Exhibit 10.7

VALLEY FORGE ASSET MANAGEMENT CORP.

December 1, 2008

Bernard A. Francis Jr.

P.O. Box 837

Valley Forge, PA 19482

 

Re: Employment Agreement Amendment – Section 409A of the Internal Revenue Code

Dear Bernie:

You and Valley Forge Asset Management Corp. (including any successor, “VFAM”),
which is a wholly-owned subsidiary of Susquehanna Bancshares, Inc. (“SBI”, and
collectively with VFAM, the “Company”) are parties to that certain employment
agreement dated January 1, 2004, as amended January 18, 2005 (the “Existing
Agreement”), which provides you with certain rights as an employee of the
Company, including the right to receive severance payments, as set forth in the
Existing Agreement, should you be involuntarily terminated, including in certain
circumstances, in the event of your resignation on account of an “adverse change
in your circumstances” (as defined in the Existing Agreement”). As a result of
recent changes to the tax laws, the Existing Agreement is subject to section
409A of the Internal Revenue Code of 1986, as amended (“Code”).

In order to comply with section 409A of the Code, the parties agree that the
Existing Agreement is hereby amended by this letter (“Amendment” which together
with the Existing Agreement will constitute your “Employment Agreement”) to
include the following provisions:

 

1) Section 4.2 is amended to add the following sentence to the end of existing
text, as follows:

The Employee’s bonus (if any) for a fiscal year shall be paid to him at the time
and in the form and manner provided under the terms of the applicable plan
pursuant to which the bonus is awarded.

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2) The last sentence of Section 7.3 is deleted in its entirety and replaced, as
follows:

Notwithstanding the preceding, subject to the requirements of applicable law, if
such permanent disability continues, the Company may terminate the Employee’s
employment and this Agreement on account of the Employee’s disability. Upon such
termination, the Company and VFAM (i) shall have no further obligation to the
Employee under this Agreement other than in connection with such benefits as may
be available under such disability insurance programs, and (ii) shall not be
obligated to provide or pay for any benefits under the programs or policies
listed in subparagraphs 7.1 and 7.2 above, except to the extent that any of the
benefits available under such programs or policies survive termination of the
Employee’s employment by their express terms, or as required by law, in which
event they shall continue only as required by their express terms or as required
by law, whichever is applicable.

 

3) The first paragraph of Section 10.1 is deleted in its entirety and replaced,
as follows:

The Employee shall be deemed to have been given notice of termination (“Notice
of Termination”) for purposes of this subsection 10.1 if this Agreement is not
renewed by the Company and (i) the Employee elects in a writing delivered to the
Company within thirty (30) calendar days of the termination of the Period of
Employment to treat such failure to renew as Notice of Termination, effective as
of the date of delivery of such election to the Company, or (ii) the Employee
does not exercise his rights under the immediately preceding clause, effective
on the last day of the twenty-fourth (24th) month following the most recent
renewal date. Notwithstanding anything to the contrary, the terms of this
subjection 10.1 shall apply only if the Company fails to renew the Agreement in
accordance with Section 3 and the Employee is otherwise willing and able to
execute a new contract providing terms and conditions substantially similar to
those in this Agreement and to continue providing services to the Company.

 

4) The second paragraph of Section 10.1 is deleted in its entirety and replaced,
as follows::

Upon the effective date of a Notice of Termination under this subsection 10.1,
the Company may request the Employee to, and if required, the Employee shall
continue to perform his duties as set forth in this Agreement for a period not
to exceed three (3) months from the effective date of the Notice of Termination.
In addition to such period, the Employee shall be reasonably available for a
period of up to nine (9) additional months for advice and consultation as
required by the Company or VFAM. The Employee shall be entitled to receive all
salary, benefits and such bonus for which the Employee is eligible for both the
three (3) month period referenced above and the portion of the nine (9) month
period during which the Employee continues to work for VFAM pursuant to the
preceding requirements. The Employee will have a “separation from

 

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service” from the Company within the meaning of section 409A of the Code on the
earlier of (i) the last day of the applicable period described above during
which the Employee continues to be employed by the Company or VFAM following the
effective date of the Notice of Termination, and (ii) the date on which the
Employee obtains other employment during such twelve (12) month period, at which
point all compensation and benefits shall cease and the Company shall have no
further liability or obligation by reason of such separation from service.

