Exhibit 10.1


 


EMPLOYMENT AGREEMENT


 


THIS
AGREEMENT, made the 29th day of October 2010, between PENNS WOODS BANCORP, INC.
(“Penns Woods”), a Pennsylvania business corporation, JERSEY SHORE STATE BANK (“JSSB”),
a Pennsylvania banking institution and wholly owned subsidiary of Penns Woods
(Penns Woods and JSSB are sometimes referred to herein collectively as the “Employer”),
and RICHARD A. GRAFMYRE, an adult individual (“Executive”).


 


WITNESSETH:


 


WHEREAS,
Penns Woods and JSSB 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 Penns Woods and JSSB on the
terms and conditions set forth in this Agreement.


 


NOW,
THEREFORE, the parties hereto, intending to be legally bound, agree as follows:


 


1.                                      Employment.  Penns Woods and JSSB hereby employ Executive,
and Executive hereby accepts employment with Penns Woods and JSSB (including
its wholly-owned subsidiary, the M Group, Inc. d/b/a the Comprehensive
Financial Group), on the terms and conditions set forth in this Agreement.


 


2.                                      Titles and
Duties of Executive.


 


(a)              Executive shall be employed
as the President and Chief Executive Officer of Penns Woods and JSSB.  Executive shall perform and discharge well
and faithfully such management and administrative duties as an executive
officer of Penns Woods and JSSB as may be assigned to him from time to time by
the Board of Directors of Penns Woods (the “Penns Woods Board”), the Board of
Directors JSSB (the “JSSB Board”), the Chairman of the Penns Woods Board, or
the Chairman of the JSSB Board, as applicable, and which are consistent with
his positions as the President and Chief Executive of Penns Woods and
JSSB.  Executive shall report directly to
the Penns Woods Board and JSSB Board and the Chairman thereof.  Executive shall devote his full time,
attention and energies to the business of the Employer during the Employment
Period (as defined in Section 3); provided, however, that this Section shall
not be construed as preventing Executive from (a) investing his personal
assets in enterprises that do not compete with Penns Woods, JSSB or any of
their majority-owned subsidiaries (except as an investor owning less than 5% of
the stock of a publicly-owned company), or (b) being involved in any
civic, community or other activities with the prior approval of the Boards of
Directors of Penns Woods and JSSB.


 


(b)              No later than the first meetings of the Penns Woods
Board and the JSSB Board following the commencement of the Employment Period,
Executive shall be appointed to the Penns Woods Board and the JSSB Board and,
thereafter during the Employment Period, Penns Woods and JSSB shall cause
Executive to be nominated to the Penns Woods Board and the JSSB Board, respectively,
and use its reasonable efforts to cause Executive to be re-elected to Penns
Woods Board and the JSSB Board, respectively; provided that Executive meets all
of the 


 


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necessary
requirements for such appointment, nomination, and re-election.  Executive shall not receive any remuneration
whatsoever for his service as a member of the Penns Woods Board and the JSSB
Board.


 


3.                                      Term of
Agreement.


 


(a)              This Agreement shall be for
a period (the “Employment Period”) commencing on the date of this Agreement and
ending on October 28, 2013; provided, however, that, commencing on October 29,
2013 and on October 29 of each succeeding year (each an “Annual Renewal
Date”), the Employment Period shall be automatically extended for one (1) additional
year from the applicable Annual Renewal Date, unless the Employer or Executive
shall give written notice of nonrenewal to the other party at least sixty (60)
days prior to an Annual Renewal Date, in which event this Agreement shall
terminate at the end of the then existing Employment Period.  Neither the expiration of the Employment
Period, nor the termination of this Agreement, shall affect the enforceability
of the provisions of Sections 7, 8 and 9.


