Exhibit 10.1


 


EMPLOYMENT AGREEMENT


 


THIS AGREEMENT, made the 1st day of June 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 BRIAN L.
KNEPP, an adult individual (“Executive”).


 


WITNESSETH:


 


WHEREAS, Executive is presently employed by Penns
Woods and JSSB as their Chief Financial Officer;


 


WHEREAS, it is the desire of Penns Woods and JSSB that
Executive continue his employment, on the terms and conditions set forth
herein, in order that the experience he has gained throughout his career will
continue to be available to Penns Woods and JSSB; and


 


WHEREAS, Executive is willing to continue such
employment, on the terms and conditions set forth herein.


 


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, on the terms and conditions set forth in this Agreement.


 


2.             Titles and Duties of Executive. 
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 President and Chief Executive
Officer of Penns Woods and JSSB and which are consistent with his positions set
forth in the following sentence. 
Executive shall be employed as the Chief Financial Officer of Penns
Woods and JSSB.  Executive shall report
directly to the President and Chief Executive Officer of Penns Woods and
JSSB.  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 President
and Chief Executive Officer of Penns Woods and JSSB.


 


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 May 31,
2013; provided, however, that, commencing on June 1, 2013 and on June 1
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 


 


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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 President and Chief Executive Officer 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 of any law, rule or
regulation (other than traffic violations or similar offenses), Executive’s
intentional violation of any memorandum of understanding or cease and desist
order of a federal or state banking agency applicable to the Employer,
Executive’s intentional violation of any code of conduct or ethics applicable
to officers or employees of Penns Woods or JSSB, or Executive’s intentional
violation of any material provision of this Agreement;


 


(v)     dishonesty on the part of the Executive in the
performance of his duties or conduct on the part of the Executive which, in the
reasonable judgment of the Boards of Directors of Penns Woods and JSSB, brings
public discredit to Penns Woods or JSSB;


 


(vi)    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; or


 


(vii)   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.


 


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


 


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(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), 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 17(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)     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 $107,432
per year, payable bi-weekly 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.


 


(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 four (4) weeks
per annum.  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.  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, nor shall Executive be able to accumulate
unused vacation or sick leave time from one year to the next, unless otherwise
provided by the personnel policies of the Employer from time to time in effect.


 


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(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 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; Continuing Education. 
The Employer shall promptly reimburse Executive, upon submission of
appropriate documentation, for reasonable business expenses, including travel
and reasonable entertainment expenses, incurred by Executive in accordance with
the expense reimbursement policies of the Employer in effect from time to
time.  In addition, subject to
pre-approval by the President and Chief Executive Officer of Penns Woods and
JSSB, the Employer shall pay Executive’s cost of travel and lodging relating to
Executive’s attendance at trade conferences (with total annual attendance days
not to exceed 15 days in the aggregate, unless otherwise approved in advance by
the Board of Directors of Penns Woods).


 


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


 


(a)     Benefits.  If a Change
in Control (as defined below) 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 (as defined
below), 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 (2.0) times the sum of (i) Executive’s annual base
salary then in effect (or immediately prior to any reduction resulting in a
termination for Good Reason) and (ii) the average of the last three (3) annual
bonuses paid by the Employer to Executive.


 


(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-solicitation and non-compete provisions of Section 6
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.  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.


 


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


 


(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;


 


(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.


 


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


 


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(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 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 (other
than by reason of Section 3(d)) without Cause and no Change in Control
shall have occurred at the date of such termination, Executive shall be
entitled to receive the following benefits:


 


(i)      The Employer shall continue to pay Executive’s then
base salary under Section 4(a) for the number of full months
remaining in the Employment Period as of the date of termination of
employment.  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.


 


(ii)     For a period of two (2) years following Executive’s
termination, Executive shall be provided, at no charge, with a continuation of
health and medical benefits no less favorable than the health and medical
benefits in effect on the date of termination of the Executive’s
employment.  To the extent such benefits
cannot be provided under a plan because Executive is no longer an employee of
the Employer, a dollar amount equal to the after-tax cost (estimated in good
faith by the Employer) of obtaining such benefits, or substantially similar
benefits, shall be paid to the Employee periodically, as appropriate.


