Document:

exhibit10-4.htm

    EXHIBIT 10.4

    
 

    FIRST
      AMENDMENT TO

    

    TERMINATION
      AND RELEASE AGREEMENT

    

    

    First
      Amendment, dated as of November
      15, 2007 (the “Amendment”), to the Termination and Release Agreement, dated as
      of December 8, 2004 (the “Release Agreement”), by and among Thomas L. Kennedy
      (the “Executive”), KNBT Bancorp, Inc., a Pennsylvania corporation and
      successor to Northeast Pennsylvania Financial Corp. (the “Company”), and
      Keystone Nazareth Bank & Trust Company, as successor to First Federal Bank
      (the “Bank”).  Capitalized terms which are not defined herein shall
      have the same meaning as set forth in the Release Agreement.

    

    W
      I T N E
      S S E T H:

    

    WHEREAS,
      the Effective Date of the
      Merger was May 19, 2005;

    

    WHEREAS,
      the Executive has terminated
      employment with the Bank, and he is currently receiving insurance benefits
      pursuant to Section 3(a) of the Release Agreement;

    

    WHEREAS,
      the IRS subsequently issued
      final regulations under Section 409A of the Code in April 2007, and the parties
      hereto desire to amend the Release Agreement to comply with such final
      regulations; and

    

    WHEREAS,
      Section 5(b) of the Release
      Agreement provides that the parties hereto may amend the Release
      Agreement;

    

    NOW,
      THEREFORE, in consideration of the
      premises, the mutual agreements herein set forth and such other consideration
      the sufficiency of which is hereby acknowledged, the Company, the Bank and
      the
      Executive hereby agree as follows:

    

    1.           Amendment
      to Section 3(a) of the Release Agreement.  Section 3(a) of the
      Release Agreement is hereby amended to add the following language at the end
      of
      such section:

    

    
      	
               

            	
              “Any
                insurance premiums payable by the Parent pursuant to this Section
                3(a)
                shall be payable at such times and in such amounts as if the Executive
                was
                still an employee of the Parent or the Bank, subject to the terms
                of
                Section 3(a) hereof and subject to any increases in such amounts
                imposed
                by the insurance company or COBRA.  The amount of insurance
                premiums required to be paid by the Parent in any taxable year shall
                not
                affect the amount of insurance premiums required to be paid by the
                Parent
                in any other taxable year.”

            

    

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    2.           Effectiveness.  This
      Amendment shall be deemed effective as of the date first written above, as
      if
      executed on such date.  Except as expressly set forth herein, this
      Amendment shall not by implication or otherwise alter, modify, amend or in
      any
      way affect any of the terms, conditions, obligations, covenants or agreements
      contained in the Release Agreement, all of which are ratified and affirmed
      in
      all respects and shall continue in full force and effect and shall be otherwise
      unaffected.

    

    3.           Governing
      Law.  This Amendment and the rights and obligations hereunder
      shall be governed by and construed 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.

    

    4.           Counterparts.  This
      Amendment may be executed in two or more counterparts, each of which shall
      for
      all purposes be deemed an original, and all of which together shall constitute
      one and the same instrument.

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the Company, the Bank and the Executive have duly executed
      this
      First Amendment as of the day and year first written above.

    

    

    
      	 	 	 	 	 
	 	 	 	
              Name:

            	
              Thomas
                L. Kennedy, Executive

            
	 	 	 	 	 
	
              ATTEST:

            	 	 	
              KEYSTONE
                NAZARETH BANK

            
	 	 	 	
              &
                TRUST COMPANY

            
	 	 	 	 	 
	
              BY:

            	 	 	
              BY:

            	 
	
              Name:

            	
              Michele
                A. Linsky

            	 	
              Name:

            	
              Jeffrey
                P. Feather

            
	
              Title:

            	
              Corporate
                Secretary

            	 	
              Title:

            	
              Chairman
                of the Board

            
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	
              ATTEST:

            	 	 	
              KNBT
                BANCORP, INC.

