Document:

EXHIBIT 10.8
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                                   WAYNE BANK
                          SALARY CONTINUATION AGREEMENT

     THIS  AGREEMENT is made  effective  this First day of October  1999, by and
between  WAYNE  BANK,  a state bank  located  in  Honesdale,  Pennsylvania  (the
"Company") and Edward C. Kasper (the "Executive").

                                  INTRODUCTION

     To  encourage  the  Executive  to remain an  employee of the  Company,  the
Company is willing to provide salary continuation benefits to the Executive. The
Company will pay the benefits from its general assets.

                                    AGREEMENT

     The Executive and the Company agree as follows:

                                    Article 1
                                   Definitions

     1.1 Definitions.  Whenever used in this Agreement,  the following words and
phrases shall have the meanings specified:

              1.1.1  "Change of  Control"  shall  mean any one of the  following
       events:  (i) the acquisition of ownership,  holding or power to vote more
       than 25% of the Company's or the  Corporation's  voting  stock,  (ii) the
       acquisition  of the ability to control the  election of a majority of the
       Company's or the  Corporation's  directors,  (iii) the  acquisition  of a
       controlling  influence  over the management or policies of the Company or
       the  Corporation by any person or by persons acting as a "group"  (within
       the meaning of Section 13(d) of the Securities  Exchange Act of 1934), or
       (iv)  during  any  period  of two  consecutive  years,

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     individuals  (the  "Continuing  Directors")  who at the  beginning  of such
     period  constitute the Board of Directors of the Company or the Corporation
     (the  "Existing  Board")  cease  for any  reason  to  constitute  at  least
     two-thirds  thereof,   provided  that  any  individual  whose  election  or
     nomination for election as a member of the Existing Board was approved by a
     vote of at least  two-thirds  of the  Continuing  Directors  then in office
     shall be considered a Continuing  Director.  Notwithstanding the foregoing,
     in the case of (i),  (ii) and (iii)  hereof,  ownership  or  control of the
     Company by the Corporation itself shall not constitute a Change in Control.
     For  purposes  of this  paragraph  only,  the term  "person"  refers  to an
     individual  or  a  corporation,   partnership,  trust,  association,  joint
     venture, pool, syndicate, sole proprietorship,  unincorporated organization
     or any other form of entity not specifically listed herein.

          1.1.2 "Code" means the Internal Revenue Code of 1986, as amended.

          1.1.3 "Corporation" means Norwood Financial Corp.

          1.1.4  "Disability"  means the Executive  shall be deemed  totally and
     permanently  disabled if he becomes unable to perform a substantial portion
     of his  duties  under  this  agreement  and a  physician  selected  by Bank
     determines  such  inability will continue for a period of six (6) months or
     more and is likely to be permanent and the  Executive  qualifies to receive
     total disability benefits under Bank's disability insurance plan.

          1.1.5 "Early  Termination"  means the Termination of Employment before
     Normal Retirement Age for reasons other than death, Disability, Termination
     for Cause or following a Change of Control.

          1.1.6 "Early  Termination Date" means the month, day and year in which
     Early Termination occurs.

          1.1.7 "Normal Retirement Age" means the Executive's 62nd birthday.

          1.1.8  "Normal   Retirement  Date"  means  the  later  of  the  Normal
     Retirement Age or Termination of Employment.

          1.1.9 "Plan Year" means each  twelve-month  period commencing with the
     effective date of this Agreement.

          1.1.10 "Termination for Cause" See Section 5.2.

          1.1.11  "Termination of Employment" means that the Executive ceases to
     be employed by the Company for any reason  whatsoever  other than by reason
     of a leave of absence  which is approved by the  Company.  For  purposes of
     this  Agreement,  if there is a

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     dispute  over the  employment  status of the  Executive  or the date of the
     Executive's Termination of Employment,  the Company shall have the sole and
     absolute right to decide the dispute.

                                    Article 2
                                Lifetime Benefits

     2.1 Normal Retirement  Benefit.  Upon Termination of Employment on or after
the Normal Retirement Age for reasons other than death, the Company shall pay to
the  Executive  the benefit  described  in this Section 2.1 in lieu of any other
benefit under this Agreement.

          2.1.1 Amount of Benefit.  The annual Normal  Retirement  Benefit under
     this Section 2.1 is $61,000 (sixty-one  thousand dollars).  The Company may
     increase the annual benefit under this Section 2.1 at the sole and absolute
     discretion of the Company's Board of Directors.  Any increase in the annual
     benefit  shall require the  recalculation  of all the amounts on Schedule A
     attached hereto. The annual benefit amounts on Schedule A are calculated by
     amortizing the annual normal  retirement  benefit using the interest method
     of  accounting,  a 7.50%  discount rate,  monthly  compounding  and monthly
     payments.

          2.1.2 Payment of Benefit.  The Company shall pay the annual benefit to
     the Executive in 12 equal monthly  installments payable on the first day of
     each month  commencing  with the month  following  the  Executive's  Normal
     Retirement Date and continuing for 179 additional months.

          2.1.3 Benefit  Increases.  Commencing on the first  anniversary of the
     first benefit payment, and continuing on each subsequent  anniversary,  the
     Company's  Board of  Directors,  in its sole  discretion,  may increase the
     benefit.

          2.2 Early Termination  Benefit.  Upon Early  Termination,  the Company
     shall pay to the  Executive  the benefit  described  in this Section 2.2 in
     lieu of any other benefit under this Agreement.

          2.2.1 Amount of Benefit.  The annual benefit under this Section 2.2 is
     the Early  Termination  Annual Benefit set forth in Schedule A for the Plan
     Year ending immediately prior to the Early Termination Date.

          2.2.2 Payment of Benefit.  The Company shall pay the annual benefit to
     the Executive in 12 equal monthly  installments payable on the first day of
     each month  commencing  with the month  following  the  Executive's  Normal
     Retirement  Age and continuing  for 179  additional  months.

          2.2.3 Benefit Increases. Benefit payments may be increased as provided
     in Section 2.1.3.

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          2.3 Disability Benefit. If the Executive terminates  employment due to
     Disability  prior to Normal  Retirement  Age, the Company  shall pay to the
     Executive  the benefit  described  in this Section 2.3 in lieu of any other
     benefit under this Agreement.