 


(b)              Notwithstanding the provisions
of Section 3(a), this Agreement shall terminate automatically for Cause
(as defined below) upon fifteen (15) days’ prior written notice (setting forth
the section relied upon and setting forth in reasonable detail the facts and
circumstances claimed to provide the basis for termination for Cause) from the
Boards of Directors of Penns Woods and JSSB to Executive, unless such Cause has
been cured within such fifteen (15) day period (if capable of being
cured).  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 at least thirty (30)
days;


 


(ii)                    Executive’s failure to
follow the good faith lawful instructions of the Boards of Directors of Penns
Woods and JSSB, following his receipt of written notice of such instructions;


 


(iii)                 Executive’s intentional
failure to substantially perform his duties to, or on behalf of, Penns Woods or
JSSB, other than a failure resulting from Executive’s incapacity because of
disability;


 


(iv)                Executive’s intentional
violation, in the reasonable good faith judgment of the board of directors, of (A) any
material law, rule or regulation (other than traffic violations or similar
offenses), (B) any memorandum of understanding or cease and desist order
of a federal or state banking agency applicable to the Employer, (C) any
code of conduct or ethics applicable to officers or employees of Penns Woods or
JSSB, or (D) any material provision of this Agreement;


 


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(v)                   Executive’s breach of
fiduciary duty, in connection with his employment hereunder, which involves
personal profit or which results in demonstrable material injury to Penns Woods
or JSSB;


 


(vi)                Executive’s removal or
prohibition from being an institution-affiliated party by a final order of an
appropriate federal banking agency pursuant to Section 8(e) of the
Federal Deposit Insurance Act or by the Pennsylvania Department of Banking
pursuant to state law; or


 


(vii)             Executive’s failure to
relocate his primary residence to a location in Lycoming County, Pennsylvania
within twenty-five (25) miles of Williamsport, Pennsylvania within one (1) year
after the commencement of the Employment Period.


 


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


 


(c)               Notwithstanding the
provisions of Section 3(a) of this Agreement, this Agreement shall
terminate automatically upon Executive’s voluntary termination of employment
(other than for Good Reason (as defined in Section 5(d)) or the reasons
set forth in Section 3(e)), retirement at Executive’s election, or
Executive’s death, and Executive’s rights under this Agreement shall cease as
of the date of such voluntary termination, retirement at Executive’s election,
or death; provided, however, that, if Executive dies after he delivers a Notice
of Termination (as defined in Section 5(d)), the provisions of Section 16(b) shall
apply.


 


(d)              Notwithstanding the
provisions of Section 3(a), this Agreement shall terminate automatically
upon Executive’s disability and Executive’s rights under this Agreement shall
cease as of the date of such termination; provided, however, that, if Executive
becomes disabled after Executive delivers a Notice of Termination, Executive
shall be entitled to receive all of the compensation and benefits provided for
in, and for the term set forth in, Section 5 of this Agreement.  For purposes of this Agreement, disability
shall mean Executive’s incapacitation by accident, sickness, or otherwise which
renders Executive mentally or physically incapable of performing the services
required hereunder of Executive for a period of six (6) consecutive
months.


 


(e)               Notwithstanding the
provisions of Section 3(a), in the event that the Chairman of the Penns
Woods Board and JSSB Board as of the date of this Agreement fails to relinquish
day-to-day operational control of Penns Woods and JSSB to Executive by December 31,
2011, Executive shall have the right during the ninety (90) day period
following such date to voluntarily terminate his employment with the Employer
by delivering a notice in writing to the Employer specifying the grounds upon
which Executive intends to terminate his employment hereunder.  In the event Executive terminates his
employment under this Section 3(e), Executive shall be entitled to receive
continuation of his then current annual base salary for twelve (12) months,
payable at such times as salaries are paid to other executive officers of the
Employer.


 


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(f)                Executive agrees that, in
the event his employment under this Agreement terminates for any reason,
Executive shall concurrently resign as a director of Penns Woods, JSSB and any
affiliate of either, if he is then serving as a director of any of such
entities.


 


4.                                      Employment
Period Compensation.


 


(a)              Salary.  During the Employment Period, Executive shall
be paid a base salary at the rate of $245,000 per year, payable at such times
as salaries are paid to other executive officers of the Employer.  The Board of Directors of Penns Woods or JSSB
shall review Executive’s base salary annually and may, from time to time, in
its discretion increase Executive’s base salary.  Any and all such increases in base salary
shall be deemed to constitute amendments to this subsection to reflect the
increased amounts, effective as of the dates established for such increases by
appropriate corporate action.


