EXHIBIT 10.1

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT is made to be effective as of March 2, 2015 (the "Effective
Date") by and among CITIZENS & NORTHERN CORPORATION, a Pennsylvania business
corporation (the "Corporation"), CITIZENS & NORTHERN BANK (the "Bank"), a
Pennsylvania chartered bank, and J. BRADLEY SCOVILL, an adult individual
("Executive").

 

WITNESSETH:

 

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

 

WHEREAS, the Corporation and the Bank each desire to employ Executive and
Executive desires to accept such employment, all upon the terms and conditions
set forth herein.

 

AGREEMENT

 

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

 

1.           Employment. The Corporation and the Bank each hereby employs
Executive and Executive hereby accepts employment with Corporation and the Bank,
on the terms and conditions set forth in this Agreement.

 

2.           Duties of Executive. Executive shall serve as the President and
Chief Executive Officer of the Corporation and the Bank, reporting only to the
Board of Directors of the Corporation and the Bank and shall have supervision
and control over, and responsibility for, the general management and operation
of the Corporation and the Bank, and shall have such other powers and duties as
may from time to time be prescribed by the Board of Directors of the Corporation
and the Bank, provided such powers and duties are consistent with the
Executive’s position. Executive shall devote his full time, attention and
energies to the business of the Corporation and the Bank during the Employment
Period (as defined in Section 3 of this Agreement); provided, however, that this
Section 2 shall not be construed as preventing Executive from (a) engaging in
activities incident or necessary to personal investments, (b) acting as a member
of the board of directors of any non-profit association or corporation, or (c)
being involved in any other activity with the prior approval of the Board of
Directors of the Corporation or the Bank. The Executive shall not engage in any
business or commercial activities, duties or pursuits which compete with the
business or commercial activities of the Corporation or the Bank, nor may the
Executive serve as a director or officer or in any other capacity in a company
which competes with the Corporation or the Bank.

 

3.           Term of Agreement.

 

(a)          Employment Period. This Agreement shall be for a three (3) year
period (the "Employment Period") beginning on the Effective Date, and if not
previously terminated pursuant to the terms of this Agreement, the Employment
Period shall end March 1, 2018; provided, however, that unless either party
shall give written notice of non-renewal to the other party at least ninety(90)
days prior to March 1, 2018 (the "Renewal Date"), this Agreement will be
automatically renewed for a period ending twelve (12) months from the Renewal
Date, and unless either party gives written notice of non-renewal to the other
party at least ninety (90) days prior to March 1 of each successive calendar
year thereafter, the Employment Period will be automatically renewed for
successive twelve (12) month periods.

 

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(b)          Termination for Cause. Notwithstanding the provisions of Section
3(a) of this Agreement, this Agreement may be terminated by the Corporation or
the Bank for Cause (as defined herein) upon written notice from the Board of
Directors of the Corporation to Executive. As used in this Agreement, "Cause"
shall mean any of the following:

 

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

 

(ii)         Executive’s willful continuing failure to follow the lawful
instructions of the Board of Directors of the Corporation or the Bank (which
instructions must be consistent with the terms of this Agreement), after no less
than 30 days from the Executive's receipt of written notice, other than a
failure resulting from Executive’s incapacity because of physical or mental
illness;

 

(iii)        A government regulatory agency recommends or orders in writing that
the Corporation or the Bank terminate the employment of the Executive with the
Corporation or the Bank or relieve him of his duties as such relate to the
Corporation or the Bank;

 

(iv)        Executive’s intentional violation of any of the provisions of this
Agreement;

 

(v)         conduct on the part of the Executive bringing public discredit to
the Bank;

 

(vi)        Executive’s breach of fiduciary duty involving personal profit; or

 

(vii)       Executive’s material violation of Bank policies and procedures.

 

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

 

(i)          the Bank shall pay to Executive the unpaid portion, if any, of his
Annual Base Salary (as defined herein) through the date of termination plus the
value of accrued but unused vacation as of such date; and

 

(ii)         the Bank shall provide to Executive such post-employment benefits,
if any, as may be provided for under the terms of the employee benefit plans of
the Bank then in effect.

 

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(c)          Termination for Good Reason. Notwithstanding the provisions of
Section 3(a) of this Agreement, this Agreement shall terminate automatically
upon Executive’s termination of employment for Good Reason. The term "Good
Reason" shall mean (i) a material reduction in salary or benefits, including any
incentive compensation plan, (ii) a reassignment which assigns full-time
employment duties to Executive at a location more than fifty (50) miles from the
Corporation’s principal executive office on the date of this Agreement, (iii)
any other material breach or default by the Corporation or the Bank under any
term or provision of this Agreement, including any reduction, in any material
respect and without Executive’s consent, of the authority, duties or other terms
and conditions of Executive’s employment hereunder or (iv) any failure of the
Board of Directors to nominate Executive for election as a member of the Board
of Directors of the Corporation; provided that in all instances provided in this
Section 3(c) Executive has delivered written notice to the Corporation within
thirty (30) days after the initial existence of any such condition that the
condition constitutes Good Reason, and the Corporation and Bank fail to cure
such situation within thirty (30) days after receipt of said notice.

 

If such termination occurs for Good Reason, then Bank shall pay Executive such
benefits as are set forth in Section 7 of this Agreement.

 

(d)          Death. Notwithstanding the provisions of Section 3(a) of this
Agreement, this Agreement shall terminate automatically upon Executive’s death
and Executive’s rights under this Agreement shall cease as of the date of such
termination, except that (i) the Bank shall pay to Executive’s spouse, personal
representative, or estate the unpaid portion, if any, of his Annual Base Salary
through date of death and the balance of the payments (if any) owing pursuant to
Section 19(b) below, and (ii) the Bank shall provide to Executive’s dependents
any benefits due under the Bank’s employee benefit plans, including the value of
accrued but unused vacation as of such date.