          2.3.1 Amount of Benefit.  The annual benefit under this Section 2.3 is
     the  Disability  Benefit  amount set forth in  Schedule A for the Plan Year
     ending  immediately  prior to the date in which  Termination  of Employment
     occurs.

          2.3.2 Payment of Benefit.  The Company shall pay the annual benefit to
     the Executive in 12 equal monthly  installments  commencing  within 90 days
     after the date of the Executive's  Termination of Employment and continuing
     for 179 additional months.

          2.3.3 Benefit Increases. Benefit payments may be increased as provided
     in Section 2.1.3.

          2.4  Change of  Control  Benefit.  If the  Executive  is in the active
     service of the  Company  at the time of a Change of  Control,  the  Company
     shall pay to the  Executive  the benefit  described  in this Section 2.4 in
     lieu of any other benefit under this Agreement.

          2.4.1 Amount of Benefit.  The annual benefit under this Section 2.4 is
     the Normal Retirement Benefit described in Section 2.1.1.

          2.4.2 Payment of Benefit.  The Company shall pay the annual benefit to
     the Executive in 12 equal monthly  installments payable on the first day of
     each month  commencing with the month following  Normal  Retirement Age and
     continuing for 179 additional months.

          2.4.3 Benefit Increases. Benefit payments may be increased as provided
     in Section 2.1.3

          2.4.4  Rabbi  Trust.  Within 10 days of a Change of  Control,  a rabbi
     trust shall be established  and shall at all times be funded with assets at
     least  equal to the  present  value of the  unpaid  balance  of the  Normal
     Retirement  Benefit.  A discount rate no greater then the ten year Treasury
     note shall be used in calculating present value.

          2.4.5 Excise tax  Reimbursement.  The Company shall indemnify and hold
     the Executive  harmless from any and all loss, expense or liability that he
     may ever  incur  under  Code ss.  4999,  or a  successor,  as the result of
     benefits he collects pursuant to this Agreement.

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                                    Article 3
                                 Death Benefits

     3.1 Death During Active Service.  If the Executive dies while in the active
service of the Company, the Company shall pay to the Executive's beneficiary the
benefit described in this Section 3.1. This benefit shall be paid in lieu of the
Lifetime Benefits of Article 2.

          3.1.1 Amount of Benefit.  The annual benefit under this Section 3.1 is
     the Normal Retirement Benefit described in Section 2.1.1.

          3.1.2 Payment of Benefit.  The Company shall pay the annual benefit to
     the beneficiary in 12 equal monthly  installments  payable on the first day
     of each month commencing with the month following the Executive's death and
     continuing for 179 additional months.

          3.2 Death  During  Benefit  Period.  If the  Executive  dies after the
     benefit  payments have commenced under this Agreement but before  receiving
     all such  payments,  the Company  shall pay the  remaining  benefits to the
     Executive's beneficiary at the same time and in the same amounts they would
     have been paid to the Executive had the Executive survived.

          3.3 Death  Following  Termination  of Employment  But Before  Benefits
     Commence.  If the Executive is entitled to benefits  under this  Agreement,
     but dies prior to receiving  said  benefits,  the Company  shall pay to the
     Executive's  beneficiary the same benefits,  in the same manner, they would
     have been paid to the Executive had the Executive survived;  however,  said
     benefit payments will commence upon the Executive's death.

                                    Article 4
                                  Beneficiaries

     4.1 Beneficiary  Designations.  The Executive shall designate a beneficiary
by filing a written  designation  with the Company.  The Executive may revoke or
modify  the  designation  at any  time by  filing  a new  designation.  However,
designations  will only be effective if signed by the  Executive and accepted by
the  Company  during  the  Executive's  lifetime.  The  Executive's  beneficiary
designation shall be deemed automatically revoked if the beneficiary predeceases
the  Executive,  or if the  Executive  names a  spouse  as  beneficiary  and the
marriage  is  subsequently  dissolved.  If the  Executive  dies  without a valid
beneficiary designation, all payments shall be made to the Executive's estate.

     4.2  Facility of Payment.  If a benefit is payable to a minor,  to a person
declared incapacitated,  or to a person incapable of handling the disposition of
his or her  property,  the Company may pay such benefit to the  guardian,  legal
representative or person having the care or custody of such minor, incapacitated
person or  incapable  person.  The  Company  may  require  proof of  incapacity,
minority or guardianship as it may deem appropriate prior to distribution of

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the benefit.  Such distribution shall completely  discharge the Company from all
liability with respect to such benefit.

                                    Article 5
                               General Limitations

          5.1 Excess Parachute or Golden Parachute Payment.  Notwithstanding any
     provision of this Agreement to the contrary,  the Company shall not pay any
     benefit  under  this  Agreement  to  the  extent  the  benefit  would  be a
     prohibited golden parachute  payment pursuant to 12 C.F.R.ss.357.2  and for
     which the appropriate  federal banking agency has not given written consent
     to pay pursuant to 12 C.F.R.ss.359.4.

          5.2  Termination  for Cause.  Notwithstanding  any  provision  of this
     Agreement to the contrary, the Company shall not pay any benefit under this
     Agreement, if the Company terminates the Executives employment for:

               5.2.1 Gross negligence or gross neglect of duties;

               5.2.2 Commission of a felony or of a gross misdemeanor  involving
          moral turpitude; or

               5.2.3 Fraud,  disloyalty,  dishonesty or willful violation of any
          law or  significant  Company policy  committed in connection  with the
          Executive's  employment  and  resulting  in an  adverse  effect on the
          Company.

               5.2.4 Removal. Notwithstanding any provision of this Agreement to
          the  contrary,  the  Company  shall  not pay any  benefit  under  this
          Agreement  if  the   Executive  is  subject  to  a  final  removal  or
          prohibition  order issued by an  appropriate  federal  banking  agency
          pursuant to Section 8(e) of the Federal Deposit Insurance Act.

