Document:

EX-10.1

KNBT BANCORP, INC.

Executive Annual Incentive Plan

(as Amended and Restated)

I. Purpose

The Board of Directors of KNBT Bancorp, Inc. (the “Company”) has established this Executive Annual
Incentive Plan (“AIP” or “Plan”) to advance the interests of the Company. The purpose of the AIP
is to drive performance to meet and exceed goals and to promote a culture of achievement. Through
payment of incentive compensation beyond base salaries, the AIP provides rewards for meeting and
exceeding Company goals for participants. Its primary objectives include:

	 	a.	 	Support Recruitment and Retention

	 	i)	 	Provide superior earnings opportunities for superior results

	 	ii)	 	Attract and keep entrepreneurial attitudes

	 	iii)	 	Optimize retention of executives through periods of growth and strategic change

	 	b.	 	Promote an Energetic, Innovative, Entrepreneurial Culture

	 	i)	 	Emphasize variable, performance-based compensation

	 	ii)	 	Maintain an incentive to provide meaningful portion of total cash earnings
opportunity for participating executives

	 	II.	 	Effective Date

	 	a.	 	The Executive AIP will be effective as of January 1, 2005.

	 	III.	 	Definitions

	 	a.	 	Board of Directors (“Board”): The Board of Directors of the Company

	 	b.	 	CEO: Chief Executive Officer of the Company as designated by its bylaws, and
any other title bestowed upon him or her by the Board.

	 	c.	 	CFO: Chief Financial Officer and Treasurer of the Company as designated by its
bylaws and any other title bestowed upon him or her by the Board.

	 	d.	 	Company-Wide Plan Targets: Targets made up of quantitative Measures and Goals
used to determine the amounts of bonuses paid. Quantitative measures may be:

	 	i)	 	Profit related, as in Net Income or Earnings Per Share,

	 	ii)	 	Profitability related, such as Return on Equity, Return on Assets or Net
Interest Margin,

	 	iii)	 	Productivity related, such as Efficiency Ratio,

	 	iv)	 	Growth related, such as Loan Growth, Asset Growth or Deposit Growth,

	 	v)	 	Capital structure related, as Capital Ratio or Capital Adequacy, or

	 	vi)	 	Asset quality related, such as Non-Performing Loan Percentage or Loan Loss
Provisions,

all as defined in this AIP or in the Performance Agreement between the Participant and the
Company.

	 	e.	 	Committee: The Compensation Committee of the Board.

	 	f.	 	Incentive Opportunity Range: The Range of Incentive Opportunity will be from
50% at Threshold performance to 150% at Superior performance, of the Incentive Opportunity
Target.

	 	g.	 	Incentive Opportunity Target: The Incentive Opportunity Target will be a
percentage, established by the Committee of the Participant’s base salary at the beginning
of the Company’s fiscal year.

	 	h.	 	Performance Agreement: The annual contract between the Participant and the
Company specifying the Measures, Weights, Goals, Reward Opportunities and Terms and
Conditions for each year’s incentive program.

	 	i.	 	Performance Goals (“Goals”): Those objectives, which are required to be
achieved to activate distribution of awards under this Plan and include Target, Threshold
and Superior performance levels.

	 	j.	 	Performance Matrix: A table, which contains each year’s Measures, Goals,
Weights and Incentive Opportunities, which shall be attached to and made a part of the
Participant’s Performance Agreement.

	 	k.	 	Performance Measures (“Measures”): These include the quantitative measures
used to determine the amounts of bonuses paid. Quantitative measures initially include:

	 	i)	 	Efficiency Ratio: The percentage of total non-interest expenses to total
pre-tax income.

	 	ii)	 	Net Income: The dollar amount of net after-tax earnings of the Company as
reported on the audited year-end income statement, with the following adjustments:

	 	(1)	 	Operating profits of businesses acquired during the year and not
included in the annual business plan shall be excluded;

	 	(2)	 	Operating profits of businesses divested during the period and not
included in the annual business plan as divestments or planned divestments will
only be included through the date of divestment.

	 	iii)	 	Return on Average Equity (“ROE”): The percentage of year-end Net Income
divided by the average of end-of-quarter total shareholders’ equity for the year.

	 	l.	 	Performance Weights (Weights”): The relative importance or value of each
Measure to the total value of all Measures of 100%.

	 	m.	 	Plan Participant (“Participant”): The CEO and CFO and other executives of the
Company who are designated from time to time by the Committee.

	 	n.	 	Plan Year: A calendar year, the same as the Company’s fiscal year.

