NORTHEAST PENNSYLVANIA FINANCIAL CORP
EX10-2.TXT
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>ex10-2.txt
<DESCRIPTION>EX10-2.TXT
<TEXT>
<PAGE>

                              EMPLOYMENT AGREEMENT


     This AGREEMENT ("Agreement") is made this 23rd day of December, 2003,
effective as of January 1, 2004, by and between Northeast Pennsylvania Financial
Corp. (the "Company"), a corporation organized under the laws of Delaware, with
its principal offices at 12 East Broad Street, Hazleton, Pennsylvania, 18201,
First Federal Bank (the "Bank"), a federally chartered stock savings bank
organized under the laws of the United States of America, with its principal
offices at 12 East Broad Street, Hazleton, Pennsylvania, 18201 and Thomas L.
Kennedy ("Executive").

     WHEREAS, the Company and Bank desire to continue to assure both entities of
the services of Executive as Chairman of the Board and Chief Legal Officer for
the period provided for in this Agreement; and

     WHEREAS, Executive and the Board of Directors of both the Company and Bank
desire to enter into an agreement setting forth the terms and conditions of the
employment of Executive and the related rights and obligations of each of the
parties.

     NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

     1.   Position and Responsibilities.

          (a)  During the period of Executive's employment under this Agreement,
               Executive agrees to serve as Chairman of the Board and Chief
               Legal Officer of the Company and the Bank. Executive shall have
               responsibility for oversight of the legal function of the Company
               and Bank and all subsidiaries, including the monitoring of
               compliance, litigation, and all activities and matters assigned
               to outside counsel. Additionally, Executive shall have
               responsibility for the business and affairs of the Boards of
               Directors of the Company and Bank on which he shall serve, and
               shall perform all duties and shall have all such powers which are
               commonly incident to the offices of Chairman of the Board and
               Chief Legal Officer.

          (b)  During the period of Executive's employment under this Agreement,
               except for periods of absence occasioned by illness, vacation,
               and reasonable leaves of absence, Executive shall devote
               substantially all of his business time, attention, skill and
               efforts to the faithful performance of his duties under this
               Agreement, including activities and services related to the legal
               function of the Company and its subsidiaries, including the Bank,
               his duties as Chairman of the Board of the Company and Bank and
               subsidiaries, as well as participation in community, professional
               and civic organizations; provided, however, that, Executive may
               serve, or continue to serve, on the boards of directors of, and
               hold any other offices or positions in, companies or
               organizations listed by Executive on his annual conflict of
               interest reporting.

          (c)  The Bank or the Company (as they shall determine), will furnish
               Executive with the working facilities and staff customary for
               executive officers with the titles and duties set forth in this
               Agreement and as are necessary for him to perform his duties.

                                       1
<PAGE>

     2.   Term of Employment.

          (a)  The term of Executive's employment under this Agreement shall
               commence as of January 1, 2004 and shall continue for a period of
               twelve (12) full calendar months thereafter.

          (b)  The Compensation Committees of the Boards of Directors of the
               Company and Bank will review the Agreement and Executive's
               performance annually for purposes of determining whether to
               extend the Agreement for an additional year. The Agreement shall
               be automatically extended for an additional period of twelve (12)
               full calendar months, unless the Compensation Committees of the
               Boards of Directors of Bank and Company shall make a
               recommendation to the full Board not to extend the Agreement. The
               Chairman of the Compensation Committee will give notice to the
               Executive as soon as possible if the Boards have decided not to
               extend the Agreement.

          (c)  Notwithstanding anything contained in this Agreement to the
               contrary, either Executive, the Company or the Bank may terminate
               Executive's employment at any time during the term of this
               Agreement, subject to the terms and conditions of this Agreement.

     3.   Compensation and Benefits.

          (a)  The Bank or the Company (as they shall determine), shall pay
               Executive as compensation a salary of $156,768.00 per year ("Base
               Salary"). In addition to the Base Salary provided in this
               Paragraph 3(a), the Bank shall also provide Executive with all
               such other benefits as are provided uniformly to permanent
               full-time employees of the Bank. If Executive's Base Salary is
               increased, such Increased Base Salary shall then constitute the
               Base Salary for all purposes of this Agreement. For purposes of
               Paragraph 4(b) and 5(c), Base Salary shall also be deemed to
               include payments of incentive compensation made to Executive
               pursuant to any incentive compensation plan in effect during any
               term of Executive's employment.