          5.3 Competition After Termination of Employment.  No benefits shall be
     payable if the Executive, without the prior written consent of the Company,
     violates the following described restrictive covenants.

               5.3.1  Non-compete  Provision.  The Executive  shall not, for the
          term of this  Agreement and until all benefits have been  distributed,
          directly or  indirectly,  either as an  individual or as a proprietor,
          stockholder,  partner, officer, director,  employee, agent, consultant
          or independent contractor of any individual, partnership,  corporation
          or other entity  (excluding an ownership  interest of one percent (1%)
          or less in the stock of a publicly traded company):

               (i)  become  employed by,  participate in, or be connected in any
                    manner with the ownership,  management, operation or control
                    of any bank,  savings  and loan or

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                    other  similar  financial  institution  if  the  Executive's
                    responsibilities  will  include  providing  banking or other
                    financial services; or (ii) participate in any way in hiring
                    or  otherwise  engaging,  or  assisting  any other person or
                    entity in  hiring or  otherwise  engaging,  on a  temporary,
                    part-time  or  permanent   basis,  any  individual  who  was
                    employed  by the  Corporation  or  any  of its  subsidiaries
                    during the three (3) year  period  immediately  prior to the
                    termination of the Executive's employment; or

               (iii)assist, advise, or serve in any capacity,  representative or
                    otherwise,  any  third  party  in  any  action  against  the
                    Corporation  or  any  of  its  subsidiaries  or  transaction
                    involving the Corporation or any of its subsidiaries; or

               (iv) sell,  offer to sell,  provide  banking  or other  financial
                    services,  assist any other  person in selling or  providing
                    banking or other financial services, or solicit or otherwise
                    compete  for,  either  directly or  indirectly,  any orders,
                    contract,  or accounts for services of a kind or nature like
                    or  substantially  similar  to  the  services  performed  or
                    products sold by the Corporation or any of its  subsidiaries
                    (the preceding hereinafter referred to as "Services"), to or
                    from any  person or entity  from whom the  Executive  or the
                    Corporation or any of its  subsidiaries  provided banking or
                    other financial services, sold, offered to sell or solicited
                    orders,  contracts or accounts for Services during the three
                    (3) year period  immediately prior to the termination of the
                    Executive's employment; or

               (v)  divulge,  disclose,  or  communicate to others in any manner
                    whatsoever,  any confidential information of the Corporation
                    or any of its subsidiaries,  including,  but not limited to,
                    the names and addresses of customers of the  Corporation  or
                    any of its subsidiaries,  as they may have existed from time
                    to  time  or of  any  of  the  Corporation's  or  any of its
                    subsidiaries   prospective  customers,   work  performed  or
                    services  rendered  for  any  customer,  any  method  and/or
                    procedures  relating to projects or other work developed for
                    the  Corporation  or any of its  subsidiaries,  earnings  or
                    other  information  concerning the Corporation or any of its
                    subsidiaries.    The   restrictions    contained   in   this
                    subparagraph  (v)  apply to all  information  regarding  the
                    Corporation  or any of its  subsidiaries,  regardless of the
                    source  who   provided   or   compiled   such   information.
                    Notwithstanding  anything to the contrary,  all  information
                    referred to herein shall not be  disclosed  unless and until
                    it becomes  known to the general  public from sources  other
                    than the Executive.

               5.3.2 Judicial  Remedies.  In the event of a breach or threatened
          breach by the  Executive of any provision of these  restrictions,  the
          Executive  recognizes the substantial and immediate harm that a breach
          or threatened  breach will impose upon the  Corporation  or any of its
          subsidiaries,  and  further  recognizes  that in such  event  monetary
          damages may be inadequate to fully protect the  Corporation  or any of
          its subsidiaries.  Accordingly, in the

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          event  of a  breach  or  threatened  breach  of  this  Agreement,  the
          Executive  consents to the  Corporation's  or any of its  subsidiaries
          entitlement to such ex parte, preliminary, interlocutory, temporary or
          permanent  injunctive,  or any other equitable relief,  protecting and
          fully  enforcing the  Corporation' or any of its  subsidiaries  rights
          hereunder and preventing  the Executive from further  breaching any of
          his obligations set forth herein.  The Executive  expressly waives any
          requirement, based on any statute, rule of procedure, or other source,
          that  the  Corporation  or any of its  subsidiaries  post a bond  as a
          condition of obtaining any of the  above-described  remedies.  Nothing
          herein shall be construed as prohibiting the Corporation or any of its
          subsidiaries  from  pursuing  any  other  remedies  available  to  the
          Corporation  or any of its  subsidiaries  at law or in equity for such
          breach or  threatened  breach,  including the recovery of damages from
          the Executive.  The Executive expressly  acknowledges and agrees that:
          (i) the  restrictions  set forth in Section 5.3.1 are  reasonable,  in
          terms of scope,  duration,  geographic  area, and otherwise,  (ii) the
          protections  afforded the  Corporation or any of its  subsidiaries  in
          Section  5.3.1  are  necessary  to  protect  its  legitimate  business
          interest,  (iii) the  restrictions set forth in Section 5.3.1 will not
          be materially adverse to the Executive's  employment with the Company,
          and (iv) his agreement to observe such  restrictions  forms a material
          part of the consideration for this Agreement.

               5.3.3 Overbreadth of Restrictive Covenant. It is the intention of
          the parties  that if any  restrictive  covenant in this  Agreement  is
          determined  by a court of competent  jurisdiction  to be overly broad,
          then the court should enforce such restrictive covenant to the maximum
          extent permitted under the law as to area, breadth and duration.

               5.3.4 The non-compete  provision  detailed in Section 5.3.1 shall
          not be enforceable following a Change of Control.

          5.4  Suicide  or  Misstatement.  No  benefits  shall be payable if the
     Executive  commits  suicide  within  two  years  after  the  date  of  this
     Agreement,  or if  the  insurance  company  denies  coverage  for  material
     misstatements  of fact made by the  Executive on any  application  for life
     insurance purchased by the Company, or any other reason; provided,  however
     that the Company shall evaluate the reason for the denial,  and upon advice
     of  legal  counsel  and  in  its  sole  discretion,   consider   judicially
     challenging any denial.

