**Exhibit 10(xii)**

 

**AMENDMENT AND RESTATEMENT OF THE****JERSEY SHORE STATE BANK****DIRECTOR DEFERRED FEE AGREEMENT**

 

THIS AGREEMENT is made this 1st day ofOctober, 2004, by JERSEY SHORE STATE BANK a Pennsylvania-chartered commercialbank located in Jersey Shore, Pennsylvania (the “Company”), and Ron Walko (the “Director”)selected to participate in this Amendment and Restatement of the Jersey ShoreState Bank Director Deferred Fee Agreement (the “Agreement”), intending to belegally bound hereby.

 

**BACKGROUND**

 

On October 14, 1999, the Company and theDirector entered into the Jersey Shore State Bank Director Deferred FeeAgreement (the “1999 Agreement”).  TheCompany and the Director now wish to amend and restate the 1999 Agreement toupdate the terms and provisions contained therein.  This new Agreement shall rescind and replacethe existing 1999 Agreement.

 

**INTRODUCTION**

 

To encourage the Director to remain a memberof the Company’s Board of Directors (the “Board”), the Company is willing toprovide to the Director the opportunity to defer Fees.  The Company will pay the benefits from itsgeneral assets.

 

**AGREEMENT**

 

The Director and the Company agree asfollows:

 

**Article 1**

**Definitions**

 

*Definitions*.  Whenever used in this Agreement, thefollowing words and phrases shall have the meanings specified:

 

1.1                                 *“Beneficiary”*means each designated person, or the estate of a deceased Director, entitled tobenefits, if any, upon the death of a Director determined pursuant to Article 6.

 

1.2                                 *“BeneficiaryDesignation Form”* means the form established from time to time bythe Plan Administrator that a Director completes, signs and returns to the PlanAdministrator to designate one or more beneficiaries.

 

1.3                                 *“Change inControl”*means any of the following:

 

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(A)  any person (as such term is used in Sections13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), other than the Corporation, a subsidiary of the Corporation, an employeebenefit plan (or related trust) of the Corporation or a direct or indirectsubsidiary of the Corporation, or affiliates of the Corporation (as defined inRule 12b-2 under the Exchange Act), becomes the beneficial owner (as determinedpursuant to Rule 13d-3 under the Exchange Act), directly or indirectly, ofsecurities of the Corporation representing more than 20% of the combined votingpower of the Corporation’s then outstanding securities or announces a tenderoffer or exchange offer for securities of the Corporation representing morethan 20% of the combined voting power of the Corporation’s then outstandingsecurities; or

 

(B)  the liquidation or dissolution of theCorporation or the Company or the occurrence of, or execution of an agreementproviding for, a sale of all or substantially all of the assets of theCorporation or the Company to an entity which is not a direct or indirectsubsidiary of the Corporation; or

 

(C)  the occurrence of, or execution of anagreement providing for, a reorganization, merger, consolidation or othersimilar transaction or connected series of transactions of the Corporation as aresult of which either (a) the Corporation does not survive or (b) pursuant towhich shares of the Corporation common stock (“Common Stock”) would beconverted into cash, securities or other property, unless, in case of either(a) or (b), the holders of Corporation Common Stock immediately prior to suchtransaction will, following the consummation of the transaction, beneficiallyown, directly or indirectly, more than 50% of the combined voting power of thethen outstanding voting securities entitled to vote generally in the electionof directors of the corporation surviving, continuing or resulting from suchtransaction; or

 

(D)  the occurrence of, or execution of anagreement providing for, a reorganization, merger, consolidation, or similartransaction of the Corporation, or before any connected series of suchtransactions, if, upon consummation of such transaction or transactions, thepersons who are members of the Board of Directors of the Corporationimmediately before such transaction or transactions cease or, in the case ofthe execution of an agreement for such transaction or transactions, it iscontemplated in such agreement that upon consummation such persons would cease,to constitute a majority of the Board of Directors of the Corporation or, in acase where the Corporation does not survive in such transaction, of thecorporation surviving, continuing or resulting from such transaction ortransactions; or

 

(E)  any other event which is at any timedesignated as a “Change in Control”for purposes of this Agreementby a resolution adopted by the Board of Directors of the Corporation with theaffirmative vote of a majority of the non-employee directors in office at thetime the resolution is adopted; in the event any

 

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such resolution isadopted, the Change in Control event specified thereby shall be deemedincorporated herein by reference and thereafter may not be amended, modified orrevoked without the written agreement of Director.

 

Notwithstandinganything else to the contrary set forth in this Agreement, if (i) an agreementis executed by the Company providing for any of the transactions or eventsconstituting a Change in Control as defined herein, and the agreementsubsequently expires or is terminated without the transaction or event beingconsummated, and (ii) Director’s service did not terminate during the periodafter the agreement and prior to such expiration or termination, for purposesof this Agreement it shall be as though such agreement was never executed andno Change in Control event shall be deemed to have occurred as a result of theexecution of such agreement.

 

1.4                                 “*Code*” means the Internal Revenue Code of 1986, as amended.

 

1.5*                                 “Corporation”*means Penns Woods Bancorp, Inc.