            
	 	 	 	 	 
	
              BY:

            	 	 	
              BY:

            	 
	
              Name:

            	
              Michele
                A. Linsky

            	 	
              Name:

            	
              Jeffrey
                P. Feather

            
	
              Title:

            	
              Corporate
                Secretary

            	 	
              Title:

            	
              Chairman
                of the Board

            

    

    

    
      
        
        

      

      
        3exhibit10-5.htm

    EXHIBIT
      10.5

     

     

    KEYSTONE
      NAZARETH BANK & TRUST

    AMENDED
      AND RESTATED SEVERANCE BENEFITS PLAN

    

    I.           Introduction

    

    The
      Keystone Nazareth Bank & Trust
      Company (“KNBT”) Amended and Restated Severance Benefits Plan (the “Plan”)
      amends and restates the Keystone Nazareth Bank & Trust Company Severance
      Benefits Plan that was effective as of December 18, 2006.  KNBT has
      herein restated the Plan with the intention that the Plan shall at all times
      satisfy Section 409A of the Internal Revenue Code of 1986, as amended (the
      “Code”) and the regulations thereunder.  The provisions of the Plan
      shall be construed to effectuate such intentions.  The purpose of this
      Plan is to offer you temporary continuation of your salary as well as your
      medical, dental, and vision insurance benefits if your employment with KNBT
      or
      one of its wholly owned subsidiaries is involuntarily terminated under specified
      circumstances.

    

    II.           How
      the Plan Works

    

    A.           Who
      Is Eligible

    

    You
      may be eligible for benefits under
      this Plan if:

    

    
      	
              ·  

            	
              You
                are classified as a full-time, salaried employee of KNBT or one of
                its
                subsidiaries; and

            

    

    

    
      	
              ·  

            	
              You
                have completed at least one (1) full year of continuous, full-time
                service
                with KNBT or one of its
                subsidiaries.

            

    

    

    Unless
      KNBT provides otherwise in
      writing, the following employees are NOT eligible to
      participate in this Plan:

    

    
      	
              ·  

            	
              Any
                employee who is classified as a temporary
                employee;

            

    

    

    
      	
              ·  

            	
              Any
                employee who is eligible to participate in another plan or arrangement
                maintained by KNBT or one of its subsidiaries that provides severance-type
                benefits unless that other plan or arrangement specifically provides
                that
                the employee will be eligible to receive benefits under this Plan;
                and

            

    

    

    
      	
              ·  

            	
              Any
                employee who is covered by a contract or agreement that provides
                for
                severance-type benefits unless that contract or agreement specifically
                provides that the employee will be eligible to receive benefits under
                this
                Plan.

            

    

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    B.           Conditions
      for Payment of Severance Benefits

    

    1.           Involuntary
      Termination

    

    Subject
      to the provisions of Section
      B.2, you will be eligible for severance benefits under this Plan only if KNBT,
      in its sole discretion, determines that your employment is being terminated
      involuntarily for any of the following reasons:

    

    
      	
              ·  

            	
              Reduction
                in staff or layoff;

            

    

    

    
      	
              ·  

            	
              Position
                elimination;

            

    

    

    
      	
              ·  

            	
              Closure
                of a branch or department;

            

    

    

    
      	
              ·  

            	
              Organizational
                restructuring; or

            

    

    

    
      	
              ·  

            	
              Such
                other circumstances as KNBT, in its sole discretion, deems appropriate
                for
                the payment of severance benefits.

            

    

    

    2.           Significant
      Reduction in Base Salary Due to Change in Status

    

    You
      also will be eligible for severance
      benefits under this Plan if KNBT, in its sole discretion, determines
      that:

    

    
      	
              ·  

            	
              Your
                Base Salary is reduced by ten percent  (10%) or more
                due  solely to a change in your position or duties;
                and

            

    

    

    
      	
              ·  

            	
              You
                resign from employment within thirty (30) days after the reduction
                of Base
                Salary becomes effective.

            

    

    

    3.           Termination
      of Employment Not Eligible for Severance Benefits

    

    Unless
      KNBT provides otherwise in
      writing, you will not be eligible for severance benefits if KNBT, in its sole
      discretion, determines that your employment was terminated for any of the
      following reasons:

    

    
      	
              ·  

            	
              Failure
                to return from military leave;

            

    

    

    
      	
              ·  

            	
              Failure
                to return to work at the conclusion of a leave of absenceyou have
                requested for any reason;

            

    

    

    
      	
              ·  

            	
              Poor
                or unacceptable work performance, misconduct, dishonesty, insubordination,
                violation of KNBT’s employment policies, rules, or procedures,
                unacceptable business conduct, or other “cause” as determined by KNBT in
                its sole discretion;

            

    

    

    
      	
              ·  

            	
              Temporary
                layoff;

            

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    
      	
              ·  

            	
              Permanent
                and total disability, retirement, or death;
                or

            

    

    

    
      	
              ·  

            	
              Voluntary
                resignation for any reason (except in the event of a reduction in
                Base
                Salary as described above).