                                    Article 6
                          Claims and Review Procedures

          6.1 Claims  Procedure.  The Company  shall notify any person or entity
     that makes a claim  against  the  Agreement  (the  "Claimant")  in writing,
     within ninety (90) days of Claimant's written application for benefits,  of
     his or her eligibility or noneligibility  for benefits under the Agreement.
     If the Company determines that the Claimant is not eligible for benefits or
     full benefits, the notice shall set forth (1) the specific reasons for such
     denial, (2) a specific

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     reference to the  provisions of the Agreement on which the denial is based,
     (3) a description of any additional  information or material  necessary for
     the Claimant to perfect his or her claim,  and a  description  of why it is
     needed,  and (4) an explanation of the Agreement's  claims review procedure
     and  other  appropriate  information  as to the  steps  to be  taken if the
     Claimant wishes to have the claim reviewed.  If the Company determines that
     there  are  special  circumstances  requiring  additional  time  to  make a
     decision,   the  Company   shall   notify  the   Claimant  of  the  special
     circumstances  and the date by which a decision is expected to be made, and
     may extend the time for up to an additional ninety-day period.

          6.2 Review Procedure. If the Claimant is determined by the Company not
     to be eligible for benefits,  or if the Claimant believes that he or she is
     entitled to greater or  different  benefits,  the  Claimant  shall have the
     opportunity to have such claim reviewed by the Company by filing a petition
     for review with the  Company  within  sixty (60) days after  receipt of the
     notice  issued by the  Company.  Said  petition  shall  state the  specific
     reasons  which the Claimant  believes  entitle him or her to benefits or to
     greater or different benefits.  Within sixty (60) days after receipt by the
     Company  of the  petition,  the  Company  shall  afford the  Claimant  (and
     counsel,  if any) an  opportunity  to present  his or her  position  to the
     Company orally or in writing,  and the Claimant (or counsel) shall have the
     right to review the  pertinent  documents.  The  Company  shall  notify the
     Claimant of its decision in writing  within the sixty-day  period,  stating
     specifically the basis of its decision,  written in a manner  calculated to
     be understood by the Claimant and the specific  provisions of the Agreement
     on which the decision is based. If, because of the need for a hearing,  the
     sixty-day period is not sufficient,  the decision may be deferred for up to
     another sixty-day period at the election of the Company, but notice of this
     deferral shall be given to the Claimant.

                                    Article 7
                           Amendments and Termination

          This  Agreement  may  be  amended  or  terminated  only  by a  written
     agreement signed by the Company and the Executive.

                                    Article 8
                                  Miscellaneous

          8.1 Binding  Effect.  This Agreement  shall bind the Executive and the
     Company,  and  their  beneficiaries,   survivors,  executors,   successors,
     administrators and transferees.

          8.2 No Guarantee of  Employment.  This  Agreement is not an employment
     policy or contract.  It does not give the  Executive the right to remain an
     employee of the Company,  nor does it interfere with the Company's right to
     discharge the  Executive.  It also does not require the Executive to remain
     an employee nor interfere with the Executive's right to terminate

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     employment at any time.

          8.3 Non-Transferability. Benefits under this Agreement cannot be sold,
     transferred, assigned, pledged, attached or encumbered in any manner.

          8.4 Tax  Withholding.  The Company  shall  withhold any taxes that are
     required to be withheld from the benefits provided under this Agreement.

          8.5 Applicable  Law. The Agreement and all rights  hereunder  shall be
     governed by the laws of the  Commonwealth  of  Pennsylvania,  except to the
     extent preempted by the laws of the United States of America.

          8.6 Unfunded  Arrangement.  The Executive and  beneficiary are general
     unsecured  creditors of the Company for the payment of benefits  under this
     Agreement.  The benefits  represent  the mere promise by the Company to pay
     such  benefits.  The rights to  benefits  are not  subject in any manner to
     anticipation,  alienation, sale, transfer, assignment, pledge, encumbrance,
     attachment,  or garnishment by creditors.  Any insurance on the Executive's
     life  is a  general  asset  of the  Company  to  which  the  Executive  and
     beneficiary have no preferred or secured claim.

          8.7  Recovery of Estate  Taxes.  If the  Executive's  gross estate for
     federal estate tax purposes  includes any amount determined by reference to
     and on account of this Agreement,  and if the beneficiary is other than the
     Executive's  estate,  then the  Executive's  estate  shall be  entitled  to
     recover from the beneficiary  receiving such benefit under the terms of the
     Agreement,  an amount by which the total estate tax due by the  Executive's
     estate,  exceeds the total  estate tax which would have been payable if the
     value  of such  benefit  had not been  included  in the  Executive's  gross
     estate. If there is more than one person receiving such benefit,  the right
     of recovery shall be against each such person. In the event the beneficiary
     has a liability  hereunder,  the beneficiary may petition the Company for a
     lump sum  payment in an amount not to exceed  the  beneficiary's  liability
     hereunder.

          8.8 Entire Agreement.  This Agreement constitutes the entire agreement
     between the Company and the Executive as to the subject matter  hereof.  No
     rights are granted to the Executive by virtue of this Agreement  other than
     those specifically set forth herein.

          8.9 Administration.  The Company shall have powers which are necessary
     to administer this Agreement, including but not limited to:

               8.9.1 Interpreting the provisions of the Agreement;

               8.9.2  Establishing and revising the method of accounting for the
          Agreement;

               8.9.3  Maintaining  a  record  of  benefit  payments;  and  8.9.4
          Establishing rules and prescribing any forms necessary or desirable to
          administer the Agreement.

                                       10EXHIBIT 10.9

<PAGE>

                             NORWOOD FINANCIAL CORP.

                     1999 DIRECTORS STOCK COMPENSATION PLAN

     1.  Purpose of the Plan.  The Plan shall be known as the NORWOOD  FINANCIAL
CORP.  ("Company")  1999 Directors  Stock  Compensation  Plan (the "Plan").  The
purpose of the Plan is to retain and reward qualified personnel for positions of
substantial  responsibility  as members of the Board of Directors of the Company
or any  present or future  parent or  subsidiary  of the  Company to promote the
success of the business.  The Plan is intended to provide for the grant of Stock
Options that are not "Incentive  Stock  Options,"  within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").