 

1.6                                 “*Disability*” means (a) the Director’s suffering a sickness,accident or injury which has been determined by the carrier of any individualor group disability insurance policy covering the Director, or by the SocialSecurity Administration, to be a disability rendering the Director totally andpermanently disabled.  The Director mustsubmit proof to the Plan Administrator of the carrier’s or Social SecurityAdministration’s determination upon the request of the Plan Administrator; or(b) such definition of Disability promulgated by the Secretary of the Treasurypursuant to legislation affecting non-qualified deferred compensation plans, inwhich case such definition shall supersede any other definition of Disabilityin this Agreement and shall control the terms of this Agreement.

 

1.7                                 *“Election Form A”*means the form attached as Exhibit A.

 

1.8                                 *“Election Form B”*means the form attached as Exhibit B.

 

1.9                                 *“Election Form C”* means the form attached as Exhibit C.

 

1.10                           *“Exhibit D”* means the chart attached entitled Planned FeeDeferrals.

 

1.11                           *“Fees”* means the total directors fees payable to theDirector.

 

1.12                           *“Normal Benefit Age”* means the benefit distribution agespecified by the Director in Election Form B.

 

1.13                           “*Plan Administrator*” means the plan administrator describedin Section 10.10.

 

1.14                           “*Plan Year*” means the calendar year.  In the initial year, it shall mean the periodfrom the date of execution of this Agreement through December 31 of thesame

 

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year.

 

1.15                           *“ROE”*means return on equity, measured by dividingannualized net income of the Corporation by average total equity of theCorporation for the applicable period.

 

1.16*                           “Terminationof Service”* means that the Director ceases to be a member of the Company’sBoard for any reason whatsoever other than by reason of a leave of absencewhich is approved by the Company.  Forpurposes of this Agreement, if there is a dispute over the service status ofthe Director or the date of the Director’s Termination of Service, the Companyshall have the sole and absolute right to decide the dispute.

 

1.17                           *“Unforeseeable Financial Emergency**”* means a severe financial hardship to a Director, resultingfrom a sudden and unexpected illness or accident of the Director, the Director’sspouse, or a dependent (as defined in Section 152(a) of the Code) of theDirector, loss of the Director’s property due to casualty, or other similarextraordinary and unforeseeable circumstances arising as a result of eventsbeyond the control of the Director.

 

**Article 2**

**DeferralElection**

 

2.1                                 *InitialElection*.  The Director shallmake an initial deferral election under this Agreement by filing with theCompany signed Election Forms A, B and C within thirty (30) days after the dateof this Agreement.  The Election Formsshall be effective to defer only Fees earned after the date the Election Formsare received by the Company.

 

2.2                                 *ElectionChanges*.  The Director maymodify the amount of Fees to be deferred annually by filing a new Election FormA with the Company.  The modifieddeferral shall not be effective until the calendar year following the year inwhich the subsequent Election Form A is received by the Company.  Any changes to the form of benefit paymentmust be in accordance with Election Form C. Any changes to the Normal Benefit Age or Timing of Payout must be inaccordance with Election Form B.

 

**Article 3**

**DeferralAccount**

 

3.1                                 *Establishingand Crediting*.  The Companyshall establish a Deferral Account on its books for the Director, and shallcredit to the Deferral Account the following amounts:

 

3.1.1                        *Rollovers*.  TheDirector’s rollover balance from the Jersey Shore State Bank Director DeferredFee Agreement dated October 14, 1999.

 

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3.1.2                        *Deferrals*. The Fees deferred by the Director as of the timethe Fees would have otherwise been paid to the Director.

 

3.1.3                        *Interest*.  On oraround the first business day of each Plan Year and immediately prior to thepayment of any benefits, interest is to be credited to the DeferralAccount.  While in the service of theCompany, interest shall be credited at an annual rate equal to fifty percent(50%) of the Corporation’s prior year ROE, compounded monthly, on the first businessday on or before said anniversary date. ** **After Termination of Service,interest shall be credited to the Deferral Account at a rate based on the yieldon the 10 Year Treasury Note as specified in the applicable section of Article 4or 5.

 

3.2                                 *Statement ofAccounts*. The Company shall provide to the Director, within onehundred twenty (120) days after each Plan Year, a statement setting forth theDeferral Account balance.

 

3.3                                 *AccountingDevice Only*.  The DeferralAccount is solely a device for measuring amounts to be paid under thisAgreement.  The Deferral Account is not atrust fund of any kind.  The Director isa general unsecured creditor of the Company for the payment of benefits.  The benefits represent the mere Companypromise to pay such benefits.  TheDirector’s rights are not subject in any manner to anticipation, alienation,sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment bythe Director’s creditors.

 

**Article 4**

**BenefitsDuring Lifetime**

 

4.1                                 *NormalBenefit Age*.  If the Directorterminates service as a Director on or after Normal Benefit Age, the Companyshall pay to the Director the benefit described in this Section 4.1 inlieu of any other benefit under this Agreement.

 

4.1.1                        *Amount of Benefit*. The benefit under this Section 4.1 is the Deferral Account balanceat the date specified in Election Form B.

