Termination Agreement Joeseph Ferretti


    Exhibit
      10.12

    TERMINATION
      AGREEMENT

     

    THIS
      AGREEMENT
      ("Agreement") made as of this 1st day of January 2007, by and between
PEOPLES
      FINANCIAL SERVICES CORP.,
      a
      Pennsylvania corporation ("Peoples") and JOSEPH
      M. FERRETTI
      (the
“Executive”).

    


    WITNESSETH:

    


    WHEREAS,
      Peoples
      is engaged in the business of a bank holding company and is the owner of all
      the
      issued and outstanding capital stock of Peoples National Bank (the "Bank");
      and

    


    WHEREAS,
      the
      Executive is presently serving as Vice President of the Bank; and

    


    WHEREAS,
      Peoples
      considers the continued services of the Executive to be in the best interests
      of
      Peoples and its shareholders and desires to induce the Executive to remain
      in
      the employ of the Bank on an impartial and objective basis in the event of
      a
      change in control of Peoples.


    AGREEMENT

    


    


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

    


    1. Term
      of Agreement.

    


    (a) The
      term
      of this Agreement shall:

    


    (i) initially
      be a term commencing as of January 1, 2007, and ending on December 31, 2008;
      and

    


    (ii) be
      automatically extended to provide for a two (2) year term, annually, on January
      1, 2008, and again on January 1 of each year thereafter, effective as of such
      respective dates, unless either Peoples or the Executive shall have given
      written notice of nonextension of the term of this Agreement to the other at
      least ninety (90) days before the date of any such extension.

    


    (b) Notwithstanding
      the provisions of Section 1(a) of this Agreement, this Agreement shall terminate
      automatically upon termination by Peoples of the Executive's employment for
      Cause. As used in this Agreement, "Cause" shall mean the following:

    


    (i) the
      Executive is convicted of or enters a plea of guilty or nolo contendere to
      a
      felony, a crime of falsehood, or a crime involving fraud or moral turpitude,
      or
      the actual incarceration of the Executive for a period of forty-five (45)
      consecutive days;

    


    (ii) the
      Executive willfully fails to follow the lawful, good faith instructions of
      the
      Board of Directors of Peoples after the Executive's receipt of written notice
      of
      such instructions, other than a failure resulting from the Executive's
      incapacity because of physical or mental illness; or

    


    (iii) any
      government regulatory agency orders that Peoples terminate the employment of
      the
      Executive or relieve him of his duties.

    


    Notwithstanding
      the foregoing, the Executive's employment under this Agreement shall not be
      deemed to have been terminated for "Cause" under Clause (i) or (ii) above if
      such termination took place solely as a result of:

    


    (i) questionable
      judgment on the part of the Executive;

    


    (ii) any
      act
      or omission believed by the Executive, in good faith, to have been in, or not
      opposed to, the best interests of Peoples or its affiliated companies;
      or

    


    (iii) any
      act
      or omission in respect of which a determination could properly be made that
      the
      Executive met the applicable standard of conduct prescribed for indemnification
      or reimbursement or payment of expenses under the Charter or Bylaws of Peoples
      (or its affiliates) or the directors' and officers' liability insurance of
      Peoples (or its affiliates), in each case as in effect at the time of such
      act
      or omission.

    


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

    


    (c) Notwithstanding
      the provisions of Section 1(a) of this Agreement, this Agreement shall terminate
      automatically upon termination of the Executive's employment as a result of
      the
      Executive's voluntary termination (other than in accordance with Section 2
      of
      this Agreement), retirement at the Executive's election, or death, and the
      Executive's rights under this Agreement shall cease as of the date of such
      voluntary termination, retirement at the Executive's election, or death;
      provided, however, that if the Executive dies after a Notice of Termination
      (as
      defined in Section 2(a) of this Agreement) is delivered by the Executive, the
      provisions of Section 11(b) of this Agreement shall apply.

