Document:

exhibit101.htm

     

    
      

      

    

    Exhibit
      10.1

    
       

      AMENDED
        AND RESTATED

      EMPLOYMENT
        AGREEMENT

      

      

                            
        This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made and
        entered into as of January 28,
        2008 by and among Keystone Nazareth Bank & Trust Company (“KNBT Bank”), KNBT
        Bancorp, Inc. (“KNBT”), National Penn Bank (the “Bank”), National Penn
        Bancshares, Inc. (the “Company”) (the Bank and the Company are collectively
        referred to as the “Employer”), and Scott V. Fainor (the “Executive”) and shall become
        effective as of the Effective Time (as defined below) and shall supersede,
        as of
        the Effective Time, any and all agreements relating to the matters contained
        herein.

      

      

      W
        I T N E S S E T H
        :

       

              WHEREAS,
        the
        Executive is currently employed as the President and Chief Executive Officer
        of
        each of KNBT and KNBT Bank pursuant to an Amended and Restated Employment
        Agreement, dated December 28, 2006 (the “Prior Agreement”);

       

              WHEREAS,
        on September
        6, 2007, the Company and KNBT entered into an Agreement (the “Merger Agreement”)
        providing, among other things, for the merger of KNBT with and into the Company,
        to be followed by the Bank Merger (as defined in the Merger
        Agreement);

       

              WHEREAS,
        as of the
        Effective Time (as defined below) the Executive will be employed by the Company
        and the Bank as the President and the Chief
        Executive
        Officer of the Bank and Senior Executive Vice President and Chief Operating
        Officer of the Company pursuant to the First Amendment
        to the Prior
        Agreement between the Company, the Bank, KNBT and KNBT Bank and the Executive
        effective September 6, 2007 (the “First Amendment”);

       

              WHEREAS,
        KNBT, KNBT
        Bank, the Company and the Bank desire to amend and restate the Prior Agreement
        in order to make changes to comply with Section 409A of the Internal Revenue
        Code of 1986, as amended (the “Code”) and to incorporate selected provisions of
        the First Amendment;

      

                            
        WHEREAS, KNBT and KNBT Bank
        desire
        to ensure that the Company and the Bank are assured of the continued
        availability of the Executive’s services as provided in this Agreement;
        and

      

                            
        WHEREAS, the Executive is
        willing
        to serve the Company and the Bank on the terms and conditions hereinafter
        set
        forth.

      

                            
        NOW, THEREFORE, in consideration
        of the premises and the mutual covenants and conditions hereinafter set forth,
        KNBT, KNBT Bank, the Company, the Bank and the Executive hereby agree as
        follows:

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	
                SECTION
                  1.

              	
                EFFECTIVE
                  DATE;
                  EMPLOYMENT.

              

      

      

                            
        For purposes of this Agreement,
        “Effective Date” shall mean December 31, 2004, provided
        thatthis amendment and
        restatement shall be effective as of the Effective Time.  The Employer
        agrees to employ the Executive, and the Executive hereby agrees to such
        employment, during the period and upon the terms and conditions set forth
        in
        this Agreement.

       

              Effective
        Time shall
        have the meaning assigned to such term in the Merger
        Agreement.

      

      
        	
                SECTION
                  2.

              	
                EMPLOYMENT
                  PERIOD.

              

      

      

                            
        (a) The terms and conditions
        of
        this Agreement shall be and remain in effect through December 31, 2009 plus
        such
        extensions, if any, as are provided pursuant to Section 2(b) hereof (the
        “Employment Period”).

      

                            
        (b) Except as provided in
        Section
        2(c), beginning on December 31, 2007 and on each subsequent December
        31stduring
        the Employment Period, the
        Employment Period shall automatically be extended for one additional year,
        unless either the Company or the Bank, on the one hand, or the Executive,
        on the
        other hand, elects not to extend the Agreement further by giving written
        notice
        thereof to the other parties at least 30 days prior to such annual anniversary
        date.  Upon termination of the Executive’s employment with either
        Employer for any reason whatsoever, any annual extensions provided pursuant
        to
        this Section 2(b), if not theretofore discontinued, shall automatically
        cease.

      

                            
        (c) Nothing in this Agreement
        shall be deemed to prohibit the Employer at any time from terminating the
        Executive’s employment during the Employment Period for any reason upon at least
        30 days written notice to the Executive, other than termination for Cause
        which
        shall be governed by Section 10 hereof, provided
        thatthe relative rights
        and
        obligations of the Employer and the Executive in the event of any such
        termination shall be determined under this Agreement. Furthermore,
        notwithstanding anything to the contrary herein, no extension of this Agreement
        pursuant to Section 2(b) shall occur that would extend the term of this
        Agreement beyond December 31stof
        the year in which the Executive
        reaches age 65.

      

      
        	
                SECTION
                  3.

              	
                DUTIES.

              

      

      

                            
        (a) Throughout the Employment
        Period, the Executive shall serve as the President and the Chief Executive
        Officer of the Bank and Senior Executive Vice President and Chief Operating
        Officer of the Company, having such power, authority and responsibility and
        performing such duties as are prescribed by or under the Bylaws of each of
        the
        Company and the Bank and as are customarily associated with such
        positions.  The Executive shall devote his full business time,
        attention, skills and efforts (other than during weekends, holidays, vacation
        periods, and periods of illness or leaves of absence and other than as permitted
        or contemplated by Section 7 hereof) to the business and affairs of the Employer
        and shall use his best efforts to advance the interests of the
        Employer.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

                            
        (b)           
During
        the period of the
        Executive’s employment hereunder, the Board of Directors of the Company will
        cause the Company, as sole shareholder of the Bank, to elect and annually
        re-elect the Executive to the Board of Directors of the Bank (unless it believes
        such action would violate its fiduciary duties).  Upon any termination
        of the Executive’s employment hereunder for any reason, including, without
        limitation, a termination without cause, the Executive will concurrently
        resign
        from the Board of Directors of the Bank and, should the Executive then be
        serving as a director of the Company or any direct or indirect subsidiary
        or
        affiliate of the Company or Bank, from all such boards as
        well.

      

      
        	
                SECTION
                  4.

              	
                CASH
                  AND OTHER
                  COMPENSATION.

              

      

      

                            
        (a) In consideration for the
        services to be rendered by the Executive hereunder, the Employer shall pay
        to
        him a salary of four hundred forty-four thousand and nine hundred and forty-five
        dollars ($444,945) annually (“Base Salary”).  The Executive’s Base
        Salary shall be payable in approximately equal installments in accordance
        with
        the Company’s and the Bank’s customary payroll practices for senior
        officers.  Base Salary shall include any amounts of compensation
        deferred by the Executive under any tax-qualified retirement or welfare benefit
        plan or any other deferred compensation arrangement.  The Company
        Board and the Bank Board shall review the Executive’s annual rate of salary at
        such times during the Employment Period as they deem appropriate, but not
        less
        frequently than once every twelve months, and may, in their respective
        discretion, approve an increase therein.  In addition to salary, the
        Executive may receive other cash compensation from the Employer for services
        hereunder at such times, in such amounts and on such terms and conditions
        as the
        Company Board or the Bank Board may determine from time to time.  Any
        increase in the Executive’s annual salary shall become the Base Salary of the
        Executive for purposes hereof.  The Executive’s Base Salary as in
        effect from time to time cannot be decreased by the Employer without the
        Executive’s express prior written consent.

      

                            
        (b) The Executive shall be
        entitled to participate in an equitable manner with all other executive officers
        of the Employer in discretionary bonuses as authorized by the Company Board
        and/or the Bank Board to executive officers.  No other compensation
        provided for in this Agreement shall be deemed a substitute for the Executive’s
        right to participate in such bonuses when and as declared by the Company
        Board
        and/or the Bank Board.

      

      
        	
                SECTION
                  5.

              	
                EMPLOYEE
                  BENEFIT PLANS AND
                  PROGRAMS.

              

      

      

                            
        (a) During the Employment
        Period,
        the Executive shall be treated as an employee of the Company and the Bank
        and
        shall be entitled to participate in and receive benefits under any and all
        qualified or non-qualified retirement, pension, savings or profit-sharing
        plans,
        any and all group life, health (including hospitalization, medical and major
        medical), dental, accident and long term disability insurance plans, and
        any
        other employee benefit and compensation plans (including, but not limited
        to,
        any incentive compensation plans or programs, stock option and appreciation
        rights plans and restricted stock plans) as may from time to time be maintained
        by, or cover employees of, the Company and the Bank, in accordance with the
        terms and conditions of such employee benefit plans and programs and
        compensation plans and programs and consistent with the Company’s and the Bank’s
        customary practices.  Any grants under a restricted stock plan to the
        Executive shall be at the discretion of either the Company Board or the
        committee that administers such plan.  Nothing paid to the Executive
        under any such plan or program will be deemed to be in lieu of other
        compensation to which the Executive is entitled under this
        Agreement.

       

      
        
          
          

        

        
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        (b) During the Employment
        Period,
        the Employer shall provide the Executive with an automobile allowance equal
        to
        $1,000 per month, payable monthly.

      

      
        	
                SECTION
                  6.

              	
                INDEMNIFICATION
                  AND
                  INSURANCE.

              

      

      

                            
        (a) During the Employment
        Period
        and for a period of six years thereafter, the Employer shall cause the Executive
        to be covered by and named as an insured under any policy or contract of
        insurance obtained by them to insure their directors and officers against
        personal liability for acts or omissions in connection with service as an
        officer or director of the Employer or service in other capacities at the
        request of the Employer.  The coverage provided to the Executive
        pursuant to this Section 6 shall be of the same scope and on the same terms
        and
        conditions as the coverage (if any) provided to other officers or directors
        of
        the Employer or any successors.

      

                            
        (b) To the maximum extent
        permitted under applicable law, the Employer shall indemnify the Executive
        against and hold him harmless from any costs, liabilities, losses and exposures
        that may be incurred by the Executive in his capacity as a director or officer
        of the Employer or any subsidiary or affiliate.

      

      
        	
                SECTION
                  7.

              	
                OUTSIDE
                  ACTIVITIES.

              

      

      

                            
        The Executive may (a) serve
        as a
        member of the boards of directors of such business, community and charitable
        organizations as he may disclose to and as may be approved by the Employer
        (which approval shall not be unreasonably withheld), and (b) perform duties
        as a
        trustee or personal representative or in any other fiduciary capacity,
provided
        thatin each case such
        service shall not materially interfere with the performance of his duties
        under
        this Agreement or present any conflict of interest.  The Executive may
        also engage in personal business and investment activities which do not
        materially interfere with the performance of his duties hereunder, provided
        thatsuch activities are
        not
        prohibited under any code of conduct or investment or securities trading
        policy
        established by the Employer and generally applicable to all similarly situated
        executives. If the Executive is discharged or suspended, or is subject to
        any
        regulatory prohibition or restriction with respect to participation in the
        affairs of the Bank, he shall continue to perform services for the Company
        in
        accordance with this Agreement but shall not directly or indirectly provide
        services to or participate in the affairs of the Bank in a manner inconsistent
        with the terms of such discharge or suspension or any applicable regulatory
        order.

      

      
        	
                SECTION
                  8.

              	
                WORKING
                  FACILITIES AND
                  EXPENSES.

              

      

      

                            
        It is understood by the parties
        that the Executive’s principal place of employment shall be at the Employer’s
        office located at Reading and Philadelphia Avenues in Boyertown, Pennsylvania,
        or at such other location within a 25-mile radius of such office, or at such
        other location as the Employer and Executive may mutually agree
        upon.  The Employer shall provide the Executive at his principal place
        of employment with a private office, secretarial services and other support
        services and facilities suitable to his position with the Employer and necessary
        or appropriate in connection with the performance of his assigned duties
        under
        this Agreement.  The reimbursement in the next sentence shall be paid
        promptly by the Employer and in any event no later than March 15 of the year
        immediately following the year in which such expenses were
        incurred.  The Employer shall reimburse the Executive for his ordinary
        and necessary business expenses attributable to the Employer’s business,
        including, without limitation, the Executive’s travel and entertainment expenses
        incurred in connection with the performance of his duties for the Employer
        under
        this Agreement, in each case upon presentation to the Employer of an itemized
        account of such expenses in such form as the Employer may reasonably require,
        with such reimbursement to be paid promptly by the Employer and in any event
        no
        later than March 15 of the year immediately following the year in which such
        expenses were incurred.  For the avoidance of doubt, except for (a)
        the automobile allowance payable to the Executive under Section 5(b) hereof,
        and
        (b) tolls and parking expenses incurred in the ordinary course of business,
        the
        Executive shall not be entitled to reimbursement under the immediately preceding
        sentence for any expenses incurred for automobile travel, including without
        limitation, mileage expenses.

       

      
        
          
          

        

        
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                SECTION
                  9.

              	
                TERMINATION
                  OF EMPLOYMENT WITH
                  BENEFITS.

              

      

      

                            
        (a) The Executive shall be
        entitled to the benefits described in Section 9(b) in the event that either
        prior to a Change in Control or more than two years after a Change in Control
        as
        defined in Section 11(a):

      

      (i)
        his employment with the Employer
        terminates during the Employment Period as a result of the Executive’s
        termination for Good Reason (as defined in Section 9(a)(i)(A) and (B) of
        this
        Agreement), which shall mean a termination based on the
        following:

      

      (A)
        any material breach of this
        Agreement by either Employer, including without limitation any of the following:
        (1) a material diminution in the Executive’s base compensation, (2) a material
        diminution in the Executive’s authority, duties or responsibilities as
        prescribed in Section 3, or (3) any requirement that the Executive report
        to a
        corporate officer or employee of the Bank instead of reporting directly to
        the
        Board of Directors of the Bank at the Bank level, or

      

      (B)
        a change in excess of 25 miles
in
        the geographic location at which the
        Executive must perform his services under Section 8 of this
        Agreement;

      

      provided,
        however, that prior to any
        termination of employment for Good Reason, the Executive must first provide
        written notice to each Employer within ninety (90) days of the initial existence
        of the condition, describing the existence of such condition, and the Employer
        shall thereafter have the right to remedy the condition within thirty (30)
        days
        of the date the Employer received the written notice from the
        Executive.  If the Employer remedies the condition within such thirty
        (30) day cure period, then no Good Reason shall be deemed to exist with respect
        to such condition.  If the Employer does not remedy the condition
        within such thirty (30) day cure period, then the Executive may deliver a
        notice
        of termination for Good Reason at any time within sixty (60) days following
        the
        expiration of such cure period; or

       

      
        
          
          

        

        
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      (ii)
        the Executive’s employment with the
        Employer is terminatedby
        the Employer during the Employment Period for any reason other than for “cause,”
death or “Disability,” as provided in Section 10(a).