 

4.1.2                        *Payment of Benefit*. The Company shall pay the benefit to the Director in the form specifiedin Election Form C.  If installmentpayments are elected, the Company shall continue to credit interest to theDeferral Account at a rate based on the yield on the 10 Year Treasury Note,compounded monthly, using the average yield in effect for the month immediatelyprior to commencement of benefit payments.

 

4.2                                 *Early TerminationBenefit*.  If the Directorterminates service as a Director before the Normal Benefit Age for reasonsother than death, Disability or following a Change in Control,****the Company shall pay to the Director the benefit describedin this Section 4.2 in lieu of any other benefit under this Agreement.

 

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4.2.1                        *Amount of Benefit*. The benefit under this Section 4.2 is Deferral Account balance atthe date specified in Election Form B. If there is a delay of more than thirty (30) days between the Director’sTermination of Service and the date payout commences, the Company shallcontinue to credit interest to the Deferral Account balance, as specified in Section 4.2.2,based on the yield on the 10 Year Treasury Note until payments commence.

 

4.2.2                        *Payment of Benefit*. The Company shall pay the benefit to the Director in the form specifiedin Election Form C.  If the Directorterminates service as a Director and has elected payment to be distributed atNormal Benefit Age, the Company shall credit interest to the Deferral Accountat a rate based on the yield on the 10 Year Treasury Note, compoundedmonthly.  The initial rate shall be basedon the average yield in effect for the month immediately prior to Terminationof Service.  This rate will reset on January 1stof each calendar year based on the average yield in effect for December ofthe prior year.  If installment paymentsare elected, the Company shall continue to credit interest on the undistributedaccount balance during any applicable installment period at a rate based on theyield on the 10 Year Treasury Note, compounded monthly, using the average yieldin effect for the month immediately prior to commencement of payments.

 

4.3                                 *DisabilityBenefit*.  Upon Termination ofService for Disability prior to the Normal Benefit Age, the Company shall payto the Director the benefit described in this Section 4.3 in lieu of anyother benefit under this Agreement.

 

4.3.1                        *Amount of Benefit*. The benefit under this Section 4.3 is the Deferral Account balanceat the date specified in Election Form B. If there is a delay of more than thirty (30) days between the Director’sTermination of Service and the date payout commences, the Company shallcontinue to credit interest to the Deferral Account balance, as specified in Section 4.3.2,based on the yield on the 10 Year Treasury Note until payments commence.

 

4.3.2                        *Payment of Benefit*. The Company shall pay the benefit to the Director in the form specifiedin Election Form C.  If the Director haselected payment to be distributed at Normal Benefit Age, the Company shallcredit interest to the Deferral Account at a rate based on the yield on the 10Year Treasury Note, compounded monthly. The initial rate shall be based on the average yield in effect for themonth immediately prior to Termination of Service.  This rate will reset on January 1stof each calendar year based on the average yield in effect for December ofthe prior year.  If installment paymentsare elected, the Company shall continue to credit interest on the undistributedaccount balance during any applicable installment period at a rate based on theyield on the 10 Year Treasury Note, compounded monthly, using the average yieldin effect for

 

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the month immediately prior to commencementof payments.

 

4.4                                 *Change inControl Benefit*.  If theDirector is in the active service of the Company when the change occurs, theCompany shall pay to the Director the benefit described in this Section 4.4in lieu of any other benefit under this Agreement.

 

4.4.1                        *Amount of Benefit*. The benefit under this Section 4.4 is Deferral Account balance atthe date specified in Election Form B. If there is a delay of more than thirty (30) days between the Director’sTermination of Service and the date payout commences, the Company shallcontinue to credit interest to the Deferral Account balance, as specified in Section 4.4.2,based on the yield on the 10 Year Treasury Note until payments commence.

 

4.4.2                        *Payment of Benefit*. The Company shall pay the benefit to the Director in the form specifiedin Election Form C.  If the Director haselected payment to be distributed at Normal Benefit Age, the Company shallcredit interest to the Deferral Account at a rate based on the yield on the 10Year Treasury Note, compounded monthly. The initial rate shall be based on the average yield in effect for themonth immediately prior to Termination of Service.  This rate will reset on January 1stof each calendar year based on the average yield in effect for December ofthe prior year.  If installment paymentsare elected, the Company shall continue to credit interest on the undistributedaccount balance during any applicable installment period at a rate based on theyield on the 10 Year Treasury Note, compounded monthly, using the average yieldin effect for the month immediately prior to commencement of payments.

 

4.5                                 *Hardship Distribution*.  If the Director experiences an UnforeseeableEmergency, the Director may petition the Board to suspend Deferrals required tobe made by such Director, to the extent deemed necessary by the Board tosatisfy the Unforeseeable Emergency.  Ifsuspension of Deferrals is not sufficient to satisfy the Director’sUnforeseeable Emergency, or if

 

(i)                                     Reimbursement or compensation by insurance orotherwise; or

(ii)                                  Liquidation of Director’s assets (to theextent the liquidation would not itself cause severe financial hardship)

 

cannotsatisfy the Director’s Unforeseeable Emergency, then the Director may furtherpetition the Board to receive a partial or full payout from the Agreement.  The Director shall only receive a payout fromthe Agreement to the extent such payout is deemed necessary by the Board tosatisfy the Director’s Unforeseeable Emergency, plus an amount necessary to paytaxes reasonably anticipated as a result of the distribution, up to a maximumof the Director’s Deferral Account balance, calculated as of theclose of business on or around the date on

 

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which the amount becomes payable, asdetermined by the Board in its sole discretion.

