EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of
December 28, 2006 by and among Keystone Nazareth Bank & Trust Company (the
“Bank”), KNBT Bancorp, Inc. (the “Company”) (the Bank and the Company are
collectively referred to as the “Employer”), and Sandra L. Bodnyk (the
“Executive”).

W I T N E S S E T H :

WHEREAS, the Employer desires to ensure that the Company and the Bank are
assured of the continued availability of the Executive's services as provided in
this Agreement; and

WHEREAS, the Executive is willing to serve the Company and the Bank on the terms
and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and
conditions hereinafter set forth, the Employer and the Executive hereby agree as
follows:

SECTION 1. EFFECTIVE DATE; EMPLOYMENT.

For purposes of this Agreement, “Effective Date” shall mean December 31, 2004,
provided that this Agreement shall be effective as of the date first written
above. The Employer agrees to employ the Executive, and the Executive hereby
agrees to such employment, during the period and upon the terms and conditions
set forth in this Agreement.

SECTION 2. EMPLOYMENT PERIOD.

(a) The terms and conditions of this Agreement shall be and remain in effect
through December 31, 2008 plus such extensions, if any, as are provided pursuant
to Section 2(b) hereof (the "Employment Period").

(b) Except as provided in Section 2(c), beginning on December 31, 2007 and on
each subsequent December 31st during the Employment Period, the Employment
Period shall automatically be extended for one additional year, unless either
the Company or the Bank, on the one hand, or the Executive, on the other hand,
elects not to extend the Agreement further by giving written notice thereof to
the other parties at least 30 days prior to such annual anniversary date. Upon
termination of the Executive's employment with either of the Employer for any
reason whatsoever, any annual extensions provided pursuant to this Section 2(b),
if not theretofore discontinued, shall automatically cease.

(c) Nothing in this Agreement shall be deemed to prohibit the Employer at any
time from terminating the Executive's employment during the Employment Period
for any reason upon at least 30 days written notice to the Executive, other than
termination for Cause which shall be governed by Section 10 hereof, provided
that the relative rights and obligations of the Employer and the Executive in
the event of any such termination shall be determined under this Agreement.
Furthermore, notwithstanding anything to the contrary herein, no extension of
this Agreement pursuant to Section 2(b) shall occur that would extend the term
of this Agreement beyond December 31st of the year in which the Executive
reaches age 64.

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SECTION 3. DUTIES.

(a) Throughout the Employment Period, the Executive shall serve as the Senior
Executive Vice President and the Chief Risk Officer of each of the Employer,
having such power, authority and responsibility and performing such duties as
are prescribed by or under the Bylaws of each of the Company and the Bank and as
are customarily associated with such positions. The Executive shall devote her
full business time, attention, skills and efforts (other than during weekends,
holidays, vacation periods, and periods of illness or leaves of absence and
other than as permitted or contemplated by Section 7 hereof) to the business and
affairs of the Employer and shall use her best efforts to advance the interests
of the Employer.

SECTION 4. CASH AND OTHER COMPENSATION.

(a) In consideration for the services to be rendered by the Executive hereunder,
the Employer shall pay to her a salary of two hundred thousand dollars
($200,000) annually (“Base Salary”). The Executive's Base Salary shall be
payable in approximately equal installments in accordance with the Company’s and
the Bank’s customary payroll practices for senior officers. Base Salary shall
include any amounts of compensation deferred by the Executive under any
tax-qualified retirement or welfare benefit plan or any other deferred
compensation arrangement. The Company Board and the Bank Board shall review the
Executive's annual rate of salary at such times during the Employment Period as
they deem appropriate, but not less frequently than once every twelve months,
and may, in their respective discretion, approve an increase therein. In
addition to salary, the Executive may receive other cash compensation from the
Employer for services hereunder at such times, in such amounts and on such terms
and conditions as the Company Board or the Bank Board may determine from time to
time. Any increase in the Executive’s annual salary shall become the Base Salary
of the Executive for purposes hereof. The Executive’s Base Salary as in effect
from time to time cannot be decreased by the Employer without the Executive’s
express prior written consent.

(b) The Executive shall be entitled to participate in an equitable manner with
all other executive officers of the Employer in discretionary bonuses as
authorized by the Company Board and/or the Bank Board to executive officers. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive’s right to participate in such bonuses when and as declared by
the Company Board and/or the Bank Board.

SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.

During the Employment Period, the Executive shall be treated as an employee of
the Company and the Bank and shall be entitled to participate in and receive
benefits under any and all qualified or non-qualified retirement, pension,
savings or profit-sharing plans, any and all group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans, and any other employee benefit and compensation
plans (including, but not limited to, any incentive compensation plans or
programs, stock option and appreciation rights plans and restricted stock plans)
as may from time to time be maintained by, or cover employees of, the Company
and the Bank, in accordance with the terms and conditions of such employee
benefit plans and programs and compensation plans and programs and consistent
with the Company's and the Bank’s customary practices. The level of
participation in any restricted stock plan shall be at a level which is deemed
appropriate by the Company Board or the committee that administers such plan.
Nothing paid to the Executive under any such plan or program will be deemed to
be in lieu of other compensation to which the Executive is entitled under this
Agreement.