      

                            
        (b) Upon the termination of
        the
        Executive’s employment pursuant to Section 9(a) of this Agreement either prior
        to a Change in Control as defined in Section 11(a) or more than two years
        after
        a Change in Control, the Employer shall pay and provide to the Executive
        (or, in
        the event of his subsequent death, to his estate):

      

      (i)
        his earned but unpaid Base Salary
        (including, without limitation, all items which constitute wages under
        applicable law and the payment of which is not otherwise provided for in
        this
        Section 9(b)) as of the date of the termination of his employment, with such
        payment to be made at the time and in the manner prescribed by law applicable
        to
        the payment of wages but in no event later than 30 days after termination
        of
        employment;

      

      (ii)
        the benefits, if any, to which he
        is entitled under the employee benefit plans and programs and compensation
        plans
        and programs maintained for the benefit of the Company’s and the Bank’s officers
        and employees through the date of the termination of his
        employment;

      

      (iii)
        continued group life, health,
        dental, accident and long term disability insurance benefits, in addition
        to
        that provided pursuant to Section 9(b)(ii), and after taking into account
        the
        coverage provided by any subsequent employer, if and to the extent necessary
        to
        provide for the Executive, for the  period beginning on the date on
        which his employment terminates and ending on the earlier of (A) the last
        day of
        the Employment Period (the “Remaining Employment Period”) or (B) 24 months from
        the date of termination (with such lesser period being the “Coverage Period”),
        coverage equivalent to the coverage to which he would have been entitled
        under
        such plans if he had continued to be employed during such period; provided
        that
        any insurance premiums payable by the Employer or any successors pursuant
        to
        this Section 9(b)(iii) shall be payable at such times and in such amounts
        as if
        the Executive was still an employee of the Employer, subject to any increases
        in
        such amounts imposed by the insurance company or COBRA, and the amount of
        insurance premiums required to be paid by the Employer in any taxable year
        shall
        not affect the amount of insurance premiums required to be paid by the Employer
        in any other taxable year;and provided
        further that if the
        participation of the Executive or other covered dependents in any group
        insurance plan is barred, the Employer shall either arrange to provide such
        persons with insurance benefits substantially similar to those which the
        Executive was entitled to receive under such group insurance plan or, if
        such
        coverage cannot be obtained, pay a lump sum cash equivalency amount within
        thirty (30) days following the date of termination based on the annualized
        rate
        of premiums being paid by the Employer as of the date of termination of
        employment.

       

      
        
          
          

        

        
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      (iv)
        within 30 days following the date
        on which his employment terminates, a lump sum payment, in an amount equal
        to
        the present value of the Base Salary that the Executive would have earned
        if he
        had continued to be employed during the Coverage Period at the highest annual
        rate of Base Salary achieved during the Employment Period, with such present
        value to be determined using a discount rate equal to the applicable short-term
        federal rate prescribed under Section 1274(d) of the Code, compounded using
        the
        compounding periods corresponding to the Company’s and the Bank’s regular
        payroll periods for their officers, and with such lump sum to be paid in
        lieu of
        all other payments of Base Salary provided for under this Agreement in respect
        of the Coverage Period;

      

      (v)
        within 30 days following the date on
        which his employment terminates, a lump sum payment in an amount equal to
        the
        excess, if any, of:

      

                 
        (A) the present value of the
        aggregate benefits to which he would be entitled under any and all qualified
        defined benefit pension plans and non-qualified plans related thereto maintained
        by, or covering employees of, the Company and the Bank if he were 100% vested
        thereunder and had continued to be employed during the Coverage Period at
        the
        highest annual rate of Base Salary achieved during the Employment Period;
        over

      

                 
        (B) the present value of the
        benefits to which he is actually entitled under such defined benefit pension
        plans as of the date on which his employment terminates, with such present
        values to be determined using the mortality tables prescribed under Section
        415(b)(2)(E)(v) of the Code and a discount rate, compounded monthly, equal
        to
        the annualized rate of interest prescribed by the Pension Benefit Guaranty
        Corporation for the valuation of immediate annuities payable under terminating
        single-employer defined benefit plans for the month in which the Executive’s
        employment terminates (“Applicable PBGC Rate”);

      

      (vi)
        within 30 days following the date
        on which his employment terminates, a lump sum payment in an amount equal
        to the
        present value of the additional employer contributions to which he would
        have
        been entitled under any and all qualified defined contribution plans and
        non-qualified plans related thereto maintained by, or covering employees
        of, the
        Company and the Bank as if he were 100% vested thereunder and had continued
        to
        be employed during the Coverage Period at the highest annual rate of Base
        Salary
        achieved during the Employment Period and making the maximum amount of employee
        contributions, if any, required or permitted under such plan or plans, with
        such
        present value to be determined on the basis of a discount rate, compounded
        using
        the compounding period that corresponds to the frequency with which employer
        contributions are made to the relevant plan, equal to the applicable short-term
        federal rate prescribed under Section 1274(d) of the Code, provided that
        no
        payments shall be made pursuant to this subsection (vi) with respect to the
        Company’s Employee Stock Ownership Plan (“ESOP”) if the ESOP  is
        terminated effective as of a date within one year of the date of the termination
        of the Executive’s employment, with the Executive to reimburse the Employer for
        any such payments previously made within 30 days of the Executive’s receipt of a
        request for reimbursement from the Employer;

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      (vii)
        within 30 days following
        the  date on which his employment terminates, a lump sum payment in an
        amount equal to the present value of the payments that would have been made
        to
        the Executive under any cash bonus or long-term or short-term cash incentive
        compensation plan maintained by, or covering employees of, the Company and
        the
        Bank if he had continued to be employed during the Coverage Period and had
        earned in each calendar year that ends during the Coverage Period a bonus
        or
        incentive award that equals the highest annual bonus or incentive award paid
        to
        the Executive during the preceding 36 calendar months, with the present value
        of
        such payments to be determined using a discount rate equal to the applicable
        short-term federal rate prescribed under Section 1274(d) of the Code, compounded
        using the compounding periods corresponding to the Company’s and the Bank’s
        schedule of paying bonuses;

      

      (viii)
        for the first year following the
        date on which his employment terminates, reimbursement for all reasonable
        expenses incurred by the Executive in connection with the search for new
        employment, including without limitation those of a placement agency or service,
        and reimbursement for all reasonable relocation expenses incurred by the
        Executive in connection with securing new employment, with such expenses
        to be
        reimbursed promptly by the Employer and in any event no later than March
        15 of
        the year immediately following the year in which such expenses were incurred;
        provided, however, that the amounts payable by the Employer pursuant to this
        subsection (viii) shall not exceed $75,000; and

      

      (ix)
        within 30 days following the date
        on which his employment terminates, upon the surrender of then outstanding
        options or appreciation rights (other than options or appreciation rights
        which
        do not, by their terms, vest in the event of a Change in Control as defined
        in
        Section 11(a) hereof) previously issued to the Executive under any stock
        option
        and appreciation rights plan or program maintained by, or covering employees
        of,
        the Employer, a lump sum payment in an amount equal to the product
        of:

      

                            
        (A) the excess of (I) the
        fair
        market value of a share of stock of the same class as the stock subject to
        the
        option or appreciation right, determined as of the date on which his employment
        terminates, over (II) the exercise price per share for such option or
        appreciation right, as specified in or under the relevant plan or program;
        multiplied by

      

                            
        (B) the number of shares with
        respect to which options or appreciation rights are being
        surrendered.

      

      The
        Employer and the Executive agree
        that the Employer may condition the payments and benefits (if any) due under
        Sections 9(b)(iii), (iv), (v), (vi), (vii) and (viii) on the receipt of the
        Executive’s resignation from any and all positions which he holds as an officer,
        director or committee member with respect to the Employer or any of its
        subsidiaries or affiliates.

      

      (c)       In
        the event the Executive’s employment
        is terminated by voluntary resignation (including voluntary retirement)
        subsequent to the Executive reaching age 65 but before the end of the Employment
        Period other than pursuant to Section 9(a) and such termination occurs either
        before a Change in Control as defined in Section 11(a) or more than two years
        after a Change in Control, the Employer shall pay and provide to the Executive
        (or, in the event of his subsequent death, to his estate):

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      (i) his
        earned but unpaid Base
        Salary  as of the date of the termination of his employment, with such
        payment to be made at the time and in the manner prescribed by law applicable
        to
        the payment of wages but in no event later than 30 days after termination
        of
        employment;

       

      (ii) the
        benefits, if any, to which he is
        entitled under the employee benefit plans and programs and compensation plans
        and programs maintained for the benefit of the Company’s and the Bank’s officers
        and employees through the date of the termination of his
        employment;

       

      (iii) in
        eighteen (18) equal monthly
        installments beginning with the first business day of the month following
        the
        Executive’s termination of employment an aggregate amount equal to 1.125 times
        his Base Salary as in effect immediately prior to his termination; provided
        that
        if the Executive is a “Specified Employee” (as defined in Section 409A of the
        Code and the regulations thereunder) as of the date of termination of his
        employment, then the monthly installments shall not commence until the first
        business day of the month following the lapse of six months from the date
        of
        termination of employment (the “Delayed Payment Date”), with the monthly
        installments that would have been paid prior to the Delayed Payment Date
        absent
        the six-month delay required by Section 409A of the Code to be aggregated
        and
        included in the payment made on the Delayed Payment Date and to be counted
        toward the total of eighteen (18) monthly installments; and

         

      (iv)  continued
        group health and dental
        insurance benefits at the same level as in effect as of the date of termination
        of employment for a period of eighteen (18) months beginning on the date
        his
        employment terminates; provided that any insurance premiums payable by the
        Employer or any successors pursuant to this Section 9(c)(iv) shall be payable
        at
        such times and in such amounts as if the Executive was still an employee
        of the
        Employer, subject to any increases in such amounts imposed by the insurance
        company or COBRA, and the amount of insurance premiums required to be paid
        by
        the Employer in any taxable year shall not affect the amount of insurance
        premiums required to be paid
        by the Employer in any other
        taxable year; and provided further that if the participation of the Executive
        or
        other covered dependents in any group insurance plan is barred, the Employer
        shall either arrange to provide such persons with insurance benefits
        substantially similar to those which the Executive was entitled to receive
        under
        such group insurance plan or, if such coverage cannot be obtained, pay a
        lump
        sum cash equivalency amount within thirty (30) days following the date of
        termination based on the annualized rate of premiums being paid by the Employer
        as of the date of termination of employment.

       

      
        	
                SECTION
                  10.

              	
                TERMINATION
                  WITHOUT ADDITIONAL
                  EMPLOYER LIABILITY.

              

      

      

                               (a)           
        In the event that the Executive’s
        employment with the Employer shall terminate during the Employment Period
        on
        account of:

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      (i)           
        the discharge of the Executive
        for
“cause,” which, for purposes of this Agreement, shall mean a discharge because
        either the Company Board or the Bank Board determines that the Executive
        has:
        (A) willfully failed to perform his assigned duties under this Agreement,
        other
        than any failure resulting from the Executive’s incapacity due to physical or
        mental impairment; (B) committed an act involving moral turpitude in the
        course
        of his employment with the Employer and its subsidiaries; (C) engaged in
        willful
        misconduct; (D) breached his fiduciary duties for personal profit; (E) willfully
        violated, in any material respect, any law, rule or regulation (other than
        traffic violations or similar offenses), written agreement or final
        cease-and-desist order with respect to his performance of services for the
        Company or the Bank, as determined by the Company Board or the Bank Board;
        or
        (F) materially breached the terms of this Agreement and failed to cure such
        material breach during a 15-day period following the date on which the Company
        Board or the Bank Board gives written notice to the Executive of the material
        breach;

      

      (ii)           
        the Executive’s voluntary
        resignation from employment (including voluntary retirement) with the Company
        and the Bank for reasons other than Good Reason as specified in Section 9(a)(i)
        and other than pursuant to the provisions of Section 9(c);
        or

      

      (iii)           
        the death of the Executive
        while
        employed by the Employer, or the termination of the Executive’s employment
        because of “Disability” as defined in Section 10(c) below;

      

      then
        in any of the foregoing events, the
        Employer shall have no further obligations under this Agreement, other than
        (A)
        the payment to the Executive of his earned but unpaid Base Salary as of the
        date
        of the termination of his employment, (B) the payment to the Executive of
        the
        benefits to which he is entitled under all applicable employee benefit plans
        and
        programs and compensation plans and programs, and (C) the provision of such
        other benefits, if any, to which he is entitled as a former employee under
        the
        Company’s or the Bank’s employee benefit plans and programs and compensation
        plans and programs.

      

                              
        (b)           
For
        purposes of this Section 10,
        no act or failure to act, on the part of the Executive, shall be considered
        “willful” unless it is done, or omitted to be done, by the Executive in bad
        faith or without reasonable belief that the Executive’s action or omission was
        in the best interests of the Employer.  Any act, or failure to act,
        based upon authority given pursuant to a resolution duly adopted by the Company
        Board, the Bank Board or based upon the written advice of counsel for the
        Employer shall be conclusively presumed to be done, or omitted to be done,
        by
        the Executive in good faith and in the best interests of the
        Employer.  The cessation of employment of the Executive shall not be
        deemed to be for “cause” within the meaning of Section 10(a)(i) unless and until
        there shall have been delivered to the Executive a copy of a resolution duly
        adopted by the affirmative vote of three-fourths of the members of the Company
        Board or the Bank Board at a meeting of such Board called and held for such
        purpose (after reasonable notice is provided to the Executive and the Executive
        is given an opportunity, together with counsel, to be heard before such Board),
        finding that, in the good faith opinion of such Board, the Executive is guilty
        of the conduct described in Section 10(a)(i) above, and specifying the
        particulars thereof in detail.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

                            
        (c)           
“Disability”
shall
        be deemed to
        have occurred if the Executive: (i) is unable to engage in any substantial
        gainful activity by reason of any medically determinable physical or mental
        impairment which can be expected to result in death or can be expected to
        last
        for a continuous period of not less than 12 months, or (ii) is, by reason
        of any
        medically determinable physical or mental impairment which can be expected
        to
        result in death or can be expected to last for a continuous period of not
        less
        than 12 months, receiving income replacement benefits for a period of not
        less
        than three months under an accident and health plan covering employees of
        the
        Employer.