 

(e)          Disability. If the Executive becomes disabled because of sickness,
physical or mental disability, or any other reason, the Corporation and the Bank
shall have the option to terminate this Agreement by giving thirty (30) days
written notice of termination to the Executive; provided, however, that
Executive shall continue to be eligible for benefits under the Bank’s long term
disability insurance plan. Executive shall be deemed to have become "disabled"
at such time as he qualifies (after expiration of any applicable waiting period)
to receive benefits for partial or total disability under the Bank’s employee
long term disability insurance plan. If Executive’s employment shall be
terminated by reason of his disability, the Bank shall pay Executive his then
current Annual Base Salary (less applicable taxes and withholdings) prorated
through the date of termination, together with the amount of any unreimbursed
business expenses as of the date of termination and, except as otherwise
provided in this Section 3(e), the Corporation and the Bank shall have no
further obligation to the Executive under this Agreement.

 

4.            Boards of Directors.   During the term of this Agreement, the
Corporation agrees to cause Executive to be elected as a director on the Board
of Directors of the Bank. As of the Effective Date, the Corporation agrees to
appoint Executive as a director to Class III of the Board of Directors of the
Corporation and thereafter to nominate Executive for election as a director on
the Board of Directors of the Corporation in connection with each election of
directors of the Corporation wherein his term of office otherwise would expire.
Executive agrees to serve with no additional compensation as a director on the
Boards of Directors of the Corporation and of the Bank and, if elected or
appointed thereto, in one or more offices or as a director of any subsidiary of
the Corporation or the Bank. In the event Executive's employment under this
Agreement would be terminated for any reason, Executive's service as a director
of the Corporation, the Bank and any affiliate or subsidiary thereof shall
immediately terminate. This Section 4 shall constitute a resignation notice for
such purposes.

 

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5.           Employment Period Compensation, Benefits and Expenses.

 

(a)          Annual Base Salary. For services performed by Executive under this
Agreement, Bank shall pay Executive an annual base salary during the Employment
Period at the rate of Three Hundred Eighty Thousand Dollars ($380,000) per year,
minus applicable withholdings and deductions, payable at the same times as
salaries are payable to other executive employees of the Bank ("Annual Base
Salary"). The Annual Base Salary shall be reviewed annually by the Compensation
Committee of the Board of Directors (or such other committee as performs such
functions, the "Compensation Committee") and the Compensation Committee may,
from time to time, increase, but shall not decrease, Executive’s Annual Base
Salary, and any and all such increases shall be deemed to constitute amendments
to this Section 5(a) to reflect the increased amounts, effective as of the date
established for such increases by the Board. In reviewing adjustments to Annual
Base Salary, the Compensation Committee shall consider relevant market data
regarding executive salaries at peer financial institutions and the performance
of the Corporation and the Bank under the Executive’s leadership. Executive will
be eligible to participate in the annual cash Incentive Award Plan for calendar
year 2015 at a target percentage of base salary equal to thirty-five percent
(35%). Participation in the Incentive Award Plan for calendar year 2015 will be
pro-rated based on Executive’s start date.

 

(b)          Bonus. The Compensation Committee may provide for the payment of an
annual bonus to the Executive as it deems appropriate to provide incentive to
the Executive and to reward the Executive for his performance. Such bonus may,
but need not be, determined in accordance with any incentive bonus programs for
executive officers as approved by the Compensation Committee. The payment of any
such bonuses will not reduce or otherwise affect any other obligation of the
Bank to the Executive provided for in this Agreement. Executive will be eligible
to participate in the annual cash Incentive Award Plan for calendar year 2015 at
a target percentage of base salary equal to 35%. Participation in the Incentive
Award Plan for calendar year 2015 will be pro-rated based on Executive's start
date.

 

(c)          Vacations, Holidays, etc. During the term of this Agreement,
Executive shall be entitled to be paid annual vacation in accordance with the
policies as established from time to time by the Board of Directors of the Bank;
provided, however, that Executive's paid annual vacation shall not be less than
five (5) weeks. However, Executive shall not be entitled to receive any
additional compensation from Bank for failure to take a vacation, nor shall
Executive be able to accumulate unused vacation time from one year to the next,
except to the extent authorized by the Board of Directors of Bank. The Executive
shall also be entitled to all paid holidays, sick days and personal days
provided by the Bank to its regular full-time employees and senior executive
officers.

 

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(d)          Automobile. During the term of this Agreement, the Bank shall
provide the Executive with exclusive use of an automobile mutually agreed upon
by Executive and Bank. This automobile shall be a luxury car or comparable
sports utility vehicle with a purchase price or value at the time of lease not
exceeding $60,000. The Bank shall be responsible and shall pay for all costs
associated with the operation and maintenance of such automobile, including,
without limitation, insurance coverage, repairs, maintenance and other operating
and incidental expenses, including registration, fuel and oil.

 

(e)          Country Club Membership Fees. The Bank shall pay for Executive’s
initiation fees, membership dues, capital fund assessments and similar items
necessary or appropriate to maintain a membership at a country club within the
Bank’s market area as mutually agreed upon by Bank and Executive.

 

(f)          Stock Based Incentives. During the term of this Agreement,
Executive shall be entitled to such stock based incentives as may be granted
from time to time by the Compensation Committee under the Corporation’s stock
based incentive plans and as are consistent with the Executive’s
responsibilities and performance.

 

(g)          Employee Benefit Plans. During the term of this Agreement, the
Executive shall be eligible to participate in or receive benefits under all Bank
employee benefit plans including, but not limited to, any pension plan,
profit-sharing plan, savings plan, life insurance plan, medical/health insurance
plan, disability insurance plan and other health and welfare benefits as made
available by the Bank to its full time employees generally, subject to and on a
basis consistent with the terms, conditions and overall administration of such
plans and arrangements, and provided, further that such participation does not
violate any state or federal law, rule or regulation.