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SECTION 6. INDEMNIFICATION AND INSURANCE.

(a) During the Employment Period and for a period of six years thereafter, the
Employer shall cause the Executive to be covered by and named as an insured
under any policy or contract of insurance obtained by them to insure their
directors and officers against personal liability for acts or omissions in
connection with service as an officer or director of the Employer or service in
other capacities at the request of the Employer. The coverage provided to the
Executive pursuant to this Section 6 shall be of the same scope and on the same
terms and conditions as the coverage (if any) provided to other officers or
directors of the Employer or any successors.

(b) To the maximum extent permitted under applicable law, the Employer shall
indemnify the Executive against and hold her harmless from any costs,
liabilities, losses and exposures that may be incurred by the Executive in her
capacity as a director or officer of the Employer or any subsidiary or
affiliate.

SECTION 7. OUTSIDE ACTIVITIES.

The Executive may (a) serve as a member of the boards of directors of such
business, community and charitable organizations as he may disclose to and as
may be approved by the Employer (which approval shall not be unreasonably
withheld), and (b) perform duties as a trustee or personal representative or in
any other fiduciary capacity, provided that in each case such service shall not
materially interfere with the performance of her duties under this Agreement or
present any conflict of interest. The Executive may also engage in personal
business and investment activities which do not materially interfere with the
performance of her duties hereunder, provided that such activities are not
prohibited under any code of conduct or investment or securities trading policy
established by the Employer and generally applicable to all similarly situated
executives. If the Executive is discharged or suspended, or is subject to any
regulatory prohibition or restriction with respect to participation in the
affairs of the Bank, he shall continue to perform services for the Company in
accordance with this Agreement but shall not directly or indirectly provide
services to or participate in the affairs of the Bank in a manner inconsistent
with the terms of such discharge or suspension or any applicable regulatory
order.

SECTION 8. WORKING FACILITIES AND EXPENSES.

It is understood by the parties that the Executive's principal place of
employment shall be at the Employer’s principal executive office located in
Bethlehem, Pennsylvania, or at such other location within 25 miles of the
address of such principal executive office, or at such other location as the
Employer and the Executive may mutually agree upon. The Employer shall provide
the Executive at her principal place of employment with a private office,
secretarial services and other support services and facilities suitable to her
position with the Employer and necessary or appropriate in connection with the
performance of her assigned duties under this Agreement. The Employer shall
reimburse the Executive for her ordinary and necessary business expenses
attributable to the Employer’s business, including, without limitation, the
Executive's travel and entertainment expenses incurred in connection with the
performance of her duties for the Employer under this Agreement, in each case
upon presentation to the Employer of an itemized account of such expenses in
such form as the Employer may reasonably require.

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SECTION 9. TERMINATION OF EMPLOYMENT WITH BENEFITS.

(a) The Executive shall be entitled to the benefits described in Section 9(b) in
the event that either prior to a Change in Control or more than two years after
a Change in Control as defined in Section 11(a):

(i) her employment with the Employer terminates during the Employment Period as
a result of the Executive's resignation within six full calendar months
following:

(A) the failure of either the Company Board or the Bank Board to appoint or
re-appoint the Executive to the positions with the Company stated in Section 3
of this Agreement;

(B) the expiration of a 30-day period following the date on which the Executive
gives written notice to the Employer of its material failure, whether by
amendment of the Articles of Incorporation or Bylaws of either the Company or
the Bank, or by action of the Company Board, the Company's shareholders, the
Bank Board, the Bank’s shareholder(s), or otherwise, to vest in the Executive
the functions, duties or responsibilities prescribed in Section 3 of this
Agreement, unless, during such 30-day period, the Employer cures such failure;

(C) the expiration of a 30-day period following the date on which the Executive
gives written notice to the Employer of its material breach of any term,
condition or covenant contained in this Agreement (including, without
limitation, any reduction of the Executive's rate of Base Salary in effect from
time to time and any change in the terms and conditions of any compensation or
benefit program in which the Executive participates which, either individually
or together with other changes, has a material adverse effect on the aggregate
value of her total compensation package), unless, during such 30-day period, the
Employer cures such failure;

(D) a change in the Executive's principal place of employment by a distance in
excess of 25 miles from the Employer’s principal executive office in Bethlehem,
Pennsylvania;

(E) the receipt by the Executive of written notice pursuant to Section 2(b)
hereof that the Employment Period is not being extended as of any annual
anniversary date of the Effective Date; or

(F) the termination of the Executive’s employment by either the Company or the
Bank for reasons other than those specified in Section 10 hereof; or

(ii) the Executive's employment with the Employer is terminated (A) by the
Employer during the Employment Period for any reason other than for "cause,"
death or “Disability,” as provided in Section 10(a) or (B) pursuant to the
provisions of Section 9(c).