     2. Definitions. The following words and phrases when used in this Plan with
an initial capital letter, unless the context clearly indicates otherwise, shall
have the meaning as set forth below. Wherever appropriate, the masculine pronoun
shall include the feminine pronoun and the singular shall include the plural.

     (a) "Award"  means the grant by the  Committee  or in  accordance  with the
terms of the Plan of a Stock Option.

     (b) "Bank" shall mean Wayne Bank, or any successor corporation thereto.

     (c)  "Board"  shall  mean the Board of  Directors  of the  Company,  or any
successor or parent corporation thereto.

     (d) "Change in Control" shall mean any one of the following events: (i) the
acquisition  of ownership,  holding or power to vote more than 25% of the Bank's
or the Company's  voting stock,  (ii) the  acquisition of the ability to control
the election of a majority of the Bank's or the Company's  directors,  (iii) the
acquisition  of a controlling  influence  over the management or policies of the
Bank or the Company by any person or by persons acting as a "group"  (within the
meaning of Section 13(d) of the Securities Exchange Act of 1934), or (iv) during
any period of two consecutive  years,  individuals (the "Continuing  Directors")
who at the  beginning  of such period  constitute  the Board of Directors of the
Bank or the Company (the "Existing Board") cease for any reason to constitute at
least  two-thirds  thereof,  provided  that any  individual  whose  election  or
nomination for election as a member of the Existing Board was approved by a vote
of at least  two-thirds  of the  Continuing  Directors  then in office  shall be
considered a Continuing Director.  Notwithstanding the foregoing, in the case of
(i),  (ii) and (iii)  hereof,  ownership  or control of the Bank by the  Company
itself shall not constitute a Change in Control.  For purposes of this paragraph
only, the term "person"  refers to an individual or a corporation,  partnership,
trust,  association,   joint  venture,  pool,  syndicate,  sole  proprietorship,
unincorporated  organization or any other form of entity not specifically listed
herein.

     (e) "Code" shall mean the Internal  Revenue Code of 1986,  as amended,  and
regulations promulgated thereunder.

     (f)  "Committee"  shall  mean  the  Board  or the  Stock  Option  Committee
appointed by the Board in accordance  with Section 5(a) of the Plan.

                                       1
<PAGE>

     (g)  "Common  Stock"  shall mean the common  stock of the  Company,  or any
successor or parent corporation thereto.

     (h)  "Company"  shall  mean  the  NORWOOD   FINANCIAL   CORP.,  the  parent
corporation of the Savings Bank, or any successor or Parent thereof.

     (i)  "Director"  shall  mean a member of the Board of the  Company,  or any
successor or parent corporation thereto.

     (j) "Director Emeritus" shall mean a person serving as a director emeritus,
advisory  director,  consulting  director,  or other similar  position as may be
appointed by the Board of Directors of the Savings Bank or the Company from time
to time.

     (k) "Disability"  means any physical or mental impairment which renders the
Participant  incapable of continuing in the employment or service of the Savings
Bank or the Parent in his then current capacity as determined by the Committee.

     (l) "Effective Date" shall mean December 14, 1999.

     (m) "Employee" shall mean any person employed by the Company or any present
or future  Parent or  Subsidiary  of the Company.  "Non-Employee"  shall mean an
individual  not  employed  by the  Company or any  present  or future  Parent or
Subsidiary of the Company.

     (n) "Fair  Market  Value" shall mean the last  reported  sale price of such
Common Stock on such date or within the preceding 20 business  days, or if there
is no reported sale price during such period, then the mean of the last reported
bid and ask price during such period. If no such bid and ask price is available,
then the Fair Market Value shall be determined by the Committee in good faith.

     (o) "Option" or "Stock Option" shall mean an Award granted pursuant to this
Plan  providing  the holder of such  Option  with the right to  purchase  Common
Stock.

     (p) "Optioned Stock" shall mean stock subject to an Option granted pursuant
to the Plan.

     (q)  "Optionee"  shall  mean any  person  who  receives  an Option or Award
pursuant to the Plan.

     (r) "Parent" shall mean any present or future  corporation which would be a
"parent corporation" as defined in Sections 424(e) and (g) of the Code.

     (s)  "Participant"  means any  director  of the  Company  or any  Parent or
Subsidiary of the Company or any other person providing a service to the Company
who is  selected  by the  Committee  to receive an Award,  or who by the express
terms of the Plan is granted an Award.

     (t) "Plan" shall mean the Norwood  Financial  Corp.  1999  Directors  Stock
Compensation Plan.

                                       2
<PAGE>

     (u) "Share" shall mean one share of the Common Stock.

     (v)  "Subsidiary"  shall  mean any  present  or  future  corporation  which
constitutes a "subsidiary  corporation" as defined in Sections 424(f) and (g) of
the Code.

     3.  Shares  Subject  to the  Plan.  Except  as  otherwise  required  by the
provisions of Section 11 hereof,  the aggregate number of Shares with respect to
which Awards may be made  pursuant to the Plan shall not exceed  17,600  Shares.
Such  Shares  may  either  be from  authorized  but  unissued  shares  or shares
purchased  in the market for Plan  purposes.  If an Award shall  expire,  become
unexercisable,  or be forfeited for any reason prior to its exercise, new Awards
may be granted  under the Plan with  respect to the number of Shares as to which
such expiration has occurred.

     4. Six Month Holding Period. Except in the event of the death or disability
of the Optionee or a Change in Control of the  Company,  a minimum of six months
must elapse  between the date of the grant of an Option and the date of the sale
of the Common Stock received through the exercise of such Option.