 

(h)          Business Expenses. During the term of this Agreement, Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by him, which are properly accounted for, in accordance with the
policies and procedures established by the Board of Directors of the Corporation
or the Bank for its executive officers.

 

(i)          SERP. Executive shall be eligible to participate in the
Corporation’s Supplemental Executive Retirement Plan ("SERP") and will be
provided with a supplemental retirement income benefit thereunder with an
approximate value when vested of One Hundred Thousand Dollars ($100,000).
Executive’s participation in the SERP shall be subject to the vesting
requirements and other terms and conditions set forth in the plan.

 

(j)          Effective Date Bonus Payments.

 

(i)          Restricted Stock Grant. Within ten (10) days after the Effective
Date, Executive shall receive a grant of Corporation restricted common stock
equal in value at the time of grant to One Hundred Thousand Dollars ($100,000).
The shares of restricted stock share vest ratably over a three (3) year period.

 

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(ii)         Cash Bonus. The Bank shall pay Executive a signing cash bonus in
the amount of One Hundred Thousand Dollars ($100,000), Fifty Thousand Dollars
($50,000) of which shall be paid sixty (60) days after the Effective Date and
Fifty Thousand Dollars ($50,000) of which shall be paid one hundred eighty (180)
days after the Effective Date. In the event Executive voluntarily terminates
employment with the Bank, other than a termination for "Good Reason", as defined
herein, within eighteen (18) months of receipt of either $50,000 installment
payment, Executive agrees to reimburse the Bank for the full amount of the cash
bonus actually received by Executive.

 

(iii)        1995 Stock Incentive Plan. Executive shall be eligible to receive
an equity award under the Corporation’s 1995 Stock Incentive Plan for calendar
year 2015 equal in value to One Hundred Thousand Dollars($100,000) as of the
date of grant. The equity award, which normally would occur in January, 2016,
may be comprised of a combination of stock options and restricted stock, each of
which will have a time vest and a performance vest component. For calendar years
after 2015, based on approval by the Corporation's Board of Directors, Executive
will be eligible to receive such stock based incentives as are granted to
Executive under the Corporation's 1995 Stock Incentive Plan consistent with
Executive's responsibilities and the performance of the Corporation and
Executive.

 

(iv)        Relocation Allowance. In connection with Executive's commencement of
employment with the Corporation and the Bank, the Bank will pay to Executive a
fixed relocation allowance in the amount of $35,000 to cover costs associated
with the selling and buying of homes, payment for temporary housing (including
utilities and transitional moving expenses) and for payment of expenses
associated with home finding trips. In addition to the fixed relocation
allowance, the Bank will reimburse Executive for actual moving costs incurred
(costs associated with packing, moving and unpacking household goods) associated
with the physical move to Executive's new permanent residence.

 

6.           Termination of Employment Pursuant to a Change in Control -
Definitions.

 

(a)          Any of the following events occurring during the period commencing
with the date of a "Change in Control" (as defined in Section 6(b) of this
Agreement) and ending on the second anniversary of the date of the Change in
Control, shall constitute a "Termination Pursuant to a Change in Control" for
purposes of this Agreement:

 

(i) Executive’s employment is terminated by the Corporation or Bank or any
acquiror or successor thereof without Cause; or

 

(ii) Executive terminates Executive’s employment for Good Reason.

 

(b)          As used in this Agreement, "Change in Control" shall mean the
occurrence immediately of any of the following:

 

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(i)          the consummation of (A) a merger, consolidation, division or other
fundamental transaction involving the Corporation or the Bank, (B) a sale,
exchange, transfer or other disposition of substantially all of the assets of
the Corporation or the Bank to any entity which is not a direct or indirect
subsidiary of the Corporation, or (C) a purchase by the Corporation or the Bank
of substantially all of the assets of another entity; unless (Y) such merger,
consolidation, division, sale, exchange, transfer, purchase, disposition or
other transaction is approved in advance by eighty percent (80%) or more of the
members of the Board of Directors of the Corporation who are not interested in
the transaction and (Z) a majority of the members of the Board of Directors of
the legal entity resulting from or existing after any such transaction and a
majority of the Board of Directors of such entity’s parent corporation, if any,
are former members of the Board of Directors of the Corporation; or

 

(ii)         any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Exchange Act")), other than the
Corporation, a direct or indirect subsidiary of the Corporation, or a person who
is the beneficial owner of more than twenty-five percent (25%) of the
Corporation’s outstanding securities on the date of this Agreement becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing twenty-five percent
(25%) or more of the combined voting power of Corporation’s then outstanding
securities; or

 

(iii)        during any period of two (2) consecutive years during the term of
Executive’s employment under this Agreement, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof, unless the election of each
director who was not a director at the beginning of such period has been
approved in advance by directors representing at least two-thirds of the
directors then in office who were directors at the beginning of the period; or

 

(iv)        any other change in control of the Corporation or the Bank similar
in effect to any of the foregoing.

 

7.           Rights in the Event of a Termination of Employment Pursuant to a
Change in Control.

 

(a)          Right to Compensation. In the event of a Termination Pursuant to a
Change in Control, Executive shall be entitled to receive the compensation and
benefits set forth below:

 

(i)          Executive shall be paid, within twenty (20) days following
termination, a lump sum cash payment equal to two point ninety-nine (2.99) times
the sum of (1) the highest Annual Base Salary as defined in Section 5(a) during
the immediately preceding three calendar years and (2) the highest cash bonus
and other cash incentive compensation earned by him with respect to one of the
three calendar years immediately preceding the year of termination. The amount
shall be subject to federal, state, and local tax withholdings.