            

    

    

    
      	
              Important
                Note:

            	
              A
                change in your job responsibilities or title, additional workload,
                a
                transfer to a subsidiary of KNBT, a Change in Control (as hereinafter
                defined) of KNBT or change in company designation does not necessarily
                qualify you for severance benefits.  In order for severance
                benefits to be payable, you must suffer an involuntary loss of employment
                or a significant reduction in your Base Salary as set forth
                above.

            

    

    

    4.           Other
      Employment Offer

    

    Unless
      KNBT provides otherwise in
      writing, you will not be eligible to receive benefits under this Plan if KNBT,
      in its sole discretion, determines that:

    

    
      	
              ·  

            	
              You
                have been offered, but refused to accept, another position with KNBT
                or
                any of its affiliates (or any successor thereto as provided by the
                provisions of the paragraph immediately following
                hereto)  UNLESS the position would require you to transfer to a
                location which is more than thirty (30) miles from your prior work
                location; or

            

    

    

    
      	
              ·  

            	
              Your
                employment has been terminated in connection with a sale or transfer,
                merger, establishment of a joint venture, or other similar corporate
                transaction which results in a Change in Control of KNBT or its parent
                holding company, KNBT Bancorp, Inc. (“Bancorp”), and you are offered
                employment by the successor company at a salary that equals or exceeds
                ninety percent (90%) of your Base Salary in effect immediately prior
                to
                your termination. 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 Bancorp or KNBT
      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 Bancorp or KNBT, provided that the stock of the Bancorp or KNBT
      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;

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (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 Bancorp or KNBT possessing 30% or more of the total
      voting power of the stock of the Bancorp or KNBT, provided that if a person
      or
      group of persons that is deemed to have effective control of the Bancorp or
      KNBT
      pursuant to this clause acquires additional stock of the Bancorp or KNBT, such
      additional acquisition shall not constitute an additional Change in
      Control;

    

    (3)           a
      majority of the members of the Board of Directors of the Bancorp 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 Bancorp 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 Bancorp or KNBT pursuant
      to this clause acquires stock of the Bancorp or KNBT 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 Bancorp or
      KNBT
      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 Bancorp or KNBT, 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 Bancorp or KNBT, 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 Bancorp or KNBT 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;

    

    provided
      that 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 Bancorp at the same time.

    

    C.           Required
      Termination Date

    

    You
      will receive severance benefits
      only if you work to the termination date required by KNBT or its
      successor.  If you leave before the designated termination date, you
      will not be eligible for benefits.

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    KNBT
      or its successor may, in its sole
      discretion, accelerate the termination date and still provide you with severance
      benefits (for instance, if you find new employment).  Such decisions
      will be based upon KNBT’s or its successor’s determination of its business
      needs.

    

    D.           Benefit
      Amounts

    

    If
      you meet the conditions for payment
      of severance benefits, you will receive either the Basic Severance
      Benefit or the Enhanced Severance Benefit described
      below.  The type of benefit payable to you depends upon whether you
      sign an acceptable release of all claims against
      KNBT.  Notwithstanding any other provision of this Plan to the
      contrary, any payments made to an employee pursuant to this Plan, or otherwise,
      are subject to and conditioned upon their compliance with Section 18(k) of
      the
      Federal Deposit Insurance Act (12 U.S.C. §1828(k)) and the regulations
      promulgated thereunder, including 12 C.F.R. Part 359.

    

    1.           Basic
      Severance Benefit

    

    If
      you have completed at least one (1)
      year of continuous, full-time employment with KNBT, you are eligible for a
      Basic
      Severance Benefit.  The amount of this benefit is based on your length
      of service, as follows:

    

    Years
      of
      Service                                           Basic
      Severance Benefit

    

    One
      but
      less than
      two                           One
      (1) week of Base Salary.

    

    Two
      or
      more                                           Two
      (2) weeks of Base Salary.

    

    During
      your severance period, medical,
      dental, and vision insurance coverage continues as though you were an active
      employee.  Your cost for the continued insurance coverage during the
      severance period will be the same as the cost charged to active
      employees.  At the end of the severance period, the medical, dental,
      and vision insurance coverage will end.  At that time, if still
      eligible, you may elect to continue the medical, dental and vision insurance
      coverage for the remainder of the COBRA continuation coverage period, as
      described below.

    

    
      	
              Important
                Note:

            	
              Your
                service with KNBT ends on your termination date.  It does not
                continue during the severance
                period.

            

    

    

    2.           Enhanced
      Severance Benefit

    

    If
      you have completed at least two (2)
      continuous, full-time years of service and if you sign an acceptable release
      of
      all claims against KNBT in the form attached hereto as Exhibit A, you will
      receive the Enhanced Severance Benefit described in this Section.