(b) Upon the termination of the Executive’s employment pursuant to Section 9(a)
of this Agreement either prior to a Change in Control as defined in Section
11(a) or more than two years after a Change in Control, the Employer shall pay
and provide to the Executive (or, in the event of her subsequent death, to her
estate):

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(i) her earned but unpaid Base Salary (including, without limitation, all items
which constitute wages under applicable law and the payment of which is not
otherwise provided for in this Section 9(b)) as of the date of the termination
of her employment, such payment to be made at the time and in the manner
prescribed by law applicable to the payment of wages but in no event later than
30 days after termination of employment;

(ii) the benefits, if any, to which she is entitled under the employee benefit
plans and programs and compensation plans and programs maintained for the
benefit of the Company's and the Bank’s officers and employees through the date
of the termination of her employment;

(iii) continued group life, health, dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to Section 9(b)(ii),
and after taking into account the coverage provided by any subsequent employer,
if and to the extent necessary to provide for the Executive, for the period
beginning on the date on which her employment terminates and ending on the
earlier of (A) the last day of the Employment Period (the “Remaining Employment
Period”) or (B) 18 months from the date of termination (with such lesser period
being the “Coverage Period”), coverage equivalent to the coverage to which she
would have been entitled under such plans if he had continued to be employed
during such period at the highest annual rate of salary achieved during the
Employment Period;

(iv) within 30 days following the date on which her employment terminates, a
lump sum payment, in an amount equal to the present value of the Base Salary
that the Executive would have earned if she had continued to be employed during
the Coverage Period at the highest annual rate of Base Salary achieved during
the Employment Period, such present value to be determined using a discount rate
equal to the applicable short-term federal rate prescribed under Section 1274(d)
of the Code, compounded using the compounding periods corresponding to the
Company's and the Bank’s regular payroll periods for their officers, and such
lump sum to be paid in lieu of all other payments of Base Salary provided for
under this Agreement in respect of the Coverage Period;

(v) within 30 days following the date on which her employment terminates, a lump
sum payment in an amount equal to the excess, if any, of:

(A) the present value of the aggregate benefits to which she would be entitled
under any and all qualified defined benefit pension plans and non-qualified
plans related thereto maintained by, or covering employees of, the Company and
the Bank if she were 100% vested thereunder and had continued to be employed
during the Coverage Period at the highest annual rate of Base Salary achieved
during the Employment Period; over

(B) the present value of the benefits to which she is actually entitled under
such defined benefit pension plans as of the date on which her employment
terminates; such present values to be determined using the mortality tables
prescribed under Section 415(b)(2)(E)(v) of the Code and a discount rate,
compounded monthly, equal to the annualized rate of interest prescribed by the
Pension Benefit Guaranty Corporation for the valuation of immediate annuities
payable under terminating single-employer defined benefit plans for the month in
which the Executive's employment terminates ("Applicable PBGC Rate");

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(vi) within 30 days following the date on which her employment terminates, a
lump sum payment in an amount equal to the present value of the additional
employer contributions to which she would have been entitled under any and all
qualified defined contribution plans and non-qualified plans related thereto
maintained by, or covering employees of, the Company and the Bank as if she were
100% vested thereunder and had continued to be employed during the Coverage
Period at the highest annual rate of Base Salary achieved during the Employment
Period and making the maximum amount of employee contributions, if any, required
or permitted under such plan or plans, such present value to be determined on
the basis of a discount rate, compounded using the compounding period that
corresponds to the frequency with which employer contributions are made to the
relevant plan, equal to the applicable short-term federal rate prescribed under
Section 1274(d) of the Code, provided that no payments shall be made pursuant to
this subsection (vi) with respect to the Company’s Employee Stock Ownership Plan
(“ESOP”) if the ESOP is terminated effective as of a date within one year of the
date of the termination of the Executive’s employment;

(vii) within 30 days following the date on which her employment terminates, a
lump sum payment in an amount equal to the present value of the payments that
would have been made to the Executive under any cash bonus or long-term or
short-term cash incentive compensation plan maintained by, or covering employees
of, the Company and the Bank if she had continued to be employed during the
Coverage Period and had earned in each calendar year that ends during the
Coverage Period a bonus or incentive award that equals the highest annual bonus
or incentive award paid to the Executive during the preceding 36 calendar
months, with the present value of such payments to be determined using a
discount rate equal to the applicable short-term federal rate prescribed under
Section 1274(d) of the Code, compounded using the compounding periods
corresponding to the Company’s and the Bank’s schedule of paying bonuses;

(viii) for the first year following the date on which her employment terminates,
reimbursement for all reasonable expenses incurred by the Executive in
connection with the search for new employment, including without limitation
those of a placement agency or service, and reimbursement for all reasonable
relocation expenses incurred by the Executive in connection with securing new
employment; provided, however, that the amounts payable by the Employer pursuant
to this subsection (viii) shall not exceed $25,000; and

(ix) within 30 days following the occurrence of an event described in Section
9(a), upon the surrender of then outstanding options or appreciation rights
(other than options or appreciation rights which do not, by their terms, vest in
the event of a Change in Control as defined in Section 11(a) hereof) previously
issued to the Executive under any stock option and appreciation rights plan or
program maintained by, or covering employees of, the Employer, a lump sum
payment in an amount equal to the product of:

(A) the excess of (I) the fair market value of a share of stock of the same
class as the stock subject to the option or appreciation right, determined as of
the date on which her employment terminates, over (II) the exercise price per
share for such option or appreciation right, as specified in or under the
relevant plan or program; multiplied by

(B) the number of shares with respect to which options or appreciation rights
are being surrendered.