      

                            
        (d)           
During
        any period in which the
        Executive is absent due to physical or mental impairment, the Employer may,
        without breaching this Agreement, appoint another person or persons to act
        as
        interim President and interim Chief Executive Officer pending the Executive’s
        return to his duties on a full-time basis hereunder or his termination as
        a
        result of such Disability.  Prior to the Executive’s employment being
        terminated due to Disability under Section 10(e) hereof, the Executive shall
        continue to receive his full Base Salary, bonuses and other benefits to which
        he
        is entitled under this Agreement, including continued participation in all
        employee benefit plans and programs.

      

                            
        (e)           
The
        Employer may provide notice to
        the Executive in writing that it intends to terminate the Executive’s employment
        under this Agreement, with the termination date to be on or after the date
        that
        the Executive is deemed to have a Disability.  At the time his
        employment hereunder is terminated due to Disability, (i) the Executive shall
        not be entitled to any payments or benefits pursuant to Sections 4 and 5
        hereof
        for periods subsequent to such date of termination, and (ii) the Executive
        shall
        become entitled to receive the Disability payments that may be available
        under
        any applicable long-term disability plan or other benefit
        plan.

      

      
        	
                SECTION
                  11.

              	
                PAYMENTS
                  UPON A CHANGE IN
                  CONTROL.

              

      

      

              (a)           
        The term “Change in Control” means
        the occurrence of any of the following:

      

              (1)           
        any person or “group” of persons
        (as provided under Section 409A of the Code, and any Internal Revenue Service
        (the “IRS”) guidance and regulations issued under Section 409A of the Code)
        acquires ownership of stock of the Company or the Bank that, together with
        stock
        held by such person or group, constitutes more than 50% of the total fair
        market
        value or total voting power of the outstanding stock of the Company or the
        Bank,
        provided that the stock of the Company or the Bank remains outstanding after
        such acquisition and provided further that if the person or group of persons
        is
        already deemed to own more than 50% of the total fair market value or total
        voting power, then the acquisition of additional stock by such person or
        group
        of persons shall not constitute an additional Change in
        Control;

      

              (2)           
        any person or “group” of persons
        (as provided under Section 409A of the Code and any IRS guidance and regulations
        issued under Section 409A of the Code)  acquires (or has acquired
        during the 12-month period ending on the date of the most recent acquisition
        by
        such person or group of persons) ownership of stock of the Company or the
        Bank
        possessing 30% or more of the total voting power of the stock of the Company
        or
        the Bank, provided that if a person or group of persons that is deemed to
        have
        effective control of the Company or the Bank pursuant to this clause acquires
        additional stock of the Company or the Bank, such additional acquisition
        shall
        not constitute an additional Change in Control;

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

                    
        (3)           
a
        majority of the members of the
        Board of Directors of the Company is replaced during any 12-month period
        by
        directors whose appointment or election is not endorsed by a majority of
        the
        Board of Directors of the Company prior to the date of the appointment or
        election, provided that if a person or group of persons that is deemed to
        have
        effective control of the Company or the Bank pursuant to this clause acquires
        stock of the Company or the Bank that would trigger either clauses (1) or
        (2)
        above, such acquisition of stock shall not constitute an additional Change
        in
        Control; and

      

                    
        (4)           
any
        person or “group” of persons
        (as provided under Section 409A of the Code and any IRS guidance and regulations
        issued under Section 409A of the Code) acquires (or has acquired during the
        12-month period ending on the date of the most recent acquisition by such
        person
        or group of persons) assets from the Company or the Bank that have a total
        gross
        fair market value equal to 40% or more of the total gross fair market value
        of
        all of the assets of the Company or the Bank, as the case may be, immediately
        prior to such acquisition or acquisitions.  For purposes of this
        provision, “gross fair market value” means the value of the assets of the
        Company or the Bank, as the case may be, or the value of the assets being
        disposed of, determined without regard to any liabilities associated with
        such
        assets.  A transfer of assets by the Company or the Bank to related
        persons, shareholders or entities shall not be treated as a Change in Control
        to
        the extent that such transfers are excluded from the definition of a change
        in
        control under Section 409A of the Code and the regulations issued
        thereunder.

      

                                    
         (b)           
For
        purposes of determining
        whether a Change in Control has occurred, persons will not be considered
        to be
        acting as a group solely because they purchase or own stock of the Company
        at
        the same time.

      

                                     
        (c)          
Upon
        the occurrence of the events
        specified in this Section 11(c), the Executive shall be entitled to receive
        certain payments at the times and in the amounts as follows:

      

      (i)           
        As a result of the change
        in
        control of KNBT and KNBT Bank resulting from the merger of KNBT with and
        into
        the Company, the Executive shall receive a lump sum payment as of the Effective
        Time (as defined in the Merger Agreement) in an amount equal to $740,503
        (the
“KNBT CIC Payment”) from KNBT or KNBT Bank.

      

      (ii)           
        The Executive shall receive
        a
        Severance Payment (defined below) from the Employer within ten (10) business
        days of the earliest to occur of the following events, if any:  (A)
        the termination of the Executive’s employment during the two-year period
        immediately following the Effective Time by the Employer other than for cause
        (as defined in Section 10); (B) the termination of the Executive’s employment
        during the two-year period immediately following the Effective Time by the
        Executive pursuant to Section 9(a)(i) above; or (C) a Change in Control during
        the period of the Executive’s employment hereunder (each, a “Triggering
        Event”).  “Severance Payment” means a lump sum payment determined as
        follows: (x) if the Triggering Event occurs during the one-year period
        immediately following the Effective Time, then the Severance Payment shall
        equal
        the KNBT CIC Payment; or (y) if the Triggering Event occurs after the one-year
        anniversary of the Effective Time, then the Severance Payment shall equal
        1.5
        times the Executive’s Base Amount (defined below); provided;
        however, that in calculating the
        Executive’s Base Amount for purposes of this clause (y), any income related to
        the KNBT CIC Payment shall be excluded from such calculation.  “Base
        Amount” shall be equal to the Executive’s average annualized income from the
        Employer, KNBT, KNBT Bank and their predecessors includible in the Executive’s
        gross income (excluding any income resulting from the vesting of restricted
        stock or the exercise of non-qualified options on or prior to December 31,
        2004)
        for the most recent five taxable years ending before the Triggering
        Event.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      (iii)        The
        Executive shall not be entitled to
        receive any payments or benefits under Section 9 of this Agreement if he
        receives payments pursuant to Section 11(c)(ii).

      

      
        	
                SECTION
                  12.

              	
                TAX
                  INDEMNIFICATION.

              

      

      

                                 
        (a)  If the payments and
        benefits pursuant to this Agreement, either alone or together with other
        payments and benefits which the Executive has the right to receive from the
        Employer and their subsidiaries, would constitute a “parachute payment” as
        defined in Section 280G(b)(2) of the Code (the “Initial Parachute Payment”),
        then the Company shall pay to the Executive, at the time such payments or
        benefits are paid and subject to applicable withholding requirements, a lump
        sum
        cash amount equal to the sum of the following:

      

      (i)           
        twenty (20) percent (or such
        other
        percentage equal to the tax rate imposed by Section 4999 of the Code) of
        the
        amount by which the Initial Parachute Payment exceeds the Executive’s “base
        amount” from the Employer and their subsidiaries (including their predecessors),
        as defined in Section 280G (b)(3) of the Code, with the difference between
        the
        Initial Parachute Payment and the Executive’s base amount being hereinafter
        referred to as the “Initial Excess Parachute Payment”; and

      

      (ii)            such
        additional amount (tax allowance)
        as may be necessary to compensate the Executive for the payment by the Executive
        of state and federal income and excise taxes on the payment provided under
        clause (i) above and on any payments under this clause (ii).  In
        computing such tax allowance, the payment to be made under clause (i) above
        shall be multiplied by the “gross up percentage” (“GUP”).  The GUP
        shall be determined as follows:

      

                                      
           Tax
        Rate

                            
        GUP  =

                                      
          1- Tax
        Rate

      

                 
        The Tax Rate for purposes
        of
        computing the GUP shall be the highest marginal federal and state income
        and
        employment-related tax rate (including Social Security and Medicare taxes),
        including any applicable excise tax rate, applicable to the Executive in
        the
        year in which the payment under clause (i) above is made, and shall also
        reflect
        the phase-out of deductions and the ability to deduct certain of such
        taxes.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

                            
        (b)  Notwithstanding the
        foregoing, if it shall subsequently be determined in a final judicial
        determination or a final administrative settlement to which the Executive
        is a
        party that the actual excess parachute payment as defined in Section 280G(b)(1)
        of the Code (before giving effect to the payments under Sections 12(a)(i)
        and
        (ii) above) is different from the Initial Excess Parachute Payment (such
        different amount being hereafter referred to as the “Determinative Excess
        Parachute Payment”), then the Company’s independent tax counsel or accountants
        shall determine the amount (the “Adjustment Amount”) which either the Executive
        must pay to the Company or the Company must pay to the Executive in order
        to put
        the Executive (or the Company, as the case may be) in the same position the
        Executive (or the Company, as the case may be) would have been if the Initial
        Excess Parachute Payment had been equal to the Determinative Excess Parachute
        Payment. In determining the Adjustment Amount, the independent tax counsel
        or
        accountants shall take into account any and all taxes (including any penalties
        and interest) paid by or for the Executive or refunded to the Executive or
        for
        the Executive’s benefit.  As soon as practicable after the Adjustment
        Amount has been so determined, and in no event more than thirty (30) days
        after
        the Adjustment Amount has been so determined, the Company shall pay the
        Adjustment Amount to the Executive or the Executive shall repay the Adjustment
        Amount to the Company, as the case may be.

      

                            
        (c)  In each calendar
        year that the Executive receives payments of benefits that constitute a
        parachute payment, the Executive shall report on his state and federal income
        tax returns such information as is consistent with the determination made
        by the
        independent tax counsel or accountants of the Company as described
        above.  The Company shall indemnify and hold the Executive harmless
        from any and all losses, costs and expenses (including without limitation,
        reasonable attorneys’ fees, interest, fines and penalties) which the Executive
        incurs as a result of so reporting such information, with such indemnification
        to be paid by the Company to the Executive as soon as practicable and in
        any
        event no later than March 15 of the year immediately following the year in
        which
        the amount subject to indemnification was determined.  The Executive
        shall promptly notify the Company in writing whenever the Executive receives
        notice of the institution of a judicial or administrative proceeding, formal
        or
        informal, in which the federal tax treatment under Section 4999 of the Code
        of
        any amount paid or payable under this Section 12 is being reviewed or is
        in
        dispute.  The Company shall assume control at its expense over all
        legal and accounting matters pertaining to such federal tax treatment (except
        to
        the extent necessary or appropriate for the Executive to resolve any such
        proceeding with respect to any matter unrelated to amounts paid or payable
        pursuant to this Section 12) and the Executive shall cooperate fully with
        the
        Company in any such proceeding.  The Executive shall not enter into
        any compromise or settlement or otherwise prejudice any rights the Company
        may
        have in connection therewith without the prior consent of the
        Company.

      

                            
        (d)  The Executive
        hereby agrees with the Employer and any successor thereto to in good faith
        consider and take steps commonly used to minimize or eliminate any tax liability
        or costs that would otherwise be created by the tax indemnification provisions
        set forth in Section 12 of this Agreement if requested to do so by the Employer
        or any successor thereto; provided,
        however,that the foregoing
        language shall neither require the Executive to take or not take any specific
        action in furtherance thereof nor contravene, limit or remove any right or
        privilege provided to the Executive under this Agreement.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      SECTION
        13.      SOURCE OF PAYMENTS;
        NO DUPLICATION OF
        PAYMENTS.

      

                                 
        All payments provided in this
        Agreement shall be timely paid in cash or check from the general funds of
        the
        Company or the Bank.  Payments pursuant to this Agreement shall be
        allocated between the Company and the Bank in proportion to the level of
        activity and the time expended on such activities by the Executive as determined
        by the Company and the Bank on a quarterly basis, unless the applicable
        provision of this Agreement specifies that the payment shall be made by either
        the Company or the Bank.  In no event shall the Executive receive
        duplicate payments or benefits from the Company and the
        Bank.

      

      
        	
                SECTION
                  14.

              	
                COVENANT
                  NOT TO
                  COMPETE.

              

      

      

                               
         In the event the Executive’s
        employment with the Employer is terminated for any reason prior to the
        expiration of the Employment Period other than a termination of employment
        occurring within 30 days of a Change in Control, the Executive hereby covenants
        and agrees that for a period of two years following the date of his termination
        of employment with the Employer (or, if less, for the Remaining Employment
        Period), he shall not, without the written consent of the Employer, become
        an
        officer, employee, consultant, director or trustee of any savings bank, savings
        and loan association, savings and loan holding company, bank or bank holding
        company, or any direct or indirect subsidiary or affiliate of any such entity,
        that entails working within any county in which the Company or the Bank
        maintains an office as of the date of termination of the Executive’s
        employment.

      

      
        	
                SECTION
                  15.

              	
                CONFIDENTIALITY.

              

      

      

                                 
        Unless he obtains the prior
        written consent of the Employer, the Executive shall at all times keep
        confidential and shall refrain from using for the benefit of himself, or
        any
        person or entity other than the Employer or its subsidiaries, any material
        document or information obtained from the Employer or its subsidiaries, in
        the
        course of his employment with any of them concerning their properties,
        operations or business (unless such document or information is readily
        ascertainable from public or published information or trade sources or has
        otherwise been made available to the public through no fault of his own)
        until
        the same ceases to be material (or becomes so ascertainable or available);
        provided,
        however, that nothing in
        this Section 15 shall prevent the Executive, with or without the Employer’s
        consent, from participating in or disclosing documents or information in
        connection with any judicial or administrative investigation, inquiry or
        proceeding or the Company’s public reporting requirements to the extent that
        such participation or disclosure is required under applicable
        law.

      

      
        	
                SECTION
                  16.

              	
                SOLICITATION.

