EMPLOYMENT AGREEMENT
 
THIS AGREEMENT (“Agreement”) is effective as of this 7th day of September, 2010,
between QNB CORP., a Pennsylvania business corporation (the “Corporation”), QNB
BANK, a state chartered banking association (the “Bank”), and DAVID W. FREEMAN,
an adult individual (“Executive”).
 
WITNESSETH:
 
WHEREAS, the Corporation and the Bank desire to employ Executive and enter into
an agreement setting forth the terms and conditions of such employment.
 
WHEREAS, Executive desires to accept such employment with the Corporation and
the Bank, on the terms and conditions set forth in this Agreement.
 
AGREEMENT
 
NOW, THEREFORE, the parties hereto, 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 the Corporation and the Bank, on the
terms and conditions set forth in this Agreement.
 
2.  Duties of Employee.
 
(a) Executive shall serve as President of the Corporation and President and
Chief Operating Officer of the Bank, reporting to the Chief Executive Officer of
the Corporation (the “Corporation CEO”) and the Chief Executive Officer of the
Bank (the “Bank CEO”), respectively, and shall perform all duties and accept all
responsibilities incident to such positions as may be assigned to Executive by
the Corporation CEO and the Bank CEO.  Executive shall devote Executive’s 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 (the “Board”) or the
Board of Directors of the Bank (the “Bank Board”).  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
Executive serve as a director or officer or in any other capacity in a company
which competes with the Corporation or the Bank.
 
(b) No later than the first meeting of the Bank Board following the effective
date of this Agreement, Executive shall be appointed to the Bank Board and,
thereafter during the term of this Agreement, the Bank shall cause Executive to
be nominated to the Bank Board, and use its reasonable efforts to cause
Executive to be re-elected to the Bank Board.
 
 
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3.  Term of Agreement.
 
(a) Employment Period.  This Agreement shall be for a period (the “Employment
Period”) beginning on the effective date of this Agreement, and if not
previously terminated pursuant to the terms of this Agreement, ending one year
later; provided, however, that the Employment Period shall be automatically
renewed on the first anniversary date of the commencement of the Employment
Period (the “Renewal Date”) for a period ending one year from the Renewal Date
unless either party shall give written notice of non-renewal to the other party
at least 90 days prior to the Renewal Date, in which event this Agreement shall
terminate at the end of the Employment Period.  If this Agreement is renewed on
the Renewal Date, it will be automatically renewed on the first anniversary date
of the Renewal Date and each subsequent anniversary (the “Annual Renewal Date”)
for a period ending one year from each Annual Renewal Date, unless either party
gives written notice of non-renewal to the other party at least 90 days prior to
the Annual Renewal Date, in which case this Agreement shall terminate at the end
of the Employment Period.
 
(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).  As used in this Agreement, “Cause” shall mean
any of the following:
 
(i) Executive is convicted of or pleads 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 30 consecutive days or more;
 
(ii) A government regulatory agency recommends or orders in writing that the
Corporation or the Bank terminate the employment of Executive with the
Corporation or the Bank or relieve Executive of Executive’s duties as such
relate to the Corporation or the Bank;
 
(iii) Executive willfully and continuously fails to follow the lawful
instructions of the Corporation CEO, the Bank CEO, the Board, or the Bank Board
(which instructions must be consistent with the terms of this Agreement), other
than a failure resulting from Disability;
 
(iv) A willful act of material dishonesty on the part of Executive with respect
to any material matter involving the Corporation or the Bank;
 
(v) Executive willfully fails to timely report to the Corporation CEO, the Bank
CEO, the Board, or the Bank Board information having a material adverse effect
on Corporation or Bank business operations;
 
(vi) Theft or material misuse by Executive of Corporation or Bank property;
 
(vii) Executive fails to conform in any material respect to the Corporation’s or
Bank’s code of conduct; or
 
(viii) A material breach of this Agreement by Executive.
 
 
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For purposes of this Agreement, “code of conduct” means the policies and
procedures related to employment of employees by the Corporation or the Bank set
forth in the Corporation’s or Bank’s employee handbook or any similar
document.  The code of conduct may be amended and updated at any time.  The term
“code of conduct” shall also include any other policy or procedure that may be
adopted by the Corporation or the Bank and communicated to Executive.
 