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    To
      receive an Enhanced Severance
      Benefit you are required to sign an acceptable release of all claims against
      KNBT in the form attached hereto as Exhibit A. This releases KNBT, its
      predecessors and successors, and its current and former employees and agents
      of
      any and all claims which may arise out of your employment or termination of
      employment with KNBT.  Signing the release of all claims against KNBT
      will not affect any claim you might have for workers’ compensation or
      unemployment benefits.

    

    If
      you are eligible for and elect an
      Enhanced Severance Benefit, you will receive the Enhanced Severance Benefit
      during the severance period determined by the following schedule based on your
      length of service with KNBT and your Base Salary in effect prior to termination
      of employment.  This Enhanced Severance Benefit replaces the Basic
      Severance Benefit - it is not in addition to the Basic Severance
      Benefit.

    

    You
      will receive your Base Salary plus
      continuation of your active medical, dental, and vision insurance coverage
      during the severance period.  Your cost for the continued insurance
      coverage during the severance period will be the same as the cost charged to
      active employees.  At the end of the severance period, the medical,
      dental, and vision insurance coverage will end.  At that time, if
      still eligible, you may elect to continue the medical, dental, and vision
      insurance coverage for the remainder of the COBRA continuation coverage period,
      as described below.

    

    Enhanced
      Severance Benefit Schedule

    

    If
      you are eligible for and elect an
      Enhanced Severance Benefit, you will receive your Base Salary for the number
      of
      weeks as calculated below.  This is your total Enhanced Severance
      Benefit and replaces the Basic Severance Benefit.

    

    
      	 	
              
                ANNUAL
                  BASE SALARY

              

            
	
               

               

              
                Years
                  of Full Service

              

            	
               

               

              
                Under
                  $50,000

              

            	
              $50,000

              to

              
                $79,999

              

            	
              $80,000

              or

              
                More

              

            
	 	
              
                Number
                  of Weeks of Base Salary that are Payable

              

            
	
              Between
                2 and 3 Years

            	
              4

            	
              8

            	
              12

            

    

    

    For
      each
      additional year of continuous, full-time service beyond three years, the number
      of weeks of Base Salary will be increased by one, subject to a maximum Enhanced
      Severance Benefit of 52 weeks.  Base Salary for calculation of the
      benefits due hereunder is equal to your annual base salary divided by
      52.  For example, if your annual base salary is $25,000 and you have
      completed 10 years of continuous full time service, your weekly Base Salary
      would be $481 and you would receive 11 weeks of Base Salary equal to $5,291
      (before any required tax withholding) plus continued medical, dental and vision
      insurance coverage during such period (subject to paying any required cost
      thereof).

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    Notwithstanding
      anything to the contrary herein, those persons who are designated as members
      of
      the Office of the President group shall receive, subject to their execution
      of
      an acceptable release of all claims against KNBT as provided for by this Section
      D.2, the form of which is attached hereto as Exhibit A, an Enhanced Severance
      Benefit equal to their annual base salary plus the continuation of their active
      medical, dental and vision insurance coverage during a period of 52 weeks
      irrespective of the number of full-time years of service they may have and
      the
      amount of their Base Salary as of the date of termination of their
      service.

    

    E.           How
      Severance Benefits Are Paid

    

    Cash
      severance benefits are paid on
      normal paydays for the number of weeks specified by the Basic or Enhanced
      Severance Benefit formulas specified above.

    

    Cash
      severance benefits are considered
      wages for tax purposes.  Consequently, all regular payroll taxes will
      be withheld from your weekly payments.

    

    Notwithstanding
      anything to the contrary under this Plan, any insurance premiums payable by
      KNBT
      or any successors pursuant to the terms of this Plan shall be payable at such
      times and in such amounts as if the recipient was still an employee of KNBT,
      subject to any increases in such amounts imposed by the insurance company or
      COBRA, and the amount of the insurance premiums required to be paid by KNBT
      in
      any taxable year shall not affect the amount of insurance premiums required
      to
      be paid by KNBT in any other taxable year.