              

      

      

                                
         The Executive hereby
        covenants and agrees that, for a period of two years following his termination
        of employment with the Employer for any reason, he shall not, without the
        written consent of the Employer, either directly or
        indirectly:

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

                               
        (a) solicit, offer employment
        to,
        or take any other action intended, or that a reasonable person acting in
        like
        circumstances would expect, to have the effect of causing any officer or
        employee of the Employer or any of its subsidiaries or affiliates to terminate
        his employment and accept employment or become affiliated with, or provide
        services for compensation in any capacity whatsoever to, any savings bank,
        savings and loan association, bank, bank holding company, savings and loan
        holding company, or other institution engaged in the business of accepting
        deposits, making loans or doing business within the counties specified in
        Section 14;

      

                               
        (b) provide any information,
        advice or recommendation with respect to any such officer or employee to
        any
        savings bank, savings and loan association, bank, bank holding company, savings
        and loan holding company, or other institution engaged in the business of
        accepting deposits, making loans or doing business within the counties specified
        in Section 14, that is intended, or that a reasonable person acting in like
        circumstances would expect, to have the effect of causing any officer or
        employee of the Employer or any of its subsidiaries or affiliates to terminate
        his employment and accept employment or become affiliated with, or provide
        services for compensation in any capacity whatsoever to, any savings bank,
        savings and loan association, bank, bank holding company, savings and loan
        holding company, or other institution engaged in the business of accepting
        deposits, making loans or doing business within the counties specified in
        Section 14; or

      

                               
        (c) solicit, provide any
        information, advice or recommendation or take any other action intended,
        or that
        a reasonable person acting in like circumstances would expect, to have the
        effect of causing any customer of the Company or the Bank to terminate an
        existing business or commercial relationship with the Company or the
        Bank.

      

      
        	
                SECTION
                  17.

              	
                NO
                  EFFECT ON EMPLOYEE BENEFIT
                  PLANS OR PROGRAMS.

              

      

      

                              
        The termination of the Executive’s
        employment during the Employment Period or thereafter, whether by the Employer
        or by the Executive, shall have no effect on the vested rights of the Executive
        under the Company’s or the Bank’s qualified or non-qualified retirement,
        pension, savings, thrift, profit-sharing or stock bonus plans, group life,
        health (including hospitalization, medical and major medical), dental, accident
        and long term disability insurance plans, or other employee benefit plans
        or
        programs, or compensation plans or programs in which the Executive was a
        participant.

      

      
        	
                SECTION
                  18.

              	
                SUCCESSORS
                  AND
                  ASSIGNS.

              

      

      

                              
         (a)           
This
        Agreement is personal to each
        of the parties hereto, and no party may assign or delegate any of its rights
        or
        obligations hereunder without first obtaining the written consent of the
        other
        parties; provided, however, that the Employer will require any successor
        or
        assign (whether direct or indirect, by purchase, merger, consolidation or
        otherwise) to all or substantially all of the business and/or assets of the
        Employer, by an assumption agreement in form and
        substance  satisfactory to the Executive, to expressly assume and
        agree to perform this Agreement in the same manner and to the same extent
        that
        the Employer would be required to perform it if no such succession or assignment
        had taken place.  Failure of the Employer to obtain such an assumption
        agreement prior to the effectiveness of any such succession or assignment
        shall
        be a breach of this Agreement and shall entitle the Executive to compensation
        from the Employer in the same amount and on the same terms as the compensation
        pursuant to Sections 9 and 11 hereof.  For purposes of implementing
        the provisions of this Section 18(a), the date which any such succession
        without
        an assumption agreement becomes effective shall be deemed the date of
        termination of the Executive’s employment.

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

                                
        (b)           
This
        Agreement and all rights of
        the Executive hereunder shall inure to the benefit of and be enforceable
        by the
        Executive’s personal and legal representatives, executors, administrators,
        successors, heirs, distributees, devises and legatees.

      

      
        	
                SECTION
                  19.

              	
                NOTICES.

              

      

      

                                 
        Any communication required
        or
        permitted to be given under this Agreement, including any notice, direction,
        designation, consent, instruction, objection or waiver, shall be in writing
        and
        shall be deemed to have been given at such time as it is delivered personally,
        or five days after mailing if mailed, postage prepaid, by registered or
        certified mail, return receipt requested, addressed to such party at the
        address
        listed below or at such other address as one such party may by written notice
        specify to the other party:

      

      
        	 	 	 
	 	
                If
                  to the
                  Executive:

              	 
	 	 	 
	 	
                Scott
                  V.
                  Fainor

              	 
	 	
                At
                  the address last
                  appearing

              	 
	 	
                on
                  the personnel records
                  of

              	 
	 	
                the
                  Executive

              	 
	 	 	 
	 	
                If
                  to the
                  Employer:

              	 
	 	 	 
	 	
                National
                  Penn Bancshares,
                  Inc.

              	 
	 	
                Philadelphia
&
Reading
                  Avenues

              	 
	 	
                P.O.
                  Box
                  547

              	 
	 	
                Boyertown,
                  PA
                  19512-0547

              	 
	 	 	 
	 	
                (or
                  the address of the Company’s
                  or the Bank’s principal executive office, if
                  different)

              
	 	 	 
	 	
                Attention:
                  Chairman of the
                  Board

              	 
	 	 	 

      

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      
        	 	
                with
                  a copy, in the case of a
                  notice to the Employer, to:

              
	 	 	 
	 	
                Reed
                  Smith LLP 

              
	 	
                2500
                  One Liberty Place

              	 
	 	
                1650
                  Market Street 

              	 
	 	Philadelphia,
                PA  19103 	 
	 	
              
	 	Attention:
                Lori L. Lasher, Esq.	 

         

      

      
        	
                SECTION
                  20.

              	
                INDEMNIFICATION
                  FOR ATTORNEYS’
                  FEES.

              

      

      

                               
        (a) The Employer shall indemnify,
        hold harmless and defend the Executive against reasonable costs, including
        legal
        fees and expenses, incurred by him in connection with or arising out of any
        action, suit or proceeding in which he may be involved, as a result of his
        efforts, in good faith, to defend or enforce the terms of this
        Agreement.  For purposes of this Agreement, any settlement agreement
        which provides for payment of any amounts in settlement of the Employer’s
        obligations hereunder shall be conclusive evidence of the Executive’s
        entitlement to indemnification hereunder, and any such indemnification payments
        shall be in addition to amounts payable pursuant to such settlement agreement,
        unless such settlement agreement expressly provides
        otherwise.

      

                               
        (b) The Employer’s obligation to
        make the payments provided for in this Agreement and otherwise to perform
        its
        obligations hereunder shall not be affected by any set-off, counterclaim,
        recoupment, defense or other claim, right or action which the Employer may
        have
        against the Executive or others.  Unless it is determined that a claim
        made by the Executive was either frivolous or made in bad faith, the Employer
        agrees to pay as incurred (and in any event no later than March 15 of the
        year
        immediately following the year in which incurred), to the full extent permitted
        by law, all legal fees and expenses which the Executive may reasonably incur
        as
        a result of or in connection with his consultation with legal counsel or
        arising
        out of any action, suit, proceeding or contest (regardless of the outcome
        thereof) by the Employer, the Executive or others regarding the validity
        or
        enforceability of, or liability under, any provision of this Agreement or
        any
        guarantee of performance thereof (including as a result of any contest by
        the
        Executive about the amount of any payment pursuant to this Agreement), plus
        in
        each case interest on any delayed payment at the applicable federal rate
        provided for in Section 7872(f)(2)(A) of the Code.  This Section 20(b)
        shall apply whether such consultation, action, suit, proceeding or contest
        arises before, on, after or as a result of a Change in
        Control.

      

      
        	
                SECTION
                  21.

              	
                SEVERABILITY.

              

      

      

                                 
        A determination that any provision
        of this Agreement is invalid or unenforceable shall not affect the validity
        or
        enforceability of any other provision hereof.

      

      
        	
                SECTION
                  22.

              	
                WAIVER.

              

      

      

                                 
        Failure to insist upon strict
        compliance with any of the terms, covenants or conditions hereof shall not
        be
        deemed a waiver of such term, covenant or condition.  A waiver of any
        provision of this Agreement must be made in writing, designated as a waiver,
        and
        signed by the party against whom its enforcement is sought.  Any
        waiver or relinquishment of any right or power hereunder at any one or more
        times shall not be deemed a waiver or relinquishment of such right or power
        at
        any other time or times.

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      
        	
                SECTION
                  23.

              	
                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.

      

      
        	
                SECTION
                  24.

              	
                GOVERNING
                  LAW.

              

      

      

                                 
        This Agreement shall be governed
        by and construed and enforced in accordance with the laws of the Commonwealth
        of
        Pennsylvania applicable to contracts entered into and to be performed entirely
        within the Commonwealth of Pennsylvania, except to the extent that federal
        law
        controls.

      

      
        	
                SECTION
                  25.

              	
                HEADINGS
                  AND
                  CONSTRUCTION.

              

      

      

                                
        The headings of sections in
        this
        Agreement are for convenience of reference only and are not intended to qualify
        the meaning of any section.  Any reference to a section number shall
        refer to a section of this Agreement, unless otherwise
        stated.

      

      
        	
                SECTION
                  26.

              	
                ENTIRE
                  AGREEMENT;
                  MODIFICATIONS.

              

      

      

                                
        This instrument contains the
        entire agreement of the parties relating to the subject matter hereof, and
        supersede in their entirety any and all prior agreements, understandings
        or
        representations relating to the subject matter hereof, including but not
        limited
        to the Prior Agreement and the First Amendment.  No modifications of
        this Agreement shall be valid unless made in writing and signed by the parties
        hereto; provided, however, that if the Employer determines, after a review
        of
        the final regulations issued under Section 409A of the Code and all applicable
        IRS guidance, that this Agreement should be further amended to avoid triggering
        the tax and interest penalties imposed by Section 409A of the Code, the Employer
        may amend this Agreement to the extent necessary to avoid triggering the
        tax and
        interest penalties imposed by Section 409A of the Code.

      

      
        	
                SECTION
                  27.

              	
                REQUIRED
                  REGULATORY
                  PROVISIONS.

              

      

      

                                 
        Notwithstanding anything herein
        contained to the contrary, any payments to the Executive by the Employer,
        whether pursuant to this Agreement or otherwise, are subject to and conditioned
        upon their compliance with Section 18(k) of the Federal Deposit Insurance
        Act,
        12 U.S.C. Section 1828(k), and the regulations promulgated thereunder in
        12
        C.F.R. Part 359.

      

      SECTION
        28.      DISPUTE RESOLUTION.

      

                                 
        (a)           
In
        the event of any dispute,
        claim, question or disagreement arising out of or relating to this Agreement
        or
        the breach hereof, the parties hereto shall use their best efforts to settle
        such dispute, claim, question or disagreement.  To this effect, they
        shall consult and negotiate with each other, in good faith, and, recognizing
        their mutual interests, attempt to reach a just and equitable solution
        satisfactory to both parties.

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

                                 
        (b)           
If
        they do not reach such a
        solution within a period of thirty (30) days, then the parties agree first
        to
        endeavor in good faith to amicably settle their dispute by mediation under
        the
        Commercial Mediation Rules of the American Arbitration Association (the “AAA”),
        before resorting to arbitration.

       

                                 
        (c)           
Thereafter,
        any unresolved
        controversy or claim arising out of or relating to this Agreement or the
        breach
        thereof, upon notice by any party to the other, shall be submitted to and
        finally settled by arbitration in accordance with the Commercial Arbitration
        Rules (the “Rules”) of the AAA in effect at the time demand for arbitration is
        made by any such party.  The parties shall mutually agree upon a
        single arbitrator within thirty (30) days of such demand.  In the
        event that the parties are unable to so agree within such thirty (30) day
        period, then within the following thirty (30) day period, one arbitrator
        shall
        be named by each party.  A third arbitrator shall be named by the two
        arbitrators so chosen within ten (10) days after the appointment of the first
        two arbitrators.  In the event that the third arbitrator is not agreed
        upon, he or she shall be named by the AAA.  Arbitration shall occur in
        Boyertown, Pennsylvania or such other location as may be mutually agreed
        to by
        the parties.

      

                                  
        (d)           
The
        award made by all or a
        majority of the panel of arbitrators shall be final and binding, and judgment
        may be entered based upon such award in any court of law having competent
        jurisdiction.  The award is subject to confirmation, modification,
        correction or vacation only as explicitly provided in Title 9 of the United
        States Code.  The prevailing party shall be entitled to receive any
        award of pre- and post-award interest as well as attorney’s fees incurred in
        connection with the arbitration and any judicial proceedings related
        thereto.  The parties acknowledge that this Agreement evidences a
        transaction involving interstate commerce.  The United States
        Arbitration Act and the Rules shall govern the interpretation, enforcement,
        and
        proceedings pursuant to this Section.  Any provisional remedy which
        would be available from a court of law shall be available from the arbitrators
        to the parties to this Agreement pending arbitration.  Either party
        may make an application to the arbitrators seeking injunctive relief to maintain
        the status quo, or may seek from a court of competent jurisdiction any interim
        or provisional relief that may be necessary to protect the rights and property
        of that party, until such times as the arbitration award is rendered or the
        controversy otherwise resolved.

      

                                   IN
        WITNESS WHEREOF,
        the Employer has caused this Agreement to be executed and the Executive has
        hereunto set his hand, all as of the day and year first above
        written.

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

      THIS
        AGREEMENT CONTAINS A BINDING
        ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

      

      
        	 	 
	
                KNBT
                  BANCORP,
                  INC.

              	
                NATIONAL
                  PENN BANCSHARES,
                  INC.