 

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(ii)         In addition, for a period of thirty-six (36) months from the date
of termination of employment, Executive shall be permitted to continue
participation in and the Bank shall maintain the same level of contribution for
Executive’s participation in the Bank’s life, disability, medical/health
insurance and other health and welfare benefits in effect with respect to
Executive during the one (1) year prior to his termination of employment, or, if
Bank is not permitted by the insurance carriers to provide such benefits because
Executive is no longer an employee, a dollar amount equal to the cost to
Executive of obtaining such benefits (or substantially similar benefits).

 

(b)          Mitigation. Executive shall not be required to mitigate the amount
of any payment provided for in this Section 7 by seeking other employment or
otherwise, nor shall the amount of payment or the benefit provided for in this
Section 7 be reduced by any compensation earned by Executive as the result of
employment by another employer or by reason of Executive’s receipt of or right
to receive any retirement or other benefits after the date of termination of
employment or otherwise.

 

(c)          Limitation on Payment and Benefits.

 

(i)          Anything in this Agreement to the contrary notwithstanding, in the
event that a Change in Control occurs and it shall be determined that any
payment or distribution by the Corporation or its affiliates to or for the
benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise ("Total
Payments") would otherwise exceed the amount (the "Safe Harbor Amount") that may
be received by the Executive without the imposition of an excise tax under
section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") and
the Department of the Treasury (the "Department") Regulations relating thereto,
then the Total Payments shall be reduced to the extent, and only to the extent,
necessary to assure that their aggregate present value, as determined in
accordance with the applicable provisions of section 280G of the Code, does not
exceed the greater of the following dollar amounts (the "Benefit Limit"):

 

(A)         the Safe Harbor Amount, or

 

(B)         the greatest after-tax amount payable to the Executive after taking
into account any excise tax imposed under section 4999 of the Code on the Total
Payments.

 

(ii)         All determinations to be made under this Section 7(c) shall be made
by an independent public accounting firm chosen by the Corporation (the
"Accounting Firm"). In determining whether such Benefit Limit is exceeded, the
Accounting Firm shall make a reasonable determination of the value to be
assigned to the restrictive covenants in effect for the Executive pursuant to
this Agreement, and the amount of the Executive’s potential parachute payment
under section 280G of the Code shall reduced by the value of those restrictive
covenants to the extent consistent with section 280G of the Code.

 

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(iii)        In the event the Internal Revenue Service notifies the Executive of
an inquiry with respect to the applicability of section 280G of the Code or
section 4999 of the Code to any payment by the Corporation or its affiliates, or
assessment of tax under section 4999 of the Code with respect to any payment by
the Corporation or its affiliates, the Executive shall provide notice to the
Corporation of such inquiry or assessment within ten (10) days, and shall take
no action with respect to such inquiry or assessment until the Corporation has
responded thereto (provided such response is timely with respect to the inquiry
or assessment). The Corporation shall have the right to appoint an attorney or
accountant to represent the Executive with respect to such inquiry or
assessment, and the Executive shall fully cooperate with such representative as
a condition of the Agreement with respect to such inquiry or assessment.

 

(iv)        All of the fees and expenses of the Accounting Firm in performing
the determinations referred to in Section 7(c)(ii) or any attorney or accountant
appointed to represent the Executive pursuant to Section 7(c)(iii) shall be
borne solely by the Corporation.

 

(v)         To the extent a reduction to the Total Payments is required to be
made in accordance with this Section 7(c), such reduction and/or cancellation of
acceleration of equity awards shall occur in the order that provides the maximum
economic benefit to the Executive. In the event that acceleration of equity
awards is to be reduced, such acceleration of vesting also shall be canceled in
the order that provides the maximum economic benefit to the Executive.
Notwithstanding the foregoing, any reduction shall be made in a manner
consistent with the requirements of section 409A of the Code and where two
economically equivalent amounts are subject to reduction but payable at
different times, such amounts shall be reduced on a pro rata basis, but not
below zero.

 

8.Rights in Event of Termination of Employment Absent Change in Control.

 

(a)          If Executive’s employment is involuntarily terminated by the
Corporation or the Bank without Cause or is terminated by Executive for Good
Reason pursuant to Section 3(c) (other than a Termination Pursuant to a Change
in Control), then Bank shall pay (or cause to be paid) to Executive, within
twenty (20) days following termination, a lump sum cash payment equal to one (1)
times the sum of (1) the highest Annual Base Salary as defined in Section 5(a)
during the immediately preceding three calendar years and (2) the highest cash
bonus and other cash incentive compensation earned by him with respect to one of
the three calendar years immediately preceding the year of termination. The
amount shall be subject to federal, state and local tax withholdings. In
addition, for a period of one (1) year from the date of termination of
employment, Executive shall be permitted to continue participation in, and the
Bank shall maintain the same level of contribution for, Executive’s
participation in the Bank’s life, disability, medical/health insurance and other
health and welfare benefits in effect with respect to Executive during the one
(1) year prior to his termination of employment, or, if Bank cannot provide such
benefits because Executive is no longer an employee, a dollar amount equal to
the cost of Executive of obtaining such benefits (or substantially similar
benefits). In addition, if permitted pursuant to the terms of the plan,
Executive shall receive additional retirement benefits to which he would have
been entitled had his employment continued through the then remaining term of
the Agreement.

 

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(b)          Executive shall not be required to mitigate the amount of any
payment provided for in this Section 8 by seeking other employment or otherwise,
nor shall the amount of payment or the benefit provided for in this Section 8 be
reduced by any compensation earned by Executive as the result of employment by
another employer or by reason of Executive’s receipt of or right to receive any
retirement or other benefits after the date of termination of employment or
otherwise.