                                       2
<PAGE>

          (b)  Executive shall be entitled to participate in or receive benefits
               under any employee benefit plans including but not limited to,
               retirement plans, profit-sharing plans, or any other employee
               benefit plan or arrangement made available by the Bank or Company
               in the future to its senior executives, subject to and on a basis
               consistent with the terms, conditions and overall administration
               of such plans and arrangements. Executive shall be entitled to
               incentive compensation and bonuses as provided in any plan of the
               Bank or Company in which Executive is eligible to participate.
               Nothing paid to the Executive under any such plan or arrangement
               will be deemed to be in lieu of other compensation to which the
               Executive is entitled under this Agreement. From time to time,
               and as determined by the Boards of Directors of the Company and
               the Bank, Executive may be entitled to participate in or receive
               benefits under plans relating to stock options and restricted
               stock awards that are made available by the Company or the Bank
               at any time in the future during the term of this Agreement,
               subject to and on a basis consistent with the terms, conditions
               and overall administration of such plans.

          (c)  The Company or Bank (as they shall determine) shall also pay or
               reimburse Executive for all reasonable travel and other
               reasonable expenses incurred in the performance of Executive's
               obligations under this Agreement and may provide such additional
               compensation in such form and such amounts as the Board of
               Directors of the Company or Bank may from time to time determine.

          (d)  The Bank shall also provide Executive with the primary use of an
               automobile leased by the Company at present until expiration of
               that lease in November of 2004.

          (e)  Executive shall take vacation at a time mutually agreed upon by
               the Company, Bank and Executive. Executive shall receive his base
               salary and other benefits during periods of vacation. Executive
               shall also be entitled to paid legal holidays in accordance with
               the policies of the Bank.


                                       3
<PAGE>

     4.   Payments to Executive Upon an Event of Termination.

          (a)  Upon the occurrence of an Event of Termination (as herein
               defined) during Executive's term of employment under this
               Agreement, the provisions of this Paragraph 4 shall apply. Unless
               Executive otherwise agrees, as used in this Agreement, an "Event
               of Termination" shall mean and include any one or more of the
               following: (i) the termination by the Company or Bank of
               Executive's full-time employment for any reason other than a
               termination governed by Paragraph 7 of this Agreement; or (ii)
               Executive's resignation from the Bank or Company, upon, any (A)
               notice to Executive of non-renewal of the term of this Agreement
               (B) failure to reappoint Executive as Chairman of the Board and
               Chief Legal Officer, (C) material change in Executive's
               functions, duties, or responsibilities with the Bank, the Company
               or its subsidiaries, which change would cause Executive's
               position(s) to become of lesser responsibility, importance, or
               scope from the position and attributes thereof described in
               Paragraph 1 of this Agreement, (D) relocation of Executive's
               principal place of employment by more than twenty-five (25) miles
               from its location at the Effective Date of this Agreement, (E)
               material reduction in the benefits and perquisites provided to
               Executive from those being provided as of the Effective Date of
               this Agreement, (F) liquidation or dissolution of the Company or
               the Bank, or (G) breach of this Agreement by the Bank or Company.
               Upon the occurrence of any event described in clauses (A), (B),
               (C), (D), (E), (F) or (G), above, Executive shall have the right
               to terminate his employment under this Agreement by resignation
               upon not less than sixty (60) days prior written notice given
               within six (6) full calendar months after the event giving rise
               to Executive's right to elect to terminate his employment.

          (b)  Upon the occurrence of an Event of Termination, on the Date of
               Termination, as defined in Paragraph 8, the Company and Bank (as
               they shall determine) shall be obligated to pay Executive, or, in
               the event of his subsequent death, his beneficiary or
               beneficiaries, or his estate, as the case may be an amount equal
               to the sum of two (2) years' Base Salary.