 

**Article 5**

**DeathBenefits**

 

5.1                                 *Death Whilein Service, but Prior to Commencement of Benefit Payments.*  If the Director dies while in service, butprior to commencement of benefit payments, the Company shall pay to theDirector’s beneficiary the benefit described in this Section 5.1 in lieuof any other benefit under this Agreement.

 

5.1.1                        *Amount of Benefit*. The benefit amount under Section 5.1 is the greater of:  (a) the Deferral Account balance or (b) TwoHundred Nineteen Thousand Nine Hundred Seventy Four Dollars ($219,974)multiplied by the ratio representing the actual cumulative Fees deferred at thedate of death as a percentage of the planned cumulative Fee deferrals at theinception of this Agreement as detailed in Exhibit D, provided such ratio shallnot exceed one hundred percent (100%). In calculating this ratio, the amount shall be interpolated to thenearest month as of the date of death.

 

5.1.2                        *Payment of Benefit*. The Company shall pay the benefit to the beneficiary in the formspecified in Election Form C, with payment made or commencing within 90 daysfollowing the receipt of Director’s death certificate.  If installment payments are elected, theCompany shall continue to credit interest on the undistributed account balanceduring any applicable installment period at a rate based on the yield on the 10Year Treasury Note, compounded monthly, using the average yield in effect for themonth immediately prior to commencement of payments.

 

5.2                                 *Death During Benefit Period*. If the Director dies after benefit payments have commenced under thisAgreement but before receiving all such payments, the Company shall pay theremaining benefits to the Director’s beneficiary at the same time and in thesame amounts they would have been paid to the Director had the Directorsurvived.

 

5.3           *DeathAfter Termination of Service But Before Benefit Payments**Commence*. If the Director is entitled to benefit payments under this Agreement,but dies prior to the commencement of said benefit payments, the Company shallpay to the Beneficiary the Deferral Account balance as elected by the Directoron Election Form C within ninety (90) days following receipt of the Director’sdeath certificate.

 

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**Article 6**

**Beneficiaries**

 

6.1                                 *Beneficiary*. Each Director shall have the right, at anytime, to designate a Beneficiary(ies) to receive any benefits payable under theAgreement to a beneficiary upon the death of a Director.  The Beneficiary designated under thisAgreement may be the same as or different from the Beneficiary designationunder any other plan of the Company in which the Director participates.

 

6.2                                 *BeneficiaryDesignation; Change*.  ADirector shall designate a Beneficiary by completing and signing theBeneficiary Designation Form, and delivering it to the Plan Administrator orits designated agent.  The Director’sbeneficiary designation shall be deemed automatically revoked if thebeneficiary predeceases the Director or if the Director names a spouse asbeneficiary and the marriage is subsequently dissolved.  A Director shall have the right to change aBeneficiary by completing, signing and otherwise complying with the terms ofthe Beneficiary Designation Form and the Plan Administrator’s rules andprocedures, as in effect from time to time. Upon the acceptance by the Plan Administrator of a new BeneficiaryDesignation Form, all Beneficiary designations previously filed shall becancelled.  The Plan Administrator shallbe entitled to rely on the last Beneficiary Designation Form filed by theDirector and accepted by the Plan Administrator prior to the Director’s death.

 

6.3                                 *Acknowledgment*.  No designation or change in designation of aBeneficiary shall be effective until received, accepted and acknowledged inwriting by the Plan Administrator or its designated agent.

 

6.4                                 *NoBeneficiary Designation*.  Ifthe Director dies without a valid beneficiary designation, or if all designatedBeneficiaries predecease the Director, then the Director’s spouse shall be thedesignated Beneficiary.  If the Directorhas no surviving spouse, the benefits shall be made to the personalrepresentative of the Director’s estate.

 

6.5                                 *Facility of Payment*.  If the Plan Administrator determines in itsdiscretion that a benefit is to be paid to a minor, to a person declaredincompetent, or to a person incapable of handling the disposition of thatperson’s property, the Plan Administrator may direct payment of such benefit tothe guardian, legal representative or person having the care or custody of suchminor, incompetent person or incapable person. The Plan Administrator may require proof of incompetence, minority orguardianship as it may deem appropriate prior to distribution of thebenefit.  Any payment of a benefit shallbe a payment for the account of the Director and the Beneficiary, as the casemay be, and shall be a complete discharge of any liability under the Agreementfor such payment amount.