 


(b)              Discretionary Bonus.  During the Employment Period, Executive shall
be entitled to participate in an equitable manner with other senior management
employees of the Employer in such annual or other periodic bonus programs (if
any) as may be maintained from time to time by the Employer for its executive
officers; provided, however, that Executive shall not be entitled to
participate in such bonus programs for the 2010 performance period.


 


(c)               Vacation
and Sick Leave.  During the
Employment Period, Executive shall be entitled to such paid vacation as may be
determined in accordance with the personnel policies of the Employer from time
to time in effect, but in no event less than five (5) weeks per annum;
provided, however, that Executive shall not be entitled to any vacation during
the 2010 calendar year.  During the
Employment Period, Executive shall be entitled to an annual sick leave benefit
as may be determined in accordance with the personnel policies of the Employer
from time to time in effect, but in no event less than forty (40) hours per
year; provided, however, that Executive shall be entitled to accrue, on a pro
rata basis, eight (8) hours of sick leave per month during the 2010 calendar
year.  Executive shall not be entitled to
receive any additional compensation from the Employer for failure to take all
of his entitled vacation or sick leave time. 
Executive shall be able to accumulate unused vacation or sick leave time
from one year to the next in accordance with the personnel policies of the
Employer from time to time in effect.


 


(d)              Employee Benefit Plans.  During the Employment Period, Executive shall
be entitled to participate in and receive the benefits of any pension or other
retirement benefit plan, welfare benefit plan or similar employee benefit plans
or arrangements (including, but not limited to, stock option plans, short- or
long-term disability plans, life insurance programs, and health insurance) made
available from time to time to employees of the Employer in accordance with the
provisions of such plans.  The base
salary and any bonus payable to Executive under Section 4 shall be
considered covered compensation for purposes of such plans to the maximum
extent permitted by the terms of such plans. 
Nothing paid to Executive under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of the
amounts payable to Executive pursuant to Section 4(a) hereof.


 


(e)               Expense
Reimbursement.  The
Employer shall promptly reimburse Executive, upon submission of appropriate
documentation, for reasonable business expenses, including 


 


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travel
and reasonable entertainment expenses, incurred by Executive in accordance with
the expense reimbursement policies of the Employer in effect from time to time.


 


(f)                Automobile. During the
Employment Period, the Employer shall provide Executive with a mid-size
automobile selected by the Employer (which shall be owned or leased by the
Employer) for the Executive’s business use (and ancillary personal use).  The Employer will cover all repairs and
operating expenses of said automobile, including the cost of liability
insurance, comprehensive and collision insurance.  Upon termination of Executive’s employment
hereunder for any reason, Executive shall either immediately return the vehicle
to the Employer or purchase the vehicle (or assume the lease) in accordance
with the Employer’s vehicle purchase policy. 
Upon request by the Employer, Executive shall submit to the Employer on
a timely basis documentation which defines the percentage of Executive’s use of
the vehicle which was for business purposes.


 


(g)               Club
Dues.  During the Employment Period,
the Employer shall pay the initiation fees, assessments, and dues for Executive
and his spouse to be members of the Williamsport Country Club and the Ross Club
and reimburse Executive for all ordinary, necessary, and reasonable
business-related expenses incurred by Executive on Employer business at said
clubs.  As a condition to receiving such
reimbursements, Executive shall submit to the Employer on a timely basis
business expense reports in accordance with the expense reimbursement policies
of the Employer in effect from time to time.


 


(h)              Sign-On Bonus.  Executive shall be entitled to a sign-on
bonus in the amount of $50,000, which shall be paid within ninety (90) days
following the commencement of the Employment Period.  If Executive resigns without Good Reason or
is terminated for Cause less than one (1) year after the commencement of
the Employment Period, Executive shall be required to pay back a pro-rata
portion of the sign-on bonus to the Employer within sixty (60) days after such
termination, which amount will be determined by multiplying the amount of the
sign-on bonus received by Executive (if any) by a fraction, the numerator which
is the number of days from the date of Executive’s termination of employment
until the first anniversary of the commencement of the Employment Period and
the denominator of which is 365.  In
addition, if Executive fails to relocate his primary residence to a location in
Lycoming County, Pennsylvania within twenty-five (25) miles of 300 Market Street,
Williamsport, Pennsylvania within three hundred sixty (360) days after the
commencement of the Employment Period, Executive shall be required to repay the
entire sign-on bonus within sixty (60) days after the first anniversary of the
commencement of the Employment Period.