                                       4
<page>

               In the event the Bank or the Company is not in compliance with
               its minimum capital requirements or if such payments pursuant to
               this subsection (b) would cause the Company or Bank's capital to
               be reduced below its minimum regulatory capital requirements,
               such payments shall be deferred until such time as either the
               Company or the Bank or successor thereto is in capital
               compliance. At the election of the Executive, which election is
               to be made prior to an Event of Termination, such payments shall
               be made in a lump sum as of the Executive's Date of Termination.
               In the event that no election is made, payment to Executive will
               be made on a monthly basis in approximately equal installments
               during the remaining term of the Agreement. Such payments shall
               not be reduced in the event the Executive obtains other
               employment following termination of employment.


          (c)  Upon the occurrence of an Event of Termination, the Company or
               Bank (as they shall determine) will cause to be continued
               medical, dental, life and disability coverage substantially
               identical to the coverage maintained by the Bank for Executive
               prior to his termination at no premium cost to the Executive,
               except to the extent such coverage may be changed in its
               application to all Bank employees. Such coverage shall cease upon
               the expiration of the remaining term of this Agreement.

     5.   Change in Control.

          (a)  For purposes of this Agreement, a "Change in Control" shall mean
               an event that; (i) would be required to be reported in response
               to Item 1(a) of the current report on Form 8-K, as in effect on
               the date hereof, pursuant to Paragraph 13 or 15(d) of the
               Securities Exchange Act of 1934 (the "Exchange Act"); or (ii)
               results in a Change in Control of the Bank or the Company within
               the meaning of the Home Owners' Loan Act of 1933, as amended, the
               Federal Deposit Insurance Act, or the Rules and Regulations
               promulgated by the Office of Thrift Supervision ("OTS") (or its
               predecessor agency), as in effect on the date hereof (provided,
               that in applying the definition of change in control as set forth
               under the rules and regulations of the OTS, the Boards of
               Directors of Bank and Company shall substitute its judgment for
               that of the OTS); or (iii) without limitation such a Change in
               Control shall be deemed to have occurred at such time as (A) any
               "person" (as the term is used in Paragraphs 13(d) and 14(d) of
               the Exchange Act) is or becomes the "beneficial owner" (as
               defined in Rule 13d-3 under the Exchange Act), directly or
               indirectly, of voting securities of the Bank or the Company
               representing 20% or more of the Bank's or the Company's
               outstanding voting securities or right to acquire such securities
               except for any voting securities of the Bank purchased by the
               Company and any voting securities purchased by any employee
               benefit or stock-based compensation plan of the Company or its
               subsidiaries; or (B) individuals who constitute the Board of
               Directors of Company on

                                       5
<PAGE>

               the date hereof (the "Incumbent Board") cease for any reason to
               constitute at least a majority thereof, provided that any person
               becoming a director subsequent to the date hereof whose election
               was approved by a vote of at least three-quarters (3/4) of the
               directors comprising the Incumbent Board, or whose nomination for
               election by the Company's stockholders was approved by a
               Nominating Committee solely composed of members which are
               Incumbent Board members, shall be, for purposes of this clause
               (B), considered as though he or she were a member of the
               Incumbent Board; or (C) a plan of reorganization, merger,
               consolidation, sale of all or substantially all the assets of the
               Bank or the Company or similar transaction occurs or is
               effectuated in which the Bank or Company is not the resulting
               entity; provided, however, that such an event listed above will
               be deemed to have occurred or to have been effectuated upon the
               receipt of all required federal regulatory approvals not
               including the lapse of any statutory waiting periods; or (D) a
               proxy statement has been distributed soliciting proxies from
               stockholders of the Company, by someone other than the current
               management of the Company, seeking stockholder approval of a plan
               of reorganization, merger or consolidation of the Company or Bank
               with one or more corporations as a result of which the
               outstanding shares of the class of securities then subject to
               such plan or transaction are exchanged for or converted into cash
               or property or securities not issued by the Bank or the Company
               shall be distributed; or (E) a tender offer is made for 20% or
               more of the voting securities of the Bank or Company then
               outstanding.