 

**Article 7**

**GeneralLimitations**

 

7.1                                         *Termination for Cause*. The Director will forfeit the interest credited since the date ofexecution of this agreement if the Director’s service is terminated forcause.  For purposes of this Section 7.1,“for cause” shall mean:

 

(i)                                     Anymaterial breach of this Agreement by the Director; or

 

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(ii)                                  TheDirector’s conviction of a crime, either federal or state, evidencing moralturpitude or dishonesty; or

 

(iii)                               TheDirector’s fraud, dishonesty, gross neglect of duties or gross misfeasance.

 

7.2                                 *Removal. *Notwithstanding any provision ofthis Agreement to the contrary, the interest credited to the deferred amountssince the date of execution of this Agreement shall be forfeited if theDirector is subject to a final removal or prohibition order issued by anappropriate federal banking agency pursuant to Section 8(e) of the FederalDeposit Insurance Act (“FDIA”).

 

7.3                                 *Competitionafter Termination of Employment*. The Director shall forfeit his right to the interest credited to thedeferred amounts since the date of execution of this Agreement if the Director,without the prior written consent of the Company, violates the followingdescribed restrictive covenants.

 

7.4                                 *Non-competeProvision*.  The Director shallforfeit any undistributed interest credited to the deferred amounts since thedate of execution of this Agreement under this Agreement if during the term ofthis Agreement, and before all benefits have been paid, the Director, directlyor indirectly, either as an individual or as a proprietor, stockholder,partner, officer, director, employee, agent, consultant or independentcontractor of any individual, partnership, corporation or other entity(excluding an ownership interest of three percent (3%) or less in the stock ofa publicly-traded company):

 

(i)                                     becomesemployed by, participates in, or becomes connected in any manner with theownership, management, operation or control of any bank, savings and loan orother similar financial institution if the Director’s responsibilities willinclude providing banking or other financial services within the fifty (50)miles of any office maintained by the Company as of the date of the terminationof the Director’s service;

 

(ii)                                  participatesin any way in hiring or otherwise engaging, or assisting any other person orentity in hiring or otherwise engaging, on a temporary, part-time or permanentbasis, any individual who was employed by the Company as of the date oftermination of the Director’s service;

 

(iii)                               assists,advises, or serves in any capacity, representative or otherwise, any thirdparty in any action against the Company ortransaction involving the Company;

 

(iv)                              sells,offers to sell, provides banking or other financial services, assists any otherperson in selling or providing banking or other

 

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financialservices, or solicits or otherwise competes for, either directly or indirectly,any orders, contract, or accounts for services of a kind or nature like orsubstantially similar to the financial services performed or financial productssold by the Company (the preceding hereinafter referred to as “Services”), toor from any person or entity from whom the Director or the Company, to theknowledge of the Director provided banking or other financial services, sold,offered to sell or solicited orders, contracts or accounts for Services duringthe three (3) year period immediately prior to the termination of the Director’sservice;

 

(v)                                 divulges,discloses, or communicates to others in any manner whatsoever, any confidentialinformation of the Company, to the knowledge of the Director, including, butnot limited to, the names and addresses of customers or prospective customers,of the Company, as they may have existed from time to time, of work performedor services rendered for any customer, any method and/or procedures relating toprojects or other work developed for the Company, earnings or other informationconcerning the Company. The restrictions contained in this subparagraph (v)apply to all information regarding the Company, regardless of the source whoprovided or compiled such information. Notwithstanding anything to the contrary, all information referred toherein shall not be disclosed unless and until it becomes known to the generalpublic from sources other than the Director.

 

7.5                                 *JudicialRemedies*.  In the event of abreach or threatened breach by the Director of any provision of theserestrictions, the Director recognizes the substantial and immediate harm that abreach or threatened breach will impose upon the Company or any of itssubsidiaries or Affiliates, and further recognizes that in such event monetarydamages may be inadequate to fully protect the Company or any of itssubsidiaries or Affiliates. Accordingly, in the event of a breach or threatenedbreach of the provisions of this Agreement, the Director consents to theCompany’s or any of its subsidiaries’ entitlement to such exparte,preliminary, interlocutory, temporary or permanent injunctive, or any otherequitable relief, protecting and fully enforcing the Company’ or any of itssubsidiaries’ rights hereunder and preventing the Director from furtherbreaching any of his obligations set forth herein.  The Director expressly waives anyrequirement, based on any statute, rule of procedure, or other source, that theCompany or any of its subsidiaries or Affiliates post a bond as a condition ofobtaining any of the above-described remedies. Nothing herein shall be construed as prohibiting the Company or any ofits subsidiaries or Affiliates from pursuing any other remedies available tothe Company or any of its subsidiaries or Affiliates at law or in equity forsuch breach or threatened breach, including the recovery of damages from theDirector.  The Director expresslyacknowledges and agrees that: (i) the restrictions set forth in Section 7.4are reasonable, in terms of scope, duration, geographic area, and otherwise,(ii) the protections afforded the Company or any of its subsidiaries orAffiliates in

 

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Section 7.4 are necessary to protect its legitimate businessinterest, (iii) the restrictions set forth in Section 7.4 will not bematerially adverse to the Director’s service with the Company, and (iv) hisagreement to observe such restrictions forms a material part of theconsideration for this Agreement.