     5. Administration of the Plan.
        --------------------------

     (a)  Composition of the Committee.  The Plan shall be  administered  by the
Board of Directors of the Company or a Committee which shall consist of not less
than two  Directors  of the  Company  appointed  by the Board and serving at the
pleasure of the Board. All persons  designated as members of the Committee shall
meet the  requirements of a "Non-Employee  Director"  within the meaning of Rule
16b-3 under the Securities  Exchange Act of 1934, as amended, as found at 17 CFR
ss.240.16b-3. (b) Powers of the Committee. The Committee is authorized (but only
to the  extent  not  contrary  to the  express  provisions  of  the  Plan  or to
resolutions adopted by the Board) to interpret the Plan, to prescribe, amend and
rescind  rules and  regulations  relating to the Plan, to determine the form and
content of Awards to be issued  under the Plan and to make other  determinations
necessary or advisable for the  administration  of the Plan,  and shall have and
may  exercise  such other power and  authority  as may be delegated to it by the
Board from time to time. A majority of the entire  Committee shall  constitute a
quorum and the action of a majority  of the  members  present at any  meeting at
which a quorum is present  shall be deemed the  action of the  Committee.  In no
event may the Committee  revoke  outstanding  Awards  without the consent of the
Participant.

     The President of the Company and such other officers as shall be designated
by the Committee are hereby authorized to execute written agreements  evidencing
Awards  on  behalf  of the  Company  and to cause  them to be  delivered  to the
Participants.  Such agreements  shall set forth the Option  exercise price,  the
number of shares of Common Stock subject to such Option,  the expiration date of
such Options, and such other terms and restrictions  applicable to such Award as
are determined in accordance with the Plan or the actions of the Committee.

     (c) Effect of  Committee's  Decision.  All  decisions,  determinations  and
interpretations  of the Committee  shall be final and  conclusive on all persons
affected thereby.

                                       3
<PAGE>

          6.      Eligibility for Awards and Limitations.
                  --------------------------------------

     (a) The Committee  shall from time to time determine the  Participants  who
shall be granted Awards under the Plan and the number of Awards to be granted to
each such persons.  In selecting  Participants  and in determining the number of
Shares of Common Stock to be granted to each such Participant, the Committee may
consider the nature of the prior and  anticipated  future  services  rendered by
each  such   Participant,   each  such   Participant's   current  and  potential
contribution  to the Company and such other factors as the Committee may, in its
sole discretion, deem relevant. Participants who have been granted an Award may,
if otherwise eligible, be granted additional Awards.

     (b) In no event shall Shares subject to Options  granted to any Participant
exceed more than 15% of the total number of Shares authorized for delivery under
the Plan.

     7. Term of the Plan.  The Plan shall  continue  in effect for a term of ten
(10) years and 1 day from the Effective  Date,  unless the Plan is terminated by
the Board in accordance with the Plan.

     8. Terms and Conditions of Stock  Options.  Stock Options may be granted or
awarded only to  Participants.  Each Stock Option  granted  pursuant to the Plan
shall be evidenced by an  instrument  in such form as the  Committee  shall from
time to time  approve.  Each Stock  Option  granted  pursuant  to the Plan shall
comply with, and be subject to, the following terms and conditions:

     (a) Option Price. The price per Share at which each Stock Option granted by
the Committee  under the Plan may be exercised  shall not, as to any  particular
Stock Option, be less than the Fair Market Value of the Common Stock on the date
that such Stock Option is granted.

     (b) Payment. Full payment for each Share of Common Stock purchased upon the
exercise of any Stock Option granted under the Plan shall be made at the time of
exercise of each such Stock  Option and shall be paid in cash (in United  States
Dollars),  Common Stock or a combination of cash and Common Stock.  Common Stock
utilized in full or partial payment of the exercise price shall be valued at the
Fair Market  Value at the date of  exercise.  The Company  shall  accept full or
partial payment in Common Stock only to the extent  permitted by applicable law.
No Shares of Common Stock shall be issued  until full payment has been  received
by the Company, and no Optionee shall have any of the rights of a stockholder of
the Company until Shares of Common Stock are issued to the Optionee.

     (c) Term of Stock Option.  The term of  exercisability of each Stock Option
granted pursuant to the Plan shall be not more than ten (10) years from the date
each such Stock Option is granted.

     (d) Cashless Exercise.  Subject to vesting requirements,  if applicable, an
Optionee  who has held an Stock Option for at least six months may engage in the
"cashless exercise" of the Option.  Upon a cashless exercise,  an Optionee shall
give the Company  written notice of the exercise of the Option  together with an
order to a registered  broker-dealer  or equivalent third party, to sell part or
all of the Optioned  Stock and to deliver  enough of the proceeds to the Company
to pay the Option  exercise price and any applicable  withholding  taxes. If the
Optionee does not sell the Optioned Stock through a registered  broker-dealer or
equivalent  third party, the Optionee can give the Company written notice of the
exercise of the Option and the third party purchaser of the Optioned Stock shall
pay the Option  exercise  price  plus any  applicable  withholding  taxes to the
Company.

                                       4
<PAGE>

     (e) Transferability.  An Stock Option granted pursuant to the Plan shall be
exercised  during an  Optionee's  lifetime  only by the  Optionee to whom it was
granted and shall not be assignable or transferable otherwise than by will or by
the laws of descent and distribution.

     9. Awards to Directors. As of the close of business on the day of the first
regularly  scheduled  Board  meeting in December of each year,  Stock Options to
purchase shares of Common Stock shall be granted to each  Non-employee  Director
of the Company or the Bank then serving as of such date and annually  thereafter
("Date of Grant").  Such Options  shall be  exercisable  at a price equal to the
Fair Market Value of the Common  Stock as of the date of grant of such  Options.
Such Options will be first  exercisable  as of the one year  anniversary of such
Date of Grant.  Except as  limited by Section  10  hereof,  such  Options  shall
continue to be  exercisable  for a period of ten years and one day following the
date  of  grant.  Unless  otherwise  inapplicable,   or  inconsistent  with  the
provisions of this paragraph,  the Options to be granted to Directors  hereunder
shall be subject to all other  provisions of this Plan. The number of options to
be awarded to each Director shall be determined by the Committee.