          (b)  If any of the events described in paragraph (a) of this Paragraph
               5, constituting a Change in Control, have occurred or the Boards
               of Directors determine that a Change in Control has occurred,
               Executive shall be entitled to the benefits provided for in
               subsections (c) and (d) of this Paragraph 5 upon his termination
               of employment at any time during the term of this Agreement and
               any extensions thereof, on or after the date the Change in
               Control occurs due to (i) Executive's dismissal, (ii) Executive's
               resignation following any demotion, loss of title, office or
               significant authority or responsibility, reduction in annual
               compensation or benefits or relocation of his principal place of
               employment by more than twenty-five (25) miles from its location
               immediately prior to the Change in Control or (iii) Executive's
               resignation for any reason within the sixty (60) day period
               following the date that is one year from the date the Change in
               Control occurred, unless Executive's termination is for Just
               Cause as defined in Paragraph 7 of this Agreement; provided,
               however, that such benefits shall be reduced by any payment made
               under Paragraph 4 of this Agreement.


                                       6
<PAGE>

          (c)  Upon the occurrence of a Change in Control followed by
               Executive's termination of employment, as provided for in
               paragraph (b) of this Paragraph 5, the Company or Bank (as they
               shall determine) shall pay Executive, or in the event of his
               subsequent death, his beneficiary or beneficiaries or his estate,
               as the case may be, as severance pay, a sum equal to the greater
               of: (i) the payments and benefits due for the remaining term of
               the Agreement or (ii) three (3) times Executive's Average Base
               Salary and incentive compensation for the three (3) preceding
               taxable years or (iii) three (3) times Executive's Base Salary
               plus incentive compensation for the most recent taxable year or
               portion thereof.

          (d)  Upon the occurrence of a Change in Control and Executive's
               termination of employment in connection therewith, the Bank and
               Company (as they shall determine) will cause to be continued
               life, retirement, medical, dental and disability coverage
               substantially identical to the coverage maintained by the Bank
               for Executive and any of his dependents covered under such plans
               immediately prior to the Change in Control. Such coverage and
               payments shall cease upon the expiration of sixty (60) full
               calendar months following the Date of Termination. In the event
               Executive's participation in any such plan or program is barred,
               the Bank and Company (as they shall determine) shall arrange to
               provide Executive and his dependents with benefits substantially
               similar to those of which Executive and his dependents would
               otherwise have been entitled to receive under such plans and
               programs from which their continued participation is barred or at
               the election of Executive, provide their economic equivalent.

     6.   Change in Control Related Provisions.

     Notwithstanding the provisions of Paragraph 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986 or any successor
thereto, and in order to avoid such a result, Termination Benefits will be
reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal to the maximum amount
allowable as a deduction by the Bank or Company, as determined in accordance
with said Section 280G. The allocation of the reduction required hereby among
the Termination Benefits provided by Paragraph 5 shall be determined by
Executive.


                                       7
<PAGE>

     7.   Termination for Just Cause.

     The phrase termination for "Just Cause" shall mean termination because of
Executive's personal dishonesty, incompetence willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, regulation (other than traffic
violations or similar offenses), final cease and desist order issued by the
Office of Thrift Supervision, the Securities and Exchange Commission, or any
regulatory agency having jurisdiction over the Bank or Company, or material
breach of any provision of this Agreement. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated for Just Cause unless and
until there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than three-fourths (3/4) of the members of the Boards of Directors of the
Company and the Bank at a meeting of the Board of Directors of the Company or
the Bank called and held for that purpose (after reasonable notice to Executive
and an opportunity for him, together with counsel, to be heard before the Boards
of Directors), finding that in the good faith opinion of the Boards of
Directors, Executive was guilty of conduct justifying termination for Just Cause
and specifying the particulars thereof in detail. Executive shall not have the
right to receive compensation or other benefits for any period after termination
for Just Cause. During the period beginning on the date of the Notice of
Termination for Just Cause pursuant to Paragraph 7 hereof through the Date of
Termination, stock options granted to Executive under any stock option plan
shall not be exercisable nor shall any unvested awards granted to Executive
under any stock benefit plan of the Bank, the Company or any subsidiary or
affiliate thereof, vest. At the Date of Termination, such stock options and any
such unvested awards shall become null and void and shall not be exercisable by
or delivered to Executive at any time subsequent to such termination for Just
Cause.

