pb_8k1213ex103.htm


    

      EXHIBIT
        10.3

       

       

      EMPLOYMENT
        AGREEMENT

       

      This
        Employment Agreement (“Agreement”) is made and entered into as of this 18th day
        of December, 2007, but effective as of January 1, 2005 (the “Effective Date”),
        by and among Peoples Bancorp (“Peoples”), the holding company of Peoples Federal
        Savings Bank of DeKalb County (the “Bank”), the Bank and Jeffrey H. Gatton
        (“Executive”), with reference to the following:

       

      WHEREAS,
        Executive is currently employed by the Bank, which is a wholly owned subsidiary
        of Peoples;

       

      WHEREAS,
        Peoples and the Bank desire to provide for the employment of the Executive
        by
        the Bank;

       

      WHEREAS,
        the Executive is willing to commit himself to serving the Bank on the terms
        and
        conditions herein provided;

       

      NOW,
        THEREFORE, IN CONSIDERATION OF the recitals set forth above and the mutual
        promises, covenants, agreements, conditions and undertakings hereinafter
        set
        forth, the adequacy and receipt of which consideration is hereby acknowledged,
        the parties hereto agree as follows:

       

      
        	
                1.

              	
                Term.

              


      

       

      This
        Agreement shall have a term of three (3) years, commencing on December 18,
        2007
        (the “Term”). Where used herein, “Term” shall refer to the entire period of
        employment of Executive by the Bank from and after the Effective Date of
        this
        Agreement, whether for the period provided above and as extended or terminated
        earlier as hereinafter provided.

       

      
        	
                2.

              	
                Position
                  and Duties.

              


      

       

      (a)           During
        the Term, Executive shall be employed on a full-time basis to serve as Senior
        Vice President and Chief Operating Officer of the Bank and perform the duties
        customarily performed by such officer of a savings association, including
        the
        general supervision and operation of the business and affairs of the Bank,
        and
        reporting to the applicable regulatory authorities regarding the activities
        of
        the Bank, subject to the direction of and the powers vested by law in the
        Board
        of Directors of the Bank (the “Board”) and the Bank’s shareholder, Peoples.
        Except as provided for herein, the duties and position of Executive as Senior
        President and Chief Operating Officer hereunder may be changed only by the
        mutual written agreement of the parties hereto. The parties may mutually
        agree
        to extend Executive’s full-time status for additional 12-month periods following
        December 18, 2007.

       

      (b)           During
        the Term hereof, Executive shall perform the services herein contemplated
        to be
        performed by Executive faithfully, diligently and to the best of Executive’s
        ability in compliance with instructions and policies of the Board, the Bank’s
        Federal Charter and Bylaws and with all applicable laws and
        regulations.

       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      3.           Compensation.

       

      (a)           Base
        Salary.  For executive’s services rendered hereunder, the Bank
        shall pay or cause to be paid a base salary to Executive at the rate of $102,500
        per annum, payable in conformity with the Bank’s normal payroll periods and
        procedures. During the Term, Executive’s base salary shall be reviewed at least
        once every twelve (12) months and shall be increased (but not reduced) at
        any
        time, and from time to time, as shall be substantially consistent with increases
        in base salary generally awarded in the ordinary course of business to other
        executives of the Bank, provided that Executive’s Base Salary shall be increased
        by a percentage no less than the annual increase of the cost of living index
        for
        the Fort Wayne, Indiana metropolitan area. Any increase in base salary shall
        not
        serve to limit or reduce any other obligation to the Executive under this
        Agreement. The term “Base Salary” as utilized in this Agreement shall refer to
        base salary as so increased.

       

      (b)           Discretionary
        Bonus. In addition to Executive’s Base Salary provided for under Paragraph
        3(a) above, the Executive shall participate in an equitable manner with all
        other senior management executives of the Bank in discretionary bonuses that
        the
        Board may award from time to time to the Bank’s senior management executives. No
        other compensation provided for in this Agreement shall be deemed a substitute
        for the Executive’s right to participate in such discretionary
        bonuses.

       

      (c)           Stock
        Awards. The Executive shall be eligible for consideration for stock option
        grants by Peoples pursuant to any stock option plan adopted or maintained
        by
        Peoples, for so long as Executive shall be employed by the Bank.