	 	IV.	 	How the Plan Works

	 	a.	 	Establishing the Performance Matrix: The AIP follows an annual, fiscal-year
cycle. The cycle begins with the determination of annual business goals based on the
strategic plan. During the annual budgeting process, the CEO recommends Measures, Goals
and Weights to the Committee. The Committee approves the Target, Threshold and Superior
Performance Goals, as well as Measures and Weights. These are then converted to the
Performance Matrix and made a part of the Performance Agreement with the Participant.

	 	b.	 	Individual Awards: The incentive award or payout to each Participant is based
on Company performance for each Measure.

	 	i)	 	The Incentive Opportunity Target for each Measure is the product of (x) the
Measure’s Weight percentage, (y) the Participant’s total Incentive Opportunity Target
percentage, and (z) the Participant’s annual gross base salary on the first day of the
Plan Year. The Incentive Opportunity Range is 50% of Target for Threshold performance
and 150% of Target for Superior performance.

	 	ii)	 	The Committee may establish a minimum level of Net Income performance below
which no Measures are rewarded, regardless of how well the Measure is performed. For
example, if Net Income falls below the minimum requirement (which would normally be
below the Threshold Goal), but Efficiency Ratio was achieved at Target, there would be
no reward for Efficiency Ratio performance.

	 	iii)	 	Other than in the circumstance of Net Income performance being below minimum,
each Measure is calculated independently. If performance falls between Threshold and
Superior, that level is interpolated and applied to the Incentive Opportunity Range.
This calculation determines the dollar value of the award for that measure to the
Participant.

	 	iv)	 	Performance below the Threshold Goal for a specific Measure results in no award
for that Measure. The award for performance above the Superior Goal, is limited to the
Superior incentive amount for that Measure.

	 	v)	 	The Committee in its sole discretion reserves the right to reduce the actual
incentive award below the amount calculated on the above formulas.

	 	c.	 	Incentive Distributions: Incentive awards will be distributed after the final,
but may be unaudited results have been approved by the Board and publicly announced, but no
later than 74 days after the end of the fiscal year.

	 	V.	 	Effect of Change in Employment Status

	 	a.	 	Voluntary Resignation: If a Participant resigns from the Company during a Plan
Year, the Company will use its discretion as to whether the Participant loses eligibility
for any potential award related to that year. If a Participant resigns after a Plan Year
but before the award distribution for that year, the Company will use its discretion as to
whether the Participant shall be entitled to receive an incentive award.

	 	b.	 	Involuntary Termination for Cause: If a Participant is terminated by the
Company for Cause as defined in the Participant’s employment or severance agreement, the
Participant loses eligibility for any potential award related to that year.

	 	c.	 	Involuntary Termination without Cause: If a Participant is terminated by the
Company without Cause, the Participant may be entitled to a portion of the incentive award
for the number of full quarters of participation, as calculated after the end of the fiscal
year.

	 	d.	 	New Participant or Other Status Change, including Death, Disability, Retirement and
Leave of Absence: Pro-rated bonus awards shall be considered for the number of full
quarters of participation for all other employment status changes.

	 	VI.	 	Plan Administration

	 	a.	 	Authorities: The AIP shall be administered by the Committee. The AIP may be
altered or discontinued at any time during or following a Plan Year, with the approval of
the full Board. The decisions of the Committee with respect to any issues concerning
individuals selected for participation, the amount, terms, form and time of payment of
awards, and interpretation of any Plan guidelines or requirements shall be final and
binding.

	 	b.	 	Employment Rights: The receipt of an award or the entry into a Performance
Agreement shall not give a Participant any right to continued employment, and the right and
power to dismiss any employee is specifically reserved to the Company. The receipt of an
award shall not entitle a Participant to an award with respect to any subsequent Plan Year.

	 	c.	 	Delegation: The Committee may delegate certain administrative responsibilities
to the CEO except that:

	 	i)	 	The Committee must approve any actions affecting the CEO and CFO;

	 	ii)	 	The Committee shall approve Company incentive Goals within the first quarter of
the Plan Year; and

	 	iii)	 	The Committee shall approve all definitions and terms for financial Measures.

	 	d.	 	Governing Law: Except to the extent pre-empted under federal law, the
provisions of the Plan shall be construed, administered, and enforced in accordance with
the domestic internal law of the Commonwealth of Pennsylvania.EX-10.2

KNBT BANCORP, INC.

EXECUTIVE ANNUAL INCENTIVE PLAN

PERFORMANCE AGREEMENT

[____ Grants]

KNBT Bancorp, Inc. (“KNBT”), pursuant to the terms and in accordance with the KNBT Bancorp,
Inc. Executive Annual Incentive Plan (the “Plan”), hereby grants to      (“Officer”) an
Incentive Award under the terms set forth in this Performance Agreement (“Agreement”), effective as
of      20     :

1. Incentive Award Grant. KNBT grants to the Officer an Incentive Award effective as of the
date above (the “Award”). This Award is subject to the terms and conditions of this Agreement, and
to the further terms and conditions applicable to Incentive Awards as set forth in the Plan.

2. Performance Objectives. The Incentive Award to the Officers is based on KNBT’s performance
for each Measure:

	 	(a)	 	The Incentive Opportunity Target for each Measure is the
product of (x) the Measure’s Weight percentage, (y) the Officer’s total
Incentive Opportunity Target percentage and (z) the Officer’s annual gross base
salary on the first day of the Plan Year. The Incentive Opportunity Range is
50% of Target for Threshold performance and 150% of Target for Superior
performance.

	 	(b)	 	The Compensation Committee of the Board of Directors (the
“Committee”) may establish a minimum level of Net Income performance below
which no Measures are rewards, regardless of how well the Measure is performed.