    

    If
      the
      payments pursuant to this Plan, either alone or together with other payments
      and
      benefits which Employee has the right to receive from the KNBT or Bancorp,
      would
      constitute a “parachute payment” under Section 280G of the Code, the payments
      payable by KNBT pursuant to this Plan shall be reduced by the amount, if any,
      which is the minimum necessary to result in no portion of the payments payable
      by KNBT under this Plan being non-deductible to KNBT pursuant to Section 280G
      of
      the Code and subject to the excise tax imposed under Section 4999 of the Code,
      followed by any required reduction in the fringe benefits to ensure that no
      portion of the payments and benefits payable by KNBT under this Plan are
      non-deductible to KNBT under Section 280G of the Code.  The
      determination of any reduction in the payments to be made pursuant to this
      Plan
      shall be based upon the opinion of independent counsel selected by KNBT and
      paid
      by KNBT.  Such counsel shall promptly prepare the foregoing opinion,
      but in no event later than thirty (30) days from the date of termination, and
      may use such actuaries as such counsel deems necessary or advisable for the
      purpose.  Nothing contained in this Section II.E shall result in a
      reduction of any payments or benefits to which an employee may be entitled
      upon
      termination of employment under any circumstances other than as specified in
      this Plan, or a reduction in the payments in accordance with this Plan below
      zero.

    

    F.           Right
      To Terminate Benefits

    

    Notwithstanding
      anything in this Plan
      to the contrary, KNBT will have the right to terminate the severance benefits
      remaining payable under this Plan in the event that:

    

    
      	
              ·  

            	
              You
                are re-employed by KNBT prior to the completion of the scheduled
                payment
                of the severance benefits; or

            

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    
      	
              ·  

            	
              KNBT
                determines that you have breached any of the terms and conditions
                set
                forth in any agreement executed by you as a condition of receiving
                benefits under this Plan, including, but not limited to, the release
                of
                liability against KNBT as provided by Section II. D.2
                hereof.

            

    

    

    G.           Other
      Requirements Upon Employment Termination

    

    1.           Checkout
      Procedures

    

    Before
      you leave, a complete review
      will be made to determine any amounts you owe KNBT. At the time your employment
      terminates, you will be responsible for the following:

    

    
      	
              ·  

            	
              Reimbursing
                KNBT for any amounts you owe or making arrangements for this payment
                (including deducting the payment from your severance
                benefits);

            

    

    

    
      	
              ·  

            	
              Returning
                all KNBT credit cards; and

            

    

    

    
      	
              ·  

            	
              Returning
                all other KNBT materials in your possession or control, including,
                but not
                limited to, documents, confidential reports, computers and data,
                and any
                other property of KNBT.

            

    

    

    2.           Company
      Car

    

    If
      you have been provided with an
      authorized KNBT car, you will need to make arrangements to return the car to
      KNBT prior to your termination date. Alternatively, you may have the option
      of
      purchasing the car at the remaining lease value as long as there is no penalty
      involved and subject to compliance with any applicable law, rule or regulation,
      including those of The Nasdaq Stock Market, Inc.

    

    H.           Special
      Situations:  Service and Benefits

    

    In
      general, your service with KNBT and
      most benefit coverage (except as otherwise provided herein) ends on the date
      your active employment ends.  There are, however, some exceptions to
      this general rule.  These exceptions are outlined below.

    

    1.           Service

    

    Your
      service with KNBT ends on the date
      your active employment ends.  If, however, you are subsequently
      rehired by KNBT, these special provisions will apply:

    

    
      	
              ·  

            	
              If
                you are rehired during your severance period, your severance period
                will
                be credited as service, and your prior service and period of severance
                will be treated as if there was no break in your
                employment.

            

    

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    
      	
              ·  

            	
              If
                you are rehired after your severance period but within two (2) years
                of
                your termination date, your severance period will not count as service.
                However, the service you earned prior to your termination date will
                be
                counted for vacation and other benefit purposes. For specific information
                on how service is credited for purposes of the KNBT Retirement Plan,
                to
                the extent you are a participant therein as of your termination date,
                see
                the Summary Plan Description for the Retirement
                Plan.

            

    

    

    2.           Benefits

    

    Medical,
      dental, and vision insurance
      coverage continue during your severance period (provided you continue to pay
      your share of the cost of your coverage). Your coverage for these benefits
      will
      end on the last day of the month in which your severance ends. You can elect
      to
      continue your medical, dental, and vision insurance coverage through COBRA
      as
      set forth below.  The continuation of medical, dental, and vision
      insurance coverage during your severance period is counted as part of your
      COBRA
      continuation period.

    

    All
      other benefits - including short-
      and long-term disability, travel accident insurance, accidental death and
      dismemberment coverage, supplemental life insurance and contributions to the
      KNBT Retirement Savings Plan - end on your last day of active employment.
      Employees may not continue to make payments to their 401 (k) plan account
      offered by KNBT during the severance period.

    

    Employee
      Stock Ownership Plan (ESOP)
      benefits are earned and paid as described in the KNBT Bancorp, Inc. ESOP Summary
      Plan Description.