              
	 	 	 	 
	 	 	 	 
	
                By:

              	/s/
                Jeffrey P. Feather	 	 	/s/
                Glenn E. Moyer
	 	
                Name:  Jeffrey
                  P. Feather

              	
                By:

              	
                Name:
                  Glenn E.
                  Moyer

              
	 	
                Its:  Chairman
                  of the Board

              	 	
                Its:
                  President
                  and CEO

              

      

      

      
        	
                KEYSTONE
                  NAZARETH BANK
&
TRUST
                  COMPANY

              	NATIONAL
                PENN
                BANK
	 	 	 	 
	 	 	 	 
	
                By:

              	/s/
                Jeffrey P. Feather	 	
                By:

              	/s/
                Glenn E. Moyer
	 	
                Name:  Jeffrey
                  P. Feather

              	 	
                Name:  Glenn
                  E. Moyer

              
	 	
                Its:  Chairman
                  of the Board

              	 	
                Its:
                  President
                  and CEO

              

      

       

      
        	
                EXECUTIVE:

              	 	 
	 	 	 	 
	/s/
                Scott V. Fainor	 	 	 	 
	
                Scott
                  V.
                  Fainor

              	 	 	 

      

      

      
        
          
          

        

        
          21exhibit102.htm

     

    
      

      

    

    Exhibit
      10.2

     

     

    
      

      AMENDED
        AND RESTATED

      EMPLOYMENT
        AGREEMENT

      

                                    
        This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made and
        entered into as of January 28,
        2008 by and among Keystone Nazareth Bank & Trust Company (“KNBT Bank”), KNBT
        Bancorp, Inc. (“KNBT”), National Penn Bank (the “Bank”), National Penn
        Bancshares, Inc. (the “Company”) (the Bank and the Company are collectively
        referred to as the “Employer”), and Sandra L. Bodnyk (the “Executive”) and shall
        become effective as of the Effective Time (as defiend below)) and shall
        supersede, as of the Effective Time, any and all other agreements relating
        to
        the matters contained herein.

      

      W
        I T N E S S E T H:

      

      WHEREAS,
        the Executive is currently
        employed by each of KNBT and KNBT Bank as its Senior Executive Vice President
        and Chief Risk Officer pursuant to an Amended and Restated Employment Agreement,
        dated December 28, 2006 (the “Prior Agreement”);

      

      WHEREAS,
        on September 6, 2007, the
        Company and KNBT entered into an Agreement (the “Merger Agreement”) providing,
        among other things, for the merger of KNBT with and into the Company, to
        be
        followed by the Bank Merger (as defined in the Merger
        Agreement);

      

      WHEREAS,
        as of the Effective Time (as
        defined below) the Executive will be employed by the Company and the Bank
        as the
        Group Executive Vice President of the Bank pursuant to the First Amendment
        to
        the Prior Agreement between the Company, the Bank, KNBT Bank and KNBT and
        the
        Executive effective September 6, 2007 (the “First
        Amendment”);

      

      WHEREAS,
        KNBT, KNBT Bank, the Company
        and the Bank desire to amend and restate the Prior Agreement in order to
        make
        changes to comply with Section 409A of the Internal Revenue Code of 1986,
        as
        amended (the “Code”) and to incorporate selected provisions of the First
        Amendment;

      

                                    
        WHEREAS, KNBT and KNBT Bank
        desire
        to ensure that the Company and the Bank are assured of the continued
        availability of the Executive's services as provided in this Agreement;
        and

      

                                    
        WHEREAS, the Executive is
        willing
        to serve the Company and the Bank on the terms and conditions hereinafter
        set
        forth.

      

                            
        NOW, THEREFORE, in consideration
        of the premises and the mutual covenants and conditions hereinafter set forth,
        KNBT, KNBT Bank, the Company, the Bank and the Executive hereby agree, as
        follows:

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
 

      
        	
                SECTION
                  1.

              	
                EFFECTIVE
                  DATE;
                  EMPLOYMENT.

              

      

      

                               
        For purposes of this Agreement,
        “Effective Date” shall mean December 31, 2004, provided
        thatthis amendment and
        restatement shall be effective as of the Effective Time.  The Employer
        agrees to employ the Executive, and the Executive hereby agrees to such
        employment, during the period and upon the terms and conditions set forth
        in
        this Agreement.

       

           
Effective
        Time shall have the meaning assigned to such term in the Merger
        Agreement.

      

      SECTION
        2.    EMPLOYMENT PERIOD.

      

                            
        (a) The terms and conditions
        of
        this Agreement shall be and remain in effect through December 31, 2008 plus
        such
        extensions, if any, as are provided pursuant to Section 2(b) hereof (the
        "Employment Period").

      

                            
        (b) Except as provided in
        Section
        2(c), beginning on December 31, 2007 and on each subsequent December
        31stduring
        the Employment Period, the
        Employment Period shall automatically be extended for one additional year,
        unless either the Company or the Bank, on the one hand, or the Executive,
        on the
        other hand, elects not to extend the Agreement further by giving written
        notice
        thereof to the other parties at least 30 days prior to such annual anniversary
        date.  Upon termination of the Executive's employment with either
        Employer for any reason whatsoever, any annual extensions provided pursuant
        to
        this Section 2(b), if not theretofore discontinued, shall automatically
        cease.

      

                            
        (c) Nothing in this Agreement
        shall be deemed to prohibit the Employer at any time from terminating the
        Executive's employment during the Employment Period for any reason upon at
        least
        30 days written notice to the Executive, other than termination for Cause
        which
        shall be governed by Section 10 hereof, provided
        thatthe relative rights
        and
        obligations of the Employer and the Executive in the event of any such
        termination shall be determined under this Agreement. Furthermore,
        notwithstanding anything to the contrary herein, no extension of this Agreement
        pursuant to Section 2(b) shall occur that would extend the term of this
        Agreement beyond December 31stof
        the year in which the Executive
        reaches age 64.

      

      
        	
                SECTION
                  3.

              	
                DUTIES.

              

      

      

                 
        Throughout the Employment
        Period,
        the Executive shall serve as the Group Executive Vice President of the Bank,
        having such power, authority and responsibility and performing such duties
        as
        are prescribed by or under the Bylaws of each of the Company and the Bank
        and as
        are customarily associated with such positions.  The Executive shall
        devote her full business time, attention, skills and efforts (other than
        during
        weekends, holidays, vacation periods, and periods of illness or leaves of
        absence and other than as permitted or contemplated by Section 7 hereof)
        to the
        business and affairs of the Employer and shall use her best efforts to advance
        the interests of the Employer.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      
        	
                SECTION
                  4.

              	
                CASH
                  AND OTHER
                  COMPENSATION.

              

      

      

                            
        (a) In consideration for the
        services to be rendered by the Executive hereunder, the Employer shall pay
        to
        her a salary of two hundred twelve thousand and one hundred and eighty dollars
        ($212,180) annually (“Base Salary”).  The Executive's Base Salary
        shall be payable in approximately equal installments in accordance with the
        Company’s and the Bank’s customary payroll practices for senior
        officers.  Base Salary shall include any amounts of compensation
        deferred by the Executive under any tax-qualified retirement or welfare benefit
        plan or any other deferred compensation arrangement.  The Company
        Board and the Bank Board shall review the Executive's annual rate of salary
        at
        such times during the Employment Period as they deem appropriate, but not
        less
        frequently than once every twelve months, and may, in their respective
        discretion, approve an increase therein.  In addition to salary, the
        Executive may receive other cash compensation from the Employer for services
        hereunder at such times, in such amounts and on such terms and conditions
        as the
        Company Board or the Bank Board may determine from time to time.  Any
        increase in the Executive’s annual salary shall become the Base Salary of the
        Executive for purposes hereof.  The Executive’s Base Salary as in
        effect from time to time cannot be decreased by the Employer without the
        Executive’s express prior written consent.

      

                            
        (b) The Executive shall be
        entitled to participate in an equitable manner with all other executive officers
        of the Employer in discretionary bonuses as authorized by the Company Board
        and/or the Bank Board to executive officers.  No other compensation
        provided for in this Agreement shall be deemed a substitute for the Executive’s
        right to participate in such bonuses when and as declared by the Company
        Board
        and/or the Bank Board.

      

      
        	
                SECTION
                  5.

              	
                EMPLOYEE
                  BENEFIT PLANS AND
                  PROGRAMS.

              

      

      

      During
        the Employment Period, the
        Executive shall be treated as an employee of the Company and the Bank and
        shall
        be entitled to participate in and receive benefits under any and all qualified
        or non-qualified retirement, pension, savings or profit-sharing plans, any
        and
        all group life, health (including hospitalization, medical and major medical),
        dental, accident and long term disability insurance plans, and any other
        employee benefit and compensation plans (including, but not limited to, any
        incentive compensation plans or programs, stock option and appreciation rights
        plans and restricted stock plans) as may from time to time be maintained
        by, or
        cover employees of, the Company and the Bank, in accordance with the terms
        and
        conditions of such employee benefit plans and programs and compensation plans
        and programs and consistent with the Company's and the Bank’s customary
        practices.  The level of participation in any restricted stock plan
        shall be at a level which is deemed appropriate by the Company Board or the
        committee that administers such plan.  Nothing paid to the Executive
        under any such plan or program will be deemed to be in lieu of other
        compensation to which the Executive is entitled under this
        Agreement.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      
        	
                SECTION
                  6.

              	
                INDEMNIFICATION
                  AND
                  INSURANCE.

              

      

      

                            
        (a) During the Employment
        Period
        and for a period of six years thereafter, the Employer shall cause the Executive
        to be covered by and named as an insured under any policy or contract of
        insurance obtained by them to insure their directors and officers against
        personal liability for acts or omissions in connection with service as an
        officer or director of the Employer or service in other capacities at the
        request of the Employer.  The coverage provided to the Executive
        pursuant to this Section 6 shall be of the same scope and on the same terms
        and
        conditions as the coverage (if any) provided to other officers or directors
        of
        the Employer or any successors.

      

                            
        (b) To the maximum extent
        permitted under applicable law, the Employer shall indemnify the Executive
        against and hold her harmless from any costs, liabilities, losses and exposures
        that may be incurred by the Executive in her capacity as a director or officer
        of the Employer or any subsidiary or affiliate.

      

      
        	
                SECTION
                  7.

              	
                OUTSIDE
                  ACTIVITIES.

              

      

      

                            
        The Executive may (a) serve
        as a
        member of the boards of directors of such business, community and charitable
        organizations as he may disclose to and as may be approved by the Employer
        (which approval shall not be unreasonably withheld), and (b) perform duties
        as a
        trustee or personal representative or in any other fiduciary capacity,
provided
        thatin each case such
        service shall not materially interfere with the performance of her duties
        under
        this Agreement or present any conflict of interest.  The Executive may
        also engage in personal business and investment activities which do not
        materially interfere with the performance of her duties hereunder, provided
        thatsuch activities are
        not
        prohibited under any code of conduct or investment or securities trading
        policy
        established by the Employer and generally applicable to all similarly situated
        executives. If the Executive is discharged or suspended, or is subject to
        any
        regulatory prohibition or restriction with respect to participation in the
        affairs of the Bank, he shall continue to perform services for the Company
        in
        accordance with this Agreement but shall not directly or indirectly provide
        services to or participate in the affairs of the Bank in a manner inconsistent
        with the terms of such discharge or suspension or any applicable regulatory
        order.

      

      
        	
                SECTION
                  8.

              	
                WORKING
                  FACILITIES AND
                  EXPENSES.

              

      

      

                            
        It is understood by the parties
        that the Executive's principal place of employment shall be at the Employer’s
        office located at Route 512 and Highland Avenue in Bethlehem, Pennsylvania,
        or
        at such other location within a 25 mile
        radius of such office, or at such
        other location as the Employer and the Executive may mutually agree
        upon.  The Employer shall provide the Executive at her principal place
        of employment with a private office, secretarial services and other support
        services and facilities suitable to her position with the Employer and necessary
        or appropriate in connection with the performance of her assigned duties
        under
        this Agreement.  The Employer shall reimburse the Executive for her
        ordinary and necessary business expenses attributable to the Employer’s
        business, including, without limitation, the Executive's travel and
        entertainment expenses incurred in connection with the performance of her
        duties
        for the Employer under this Agreement, in each case upon presentation to
        the
        Employer of an itemized account of such expenses in such form as the Employer
        may reasonably require.  Such reimbursement shall be paid promptly by
        the Employer and in any event no later than March 15 of the year immediately
        following the year in which such expenses were incurred.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      
        	
                SECTION
                  9.

              	
                TERMINATION
                  OF EMPLOYMENT WITH
                  BENEFITS.

              

      

      

                 
        (a)    
The
        Executive shall be entitled to
        the benefits described in Section 9(b) in the event that either prior to
        a
        Change in Control or more than two years after a Change in Control as defined
        in
        Section 11(a):

       

          (i)      
        her employment with the Employer
        terminates during the Employment Period as a result of the Executive's
        termination for Good Reason (as 

                 defined
        in Section 9(a)(i)(A) and (B) of this Agreement), which shall mean a termination
        based on the following:

      

      (A)
        any material breach of this
        Agreement by either Employer, including without limitation any of the following:
        (1) a material diminution in the Executive’s base compensation, (2) a material
        diminution in the Executive’s authority, duties or responsibilities as
        prescribed in Section 3, or (3) a material diminution in the authority, duties
        or responsibilities of the officer to whom the Executive is required to report,
        or

      

      (B)a
        change in excess of 25
        milesin the geographic
        location at which the Executive must perform her services under Section 8 of
        this Agreement;

      

      provided,
        however, that prior to any
        termination of employment for Good Reason, the Executive must first provide
        written notice to each Employer within ninety (90) days of the initial existence
        of the condition, describing the existence of such condition, and the Employer
        shall thereafter have the right to remedy the condition within thirty (30)
        days
        of the date the Employer received the written notice from the
        Executive.  If the Employer remedies the condition within such thirty
        (30) day cure period, then no Good Reason shall be deemed to exist with respect
        to such condition.  If the Employer does not remedy the condition
        within such thirty (30) day cure period, then the Executive may deliver a
        notice
        of termination for Good Reason at any time within sixty (60) days following
        the
        expiration of such cure period; or

      

      (ii)
        the Executive’s employment with the
        Employer is terminatedby
        the Employer during the Employment Period for any reason other than for “cause,”
death or “Disability,” as provided in Section 10(a).