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The Employer and the Executive agree that the Employer may condition the
payments and benefits (if any) due under Sections 9(b)(iii), (iv), (v), (vi),
(vii) and (viii) on the receipt of the Executive's resignation from any and all
positions which she holds as an officer, director or committee member with
respect to the Employer or any of its subsidiaries or affiliates.

(c) In the event the Executive’s employment is terminated by voluntary
resignation (including voluntary retirement) subsequent to the Executive
reaching age 64 but before the end of the Employment Period other than pursuant
to Section 9(a) and such termination occurs either before a Change in Control as
defined in Section 11(a) or more than two years after a Change in Control, the
Employer shall pay and provide to the Executive (or, in the event of her
subsequent death, to her estate):

(i) her earned but unpaid Base Salary as of the date of the termination of her
employment, such payment to be made at the time and in the manner prescribed by
law applicable to the payment of wages but in no event later than 30 days after
termination of employment;

(ii) the benefits, if any, to which she is entitled under the employee benefit
plans and programs and compensation plans and programs maintained for the
benefit of the Company's and the Bank’s officers and employees through the date
of the termination of her employment;

(iii) in eighteen (18) equal monthly installments beginning with the first
business day of the month following the Executive’s termination of employment an
aggregate amount equal to 1.125 times her Base Salary as in effect immediately
prior to her termination; and

(iv) continued group health and dental insurance benefits at the same level as
in effect as of the date of termination of employment for a period of eighteen
(18) months beginning on the date her employment terminates.

SECTION 10. TERMINATION WITHOUT ADDITIONAL EMPLOYER LIABILITY.

(a) In the event that the Executive's employment with the Employer shall
terminate during the Employment Period on account of:

(i) the discharge of the Executive for "cause," which, for purposes of this
Agreement, shall mean a discharge because either the Company Board or the Bank
Board determines that the Executive has: (A) willfully failed to perform her
assigned duties under this Agreement, other than any failure resulting from the
Executive’s incapacity due to physical or mental injury or illness; (B)
committed an act involving moral turpitude in the course of her employment with
the Employer and its subsidiaries; (C) engaged in willful misconduct; (D)
breached her fiduciary duties for personal profit; (E) willfully violated, in
any material respect, any law, rule or regulation (other than traffic violations
or similar offenses), written agreement or final cease-and-desist order with
respect to her performance of services for the Company or the Bank, as
determined by the Company Board or the Bank Board; or (F) materially breached
the terms of this Agreement and failed to cure such material breach during a
15-day period following the date on which the Company Board or the Bank Board
gives written notice to the Executive of the material breach;

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(ii) the Executive's voluntary resignation from employment (including voluntary
retirement) with the Company and the Bank for reasons other than those specified
in Section 9(a)(i) and other than pursuant to the provisions of Section 9(c); or

(iii) the death of the Executive while employed by the Employer, or the
termination of the Executive's employment because of "Disability" as defined in
Section 10(c) below;

then in any of the foregoing events, the Employer shall have no further
obligations under this Agreement, other than (A) the payment to the Executive of
her earned but unpaid Base Salary as of the date of the termination of her
employment, (B) the payment to the Executive of the benefits to which she is
entitled under all applicable employee benefit plans and programs and
compensation plans and programs, and (C) the provision of such other benefits,
if any, to which she is entitled as a former employee under the Company's or the
Bank’s employee benefit plans and programs and compensation plans and programs.

(b) For purposes of this Section 10, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Employer. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Company Board, the Bank Board or based upon the written advice of
counsel for the Employer shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Employer. The cessation of employment of the Executive shall not be deemed to be
for "cause" within the meaning of Section 10(a)(i) unless and until there shall
have been delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of three-fourths of the members of the Company Board or the
Bank Board at a meeting of such Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before such Board), finding
that, in the good faith opinion of such Board, the Executive is guilty of the
conduct described in Section 10(a)(i) above, and specifying the particulars
thereof in detail.

(c) “Disability” shall be deemed to have occurred after the Executive has been
absent from her duties hereunder on a full-time basis for six consecutive months
due to any physical or mental injury or disease that prevents the Executive from
engaging in substantially all of her duties. The existence of such physical or
mental injury or disease shall be determined by either (i) a physician selected
by the Employer, with the physician to certify the existence or absence of such
injury or disease to the Employer and the Executive or (ii) if disability
insurance coverage exists in which the Executive participates, the insurance
company pursuant to which the Executive is provided long-term disability
insurance. For purposes of this section, the Executive shall be deemed to have
been absent from her duties hereunder on a full-time basis for six consecutive
months if she has not, within any six-month period, attended to her duties on a
full-time basis for 15 consecutive business days within such six-month period.

(d) During any period in which the Executive is absent due to physical or mental
injury or disease, the Employer may, without breaching this Agreement, appoint
another person or persons to act as Senior Executive Vice President and interim
Chief Risk Officer pending the Executive’s return to her duties on a full-time
basis hereunder or her termination as a result of such Disability. Prior to the
Executive’s employment being terminated due to Disability under Section 10(e)
hereof, the Executive shall continue to receive her full Base Salary, bonuses
and other benefits to which she is entitled under this Agreement, including
continued participation in all employee benefit plans and programs.