 

5) Section 10.2 is deleted in its entirety and replaced, as follows:

10.2 This Agreement may be terminated upon action of the Employee by not less
than two (2) months notice to the Company. The Employee agrees in the event of
termination under this subparagraph to cooperate, advise and consult the Company
as needed to assist in the transition of Employee’s replacement during such two
(2) month period. On the last day of the two (2) month notice period, the
Employee will have a “separation from service” from the Company within the
meaning of section 409A of the Code and such date shall be the Employee’s
Termination Date for purposes of this Agreement. Following the Employee’s
Termination Date under this Section 10.1, the Employee agrees to be available to
cooperate, advise and consult the Company as needed for a period of four
(4) months during reasonable time and under reasonable circumstances, provided,
however, that the Employee shall not during such time provide services at a
level that would result in the Employee not being considered to have had a
“separation from service” under section 409A of the Code on the last day of the
original two (2) month notice period.

 

6) The first sentence of Section 10.5(a) is deleted in its entirety and replaced
as follows:

In addition to termination under subparagraphs 10.1, 10.2 and 10.3 above, the
Employee’s employment by the Company under this Agreement may be terminated by
the Company at any time without cause during the term provided in this
Employment Agreement or by the Employee within twelve (12) months following a
Change in Control if their occurs an adverse change in the Employee’s
circumstances within such twelve (12) month period.

 

7) Section 10.5(a) is amended to add the following sentence to the end of
existing text, as follows:

Subject to Section 10.10, the severance amounts described in this subparagraph
10.5 shall be paid in a single lump sum payment within 30 days after the
Employee’s termination date, subject to the Employee’s execution and delivery of
an effective release as described below in subparagraph 10.9.

 

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8) Section 10.5(a)(1) is deleted in its entirety and replaced, as follows:

(1) if the Employee participates in any defined benefit pension plan maintained
by the Company or one of its Affiliates immediately before the Employee’s
termination date (whether such plan is tax qualified or non-qualified), the
Employee shall accrue an additional, fully vested benefit under the Company’s
non-qualified pension plan (which shall be paid at the time and in the form
determined under the nonqualified pension plan and shall be determined in all
respects pursuant to the terms of the applicable defined benefit pension
plan(s)) equal to the difference between (a) the benefit that the Employee would
have accrued under all defined benefit pension plans of the Company or its
Affiliates in which the Employee participated immediately before the Employee’s
termination date, taking into account the compensation paid to the Employee
under Section 10.5 as compensation for purposes of the applicable plan and
increasing the Employee’s years of benefit service under the applicable plan by
the number of years in the remainder of the Period of Employment (the “Severance
Period”), and (b) the actual benefit due to the Employee under all defined
benefit pension plans of the Company and its Affiliated in which the Employee
participated immediately before the Employee’s termination date;

 

9) Section 10.5(a)(2) is deleted in its entirety and replaced, as follows:

(2) the employee benefits listed below for the remainder of the Period of
Employment, in the form and manner set forth below:

(a) continued coverage under the applicable health plan of the Company pursuant
to section 4980B of the Code for the Employee, his spouse and eligible
dependents, for the period commencing on the Employee’s termination date and
continuing for the duration of the Severance Period, which coverage will run
concurrent with the coverage provided under section 4980B of Code, subject to
the requirement that the Employee remit the employee portion of premium cost
associated with the foregoing coverage;

(b) continued coverage under the applicable life insurance and accidental death
and dismemberment policy(ies) which insured the Employee during the term of his
employment for the period commencing on the Employee’s termination date and
continuing for the remainder of the Period of Employment, subject to the
requirement that the Employee remit the employee portion of premium cost
associated with the foregoing coverage, if any. The Employee should consult with
the Company concerning any life insurance policies and the Employee’s ability to
transfer such policy to the Employee following the end off the Severance Period;
and

(c) continued coverage under the applicable disability insurance policy(ies) of
the Company for the period commencing on the Employee’s termination date and
continuing for the duration of the Severance Period, subject to the requirement
that the Employee remit the employee portion of premium cost associated with the
foregoing coverage, if any.

 

10) A new Section 10.6(e) is added, as follows:

(e) Notwithstanding any provision of this subparagraph 10.6 to the contrary, in
accordance with the requirements of section 409A of the Code, any Parachute
Gross-up payable hereunder shall be paid not later than the end of the calendar
year next following the calendar year in which the Employee or Company (as
applicable) remits the taxes for which the Parachute Gross-up is being paid.

 

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11) A new Section 10.9 is added, as follows:

10.9 Release. Notwithstanding any other provision of this Agreement, any
severance or termination payments or benefits herein described are conditioned
on the Employee’s execution and delivery to the Company of a general release and
non-disparagement agreement in a form prescribed by the Company and in a manner
consistent with the requirements of the Older Workers Benefit Protection Act and
any applicable state law.

 

12) A new Section 10.10 is added, as follows:

10.10 Except as otherwise provided in Section 10, all compensation and benefits
shall cease at the time of such termination and the Company shall have no
further liability or obligation by reason of such termination.

