EMPLOYMENT AGREEMENT

THIS AGREEMENT, effective as of July 5, 2002 (the “Effective Date”) by and
between The Exchange Bank, an Ohio state-chartered bank with its principal
office located in Luckey, Ohio (“Bank”) and a wholly-owned subsidiary of
Exchange Bancshares, Inc., a holding company organized under the laws of the
State of Ohio and registered under the Bank Holding Company Act of 1956
(“Holding Company”), and Michael W. Pepple, a resident of Ohio (“Employee”).

W I T N E S S E T H:

WHEREAS, Bank is an Ohio state-chartered bank duly organized and validly
existing under the laws of the State of Ohio and engages in banking activities
as a wholly owned subsidiary of Holding Company;

WHEREAS, Employee has knowledge, experience and expertise in the area of
business of Bank, and Bank wishes to obtain the benefits of Employee’s
knowledge, experience and expertise;

WHEREAS, Bank desires to employ Employee on the terms and subject to the
conditions set forth herein and subject to determinations of safety, soundness
and fairness of Bank’s regulatory entities, and Employee is willing to accept
employment on such terms and conditions; and

WHEREAS, Bank and Employee entered into the Employment Agreement and Bank and
Employee now desire to amend and restate the Employment Agreement.  This
Agreement shall supercede in its entirety the Employment Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties, intending to be legally bound,
agree as follows:

1.

Employment.

1.1

Position.  On the terms and subject to the conditions set forth in this
Agreement, Bank shall employ Employee to serve as Vice President of the Bank.
 Employee shall perform all duties commensurate with such positions and shall
serve at the pleasure and direction of the Board of Directors of the Bank (the
“Board”).  

1.2

Board Reporting & Job Description. Employee is to exercise such authority and
perform such duties as are commensurate with the authority of the positions as
detailed in a written job description attached hereto as Exhibit 1.2 and will
report to the President and Chief Executive Officer of the Bank.  Such services
shall be performed in the same metropolitan area where the Bank or Holding
Company has offices, or at such other location as the Bank or Holding Company
may reasonably require; provided that the Employee shall not be required to
relocate to a location which the Employee determines is unreasonable in light of
the employee’s personal or family circumstances.

2.

Compensation.

2.1

Base Salary.  As consideration for Employee’s services as an employee hereunder,
Bank agrees to pay Employee, and Employee agrees to accept, an annual base
salary of $70,000 (“Base Salary”) with increases as the Board of Directors, in
its discretion, may make at any time and from time to time.  The Base Salary, as
so determined, shall be payable in equal bi-weekly installments.  It is further
understood and agreed that during the term of Employee’s status as an employee,
Employee shall be subject to the withholding of taxes as required by law. During
the term of employment contemplated by this Agreement, the Employee shall
receive employee benefits (including, but not limited to, medical/dental
insurance, disability insurance, life insurance, retirement plans, vacations,
and holidays) on the same basis as other employees and other perquisites
(including expense reimbursement, automobile, etc) as determined by the Board.

2.2

Bonus.  Employee may be eligible to receive an annual bonus in an amount to be
determined by the Board from time to time.  The Bonus shall be paid to Employee
within ninety (90) days after the end of the period during which the Bonus is
earned.

2.3

Benefits.  Employee shall be entitled to participate in any insurance or other
benefit plans now or hereafter provided or made available to employees of Bank
generally; provided, however that nothing contained in this Agreement shall
require Bank to establish, maintain or continue any such benefits already in
existence or hereafter adopted for employees of Bank.  

2.4

Vacation.  Employee shall be entitled to annual vacation and leave time of four
weeks at full pay.  Unused vacation time shall be treated pursuant to Bank
policy.

2.5

Salary Continuation.  Employee shall be entitled to participate in a salary
continuation plan pursuant to Bank policy.

3.

Term and Termination.

3.1

Term.  Employee shall be employed for an initial term commencing on the
Effective Date hereof, and ending on December 31, 2005, unless sooner terminated
in accordance with the provisions of this Agreement.  

3.2

Termination.

(a)

Death or Disability.  If Employee dies or becomes disabled to the extent that
Employee cannot perform his duties under this Agreement for a period of more
than ninety (90) consecutive days (the “Disability Period”), this Agreement
shall cease and terminate on the date of Employee’s death or conclusion of the
Disability Period, as applicable, and Employee shall be entitled to receive any
Base Salary and benefits earned through Employee’s date of death or disability.