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(e) The Employer may provide notice to the Executive in writing that they intend
to terminate the Executive’s employment under this Agreement, with the
termination date to be on or after the date that the Executive has been absent
from her duties hereunder on a full-time basis for six consecutive months due to
any physical or mental injury or disease. At the time her employment hereunder
is terminated due to Disability, (i) the Executive shall not be entitled to any
payments or benefits pursuant to Sections 4 and 5 hereof for periods subsequent
to such date of termination, and (ii) the Executive shall become entitled to
receive the Disability payments that may be available under any applicable
long-term disability plan or other benefit plan.

SECTION 11. PAYMENTS UPON A CHANGE IN CONTROL.

(a) The term “Change in Control” means the occurrence of any of the following:

(1) any person or “group” of persons (as provided under Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”), and any Internal Revenue
Service (the “IRS”) guidance and regulations issued under Section 409A of the
Code) acquires ownership of stock of the Company or the Bank that, together with
stock held by such person or group, constitutes more than 50% of the total fair
market value or total voting power of the outstanding stock of the Company or
the Bank, provided that the stock of the Company or the Bank remains outstanding
after such acquisition and provided further that if the person or group of
persons is already deemed to own more than 50% of the total fair market value or
total voting power, then the acquisition of additional stock by such person or
group of persons shall not constitute an additional Change of Control;

(2) any person or “group” of persons (as provided under Section 409A of the Code
and any IRS guidance and regulations issued under Section 409A of the Code)
acquires (or has acquired during the 12-month period ending on the date of the
most recent acquisition by such person or group of persons) ownership of stock
of the Company or the Bank possessing 35% or more of the total voting power of
the stock of the Company or the Bank, provided that if a person or group of
persons that is deemed to have effective control of the Company or the Bank
pursuant to this clause acquires additional stock of the Company or the Bank,
such additional acquisition shall not constitute an additional Change of
Control;

(3) a majority of the members of the Board of Directors of the Company is
replaced during any 12-month period by directors whose appointment or election
is not endorsed by a majority of the Board of Directors of the Company prior to
the date of the appointment or election, provided that if a person or group of
persons that is deemed to have effective control of the Company or the Bank
pursuant to this clause acquires stock of the Company or the Bank that would
trigger either clauses (1) or (2) above, such acquisition of stock shall not
constitute an additional Change of Control; and

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(4) any person or “group” of persons (as provided under Section 409A of the Code
and any IRS guidance and regulations issued under Section 409A of the Code)
acquires (or has acquired during the 12-month period ending on the date of the
most recent acquisition by such person or group of persons) assets from the
Company or the Bank that have a total gross fair market value equal to 40% or
more of the total gross fair market value of all of the assets of the Company or
the Bank, as the case may be, immediately prior to such acquisition or
acquisitions. For purposes of this provision, “gross fair market value” means
the value of the assets of the Company or the Bank, as the case may be, or the
value of the assets being disposed of, determined without regard to any
liabilities associated with such assets. A transfer of assets by the Company or
the Bank to related persons, shareholders or entities shall not be treated as a
Change of Control to the extent that such transfers are excluded from the
definition of a change in control under Section 409A of the Code and the
regulations issued thereunder.

(b) For purposes of determining whether a Change in Control has occurred,
persons will not be considered to be acting as a group solely because they
purchase or own stock of the Company at the same time.

(c) Upon the occurrence of a Change in Control prior to the expiration of the
Employment Period, the Executive shall be entitled to receive a severance
benefit in an amount as calculated hereunder. If the Executive is not terminated
as of the Change in Control, she shall receive a lump sum payment within 25 days
after the effective time of such Change in Control in an amount equal to 1.0
times the Executive’s Base Amount, as hereinafter defined, from the Employer. If
the Executive’s employment is terminated as of the Change of Control, she shall
receive a lump sum payment within 25 days after the effective time of such
Change in Control in an amount equal to 2.0 times the Executive’s Base Amount
from the Employer, minus $1.00. If the Executive’s employment is not terminated
as of the Change in Control but is terminated within one year thereafter by
either the Employer for other than cause or by the Executive upon the occurrence
of any of the events set forth in Section 9(a)(i), in addition to the payment
made at or within 25 days of the Change in Control, the Executive shall receive
a lump sum payment upon termination of employment from the Employer or its
predecessor in an amount equal to 1.0 times the Executive’s Base Amount as
calculated in connection with the Change in Control. If the Executive’s
employment is terminated more than one year but less than two years after the
Change in Control by either Employer other than for cause or by the Executive
upon the occurrence of any of the events set forth in Section 9(a)(i), in
addition to the payment made at or within 25 days of the Change in Control, she
shall receive a lump sum payment upon termination from the Employer or its
predecessor in an amount equal to 1.0 times the Executive’s Base Amount as if
the Change in Control had occurred as of the date of termination; provided
however, that for purposes of calculating the Executive’s Base Amount for
purposes of this sentence, any income related to the initial severance payment
paid to the Executive at or within 25 days of the Change in Control pursuant to
this Section 11(c) shall be excluded. For purposes hereof “Base Amount” shall be
equal to the Executive’s “base amount” (excluding any income resulting from the
vesting of restricted stock or the exercise of non-qualified options on or prior
to the Effective Date) as defined under Section 280G of the Code. The Executive
shall not be entitled to receive any payments or benefits under Section 9 of
this Agreement if she receives payments pursuant to this Section 11(b) unless
her employment is terminated more than two years after a Change in Control.