Anything herein to the contrary notwithstanding, Executive’s employment shall
not be terminated for Cause, within the meaning of clauses (iii) — (viii) above
unless written notice stating the basis for the termination is provided to
Executive and Executive (together with Executive’s own counsel) has an
opportunity to be heard before the Board or the Bank Board, as applicable, and,
after such hearing, a majority of the Board or the Bank Board (excluding
Executive), as applicable, duly votes to terminate Executive for Cause.
 
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 Executive’s
Annual Base Salary through the date of termination; 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
Corporation and the Bank then in effect.
 
(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,
without Executive’s express written consent, (i) a material reduction in
Executive’s Annual Base Salary; (ii) a material diminution in Executive’s
authority, duties, or responsibilities; (iii) a material change in the
geographic location at which Executive must perform the services under this
Agreement; or (iv) any other action or inaction that constitutes a material
breach by the Corporation or the Bank of this Agreement, in all cases after
notice from Executive to the Corporation or the Bank within ninety (90) days
after the initial existence of any such condition that the condition constitutes
Good Reason and the failure of the Corporation or the Bank to cure such
situation within thirty (30) days after said notice.
 
If such termination occurs for Good Reason, then the Bank shall pay Executive
such benefits as are set forth in Section 5 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 Executive’s Annual Base
Salary through date of death and the balance of the payments (if any) owing
pursuant to Section 14(b) below, and (ii) the Bank shall provide to Executive’s
dependents any benefits due under the Corporation’s and the Bank’s employee
benefit plans.
 
 
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(e) Disability.  Executive, the Corporation, and the Bank agree that if, in the
judgment of the Board, Executive is unable, as a result of illness or injury, to
perform the essential functions of Executive’s position on a full-time basis
with or without a reasonable accommodation and without posing a direct threat to
Executive or others for a period of six months (a “Disability”), the Corporation
and the Bank will suffer an undue hardship in continuing Executive’s employment
as set forth in this Agreement.  Accordingly, this Agreement shall terminate at
the end of the six-month period, and all of Executive’s rights under this
Agreement shall cease, with the exception of those rights which Executive may
have under the Corporation’s and the Bank’s benefit plans.
 
(f) Resignation from Board of Directors.  In the event Executive’s employment
under this Agreement is terminated for any reason, if applicable, Executive’s
service as a Director of the Corporation, the Bank, and any affiliate or
subsidiary thereof shall immediately terminate.  This Section 3(f) shall
constitute a resignation notice for such purposes.
 
4.  Employment Period Compensation.  Benefits and Expenses.
 
(a) Annual Base Salary.  For services performed by Executive under this
Agreement, the Bank shall pay Executive an annual base salary during the
Employment Period at the rate of $240,000.00 per year, minus applicable
withholdings and deductions, payable at the same times as salaries are payable
to other executive employees of the Bank (the “Annual Base Salary”).  The Annual
Base Salary shall be reviewed annually by the Board or the Bank Board and either
may, from time to time, increase Executive’s Annual Base Salary, and any and all
such increases shall be deemed to constitute amendments to this Section 4(a) to
reflect the increased amounts, effective as of the date established for such
increases.
 
(b) Bonus.  The Board and the Bank Board may provide for the payment of an
annual bonus to Executive as it deems appropriate to provide incentive to
Executive and to reward Executive for Executive’s performance.  Such bonus may,
but need not be, determined in accordance with any incentive bonus programs for
executive officers as approved by the Board and the Bank Board.
 
(c) Vacations, Holidays, etc.  In 2010, Executive shall be entitled to two weeks
vacation.  Each year thereafter, Executive shall be entitled to five weeks
vacation.  Such vacation time shall be subject to the policies as established
from time to time by the Bank Board.  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 executive officers.
 
(d) Stock Based Incentives.  During the term of this Agreement, Executive shall
be eligible for such stock based incentives as may be granted from time to time
by the Board under the Corporation’s stock based incentive plans and as are
consistent with Executive’s responsibilities and performance.
 
(e) Employee Benefits Plans.  Effective November 7, 2010, Executive shall be
entitled to participate in all health, dental, vision, life insurance, and
disability benefit plans available on a general basis to other executive
officers of the Corporation and the Bank; provided, however, that the
Corporation and the Bank reserve the right, from time to time, to amend in any
respect and to terminate all such benefit plans; and provided further that any
reduction in such benefits must be applicable to all employees generally.
 
