exhibit10-7.htm


    EXHIBIT 10.7

    
 

    AMENDMENT
      NO. 1 TO

    NAZARETH
      NATIONAL BANK

    DIRECTORS’
      DEFERRED COMPENSATION PLAN #2

    


    


    THIS
      AMENDMENT NO. 1 (this “Amendment”)
      to the Nazareth National Bank Directors’ Deferred Compensation Plan #2 (the
“Plan”) is made and entered into effective as of November 15, 2007 by Keystone
      Nazareth Bank & Trust Company (the “Bank”).

    


    RECITALS:

    


    WHEREAS,
      Keystone Nazareth Bank &
Trust Company, as successor to Nazareth National Bank, desires to amend the
      Plan
      to ensure that the Plan complies with Section 409A of the Internal Revenue
      Code
      of 1986, as amended (the “Code”); and

    


    WHEREAS,
      pursuant to Section 11 of the
      Plan, the Board may amend the Plan from time to time;

    


    NOW,
      THEREFORE, in consideration of the
      premises, the mutual agreements herein set forth and such other consideration
      the sufficiency of which is hereby acknowledged, the Board hereby amends the
      Plan as follows:

    


    Section
      1.                      Addition
      of a New Section 1.S to the Plan. Section 1 of this Plan is hereby amended
      to add a new Section 1.S to read in its entirety as follows:

    


    “Specified
      Employee – “Specified
      Employee” shall have the meaning set forth in Treasury Regulation
§1.409A-1(i).”

    


    Section
      2.                      Other
      Amendments to Section 1 of the Plan. Current Sections 1.S, 1.T and 1.U of
      the Plan are re-numbered as Sections 1.T, 1.U and 1.V, respectively. In
      addition, newly numbered Section 1.U of the Plan is hereby amended to read
      in
      its entirety as follows:

    


    "U.
      Separation from Service -
“Separation from Service” means a termination of a Participant’s services
      (whether as an employee or as an independent contractor) to KNBT Bancorp, Inc.
      (the “Company”) and the Bank for any reason other than death.  Whether
      a Separation from Service has occurred shall be determined in
      accordance with the requirements of Section 409A of the Code based
      on whether the facts and circumstances indicate that the Company, the Bank
      and
      the Participant reasonably anticipated that no further services would be
      performed after a certain date or that the level of bona fide services the
      Participant would perform after such date (whether as an employee or as an
      independent contractor) would permanently decrease to no more than twenty
      percent (20%) of the average level of bona fide services performed (whether
      as
      an employee or an independent contractor) over the immediately preceding
      thirty-six (36) month period."

     

    Section
      3.                      References
      to Termination of Service.  All references to Termination of
      Service in the Plan are hereby changed to Separation from Service.

    


    Section
      4.                      Amendment
      to Section 2.2 of the Plan.  Sections 2.2 of the Plan is hereby
      amended to add a new subsection (c) at the end of such section to read in its
      entirety as follows:

    


    
      	
              "

            	
              c.

            	
              Freezing
                of the Plan.  No new Participants shall be entitled to
                participate in the Plan after December 31, 2005, and no new Deferred
                Compensation Agreements shall be entered into by any Participant
                after
                December 31, 2005.  Deferred Compensation Agreements entered
                into on or before December 31, 2005 shall continue to be honored
                in
                accordance with their terms."

            


    

    


    Section
      5.                      Amendment
      to Section 3.1(a) of the Plan.  Section 3.1(a) of the Plan is
      hereby amended to read in its entirety as follows:

    


    
      	
              "

            	
              a.

            	
              Generally.  The
                Bank shall pay to the Participant an amount equal to the product
                of the
                Normal Benefit multiplied by the Vested Percentage.  The benefit
                shall be paid over a 15-year period in annual installments, provided
                that
                any benefits being paid in monthly or quarterly installments prior
                to the
                date of this Amendment shall continue to be paid in monthly or quarterly
                installments. Except as provided in Section 3.1(c) below, such payments
                shall commence on the first day of the month coincident with or next
                following the later of (1) the Normal Benefit Date, or (2) for any
                Participant who is not a Specified Employee as of the date of the
                Separation from Service, the date of the Participant’s Separation from
                Service (or, if earlier, upon the death of a Participant pursuant
                to
                Section 3.2 of the Plan).  If a Participant is a Specified
                Employee as of the date of the Separation from Service, then the
                payments
                shall commence on the first day of the month coincident with or next
                following the later of (y) the Normal Benefit Date or (2) the lapse
                of six
                months after the date of the Participant’s Separation from Service (or, if
                earlier, upon the death of a Participant pursuant to Section 3.2
                of the
                Plan). In each case, subsequent payments shall be paid on the anniversary
                date of the first payment."

            


    

    


    Section
      6.                      Amendment
      to Section 3.1(b) of the Plan.  The last three sentences of
      Section 3.1(b) of the Plan are hereby deleted in their entirety.

    


    Section
      7.                      Deletion
      of Section 3.1(c) of the Plan.  Section 3.1(c) of the Plan is
      hereby deleted in its entirety.

    


    Section
      8.                      Deletion
      of Section 3.1(d) of the Plan. Section 3.1(d) of the Plan is hereby deleted
      in its entirety.