 

9.           Covenant Not to Compete.

 

(a)          Executive hereby acknowledges and recognizes the highly competitive
nature of the business of the Corporation and the Bank and accordingly agrees
that, during and for the applicable period set forth in Section 9(c) hereof,
Executive shall not:

 

(i)          enter into or be engaged (other than by the Corporation or the
Bank), 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 bank holding company) or financial services industry, (2)
starting a new bank or (3) any other activity in which the Corporation, Bank or
any of its subsidiaries are engaged during the Employment Period, in either case
within a thirty-five (35) mile radius of the legal or principal executive office
of the Corporation or the Bank and any branch banking office or other office of
the Bank (the "Non-Competition Area"); or

 

(ii)         solicit, directly or indirectly, current or former customers of the
Corporation or the Bank or any of their respective subsidiaries to divert their
business from the Corporation and/or the Bank; or

 

(iii)        solicit, directly or indirectly, any person who is employed by the
Corporation or the Bank or any of their respective subsidiaries to leave the
employ of the Corporation or the Bank.

 

(b)          It is expressly understood and agreed that, although the parties
consider the restrictions contained in Section 9(a) hereof reasonable for the
purpose of preserving for the Corporation, the Bank and its subsidiaries 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 9(a) hereof is an unreasonable or
otherwise unenforceable restriction against Executive, the provisions of Section
9(a) hereof shall not be rendered void but shall be deemed amended to apply as
to such maximum time and territory and to such other extent as such court may
judicially determine or indicate to be reasonable.

 

(c)          The provisions of this Section 9 shall be applicable commencing on
the date of this Agreement and continuing for two (2) years after the effective
date of the termination of Executive’s employment. Notwithstanding the above
provisions, if the Executive violates the provisions of this Section 9 and the
Bank must seek enforcement of the provisions of Section 9 and is successful in
enforcing the provisions, either pursuant to a settlement agreement, or pursuant
to court order, the covenant not to compete will remain in effect for two (2)
full years following the date of the settlement agreement or court order.

 

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(d)          Executive hereby agrees that the provisions of this Section 9 are
fully assignable by the Corporation and the Bank to any successor. Executive
also acknowledges that the terms and conditions of this Section 9 will not be
affected by the circumstances surrounding his termination of employment.

 

(e)          The Executive acknowledges and agrees that any breach of the
restrictions set forth in this Section 9 will result in irreparable injury to
the Corporation and the Bank for which it shall have no meaningful remedy at
law, and the Corporation and the Bank shall be entitled to injunctive relief in
order to enforce the provisions hereof. Upon obtaining any such final and
nonappealable injunction, the Corporation and the Bank shall be entitled to
pursue reimbursement from the Executive and/or the Executive’s employer of
attorney’s fees and costs reasonably incurred in obtaining such final and
nonappealable injunction. In addition, the Corporation and the Bank shall be
entitled to pursue reimbursement from the Executive and/or the Executive’s
employer of costs reasonably incurred in securing a qualified replacement for
any employee enticed away from the Corporation and the Bank by Executive.
Further, the Corporation and the Bank shall be entitled to set off against or
obtain reimbursement from Executive of any payments owed or made to the
Executive hereunder.

 

10.        Non-Disparagement. Following the termination of the Executive’s
employment, the Executive shall not make any public statements which disparage
the Corporation or Bank. Notwithstanding the foregoing, nothing in this Section
shall prohibit Executive from making truthful statements when required by order
of a court or other governmental or regulatory body having jurisdiction.

 

11.        Unauthorized Disclosure. During the term of his employment hereunder,
or at any later time, the Executive shall not, without the written consent of
the Board of Directors of the Corporation and the Bank or a person authorized
thereby (except as may be required pursuant to a subpoena or other legal
process), knowingly disclose to any person, other than an employee of the
Corporation and the Bank or a person to whom disclosure is reasonably necessary
or appropriate in connection with the performance by the Executive of his duties
as an executive of the Corporation and the Bank, any material confidential
information obtained by him while in the employ of the Corporation and the Bank
with respect to any of the Corporation and the Bank’s services, products,
improvements, formulas, designs or styles, processes, customers, methods of
business or any business practices the disclosure of which could be or will be
damaging to the Corporation and the Bank; provided, however, that confidential
information shall not include any information known generally to the public
(other than as a result of unauthorized disclosure by the Executive or any
person with the assistance, consent or direction of the Executive) or any
information of a type not otherwise considered confidential by persons engaged
in the same business or a business similar to that conducted by the Corporation
and the Bank or any information that must be disclosed as required by law.

 

11

 

  

12.        Release. Notwithstanding any other provision of this Agreement, any
severance or termination payments or benefits herein described are conditioned
on the Executive’s execution and delivery to the Corporation and Bank of an
effective general release agreement in the form attached hereto as Exhibit A, as
such form may be modified by the Corporation, in a manner consistent with the
requirements of the Older Workers Benefit Protection Act and any applicable
state law. Notwithstanding any provision of this Agreement to the contrary, in
no event shall the timing of the Executive’s execution of the release, directly
or indirectly, result in the Executive designating the calendar year of payment,
and if a payment that is subject to execution of the release could be made in
more than one taxable year, payment shall be made in the later taxable year.

 

13.        Preemptive Considerations. Notwithstanding anything to the contrary
set forth herein:

 

(a)          If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Corporation’s or Bank’s affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12
U.S.C. 1818(e)(3) and (g)(1)) or any amendments or supplements thereto, the
obligations of the Corporation and Bank under this Agreement shall be suspended
as of the date of service unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Corporation and Bank may in its
discretion (i) pay the Executive all or part of the compensation withheld while
this Agreement’s obligations were suspended, and (ii) reinstate (in whole or in
part) any of its obligations which were suspended.