     10.  Effect of  Termination  of Service,  Disability  or Death on Incentive
Stock Options.

     (a) Termination of Service. In the event that any Optionee's  employment or
other  service  provided  to the  Company  or the Bank shall  terminate  for any
reason,  other than  Permanent and Total  Disability (as such term is defined in
Section 22(e)(3) of the Code) or death, all of any such Optionee's Options,  and
all of any such Optionee's  rights to purchase or receive Shares of Common Stock
pursuant  thereto,  shall  automatically  terminate  on the  earlier  of (i) the
respective  expiration  dates of any such Option or (ii) the  expiration  of not
more than three (3) months  after the date of such  termination  as  director or
such service,  but only if, and to the extent that, the Optionee was entitled to
exercise  any such  option  at the  date of such  termination.  In the  event of
removal in accordance with the Company's or the Bank's Articles of Incorporation
or Bylaws, as the case may be, the Option shall  automatically  terminate on the
date of such termination.

     (b)  Disability.  In the event that any  Optionee's  directorship  or other
service  with the  Company  or the Bank  shall  terminate  as the  result of the
Permanent and Total Disability of such Optionee,  such Optionee may exercise any
Options  granted to him pursuant to the Plan at any time prior to the earlier of
(i) the respective  expiration  dates of any such Options or (ii) the date which
is six (6) months  after the date of such  termination,  but only if, and to the
extent that,  the Optionee was entitled to exercise any such Options at the date
of such termination.

     (c) Death. In the event of the death of an Optionee, any Options granted to
such  Optionee may be exercised by the person or persons to whom the  Optionee's
rights  under  any  such  Options  pass by will or by the  laws of  descent  and
distribution   (including   the   Optionee's   estate   during   the  period  of
administration)  at  any  time  prior  to the  earlier  of  (i)  the  respective
expiration  dates of any such  Options  or (ii) the date which is six (6) months
after the date of death of such  Optionee  but only if, and to the extent  that,
the Optionee was entitled to exercise any such Options at the date of death. For
purposes  of this  Section  10(c),  any  Option  held by an  Optionee  shall  be
considered  exercisable  at the  date  of his  death  if  the  only  unsatisfied
condition precedent to the exercisability of such Option at the date of death is
the passage of a specified  period of time. At the  discretion of the Committee,
upon  exercise of such  Options in the event of death,  such persons may receive
Shares or cash or combination  thereof. If cash shall be paid in lieu of Shares,
such cash shall be equal to the difference between the fair market value of such
Shares  and the  exercise  price  of such  Options  on the  exercise  date.

                                       5
<PAGE>

     11.  Withholding  Tax. The Company  shall have the right to deduct from all
amounts paid in cash with respect to the cashless  exercise of Options under the
Plan  any  taxes  required  by law to be  withheld  with  respect  to such  cash
payments.  Where a  Participant  or other  person is entitled to receive  Shares
pursuant  to the  exercise  of an Option,  the  Company  shall have the right to
require the  Participant  or such other  person to pay the Company the amount of
any taxes which the Company is required to withhold with respect to such Shares,
or, in lieu  thereof,  to retain,  or to sell without  notice,  a number of such
Shares sufficient to cover the amount required to be withheld.

     12. Recapitalization,  Merger,  Consolidation,  Change in Control and Other
Transactions.

     (a) Adjustment.  Subject to any required action by the  stockholders of the
Company,  within the sole discretion of the Committee,  the aggregate  number of
Shares of Common Stock for which Options may be granted hereunder, the number of
Shares of Common  Stock  covered by each  outstanding  Option,  and the exercise
price  per  Share  of  Common   Stock  of  each  such   Option,   shall  all  be
proportionately  adjusted  for any  increase or decrease in the number of issued
and  outstanding  Shares  of  Common  Stock  resulting  from  a  subdivision  or
consolidation   of  Shares   (whether   by  reason  of  merger,   consolidation,
recapitalization,   reclassification,   split-up,   combination  of  shares,  or
otherwise) or the payment of a stock  dividend (but only on the Common Stock) or
any other  increase or  decrease  in the number of such  Shares of Common  Stock
effected  without the receipt or payment of  consideration by the Company (other
than Shares held by dissenting stockholders).

     (b) Change in Control.  All  outstanding  Awards shall  become  immediately
exercisable in the event of a Change in Control of the Company, as determined by
the Committee.  In the event of such a Change in Control,  the Committee and the
Board  of  Directors  will  take  one or more  of the  following  actions  to be
effective as of the date of such Change in Control:

     (i) provide that such Options shall be assumed, or equivalent options shall
be   substituted,   ("Substitute   Options")  by  the  acquiring  or  succeeding
corporation  (or an  affiliate  thereof),  provided  that:  the  shares of stock
issuable  upon  the  exercise  of  such  Substitute   Options  shall  constitute
securities registered in accordance with the Securities Act of 1933, as amended,
("1933  Act") or such  securities  shall be  exempt  from such  registration  in
accordance  with  Sections  3(a)(2) or  3(a)(5) of the 1933 Act,  (collectively,
"Registered Securities"), or in the alternative, if the securities issuable upon
the  exercise  of  such  Substitute  Options  shall  not  constitute  Registered
Securities,  then the Optionee will receive upon  consummation  of the Change in
Control  transaction  a cash  payment for each Option  surrendered  equal to the
difference between (1) the Fair Market Value of the consideration to be received
for each share of Common  Stock in the Change in Control  transaction  times the
number of shares of Common Stock subject to such  surrendered  Options,  and (2)
the aggregate exercise price of all such surrendered Options, or

     (ii) in the event of a transaction  under the terms of which the holders of
the Common Stock of the Company will  receive upon  consummation  thereof a cash
payment  (the "Merger  Price") for each share of Common  Stock  exchanged in the
Change in Control  transaction,  to make or to provide for a cash payment to the
Optionees equal to the difference  between (A) the Merger Price times the number
of shares of Common Stock  subject to such Options held by each Optionee (to the
extent then exercisable at prices not in excess of the Merger Price) and (B) the
aggregate  exercise price of all such  surrendered  Options in exchange for such
surrendered Options.