     8.   Notice.

          (a)  Any purported termination by the Bank or Company or by Executive
               shall be communicated by Notice of Termination to the other party
               hereto. For purposes of this Agreement, a "Notice of Termination"
               shall mean a written notice which shall indicate the specific
               termination provision in this Agreement relied upon and shall set
               forth in reasonable detail the facts and circumstances claimed to
               provide a basis for termination of Executive's employment under
               the provision so indicated.

                                       8
<PAGE>

          (b)  "Date of Termination" shall mean the date specified in the Notice
               of Termination (which, in the case of a termination for Just
               Cause, shall not be less than thirty (30) days from the date such
               Notice of Termination is given).

          (c)  If, within thirty (30) days after any Notice of Termination is
               given, the party receiving such Notice of Termination notifies
               the other party that a dispute exists concerning the termination,
               except upon the occurrence of a Change in Control and voluntary
               termination by Executive in which case the Date of Termination
               shall be the date specified in the Notice, the Date of
               Termination shall be the date on which the dispute is finally
               determined, either by mutual written agreement of the parties, by
               a binding arbitration award or by a final judgment, order or
               decree of a court of competent jurisdiction (the time for appeal
               therefrom having expired and no appeal having been perfected),
               and provided further that the Date of Termination shall be
               extended by a notice of dispute only if such notice is given in
               good faith and the party giving such notice pursues the
               resolution of such dispute with reasonable diligence.
               Notwithstanding the pendency of any such dispute, the Bank and
               Company (as they shall determine) will continue to pay Executive
               his full compensation in effect when the notice giving rise to
               the dispute was given (including, but not limited to, Base
               Salary) and continue him as a participant in all compensation,
               benefit and insurance plans in which he was participating when
               the notice of dispute was given, until the dispute is finally
               resolved in accordance with this Agreement. Amounts paid pursuant
               to this provision shall be in addition to all other amounts due
               under this Agreement and shall not be offset against or reduce
               any other amounts due under this Agreement.

     9.   Post-Termination Obligations.

     All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Paragraph 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Company. Executive shall, upon reasonable
notice, furnish such information and assistance to the Company and Bank as may
reasonably be required by the Company and Bank in connection with any litigation
in which it or any of its subsidiaries or affiliates is, or may become, a party.
Bank and Company (as they shall determine) shall reimburse Executive all
reasonable expenses, including costs, fees and expenses for Executive's counsel
in complying with the provisions of this Paragraph 9.


                                       9
<PAGE>

     10.  Non-Competition and Non-Disclosure.

          (a)  Upon any termination of Executive's employment pursuant to either
               Paragraph 4 or 5 of this Agreement, Executive agrees not to
               compete with Bank or Company or its subsidiaries for a period of
               one (1) year following such termination in any city, town or
               county in which Executive's normal business office is located and
               the Bank or Company or any of its subsidiaries has an office or
               has filed an application for regulatory approval to establish an
               office, determined as of the effective date of such termination,
               except as agreed to pursuant to a resolution duly adopted by the
               Board of Directors of either Bank or Company. Executive agrees
               that during such period and within said cities, towns and
               counties, Executive shall not work for or advise, consult or
               otherwise serve with, directly or indirectly, any entity whose
               business materially competes with the depository, lending or
               other business activities of the Bank or Company or its
               subsidiaries. The parties hereto, recognizing that irreparable
               injury will result to the Bank or Company or its subsidiaries,
               its business and property in the event of Executive's breach of
               this Paragraph 10 Subsection (a) agree that in the event of any
               such breach by Executive, the Bank or Company or its
               subsidiaries, will be entitled, in addition to any other remedies
               and damages available, to an injunction to restrain the violation
               hereof by Executive, Executive's partners, agents, servants,
               employees and all persons acting for or under the direction of
               Executive. Executive represents and admits that in the event of
               the termination of his employment pursuant to Paragraphs 4 or 5
               of this Agreement, Executive's experience and capabilities are
               such that Executive can obtain employment in a business engaged
               in other lines and/or of a different nature than the Bank or
               Company or its subsidiaries, and that the enforcement of a remedy
               by way of injunction will not prevent Executive from earning a
               livelihood. Nothing herein will be construed as prohibiting the
               Bank or Company or its subsidiaries from pursuing any other
               remedies available to the Bank or Company or its subsidiaries for
               such breach or threatened breach, including the recovery of
               damages from Executive.