      

                 
        (b)           
Upon
        the termination of the
        Executive’s employment pursuant to Section 9(a) of this Agreement either prior
        to a Change in Control as defined in Section 11(a) or more than two years
        after
        a Change in Control, the Employer shall pay and provide to the Executive
        (or, in
        the event of her subsequent death, to her estate):

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      (i)           
        her earned but unpaid Base
        Salary
        (including, without limitation, all items which constitute wages under
        applicable law and the payment of which is not otherwise provided for in
        this
        Section 9(b)) as of the date of the termination of her employment, with such
        payment to be made at the time and in the manner prescribed by law applicable
        to
        the payment of wages but in no event later than 30 days after termination
        of
        employment;

      

      (ii)           
        the benefits, if any, to which
        she
        is entitled under the employee benefit plans and programs and compensation
        plans
        and programs maintained for the benefit of the Company's and the Bank’s officers
        and employees through the date of the termination of her
        employment;

      

      (iii)           
        continued group life, health,
        dental, accident and long term disability insurance benefits, in addition
        to
        that provided pursuant to Section 9(b)(ii), and after taking into account
        the
        coverage provided by any subsequent employer, if and to the extent necessary
        to
        provide for the Executive, for the  period beginning on the date on
        which her employment terminates and ending on the earlier of (A) the last
        day of
        the Employment Period (the “Remaining Employment Period”) or (B) 18 months from
        the date of termination (with such lesser period being the “Coverage Period”),
        coverage equivalent to the coverage to which she would have been entitled
        under
        such plans if she had continued to be employed during such period; provided
        that
        any insurance premiums payable by the Employer or any successors pursuant
        to
        this Section 9(b)(iii) shall be payable at such times and in such amounts
        as if
        the Executive was still an employee of the Employer, subject to any increases
        in
        such amounts imposed by the insurance company or COBRA, and the amount of
        insurance premiums required to be paid by the Employer in any taxable year
        shall
        not affect the amount of insurance premiums required to be paid by the Employer
        in any other taxable year;and provided further
        that if the
        participation of the Executive or other covered dependents in any group
        insurance plan is barred, the Employer shall either arrange to provide such
        persons with insurance benefits substantially similar to those which the
        Executive was entitled to receive under such group insurance plan or, if
        such
        coverage cannot be obtained, pay a lump sum cash equivalency amount within
        thirty (30) days following the date of termination based on the annualized
        rate
        of premiums being paid by the Employer as of the date of termination of
        employment.

      

      (iv)           
        within 30 days following the
        date
        on which her employment terminates, a lump sum payment, in an amount equal
        to
        the present value of the Base Salary that the Executive would have earned
        if she
        had continued to be employed during the Coverage Period at the highest annual
        rate of Base Salary achieved during the Employment Period, with such present
        value to be determined using a discount rate equal to the applicable short-term
        federal rate prescribed under Section 1274(d) of the Code, compounded using
        the
        compounding periods corresponding to the Company's and the Bank’s regular
        payroll periods for their officers, and with such lump sum to be paid in
        lieu of
        all other payments of Base Salary provided for under this Agreement in respect
        of the Coverage Period;

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      (v)           
        within 30 days following the
        date
        on which her employment terminates, a lump sum payment in an amount equal
        to the
        excess, if any, of:

      

                 
        (A)          
the
        present value of the aggregate
        benefits to which she would be entitled under any and all qualified defined
        benefit pension plans and non-qualified plans related thereto maintained
        by, or
        covering employees of, the Company and the Bank if she were 100% vested
        thereunder and had continued to be employed during the Coverage Period at
        the
        highest annual rate of Base Salary achieved during the Employment Period;
        over

      

                 
        (B)           
the
        present value of the benefits
        to which she is actually entitled under such defined benefit pension plans
        as of
        the date on which her employment terminates, with such present values to
        be
        determined using the mortality tables prescribed under Section 415(b)(2)(E)(v)
        of the Code and a discount rate, compounded monthly, equal to the annualized
        rate of interest prescribed by the Pension Benefit Guaranty Corporation for
        the
        valuation of immediate annuities payable under terminating single-employer
        defined benefit plans for the month in which the Executive's employment
        terminates ("Applicable PBGC Rate");

      

      (vi)           
        within 30 days following the
        date
        on which her employment terminates, a lump sum payment in an amount equal
        to the
        present value of the additional employer contributions to which she would
        have
        been entitled under any and all qualified defined contribution plans and
        non-qualified plans related thereto maintained by, or covering employees
        of, the
        Company and the Bank as if she were 100% vested thereunder and had continued
        to
        be employed during the Coverage Period at the highest annual rate of Base
        Salary
        achieved during the Employment Period and making the maximum amount of employee
        contributions, if any, required or permitted under such plan or plans, with
        such
        present value to be determined on the basis of a discount rate, compounded
        using
        the compounding period that corresponds to the frequency with which employer
        contributions are made to the relevant plan, equal to the applicable short-term
        federal rate prescribed under Section 1274(d) of the Code, provided that
        no
        payments shall be made pursuant to this subsection (vi) with respect to the
        Company’s Employee Stock Ownership Plan (“ESOP”) if the ESOP  is
        terminated effective as of a date within one year of the date of the termination
        of the Executive’s employment, with the Executive to reimburse the Employer for
        any such payments previously made within 30 days of the Executive’s receipt of a
        request for reimbursement from the Employer;

      

      (vii)           
        within 30 days following
        the  date on which her employment terminates, a lump sum payment in an
        amount equal to the present value of the payments that would have been made
        to
        the Executive under any cash bonus or long-term or short-term cash incentive
        compensation plan maintained by, or covering employees of, the Company and
        the
        Bank if she had continued to be employed during the Coverage Period and had
        earned in each calendar year that ends during the Coverage Period a bonus
        or
        incentive award that equals the highest annual bonus or incentive award paid
        to
        the Executive during the preceding 36 calendar months, with the present value
        of
        such payments to be determined using a discount rate equal to the applicable
        short-term federal rate prescribed under Section 1274(d) of the Code, compounded
        using the compounding periods corresponding to the Company’s and the Bank’s
        schedule of paying bonuses;

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      (viii)      
          for the first year
        following the date on which her employment terminates, reimbursement for
        all
        reasonable expenses incurred by the Executive in connection with the search
        for
        new employment, including without limitation those of a placement agency
        or
        service, and reimbursement for all reasonable relocation expenses incurred
        by
        the Executive in connection with securing new employment, with such expenses
        to
        be reimbursed promptly by the Employer and in any event no later than March
        15
        of the year immediately following the year in which such expenses were incurred;
        provided, however, that the amounts payable by the Employer pursuant to this
        subsection (viii) shall not exceed $25,000; and

      

      (ix)           
        within 30 days following the
        date
        on which her employment terminates, upon the surrender of then outstanding
        options or appreciation rights (other than options or appreciation rights
        which
        do not, by their terms, vest in the event of a Change in Control as defined
        in
        Section 11(a) hereof) previously issued to the Executive under any stock
        option
        and appreciation rights plan or program maintained by, or covering employees
        of,
        the Employer, a lump sum payment in an amount equal to the product
        of:

      

      (A)           
        the excess of (I) the fair
        market
        value of a share of stock of the same class as the stock subject to the option
        or appreciation right, determined as of the date on which her employment
        terminates, over (II) the exercise price per share for such option or
        appreciation right, as specified in or under the relevant plan or program;
        multiplied by

      

      (B)           
        the number of shares with
        respect
        to which options or appreciation rights are being
        surrendered.

      

      The
        Employer and the Executive agree
        that the Employer may condition the payments and benefits (if any) due under
        Sections 9(b)(iii), (iv), (v), (vi), (vii) and (viii) on the receipt of the
        Executive's resignation from any and all positions which she holds as an
        officer, director or committee member with respect to the Employer or any
        of its
        subsidiaries or affiliates.

      

      (c)           
        In the event the Executive’s
        employment is terminated by voluntary resignation (including voluntary
        retirement) subsequent to the Executive reaching age 64 but before the end
        of
        the Employment Period other than pursuant to Section 9(a) and such termination
        occurs either before a Change in Control as defined in Section 11(a) or more
        than two years after a Change in Control, the Employer shall pay and provide
        to
        the Executive (or, in the event of her subsequent death, to her
        estate):

       

      (i) her
        earned but unpaid Base
        Salary  as of the date of the termination of her employment, with such
        payment to be made  at  the  time  and  in

      the
        manner prescribed by law applicable
        to the payment of wages but in no event later than 30 days after termination
        of
        employment;

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      (ii) the
        benefits, if any, to which she is
        entitled under the employee benefit plans and programs and compensation plans
        and programs maintained for the benefit of the Company's and the Bank’s officers
        and employees through the date of the termination of her
        employment;

       

      (iii) in
        eighteen (18) equal monthly
        installments beginning with the first business day of the month following
        the
        Executive’s termination of employment an aggregate amount equal to 1.125 times
        her Base Salary as in effect immediately prior to her termination; provided that if the
        Executive is a
“Specified Employee” (as defined in Section 409A of the Code and the regulations
        thereunder) as of the date of termination of her employment, then the monthly
        installments shall not commence until the first business day of the month
        following the lapse of six months from the date of termination of employment
        (the “Delayed Payment Date”), with the monthly installments that would have been
        paid prior to the Delayed Payment Date absent the six-month delay required
        by
        Section 409A of the Code to be aggregated and included in the payment made
        on
        the Delayed Payment Date and to be counted toward the total of eighteen (18)
        monthly installments;and

       

      (iv) continued
        group health and dental
        insurance benefits at the same level as in effect as of the date of termination
        of employment for a period of eighteen (18) months beginning on the date
        her
        employment terminates; provided that any insurance premiums payable by the
        Employer or any successors pursuant to this Section 9(c)(iv) shall be payable
        at
        such times and in such amounts as if the Executive was still an employee
        of the
        Employer, subject to any increases in such amounts imposed by the insurance
        company or COBRA, and the amount of insurance premiums required to be paid
        by
        the Employer in any taxable year shall not affect the amount of insurance
        premiums required to be paid by the Employer in any other taxable
        year; and provided further
        that if the participation of the Executive or other covered dependents in
        any
        group insurance plan is barred, the Employer shall either arrange to provide
        such persons with insurance benefits substantially similar to those which
        the
        Executive was entitled to receive under such group insurance plan or, if
        such
        coverage cannot be obtained, pay a lump sum cash equivalency amount within
        thirty (30) days following the date of termination based on the annualized
        rate
        of premiums being paid by the Employer as of the date of termination of
        employment.

      

      
        	
                SECTION
                  10.

              	
                TERMINATION
                  WITHOUT ADDITIONAL
                  EMPLOYER LIABILITY.

              

      

      

                                    
        (a)         
In
        the event that the Executive's
        employment with the Employer shall terminate during the Employment Period
        on
        account of:

      

      (i)         
        the discharge of the Executive
        for
        "cause," which, for purposes of this Agreement, shall mean a discharge because
        either the Company Board or the Bank Board determines that the Executive
        has:
        (A) willfully failed to perform her assigned duties under this Agreement,
        other
        than any failure resulting from the Executive’s incapacity due to physical or
        mental impairment; (B) committed an act involving moral turpitude in the
        course
        of her employment with the Employer and its subsidiaries; (C) engaged in
        willful
        misconduct; (D) breached her fiduciary duties for personal profit; (E) willfully
        violated, in any material respect, any law, rule or regulation (other than
        traffic violations or similar offenses), written agreement or final
        cease-and-desist order with respect to her performance of services for the
        Company or the Bank, as determined by the Company Board or the Bank Board;
        or
        (F) materially breached the terms of this Agreement and failed to cure such
        material breach during a 15-day period following the date on which the Company
        Board or the Bank Board gives written notice to the Executive of the material
        breach;

      
 

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      (ii)           
        the Executive's voluntary
        resignation from employment (including voluntary retirement) with the Company
        and the Bank for reasons other than Good Reason as specified in Section 9(a)(i)
        and other than pursuant to the provisions of Section 9(c);
        or

      

      (iii)           
        the death of the Executive
        while
        employed by the Employer, or the termination of the Executive's employment
        because of "Disability" as defined in Section 10(c) below;

      

      then
        in any of the foregoing events, the
        Employer shall have no further obligations under this Agreement, other than
        (A)
        the payment to the Executive of her earned but unpaid Base Salary as of the
        date
        of the termination of her employment, (B) the payment to the Executive of
        the
        benefits to which she is entitled under all applicable employee benefit plans
        and programs and compensation plans and programs, and (C) the provision of
        such
        other benefits, if any, to which she is entitled as a former employee under
        the
        Company's or the Bank’s employee benefit plans and programs and compensation
        plans and programs.

      

                            
        (b)           
For
        purposes of this Section 10,
        no act or failure to act, on the part of the Executive, shall be considered
        "willful" unless it is done, or omitted to be done, by the Executive in bad
        faith or without reasonable belief that the Executive's action or omission
        was
        in the best interests of the Employer.  Any act, or failure to act,
        based upon authority given pursuant to a resolution duly adopted by the Company
        Board, the Bank Board or based upon the written advice of counsel for the
        Employer shall be conclusively presumed to be done, or omitted to be done,
        by
        the Executive in good faith and in the best interests of the
        Employer.  The cessation of employment of the Executive shall not be
        deemed to be for "cause" within the meaning of Section 10(a)(i) unless and
        until
        there shall have been delivered to the Executive a copy of a resolution duly
        adopted by the affirmative vote of three-fourths of the members of the Company
        Board or the Bank Board at a meeting of such Board called and held for such
        purpose (after reasonable notice is provided to the Executive and the Executive
        is given an opportunity, together with counsel, to be heard before such Board),
        finding that, in the good faith opinion of such Board, the Executive is guilty
        of the conduct described in Section 10(a)(i) above, and specifying the
        particulars thereof in detail.

      

                            
        (c)           
“Disability”
shall
        be deemed to
        have occurred if the Executive: (i) is unable to engage in any substantial
        gainful activity by reason of any medically determinable physical or mental
        impairment which can be expected to result in death or can be expected to
        last
        for a continuous period of not less than 12 months, or (ii) is, by reason
        of any
        medically determinable physical or mental impairment which can be expected
        to
        result in death or can be expected to last for a continuous period of not
        less
        than 12 months, receiving income replacement benefits for a period of not
        less
        than three months under an accident and health plan covering employees of
        the
        Employer.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

                                 (d)           
        During any period in which
        the
        Executive is absent due to physical or mental impairment, the Employer may,
        without breaching this Agreement, appoint another person or persons to act
        as
        Group Executive Vice President of the Bank pending the Executive’s return to her
        duties on a full-time basis hereunder or her termination as a result of such
        Disability.  Prior to the Executive’s employment being terminated due
        to Disability under Section 10(e) hereof, the Executive shall continue to
        receive her full Base Salary, bonuses and other benefits to which she is
        entitled under this Agreement, including continued participation in all employee
        benefit plans and programs.