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SECTION 12. TAX INDEMNIFICATION.

(a) If the payments and benefits pursuant to this Agreement, either alone or
together with other payments and benefits which the Executive has the right to
receive from the Employer and their subsidiaries, would constitute a “parachute
payment” as defined in Section 280G(b)(2) of the Code (the “Initial Parachute
Payment”), then the Company shall pay to the Executive, at the time such
payments or benefits are paid and subject to applicable withholding
requirements, a cash amount equal to the sum of the following:

(i) twenty (20) percent (or such other percentage equal to the tax rate imposed
by Section 4999 of the Code) of the amount by which the Initial Parachute
Payment exceeds the Executive’s “base amount” from the Employer and their
subsidiaries (including their predecessors), as defined in Section 280G (b)(3)
of the Code, with the difference between the Initial Parachute Payment and the
Executive’s base amount being hereinafter referred to as the “Initial Excess
Parachute Payment”; and

(ii) such additional amount (tax allowance) as may be necessary to compensate
the Executive for the payment by the Executive of state and federal income and
excise taxes on the payment provided under clause (i) above and on any payments
under this clause (ii). In computing such tax allowance, the payment to be made
under clause (i) above shall be multiplied by the “gross up percentage” (“GUP”).
The GUP shall be determined as follows:

   
Tax Rate
   
GUP =
       
1 Tax Rate
 

The Tax Rate for purposes of computing the GUP shall be the highest marginal
federal and state income and employment-related tax rate (including Social
Security and Medicare taxes), including any applicable excise tax rate,
applicable to the Executive in the year in which the payment under clause (i)
above is made, and shall also reflect the phase-out of deductions and the
ability to deduct certain of such taxes.
 
(b) Notwithstanding the foregoing, if it shall subsequently be determined in a
final judicial determination or a final administrative settlement to which the
Executive is a party that the actual excess parachute payment as defined in
Section 280G(b)(1) of the Code (before giving effect to the payments under
Sections 12(a)(i) and (ii) above) is different from the Initial Excess Parachute
Payment (such different amount being hereafter referred to as the “Determinative
Excess Parachute Payment”), then the Company’s independent tax counsel or
accountants shall determine the amount (the “Adjustment Amount”) which either
the Executive must pay to the Company or the Company must pay to the Executive
in order to put the Executive (or the Company, as the case may be) in the same
position the Executive (or the Company, as the case may be) would have been if
the Initial Excess Parachute Payment had been equal to the Determinative Excess
Parachute Payment. In determining the Adjustment Amount, the independent tax
counsel or accountants shall take into account any and all taxes (including any
penalties and interest) paid by or for the Executive or refunded to the
Executive or for the Executive’s benefit. As soon as practicable after the
Adjustment Amount has been so determined, the Company shall pay the Adjustment
Amount to the Executive or the Executive shall repay the Adjustment Amount to
the Company, as the case may be.

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(c) In each calendar year that the Executive receives payments of benefits that
constitute a parachute payment, the Executive shall report on her state and
federal income tax returns such information as is consistent with the
determination made by the independent tax counsel or accountants of the Company
as described above. The Company shall indemnify and hold the Executive harmless
from any and all losses, costs and expenses (including without limitation,
reasonable attorneys’ fees, interest, fines and penalties) which the Executive
incurs as a result of so reporting such information. The Executive shall
promptly notify the Company in writing whenever the Executive receives notice of
the institution of a judicial or administrative proceeding, formal or informal,
in which the federal tax treatment under Section 4999 of the Code of any amount
paid or payable under this Section 12 is being reviewed or is in dispute. The
Company shall assume control at its expense over all legal and accounting
matters pertaining to such federal tax treatment (except to the extent necessary
or appropriate for the Executive to resolve any such proceeding with respect to
any matter unrelated to amounts paid or payable pursuant to this Section 12) and
the Executive shall cooperate fully with the Company in any such proceeding. The
Executive shall not enter into any compromise or settlement or otherwise
prejudice any rights the Company may have in connection therewith without the
prior consent of the Company.

(d) The Executive hereby agrees with the Employer and any successor thereto to
in good faith consider and take steps commonly used to minimize or eliminate any
tax liability or costs that would otherwise be created by the tax
indemnification provisions set forth in Section 12 of this Agreement if
requested to do so by the Employer or any successor thereto; provided, however,
that the foregoing language shall neither require the Executive to take or not
take any specific action in furtherance thereof nor contravene, limit or remove
any right or privilege provided to the Executive under this Agreement.

SECTION 13. SOURCE OF PAYMENTS; NO DUPLICATION OF PAYMENTS.

All payments provided in this Agreement shall be timely paid in cash or check
from the general funds of the Company or the Bank. Payments pursuant to this
Agreement shall be allocated between the Company and the Bank in proportion to
the level of activity and the time expended on such activities by the Executive
as determined by the Company and the Bank on a quarterly basis, unless the
applicable provision of this Agreement specifies that the payment shall be made
by either the Company or the Bank. In no event shall the Executive receive
duplicate payments or benefits from the Company and the Bank.

