in the Non-Competition
Area; or

(iii) directly or indirectly contact, solicit or induce any person, corporation
or other entity who or which is a customer or referral source of Sterling, the
Bank or any of their subsidiaries or affiliates, at any time during the Term of
Employment or on the Termination Date, to become a customer or referral source
of any person or entity engaged in (1) the banking (including financial or bank
holding company) or financial services industry, or (2) any other activity in
which Sterling, the Bank or their subsidiaries or affiliates are engaged during
the Term of Employment and remain so engaged on the Termination Date; or

(iv) directly or indirectly solicit, induce or encourage any employee of
Sterling, the Bank or any of their subsidiaries or affiliates, who is employed
by Sterling, the Bank or any of their subsidiaries or affiliates, to leave the
employ of Sterling, the Bank or any of their subsidiaries or affiliates or to
seek, obtain or accept employment with an person other than Sterling, the Bank
or any of their subsidiaries or affiliates.

It is expressly understood and agreed that, although Executive, Sterling and the
Bank consider the restrictions contained in this section 5(b) reasonable for the
purpose of preserving for Sterling, the Bank and their subsidiaries and
affiliates, their good will and other proprietary rights, if a final judicial
determination is made by a court having jurisdiction that the time or territory
or any other restriction contained in this section 5(b) is an unreasonable or
otherwise unenforceable restriction against Executive, the provisions of this
section 5(b) 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.

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(c) Executive acknowledges and agrees that irreparable injury will result to
Sterling and the Bank in the event of a breach of any of the provisions of this
section 5 (the “Designated Provision”) and that Sterling and the Bank will have
no adequate remedy at law with respect thereto. Accordingly, in the event of a
material breach of any Designated Provision, and in addition to any other legal
or equitable remedy Sterling or the Bank may have, Sterling and the Bank shall
be entitled to the entry of a preliminary and permanent injunction (including,
without limitation, specific performance by a court of competent jurisdiction in
Lancaster County, Pennsylvania, or elsewhere), to restrain the violation or
breach thereof by Executive, and Executive submits to the jurisdiction of such
court in any such action.

(d) It is the desire and intent of the parties that the provisions of this
section 5 shall be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this section 5 shall be adjudicated
to be invalid or unenforceable, such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
deletion to apply only with respect to the operation of such provision in the
particular jurisdiction in which such adjudication is made. In addition, should
any court determine that the provisions of this section 5 shall be unenforceable
with respect to scope, duration, or geographic area, such court shall be
empowered to substitute, to the extent enforceable, provisions similar thereto
or other provisions so as to provide to Sterling and the Bank, to the fullest
extent permitted by applicable law, the benefits intended by this section 5.

6. Life Insurance. In light of the unusual abilities and experience of
Executive, Sterling and the Bank in their discretion may apply for and procure
as owner and for their own benefit insurance on the life of Executive, in such
amount and in such form as Sterling or the Bank may choose. Sterling or the Bank
shall make all payments for such insurance and shall receive all benefits from
it. Executive shall have no interest whatsoever in any such policy or policies
but, at the request of Sterling or the Bank, shall submit to medical
examinations and supply such information and execute such documents as may
reasonably be required by the insurance company or companies to which Sterling
or the Bank has applied for insurance.

7. Representations and Warranties.

(a) Executive represents and warrants to Sterling and the Bank that his
execution, delivery, and performance of this Agreement will not result in or
constitute a breach of or conflict with any term, covenant, condition, or
provision of any commitment, contract, or other agreement or instrument,
including, without limitation, any other employment agreement, to which
Executive is or has been a party.

(b) Executive shall indemnify, defend, and hold harmless Sterling and the Bank
for, from, and against any and all losses, claims, suits, damages, expenses, or
liabilities, including court costs and counsel fees, which Sterling or the Bank
has incurred or to which Sterling or the Bank may become subject, insofar as
such losses, claims, suits, damages, expenses, liabilities, costs, or fees arise
out of or are based upon any failure of any representation or warranty of
Executive in section 7(a) hereof to be true and correct when made.