      

                                 
        (e)           
The
        Employer may provide notice to
        the Executive in writing that it intends to terminate the Executive’s employment
        under this Agreement, with the termination date to be on or after the date
        that
        the Executive is deemed to have a Disability.  At the time her
        employment hereunder is terminated due to Disability, (i) the Executive shall
        not be entitled to any payments or benefits pursuant to Sections 4 and 5
        hereof
        for periods subsequent to such date of termination, and (ii) the Executive
        shall
        become entitled to receive the Disability payments that may be available
        under
        any applicable long-term disability plan or other benefit
        plan.

      

      
        	
                SECTION
                  11.

              	
                PAYMENTS
                  UPON A CHANGE IN
                  CONTROL.

              

      

      

                 
        (a)           
The
        term “Change in Control” means
        the occurrence of any of the following:

      

                 
        (1)           
any
        person or “group” of persons
        (as provided under Section 409A of the Code, and any Internal Revenue Service
        (the “IRS”) guidance and regulations issued under Section 409A of the Code)
        acquires ownership of stock of the Company or the Bank that, together with
        stock
        held by such person or group, constitutes more than 50% of the total fair
        market
        value or total voting power of the outstanding stock of the Company or the
        Bank,
        provided that the stock of the Company or the Bank remains outstanding after
        such acquisition and provided further that if the person or group of persons
        is
        already deemed to own more than 50% of the total fair market value or total
        voting power, then the acquisition of additional stock by such person or
        group
        of persons shall not constitute an additional Change in
        Control;

      

                 
        (2)           
any
        person or “group” of persons
        (as provided under Section 409A of the Code and any IRS guidance and regulations
        issued under Section 409A of the Code)  acquires (or has acquired
        during the 12-month period ending on the date of the most recent acquisition
        by
        such person or group of persons) ownership of stock of the Company or the
        Bank
        possessing 30% or more of the total voting power of the stock of the Company
        or
        the Bank, provided that if a person or group of persons that is deemed to
        have
        effective control of the Company or the Bank pursuant to this clause acquires
        additional stock of the Company or the Bank, such additional acquisition
        shall
        not constitute an additional Change in Control;

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

                 
        (3)           
a
        majority of the members of the
        Board of Directors of the Company is replaced during any 12-month period
        by
        directors whose appointment or election is not endorsed by a majority of
        the
        Board of Directors of the Company prior to the date of the appointment or
        election, provided that if a person or group of persons that is deemed to
        have
        effective control of the Company or the Bank pursuant to this clause acquires
        stock of the Company or the Bank that would trigger either clauses (1) or
        (2)
        above, such acquisition of stock shall not constitute an additional Change
        in
        Control; and

      

                 
        (4)           
any
        person or “group” of persons
        (as provided under Section 409A of the Code and any IRS guidance and regulations
        issued under Section 409A of the Code) acquires (or has acquired during the
        12-month period ending on the date of the most recent acquisition by such
        person
        or group of persons) assets from the Company or the Bank that have a total
        gross
        fair market value equal to 40% or more of the total gross fair market value
        of
        all of the assets of the Company or the Bank, as the case may be, immediately
        prior to such acquisition or acquisitions.  For purposes of this
        provision, “gross fair market value” means the value of the assets of the
        Company or the Bank, as the case may be, or the value of the assets being
        disposed of, determined without regard to any liabilities associated with
        such
        assets.  A transfer of assets by the Company or the Bank to related
        persons, shareholders or entities shall not be treated as a Change in Control
        to
        the extent that such transfers are excluded from the definition of a change
        in
        control under Section 409A of the Code and the regulations issued
        thereunder.

      

                            
        (b)           
For
        purposes of determining
        whether a Change in Control has occurred, persons will not be considered
        to be
        acting as a group solely because they purchase or own stock of the Company
        at
        the same time.

      

                            
        (c)           
Upon
        the occurrence of the events
        specified in this Section 11(c), the Executive shall be entitled to receive
        certain payments at the times and in the amounts as follows:

      

      (i)           
        As a result of the change
        in
        control of KNBT and KNBT Bank resulting from the merger of KNBT with and
        into
        the Company, the Executive shall receive a lump sum payment as of the Effective
        Time (as defined in the Merger Agreement) in an amount equal to $306,978
        (the
“KNBT CIC Payment”) from KNBT or KNBT Bank.

      

      (ii)           
        The Executive shall receive
        a
        Severance Payment (defined below) from the Employer within ten (10) business
        days of the earliest to occur of the following events, if any:  (A)
        the termination of the Executive’s employment during the two-year period
        immediately following the Effective Time by the Employer other than for cause
        (as defined in Section 10); (B) the termination of the Executive’s employment
        during the two-year period immediately following the Effective Time by the
        Executive pursuant to Section 9(a)(i) above; or (C) a Change in Control during
        the period of the Executive’s employment hereunder (each, a “Triggering
        Event”).  “Severance Payment” means a lump sum payment determined as
        follows: (x) if the Triggering Event occurs during the one-year period
        immediately following the Effective Time, then the Severance Payment shall
        equal
        the KNBT CIC Payment; or (y) if the Triggering Event occurs after the one-year
        anniversary of the Effective Time, then the Severance Payment shall equal
        1.0
        times the Executive’s Base Amount (defined below); provided;
        however, that in calculating the
        Executive’s Base Amount for purposes of this clause (y), any income related to
        the KNBT CIC Payment shall be excluded from such calculation.  “Base
        Amount” shall be equal to the Executive’s average annualized income from the
        Employer, KNBT, KNBT Bank and their predecessors includible in the Executive’s
        gross income (excluding any income resulting from the vesting of restricted
        stock or the exercise of non-qualified options on or prior to December 31,
        2004)
        for the most recent five taxable years ending before the Triggering
        Event.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      (iii)           
        The Executive shall not be
        entitled to receive any payments or benefits under Section 9 of this Agreement
        if she receives payments pursuant to Section 11(c)(ii).

      

      SECTION
        12.           TAX INDEMNIFICATION.

      

      (a)  If
        the payments and
        benefits pursuant to this Agreement, either alone or together with other
        payments and benefits which the Executive has the right to receive from the
        Employer and their subsidiaries, would constitute a “parachute payment” as
        defined in Section 280G(b)(2) of the Code (the “Initial Parachute Payment”),
        then the Company shall pay to the Executive, at the time such payments or
        benefits are paid and subject to applicable withholding requirements, a lump
        sum
        cash amount equal to the sum of the following:

      

      (i)           
        twenty (20) percent (or such
        other
        percentage equal to the tax rate imposed by Section 4999 of the Code) of
        the
        amount by which the Initial Parachute Payment exceeds the Executive’s “base
        amount” from the Employer and their subsidiaries (including their predecessors),
        as defined in Section 280G (b)(3) of the Code, with the difference between
        the
        Initial Parachute Payment and the Executive’s base amount being hereinafter
        referred to as the “Initial Excess Parachute Payment”; and

      

      (ii)           
        such additional amount (tax
        allowance) as may be necessary to compensate the Executive for the payment
        by
        the Executive of state and federal income and excise taxes on the payment
        provided under clause (i) above and on any payments under this clause
        (ii).  In computing such tax allowance, the payment to be made under
        clause (i) above shall be multiplied by the “gross up percentage”
(“GUP”).  The GUP shall be determined as follows:

      

                                      
           Tax
        Rate

                            
        GUP  =

                                      
          1- Tax
        Rate

      

                 
        The Tax Rate for purposes
        of
        computing the GUP shall be the highest marginal federal and state income
        and
        employment-related tax rate (including Social Security and Medicare taxes),
        including any applicable excise tax rate, applicable to the Executive in
        the
        year in which the payment under clause (i) above is made, and shall also
        reflect
        the phase-out of deductions and the ability to deduct certain of such
        taxes.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

                            
        (b)  Notwithstanding the
        foregoing, if it shall subsequently be determined in a final judicial
        determination or a final administrative settlement to which the Executive
        is a
        party that the actual excess parachute payment as defined in Section 280G(b)(1)
        of the Code (before giving effect to the payments under Sections 12(a)(i)
        and
        (ii) above) is different from the Initial Excess Parachute Payment (such
        different amount being hereafter referred to as the “Determinative Excess
        Parachute Payment”), then the Company’s independent tax counsel or accountants
        shall determine the amount (the “Adjustment Amount”) which either the Executive
        must pay to the Company or the Company must pay to the Executive in order
        to put
        the Executive (or the Company, as the case may be) in the same position the
        Executive (or the Company, as the case may be) would have been if the Initial
        Excess Parachute Payment had been equal to the Determinative Excess Parachute
        Payment. In determining the Adjustment Amount, the independent tax counsel
        or
        accountants shall take into account any and all taxes (including any penalties
        and interest) paid by or for the Executive or refunded to the Executive or
        for
        the Executive’s benefit.  As soon as practicable after the Adjustment
        Amount has been so determined, and in no event more than thirty (30) days
        after
        the Adjustment Amount has been so determined, the Company shall pay the
        Adjustment Amount to the Executive or the Executive shall repay the Adjustment
        Amount to the Company, as the case may be.

      

                            
        (c)  In each calendar
        year that the Executive receives payments of benefits that constitute a
        parachute payment, the Executive shall report on her state and federal income
        tax returns such information as is consistent with the determination made
        by the
        independent tax counsel or accountants of the Company as described
        above.  The Company shall indemnify and hold the Executive harmless
        from any and all losses, costs and expenses (including without limitation,
        reasonable attorneys’ fees, interest, fines and penalties) which the Executive
        incurs as a result of so reporting such information, with such indemnification
        to be paid by the Company to the Executive as soon as practicable and in
        any
        event no later than March 15 of the year immediately following the year in
        which
        the amount subject to indemnification was determined. The Executive shall
        promptly notify the Company in writing whenever the Executive receives notice
        of
        the institution of a judicial or administrative proceeding, formal or informal,
        in which the federal tax treatment under Section 4999 of the Code of any
        amount
        paid or payable under this Section 12 is being reviewed or is in
        dispute.  The Company shall assume control at its expense over all
        legal and accounting matters pertaining to such federal tax treatment (except
        to
        the extent necessary or appropriate for the Executive to resolve any such
        proceeding with respect to any matter unrelated to amounts paid or payable
        pursuant to this Section 12) and the Executive shall cooperate fully with
        the
        Company in any such proceeding.  The Executive shall not enter into
        any compromise or settlement or otherwise prejudice any rights the Company
        may
        have in connection therewith without the prior consent of the
        Company.

      

                            
        (d)  The Executive
        hereby agrees with the Employer and any successor thereto to in good faith
        consider and take steps commonly used to minimize or eliminate any tax liability
        or costs that would otherwise be created by the tax indemnification provisions
        set forth in Section 12 of this Agreement if requested to do so by the Employer
        or any successor thereto; provided,
        however,that the foregoing
        language shall neither require the Executive to take or not take any specific
        action in furtherance thereof nor contravene, limit or remove any right or
        privilege provided to the Executive under this Agreement.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      SECTION
        13.       SOURCE OF PAYMENTS;
        NO DUPLICATION OF
        PAYMENTS.

      

                            
        All payments provided in this
        Agreement shall be timely paid in cash or check from the general funds of
        the
        Company or the Bank.  Payments pursuant to this Agreement shall be
        allocated between the Company and the Bank in proportion to the level of
        activity and the time expended on such activities by the Executive as determined
        by the Company and the Bank on a quarterly basis, unless the applicable
        provision of this Agreement specifies that the payment shall be made by either
        the Company or the Bank.  In no event shall the Executive receive
        duplicate payments or benefits from the Company and the
        Bank.

      

      
        	
                SECTION
                  14.

              	
                COVENANT
                  NOT TO
                  COMPETE.

              

      

      

                            
        In the event the Executive’s
        employment with the Employer is terminated for any reason prior to the
        expiration of the Employment Period other than a termination of employment
        occurring within 30 days of a Change in Control, the Executive hereby covenants
        and agrees that for a period of eighteen months following the date of her
        termination of employment with the Employer (or, if less, for the Remaining
        Employment Period), she shall not, without the written consent of the Employer,
        become an officer, employee, consultant, director or trustee of any savings
        bank, savings and loan association, savings and loan holding company, bank
        or
        bank holding company, or any direct or indirect subsidiary or affiliate of
        any
        such entity, that entails working within any county in which the Company
        or the
        Bank maintains an office as of the date of termination of the Executive’s
        employment.

      

      
        	
                SECTION
                  15.

              	
                CONFIDENTIALITY.

              

      

      

                            
        Unless she obtains the prior
        written consent of the Employer, the Executive shall at all times keep
        confidential and shall refrain from using for the benefit of herself, or
        any
        person or entity other than the Employer or its subsidiaries, any material
        document or information obtained from the Employer or its subsidiaries, in
        the
        course of her employment with any of them concerning their properties,
        operations or business (unless such document or information is readily
        ascertainable from public or published information or trade sources or has
        otherwise been made available to the public through no fault of her own)
        until
        the same ceases to be material (or becomes so ascertainable or available);
        provided,
        however, that nothing in
        this Section 15 shall prevent the Executive, with or without the Employer's
        consent, from participating in or disclosing documents or information in
        connection with any judicial or administrative investigation, inquiry or
        proceeding or the Company’s public reporting requirements to the extent that
        such participation or disclosure is required under applicable
        law.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      
        	
                SECTION
                  16.

              	
                SOLICITATION.

              

      

      

                               
        The Executive hereby covenants
        and
        agrees that, for a period of eighteen months following her termination of
        employment with the Employer for any reason, she shall not, without the written
        consent of the Employer, either directly or indirectly:

      

                              
         (a) solicit, offer
        employment to, or take any other action intended, or that a reasonable person
        acting in like circumstances would expect, to have the effect of causing
        any
        officer or employee of the Employer or any of its subsidiaries or affiliates
        to
        terminate her or her employment and accept employment or become affiliated
        with,
        or provide services for compensation in any capacity whatsoever to, any savings
        bank, savings and loan association, bank, bank holding company, savings and
        loan
        holding company, or other institution engaged in the business of accepting
        deposits, making loans or doing business within the counties specified in
        Section 14;

      

                              
         (b) provide any information,
        advice or recommendation with respect to any such officer or employee to
        any
        savings bank, savings and loan association, bank, bank holding company, savings
        and loan holding company, or other institution engaged in the business of
        accepting deposits, making loans or doing business within the counties specified
        in Section 14, that is intended, or that a reasonable person acting in like
        circumstances would expect, to have the effect of causing any officer or
        employee of the Employer or any of its subsidiaries or affiliates to terminate
        her employment and accept employment or become affiliated with, or provide
        services for compensation in any capacity whatsoever to, any savings bank,
        savings and loan association, bank, bank holding company, savings and loan
        holding company, or other institution engaged in the business of accepting
        deposits, making loans or doing business within the counties specified in
        Section 14; or

      

                               
        (c) solicit, provide any
        information, advice or recommendation or take any other action intended,
        or that
        a reasonable person acting in like circumstances would expect, to have the
        effect of causing any customer of the Company or the Bank to terminate an
        existing business or commercial relationship with the Company or the
        Bank.