(b)

Retirement.  Upon Employee’s retirement from the Bank at such time as is normal
and expected for employee retirement from the Bank, this Agreement shall cease
and terminate as of the date of retirement, and Employee shall be entitled to
receive only Base Salary and benefits earned through the date of retirement.

(c)

Termination for Cause.  If this Agreement is terminated by Bank for Cause (as
defined herein), this Agreement shall cease and terminate as of the date of
termination of Employee.  “Cause” shall be defined as (i) commission of a
willful act of dishonesty in the course of Employee’s duties hereunder;  (ii)
conviction by a court of competent jurisdiction of a crime constituting a felony
or conviction with respect to any act involving fraud or dishonesty; (iii)
Employee’s continued, habitual intoxication or performance under the influence
of controlled substances during working hours, after Bank shall have provided
written notice to Employee and given Employee ten (10) days within which to
commence rehabilitation with respect thereto, and Employee shall have failed to
promptly commence and diligently continue such rehabilitation; (iv) frequent or
extended, and unjustifiable (not as a result of incapacity or disability)
absenteeism which shall not have been cured within thirty (30) days after Bank
shall have advised Employee in writing of its intention to terminate Employee’s
employment in accordance with the provisions of this subsection in the event
such condition shall not have been cured; or (v) Employee’s willful and
continued personal misconduct, action, inaction, inability or refusal to perform
the duties and responsibilities described in this Agreement and any Exhibits
hereto, if (A) Bank shall have given Employee prior written notice of the reason
therefor and (B) a period of thirty (30) days following receipt by Employee of
such notice shall have lapsed and the matters which constitute or give rise to
such Cause shall not have been cured or eliminated by Employee; provided,
however, that if such matters are of a nature that same cannot be cured or
eliminated within such thirty (30) day period, such period shall be extended for
so long as Employee shall be endeavoring diligently and in good faith to cure or
eliminate such matters.

3.3

Termination Without Cause.  Bank may terminate Employee’s employment at any time
without Cause, by giving thirty (30) days advance notice in writing to Employee.

3.4

Employee’s Rights Upon Termination.  In the event that this Agreement is
terminated by Bank for Cause, Employee shall receive all Base Salary and
benefits earned through Employee’s final day of employment.  In the event that
this Agreement is terminated by Bank without Cause, Employee shall receive all
Base Salary and benefits earned through Employee’s final day of employment, as
well as a severance payment equal to one (1) times Employee’s current annual
Base Salary.  Any earned but unpaid Base Salary and benefits, as well as the
severance payment shall be paid to Employee within thirty (30) days of
Employee’s final day of employment.  Upon termination for any reason, Employee
shall be required to deliver to Bank and Holding Company any Bank or Holding
Company assets.  Employee’s rights upon termination shall be subject to
determinations of safety, soundness and fairness of any and all of the Bank’s or
Holding Company’s regulatory entities.

4.

Change in Control.

4.1

Change in Control.  Upon the occurrence of a Change in Control and for a period
of 120 days thereafter, or in the event that during the 120 days prior to a
Change in Control, Employee’s employment is involuntarily terminated by the Bank
for any reason other than Cause, the Bank shall provide Change in Control
benefits to Employee as set forth below.  A “Change in Control” for the purposes
of this Agreement shall mean (i) the consolidation, merger or other business
combination of the Bank or Holding Company wherein the Bank or the Holding
Company is not the surviving entity, or (ii) the transfer of all or
substantially all of the assets of the Bank or the Holding Company to a third
party.

4.2

Change in Control Benefits.    The Change in Control benefits that Employee may
be entitled to receive in accordance with the provisions hereof are as follows:

(a)

Employee shall receive a cash payment equal to 2.99 times Employee’s annual Base
Salary determined as of the effective date of the Change in Control.  This
amount shall be paid to Employee in monthly installments or on such other
schedule as the Bank shall elect.

(b)

The Bank shall provide to Employee continued coverage for one (1) year under a
health plan with benefits the same or similar to those Employee had with Bank or
Holding Company prior to the Change in Control.