 
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(f) Additional Benefits.
 
(i) Effective November 7, 2010, Executive shall be entitled to participate in
the [Bank’s] long-term disability and accidental death benefit plans; provided,
however, that the [Bank] reserves the right, from time to time, to amend in any
respect and to terminate such benefit plans; and provided further that any
reduction in such benefits must be applicable to all employees generally.
 
(ii) The Executive shall be eligible to participate in the Corporation’s
retirement savings plan effective on the first plan entry date following March
7, 2011, and in accordance with the terms of the plan; provided, however, that
the Corporation reserves the right, from time to time, to amend in any respect
and to terminate such benefit plan; and provided further that any reduction in
such benefits must be applicable to all employees generally.
 
(g) Business Expenses.  During the term of this Agreement, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
Executive, which are properly accounted for, in accordance with the policies and
procedures established by the Board or the Bank Board for its executive
officers.
 
(h) Long-Term Incentive Grant.  Within 30 days following the effective date of
this Agreement, the Corporation shall grant to Executive incentive stock options
to acquire 3,000 shares of the Corporation’s common stock, which shall become
100% vested on the third anniversary of the date of grant. The foregoing grant
shall be governed by the terms and conditions of the QNB Corp. 2005 Stock
Incentive Plan which was filed with the Corporation’s 2005 proxy statement on
April 15, 2005 and is incorporated herein by reference.
 
(i) Club Membership and Dues.  During the term of this Agreement, the Bank
agrees to pay the initiation fees and dues for Executive to be a member of a
country club to be agreed upon by the Bank and Executive.  The Bank also agrees
to reimburse Executive for all ordinary, necessary, and reasonable
business-related expenses incurred by Executive on Bank business at such country
club.  As a condition to receiving such reimbursements, the Executive shall
submit to the Bank on a timely basis business expense reports, including
substantiation sufficient to enable the Bank to deduct the reimbursed expenses
for tax purposes.
 
5.  Rights in Event of Termination of Employment.
 
(a) In the event Executive’s employment is involuntarily terminated by the
Corporation or the Bank without Cause (other than for death or Disability) or is
voluntarily terminated by Executive for Good Reason, Executive shall be entitled
to receive:
 
(i) Continuation of Executive’s Annual Base Salary then in effect (or
immediately prior to any reduction resulting in a termination by Executive for
Good Reason) for a period of 12 months commencing on or within 30 days following
the date of such termination, in accordance with the Bank’s normal payroll
practices then in effect; and
 
 
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(ii) Continuation of employer-provided healthcare benefits for one year at the
levels and cost to Executive and his qualified dependents in effect on the date
of Executive’s termination, and thereafter to elect, at Executive’s or his
qualified dependents’ cost, COBRA continuation for the remainder of Executive’s
or his qualified dependents’ COBRA eligibility, if any, it being understood that
Executive’s and his dependents’ COBRA eligibility period will include the period
during which the Company is providing benefits under this
Section.  Notwithstanding the foregoing, in the event the Bank is unable to
provide such healthcare benefits due to the applicable nondiscrimination
requirements of Section 105(h) of the Internal Revenue Code of 1986, as amended
(the “Code”), Executive shall receive a dollar amount equal to the cost to
Executive of obtaining such benefits (or substantially similar benefits) on or
within 30 days following the date of termination.
 
(b) Executive shall not be required to mitigate the amount of any payment
provided for in this Section 5 by seeking other employment or otherwise, nor
shall the amount of payment provided for in this Section 5 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.
 
6.  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 6(c) hereof, Executive
shall not:
 
(i) enter into or be engaged (other than by the Corporation or the Bank),
directly or indirectly, either for Executive’s own account or as agent,
consultant, employee, partner, officer, director, proprietor, investor (except
as an investor owning less than 5% of the stock of a publicly owned company), or
otherwise of any person, firm, corporation, or enterprise engaged in (A) the
banking (including bank holding company) or financial services industry or
(B) any other activity in which Corporation or the Bank or any of their
subsidiaries are engaged during the Employment Period, in any county in which,
at the date of termination of Executive’s employment, a branch location, office,
loan production office, or trust or asset and wealth management office of
Corporation, the Bank, or any of their subsidiaries are located
(“Non-Competition Area”); or
 
(ii) solicit, directly or indirectly, any “person” (as such term is defined
under Section 3 of the Employee Retirement Income Security Act of 1974, as
amended) who is, or was during the then most recent 12-month period, a customer
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, or was during the then
most recent 12-month period, 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 6(a) hereof reasonable for the purpose of
preserving for the Corporation, the Bank, and their 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 6(a) hereof is an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of Section 6(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.
 