 


5.                                      Rights in Event
of Termination of Employment Following a Change in Control.


 


(a)              Benefits.  If a Change in Control (as defined in Section 5(e))
shall occur and concurrently therewith or during a period of twenty-four (24)
months thereafter Executive’s employment hereunder is terminated by the
Employer without Cause (other than for the reasons set forth in Section 3(d))
or by Executive with Good Reason, Executive shall be entitled to receive a
lump-sum cash payment, no later than thirty (30) days following the date of such
termination, in an amount equal to two (2) times Executive’s annual base
salary then in effect (or immediately prior to any reduction resulting in a
termination for Good Reason).


 


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(b)              Limitation on Benefits.  Notwithstanding anything in this section or
elsewhere in this Agreement to the contrary, in the event the payments and
benefits payable hereunder to or on behalf of Executive (which the parties
agree will not include any portion of payments allocated to the non-competition
and non-solicitation provisions of Sections 7 and 9 that are classified as
payments of reasonable compensation for purposes of Section 280G of the
Internal Revenue Code of 1986, as amended (the “Code”)), when added to all
other amounts and benefits payable to or on behalf of Executive, would result
in the loss of a deduction under Code Section 280G, or 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
loss of deduction or imposition of excise tax. 
In applying this principle, the reduction shall be made in a manner
consistent with the requirements of Code Section 409A and where two or
more economically equivalent amounts are subject to reduction, but payable at
different times, such amounts shall be reduced on a pro-rata basis.  All calculations required to be made under
this subsection will be made by Penns Woods’ independent public accountants,
subject to the right of Executive’s professional advisors to review the
same.  The parties recognize that the
actual implementation of the provisions of this subsection are complex and
agree to deal with each other in good faith to resolve any questions or
disagreements arising hereunder.


 


(c)               Exclusive
Remedy.  The amounts payable pursuant
to this Section 5 shall constitute Executive’s sole and exclusive remedy
in the event of the termination of Executive’s employment in accordance with Section 5(a).


 


(d)              Good Reason Defined.  Executive shall be considered to have
terminated employment hereunder for “Good Reason” if such termination of
employment occurs on or within twenty-four (24) months after a Change in
Control and is on account of any of the following actions by the Employer without
Executive’s express written consent:


 


(i)                  A material diminution in
Executive’s authority, duties or other terms or conditions of employment as the
same exist on the date of the Change in Control;


 


(ii)               Any reassignment of
Executive to a location greater than 50 miles from the location of his office
on the date of the Change in Control, unless such new location is closer to
Executive’s primary residence than the location on the date of the Change in
Control;


 


(iii)            Any failure to pay Executive
any amounts due and owing to him under Section 4 of this Agreement, which
constitutes a material breach by the Employer of this Agreement;


 


(iv)           Any failure to provide
Executive with any benefits enjoyed by Executive under any of Penns Woods’ or
JSSB’s retirement or pension, life insurance, medical, health and accident,
disability or other material employee plans in which Executive participated at
the time of the Change in Control or the taking of any action that would
materially reduce any of such benefits in effect at the time of the Change in
Control, except for any reductions in benefits or other actions resulting from
changes to or reductions in benefits applicable to employees generally;


 


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(v)              Any requirement that
Executive travel in the performance of his duties on behalf of Penns Woods or
JSSB for a significantly greater period of time during any year than was
required of Executive during the year preceding the year in which the Change in
Control occurred, which results in a material negative change to Executive in
the employment relationship; or


 


(vi)           Any other material breach of
this Agreement.


 


Notwithstanding
the foregoing, a termination by Executive shall not be for Good Reason, unless
Executive shall have given the Employer at least ten (10) business days
written notice (a “Notice of Termination”) specifying the grounds upon which
Executive intends to terminate his employment hereunder for Good Reason and
such notice is received by the Employer within ninety (90) days of the date the
event of Good Reason occurred.  In
addition, any action or inaction by the Employer which is remedied within
thirty (30) days following a Notice of Termination shall not constitute Good
Reason for termination hereunder and shall render such Notice of Termination
null and void.