      

      
        	
                SECTION
                  17.

              	
                NO
                  EFFECT ON EMPLOYEE BENEFIT
                  PLANS OR PROGRAMS.

              

      

      

                              
         The termination of the
        Executive's employment during the Employment Period or thereafter, whether
        by
        the Employer or by the Executive, shall have no effect on the vested rights
        of
        the Executive under the Company's or the Bank’s qualified or non-qualified
        retirement, pension, savings, thrift, profit-sharing or stock bonus plans,
        group
        life, health (including hospitalization, medical and major medical), dental,
        accident and long term disability insurance plans, or other employee benefit
        plans or programs, or compensation plans or programs in which the Executive
        was
        a participant.

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      
        	
                SECTION
                  18.

              	
                SUCCESSORS
                  AND
                  ASSIGNS.

              

      

      

                               
        (a)           
 This
        Agreement is personal to each of
        the parties hereto, and no party may assign or delegate any of its rights
        or
        obligations hereunder without first obtaining the written consent of the
        other
        parties; provided, however, that the Employer will require any successor
        or
        assign (whether direct or indirect, by purchase, merger, consolidation or
        otherwise) to all or substantially all of the business and/or assets of the
        Employer, by an assumption agreement in form and
        substance  satisfactory to the Executive, to expressly assume and
        agree to perform this Agreement in the same manner and to the same extent
        that
        the Employer would be required to perform it if no such succession or assignment
        had taken place.  Failure of the Employer to obtain such an assumption
        agreement prior to the effectiveness of any such succession or assignment
        shall
        be a breach of this Agreement and shall entitle the Executive to compensation
        from the Employer in the same amount and on the same terms as the compensation
        pursuant to Sections 9 and 11 hereof.  For purposes of implementing
        the provisions of this Section 18(a), the date which any such succession
        without
        an assumption agreement becomes effective shall be deemed the date of
        termination of the Executive’s employment.

      

                               
        (b)           
This
        Agreement and all rights of
        the Executive hereunder shall inure to the benefit of and be enforceable
        by the
        Executive’s personal and legal representatives, executors, administrators,
        successors, heirs, distributees, devises and legatees.

      

      
        	
                SECTION
                  19.

              	
                NOTICES.

              

      

      

                            
        Any communication required
        or
        permitted to be given under this Agreement, including any notice, direction,
        designation, consent, instruction, objection or waiver, shall be in writing
        and
        shall be deemed to have been given at such time as it is delivered personally,
        or five days after mailing if mailed, postage prepaid, by registered or
        certified mail, return receipt requested, addressed to such party at the
        address
        listed below or at such other address as one such party may by written notice
        specify to the other party:

       

      
        
          	 	 	 
	 	
                  If
                    to the
                    Executive:

                	 
	 	 	 
	 	
                  Sandra
                    L. Bodnyk

                	 
	 	
                  At
                    the address last
                    appearing

                	 
	 	
                  on
                    the personnel records
                    of

                	 
	 	
                  the
                    Executive

                	 
	 	 	 
	 	
                  If
                    to the
                    Employer:

                	 

           

           

          
            
              
              

            

            
              17

              
                

              

            

            
              
              

            

          

        

      

       

      
        
          	 	
                  National
                    Penn Bancshares,
                    Inc.

                	 
	 	
                  Philadelphia
&
Reading
                    Avenues

                	 
	 	
                  P.O.
                    Box 547

                	 
	 	
                  Boyertown,
PA 
19512-0547

                	 
	 	
                  (or
                    the address of the Company’s
                    or the Bank’s principal executive office, if
                    different)

                
	 	
                  Attention:
                    Chairman of the
                    Board

                	 
	 	 	 
	 	
                  with
                    a copy, in the case of a
                    notice to the Employer, to:

                
	 	 	 
	 	
                  Reed
                    Smith
                    LLP

                	 
	 	
                  2500
One
                    Liberty
                    Place

                	 
	 	
                  1650
                    Market
                    Street

                	 
	 	
                  Philadelphia,
PA 19103

                	 
	 	 	 
	 	Attention:
                  Lori L. Lasher, Esq.	 

        

      

       

      
        	
                SECTION
                  20.

              	
                INDEMNIFICATION
                  FOR ATTORNEYS'
                  FEES.

              

      

      

                                
        (a) The Employer shall indemnify,
        hold harmless and defend the Executive against reasonable costs, including
        legal
        fees and expenses, incurred by her in connection with or arising out of any
        action, suit or proceeding in which she may be involved, as a result of her
        efforts, in good faith, to defend or enforce the terms of this
        Agreement.  For purposes of this Agreement, any settlement agreement
        which provides for payment of any amounts in settlement of the Employer's
        obligations hereunder shall be conclusive evidence of the Executive's
        entitlement to indemnification hereunder, and any such indemnification payments
        shall be in addition to amounts payable pursuant to such settlement agreement,
        unless such settlement agreement expressly provides
        otherwise.

      

                                
        (b) The Employer's obligation
        to
        make the payments provided for in this Agreement and otherwise to perform
        its
        obligations hereunder shall not be affected by any set-off, counterclaim,
        recoupment, defense or other claim, right or action which the Employer may
        have
        against the Executive or others.  Unless it is determined that a claim
        made by the Executive was either frivolous or made in bad faith, the Employer
        agrees to pay as incurred (and in any event no later than March 15 of the
        year
        immediately following the year in which incurred), to the full extent permitted
        by law, all legal fees and expenses which the Executive may reasonably incur
        as
        a result of or in connection with her consultation with legal counsel or
        arising
        out of any action, suit, proceeding or contest (regardless of the outcome
        thereof) by the Employer, the Executive or others regarding the validity
        or
        enforceability of, or liability under, any provision of this Agreement or
        any
        guarantee of performance thereof (including as a result of any contest by
        the
        Executive about the amount of any payment pursuant to this Agreement), plus
        in
        each case interest on any delayed payment at the applicable federal rate
        provided for in Section 7872(f)(2)(A) of the Code.  This Section 20(b)
        shall apply whether such consultation, action, suit, proceeding or contest
        arises before, on, after or as a result of a Change in
        Control.

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      
        	
                SECTION
                  21.

              	
                SEVERABILITY.

              

      

      

                              
        A determination that any provision
        of this Agreement is invalid or unenforceable shall not affect the validity
        or
        enforceability of any other provision hereof.

      

      
        	
                SECTION
                  22.

              	
                WAIVER.

              

      

      

                              
         Failure to insist upon
        strict compliance with any of the terms, covenants or conditions hereof shall
        not be deemed a waiver of such term, covenant or condition.  A waiver
        of any provision of this Agreement must be made in writing, designated as
        a
        waiver, and signed by the party against whom its enforcement is
        sought.  Any waiver or relinquishment of any right or power hereunder
        at any one or more times shall not be deemed a waiver or relinquishment of
        such
        right or power at any other time or times.

      

      
        	
                SECTION
                  23.

              	
                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.

      

      
        	
                SECTION
                  24.

              	
                GOVERNING
                  LAW.

              

      

      

                            
        This Agreement shall be governed
        by and construed and enforced in accordance with the laws of the Commonwealth
        of
        Pennsylvania  applicable to contracts entered into and to be performed
        entirely within the Commonwealth  of Pennsylvania, except to the
        extent that federal law controls.

      

      
        	
                SECTION
                  25.

              	
                HEADINGS
                  AND
                  CONSTRUCTION.

              

      

      

                             
        The headings of sections in
        this
        Agreement are for convenience of reference only and are not intended to qualify
        the meaning of any section.  Any reference to a section number shall
        refer to a section of this Agreement, unless otherwise
        stated.

      

      
        	
                SECTION
                  26.

              	
                ENTIRE
                  AGREEMENT;
                  MODIFICATIONS.

              

      

      

                             
        This instrument contains the
        entire agreement of the parties relating to the subject matter hereof, and
        supersedes in its entirety any and all prior agreements, understandings or
        representations relating to the subject matter hereof, including but not
        limited
        to the Prior Agreement and the First Amendment.  Prior to the
        Effective Time, the Prior Agreement and the First Amendment shall govern
        the
        terms and conditions of Executive’s employment.  No modifications of
        this Agreement shall be valid unless made in writing and signed by the parties
        hereto; provided, however, that if the Employer determines, after a review
        of
        the final regulations issued under Section 409A of the Code and all applicable
        IRS guidance, that this Agreement should be further amended to avoid triggering
        the tax and interest penalties imposed by Section 409A of the Code, the Employer
        may amend this Agreement to the extent necessary to avoid triggering the
        tax and
        interest penalties imposed by Section 409A of the Code.

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

      
        	
                 

              	
                
                

              

      

      
        	
                SECTION
                  27.

              	
                REQUIRED
                  REGULATORY
                  PROVISIONS.

              

      

      

                              
         Notwithstanding anything
        herein contained to the contrary, any payments to the Executive by the Employer,
        whether pursuant to this Agreement or otherwise, are subject to and conditioned
        upon their compliance with Section 18(k) of the Federal Deposit Insurance
        Act,
        12 U.S.C. Section 1828(k), and the regulations promulgated thereunder in
        12
        C.F.R. Part 359.

      

      SECTION
        28.  DISPUTE
        RESOLUTION.

      

                            
        (a)           
In
        the event of any dispute,
        claim, question or disagreement arising out of or relating to this Agreement
        or
        the breach hereof, the parties hereto shall use their best efforts to settle
        such dispute, claim, question or disagreement.  To this effect, they
        shall consult and negotiate with each other, in good faith, and, recognizing
        their mutual interests, attempt to reach a just and equitable solution
        satisfactory to both parties.

      

                            
        (b)           
If
        they do not reach such a
        solution within a period of thirty (30) days, then the parties agree first
        to
        endeavor in good faith to amicably settle their dispute by mediation under
        the
        Commercial Mediation Rules of the American Arbitration Association (the “AAA”),
        before resorting to arbitration.

      

                            
        (c)           
Thereafter,
        any unresolved
        controversy or claim arising out of or relating to this Agreement or the
        breach
        thereof, upon notice by any party to the other, shall be submitted to and
        finally settled by arbitration in accordance with the Commercial Arbitration
        Rules (the “Rules”) of the AAA in effect at the time demand for arbitration is
        made by any such party.  The parties shall mutually agree upon a
        single arbitrator within thirty (30) days of such demand.  In the
        event that the parties are unable to so agree within such thirty (30) day
        period, then within the following thirty (30) day period, one arbitrator
        shall
        be named by each party.  A third arbitrator shall be named by the two
        arbitrators so chosen within ten (10) days after the appointment of the first
        two arbitrators.  In the event that the third arbitrator is not agreed
        upon, he or she shall be named by the AAA.  Arbitration shall occur in
        Bethlehem, Pennsylvania or such other location as may be mutually agreed
        to by
        the parties.

      

                            
        (d)           
The
        award made by all or a
        majority of the panel of arbitrators shall be final and binding, and judgment
        may be entered based upon such award in any court of law having competent
        jurisdiction.  The award is subject to confirmation, modification,
        correction or vacation only as explicitly provided in Title 9 of the United
        States Code.  The prevailing party shall be entitled to receive any
        award of pre- and post-award interest as well as attorney’s fees incurred in
        connection with the arbitration and any judicial proceedings related
        thereto.  The parties acknowledge that this Agreement evidences a
        transaction involving interstate commerce.  The United States
        Arbitration Act and the Rules shall govern the interpretation, enforcement,
        and
        proceedings pursuant to this Section.  Any provisional remedy which
        would be available from a court of law shall be available from the arbitrators
        to the parties to this Agreement pending arbitration.  Either party
        may make an application to the arbitrators seeking injunctive relief to maintain
        the status quo, or may seek from a court of competent jurisdiction any interim
        or provisional relief that may be necessary to protect the rights and property
        of that party, until such times as the arbitration award is rendered or the
        controversy otherwise resolved.

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

                            
        IN WITNESS WHEREOF, the Employer
        has caused this Agreement to be executed and the Executive has hereunto set
        her
        hand, all as of the day and year first above written.

      

                            
        THIS AGREEMENT CONTAINS A
        BINDING
        ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

       

      
        
          	
                  KNBT
                    BANCORP,
                    INC.

                	
                  NATIONAL
                    PENN BANCSHARES,
                    INC.

                
	 	 	 	 
	 	 	 	 
	
                  By:

                	/s/
                  Jeffrey P. Feather	 	 	/s/
                  Glenn E. Moyer
	 	
                  Name:  Jeffrey
                    P.
                    Feather

                	
                  By:

                	
                  Name:
                    Glenn E.
                    Moyer

                
	 	
                  Its:  Chairman
                    of the
                    Board

                	 	
                  Its:
                    President and
                    CEO

                

        

        

        
          	
                  KEYSTONE
                    NAZARETH BANK
&
TRUST
                    COMPANY

                	NATIONAL
                  PENN
                  BANK
	 	 	 	 
	 	 	 	 
	
                  By:

                	/s/
                  Jeffrey P. Feather	 	
                  By:

                	/s/
                  Glenn E. Moyer
	 	
                  Name:  Jeffrey
                    P.
                    Feather

                	 	
                  Name:  Glenn
                    E.
                    Moyer

                
	 	
                  Its:  Chairman
                    of the
                    Board

                	 	
                  Its:
                    President and
                    CEO

                

        

        

        
          	
                  EXECUTIVE:

                	 	 
	 	 	 	 
	/s/
                  Sandra L.
                  Bodnyk	 	 	 	 
	
                  Sandra
                    L.
                    Bodnyk

                	 	 	 

        

        
 

        
          
            
            

          

          
            21

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