SECTION 14. COVENANT NOT TO COMPETE.

In the event the Executive’s employment with the Employer is terminated for any
reason prior to the expiration of the Employment Period other than a termination
of employment occurring within 30 days of a Change in Control, the Executive
hereby covenants and agrees that for a period of eighteen months following the
date of her termination of employment with the Employer (or, if less, for the
Remaining Employment Period), she shall not, without the written consent of the
Employer, become an officer, employee, consultant, director or trustee of any
savings bank, savings and loan association, savings and loan holding company,
bank or bank holding company, or any direct or indirect subsidiary or affiliate
of any such entity, that entails working within any county in which the Company
or the Bank maintains an office as of the date of termination of the Executive’s
employment.

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SECTION 15. CONFIDENTIALITY.

Unless she obtains the prior written consent of the Employer, the Executive
shall at all times keep confidential and shall refrain from using for the
benefit of herself, or any person or entity other than the Employer or its
subsidiaries, any material document or information obtained from the Employer or
its subsidiaries, in the course of her employment with any of them concerning
their properties, operations or business (unless such document or information is
readily ascertainable from public or published information or trade sources or
has otherwise been made available to the public through no fault of her own)
until the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this Section 15 shall prevent the Executive,
with or without the Employer's consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding or the Company’s public reporting
requirements to the extent that such participation or disclosure is required
under applicable law.

SECTION 16. SOLICITATION.

The Executive hereby covenants and agrees that, for a period of eighteen months
following her termination of employment with the Employer for any reason, she
shall not, without the written consent of the Employer, either directly or
indirectly:

(a) solicit, offer employment to, or take any other action intended, or that a
reasonable person acting in like circumstances would expect, to have the effect
of causing any officer or employee of the Employer or any of its subsidiaries or
affiliates to terminate her or her employment and accept employment or become
affiliated with, or provide services for compensation in any capacity whatsoever
to, any savings bank, savings and loan association, bank, bank holding company,
savings and loan holding company, or other institution engaged in the business
of accepting deposits, making loans or doing business within the counties
specified in Section 14;

(b) provide any information, advice or recommendation with respect to any such
officer or employee to any savings bank, savings and loan association, bank,
bank holding company, savings and loan holding company, or other institution
engaged in the business of accepting deposits, making loans or doing business
within the counties specified in Section 14, that is intended, or that a
reasonable person acting in like circumstances would expect, to have the effect
of causing any officer or employee of the Employer or any of its subsidiaries or
affiliates to terminate her employment and accept employment or become
affiliated with, or provide services for compensation in any capacity whatsoever
to, any savings bank, savings and loan association, bank, bank holding company,
savings and loan holding company, or other institution engaged in the business
of accepting deposits, making loans or doing business within the counties
specified in Section 14; or

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

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SECTION 17. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.

The termination of the Executive's employment during the Employment Period or
thereafter, whether by the Employer or by the Executive, shall have no effect on
the vested rights of the Executive under the Company's or the Bank’s qualified
or non-qualified retirement, pension, savings, thrift, profit-sharing or stock
bonus plans, group life, health (including hospitalization, medical and major
medical), dental, accident and long term disability insurance plans, or other
employee benefit plans or programs, or compensation plans or programs in which
the Executive was a participant.

SECTION 18. SUCCESSORS AND ASSIGNS.

(a) This Agreement is personal to each of the parties hereto, and no party may
assign or delegate any of its rights or obligations hereunder without first
obtaining the written consent of the other parties; provided, however, that the
Employer will require any successor or assign (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Employer, by an assumption agreement in form and
substance satisfactory to the Executive, 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 or assignment had
taken place. Failure of the Employer to obtain such an assumption agreement
prior to the effectiveness of any such succession or assignment shall be a
breach of this Agreement and shall entitle the Executive to compensation from
the Employer in the same amount and on the same terms as the compensation
pursuant to Sections 9 and 11 hereof. For purposes of implementing the
provisions of this Section 18(a), the date which any such succession becomes
effective shall be deemed the date of termination of the Executive’s employment.

(b) This Agreement and all rights of the Executive hereunder shall inure to the
benefit of and be enforceable by the Executive’s personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees.

SECTION 19. NOTICES.

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

If to the Executive:

Sandra L. Bodnyk
At the address last appearing
on the personnel records of
the Executive

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If to the Employer:

KNBT Bancorp, Inc.
Keystone Nazareth Bank & Trust Company
Route 512 and Highland Avenue
Bethlehem, Pennsylvania 18017
(or the address of the Company’s or the Bank’s principal executive office, if
different)
Attention: Chairman of the Board

with a copy, in the case of a notice to the Employer, to:

Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
Washington, D.C. 20005
Attention: Raymond A. Tiernan, Esq.
Philip Ross Bevan, Esq.

SECTION 20. INDEMNIFICATION FOR ATTORNEYS' FEES.

(a) The Employer shall indemnify, hold harmless and defend the Executive against
reasonable costs, including legal fees and expenses, incurred by her in
connection with or arising out of any action, suit or proceeding in which she
may be involved, as a result of her efforts, in good faith, to defend or enforce
the terms of this Agreement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the
Employer's obligations hereunder shall be conclusive evidence of the Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.