 

7.6                                 *Overbreadthof Restrictive Covenant.*  Itis the intention of the parties that if any restrictive covenant in thisAgreement is determined by a court of competent jurisdiction to be overlybroad, then the court should enforce such restrictive covenant to the maximumextent permitted under the law as to area, breadth and duration.

 

7.7                                 *Change in Control*.  The non-compete provision detailed in Section 7.4shall not apply if there is a Change in Control.

 

7.8                                 *Suicide or Misstatement*. The Directorshall forfeit all interest credited since the date of execution of thisAgreement if the Director commits suicide within two years after the date ofthis Agreement, or if the insurance company denies coverage for (i) materialmisstatements of fact made by the Director on any application for lifeinsurance purchased by the Company, or (ii) any other reason.  The Company shall have no liability to theDirector for any denial of coverage by the insurance company.

 

**Article 8**

**Claims andReview Procedures**

 

8.1                                                 *Claims Procedure*.  ADirector or Beneficiary (“claimant”) who has not received benefits under theAgreement that he or she believes should be paid shall make a claim for suchbenefits as follows:

 

8.1.1                        *Initiation – Written Claim*. The claimant initiates a claim by submitting to the Plan Administrator awritten claim for the benefits.

 

8.1.2                        *Timing of Plan Administrator Response.*  The PlanAdministrator shall respond to such claimant within 90 days after receiving theclaim.  If the Plan Administratordetermines that special circumstances require additional time for processingthe claim, the Plan Administrator can extend the response period by anadditional 90 days by notifying the claimant in writing, prior to the end ofthe initial 90-day period, that an additional period is required.  The notice of extension must set forth thespecial circumstances and the date by which the Plan Administrator expects torender its decision.

 

8.1.3                        *Notice of Decision*. If the Plan Administrator denies part or all of the claim, the PlanAdministrator shall notify the claimant in writing of such denial.  The Plan Administrator shall write thenotification in a manner calculated to be understood by the claimant.  The notification shall set forth:

 

(a)          The specific reasons for the denial;

(b)         A reference to the specific provisions of theAgreement on which

 

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the denial is based;

(c)          A description of any additional informationor material necessary for the claimant to perfect the claim and an explanationof why it is needed, and

(d)         An explanation of the Agreement’s reviewprocedures and the time limits applicable to such procedures.

 

8.2                                 *ReviewProcedure*.  If the PlanAdministrator denies part or all of the claim, the claimant shall have theopportunity for a full and fair review by the Plan Administrator of the denial,as follows:

 

8.2.1                        *Initiation – Written Request*.  To initiate the review, the claimant, within60 days after receiving the Plan Administrator’s notice of denial, must filewith the Plan Administrator a written request for review.

 

8.2.2                        *Additional Submissions – Information Access*.  The claimant shall then have the opportunityto submit written comments, documents, records and other information relatingto the claim.  The Plan Administratorshall also provide the claimant, upon request and free of charge, reasonableaccess to, and copies of, all documents, records and other information relevantto the claimant’s claim for benefits.

 

8.2.3                        *Considerations on Review*. In considering the review, the Plan Administrator shall take intoaccount all materials and information the claimant submits relating to theclaim, without regard to whether such information was submitted or consideredin the initial benefit determination.

 

8.2.4                        *Timing of Plan Administrator Response*.  The Plan Administrator shall respond inwriting to such claimant within 60 days after receiving the request forreview.  If the Plan Administratordetermines that special circumstances require additional time for processingthe claim, the Plan Administrator can extend the response period by anadditional 60 days by notifying the claimant in writing, prior to the end ofthe initial 60-day period, that an additional period is required.  The notice of extension must set forth thespecial circumstances and the date by which the Plan Administrator expects torender its decision.

 

8.2.5                        *Notice of Decision*. The Plan Administrator shall notify the claimant in writing of itsdecision on review.  The PlanAdministrator shall write the notification in a manner calculated to be understoodby the claimant.  The notification shallset forth:

 

(a)          The specific reasons for the denial;

(b)         A reference to the specific provisions of theAgreement on which the denial is based, and

(c)          A statement that the claimant is entitled toreceive, upon request and free of charge, reasonable access to, and copies of,all documents,

 

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records and other information relevant to theclaimant’s claim for benefits.

 

**Article 9**

**Amendmentsand Termination**

 

No provisions of this Agreement may be modified,waived or discharged unless such waiver, modification or discharge is agreed toin writing signed by the Director and such officer or officers as may bespecifically designated by the Board to sign on their behalf.  Provided, however, in response to legislativeor regulatory changes affecting nonqualified deferred compensation plans thatwould otherwise cause the Director to be deemed in constructive receipt ofbenefits under this Agreement, the Company can amend this Agreement for thesole purpose of complying with such legislative or regulatory changes.

 

**Article 10**

**Miscellaneous**

 

10.1                           *BindingEffect*.  This Agreement shallbind the Director and the Company, and their beneficiaries, survivors,executors, successors, administrators and transferees.

 

10.2                           *No Guaranteeof Service*.  This Agreement isnot a service policy or contract.  Itdoes not give the Director the right to remain as a member of the Company’sBoard, nor does it interfere with the Company’s right to terminate the Director’sservice.  It also does not require theDirector to remain in service nor interfere with the Director’s right toterminate service at any time.

