Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Employment Agreement Amendment – Richard
A. Grafmyre
On July 15, 2022, Penns Woods Bancorp, Inc. (the
“Company”) and Richard A. Grafmyre, Chief Executive Officer of the Company, entered into an Amendment, dated July 15,
2022 (the “Grafmyre Employment Agreement Amendment”), to Mr. Grafmyre’s existing Amended and Restated Employment
Agreement, dated March 9, 2021 (the “Grafmyre Employment Agreement”). The Grafmyre Employment Agreement Amendment amends
the Grafmyre Employment Agreement to: (i) require the Company to provide an automobile for Mr. Grafmyre’s use upon his request;
(ii) provide that, upon termination of Mr. Grafmyre’s employment for any reason other than Cause (as defined in the Agreement),
the Company will take such actions necessary to cause any outstanding stock options previously granted to Mr. Grafmyre to be exercisable
for the remaining term of such options; (iii) provide that, upon termination of employment for any reason, Mr. Grafmyre will be permitted
to retain the cellular telephone provided to him by the Company, including the cellular telephone number; and (iv) provide for continued
health care benefits (or an amount equal to the cost of obtaining such benefits if he is no longer eligible to participate in the applicable
plan) for a period of 24 months following termination of employment in the event that Mr. Grafmyre’s employment is terminated without
Cause (as defined in the Agreement) in the absence of a Change in Control (as defined in the Agreement).
Except as modified by the Grafmyre Employment Agreement
Amendment, the Grafmyre Employment Agreement remains in effect in accordance with its terms.
A copy of the Grafmyre Employment Agreement Amendment
is attached hereto as Exhibit 10.2. The foregoing description of the Amendment is qualified by reference to the Amendment.
Employment Agreement Amendment – Brian
L. Knepp
On July 15, 2022, the Company and Brian L. Knepp,
President and Chief Financial Officer of the Company, entered into an Amendment, dated July 15, 2022 (the “Knepp Employment Agreement
Amendment”) to Mr. Knepp’s existing Amended and Restated Employment Agreement, dated December 31, 2018 (the “Knepp
Employment Agreement”). The Knepp Employment Agreement Amendment amends the Knepp Employment Agreement to: (i) provide for a
term expiring on July 14, 2024, with annual renewal thereafter absent notice of non-renewal by either party at least 60 days prior to
an annual renewal date; (ii) update the Agreement to insert Mr. Knepp’s current annual base salary of $257,500; (iii) provide that,
upon termination of employment for any reason, Mr. Knepp will be permitted to retain the cellular telephone provided to him by the Company,
including the cellular telephone number; and (iv) provide for continued health care benefits (or an amount equal to the cost of obtaining
such benefits if he is no longer eligible to participate in the applicable plan) for a period of 24 months following termination of employment
in the event that Mr. Knepp’s employment is terminated by the Company without Cause (as defined in the Agreement), or by Mr. Knepp
for Good Reason (as defined in the Agreement), following a Change in Control (as defined in the Agreement).
Except as modified by the Knepp Employment Agreement
Amendment, the Knepp Employment Agreement remains in effect in accordance with its terms.
A copy of the Knepp Employment Agreement Amendment
is attached hereto as Exhibit 10.4. The foregoing description of the Knepp Employment Agreement Amendment is qualified by reference to
the Amendment.
Repurchase of Certain Outstanding Stock Options
Issued to Employees for Cash
On July 15, 2022, the Company repurchased for
cash 346,725 outstanding stock options previously granted under the Company’s equity compensation plans from 36 employees
pursuant to a voluntary program made available to option holders, including Mr. Grafmyre, Mr. Knepp, Aron M. Carter, Senior Vice
President - Chief Risk Officer of the Company, and Michelle M. Karas, Senior Vice President, Secretary, & Chief Data Officer of
the Company. Repurchased options had exercise prices ranging from $28.02 to $30.67 per share, and were subject to cliff vesting
periods of either three or five years from grant date. The Company utilized a Black Scholes valuation methodology for determining
the value of each repurchased option, resulting in prices ranging from$1.4770 to $3.3685 for each option repurchased depending on
the applicable exercise price and other characteristics of the applicable option. Repurchased options have been cancelled and will
not be available for re-issuance under any of the Company’s equity compensation plans or programs. Employees who participated
in the option repurchase are required to repay all or a portion of the cash payment received in the event that their employment
terminates prior to July 1, 2024 for reasons other than retirement, disability, or death, or termination by the Company without
cause: termination prior to July 1, 2023 – repayment of 100% of amount received; termination after July 1, 2023 and prior to
July 1, 2024 – repayment of 50% of amount received. The Company’s board of directors approved the stock option
repurchase following the recommendation of the Compensation Committee based on the view that the decrease in the Company’s
stock price since the original grant date resulted primarily from factors outside the Company’s control, including the
economic downturn following the pandemic and related industry trends, and that accordingly the stock options subject to repurchase
were not properly fulfilling the purpose of motivating and retaining key employees in the current competitive employment
landscape.
Of the total options repurchased, the following
amounts were repurchased from Mr. Grafmyre, Mr. Knepp, Mr. Carter, and Ms. Karas: Mr. Grafmyre – a total of 15,000 stock options
for an aggregate amount of $50,527; Mr. Knepp -- a total of 57,300 stock options for an aggregate amount of $185,990; Mr. Carter -- a
total of 12,300 stock options for an aggregate amount of $40,004; and Ms. Karas -- a total of 14,400 stock options for an aggregate amount
of $46,692.
After giving effect to the option repurchase, as
of July 15, 2022, 919,250 stock options remain outstanding under the Company’s equity compensation plans.