    


    (d) Notwithstanding
      the provisions of Section 1(a) of this Agreement, this Agreement shall terminate
      automatically upon termination of the Executive's employment as a result of
      the
      Executive's disability and the Executive's rights under this Agreement shall
      cease as of the date of such termination. For purposes of this Agreement,
      "disability" shall mean the Executive's incapacitation by accident, sickness,
      or
      otherwise that renders the Executive mentally or physically incapable of
      performing the services therefore required of the Executive for a continuous
      period of six (6) months.

    


    2. Termination
      Following Change in Control.

    


    (a) If
      a
      Change in Control (as defined in Section 2(b) of this Agreement) shall occur
      and
      if thereafter, at any time during the term of this Agreement, the Executive
      shall be involuntarily terminated or there shall be:

    


    (i) any
      reduction in title or a reduction in the Executive's responsibilities or
      authority with respect to Peoples or the Bank, including such responsibilities
      and authority as the same may be increased at any time during the term of this
      Agreement, or the assignment to the Executive of duties inconsistent with the
      Executive's prior status as a Vice President of the Bank;

    


    (ii) any
      reassignment of the Executive which requires the Executive to move his principal
      residence;

    


    (iii) any
      removal of the Executive from office or any adverse change in the terms and
      conditions of the Executive's employment, except for any termination of the
      Executive's employment under the provisions of Section 1(b) hereof;

    


    (iv) any
      reduction in the Executive's annual base salary as in effect on the date hereof
      or as the same may be increased from time to time;

    


    (v) any
      failure of Peoples to provide the Executive with benefits at least as favorable
      as those enjoyed by the Executive under any of the pension, life insurance,
      medical, health, accident, disability or other employee benefit plans of Peoples
      (or any affiliated company) in which the 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, unless
      such
      reduction is part of a reduction applicable to all employees;

    


    (vi) any
      failure to obtain a satisfactory agreement from any successor to assume and
      agree to perform under this Agreement, as contemplated in Section 11(a)
      hereof;

    


    (vii) any
      material change in the legal relationship between Peoples and the Bank;
      or

    


    (viii) any
      material breach of this Agreement on the part of Peoples;

    


    then,
      at
      the option of the Executive, exercisable by the Executive within one hundred
      twenty (120) days of the occurrence of each and every of the foregoing
      enumerated events, the Executive may resign from employment with Peoples (or,
      if
      involuntarily terminated, give notice of intention to collect benefits under
      this Agreement) by delivering a notice in writing (the "Notice of Termination")
      to Peoples, and the provisions of Section 3 of this Agreement shall
      apply.

    


    (b) As
      used
      in this Agreement, "Change in Control" means a change of control of a nature
      that would be required to be reported in response to Item 6(e) of Schedule
      14A
      of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
      amended (the "Exchange Act"), as enacted and in force on the date hereof,
      whether or not Peoples is then subject to such reporting requirement; provided,
      however, that, without limitation, such a Change in Control shall be deemed
      to
      have occurred if:

    


    (i) any
      "person" (including a group acting in concert, as the term "person" is defined
      in Section 13(d) of the Exchange Act, as enacted and in force on the date
      hereof) becomes the "beneficial owner" (as that term is defined in Rule 13d-3,
      as enacted and in force on the date hereof, under the Exchange Act) of
      securities of Peoples representing more than 19.9% of the combined voting power
      of Peoples' securities then outstanding;

    


    (ii) there
      occurs a merger, consolidation or other business combination or reorganization
      to which Peoples or the Bank is a party, whether or not approved in advance
      by
      the Board of Directors of Peoples or the Bank (as the case may be) in which
      the
      members of the Board of Directors of Peoples or the Bank (as the case may be)
      immediately preceding the consummation of such transaction do not constitute
      a
      majority of the members of the Board of Directors of the resulting corporation
      and of any parent corporation thereof immediately after the consummation of
      such
      transaction;