    

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

    

    

    FORM
      OF

    ENHANCED
      SEVERANCE BENEFIT

    AGREEMENT
      AND GENERAL RELEASE

    

    This
      Enhanced Severance Benefit
      Agreement and General Release (hereinafter “Agreement”) is entered into by and
      between Keystone Nazareth Bank & Trust Company (hereinafter
“KNBT”) and ________ (hereinafter “Employee”).

    

    WHEREAS,
      Employee was employed by KNBT
      as its ___________________; and

    

    WHEREAS,
      effective ____________,
      Employee’s position was eliminated and his/her employment with KNBT was
      terminated; and

    

    WHEREAS,
      KNBT and Employee mutually
      desire to resolve amicably and permanently all matters relating to Employee’s
      employment relationship with KNBT and the termination thereof;

    

    NOW,
      THEREFORE, in consideration of the
      promises contained herein, the receipt and adequacy of which are hereby
      acknowledged, the parties agree as follows:

    

    1.           Termination
      Date.   Employee’s employment with
      KNBT is terminated effective _________ (the “termination
      date”).  Employee shall be paid his/her regular salary and for any
      accrued, but unused, “paid time off” days through the termination
      date.

    

    2.           Salary
      and Benefit Continuation.   In
      consideration for Employee’s execution of this Agreement and his/her fulfillment
      of the promises made in this Agreement, and subject to the terms and conditions
      of the KNBT Severance Benefits Plan, KNBT agrees to provide Employee with an
      Enhanced Severance Benefit of ______ weeks of salary continuation at his/her
      current pay rate of $_________ per year, as well as _________ weeks of dental,
      vision, and medical insurance continuation.  The salary continuation
      component of Employee’s Enhanced Severance Benefit shall be paid to Employee in
      conjunction with KNBT’s regular payroll cycles, over a _________ week period,
      beginning _______ and ending _______ .

    

    3.           Conditions
      Applicable to Payment of Enhanced Severance
      Benefit.   Employee understands,
      acknowledges, and agrees that the Enhanced Severance Benefit provided to him/her
      pursuant to the KNBT Severance Benefits Plan and Section 2 of this Agreement
      is
      subject to his/her compliance with the terms and conditions set forth in the
      KNBT Severance Benefits Plan and this Agreement.

    

    4.           General
      Release of Claims.

    

    a.           In
      consideration of the benefits described in Section 2 above, which are of greater
      value than Employee would normally be entitled upon termination of his/her
      employment, Employee, on behalf of his/her heirs, executors, administrators,
      agents, representatives, and assigns, hereby forever releases KNBT and its
      parents, subsidiaries, affiliated companies, partners, officers, directors,
      owners, employees, staff members, agents, representatives, predecessors,
      successors, and assigns (collectively referred to as “the Released Parties”),
      from any and all claims, demands, suits, or causes of action of any nature
      whatsoever, whether known or unknown, relating in any way to his/her employment
      with KNBT and the termination thereof, including, without limitation, claims
      under Title VII of the Civil Rights Act of 1964, the Age Discrimination in
      Employment Act (“ADEA”), the Older Workers Benefit Protection Act, the Americans
      with Disabilities Act, the Family and Medical Leave Act, the Fair Labor
      Standards Act, the National Labor Relations Act, the Pennsylvania Human
      Relations Act, the Pennsylvania Wage Payment and Collection Law, and all other
      federal, state or local laws, claims for breach of contract, claims for wrongful
      discharge, claims for emotional distress, defamation, fraud, misrepresentation
      or other personal injury, claims for unpaid compensation, claims relating to
      benefits, claims for attorneys’ fees and costs, and claims under any federal,
      state, or local law or cause of action concerning employment, which have arisen
      as of the date this Agreement is signed by him/her.  This release,
      however, shall not affect Employee’s right to file a charge with the Equal
      Employment Opportunity Commission challenging the waiver and release of his/her
      rights pursuant to the ADEA.

    

    b.           Employee
      hereby waives and relinquishes each and every right or benefit that he/she
      might
      now have under the common law or any statutory or regulatory provision with
      respect to his/her employment with KNBT and the termination thereof to the
      fullest extent that he/she may lawfully waive such right or
      benefit.  In furtherance of such waiver and relinquishment, Employee
      expressly warrants and represents that he/she intends that the release given
      herein shall be and remain in effect as a full and complete release,
      notwithstanding the discovery or existence of any additional claims or facts
      predating the date of the execution of this Agreement.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5.           No
      Existing Claims.   Employee hereby
      confirms that no claim, charge, or complaint filed by him/her against the
      Released Parties presently exists before any federal, state, or local court
      or
      administrative agency.