 

(b)          If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Corporation’s or Bank’s affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12
U.S.C. 1818(e)(4) or (g)(1)) or any amendments or supplements thereto, or
equivalent provisions relating to a regulator with supervisory authority over
the Corporation or Bank, all obligations of the Corporation or Bank under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the parties shall not be affected.

 

(c)          If the Corporation or Bank is in default (as defined in Section
3(x)(1) of the Federal Deposit Insurance Act or equivalent provisions relating
to a regulator with supervisory authority over the Corporation or Bank), all
obligations under this Agreement shall terminate as of the date of default, but
this Section 13(c) shall not affect any vested rights of the parties.

 

14.        Indemnification; Liability Insurance. The Corporation and the Bank
shall indemnify the Executive, to the fullest extent permitted by Pennsylvania
law, with respect to any threatened, pending or contemplated action, suit or
proceeding brought against him by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation and the Bank or is or
was serving at the written request of the Corporation as a director, officer,
employee or agent of another person or entity. The Executive’s right to
indemnification provided herein is not exclusive of any other rights to which
Executive may be entitled under any bylaw, agreement, vote of shareholders or
otherwise, and shall continue beyond the term of this Agreement. The Corporation
shall use its best efforts to obtain insurance coverage for the Executive under
an insurance policy covering officers and directors of the Corporation and its
subsidiaries and affiliates against lawsuits, arbitrations or other legal or
regulatory proceedings; however, nothing herein shall be construed to require
Corporation to obtain such insurance if the Board of Directors of the
Corporation determines that such coverage cannot be obtained at a reasonable
price.

 

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15.        Notices. Except as otherwise provided in this Agreement, any notice
required or permitted to be given under this Agreement shall be deemed properly
given if in writing and if mailed by registered or certified mail, postage
prepaid with return receipt requested, to Executive’s address, in the case of
notices to Executive, and to the principal executive office of the Corporation,
in the case of notice to the Corporation or the Bank.

 

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

 

17.        Assignment. This Agreement shall not be assignable by any party,
except by Bank and the Corporation to any successor in interest to its business.

 

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

 

19.        Successors; Binding Agreement.

 

(a)          The Corporation 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 the Corporation and/or the
Bank to expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Corporation and the Bank would be required to
perform it if no such succession had taken place. As used in this Agreement,
"Corporation" and "Bank" shall mean the Corporation and the Bank, as defined
previously and any successor to its respective business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.

 

(b)          This Agreement shall inure to the benefit of and be enforceable by
Executive’s personal or legal representatives, executors, administrators, heirs,
distributees, devisees or legatees. If Executive should die: (i) after delivery
of a notice of termination pursuant to Section 3(c); (ii) following a
Termination Pursuant to a Change in Control; or (iii) following termination of
Executive’s employment without Cause, and any amounts would be payable to
Executive under this Agreement if Executive had continued to live, all such
amounts shall be paid in accordance with the terms of this Agreement to
Executive’s devisee, legatee, or other designee, or, if there is no such
designee, to Executive’s estate.

 

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20.        Arbitration. The Corporation, the Bank and Executive recognize that
in the event a dispute should arise between them concerning the interpretation
or implementation of this Agreement, lengthy and expensive litigation will not
afford a practical resolution of the issues within a reasonable period of time.
Consequently, with the exception of the covenant not to compete,
non-disparagement and non-disclosure provisions in Sections 9, 10 and 11, which
the Corporation and/or the Bank may seek to enforce in any court of competent
jurisdiction, each party agrees that all disputes, disagreements and questions
of interpretation concerning this Agreement are to be submitted to resolution,
in Wellsboro, Pennsylvania, to the American Arbitration Association (the
"Association") in accordance with the Association’s National Rules for the
Resolution of Employment Disputes or other applicable rules then in effect
("Rules"). The Corporation, the Bank or Executive may initiate an arbitration
proceeding at any time by giving notice to the other in accordance with the
Rules. The Corporation, the Bank and Executive may, as a matter or right,
mutually agree on the appointment of a particular arbitrator from the
Association’s pool. The arbitrator shall not be bound by the rules of evidence
and procedure of the courts of the Commonwealth of Pennsylvania but shall be
bound by the substantive law applicable to this Agreement. The decision of the
arbitrator, absent fraud, duress, incompetence or gross and obvious error of
act, shall be final and binding upon the parties and shall be enforceable in
courts of proper jurisdiction. Following written notice of a request for
arbitration, the Corporation, Bank and Executive shall be entitled to an
injunction restraining all further proceedings in any pending or subsequently
filed litigation concerning this Agreement, except as otherwise provided herein.

 

21.        Legal Expenses. Bank will pay to the Executive all reasonable legal
fees and expenses when incurred by the Executive in seeking to obtain or enforce
any right or benefit provided by this Agreement, provided he brings the action
in good faith and is successful on the merits.

 

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

 

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

 

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

 

25.        409A Safe Harbor.

 

(a)          General. It is intended that this Agreement shall comply with the
provisions of section 409A of the Code and the Department of the Treasury (the
"Department") Regulations relating thereto, or an exemption to section 409A of
the Code. Any payments that qualify for the "short-term deferral" exception or
another exception under section 409A of the Code shall be paid under the
applicable exception. For purposes of the limitations on nonqualified deferred
compensation under section 409A of the Code, each payment of compensation under
this Agreement shall be treated as a separate payment of compensation for
purposes of applying the section 409A of the Code deferral election rules and
the exclusion under section 409A of the Code for certain short-term deferral
amounts. All payments to be made upon a termination of employment under this
Agreement may only be made upon a "separation from service" under section 409A
of the Code. In no event may the Executive, directly or indirectly, designate
the calendar year of any payment under this Agreement. Within the time period
permitted by the applicable Department Regulations (or such later time as may be
permitted under section 409A or any Internal Revenue Service or Department rules
or other guidance issued thereunder), the Corporation may, in consultation with
the Executive, modify the Agreement in order to cause the provisions of the
Agreement to comply with the requirements of section 409A of the Code, so as to
avoid the imposition of taxes and penalties on the Executive pursuant to section
409A of the Code.