 


(e)               Change
in Control Defined.  As used in
this Agreement, “Change in Control” shall mean the occurrence of any one of the
following:


 


(i)                  (A) a merger,
consolidation, or division involving Penns Woods or JSSB, (B) a sale,
exchange, transfer, or other disposition of substantially all of the assets of
Penns Woods or JSSB, or (C) a purchase by Penns Woods or JSSB of
substantially all of the assets of another entity, unless (x) such merger,
consolidation, division, sale, exchange, transfer, purchase or disposition is
approved in advance by 66-2/3% or more of the members of the Board of Directors
of Penns Woods who are not interested in the transaction and (y) a
majority of the members of the Board of Directors of the legal entity resulting
from or existing after any such transaction and of the Board of Directors of
such entity’s parent corporation, if any, are former members of the Board of
Directors of Penns Woods or JSSB;


 


(ii)               a “person” or “group”
(within the meaning of Section 13(d) of the Securities Exchange Act
of 1934) becomes the “beneficial owner” (within the meaning of Section 13(d) of
the Securities Exchange Act of 1934) of 25% or more of the outstanding shares
of common stock of Penns Woods;


 


(iii)            at any time during any
period of two consecutive years, individuals who at the beginning of such
period constitute the Board of Directors of Penns Woods cease to constitute a
majority of such Board (unless the election or nomination of each new director was
approved by a vote of at least 51% of the directors who were directors at the
beginning of such period); or


 


(iv)           any other change in control
similar in effect to any of the foregoing and designated as a change in control
by the Board of Directors of Penns Woods or JSSB.


 


(f)                Notwithstanding the
foregoing, to the extent the definition of “Change in Control” as set forth in Section 5(e) does
not amount to a “change in control event” as defined 


 


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under
Treas. Reg. § 1.409A-3(i)(5), then the benefits set forth in Section 5(a) shall
be paid at the same time and in the same form as benefits are paid under Section 6(a).


 


6.                                      Rights in Event
of Termination of Employment absent a Change in Control.


 


(a)              Benefits.  In the event that Executive’s
employment is involuntarily terminated by the Employer without Cause (other
than by reason of Section 3(d)) absent a Change in Control, the Employer
shall continue to pay Executive’s then current annual base salary under Section 4(a) for
the greater of: (i) the number of full months remaining in the Employment
Period as of the date of termination of employment or (ii) six (6) months.  With respect to clause (i) of this
Section, a final pro rated payment shall be made for any fraction of a month
remaining in the Employment Period as of the date of his termination of
employment.  In addition, during the
period in which Executive is receiving continued payments of base salary in
accordance with the immediately preceding sentence, 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
medical/health insurance in effect with respect to Executive during the one
(1) year period prior to his termination of employment, or, if the Bank is
not permitted to provide such benefits because Executive is no longer an
employee or as a result of any applicable legal requirement, Executive shall
receive a dollar amount, on or within thirty (30) days following the date of
termination, equal to the cost to Executive of obtaining such benefits (or
substantially similar benefits).


 


(b)              Exclusive Remedy.  The amounts payable pursuant to this Section 6
shall constitute Executive’s sole and exclusive remedy in the event of
involuntary termination of Executive’s employment by the Employer without Cause
(other than by reason of Section 3(d)) in the absence of a Change in
Control.


 


(c)               Limitation
on Benefits. 
Notwithstanding anything herein to the contrary, to the extent the
provisions of Code Section 280G become applicable to payments or benefits
to be provided under this Section 6, the provisions of Section 5(b) shall
apply to such payments or benefits.