    


    (iii) there
      occurs a sale, exchange, transfer, or other disposition of substantially all
      of
      the assets of Peoples or the Bank to another entity, which is not approved
      in
      advance by the Board of Directors of Peoples;

    


    (iv) there
      occurs a contested proxy solicitation of the stockholders of Peoples that
      results in the contesting party obtaining the ability to elect candidates to
      a
      majority of the positions on Peoples' Board of Directors next up for election;
      or

    


    (v) there
      occurs a tender offer for the shares of voting securities of Peoples that
      results in the tender offeror obtaining securities representing more than 19.9%
      of the combined voting power of Peoples' securities then
      outstanding.

    


    3. Rights
      in Event of Certain Termination of Employment After Change in
      Control.
      In the
      event that Executive resigns from employment in accordance with the provisions
      of Section 2(a), or Executive's employment is terminated by Peoples without
      Cause after a Change in Control, Peoples shall pay (or cause to be paid) to
      the
      Executive in cash, within twenty (20) days following termination, an amount
      equal to 2.00 times his "base amount" (within the meaning of Section 280G(b)(3)
      of the Internal Revenue Code of 1986, as amended (the "Code")), calculated
      as
      though the occurrence of the Change in Control were an event described in Code
      Section 280G(b)(2)(A)(1).

    


    Notwithstanding
      the preceding sentence, in the event the lump sum payment described in the
      preceding sentence, when added to all other amounts or benefits provided to
      or
      on behalf of the Executive in connection with his termination of employment,
      would result in the imposition of an excise tax under Code Section 4999, such
      lump sum shall be reduced to the extent necessary to avoid such
      imposition.

    


    4. Legal
      Expenses.
      Peoples
      shall pay to the Executive all legal fees and expenses incurred by the Executive
      in seeking in good faith to obtain or enforce any right or benefit provided
      by
      the Agreement, provided that any action or proceeding is not summarily decided
      against the Executive.

    


    5. Arbitration.
      Peoples
      and the Executive recognize that in the event a dispute should arise between
      them concerning the interpretation or implementation of this Agreement, lengthy
      and expensive litigation will not afford a practical resolution of the issues
      within a reasonable period of time. Consequently, each party agrees that all
      disputes, disagreements and questions of interpretation concerning this
      Agreement are to be submitted for resolution to the American Arbitration
      Association (the "Association") in Scranton, Pennsylvania. Peoples, or the
      Executive, may initiate an arbitration proceeding at any time by giving notice
      to the other in accordance with the rules of the Association. The Association
      shall designate a single arbitrator to conduct the proceeding, but Peoples,
      and
      the Executive, may, as a matter of right, require the substitution of a
      different arbitrator chosen by the Association. Each such right of substitution
      may be exercised only once. The arbitrator shall not be bound by the rules
      of
      evidence and procedure of the courts of the Commonwealth of Pennsylvania but
      shall be bound by the substantive law applicable to this Agreement. The decision
      of the arbitrator, absent fraud, duress, incompetence or gross and obvious
      error
      of fact, shall be final and binding upon the parties and shall be enforceable
      in
      courts of proper jurisdiction. Following written notice of a request for
      arbitration, Peoples, and the Executive, shall be entitled to an injunction
      restraining all further proceedings in any pending or subsequently filed
      litigation concerning this Agreement. Notwithstanding the preceding provisions
      of this section, in the event any such provision is in conflict with a rule
      or
      policy of the Association, the arbitration proceeding shall be governed by
      such
      rule or policy.

    


    6. Mitigation
      of Damages.
      The
      Executive shall not be required to mitigate the amount of any payment provided
      for in Section 3 by seeking other employment or otherwise, nor shall the amount
      of any payment or benefit provided for in Section 3 be reduced by any
      compensation earned by the Executive as the result of employment by another
      employer or by reason of the Executive's receipt of or right to receive any
      retirement or other benefits after the date of termination of employment or
      otherwise; provided, however, that the payments provided for in Section 3 shall
      be reduced by the amount actually received by the Executive under any severance
      policy of Peoples then in effect.