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8. Notices. All notices, consents, waivers, or other communications which are
required or permitted hereunder shall be in writing and deemed to have been duly
given if delivered personally or by messenger, transmitted by telex or telegram,
by express courier, or sent by registered or certified mail, return receipt
requested, postage prepaid. All communications shall be addressed to the
appropriate address of each party as follows:

 

 

If to the Bank:

 

Pennsylvania State Bank
1822 Market Street
Camp Hill, PA 17011-4824
Attention: William E. Miller, Jr., Chairman

 

 

 

 

 

If to Sterling:

 

Sterling Financial Corporation
101 North Pointe Boulevard
Lancaster, PA 17601
Attention: J. Roger Moyer, Jr., President and Chief Executive Officer

 

 

 

 

 

If to Executive:

 

Thomas J. Sposito, II
7608 Aynlee Way
Harrisburg, PA 17112

All such notices shall be deemed to have been given on the date delivered,
transmitted, or mailed in the manner provided above.

9. Assignment. Neither party may assign this Agreement or any rights or
obligations hereunder without the consent of the other party.

10. Governing Law. This Agreement shall be governed by, construed, and enforced
in accordance with the laws of the Commonwealth of Pennsylvania, without giving
effect to the principles of conflict of law thereof. The parties hereby
designate the Court of Common Pleas of Lancaster County, Pennsylvania to be the
proper jurisdiction and venue for any suit or action arising out of this
Agreement. Each of the parties consents to personal jurisdiction in such venue
for such a proceeding and agrees that it may be served with process in any
action with respect to this Agreement or the transactions contemplated thereby
by certified or registered mail, return receipt requested, or to its registered
agent for service of process in the Commonwealth of Pennsylvania. Each of the
parties irrevocably and unconditionally waives and agrees, to the fullest extent
permitted by law, not to plead any objection that it may now or hereafter have
to the laying of venue or the convenience of the forum of any action or claim
with respect to this Agreement or the transactions contemplated thereby brought
in the court aforesaid.

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11. Entire Agreement. This Agreement constitutes the entire understanding among
the Bank, Sterling and Executive relating to the subject matter hereof. This
Agreement shall not become effective unless and until the Effective Date (as
defined in the Merger Agreement) of the Merger. In the event the Merger
Agreement shall be terminated pursuant to the terms thereof prior to the
completion of the Merger, this Agreement shall be concurrently terminated and
deemed null, void and without force or effect. Upon the Commencement Date, any
previous agreements or understandings between the parties hereto or between
Executive and the Bank or any of its affiliates regarding the subject matter
hereof, including without limitation the Pennsylvania Employment Agreement, the
Pennsylvania Change in Control Agreement, any other change in control agreements
to which Executive was a party, and all other terms and conditions of
employment, compensation, benefits, retirement, competition following
employment, and the like, shall thereupon be hereby terminated and merged into
and superseded by this Agreement, except that certain Supplemental Executive
Retirement Plan Agreement dated July 1, 2002 by and between the Bank and the
Executive shall not be amended, terminated or otherwise affected by the terms
and conditions of this Agreement and shall remain and continue in full force and
effect in accordance with the express terms and conditions thereof. Neither this
Agreement nor any provisions hereof can be modified, changed, discharged, or
terminated except by an instrument in writing signed by the party against whom
any waiver, change, discharge, or termination is sought.

12. Illegality; Severability.

(a) Anything in this Agreement to the contrary notwithstanding, this Agreement
is not intended and shall not be construed to require any payment to Executive
which would violate any federal or state statute or regulation, including
without limitation the “golden parachute payment regulations” of the Federal
Deposit Insurance Corporation codified to Part 359 of title 12, Code of Federal
Regulations.

(b) If any provision or provisions of this Agreement shall be held to be
invalid, illegal, or unenforceable for any reason whatsoever:

(i) the validity, legality, and enforceability of the remaining provisions of
this Agreement (including, without limitation, each portion of any section of
this Agreement containing any such provision held to be invalid, illegal, or
unenforceable) shall not in any way be affected or impaired thereby; and

(ii) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any section of this Agreement
containing any such provisions held to be invalid, illegal, or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal, or unenforceable.

