EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (“ Agreement ”), dated as of August 12, 2009, is made among NATIONAL PENN BANCSHARES, INC., a Pennsylvania business corporation and registered bank holding company (“ NPB ”); NATIONAL PENN BANK, a national banking association (“ Bank ”); and MICHAEL J. HUGHES (“ Executive ”) ( NPB and Bank are sometimes referred to herein collectively as “ Employer ”).

1.            NPB and Bank desire to employ Executive as Chief Financial Officer of NPB and as a Group Executive Vice President of Bank, and Executive desires to accept such employment.

2.           On December 12, 2008, NPB issued 150,000 shares of its Series B Fixed Rate Cumulative Perpetual Preferred Stock (“ Series B Preferred Stock ”) and related common stock purchase warrants to the United States Department of the Treasury (“ Treasury ”), pursuant to its TARP Capital Purchase Program (“ CPP ”).  As a result, NPB is subject to the laws and regulations, currently enacted or issued or to be enacted or issued in the future, that apply to participants in the CPP, and will remain subject to these current and future legal and regulatory requirements applicable to CPP participants until such time as all shares of NPB’s Series B Preferred Stock are no longer owned by Treasury (such period is referred to herein as the “ CPP Compliance Period ”).

3.            NPB, Bank and Executive desire to set forth herein the terms and conditions of Executive’s employment by NPB and Bank, all subject to, and limited by, the legal and regulatory requirements imposed on NPB as a CPP participant during the CPP Compliance Period.  During the CPP Compliance Period, no amount, benefit or right provided for herein shall be accrued, vested or paid except as permitted by the CPP and the legal and regulatory restrictions applicable to NPB thereunder.  Upon conclusion of the CPP Compliance Period, any amounts, benefits or rights deferred or omitted on account of such restrictions shall be promptly paid or delivered unless otherwise legally prohibited, and this Agreement shall be construed thereafter as if all references to the CPP and its attendant legal and regulatory restrictions were omitted herefrom.

NOW, THEREFORE, in consideration of the mutual promises contained herein, and each intending to be legally bound, NPB, Bank and Executive agree as follows:

1.            Background .  The matters set forth in the “Background” section of this Agreement are incorporated by reference herein, and the parties hereto acknowledge and agree that such matters are binding parts of the contract set forth in this Agreement.  In furtherance of the paragraph 3 of the “Background” section, and as condition of his employment by NPB and Bank, Executive shall execute and deliver a TARP Restriction Agreement in the same form, and at the same time, as executed and delivered by the respective chief executive officers of NPB and Bank.

2.            Term .  This Agreement shall be for a term of three years, beginning on

August 31, 2009 and ending on August 30, 2012, subject to the following:

(a)           This Agreement may be terminated at any time as provided in Sections 9 through 13.

(b)           If this Agreement is not terminated on or before August 30, 2011 or any subsequent August 30, then, on such date, the term of this Agreement shall be automatically extended by adding one year to the term then remaining.  For example, if this Agreement is still in effect on August 30, 2011, then, on such date, its term shall be automatically extended so as to end on August 30, 2013.  Notwithstanding the foregoing, there shall be no further extensions of the term of this Agreement beginning with the first August 30 that occurs after Executive shall have reached age 63.

3.            Position, Duties .

(a)            During the time this Agreement is in effect, NPB will employ Executive as Chief Financial Officer, and Bank will employ Executive as a Group Executive Vice President, or, in either case, in such other higher ranking executive officer positions as may from time to time be assigned to Executive by the respective chief executive officers of NPB and Bank.   Executive accepts such employment, with such powers and duties commensurate with Executive's then existing titles as an executive officer of NPB and Bank as may from time to time be determined by the respective chief executive officers of NPB or Bank.   Executive's duties shall include compliance with Employer's Code of Conduct as in effect from time to time.

(b)            Executive's office will be located at the location of the executive offices of NPB and Bank, wherever maintained from time to time.

(c)            Executive will devote substantially all his time and attention to, and will use his best energies and abilities in the performance of, his duties and responsibilities as prescribed in this Section 3, and will not engage in consulting work or any trade or business for his own account or for or on behalf of any other person, firm or corporation which competes, conflicts, or interferes with the performance of his duties hereunder in any way.  Notwithstanding the foregoing, Executive may perform community service consistent with Employer policy and engage in activities on behalf of NPB or Bank or for his own account, including personal investment activities (excluding any personal investments in publicly-traded companies (other than NPB) with voting power equal to five percent or more); provided, however, that all such service or activities do not interfere with Executive's performance of his responsibilities under this Agreement.

(d)            Executive acknowledges that NPB has currently in effect publicly disseminated, Board of Directors-approved, stock ownership guidelines for directors and executive officers that require a group executive vice president to own shares of NPB common stock with an aggregate value of at least two times base salary, with a five-year period for newly-hired officers to achieve compliance with this requirement, which guidelines are subject to change at any time in the discretion of the NPB Board of Directors.   Executive agrees to use commercially reasonable best efforts to achieve and maintain compliance with these stock ownership guidelines, as presently in effect and as they may be amended from time to time, provided that any amendments shall apply equally to all executive officers of the same rank.

4.            Base Compensation .  Except as provided in Section 23, for all services to be provided by Executive pursuant to Section 3, Employer will pay Executive a base salary of at least Three Hundred Seventy-Five Thousand Dollars ($375,000) per year.   Employer shall pay such salary to Executive in approximately equal installments during each year on the customary salary payment dates of Employer, and such salary shall be subject to applicable income tax withholding, deductions required by law, and other deductions authorized by Executive.   Executive shall not be entitled to any additional compensation for service as a director or committee member of any subsidiary or other company affiliated with NPB or Bank, if so elected.   Employer will evaluate Executive's performance annually, commencing with a first performance review date of March 1, 2010, and Executive shall be eligible for annual merit increases in base salary in the discretion of NPB and Bank, commencing on March 1, 2011.  Except as provided in Section 22, a base salary increase shall, when it takes effect, become the new minimum base salary required thereafter by this Section 4.