	 	(c)	 	Other than in the circumstance of Net Income performance being
below minimum, each Measure is calculated independently. If performance falls
between Threshold and Superior, that level is interpolated and applied to the
Incentive Opportunity Range. This calculation determines the dollar value of
the award for that Measure to the Officer.

	 	(d)	 	Performance below the Threshold Goal for a specific Measure
results in no award for that Measure. The award for performance above the
Superior Goal is limited to the Superior incentive amount for that Measure.

	 	(e)	 	The Committee in its sole discretion reserves the right to
reduce the actual Incentive Award below the amount calculated in accordance
with the above formulas.

	 	(f)	 	Attached as Appendix A hereto is the [year] fiscal year
Performance Matrix which contains the Measures, Goals, Weights and Incentive
Opportunities for the Officer.

3. Payment of Incentive Award. Payment with respect to the Incentive Award shall be made in
cash as soon as practicable after the final results of the Company’s financial performance for
fiscal      (which may be unaudited) have been approved by the Board and publicly announced, but in
no case later than 74 days after the end of the fiscal year.

4. Change of Employment Status. In the event of a termination of the Officer’s employment
with KNBT by reason of the death of the Officer, Disability or Retirement, a pro ration of the
Incentive Award shall be considered for the number of full quarters of participation by the Officer
during the Plan Year involved. If the Officer resigns from the Company during the Plan Year, the
Company will use its discretion as to whether the Officer will lose eligibility for any potential
payment pursuant to the Incentive Award related to the Plan Year. If the Officer resigns after
the Plan Year but before the distribution of the Incentive Award for that year, the Company will
use its discretion as to whether the Officer shall be entitled to receive the Incentive Award. If
the Officer is terminated by KNBT for Cause as defined in the Officer’s employment agreement, the
Officer loses eligibility for any potential payment pursuant to the Incentive Award related to the
Plan Year. If the Officer is terminated by KNBT without Cause, the Officer may be entitled to a
portion of the Incentive Award for the number of full quarters of participation, as calculated
after the end of the fiscal year.

5. Tax Withholding. KNBT or any subsidiary thereof shall withhold from any payment to the
Officer or other person under this Agreement an amount sufficient to cover any withholding taxes
which may become required with respect to such payment or take any other action as it deems
necessary to satisfy any income or other tax withholding requirements with respect to the Incentive
Award.

6. Non-Transferability. The Incentive Award may not be sold, transferred, or otherwise
disposed of and shall not be pledged or otherwise hypothecated.

7. Employment and Termination. Neither the Plan, this Agreement nor any related documents,
communications or other material shall give the Officer the right to continued employment by KNBT
or by any subsidiary thereof, or shall adversely affect the right of any KNBT or such subsidiary to
terminate the Officer’s employment with or without Cause at any time.

8. Modification of Agreement. This Agreement may be modified, amended, suspended or
terminated only in accordance with the terms of the Plan.

9. Agreement Subject to Plan. This Agreement shall be subject to the applicable provisions,
definitions, terms and conditions set forth in the Plan, all of which are incorporated by this
reference in this Agreement and, unless defined in this Agreement, any capitalized terms in this
Agreement shall have the same meaning assigned to those terms under the Plan. If there is any
inconsistency between the terms of this Agreement and the terms of the Plan, the Plan’s terms shall
supercede and replace the conflicting terms of this Agreement.

10. Severability. Should any provision of this Agreement be held by a court of competent
jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this
Agreement shall not be affected by such holding and shall continue in full force in accordance with
their terms.

11. Governing Law. Except to the extent pre-empted by federal law, the Plan and this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.

12. Administration. Any dispute or disagreement which may arise under, or as a result of, or
in any way relate to, the interpretation, construction or application of this Agreement shall be
determined by the Committee. Any determination made hereunder shall be final, binding and
conclusive on the Officer, the Officer’s heirs, executors, administrators and successors, and KNBT
for all purposes.

IN WITNESS WHEREOF, this Agreement has been executed on behalf of KNBT effective as of the date
first written above.

KNBT BANCORP, INC.

By:      

     

[Insert Officer’s Name]

1

Appendix A

Performance Matrix

Name of Officer:     

$     Officer’s Base Salary for      

$     Officer’s Target Bonus (     % of Base Salary)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Superior
	 	 	 	 	 	 	 	 	 	 	Threshold	 	 	 	 	 	(pays 150% of
	Performance Measures	 	Weight	 	 	 	 	 	(pays 50% of Target)	 	Target Performance	 	Target)
	Net Income	 	60%	 	Goal	 	$	 	$	 	$
	 	 	 	 	 	 	Award	 	$	 	$	 	$
	Efficiency Ratio	 	20%	 	Goal	 	__%	 	__%	 	__%
	 	 	 	 	 	 	Award	 	$_____	 	$_____	 	$_____
	Return on Average	 	 	 	 	 	 	 	 	 	 
	Equity	 	20%	 	Goal	 	__%	 	__%	 	__%
	 	 	 	 	 	 	Award	 	$_____	 	$_____	 	$_____
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	—	 	 	 	 	 

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