 
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(c) The provisions of this Section 6 shall be applicable commencing on the
effective date of this Agreement and continuing for 12 months after the
effective date of the termination of Executive’s employment; provided, however,
that in the event Executive’s employment terminates as a result of delivery of a
notice of non-renewal by the Corporation or the Bank in accordance with Section
3(a), Executive shall not be subject to the restrictions contained in Section
6(a)(i).  Notwithstanding the above provisions, if Executive violates the
provisions of this Section 6 and the Corporation or the Bank must seek
enforcement of the provisions of Section 6 and is successful in enforcing the
provisions, either pursuant to a settlement agreement, or pursuant to court
order, the restrictions set forth in this Section 6 shall remain in effect for
one full year following the date of the settlement agreement or court order.
 
(d) Executive hereby agrees that the provisions of this Section 6 are fully
assignable by the Corporation and the Bank to any successor.  Executive also
acknowledges that the terms and conditions of this Section 6 will not be
affected by the circumstances surrounding Executive’s termination of employment.
 
(e) Executive acknowledges and agrees that any breach of the restrictions set
forth in this Section 6 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 provisions hereof.  Upon obtaining any such final and nonappealable
injunction, the Corporation and the Bank shall be entitled to pursue
reimbursement from Executive and/or 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 Executive and/or 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 Executive hereunder.
 
7.  Unauthorized Disclosure.  During the term of Executive’s employment
hereunder, or at any later time, Executive shall not, without the written
consent of the Board and the Bank Board 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 Executive of Executive’s duties as an
executive of the Corporation and the Bank, any material confidential information
obtained by Executive while in the employ of the Corporation and the Bank with
respect to any of the Corporation’s and the Bank’s or any of their subsidiaries’
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
Executive or any person with the assistance, consent, or direction of Executive)
or any information of a type not other 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.
 
 
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8.  Cessation and Recovery on Competition.  If, during the applicable period set
forth in Section 6(c), Executive, in the good faith judgment of the Board,
breaches, in any material respect, any of the restrictions contained in Section
6, the Corporation shall have the right, upon written notice to Executive, to
cease to make any further payments under Section 5 in addition to any other
remedies available the Corporation.
 
9.  Indemnification; Liability Insurance.  The Corporation and the Bank shall
indemnify Executive, to the fullest extent permitted by Pennsylvania law, with
respect to any threatened, pending, or contemplated action, suit, or proceeding
brought against Executive by reason of the fact that Executive 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 or the Bank as a director,
officer, employee, or agent of another person or entity.  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.
 
10.  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.
 
11.  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.  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.
 
12.  Assignment.  This Agreement shall not be assignable by any party, except by
the Bank and the Corporation to any successor in interest to its business.
 
13.  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.
 
14.  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.
 
 
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(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 after a notice of
termination for Good Reason is delivered by Executive, or following termination
of Executive’s employment without Cause, and any amounts would be payable to
Executive under this Agreement if Executive had continued to live, all such
amounts shall be paid in accordance with the terms of this Agreement to
Executive’s devisee, legatee, or other designee, or, if there is no such
designee, to Executive’s estate.
 
15.  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 provisions in Section 6,
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 Philadelphia, 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, the 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.
 
16.  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.
 
17.  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.
 
18.  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.
 
19.  Regulatory Matters.  The obligations of the Corporation and the Bank under
this Agreement shall in all events be subject to any required limitations or
restrictions imposed by or pursuant to the Federal Deposit Insurance Act or the
Pennsylvania Banking Code of 1965 as the same may be amended from time to time.
 
 
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20.  Limitations on Payments.  Notwithstanding anything in this Agreement to the
contrary, in the event the payments and benefits payable hereunder to or on
behalf of Executive, when added to all other amounts and benefits payable to or
on behalf of Executive, would result in the imposition of an excise tax under
Code Section 4999, the amounts and benefits payable hereunder shall be reduced
to such extent as may be necessary to avoid such imposition.  All calculations
required to be made under this Section will be made by the Corporation’s
independent public accountants, subject to the right of Executive’s
representative to review the same.  The parties recognize that the actual
implementation of the provisions of this Section are complex and agree to deal
with each other in good faith to resolve any questions or disagreements arising
hereunder.
 