 

10.3                           *Non-Transferability*.Benefits under this Agreement cannot be sold, transferred, assigned, pledged,attached or encumbered in any manner.

 

10.4                           *TaxWithholding*.  The Companyshall withhold any taxes that are required to be withheld from the benefitsprovided under this Agreement.

 

10.5                           *ApplicableLaw*.  The Agreement and allrights hereunder shall be governed by the laws of the Commonwealth ofPennsylvania, except to the extent preempted by the laws of the United Statesof America.

 

10.6                           *UnfundedArrangement*.  The Director andbeneficiary are general unsecured creditors of the Company for the payment ofbenefits under this Agreement.  The benefitsrepresent the mere promise by the Company to pay such benefits.  The rights to benefits are not subject in anymanner to anticipation, alienation, sale, transfer, assignment, pledge,encumbrance, attachment, or garnishment by creditors.  Any insurance on the Director’s life is ageneral asset of the Company to which the Director and beneficiary have nopreferred or secured claim.

 

14

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10.7                           *EntireAgreement. *This Agreementconstitutes the entire agreement between the Company and the Director as to thesubject matter hereof.  No rights aregranted to the Director by virtue of this Agreement other than thosespecifically set forth herein.

 

10.8                           *Reorganization.*  TheCompany shall not merge or consolidate into or with another company, orreorganize, or sell substantially all of its assets to another company, firm orperson unless such succeeding or continuing company, firm or person agrees toassume and discharge the obligations of the Company under this Agreement.  Upon the occurrence of such event, the term “Company”as used in this Agreement shall be deemed to refer to the successor or survivorcompany.

 

10.9                           *Administration. *The Company shall have powerswhich are necessary to administer this Agreement, including but not limited to:

 

10.9.1                  Interpreting theprovisions of the Agreement;

 

10.9.2                  Establishing andrevising the method of accounting for the Agreement;

 

10.9.3                  Maintaining arecord of benefit payments; and

 

10.9.4                  Establishingrules and prescribing any forms necessary or desirable to administer theAgreement.

 

10.10                     *NamedFiduciary and Plan Administrator.* The Company shall be the named fiduciary and Plan Administrator underthis Agreement.  The named fiduciary maydelegate to others certain aspects of the management and operationresponsibilities of the Agreement including the service of advisors and thedelegation of ministerial duties to qualified individuals.

 

IN WITNESS WHEREOF, the Director and aduly authorized officer of the Company have signed this Agreement as of thedate indicated above.

 

 
| **DIRECTOR:**                   | **COMPANY:**                |
|---------------------------------|-----------------------------|
|                            | **JERSEY SHORE STATE BANK** |
| ** **                      |                        |
|                            |                        |
| /s/  Ronald  A. Walko |                        | By | /s/  James  E. Plummer |
| RON WALKO                       |                        |
|                            | Title  Secretary            |
|                                 |                             |  |  |

 

15

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Byexecution hereof, Penns Woods Bancorp, Inc. consents to and agrees to be boundby the terms and condition of this Agreement.

 

 
| **ATTEST:**                     | **CORPORATION:**               |
|---------------------------------|--------------------------------|
|                            | **PENNS  WOODS BANCORP, INC.** |
| ** **                      |                           |
|                            |                           |
| /s/  Ronald  A. Walko |                           | By | /s/  James  E. Plummer |
|                            |                           |
|                            | Title  Director                |
|                                 |                                |  |  |

 

16

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**EXHIBIT A**

 

**JERSEY SHORE STATE BANK****DIRECTOR DEFERRED FEE AGREEMENT**

 

**Election Form A**

 

**Deferral Election:**

 

I elect to defer 80 % of my annual CashAllowance (or$             per year.)

 

I understand that I may change the deferralamount provided I make an election in writing prior to the calendar year forwhich the change will become effective.

 

 
| Signature                                                   | /s/  Ronald  A. Walko  |   |
|-------------------------------------------------------------|----------------------------------|--------|
|                                                        |
| Date  October 1, 2004                                  |
|                                                        |
|                                                        |
| Accepted by  the Company this 1st day of October 2004. |
|                                                        |
| JERSEY SHORE  STATE BANK                                    |
|                                                        |
| By                                                          | /s/  James  E. Plummer |   |
|                                                        |
| Title Secretary                                             |
|                                                             |                                  |        |  |

 

17

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**EXHIBIT B**

 

**JERSEY SHORE STATE BANKDIRECTOR DEFERRED FEE AGREEMENT**

 

**Election Form B**

 

**Normal Benefit Age:****                              **Ielect a Normal Benefit Age of 70.

 

**Timing of Payout:**

 

**If I terminate service before Normal BenefitAge for reasons other than Death, Disability or following a Change in Control,I elect to have my benefits distributed commencing within 30 days of (InitialOne):**

 
|   | o      |   | Normal  Benefit Age     |
|--------|--------|--------|-------------------------|
|   |   |   |                    |
|   | ý |   | Termination  of Service |

 

