Exhibit
10.4


 


TERMINATION
AND RELEASE AGREEMENT


 


This Termination and
Release Agreement (this “Agreement”) is entered into as of December 8, 2004
by and among Jerry D. Holbrook (the “Executive”), Northeast Pennsylvania
Financial Corp., a Delaware corporation (the “Company”), First Federal Bank, a federally-chartered
savings bank and a wholly-owned subsidiary of the Company (the “Bank”), and KNBT
Bancorp, Inc., a Delaware corporation (“Parent”).


 


RECITALS


 


WHEREAS, the Company and
Parent are entering into an Agreement and Plan of Merger, dated as of December 8,
2004 (the “Merger Agreement”); and


 


WHEREAS, the Bank and the
Executive are parties to an Employment Agreement effective as of September 13,
2003 (the “Employment Agreement”); and


 


WHEREAS, as an inducement
to Parent to enter into the Merger Agreement, the Company, the Bank and the
Executive agree that the Employment Agreement shall be terminated as of the
Effective Date of the Merger (as such terms are defined in the Merger
Agreement), and that the Executive shall be entitled to the rights and payments
set forth herein in lieu of any rights and payments under the Employment
Agreement.


 


NOW THEREFORE, in
consideration of the foregoing and the mutual covenants set forth herein, the
parties hereto agree as follows:


 


1.  Certain Actions to Be Taken in 2004 and
2005.


 


(a)                                  The
Company, the Bank and their respective boards and committees, and the Executive,
hereby agree to take the following actions between the date hereof and December 31,
2004, it being the intention of the parties hereto that all of such actions
shall be fully effective and consummated no later than December 31, 2004:


 


(i)                                     the
Executive may exercise all or any portion of the vested non-qualified stock
options granted to the Executive under the Company’s 1998 Stock-Based Incentive
Plan  (as amended and restated), 2000
Stock Option Plan and 2004 Stock Plan (the “Option Plans”) (i.e., all vested
non-qualified options under each plan to be exercised), and the Executive
acknowledges that a failure to do the foregoing could result in the cash
payable under Section 2(a) being reduced pursuant to Section 2(b)
hereof;


 


(ii)                                  the
Company and/or the Bank shall pay to the Executive a cash amount equal to $200,000.00,
minus applicable withholding taxes, with such amount representing a prepayment
of a portion of the cash severance that would otherwise be paid to the
Executive at the Effective Date of the Merger.


 


(b)                                 The
Company, the Bank and their respective boards and committees agree to take all
necessary actions so that, at the Effective Date of the Merger, all then
unvested stock options held by the Executive at that time shall become vested
and exercisable and each unexercisable stock option held by the Executive shall
be treated in accordance with Section 3.04 of the Merger


 





















 


Agreement and each share
of restricted stock shall vest and shall be treated in accordance with Section 3.05
of the Merger Agreement.


 


(c)                                  The
Company, the Bank and their respective boards and committees agree to take such
actions as may be necessary or advisable by them in order to permit the
Executive to take the actions set forth in Section 1(a) above and have
them be fully effective and consummated no later than December 31, 2004,
including without limitation making the cash payment specified in Section 1(a)(ii)
above.


 


2.                                      Acknowledgement
of Payment, Release and Waiver.


 


(a)                                  Provided
the Executive’s employment has not been terminated for cause (as defined in the
Executive’s Employment Agreement), death, disability or voluntarily terminated by
the Executive and the Company, the Bank and the boards and committees thereof
have taken the actions necessary pursuant to Sections 1(a), 1(b) and 1(c)
hereof prior to the Effective Date, the Bank shall pay to the Executive an
amount equal to $777,160  on the Effective Date, subject to
adjustment as set forth in Section 2(b) below (the “Maximum Amount”), with
applicable withholding taxes to be subtracted from the amount payable to the
Executive.  In consideration of such
payment and the other provisions of this Agreement, the Executive, the Company,
the Bank and Parent hereby agree that, except as provided in Section 3
below, the Employment Agreement shall be terminated without any further action
of any parties hereto, effective immediately prior to the Effective Date of the
Merger.


 


(b)                                 If
the payment pursuant to Section 2(a) hereof, either alone or together with
other payments and benefits which the Executive has the right to receive from the
Company, the Bank or Parent, would constitute a “parachute payment” under Section 280G
of the Code, based upon the calculations described below, then the amount
payable by Parent pursuant to Section 2(a) hereof shall be reduced by the
amount which is the minimum necessary to result in no portion of the payment
payable by Parent under Section 2(a) being non-deductible to Parent, the
Company and/or the Bank pursuant to Section 280G of the Code and subject
to the excise tax imposed under Section 4999 of the Code.  The parties hereto agree that the present
value of the payments and benefits payable pursuant to this Agreement to the
Executive upon termination of the Executive’s employment pursuant to Section 2(a)
shall not exceed three times the Executive’s “base amount,” as that term is
defined in Section 280G(b)(3) of the Code, less one dollar.  The determination of any reduction in the
payment to be made pursuant to Section 2(a) shall be based upon an
analysis prepared by Muldoon Murphy Faucette & Aguggia LLP (“Muldoon Murphy”),
which analyses shall be reasonably acceptable to Elias, Matz, Tiernan &
Herrick L.L.P. and paid for by the Company. Muldoon Murphy shall provide its
analysis no later than five (5) business days prior to the Effective Date of
the Merger, and may use such actuaries as it may deem necessary or advisable
for the purpose.