       

      (d)           Other
        benefits. The Executive will eligible to participate in or receive benefits
        under any employee benefit plans of the Bank which are available to senior
        executives and key management employees of the Bank, subject to and on a
        basis
        consistent with the terms, conditions and overall administration of such
        plans
        and arrangements. Nothing paid to 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.

       

      
        	
                4.

              	
                Vacation
                  and Sick Leave.

              


      

       

      During
        the Term hereof, Executive shall be entitled to paid vacation and paid sick
        leave, the amount and term of which shall be determined in accordance with
        the
        policies of the Bank as in effect from time to time, but in no event shall
        the
        vacation period be less than four weeks per year.

       

      
        	
                5.

              	
                Group
                  Medical, Life Insurance and Other
                  Benefits.

              


      

       

      The
        Executive shall participate in any plan that the Bank maintains for the benefit
        of its executives if the plan relates to (i) pension, profit sharing or other
        retirement benefits, (ii) medical insurance or the reimbursement of medical
        or
        dependent care expenses, or (iii) other group benefits, including disability
        and
        life insurance plans.

       


      
        
          
          

        

        
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      6.           Business
        Expenses.

       

      Executive
        shall be entitled to reimbursement by the Bank for any and all ordinary and
        necessary business expenses reasonably incurred by Executive in the performance
        of Executive’s duties and in acting for the Bank during the Term of this
        Agreement, provided that Executive furnishes to the Bank, for review and
        approval by the Chairman of the Board, adequate records and other documentation
        as may be required for the substantiation of such expenditures as a business
        expense of the Bank

       

      
        	
                7.

              	
                Termination
                  for Cause.

              


      

       

      (a)           The
        Board may for cause terminate Executive’s employment at any time during the Term
        of this Agreement. In such event, all rights of Executive under this Agreement
        shall terminate and Executive shall have no right to receive compensation
        or
        other benefits for any period after the effective date of such termination
        for
        cause. Termination for cause shall be defined as the Executive’s dishonesty,
        incompetence, willful misconduct, breach of fiduciary duty involving personal
        profit, intentional failure to perform stated duties, willful violation of
        any
        law, rule or regulation (other than traffic violations or similar offenses)
        or
        final cease-and-desist order, or material breach of any provision of this
        Agreement.

       

      (b)           Notwithstanding
        the foregoing, no termination for cause shall be effective with respect to
        the
        Executive unless and until there shall have been delivered to him a copy
        of a
        resolution, finding that in the good faith opinion of the Board of Directors
        of
        the Bank (the “Board”), the Executive’s actions and/or failure to act justifies
        termination for cause and specifying the particulars thereof in detail.
        Reasonable notice shall be provided to the Executive and he shall receive
        an
        opportunity, together with counsel, to be heard before the Board. The Executive
        shall not have the right to receive compensation or other benefits for any
        period after a termination for cause, except that benefits previously vested
        or
        accrued shall be unaffected by such termination.

       

      
        	
                8.

              	
                Events
                  of Termination; Payments to
                  Executive.

              


      

       

      The
        provisions of this Paragraph 8 shall apply upon the occurrence of an Event
        of
        Termination (as herein defined).

       

      (a)           As
        used in this Agreement, an “Event of Termination” shall mean and include any one
        or more of the following (other than such an event which occurs within 12
        months
        following a Change in Control, in which case any benefits due to Executive
        under
        Paragraph 9 shall be made as provided in Paragraph 9): (i) the termination
        by
        the Bank of the Executive’s employment hereunder for any reason other than for
        cause (as defined in Paragraph 7 hereinabove) during the Term; or (ii) the
        Executive’s resignation or constructive termination from the Bank’s employ, upon
        any (A) material change in the Executive’s function, duties, or
        responsibilities, which change would cause the Executive’s position to become
        one of lesser responsibility, importance, or scope from the position and
        attributes thereof (and any such material change shall be deemed a continuing
        breach of this Agreement), (B) relocation of the principal place at which
        Executive’s duties are to be performed to a location outside a thirty (30) mile
        radius around the principal location at which Executive’s duties are performed
        immediately

       


      
        
          
          

        