4.3

Tax Obligations. In the event that any payment or other benefit which Employee
receives from Bank (either under this Agreement or otherwise) constitutes an
“excess parachute payment” as defined for the purposes of Section 280G(b)(1) of
the Internal Revenue Code of 1986, as amended (the “Code”), then Employee shall
receive an additional cash payment (the “Gross-up Payment”) from Bank.  The
amount of such Gross-up Payment shall be equal to the total amount of additional
tax obligations imposed upon Employee as the result of any excess parachute
payment.  For this purpose, such tax obligations shall include, without
limitation, the amount of any excise tax imposed by Section 4999 of the Code and
any Federal, state and local income taxes attributable to the Gross-up Payment,
but shall not include Federal, state or local income tax on amounts paid
hereunder other than the Gross-up Payment.

4.4

Mitigation of Benefits.  Employee shall not be required to mitigate the amount
of any paid Change in Control Benefit by seeking other employment or otherwise,
nor shall the amount of any Change in Control Benefit be reduced by any
compensation earned by Employee as the result of employment by another employer,
by retirement benefits, by offset against any amount claimed to be owed by
Employee to Bank or Holding Company or for any other reason.

5.

Confidential Information and Property of Bank.

5.1

Confidential Information.  Employee acknowledges and agrees that in connection
with his employment by Bank, Employee will have access to certain confidential
and proprietary information owned by and related to Bank and Holding Company.
 For purposes of this Agreement, “Confidential Information” means any
proprietary information of or related to Bank and Holding Company, including but
not limited to: (i) operations manuals and guidelines, marketing manuals and
plans, and business strategies, techniques and methodologies; (ii) financial
information, including information set forth in internal records, files and
ledgers, or incorporated in profit and loss statements, fiscal reports, sales
reports  and business plans; (iii) any and all active prospective mergers or
acquisitions of Bank or Holding Company, and all financial data, pricing terms,
information memoranda and due diligence reports relating thereto; (iv) all
internal memoranda and other office records, including electronic and data
processing files and records; and (v) any other information constituting a trade
secret under governing trade secrets law.

5.2

Exceptions.  Notwithstanding the foregoing, Confidential Information does not
include any of the foregoing that is of general public knowledge or is received
in good faith from a third party having the right to disclose it, who, to the
best of Employee’s knowledge, did not obtain such information from Bank or
Holding Company and who imposes no obligation of secrecy on Employee with
respect to such information.

5.3

Non-Disclosure of Confidential Information.  Employee shall not at any time
willfully use, disclose or divulge any such Confidential Information to any
person, firm or corporation, except: (i) in connection with the discharge of his
duties hereunder; (ii) with the prior written consent of Bank or Holding
Company, which consent may be withheld in Bank’s or Holding Company’s sole
discretion; or (iii) to the extent necessary to comply with law or the valid
order of a court of competent jurisdiction, in which event Employee shall notify
Bank or Holding Company as promptly as practicable and, if possible, prior to
making such disclosure.  Employee shall use his best efforts to prevent any such
disclosure by others.

6.

Arbitration.  Any dispute or controversy arising under or in connection with
this Agreement, including but not limited to any dispute or controversy arising
under this Agreement, shall be settled exclusively by arbitration, conducted
before a panel of three arbitrators, in Toledo, Ohio, in accordance with the
rules of the American Arbitration Association then in effect.  The panel of
arbitrators shall be determined as follows:  Bank will choose one arbitrator,
Employee will choose one arbitrator, and the third person will be chosen by the
two arbitrators chosen by Employee and Bank.  Judgment may be entered on the
arbitrator’s award in any court having jurisdiction; provided, however, that
Bank shall be entitled to seek a restraining order or injunction in any court of
competent jurisdiction to prevent any violation of provisions contained herein,
and Employee hereby consents that such restraining order or injunction may be
granted without the necessity of Bank posting any bond.  The expense of such
arbitration shall be borne by the party who was found to be in breach of the
Agreement.  Parties shall bear their own legal fees and personal costs of such
arbitration.  If the party who initiated arbitration is found by the arbitration
panel to have brought the action in bad faith, then such party shall be
responsible for the other party’s legal fees and other costs incurred as a
result of the arbitration.

7.

Entire Agreement.  This Agreement constitutes the entire agreement and
understanding of the parties with respect to the transactions contemplated
hereby and supersedes all prior agreements, arrangements and understandings of
the parties with respect to the subject matter hereof.  No amendment or
modification of this Agreement shall be valid or binding unless made in writing
and signed by the parties hereto.

8.