    

    6.           Return
      of KNBT Property.  Employee agrees to return to KNBT all
      KNBT property, including without limitation, all lists, reports, files,
      memoranda, records, computer hardware, software, credit cards, door and file
      keys, computer access codes or disks, instructional manuals, financial records,
      and any other physical or personal property which Employee received or prepared
      or helped prepare in connection with his/her employment with
      KNBT.  Employee further agrees that he/she will not retain any copies,
      duplicates, reproductions or excerpts thereof.

    

    7.           Confidential
      Information.  Employee agrees that in the course of
      his/her employment with KNBT he/she has had access to and acquired Confidential
      Information.  The term “Confidential Information” as used in this
      Agreement means (a) confidential information of KNBT, including without
      limitation, information received from third parties under confidential
      conditions, and (b) other technical, business, or financial information or
      trade
      secrets or proprietary information (including, but not limited to, account
      records, product development plans, marketing strategies and financial data
      and
      plans), the use or disclosure of which would be contrary to his/her interests
      of
      KNBT, its affiliates, related companies or successors.  Employee
      understands and agrees that such Confidential Information has been disclosed
      to
      him/her in confidence and for the use of only KNBT.  Employee
      understands and agrees that (i) he/she will keep such Confidential Information
      confidential at all times after his/her employment with KNBT, and (ii) he/she
      will not make use of Confidential Information on his/her own behalf, or on
      behalf of any third party, unless required to do so under compulsion of
      law.

    

    8.           Confidentiality
      of Agreement.  Employee agrees to keep secret and
      strictly confidential the existence of his/her Agreement and further agrees
      not
      to disclose, make known, discuss, or relay any information concerning his/her
      Agreement, or any of the discussions leading up to his/her Agreement, to anyone
      other than members of his/her immediate family, and/or his/her tax advisor
      or
      attorney, provided that those to whom he/she makes such disclosure agree to
      keep
      said information confidential and not disclose it to others.  The
      foregoing shall not prohibit disclosure (i) as may be ordered by any regulatory
      agency or court or as required by other lawful process, or (ii) as may be
      necessary for the prosecution of claims relating to the performance or
      enforcement of his/her Agreement.

    

    9.           Non-Disparagement.  Employee
      agrees that he/she shall not make, or cause to be made, any statement or
      communicate any information (whether oral or written) that disparages or
      reflects negatively on KNBT.  KNBT agrees that it shall not make, or
      cause to be made, any statement or communicate any information (whether oral
      or
      written) that disparages or reflects negatively on Employee.

    

    10.           Injunctive
      and Other Relief.  KNBT shall be entitled to have the
      provisions of Sections 6, 7, 8, and 9 hereof specifically enforced through
      injunctive relief, without having to prove the adequacy of the available
      remedies at law and without being required to post bond or security, it being
      acknowledged and agreed that a breach of any such Sections will cause
      irreparable injury to KNBT and that money damages will not provide an adequate
      remedy to KNBT.  Moreover, Employee understands and agrees that if
      he/she breaches any provisions of his/her Agreement, in addition to any other
      legal or equitable remedy KNBT may have, KNBT shall be entitled to recover
      any
      payments made to Employee on Employee’s behalf under Section 2, and Employee
      shall reimburse KNBT for all its reasonable attorneys’ fees and costs incurred
      by it arising out of any such breach.  The remedies set forth in
      Section 10 shall not apply to any challenge to the validity of the waiver and
      release of his/her rights under the ADEA.  In the event Employee
      challenges the validity of the waiver and release of his/her rights under the
      ADEA, KNBT’s right to attorneys’ fees and costs shall be governed by the
      provisions of the ADEA, so that KNBT may recover such fees and costs if the
      lawsuit is brought by Employee in bad faith.  Any such action
      permitted to KNBT by this section, however, shall not affect or impair any
      of
      Employee’s obligations under his/her Agreement, including without limitation,
      the release of claims in Section 4 hereof.  Employee further agrees
      that nothing herein shall preclude KNBT from recovering attorneys’ fees, costs,
      or any other remedies specifically authorized under applicable law.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    11.           Consultation
      of Counsel.   KNBT recommends to
      Employee that he/she consult with legal counsel prior to executing his/her
      Agreement.

    

    12.           Consideration
      Period.   Employee acknowledges
      that he/she has been given at least twenty-one (21) days from his/her receipt
      of
      his/her Agreement to consider whether or not to sign his/her
      Agreement.  Employee agrees that if he/she signed the Agreement before
      the expiration of the twenty-one (21) day period, he/she has done so voluntarily
      after consulting with counsel regarding his/her Agreement.