Notwithstanding anything herein to the contrary, if, at the time of the
Employee’s termination of employment with the Company, the Company has
securities which are publicly traded on an established securities market and the
Employee is a “specified employee” (as such term is defined in section 409A of
the Code) and it is necessary to postpone the commencement of any payments or
benefits otherwise payable under this Agreement as a result of such termination
of employment to prevent any accelerated or additional tax under section 409A of
the Code, then the Company will postpone the commencement of the payment of any
such payments or benefits hereunder (without any reduction in such payments or
benefits ultimately paid or provided to the Employee) that are not otherwise
paid within the “short-term deferral exception” under Treas. Reg.
§1.409A-1(b)(4) and the “separation pay exception” under Treas. Reg.
§1.409A-1(b)(9)(iii), until the first payroll date that occurs after the date
that is six months following the Employee’s “separation of service” with the
Company. If any payments are postponed due to such requirements, such postponed
amounts will be paid in a lump sum to the Employee on the first payroll date
that occurs after the date that is six months following Employee’s “separation
of service” with the Company. If the Employee dies during the postponement
period prior to the payment of postponed amount, the amounts postponed on
account of section 409A of the Code shall be paid to the personal representative
of the Employee’ s estate within 60 days after the date of the Employee’s death.
A “specified employee” shall mean an employee who, at any time during the
12-month period ending on the identification date, is a “specified employee”
under section 409A of the Code, as determined by the Compensation Committee or
its designee. The determination of specified employees, including the number and
identity of persons considered specified employees and the identification date,
shall be made by the Compensation Committee or its designee in accordance with
the provisions of sections 416(i) and 409A of the Code and the regulations
issued thereunder.

 

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13) Section 14.1 is amended to add the following provision after the first
sentence of Section 14.1(d), as follows:

In applying this offset principle, the 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.

 

14) The definition of “an adverse change in the Employee’s circumstances” in
Section 17.2 is deleted in its entirety and replaced, as follows:

The term “an adverse change in the Employee’s circumstances” shall include and
be limited to (A) a significant change in the nature or scope of the Employee’s
duties as set forth in the first sentence of paragraph 2 hereof such that the
Employee has been reduced to a position of materially lesser authority, status
or responsibility, or the time required to be spent by the Employee 60 miles or
more beyond the Company’s geographic market area shall be increased without the
Employee’s consent by more than twenty percent (20%), as compared to the average
of the two (2) preceding years, (B) a material reduction in the Employee’s base
compensation, or (C) any other material and willful breach by the Company of any
other provision of this Agreement.

However, none of the foregoing events or conditions shall constitute an Adverse
Change unless: (x) the Employee provides the Company with written objection to
the event or condition within 60 days following the occurrence thereof, (y) the
Company does not reverse or otherwise cure the event or condition within 30 days
of receiving that written objection, and (z) the Employee resigns his employment
within 60 days following the expiration of the 30-day cure period in order for
such termination to be treated as a termination upon an Adverse Change. If
termination occurs after such time, the termination shall be treated as a
termination other than for Adverse Change and the Employee shall not be entitled
to severance benefits under this Agreement.

 

15) A new Section 17.7 is added, as follows:

17.7 Section 409A of the Code. This Agreement shall be interpreted to avoid any
penalty sanctions under section 409A of the Code. If any payment or benefit
cannot be provided or made at the time specified herein without incurring
sanctions under section 409A of the Code, then such benefit or payment shall be
provided in full at the earliest time thereafter when such sanctions shall not
be imposed. The Employee shall be solely responsible for any tax imposed under
section 409A of the Code and in no event shall the Company have any liability
with respect to any tax, interest or other penalty

 

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imposed under section 409A of the Code. For purposes of section 409A of the
Code, all payments to be made upon a termination of employment under this
Agreement may only be made upon the Employee’s “separation from service” (within
the meaning of such term under section 409A of the Code). In no event shall the
Employee, directly or indirectly, designate the calendar year of payment, except
as permitted under section 409A of the Code. 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 shall be for expenses incurred during
the Employee’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 shall be made on or before
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.

Please confirm that this letter agreement accurately sets forth our agreement
with respect to the foregoing matters by signing the enclosed copy of this
letter in the space provided below and returning it to me by December 19th.

 

Very truly yours, /s/ Edward Balderston, Jr. Edward Balderston, Jr. Executive
Vice President & CAO

 

Susquehanna Bancshares, Inc.     Valley Forge Asset Management Corp. /s/ William
J. Reuter     /s/ Frank C. Corace William J. Reuter, Chairman & CEO     Frank C.
Corace, Director & Vice President

AGREED TO AND ACCEPTED BY

as of the date first set forth above:

    /s/ Bernard A. Francis, Jr.         Bernard A. Francis, Jr.    

 

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