 


7.                                      Covenant Not to
Compete.


 


(a)              Executive hereby
acknowledges and recognizes the highly competitive nature of the business of
Penns Woods and JSSB and accordingly agrees, in consideration of this
Agreement, including without limitation the three-year initial term hereof,
that, during and for the applicable period set forth in Section 7(c),
Executive shall not:


 


(i)                  be engaged, directly or
indirectly, either for his own account or as agent, consultant, employee,
partner, officer, director, proprietor, investor (except as an investor owning
less than 5% of the stock of a publicly-owned company) or otherwise, in the
banking or financial services business within twenty-five (25) miles of 300
Market Street, Williamsport, Pennsylvania (the “Non Competition Area”); or


 


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(ii)               provide financial or other
assistance to any person, firm, corporation, or enterprise engaged in the
banking or financial services business in the Non Competition Area;


 


provided,
however, that nothing in this Section 7(a) shall be construed as
preventing Executive from being engaged solely in securities brokerage or
financial planning activities following termination of Executive’s employment,
for his own account or on behalf of another person, in the following
Pennsylvania Counties:  Columbia, Northumberland,
Montour, and Union.


 


(b)              It is expressly understood
and agreed that, although Executive, Penns Woods and JSSB consider the
restrictions contained in Section 7(a) reasonable for the purpose of
preserving for Penns Woods and JSSB their goodwill and other proprietary
rights, if a final judicial determination is made by a court or arbitrator
having jurisdiction that the time or territory or any other restriction
contained in Section 7(a) is an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of Section 7(a) 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 7
shall be applicable commencing on the date of this Agreement and ending on one
of the following dates, as applicable:


 


(i)                  if Executive voluntarily
terminates his employment (other than for Good Reason or the reasons set forth
in Section 3(e)) or Executive’s employment is terminated for Cause in
accordance with the provisions of Section 3(b), one (1) year
following the effective date of termination of employment;


 


(ii)               if Executive becomes
entitled to receive the payment set forth in Section 5(a), one (1) year
following the effective date of termination of employment;


 


(iii)            if Executive’s employment is
involuntarily terminated in accordance with the provisions of Section 3(d) or
6, and Executive actually receives payments under a disability plan or program
maintained by the Employer or severance payments under Section 6,
respectively, the lesser of one (1) year following the effective date of
termination of employment or the period during which such payments remain in
effect;


 


(iv)           if Executive’s employment
terminates as a result of delivery of a notice of nonrenewal by the Employer in
accordance with Section 3(a), the ending date of the then existing
Employment Period; or


 


(v)              if Executive’s employment
terminates as a result of delivery of a notice of nonrenewal by Executive in
accordance with Section 3(a), one (1) year following the ending date
of the then existing Employment Period.


 


8.                                       Unauthorized
Disclosure.  During the
Employment Period and at any time thereafter, Executive shall not, without the
written consent of the Boards of Directors of Penns Woods and JSSB, or a person
authorized thereby, knowingly disclose to any person, other than an employee of
Penns Woods or JSSB, or a person to whom disclosure is reasonably necessary 


 


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or
appropriate in connection with the performance by Executive of his duties
hereunder, any material confidential information obtained by him while in the
employ of the Employer with respect to Penns Woods’, JSSB’s or any of their
majority-owned subsidiaries’ services, products, improvements, formulas,
designs or styles, processes, customers, methods of business or any business
practices the disclosure of which could be or would be damaging to Penns Woods,
JSSB or any such subsidiary; 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 that must
be disclosed as required by law.


 


9.                                       Nonsolicitation
of Customers and Employees.  Executive hereby agrees that he shall not
during any period that he is subject to the provisions of Section 7,
directly or indirectly, (i) solicit any customer of Penns Woods, JSSB or
any majority-owned subsidiary of either of them located in the Non-Competition
Area for any banking or financial services business, or (ii) solicit any
persons who are currently or were within six (6) months prior to Executive’s
termination date employees of Penns Woods, JSSB or any majority-owned
subsidiary of either of them.  Executive
also agrees that he shall not, for the period described in the preceding
sentence, encourage or induce any of such customers or employees of Penns
Woods, JSSB or any majority-owned subsidiary of either of them to terminate
their business relationship with any of such entities.


 


10.                                 Remedies.  Executive acknowledges and agrees that the
remedy at law of the Employer for a breach or threatened breach of any of the
provisions of Section 7, 8 or 9 would be inadequate and, in recognition of
this fact, in the event of a breach or threatened breach by Executive of any of
the provisions of Section 7, 8 or 9, it is agreed that the Employer shall
be entitled to, without posting any bond to the extent permitted by law, and
the Executive agrees not to oppose any request of the Employer for, equitable
relief in the form of specific performance, a temporary restraining order, a temporary
or permanent injunction, or any other equitable remedy which may then be
available.  Nothing contained in this
section shall be construed as prohibiting the Employer from pursuing any other
remedies available to them, at law or in equity, for such breach or threatened
breach.