    

    13.           Revocation
      Period.   Employee is aware that
      he/she may change his/her mind and revoke the Agreement at any time during
      the
      seven (7) day period immediately after the date upon which the Agreement is
      signed, in which case none of the provisions of the Agreement will have
      effect.  In the event that Employee elects to revoke the Agreement,
      he/she must do so in writing.  Such revocation must be delivered by
      hand or sent by certified mail, post-marked before the end of the seven-day
      revocation period, to KNBT, Attention: Human Resources Department, 90 Highland
      Avenue, Bethlehem, Pennsylvania, 18017.  In the event that Employee
      exercises his/her right of revocation, he/she agrees to immediately repay to
      KNBT any amounts previously paid to him/her pursuant to his/her
      Agreement.

    

    14.           No
      Admission of Wrongdoing.   Employee
      hereby acknowledges and agrees that neither his/her Agreement nor the furnishing
      of the consideration for the general release set forth in his/her Agreement
      shall be deemed or construed at any time for any purpose as an admission by
      the
      Released Parties of any liability or unlawful conduct of any kind.

    

    15.           Governing
      Law.   This Agreement shall be
      construed in accordance with the laws of the Commonwealth of Pennsylvania,
      without regard to the principles of conflicts of laws herein, except to the
      extent federal law controls.  In the event that a dispute arises under
      this Agreement and legal action is instituted, the parties agree that such
      action shall be maintained exclusively in the Court of Common Pleas for either
      Lehigh or Northampton County, Pennsylvania.

    

    16.           Declaration
      of Invalidity.   The parties hereby
      acknowledge and agree that if any provision or term of his/her Agreement be
      declared void or to no effect by a competent tribunal, it is the intent of
      the
      parties that said declaration shall not operate to void any other provision
      or
      term of his/her Agreement and that those provisions and terms not declared
      void
      or to no effect shall continue in full force and effect and be binding on the
      parties.

    

    17.           Entire
      Agreement.   The parties hereby
      acknowledge and agree that his/her Agreement constitutes and contains the
      exclusive and entire agreement and understanding between them concerning
      Employee’s employment with KNBT, the termination hereof, the circumstances
      attendant hereto, and the other subject matters addressed herein between the
      parties, and supersedes and replaces all prior negotiations and all agreements
      proposed or otherwise, whether written or oral, concerning the subject matters
      hereof.

    

    18.           Modifications.   This
      Agreement may not be waived, changed, modified, abandoned, or terminated, in
      whole or in part, except by an instrument signed by an authorized representative
      of KNBT and by Employee.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    19.           Effective
      Date.   This Agreement shall not
      become effective or enforceable until the expiration of the seven-day revocation
      period set forth in Section 13 above.

    

    20.           Receipt.   Employee
      hereby acknowledges that his/her Agreement was presented to him/her on
      ___________________.

    

    Employee
      has had an opportunity to
      carefully review and consider his/her Agreement.  After such careful
      consideration, he/she knowingly and voluntarily enters into his/her Agreement
      with full understanding of its meaning.

    

    IN
      WITNESS WHEREOF and intending to be
      legally bound, the parties have duly executed this Agreement as of the date(s)
      set forth below.

    

      

      
        	 	 	 	 	 
	
              	 	
                KEYSTONE
                  NAZARETH BANK & TRUST COMPANY

              
	 	 	 	 
	 	 	 	 
	
                 

              	
                Signature

              	 By:	
                 

              
	 	 	 	 	 
	 	 	 Name:	  
	 	 	 	 
	 	
                 

              	 Title:	  
	 	 	 	 
	 	 	 	 
	 Date:	 	Date: 	 

      

    

     

    

    The
      Consolidated Omnibus Budget
      Reconciliation Act of 1985 (COBRA) gives you the opportunity to purchase
      continued health care coverage after your active employee coverage
      ends.  When the temporary extension of your active medical coverage
      ends at the end of your severance period, you and your covered spouse and
      dependent children may elect to continue medical, dental, and/or vision coverage
      for up to 18 months through COBRA.  The 18-month period is measured
      from the date your employment was terminated.  You have 60 days from
      the date your severance period ends to elect COBRA coverage.  If you
      do not enroll within the time-frame, you will not have the opportunity to enroll
      for coverage again.

    

    If
      you elect continued medical, dental,
      and/or vision coverage, you or your dependents must pay the full cost of
      coverage plus a 2% administration fee.

    

    For
      more details on COBRA, please
      contact the Human Resources Department.

    
      
        
        

      

      
        10

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