                                       10
<PAGE>

          (b)  Executive recognizes and acknowledges that the knowledge of the
               business activities and plans for business activities of the Bank
               and Company and its subsidiaries as it may exist from time to
               time, is a valuable, special and unique asset of the business of
               the Bank and Company and its subsidiaries. Executive will not,
               during or after the term of his employment, disclose any
               knowledge of the past, present, planned or considered business
               activities of the Bank and Company and its subsidiaries thereof
               to any person, firm, corporation or other entity for any reason
               or purpose whatsoever unless expressly authorized by the Boards
               of Directors of Bank or Company or required by law.
               Notwithstanding the foregoing, Executive may disclose any
               knowledge of banking, financial and/or economic principles,
               concepts or ideas which are not solely and exclusively derived
               from the business plans and activities of the Bank or Company or
               its subsidiaries. In the event of a breach or threatened breach
               by Executive of the provisions of this Paragraph 10 Section (b),
               the Bank and Company will be entitled to an injunction
               restraining Executive from disclosing, in whole or in part, the
               knowledge of the past, present, planned or considered business
               activities of the Bank or Company or its subsidiaries or from
               rendering any services to any person, firm, corporation or other
               entity to whom such knowledge, in whole or in part, has been
               disclosed or is threatened to be disclosed. Nothing herein will
               be construed as prohibiting the Bank or Company or its
               subsidiaries from pursuing any other remedies available to either
               for such breach or threatened breach, including the recovery of
               damages from Executive.

     11.  Death and Disability.

          (a)  Death. Notwithstanding any other provision of this Agreement to
               the contrary, in the event of Executive's death during the term
               of this Agreement, the Bank or Company (as they shall determine)
               shall immediately pay his estate any salary and bonus accrued but
               unpaid as of the date of his death, and, for a period of six (6)
               months after Executive's death, the Bank shall continue to
               provide his dependents' medical insurance benefits existing on
               the date of his death and shall pay Executive's designated
               beneficiary all compensation that would otherwise be payable to
               him pursuant to Paragraph 3(a) of this Agreement. This provision
               shall not negate any rights Executive or his beneficiaries may
               have to death benefits under any employee benefit plan of the
               Company or the Bank.


                                       11
<PAGE>

          (b)  Disability

               (i)  The Bank or Company or Executive may terminate Executive's
                    employment after having established Executive's Disability.
                    For purposes of this Agreement, "Disability" means a
                    physical or mental infirmity that impairs Executive's
                    ability to substantially perform his duties under this
                    Agreement and that results in Executive becoming eligible
                    for long-term disability benefits under the Company's or the
                    Bank's long-term disability plan (or, if the Company or the
                    Bank has no such plan in effect, that impairs Executive's
                    ability to substantially perform his duties under this
                    Agreement for a period of one hundred eighty (180)
                    consecutive days). The Boards of Directors shall determine
                    whether or not Executive is and continues to be permanently
                    disabled for purposes of this Agreement in good faith, based
                    upon competent medical advice and other factors that they
                    reasonably believe to be relevant. As a condition to any
                    benefits, the Boards of Directors may require Executive to
                    submit to such physical or mental evaluations and tests as
                    it deems reasonably appropriate.

               (ii) In the event of Disability, Executive's obligation to
                    perform services under this Agreement will terminate. In the
                    event of such termination, Executive shall continue to
                    receive (x) one hundred percent (100%) of his monthly Base
                    Salary (at the annual rate in effect on the Date of
                    Termination) through the one hundred eightieth (180th) day
                    following the Date of Termination by reason of Disability
                    and (y) sixty percent (60%) of his monthly base salary from
                    the one hundred eighty-first (181st) day following
                    termination through the earlier of the date of his death or
                    the date he attains age 65. Such payments shall be reduced
                    by the amount of any short- or long-term disability benefits
                    payable to Executive under any disability program sponsored
                    by the Company or the Bank. In addition, during any period
                    of Executive's Disability, Executive and his dependents
                    shall, to the greatest extent possible, continue to be
                    covered under all benefit plans (including, without
                    limitation, retirement plans and medical, dental and life
                    insurance plans) of the Company or the Bank in which
                    Executive participated prior to the occurrence of
                    Executive's Disability, on the same terms as if Executive
                    were actively employed by the Bank or Company.