(b) The Employer's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Employer may have against the Executive or others. Unless it
is determined that a claim made by the Executive was either frivolous or made in
bad faith, the Employer agrees to pay as incurred, to the full extent permitted
by law, all legal fees and expenses which the Executive may reasonably incur as
a result of or in connection with her consultation with legal counsel or arising
out of any action, suit, proceeding or contest (regardless of the outcome
thereof) by the Employer, the Executive or others regarding the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the Code. This Section 20(b) shall
apply whether such consultation, action, suit, proceeding or contest arises
before, on, after or as a result of a Change in Control.

SECTION 21. SEVERABILITY.

A determination that any provision of this Agreement is invalid or unenforceable
shall not affect the validity or enforceability of any other provision hereof.

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SECTION 22. WAIVER.

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

SECTION 23. COUNTERPARTS.

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

SECTION 24. GOVERNING LAW.

This Agreement shall be governed by and construed and enforced in accordance
with the laws of the Commonwealth of Pennsylvania applicable to contracts
entered into and to be performed entirely within the Commonwealth of
Pennsylvania, except to the extent that federal law controls.

SECTION 25. HEADINGS AND CONSTRUCTION.

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

SECTION 26. ENTIRE AGREEMENT; MODIFICATIONS.

This instrument contains the entire agreement of the parties relating to the
subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto; provided, however, that if the Employer
determines, after a review of the final regulations issued under Section 409A of
the Code and all applicable IRS guidance, that this Agreement should be further
amended to avoid triggering the tax and interest penalties imposed by Section
409A of the Code, the Employer may amend this Agreement to the extent necessary
to avoid triggering the tax and interest penalties imposed by Section 409A of
the Code.

SECTION 27. REQUIRED REGULATORY PROVISIONS.

Notwithstanding anything herein contained to the contrary, any payments to the
Executive by the Employer, whether pursuant to this Agreement or otherwise, are
subject to and conditioned upon their compliance with Section 18(k) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and the regulations
promulgated thereunder in 12 C.F.R. Part 359.

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SECTION 28. DISPUTE RESOLUTION.

(a) In the event of any dispute, claim, question or disagreement arising out of
or relating to this Agreement or the breach hereof, the parties hereto shall use
their best efforts to settle such dispute, claim, question or disagreement. To
this effect, they shall consult and negotiate with each other, in good faith,
and, recognizing their mutual interests, attempt to reach a just and equitable
solution satisfactory to both parties.

(b) If they do not reach such a solution within a period of thirty (30) days,
then the parties agree first to endeavor in good faith to amicably settle their
dispute by mediation under the Commercial Mediation Rules of the American
Arbitration Association (the “AAA”), before resorting to arbitration.

(c) Thereafter, any unresolved controversy or claim arising out of or relating
to this Agreement or the breach thereof, upon notice by any party to the other,
shall be submitted to and finally settled by arbitration in accordance with the
Commercial Arbitration Rules (the “Rules”) of the AAA in effect at the time
demand for arbitration is made by any such party. The parties shall mutually
agree upon a single arbitrator within thirty (30) days of such demand. In the
event that the parties are unable to so agree within such thirty (30) day
period, then within the following thirty (30) day period, one arbitrator shall
be named by each party. A third arbitrator shall be named by the two arbitrators
so chosen within ten (10) days after the appointment of the first two
arbitrators. In the event that the third arbitrator is not agreed upon, he or
she shall be named by the AAA. Arbitration shall occur in Bethlehem,
Pennsylvania or such other location as may be mutually agreed to by the parties.

(d) The award made by all or a majority of the panel of arbitrators shall be
final and binding, and judgment may be entered based upon such award in any
court of law having competent jurisdiction. The award is subject to
confirmation, modification, correction or vacation only as explicitly provided
in Title 9 of the United States Code. The prevailing party shall be entitled to
receive any award of pre- and post-award interest as well as attorney’s fees
incurred in connection with the arbitration and any judicial proceedings related
thereto. The parties acknowledge that this Agreement evidences a transaction
involving interstate commerce. The United States Arbitration Act and the Rules
shall govern the interpretation, enforcement, and proceedings pursuant to this
Section. Any provisional remedy which would be available from a court of law
shall be available from the arbitrators to the parties to this Agreement pending
arbitration. Either party may make an application to the arbitrators seeking
injunctive relief to maintain the status quo, or may seek from a court of
competent jurisdiction any interim or provisional relief that may be necessary
to protect the rights and property of that party, until such times as the
arbitration award is rendered or the controversy otherwise resolved.

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

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.

                 
Sandra L. Bodnyk, Executive
         
ATTEST:
   
KEYSTONE NAZARETH BANK
     
& TRUST COMPANY
         
BY:
   
BY:
 
Name:
Michele A. Linsky
 
Name:
Jeffrey P. Feather
Title:
Corporate Secretary
 
Title:
Chairman of the Board
                             
[Seal]
                                     
ATTEST:
   
KNBT BANCORP, INC.
         
BY:
   
BY:
 
Name:
Michele A. Linsky
 
Name:
Jeffrey P. Feather
Title:
Corporate Secretary
 
Title:
Chairman of the Board