Notices.  All notices and other communications under this Agreement shall be in
writing and shall be deemed to have been duly given on the date of service if
served personally on the party (including without limitation service by
overnight courier service) to whom notice is to be given, or on the third day
after mailing if mailed to the party to whom notice is to be given, by first
class mail, registered or certified, postage prepaid, at the address set forth
below, or on the date of  service if delivered by facsimile to the facsimile
number then utilized by the party receiving the facsimile.  All notices shall be
addressed to the parties to be served as follows:

(a) If to Bank:

Exchange Bancshares, Inc.

237 Main Street

Box 177

Luckey, Ohio 43443

Attn: Chairman

Copy to:

Dinsmore & Shohl LLP

1900 Chemed Center

255 East Fifth Street

Cincinnati, Ohio  45202

Attention: Susan B. Zaunbrecher, Esq.

(b) If to Employee:

Michael W. Pepple

 

9.

Severability.  If any provision of this Agreement shall be invalid or
unenforceable, in whole or in part, then such provision shall be deemed to be
modified or restricted to the extent and in the manner necessary to render the
same valid and enforceable, and this Agreement shall be construed and enforced
to the maximum extent permitted by law.

10.

Waiver.  No waiver of any default or breach of this Agreement shall be deemed a
continuing waiver or a waiver of any other breach or default.

11.

Governing Law.  This agreement shall be governed by and construed in accordance
with the laws of the State of Ohio without regard to principles of conflict of
law.

12.

Assignment.  Employee may not assign any rights under this Agreement without the
prior written consent of Bank and Holding Company. If Bank or Holding Company,
or any entity resulting from any stock purchase, merger or consolidation with or
into Bank or Holding Company, is merged with or consolidated into or with any
other entity or entities, or if substantially all of the stock or operating
assets of any of the aforementioned entities is sold or otherwise transferred to
another entity, the provisions of this Agreement shall be binding upon and shall
inure to the benefit of the continuing entity in, or the entity resulting from,
such asset purchase, merger or consolidation, or the entity to which such assets
are sold or transferred.

13.

Headings.  The headings contained in this Agreement are for reference purposes
only and should not affect in any way the meaning or interpretation of this
Agreement.

[Remainder of this Page Left Intentionally Blank]

PEPPLEEA.DOC

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the Effective Date.

 

THE EXCHANGE BANK

     

By:

/s/Marion Layman

Its:

Chairman

Employee

 

/s/Michael W. Pepple

 

Michael W. Pepple

PEPPLEEA.DOC

EXHIBIT 1.2

JOB DESCRIPTION

Job Title:

Commercial Loan Officer

SUMMARY

Examines, evaluates and authorizes or recommends approval of customer
applications for commercial loans by performing the following duties.

ESSENTIAL DUTIES AND RESPONSIBILITIES include the following.  Other duties may
be assigned.

Interviews applicant and requests specified information for loan application.

Requests applicant credit reports, background checks, reference checks, and
other information pertinent to loan applicant’s evaluation.

Analyzes applicant financial status, credit and property evaluation to determine
feasibility of granting loan or submits application to credit analyst for
verification and recommendation.

Corresponds with or interviews applicant or creditors to resolve questions
regarding application information.

Compiles loan package and facilitates negotiation of loan structure with
applicant, including fees, loan repayment options, and other credit terms.

Approves loan within specified limits or refers loan to loan committee for
approval.

Ensures loan agreements are complete and accurate according to policy.

Assures timely loan closing and funding activities.

Identifies and analyzes potential loan markets to develop prospects for
commercial loans.

Advises loan manager of external factors that may affect establishment lending
policies, such as new or revised legislation and regulations.  Recommends and
implements appropriate changes to establishment policies and procedures.

Promotes and cross-sells other establishment products and services as
appropriate to customer requirements.

Provides loan data to support marketing and sales promotion programs.

QUALIFICATIONS  To perform this job successfully, an individual must be able to
perform each essential duty satisfactorily.  The requirements below are
representative of the knowledge, skill and/or ability required.  Reasonable
accommodations may be made to enable individuals with disabilities to perform
the essential functions.

PHYSICAL DEMANDS  The physical demands described here are representative of
those that must be met by an employee to successfully perform the essential
functions of this job.  Reasonable accommodations may be made to enable
individuals with disabilities to perform the essential functions.

WORK ENVIRONMENT  The work environment characteristics described here are
representative of those an employee encounters while performing the essential
functions of this job.  Reasonable accommodations may be made to enable
individuals with disabilities to perform the essential functions.