 


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(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 (other than by reason of Section 3(d)) without
Cause 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 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 of any person, firm, corporation, or
enterprise engaged, in the banking or financial services business in any county
in the Commonwealth of Pennsylvania in which, at the date of termination of the
Executive’s employment, a branch, office or other facility of Penns Woods, JSSB
or any of their respective majority-owned subsidiaries is located, or in any
county contiguous to such a county, whether located inside or outside of the
Commonwealth of Pennsylvania (the “Non Competition Area”); or


 


(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.


 


(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 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;


 


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(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 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 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 or
hire 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, 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 


 


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pursuing any other
remedies available to them, at law or in equity, for such breach or threatened
breach.


 


11.           Arbitration. 
The Employer and Executive recognize that, in the event a dispute should
arise between them concerning the interpretation or implementation of this
Agreement, lengthy and expensive litigation will not afford a practical
resolution of the issues within a reasonable period of time.  Consequently, each party agrees that all
disputes, disagreements and questions of interpretation concerning this
Agreement are to be submitted for resolution, in Williamsport, Pennsylvania, to
the American Arbitration Association (the “Association”) in accordance with the
Association’s National Rules for the Resolution of Employment Disputes or
other applicable rules then in effect (“Rules”).  The Employer or Executive may initiate an
arbitration proceeding at any time by giving notice to the other in accordance
with the Rules.  The Employer and
Executive may, as a matter of right, mutually agree on the appointment of a
particular arbitrator from the Association’s pool.  The arbitrator shall not be bound by the rules of
evidence and procedure of the courts of the Commonwealth of Pennsylvania but
shall be bound by the substantive law applicable to this Agreement.  The decision of the arbitrator, absent fraud,
duress, incompetence or gross and obvious error of 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, the Employer and Executive shall be entitled to
an injunction restraining all further proceedings in any pending or
subsequently filed litigation concerning this Agreement, except as otherwise
provided herein or contemplated by Section 10.


 


12.           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.


 


13.           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.


 


14.           Waiver.  No provision
of this Agreement may be modified, waived, or discharged unless such waiver,
modification, or discharge is agreed to in writing and signed by Executive and
the President and Chief Executive Officer of Penns Woods and JSSB.  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.


 


15.           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.


 


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


 


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17.           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, 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).


 


18.           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.


 


19.           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.


 


20.           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.


 


21.           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.


 


22.           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.


 


23.           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.


 


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24.           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.


 


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.  To the extent
that the foregoing applies to the provision of any ongoing welfare benefits to
Executive that would not be required to be delayed if the premiums therefore
were paid by Executive, Executive shall pay the full costs of premiums for such
welfare benefits during the Delay Period and Penns Woods or JSSB shall pay
Executive an amount equal to the amount of such premiums paid by Executive
during the Delay Period within ten (10) days after the conclusion of such
Delay Period.


 


(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 this 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 


 


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“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).


 


(d)     To the extent it is
determined that any benefits described in Section 6(b) are taxable to
Executive, they are intended to be payable pursuant to Treas. Reg.
§1.409A-1(b)(9)(v), to the maximum extent permitted by said provision.


 


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


 


 


	
  PENNS WOODS BANCORP, INC.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By: 

  	
  /s/ Ronald A. Walko

  	
   

  	
  Date: 

  	
  6-1-2010

  
	
   

  	
   

  	
   

  	
   

  
	
  (“Penns Woods”)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  JERSEY SHORE STATE BANK

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By: 

  	
  /s/ Ronald A. Walko

  	
   

  	
  Date: 

  	
  6-1-2010

  
	
   

  	
   

  	
   

  	
   

  
	
  (“JSSB”)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Brian L. Knepp

  	
  (SEAL)

  	
   

  	
  Date: 

  	
  6-1-2010

  
	
   

  	
   

  	
   

  	
   

  
	
  BRIAN L. KNEPP

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (“Executive”)

  	
   

  	
   

  	
   

  
						



 


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