    


    Section
      9.                      Amendment
      to Section 3.2(a) of the Plan.  The first sentence of Section
      3.2(a) of the Plan is hereby amended to read in its entirety as
      follows:

    


    
      	
              "

            	
              a.

            	
              Death
                Prior to Commencement of Normal Benefits.  If a Participant dies
                prior to receiving any Normal Benefit payments, the Bank shall pay
                to the
                beneficiary the Pre-Termination Survivor’s Benefit specified in the
                Benefit Schedule.  Such benefit shall be paid over a 15-year
                period in annual installments commencing on the first day of the
                month
                coincident with or next following the Participant’s death, provided that
                any benefits being paid in monthly or quarterly installments prior
                to the
                date of this Amendment shall continue to be paid in monthly or quarterly
                installments. Payment of the Pre-Termination Survivor’s Benefit shall
                relieve the Bank of the obligation to pay any other benefits under
                the
                Plan."

            


    

    


    Section
      10                                Amendment
      to Section 3.3(c) of the Plan.  Section 3.3(c) of the Plan is
      hereby amended to read in its entirety as follows:

    


    
      	
              "

            	
              c.

            	
              Community
                Property.  If the Participant’s Compensation constitutes
                community property, then any beneficiary designation made by the
                Participant other than a designation of his spouse shall not be effective
                if any such beneficiary or beneficiaries are to receive more than
                50
                percent of the aggregate benefits hereunder unless such spouse shall
                approve such designation in
                writing."

            


    

    


    Section
      11.                                Amendment
      to 11 of the Plan.  Section 11 of the Plan is hereby amended to
      read in its entirety as follows:

    


    
      	
              "

            	
              11.

            	
              Amendments
                and Termination.  The Board of Directors of the Bank may, at any
                time, amend or terminate the Plan, provided, however, that the Board
                of
                Directors may not reduce or modify any benefit payable to a Participant
                or
                beneficiary receiving benefit payments at the time the Plan is amended
                or
                terminated.  Under no circumstances may the Plan permit the
                acceleration of the time or form of any payment under the Plan prior
                to
                the payment events specified herein, except as provided in this Section
                11.  The Board of Directors of the Bank may, in its discretion,
                elect to terminate the Plan in any of the following three circumstances
                and accelerate the payment of the entire unpaid balance of the
                Participant’s vested benefits as of the date of such payment in accordance
                with Section 409A of the Code:

            


    

    


    
      	
              (i)  

            	
              the
                Plan is irrevocably terminated within the 30 days preceding a Change
                in
                Control and (1) all arrangements sponsored by the Bank that would
                be
                aggregated with the Plan under Treasury Regulation §1.409A-1(c)(2) are
                terminated, and (2) each Participant and all participants under the
                other
                aggregated arrangements receive all of their benefits under the terminated
                arrangements within 12 months of the date the Bank irrevocably takes
                all
                necessary action to terminate the Plan and the other aggregated
                arrangements;

            


    

    


    
      	
              (ii)  

            	
              the
                Plan is irrevocably terminated at a time that is not proximate to
                a
                downturn in the financial health of the Bank and (1) all arrangements
                sponsored by the Bank that would be aggregated with the Plan under
                Treasury Regulation 1.409A-1(c) if any Participant participated in
                such
                arrangements are terminated, (2) no payments are made within 12 months
                of
                the date the Bank takes all necessary action to irrevocably terminate
                the
                arrangements, other than payments that would be payable under the
                terms of
                the arrangements if the termination had not occurred, (3) all payments
                are
                made within 24 months of the date the Bank takes all necessary action
                to
                irrevocably terminate the arrangements, and (4) the Bank does not
                adopt a
                new arrangement that would be aggregated with the Plan under Treasury
                Regulation 1.409A-1(c) if any Participant participated in both
                arrangements, at any time within three years following the date the
                Bank
                takes all necessary action to irrevocably terminate the Plan;
                or

            


    

    


    
      	
               

            	
              (iii)

            	
              the
                Plan is terminated within 12 months of a corporate dissolution taxed
                under
                Section 331 of the Code, or with the approval of a bankruptcy court
                pursuant to 11 U.S.C. §503(b)(1)(A), provided that the amounts deferred by
                each Participant under the Plan are included in the Participant’s gross
                income in the later of (1) the calendar year in which the termination
                of
                the Plan occurs, or (2) the first calendar year in which the payment
                is
                administratively practicable.”

            


    

    


    Section
      12.                                No
      Further Modification.  Except as expressly amended hereby, the
      Plan remains unmodified and in full force and effect.

    


    Section
      13.                                Governing
      Law.  This Amendment shall be governed by and construed in
      accordance with the laws of the Commonwealth of Pennsylvania without regard
      to
      its conflicts of laws principles.

    


    IN
      WITNESS WHEREOF, the Bank has caused
      this Amendment to be executed as of the date and year first written
      above.

    


    


    
      	 	 	 	 	 
	 	 	 	
              KEYSTONE
                NAZARETH BANK

            
	 	 	 	
              &
                TRUST COMPANY

            
	 	 	 	 	 
	 	 	 	
              BY:

            	 
	 	 	 	
              Name:

            	
              Jeffrey
                P. Feather

            
	 	 	 	
              Title:

            	
              Chairman
                of the Board

            


    

    



    
      
        
        

      

      
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