                                       12
<PAGE>

     12.  Source of Payments.

     All payments provided for in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. Company and Bank reserve the right to
make payments provided for in this Agreement from general funds of the Company.

     13.  Effect of Prior Agreements and Existing Benefit Plans.

     This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank, Company or any
predecessor of the Bank, Company and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.

     14.  No Attachment.

          (a)  Except as required by law, no right to receive payments under
               this Agreement shall be subject to anticipation, commutation,
               alienation, sale, assignment, encumbrance, charge, pledge or
               hypothecation, or to execution, attachment, levy or similar
               process or assignment by operation of law, and any attempt,
               voluntary or involuntary, to affect any such action shall be
               null, void and of no effect.

          (b)  This Agreement shall be binding upon, and inure to the benefit of
               Executive, the Bank, the Company and their respective successors
               and assigns.

     15.  Modification and Waiver.

          (a)  This Agreement may not be modified or amended except by an
               instrument in writing signed by the parties hereto.

          (b)  No term or condition of this Agreement shall be deemed to have
               been waived, nor shall there be any estoppel against the
               enforcement of any provision of this Agreement, except by written
               instrument of the party charged with such waiver or estoppel. No
               such written waiver shall be deemed a continuing waiver unless
               specifically stated therein, and each such waiver shall operate
               only as to the specific term or condition waived and shall not
               constitute a waiver of such term or condition for the future as
               to any act other than that specifically waived.


                                       13
<PAGE>


     16.  Severability.

     If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.

     17.  Headings for Reference Only.

     The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

     18.  Governing Law.

     This Agreement shall be governed by the laws of the State of Delaware
without regard to principles of conflicts of law of that State.

     19.  Arbitration.

     Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three (3) arbitrators sitting in a location selected by Executive within
fifty (50) miles from the location of the Bank, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.

     In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.


                                       14
<PAGE>


     20.  Indemnification.

          (a)  The Bank and Company shall provide Executive (including his
               heirs, executors and administrators) with coverage under a
               standard directors' and officers' liability insurance policy at
               its expense and shall indemnify Executive (and his heirs,
               executors and administrators) (in accordance with the By-Laws of
               both Bank and Company) to the fullest extent permitted under
               Delaware law or under the Bank's Charter against all expenses and
               liabilities reasonably incurred by him in connection with or
               arising out of any action, suit or proceeding in which he may be
               involved by reason of his having been a director or officer of
               the Company or Bank (whether or not he continues to be a director
               or officer at the time of incurring such expenses or
               liabilities), such expenses and liabilities to include, but not
               be limited to, judgments, court costs and attorneys' fees and the
               cost of reasonable settlements.

          (b)  Any payments made to Executive pursuant to this Paragraph are
               subject to and conditioned upon compliance with 12 U.S.C. Section
               1828(k) and 12 C.F.R. Part 359 and any rules or regulations
               promulgated thereunder.

     21.  Successor to the Company.

     The Bank and Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to perform the Bank and Company's
obligations under this Agreement, in the same manner and to the same extent that
the Bank and Company would be required to perform if no such succession or
assignment had taken place.

     IN WITNESS WHEREOF, Northeast Pennsylvania Financial Corp. and First
Federal Bank have caused this Agreement to be executed and its seal to be
affixed hereunto by their duly authorized officer and Executive has signed this
Agreement, on the 17th day of September, 2003.


ATTEST:                   NORTHEAST PENNSYLVANIA FINANCIAL CORP.

/s/ Jerry Holbrook   BY: /s/ Thomas M. Petro
------------------       ------------------------------------
                         For the Entire Board of Directors

ATTEST:                  FIRST FEDERAL BANK

/s/ Jerry Holbrook   BY:  /s/ Thomas M. Petro
------------------        -----------------------------------
                          For the Entire Board of Directors

WITNESS:

/s/ Jerry Holbrook        /s/ Thomas L. Kennedy
------------------        -----------------------------------
                          EXECUTIVE, Thomas L. Kennedy



                                       15



</TEXT>
</DOCUMENT>