                                       6
<PAGE>

     (c) Extraordinary  Corporate Action.  Notwithstanding any provisions of the
Plan to the contrary,  subject to any required action by the stockholders of the
Company,  in the  event of any  Change  in  Control,  recapitalization,  merger,
consolidation,  exchange  of Shares,  spin-off,  reorganization,  tender  offer,
partial or  complete  liquidation  or other  extraordinary  corporate  action or
event,  the Committee,  in its sole discretion,  shall have the power,  prior or
subsequent to such action or event to:

     (i)  appropriately  adjust the number of Shares of Common Stock  subject to
each  Option,  the  Option  exercise  price per Share of Common  Stock,  and the
consideration  to be given or received by the Company  upon the  exercise of any
outstanding Option;

     (ii)  cancel  any  or  all  previously   granted  Options,   provided  that
appropriate  consideration  is paid to the  Optionee  in  connection  therewith;
and/or

     (iii)  make  such  other  adjustments  in  connection  with the Plan as the
Committee, in its sole discretion,  deems necessary,  desirable,  appropriate or
advisable.

     (d)  Acceleration.  The  Committee  shall at all  times  have the  power to
accelerate the exercise date of Options previously granted under the Plan.

     (e) Non-recurring Dividends. Upon the payment of a special or non-recurring
cash  dividend  that has the effect of a return of capital to the  stockholders,
the Option exercise price per share shall be adjusted  proportionately and in an
equitable manner.

     Except as expressly  provided in Sections 12(a), 12(b) and 12(e) hereof, no
Optionee  shall have any rights by reason of the occurrence of any of the events
described in this Section 12.

     13. Time of Granting Options. The date of grant of an Option under the Plan
shall,  for all purposes,  be the date specified in accordance  with the Plan or
the date on which the Committee makes the determination of granting such Option.
Notice of the grant of an Option  shall be given to each  individual  to whom an
Option is so granted within a reasonable  time after the date of such grant in a
form determined by the Committee.

     14.  Modification of Options.  At any time and from time to time, the Board
may authorize  the Committee to direct the execution of an instrument  providing
for the modification of any outstanding  Option,  provided no such modification,
extension  or renewal  shall  confer on the  holder of said  Option any right or
benefit  which  could not be  conferred  on the  Optionee  by the grant of a new
Option at such time, or shall not materially  decrease the  Optionee's  benefits
under the Option  without  the  consent of the holder of the  Option,  except as
otherwise permitted under Section 15 hereof.

     15. Amendment and Termination of the Plan.

     (a) Action by the Board.  The Board may alter,  suspend or discontinue  the
Plan.

     (b) Change in Applicable Law. Notwithstanding any other provision contained
in the Plan,  in the  event of a change in any  federal  or state  law,  rule or
regulation  which  would  make  the  exercise  of all or part of any  previously
granted Option unlawful or subject the Company to any penalty,

                                       7
<PAGE>

the Committee may restrict any such exercise without the consent of the Optionee
or other holder thereof in order to comply with any such law, rule or regulation
or to avoid any such penalty.

     16.  Conditions  Upon Issuance of Shares;  Limitations on Option  Exercise;
Cancellation of Option Rights.

     (a) Shares shall not be issued with respect to any Option granted under the
Plan unless the  issuance  and  delivery of such  Shares  shall  comply with all
relevant  provisions of  applicable  law,  including,  without  limitation,  the
Securities  Act of 1933,  as  amended,  the  rules and  regulations  promulgated
thereunder,  any applicable  state  securities laws and the  requirements of any
stock exchange upon which the Shares may then be listed.

     (b) The  inability of the Company to obtain any  necessary  authorizations,
approvals  or letters of  non-objection  from any  regulatory  body or authority
deemed by the Company's  counsel to be necessary to the lawful issuance and sale
of any Shares issuable hereunder shall relieve the Company of any liability with
respect to the non-issuance or sale of such Shares.

     (c) As a condition  to the  exercise of an Option,  the Company may require
the person exercising the Option to make such  representations and warranties as
may  be  necessary  to  assure  the   availability  of  an  exemption  from  the
registration requirements of federal or state securities law.

     (d) Notwithstanding  anything herein to the contrary,  upon the termination
of employment or service of an Optionee by the Company or its  Subsidiaries  for
"cause"  within the sole  discretion  of the  Board,  all  Options  held by such
Participant  shall cease to be exercisable as of the date of such termination of
employment or service.

     (e) Upon the  exercise  of an  Option  by an  Optionee  (or the  Optionee's
personal  representative),  the Committee,  in its sole and absolute discretion,
may make a cash  payment to the  Optionee,  in whole or in part,  in lieu of the
delivery  of shares of Common  Stock.  Such cash  payment  to be paid in lieu of
delivery  of Common  Stock  shall be equal to the  difference  between  the Fair
Market  Value of the  Common  Stock on the date of the Option  exercise  and the
exercise  price per share of the Option.  Such cash payment shall be in exchange
for the cancellation of such Option.  Such cash payment shall not be made in the
event that such  transaction  would  result in  liability to the Optionee or the
Company under Section 16(b) of the Securities  Exchange Act of 1934, as amended,
and regulations promulgated thereunder.

     17.  Reservation  of Shares.  During the term of the Plan, the Company will
reserve  and keep  available  a number  of  Shares  sufficient  to  satisfy  the
requirements of the Plan.

     18.  Unsecured  Obligation.  No  Participant  under the Plan shall have any
interest  in any fund or special  asset of the  Company by reason of the Plan or
the grant of any  Option  under the Plan.  No trust  fund  shall be  created  in
connection with the Plan or any grant of any Option hereunder and there shall be
no required funding of amounts which may become payable to any Participant.

                                       8
<PAGE>

     19. No Employment Rights. No Director,  Employee or other person shall have
a right to be selected as a Participant under the Plan. Neither the Plan nor any
action taken by the Committee in  administration  of the Plan shall be construed
as giving any  person any rights of  employment  or  retention  as an  Employee,
Director or in any other  capacity  with the Company,  the Savings Bank or other
Subsidiaries.

     20.  Governing  Law.  The  Plan  shall  be  governed  by and  construed  in
accordance  with the laws of the  Commonwealth  of  Pennsylvania,  except to the
extent that federal law shall be deemed to apply.

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