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13. Arbitration. Subject to the right of each party to seek specific performance
(which right shall not be subject to arbitration), if a dispute arises out of or
related to this Agreement, or the breach thereof, such dispute shall be referred
to arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (“AAA”). A dispute subject to the provisions of
this section will exist if either party notifies the other party in writing that
a dispute subject to arbitration exists and states, with reasonable specificity,
the issue subject to arbitration (the “Arbitration Notice”). The parties agree
that, after the issuance of the Arbitration Notice, the parties will try in good
faith to resolve the dispute by mediation in accordance with the Commercial
Rules of Arbitration of AAA between the date of the issuance of the Arbitration
Notice and the date the dispute is set for arbitration. If the dispute is not
settled by the date set for arbitration, then any controversy or claim arising
out of this Agreement or the breach hereof shall be resolved by binding
arbitration and judgment upon any award rendered by arbitrator(s) may be entered
in a court having jurisdiction. Any person serving as a mediator or arbitrator
must have at least ten (10) years’ experience in resolving commercial disputes
through arbitration. In the event any claim or dispute involves an amount in
excess of $100,000, either party may request that the matter be heard by a panel
of three (3) arbitrators; otherwise all matters subject to arbitration shall be
heard and resolved by a single arbitrator. The arbitrator shall have the same
power to compel the attendance of witnesses and to order the production of
documents or other materials and to enforce discovery as could be exercised by a
United States District Court judge sitting in the Middle District of
Pennsylvania. In the event of any arbitration, each party shall have a
reasonable right to conduct discovery to the same extent permitted by the
Federal Rules of Civil Procedure, provided that such discovery shall be
concluded within ninety (90) days after the date the matter is set for
arbitration. In the event of any arbitration, the arbitrator or arbitrators
shall have the power to award reasonable attorney’s fees to the prevailing
party. Any provision in this Agreement to the contrary notwithstanding, this
section shall be governed by the Federal Arbitration Act and the parties have
entered into this Agreement pursuant to such Act.

14. Cost of Litigation. In the event litigation is commenced to enforce any of
the provisions hereof, or to obtain declaratory relief in connection with any of
the provisions hereof, the prevailing party shall be entitled to recover
reasonable attorney’s fees and costs. In the event this Agreement is asserted in
any litigation as a defense to any liability, claim, demand, action, cause of
action, or right asserted in such litigation, the party prevailing on the issue
of that defense shall be entitled to recovery of reasonable attorney’s fees and
costs. Notwithstanding the foregoing, with respect any litigation arising under
section 4 hereof, Executive shall not be responsible for Sterling’s or the
Bank’s attorney’s fees and costs if the Executive’s action is brought in good
faith.

15. Affiliation. A company will be deemed to be “affiliated” with Sterling or
the Bank according to the definition of “Affiliate” set forth in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, or any successor rule or regulations.

16. Headings. The section and subsection headings herein have been inserted for
convenience of reference only and shall in no way modify or restrict any of the
terms or provisions hereof.

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17. Successors; Binding Agreement.

(a) Sterling and the Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of Sterling or the Bank, as the
case may be, to expressly assume and agree to perform this Agreement (or cause
it to be performed) in the same manner and to the same extent that Sterling and
the Bank, or any of their affiliates would be required to perform if no such
succession had taken place. Failure by Sterling or the Bank to obtain such
assumption and agreement prior to the effectiveness of any such succession will
constitute a material breach of this Agreement. As used in this Agreement,
“Sterling” and the “Bank” each means such entity, as herein before defined and
any successor to the business and/or assets of such entity by operation of law,
or otherwise.

(b) This Agreement will inure to the benefit of and be enforceable by the
Executive’s personal or legal representatives, executors, administrators, heirs,
distributees, devisees, and legatees. If the Executive should die while any
amount is payable to the Executive under this Agreement if the Executive had
continued to live, all such amounts, unless otherwise provided herein, will be
paid in accordance with the terms of this Agreement to the Executive’s devisee,
legatee, or other designee, or, if there is no such designee, to the Executive’s
estate.

18. No Mitigation or Offset. The Executive will not be required to mitigate the
amount of any payment provided for in section 2(c) or section 4 of this
Agreement by seeking employment or otherwise; nor will any amounts or benefits
payable or provided thereunder be reduced in the event Executive does secure
employment.

19. Withholding For Taxes. All amounts and benefits paid or provided hereunder
will be subject to withholding for taxes as required by law.

IN WITNESS WHEREOF, the parties hereto executed or caused this Agreement to be
executed as of the day and year first above written.

 

 

 

PENNSYLVANIA STATE BANK

 

By: 

/s/ William E. Miller, Jr.

 

 

 

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

 

 

 

William E. Miller, Jr.
Chairman

 

 

 

THE PENNSYLVANIA STATE BANKING COMPANY

 

By: 

/s/ William E. Miller, Jr.

 

 

 

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

 

 

 

William E. Miller, Jr.
Chairman

 

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STERLING FINANCIAL CORPORATION

 

By: 

/s/ J. Roger Moyer, Jr.

 

 

 

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

 

 

 

J. Roger Moyer, Jr.
President & Chief Executive Officer

 

/s/ Thomas J. Sposito, II

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

 

 

Thomas J. Sposito, II

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