        
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      prior
        to
        the termination of employment, (C) material reduction in the benefits and
        perquisites to the Executive from those being provided as of the Effective
        Date
        of this Agreement except for any changes that are generally applicable to
        senior
        executives and key management employees or expressly contemplated by this
        Agreement (any such reduction to be deemed a continuing breach of this
        Agreement), or (D) or any other material breach of this Agreement by the
        Bank,
        which events remain uncorrected for at least 30 days after the Executive
        provides the Bank notice of such occurrence. Upon the occurrence of any event
        described in clauses (A), (B), (C) or (D) above, the Executive shall have
        the
        right to elect to terminate his employment under this Agreement by resignation
        upon not less than sixty (60) days prior written notice given within a
        reasonable period of time not to exceed 90 days after the later of the (i)
        occurrence of the event giving rise to said right to elect termination or
        (ii)
        actual knowledge of such event by the Executive. In the case of a continuing
        breach, the Executive may give such sixty (60) days prior notice at any time.
        Executive’s sixty (60) days prior notice of his Date of Termination shall be
        referred to as “Notice of Termination.” The date specified in Executive’s Notice
        of Termination to the Bank satisfying the 60 days’ prior notice requirement
        shall be the “Date of Termination.” Notwithstanding the foregoing, if the Bank
        cures the violation set forth within clauses (A), (B), (C) or (D) within
        30 days
        after the Notice of Termination is received by the Bank, such Notice of
        Termination shall be deemed revoked by the Executive.

       

      (b)           Upon
        the occurrence of an Event of Termination, on the Date of Termination, as
        defined in this Paragraph 8, the Bank shall pay the Executive, or, in the event
        of his subsequent death, his beneficiary or beneficiaries as he may have
        designated, or his estate, if no beneficiary designation has been made, or
        if no
        beneficiaries survive the Executive, as severance pay or liquidated damages,
        or
        both, a sum equal to (i) the amount of Base Salary of the Executive for each
        year or portion thereof during the remaining Term of this Agreement, plus
        (ii)
        bonuses based on the last bonus received for each year or portion thereof
        remaining in the Term of this Agreement, as well as (iii) the value of any
        health and/or medical benefits as provided under Paragraph 5 and retirement
        benefits under Paragraph 5 of this Agreement for each year or portion thereof
        remaining in the Term of this Agreement, provided, however, that if the Bank
        is
        not in compliance with its minimum capital requirements or if such payments
        would cause the Bank’s capital to be reduced below its minimum capital
        requirements, such payments shall be deferred until such time as the Bank
        is in
        capital compliance. Such salary, bonus, retirement benefit, and health payments
        shall be made in a lump sum within ten (10) days of the Date of
        Termination.

       

      (c)           The
        payments provided under this Paragraph 8 upon an Event of Termination shall
        be
        in lieu of any other payments or damages recoverable in any causes of action
        by
        Executive related to this Agreement. As a condition to receipt of payments
        hereunder, the Executive shall execute a Release and Settlement Agreement
        pursuant to which the Executive shall waive any and all claims resulting
        from
        employment at or termination from the Bank other than payments or benefits
        which
        are expressly provided for in this Agreement.

       

      
        	
                9.

              	
                Termination
                  as a Result of a Change of
                  Control.

              


      

       

      (a)           Change
        of Control. For purposes of this Agreement and except as provided in
        Paragraph 11(c) below relating to supervisory transactions, the term “Change of
        Control” shall mean the occurrence of any of the following events:

       


      
        
          
          

        

        
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      (i)           a
        change in the ownership of the Bank or Peoples, which shall occur on the
        date
        that any one person, or more than one person acting as a group, acquires
        ownership of stock of the Bank or Peoples that, together with stock held
        by such
        person or group, constitutes more than fifty percent (50%) of the total fair
        market value or total voting power of the stock of the Bank or
        Peoples.  Such acquisition may occur as a result of a merger of
        Peoples or the Bank into another entity which pays consideration for the
        shares
        of capital stock of the merging Holding Company or Bank.  However, if
        any one person, or more than one person acting as a group, is considered
        to own
        more than fifty percent (50%) of the total fair market value or total voting
        power of the stock of the Bank or Peoples, the acquisition of additional
        stock
        by the same person or persons is not considered to cause a change in the
        ownership of the Bank or Peoples (or to cause a change in the effective control
        of the Bank or Peoples (within the meaning of subsection (ii)).  An
        increase in the percentage of stock owned by any one person, or persons acting
        as a group, as a result of a transaction in which the Bank or Peoples acquires
        its stock in exchange for property will be treated as an acquisition of stock
        for purposes of this subsection.  This subsection applies only when
        there is a transfer of stock of the Bank or Peoples (or issuance of stock
        of the
        Bank or Peoples) and stock in the Bank or Peoples remains outstanding after
        the
        transaction.