**If I terminate service before Normal BenefitAge due to Disability, I elect to have my benefits distributed commencingwithin 30 days of (Initial One):**

 
|   | o      |   | Normal  Benefit Age     |
|--------|--------|--------|-------------------------|
|   |   |   |                    |
|   | ý |   | Termination  of Service |

 

**If a Change in Control occurs, while I am inactive service, but prior to Normal Benefit Age, I elect to have my benefitsdistributed commencing within 30 days of (Initial One):**

 
|   | o      |   | Normal  Benefit Age                    |
|--------|--------|--------|----------------------------------------|
|   |   |   |                                   |
|   | ý |   | Termination  of Service                |
|   |   |   |                                   |
| _      | o      |   | the date the  Change in Control occurs |

 

 
| Signature                                                   | /s/  Ronald  A. Walko  |   |
|-------------------------------------------------------------|----------------------------------|--------|
|                                                        |
| Date  October 1, 2004                                  |
|                                                        |
|                                                        |
| Accepted by  the Company this 1st day of October 2004. |
|                                                        |
| JERSEY SHORE  STATE BANK                                    |
|                                                        |
|                                                        |
| By                                                          | /s/  James  E. Plummer |   |
|                                                        |
| Title Secretary                                             |
|                                                             |                                  |        |  |

 

----

 

**EXHIBIT C**

 

**JERSEY SHORE STATE BANK****DIRECTOR DEFERRED FEE AGREEMENT**

 

**Election Form C**

 

**Form of Payment:**

 

Ielect to have my benefits paid in the following form (initial (a), (b), (c) or(d) for each category):

 
| **Section  Reference** | ** ** | **Triggering  Event** | ** ** | **Lump  Sum**                 | ** ** | **Annuitized  Over  24 Months** | ** ** | **Annuitized  Over  60 months** | ** ** | **Annuitized  Over  120 months** |
|------------------------|------------|-----------------------|------------|-------------------------------|------------|---------------------------------|------------|---------------------------------|------------|----------------------------------|
| ** **             | ** ** | ** **            | ** ** | ** **                    | ** ** | ** **                      | ** ** | ** **                      | ** ** | ** **                       |
| 4.1.2                  |       | Normal Benefit Age    |       | (a)     o      |       | (b)     o        |       | (c)     o        |       | (d)     ý    |
|                   |       |                  |       |                          |       |                            |       |                            |       |                             |
| 4.2.2                  |       | Early Termination     |       | (a)     o      |       | (b)     o        |       | (c)     ý   |       | (d)     o         |
|                   |       |                  |       |                          |       |                            |       |                            |       |                             |
| 4.3.2                  |       | Disability            |       | (a)     o      |       | (b)     o        |       | (c)     ý   |       | (d)     o         |
|                   |       |                  |       |                          |       |                            |       |                            |       |                             |
| 4.4.2                  |       | Change in Control     |       | (a)     ý |       | (b)     o        |       | (c)     o        |       | (d)     o         |
|                   |       |                  |       |                          |       |                            |       |                            |       |                             |
| 5.1.2                  |       | Death                 |       | (a)    o       |       | (b)     o        |       | (c)     ý   |       | (d)     o         |

 

 
| Signature                                                   | /s/  Ronald  A. Walko  |   |
|-------------------------------------------------------------|----------------------------------|--------|
|                                                        |
| Date  October 1, 2004                                  |
|                                                        |
| Accepted by  the Company this 1st day of October 2004. |
|                                                        |
| JERSEY SHORE  STATE BANK                                    |
| By                                                          | /s/  James  E. Plummer |   |
|                                                        |
| Title Secretary                                             |
|                                                             |                                  |        |  |

 

----

 

**EXHIBIT D**

 

**JERSEY SHORE STATE BANK****DIRECTOR DEFERRED FEE AGREEMENT**

 

**Planned Fees Deferrals**

 

| **Plan Year** | ** ** | **Planned Annual  Deferrals** | ** ** | **Planned Cumulative  Deferrals** | ** ** |
|---------------|------------|-------------------------------|------------|-----------------------------------|------------|
| 1             |       | 3,120                         |       | 3,120                             |       |
| 2             |       | 12,854                        |       | 15,974                            |       |
| 3             |       | 13,240                        |       | 29,214                            |       |
| 4             |       | 13,637                        |       | 42,851                            |       |
| 5             |       | 14,046                        |       | 56,897                            |       |
| 6             |       | 14,468                        |       | 71,365                            |       |
| 7             |       | 14,902                        |       | 86,267                            |       |
| 8             |       | 15,349                        |       | 101,616                           |       |
| 9             |       | 15,809                        |       | 117,425                           |       |
| 10            |       | 16,284                        |       | 133,709                           |       |
| 11            |       | 16,772                        |       | 150,481                           |       |
| 12            |       | 17,275                        |       | 167,756                           |       |
| 13            |       | 17,793                        |       | 185,549                           |       |
| 14            |       | 18,327                        |       | 203,876                           |       |
| 15            |       | 18,877                        |       | 222,753                           |       |
| 16            |       | 4,861                         |       | 227,614                           |       |

 

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