 

14

 

  

(b)          In-Kind Benefits and Reimbursements. Notwithstanding anything to
the contrary in this Agreement, all reimbursements and in-kind benefits provided
under this Agreement shall be made or provided in accordance with the
requirements of section 409A of the Code including, where applicable, the
requirement that (i) any reimbursement is for expenses incurred during the
Executive’s lifetime (or during a shorter period of time specified in this
Agreement); (ii) the amount of expenses eligible for reimbursement, or in-kind
benefits provided, during a calendar year may not affect the expenses eligible
for reimbursement, or in-kind benefits to be provided, in any other calendar
year; (iii) the reimbursement of an eligible expense will be made no later than
the last day of the calendar year following the year in which the expense is
incurred; and (iv) the right to reimbursement or in-kind benefits is not subject
to liquidation or exchange for another benefit.

 

(c)          Delay of Payments. Notwithstanding any other provision of this
Agreement to the contrary, if the Executive is considered a "specified employee"
for purposes of section 409A of the Code (as determined in accordance with the
methodology established by the Corporation and the Bank as in effect on the date
of termination), (i) any payment that constitutes nonqualified deferred
compensation within the meaning of section 409A of the Code that is otherwise
due to the Executive under this Agreement during the six-month period following
his separation from service (as determined in accordance with section 409A of
the Code) shall be accumulated and paid to Executive on the first business day
of the seventh month following his separation from service (the "Delayed Payment
Date") and (ii) in the event any equity compensation awards held by the
Executive that vest upon termination of the Executive’s employment constitute
nonqualified deferred compensation within the meaning of section 409A of the
Code, the delivery of shares of common stock (or cash) as applicable in
settlement of such award shall be made on the earliest permissible payment date
(including the Delayed Payment Date) or event under section 409A on which the
shares (or cash) would otherwise be delivered or paid. The Executive shall be
entitled to interest on any delayed cash payments from the date of termination
to the Delayed Payment Date at a rate equal to the applicable federal short-term
rate in effect under Code section 1274(d) for the month in which the Executive’s
separation from service occurs. If the Executive dies during the postponement
period, the amounts and entitlements delayed on account of section 409A of the
Code shall be paid to the person designated by the Executive in writing for this
purpose, or in the absence of any such designation, to (i) his spouse if she
survives him, or (ii) to his estate if his spouse does not survive him, on the
first to occur of the Delayed Payment Date or 30 days after the date of the
Executive’s death. The foregoing shall apply only to those payments required
hereunder, if any, that do not qualify as short term deferrals or an exempt pay
arrangement under section 409A.

 

15

 

  

26.         Recoupment Policy.  The Executive agrees that the Executive will be
subject to any compensation clawback or recoupment policies that may be
applicable to Executive as an executive of the Corporation or Bank, as in effect
from time to time and as approved by the Board of Directors or a duly authorized
committee thereof, whether or not approved before or after the effective time of
this Agreement.

 

27.          Survival. Notwithstanding anything contained herein to the
contrary, Executive’s obligations under Sections 9, 10, 11 and 26 shall continue
despite the expiration of the term of this Agreement or its termination.

 

[signature page follows]

 

16

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of date first
above written.

 

ATTEST:   CITIZENS & NORTHERN CORPORATION       /s/ Kimberly N. Battin   By: /s/
Leo F. Lambert Kimberly N. Battin, Secretary     Leo F. Lambert, Chariman      
ATTEST:   CITIZENS & NOTRHERN BANK       /s/ Kimberly N. Battin   By: /s/ Leo F.
Lambert Kimberly N. Battin, Secretary     Leo F. Lambert, Chairman      
WITNESS:   EXECUTIVE       /s/ Leo F. Lambert   /s/ J. Bradley Scovill     J.
Bradley Scovill

 

17

 

  

EXHIBIT A
Separation Agreement and General Release

 

THIS SEPARATION AGREEMENT AND GENERAL RELEASE (this "Agreement") is made by and
between                                (the "Executive"), Citizens & Northern
Corporation, a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania (the "Corporation") and Citizens & Northern Bank, a
Pennsylvania chartered bank (the "Bank") .

 

WHEREAS, the Executive, the Corporation and the Bank entered into an Employment
Agreement dated ____________________________, 2015 (the "Employment Agreement")
that sets forth the terms and conditions of the Executive's employment with the
Corporation and the Bank, including the circumstances under which the Executive
is eligible to receive severance pay.

 

NOW, THEREFORE, the Executive, the Corporation and the Bank each intending to be
legally held bound, hereby agree as follows:

 

1.          Consideration. In consideration for a release of claims and other
promises and covenants set forth herein, the Corporation and the Bank agree to
pay the Executive such consideration as is specified in Sections 7 and 8 of the
Employment Agreement in accordance with the terms and conditions of the
Employment Agreement.