5.            Health Insurance, Benefit Plans, Stock Compensation Plans, etc .

(a)           In addition to the compensation payable to Executive pursuant to Section 4 hereof, Executive shall be entitled, during the time this Agreement is in effect, to participate in all health insurance and benefit plans, group insurance, pension or profit-sharing plans, or other plan or plans providing benefits applicable generally to employees of NPB or Bank which are presently in force or which may hereafter be adopted by NPB or Bank.

(b)            Executive shall also be eligible during the time this Agreement is in effect for receipt of stock options or restricted stock commensurate with his positions with NPB and Bank, pursuant to NPB's Long-Term Incentive Compensation Plan or any successor or additional stock option plan or stock compensation plan which may hereafter be adopted by NPB for officers and other key employees of NPB and its subsidiaries.  Any discretionary terms of grants or awards to Executive (other than with respect to amount) shall be consistent with grants or awards to other senior officers generally.

(1)           On or before August 31, 2009, the Compensation Committee of the Board of Directors of NPB (the “ Compensation Committee ”) shall grant Executive:

(i)           20,000 shares of NPB performance-based restricted stock on the following terms and conditions:  vesting to be 100% at achievement of performance factors versus peer banks (loan quality and deposit costs); a performance period through calendar year 2011; determination of vesting in February 2012;

(ii)           5,000 shares of NPB service-based restricted stock on the following terms and conditions:  vesting at 100% after three years of service;

(iii)           non-qualified stock options exercisable for 80,000 shares of NPB common stock on the following terms and conditions:  exercise price to be the closing market price on the date of grant, as reported on the Nasdaq Stock Market; options exercisable for 40,000 shares of NPB common stock shall vest immediately, with the remaining options vesting 20% per year over five years; and an option term to be ten years; and

(iv)           non-qualified stock options exercisable for 40,000 shares of NPB common stock on the following terms and conditions:  exercise price to be the closing market price on the date of grant, as reported on the Nasdaq Stock Market; seven-year cliff vesting; and an option term of ten years.

(2)           The Compensation Committee may include such other terms and conditions in the grants referred to in Section 5(b)(1) as it determines in its sole discretion, provided such additional terms and conditions are not inconsistent with those set forth in Section 5(b)(1).  Such grants shall be evidenced by written agreements in the standard form customarily utilized by NPB for such grants.

6.            Bonuses .  As additional compensation for services rendered hereunder, Executive shall be entitled during the time this Agreement is in effect:

(a)           To participate as a “Category B Participant” in NPB's annual Executive Incentive Plan (the “ EIP ”), assuming such plan remains in effect, or at an equivalent level in any successor executive bonus plan covering the officers of NPB or Bank which may hereafter be adopted by NPB or Bank;

(1)            Executive shall be eligible for an award for Plan Year 2009, pro-rated for time of service during Plan Year 2009, under the EIP as follows:  “Category B Participant” with threshold award of 10% of base salary, target award of 25% of base salary, and optimum award of 40% of base salary; three-fourths (3/4) of the award to be based on company performance as measured by return on average assets (threshold of .59%, target of .80%, optimum of 1.01%) plus five previously established business strategic objectives, and the remaining one-fourth (1/4) of the award to be based on accomplishment of individual objectives (which NPB shall establish in its discretion and communicate to Executive not later than September 30, 2009); an additional one-third (1/3) of the award amount will be deferred, credited with interest at the standard interest rate employed by NPB from time to time for similar deferrals, and then doubled and paid out in cash promptly after the end of Plan Year 2014, as provided in the EIP, i.e., if Executive is still employed by NPB and Bank at that time, unless Executive’s employment shall have earlier terminated due to death, permanent disability, voluntary termination at age 60 or older or involuntary termination not for “ cause” (as such terms are defined under the EIP) (in any such case the full amount shall be paid in first quarter 2015 as if the Executive were still employed by NPB) or unless there shall have been a “change-in-control” of NPB (as defined under the EIP) (in which case the full amount shall be paid out immediately); the performance metrics and other terms of the award to be made are more fully described in Exhibit 10.1 ( Schedule B) to NPB’s Report on Form 8-K dated February 27, 2009 and filed with the Securities and Exchange Commission on February 27, 2009.

(b)           To receive any discretionary bonus that may be awarded to him under the EIP or such successor executive bonus plan.

Executive acknowledges that this Section 6 does not preclude NPB's or Bank's Board of Directors, as the case may be, from amending or terminating the EIP or any other executive bonus plan in accordance with its terms.

7.            Other Benefits .  Except as provided in Sections 14 and 22, as additional compensation for services rendered hereunder, Executive shall be entitled during the time this Agreement is in effect:

(a)           To life insurance coverage and long-term disability insurance coverage at no expense to Executive, in at least such amounts and on such terms and conditions as are such insurance coverages for other NPB Group Executive Vice Presidents that are in effect on the date of this Agreement;

(b)           To the receipt of an automobile allowance, in such amount as shall be determined by Employer from time to time, in Employer's sole discretion, but approximately $650 per month;

(c)           To reasonable vacation and sick leave in accordance with Employer policy, as the same may be revised from time to time; and

(d)           To a $6,000 lump sum payment in reimbursement of business expenses incurred by executive in connection with this Agreement, payable on the first regular payroll date occurring after August 31, 2009.

8.            Change in Control .