21.  Recovery of Bonuses and Incentive Compensation.  Notwithstanding anything
in this Agreement to the contrary, all bonuses and incentive compensation paid
hereunder (whether in equity or in cash) shall be subject to recovery by the
Corporation or the Bank in the event that such bonuses or incentive compensation
are based on materially inaccurate financial statements or other materially
inaccurate performance metric criteria; provided that a determination as to the
recovery of a bonus or incentive compensation shall be made within 36 months
following the date such bonus or incentive compensation was paid.  In the event
that the Board or the Bank Board, as applicable, determines by at least a
majority vote that a bonus or incentive compensation payment to Executive is
recoverable pursuant to this Section, Executive shall reimburse all or a portion
of such bonus or incentive compensation, to the fullest extent permitted by law,
as soon as practicable following written notice to Executive by the Corporation
or the Bank of the same.
 
22.  Application of Code Section 409A.
 
(a) Notwithstanding anything in this Agreement to the contrary, the receipt of
any benefits under this Agreement as a result of a termination of employment
shall be subject to satisfaction of the condition precedent that Executive
undergo a “separation from service” within the meaning of Treas. Reg. §
1.409A-1(h) or any successor thereto.  In addition, if Executive is deemed to be
a “specified employee” within the meaning of that term under Code Section
409A(a)(2)(B), then with regard to any payment or the provisions of any benefit
that is required to be delayed pursuant to Code Section 409A(a)(2)(B), such
payment or benefit shall not be made or provided prior to the earlier of (i) the
expiration of the six (6) month period measured from the date of Executive’s
“separation from service” (as such term is defined in Treas. Reg. §
1.409A-1(h)), or (ii) the date of Executive’s death (the “Delay
Period”).  Within ten (10) days following the expiration of the Delay Period,
all payments and benefits delayed pursuant to this Section (whether they would
have otherwise been payable in a single sum or in installments in the absence of
such delay) shall be paid or reimbursed to Executive in a lump sum, and any
remaining payments and benefits due under this Agreement shall be paid or
provided in accordance with the normal payment dates specified for them herein.
 
 
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(b) Except as otherwise expressly provided herein, to the extent any expense
reimbursement or other in-kind benefit is determined to be subject to Code
Section 409A, the amount of any such expenses eligible for reimbursement or
in-kind benefits in one calendar year shall not affect the expenses eligible for
reimbursement or in-kind benefits in any other taxable year (except under any
lifetime limit applicable to expenses for medical care), in no event shall any
expenses be reimbursed or in-kind benefits be provided after the last day of the
calendar year following the calendar year in which Executive incurred such
expenses or received such benefits, and in no event shall any right to
reimbursement or in-kind benefits be subject to liquidation or exchange for
another benefit.
 
(c) Any payments made pursuant to Section 5, to the extent of payments made from
the date of termination through March 15th of the calendar year following such
date, are intended to constitute separate payments for purposes of Treas. Reg.
§1.409A-2(b)(2) and thus payable pursuant to the “short-term deferral” rule set
forth in Treas. Reg. §1.409A-1(b)(4); to the extent such payments are made
following said March 15th, they are intended to constitute separate payments for
purposes of Treas. Reg. §1.409A-2(b)(2) made upon an involuntary termination
from service and payable pursuant to Treas. Reg. §1.409A-1(b)(9)(iii), to the
maximum extent permitted by said provision.
 
(d) To the extent it is determined that any benefits described in Section 5 are
taxable to Executive, they are intended to be payable pursuant to Treas. Reg.
§1.409A-1(b)(9)(v), to the maximum extent permitted by said provision.
 
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
 
ATTEST:
 
QNB CORP.
         
/s/ Jean M. Scholl
 
By: /s/ Thomas J. Bisko
 
Assistant Secretary
                     
ATTEST:
 
QNB BANK
         
/s/ Jean M. Scholl
 
By: /s/ Thomas J. Bisko
 
Assistant Secretary
                     
WITNESS:
 
EXECUTIVE
         
/s/ Ann B. Gaspar
 
/s/ David W. Freeman
 

 
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