 


2





















 


3.                                      Releases.


 


(a)                                  Upon
payment of the amounts set forth in Section 2(a) (as such amount may be
adjusted pursuant to Section 2(b) hereof), the Executive, for himself and
for his heirs, successors and assigns, does hereby release completely and
forever discharge the Company, the Bank and their successors from any
obligation under the Employment Agreement.


 


(b)                                 Upon
payment of the amounts set forth in Section 2(a) (as such amount may be
adjusted pursuant to Section 2(b) hereof), each of the Company and the
Bank for itself, and for its successors and assigns, does hereby release
completely and forever discharge the Executive and his heirs, successors and
assigns, to the fullest extent permitted by applicable law, from any obligation
under the Employment Agreement, provided that, notwithstanding the foregoing,
the Company and the Bank (and their successors) do not hereby release the
Executive from any obligation under Sections 6, 9 and 10 of the Employment
Agreement; it being specifically understood and agreed that the geographic area
of the Executive’s non-competition obligations under Section 10 thereof
shall be limited to the Pennsylvania counties of Monroe, Luzerne, Schuylkill,
Carbon and Columbia and that such obligations shall expire one year from the
Effective Date of the Merger.


 


4.                                      General.


 


(a)                                  Heirs,
Successors and Assigns.  The
terms of this Agreement shall be binding upon the parties hereto and their
respective heirs, successors and assigns.


 


(b)                                  Final
Agreement.  This Agreement
represents the entire understanding of the parties with respect to the subject
matter hereof and supersedes all prior understandings, written or oral. The
terms of this Agreement may be changed, modified or discharged only by an
instrument in writing signed by each of the parties hereto.


 


(c)                                  Governing
Law.  This Agreement shall be
construed, enforced and interpreted in accordance with and governed by the laws
of the Commonwealth of Pennsylvania, without reference to its principles of
conflicts of law, except to the extent that federal law shall be deemed to
preempt such state laws.


 


(d)                                  Defined
Terms.  Any capitalized terms not
defined in this Agreement shall have as their meaning the definitions contained
in the Merger Agreement.


 


(e)                                  Voluntary
Action and Waiver. The Executive acknowledges that by his free and
voluntary act of signing below, the Executive agrees to all of the terms of
this Agreement and intends to be legally bound thereby. The Executive
acknowledges that he has been advised to consult with an attorney prior to
executing this Agreement.


 


(f)                                    Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, and all of which shall constitute one and the same
Agreement.


 


3





















 


(g)                                 Gender.
References herein to the masculine gender shall be deemed to refer to the
feminine gender where appropriate.


 


5.                                      Effectiveness.  Notwithstanding anything to the contrary
contained herein, this Agreement shall be subject to consummation of the Merger
in accordance with the terms of the Merger Agreement, as the same may be
amended by the parties thereto in accordance with its terms.  In the event the Merger Agreement is
terminated for any reason, this Agreement shall be deemed null and void.


 


[Signature
Page Follows]


 


4





















 


IN WITNESS WHEREOF, the
Company, the Bank and Parent have each caused this Agreement to be executed by
their duly authorized officers, and the Executive has signed this Agreement,
effective as of the date first above written.


 


	
  WITNESS:

  	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Thomas M. Petro

  	
   

  	
  /s/ Jerry D. Holbrook

  
	
  Name: Thomas M. Petro

  	
   

  	
  Name: Jerry D. Holbrook

  
	
  Title:
  President and Chief Executive Officer

  	
   

  	
  Title:
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	 
	
  ATTEST:

  	
   

  	
  NORTHEAST PENNSYLVANIA FINANCIAL CORP.

  
	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
  /s/ Thomas M. Petro

  	
   

  	
  By:

  	
  /s/ Thomas L. Kennedy

  	
   

  
	 
	
  Name: Thomas M. Petro

  	
   

  	
   

  	
  Name: Thomas L. Kennedy

  
	 
	
  Title:
  President and Chief Executive Officer

  	
   

  	
   

  	
  Title: Chairman of the
  Board

  
	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
  ATTEST:

  	
   

  	
  FIRST FEDERAL BANK

  
	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
  /s/ Thomas M. Petro

  	
   

  	
  By:

  	
  /s/ Thomas L. Kennedy

  	
   

  
	 
	
  Name: Thomas M. Petro

  	
   

  	
   

  	
  Name: Thomas L. Kennedy

  
	 
	
  Title:
  President and Chief Executive Officer

  	
   

  	
   

  	
  Title: Chairman of the
  Board

  
	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
  ATTEST:

  	
   

  	
  KNBT BANCORP, INC.

  
	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
  /s/ Michelle A. Linsky

  	
   

  	
  By:

  	
  /s/ Scott V. Fainor

  	
   

  
	 
	
  Name: Michelle A.
  Linsky

  	
   

  	
   

  	
  Name: Scott V. Fainor

  
	 
	
  Title: Corporate
  Secretary

  	
   

  	
   

  	
  Title:
  President and Chief Executive Officer

  
						



 


5