 


11.                                 Legal Expenses.  If Executive obtains a judgment, award or
settlement which enforces a material disputed right or benefit under this
Agreement, Penns Woods or JSSB shall pay to him, within ten days after demand
therefor, all legal fees and expenses incurred by him in seeking to obtain or
enforce such right or benefit.


 


12.                                 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
residence (as then reflected in the personnel records of the Employer), in the
case of notices to Executive, and to the then principal offices of Penns Woods,
in the case of notices to the Employer.


 


13.                                 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 


 


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and
the Employer.  No waiver by any 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.


 


14.                                 Assignment.  This Agreement shall not be assignable by any
party, except by the Employer to any affiliated company or to any successor in
interest to its businesses.


 


15.                                 Entire
Agreement; Effect on Prior Agreements.  This Agreement contains the entire agreement
of the parties relating to the subject matter of this Agreement.


 


16.                                 Successors;
Binding Agreement.


 


(a)               The Employer will require
any successor (whether direct or indirect, by purchase, merger, consolidation,
or otherwise) to all or substantially all of the businesses and/or assets of
Penns Woods and/or JSSB to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Employer would be required
to perform it if no such succession had taken place.  Failure by the Employer to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall constitute a material breach of this Agreement and the provisions of Section 5
(relating to termination of employment following a Change in Control) shall
apply as though a Notice of Termination was authorized and had been timely
given.  As used in this Agreement, “Penns
Woods”, and “JSSB” shall mean Penns Woods and JSSB, as defined previously, and
any successor to their respective businesses 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, and
legatees.  If Executive should die after
a Notice of Termination is delivered by Executive, or following termination of
Executive’s employment without Cause or pursuant to Section 3(e), 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 person, to Executive’s estate. 
The preceding sentence shall also apply to the last clause of Section 3(c).


 


17.                                 No Mitigation
or Offset.  Executive
shall not be required to mitigate the amount of any payment or benefit provided
for in this Agreement by seeking employment or otherwise.  Further, there shall be no offset against any
amount or benefit payable or provided hereunder following Executive’s
termination of employment solely by reason of his employment with another
employer.


 


18.                                 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.


 


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


 


20.                                 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.


 


21.                                 Number.  Words used herein in the singular form shall
be construed as being used in the plural form, as the context requires, and
vice versa.


 


22.                                 Regulatory
Matters.  The obligations of the
Employer 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.


 


23.                                 Tax Withholding.  All payments made and benefits provided
hereunder shall be subject to such federal, state and local tax withholding as
may be required by law.


 


24.                                 Indemnification;
Liability Insurance.  The
Employer 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
Employer or is or was serving at the written request of the Employer 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.


 


25.                                 Compliance with
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 Sections 5 and 6, 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. 
Notwithstanding the foregoing, if the Employer determines that any other
payments hereunder fail to satisfy the distribution requirement of Section 409A(a)(2)(A) of
the Internal Revenue Code of 1986, as amended (the “Code”), the payment of such
benefit shall be delayed to the minimum extent necessary so that such payments
are not subject to the provisions of Code Section 409A(a)(1).


 


IN
WITNESS WHEREOF, the parties have executed this Agreement, or caused it to be
executed, as of the date first above written.


 


	
  PENNS WOODS BANCORP, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Ronald A. Walko

  	
   

  	
  Date:
  October 29, 2010

  
	
   

  	
   

  	
   

  
	
  (“Penns Woods”)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  JERSEY SHORE STATE BANK

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Ronald A. Walko

  	
   

  	
  Date:
  October 29, 2010

  
	
   

  	
   

  	
   

  
	
  (“JSSB”)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Richard A. Grafmyre (SEAL)

  	
   

  	
  Date:
  October 29, 2010

  
	
   

  	
   

  	
   

  
	
  RICHARD A. GRAFMYRE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (“Executive”)

  	
   

  	
   

  



 


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