 

2.          Executive's Release. The Executive on the Executive's own behalf and
together with the Executive's heirs, assigns, executors, agents and
representatives hereby generally releases and discharges the Corporation and the
Bank and their respective subsidiaries, affiliates and the respective
predecessors, successors (by merger or otherwise) and assigns of any of the
foregoing, together with each and every of the present, past and future
officers, managers, directors, shareholders, members, general partners, limited
partners, employees and agents of any of the foregoing, and the heirs and
executors of any of the foregoing (herein collectively referred to as the
"Releasees") from any and all suits, causes of action, complaints, obligations,
demands, common law or statutory claims of any kind, whether in law or in
equity, direct or indirect, known or unknown (hereinafter "Claims"), which the
Executive ever had or now has against the Releasees, or any one of them
occurring up to and including the date of this Agreement. Notwithstanding
anything herein to the contrary, the Executive's release is not and shall not be
construed as a release of any future claim by the Executive against the
Corporation or the Bank. This release specifically includes, but is not limited
to:

 

(a)          any and all Claims for wages and benefits including, without
limitation, salary, stock options, stock, royalties, license fees, health and
welfare benefits, severance pay, vacation pay, and bonuses;

 

(b)          any and all Claims for wrongful discharge, breach of contract,
whether express or implied, and Claims for breach of implied covenants of good
faith and fair dealing;

 

18

 

  

(c)          any and all Claims for alleged employment discrimination on the
basis of race, color, religion, sex, age, national origin, veteran status,
disability and/or handicap, in violation of any federal, state or local statute,
ordinance, judicial precedent or Employee order, including but not limited to
claims for discrimination under the following statutes: Title VII of the Civil
Rights Act of 1964, 42 U.S.C. §2000e et seq.; the Civil Rights Act of 1866, 42
U.S.C. §1981; the Civil Rights Act of 1991; the Age Discrimination in Employment
Act, as amended, 29 U.S.C. §621 et seq.; the Older Workers Benefit Protection
Act 29 U.S.C. §§ 623, 626 and 630; the Rehabilitation Act of 1972, as amended,
29 U.S.C. §701 et seq.; the Americans with Disabilities Act, 42 U.S.C. §12101 et
seq.; the Family and Medical Leave Act of 1993, 29 U.S.C. §2601, et seq.; the
Fair Labor Standards Act, as amended, 29 U.S.C. §201, et seq.; the Fair Credit
Reporting Act, as amended, 15 U.S.C. §1681, et seq.; and the Employee Retirement
Income Security Act of 1974, as amended, 29 U.S.C. § 1000, et seq. ("ERISA") or
any comparable state statute or local ordinance;

 

(d)          any and all Claims under any federal or state statute relating to
employee benefits or pensions;

 

(e)          any and all Claims in tort, including but not limited to, any
Claims for assault, battery, misrepresentation, defamation, interference with
contract or prospective economic advantage, intentional or negligent infliction
of emotional distress, duress, loss of consortium, invasion of privacy and
negligence; and

 

(f)          any and all Claims for attorneys' fees and costs.

 

3.          Acknowledgment. The Executive understands that the release of Claims
contained in this Agreement extends to all of the aforementioned Claims and
potential Claims which arose on or before the date of this Agreement, whether
now known or unknown, suspected or unsuspected, and that this constitutes an
essential term of this Agreement. The Executive further understands and
acknowledges the significance and consequences of this Agreement and of each
specific release and waiver, and expressly consents that this Agreement shall be
given full force and effect to each and all of its express terms and provisions,
including those relating to unknown and uncompensated Claims, if any, as well as
those relating to any other Claims specified herein.

 

4.          Remedies. All remedies at law or in equity shall be available to the
Releasees for the enforcement of this Agreement. This Agreement may be pleaded
as a full bar to the enforcement of any Claim that the Executive may assert
against the Releasees. The non- prevailing party in any litigation shall pay for
the prevailing party's costs and expenses of litigation including without
limitation the prevailing parties attorney's fees.

 

5.          No Admission. Neither the execution of this Agreement by the
Corporation and the Bank, nor the terms hereof, constitute an admission by the
Corporation or the Bank of any liability to the Executive.

 

6.          Entire Agreement. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof, and shall be binding upon
their respective heirs, executors, administrators, successors and assigns. In
the event there is any inconsistency between the terms of this Agreement and the
Employment Agreement, the terms of this Agreement shall control.

 

7.          Severability. If any term or provision of this Agreement shall be
held to be invalid or unenforceable for any reason, then such term or provision
shall be ineffective to the extent of such invalidity or unenforceability
without invalidating the remaining terms or provisions hereof, and such term or
provision shall be deemed modified to the extent necessary to make it
enforceable.

 

19

 

  

8.          Executive's Representation. The Executive represents and warrants
that he or she has not assigned any claim that he or she purports to release
hereunder and that he or she has the full power and authority to enter into this
Agreement and bind each of the persons and entities that the Executive purports
to bind. The Executive further represents and warrants that he or she is bound
by, and agrees to remain bound by, the Executive's post-employment obligations
set forth in the Employment Agreement.

 

9.          Amendments. Neither this Agreement nor any term hereof may be
changed, waived, discharged, or terminated, except by a written agreement signed
by the parties hereto.

 

10.         Governing Authority. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania,
without regard to the principles of conflicts of laws of any jurisdiction. The
Executive agrees that the Corporation and the Bank shall have the right to
commence and maintain an action hereunder in the state and federal courts
appropriate for the location at which the Corporation maintains its corporate
offices, and the Executive hereby submits to the jurisdiction and venue of such
courts.

 

11.         Fees and Costs. The parties shall bear their own attorneys' fees and
costs.

 

12.         Counterparts. This Agreement may be executed in counterparts.

 

13.         Legally Binding. The terms of this Agreement contained herein are
contractual, and not a mere recital.

 

IN WITNESS WHEREOF, the Executive, acknowledging that he or she is acting of his
or her own free will after having had the opportunity to seek the advice of
counsel and a reasonable period of time to consider the terms of this Agreement,
and the Corporation and the Bank, have caused the execution of this Agreement as
of this day and year written below.

 

EXECUTIVE   WITNESS           By:     By:             Name:     Name:          
  Date:     Date:         CITIZENS & NORTHERN CORPORATION   CITIZENS & NORTHERN
BANK           By:     By:             Name:     Name:             Title:    
Title:             Date:     Date:  

 

20