    


    7. Notices.
      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 the residence of the
      Executive, in the case of notices to the Executive, and to the principal office
      of Peoples, in the case of notices to Peoples.

    


    8. 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 the
      Executive and an executive officer of Peoples specifically designated by the
      Board of Directors of Peoples. No waiver by either party hereto at any time
      of
      any breach by the other party hereto of, or compliance with, any condition
      or
      provision of this Agreement to be performed by such other party shall be deemed
      a waiver of similar or dissimilar provisions or conditions at the same or at
      any
      prior or subsequent time.

    


    9. Assignment.
      This
      Agreement shall not be assignable by either party, except by Peoples to any
      successor in interest to the business of Peoples.

    


    10. Entire
      Agreement.
      This
      Agreement contains the entire agreement of the parties relating to the subject
      matter of this Agreement.

    


    11. Successors;
      Binding Agreement.

    


    (a) Peoples
      will require any successor (whether direct or indirect, by purchase, merger,
      consolidation, or otherwise) to all or substantially all of the business and/or
      assets of Peoples to expressly assume and agree to perform this Agreement in
      the
      same manner and to the same extent that Peoples would be required to perform
      it
      if no such succession had taken place. Failure by Peoples to obtain such
      assumption and agreement prior to the effectiveness of any such succession
      shall
      constitute a breach of this Agreement and the provisions of Section 3 of this
      Agreement shall apply. As used in this Agreement, "Peoples" shall mean Peoples
      as hereinbefore defined and any successor to the respective businesses and/or
      assets of Peoples 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 the Executive's
      personal or legal representatives, executors, administrators, heirs,
      distributees, devisees, and legatees. If the Executive should die after a Notice
      of Termination is delivered by the Executive and any amounts would be payable
      to
      the Executive under this Agreement if the Executive had continued to live,
      all
      such amounts shall be paid in accordance with the terms of this Agreement to
      the
      Executive's devisee, legatee, or other designee, or, if there is none, to the
      Executive's estate.

    


    12. 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.

    


    13. Applicable
      Law.
      This
      Agreement shall be governed by and construed in accordance with the domestic
      laws (but not the law of conflict of laws) of the Commonwealth of
      Pennsylvania.

    


    14. Headings.
      The
      headings of the sections 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.

    


    15. Termination
      of Prior Agreements.
      Upon
      the execution and delivery of this Agreement by the parties hereto, any prior
      agreement relating to the subject matter hereof shall be automatically
      terminated and be of no further force or effect.

    


    16. 409A
      Safe Harbor.
      Notwithstanding anything in this Agreement to the contrary, in no event shall
      Peoples be obligated to commence payment or distribution to the Executive of
      any
      amount that constitutes nonqualified deferred compensation within the meaning
      of
      Internal Revenue Code Section 409A (“CODE SECTION 409A”) earlier that the
      earliest permissible date under Code Section 409A that such amount could be
      paid
      without additional taxes or interest being imposed under Code Section 409A.
      Peoples and the Executive agree that they will execute any and all amendments
      to
      this Agreement as they mutually agree in good faith may be necessary to ensure
      compliance with the distribution provisions of Code Section 409A and to cause
      any and all amounts due under this Agreement, the payment or distribution of
      which is delayed pursuant to Code Section 409A, to be paid or distributed in
      a
      single sum payment at the earliest permissible date under Code Section
      409A.

    


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

    


    PEOPLES
      FINANCIAL SERVICES CORP.

    
 

    By:
            

    President

    (SEAL)


    Attest:
           

    (Assistant)
      Secretary 


    


    Witness:              EXECUTIVE

    


    Joseph
      M.
      Ferretti