       

      (ii)           a
        change in the effective control of the Bank or Peoples, which shall occur
        only
        on either of the following dates:

       

      
        	
                 

              	
                (1)

              	
                the
                  date any one person, or more than one person acting as a group
                  acquires
                  (or has acquired during the 12 month period ending on the date
                  of the most
                  recent acquisition by such person or persons) ownership of stock
                  of the
                  Bank or Peoples possessing thirty percent (30%) or more of the
                  total
                  voting power of the stock of the Bank or
                  Peoples.

              


      

       

      
        	
                 

              	
                (2)

              	
                the
                  date a majority of members of Peoples’ board of directors is replaced
                  during any 12 month period by directors whose appointment or election
                  is
                  not endorsed by a majority of the members of Peoples’ board of directors
                  before the date of the appointment or election; provided, however,
                  that
                  this provision shall not apply if another corporation is a majority
                  shareholder of Peoples.

              


      

       

      If
        any
        one person, or more than one person acting as a group, is considered to
        effectively control the Bank or Peoples, the acquisition of additional control
        of the Bank or Peoples by the same person or persons is not considered to
        cause
        a change in the effective control of the Bank or Peoples (or to cause a change
        in the ownership of the Bank or Peoples within the meaning of subsection
        (i) of
        this section).

       

      (iii)           a
        change in the ownership of a substantial portion of the Bank’s assets, which
        shall occur on the date that any one person, or more than one person acting
        as a
        group, acquires (or has acquired during the 12 month period ending on the
        date
        of the

       


      
        
          
          

        

        
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      most
        recent acquisition by such person or persons) assets from the Bank that have
        a
        total gross fair market value equal to or more than forty percent (40%) of
        the
        total gross fair market value of all of the assets of the Bank immediately
        before such acquisition or acquisitions.  For this purpose, gross fair
        market value means the value of the assets of the Bank, or the value of the
        assets being disposed of, determined without regard to any liabilities
        associated with such assets.  No change in control occurs under this
        subsection (iii) when there is a transfer to an entity that is controlled
        by the
        shareholders of the Bank immediately after the transfer.  A transfer
        of assets by the Bank is not treated as a change in the ownership of such
        assets
        if the assets are transferred to –

       

      
        	
                 

              	
                (1)

              	
                a
                  shareholder of the Bank (immediately before the asset transfer)
                  in
                  exchange for or with respect to its
                  stock;

              


      

       

      
        	
                 

              	
                (2)

              	
                an
                  entity, 50 percent or more of the total value or voting power of
                  which is
                  owned, directly or indirectly, by the
                  Bank.

              


      

       

      
        	
                 

              	
                (3)

              	
                a
                  person, or more than one person acting as a group, that owns, directly
                  or
                  indirectly, 50 percent or more of the total value or voting power
                  of all
                  the outstanding stock of the Bank;
                  or

              


      

       

      
        	
                 

              	
                (4)

              	
                an
                  entity, at least 50 percent of the total value or voting power
                  of which is
                  owned, directly or indirectly, by a person described in paragraph
                  (iii).

              


      

       

      For
        purposes of this subsection (iii) and except as otherwise provided in paragraph
        1) above, a person’s status is determined immediately after the transfer of the
        assets.

       

      (iv)           For
        purposes of this section, persons will not be considered to be acting as
        a group
        solely because they purchase or own stock of the same corporation at the
        same
        time, or as a result of the same public offering.  Persons will be
        considered to be acting as a group if they are owners of a corporation that
        enters into a merger, consolidation, purchase or acquisition of stock, or
        similar business transaction with the Bank or Peoples; provided, however,
        that
        they will not be considered to be acting as a group if they are owners of
        an
        entity that merges into the Bank or Peoples where the Bank or Peoples is
        the
        surviving corporation.

       

      (b)           Severance
        Payment. If Executive’s employment with the Bank is terminated by the Bank
        or by the Executive for any reason other than for cause, as defined in Section
        7(a), within 12 months following a Change of Control, Executive shall be
        entitled to receive as his sole and exclusive remedy a lump sum severance
        payment equal to 2.99 years of Executive’s Base Salary, as provided for in
        Paragraph 3(a) of this Agreement, plus the amount of any bonus compensation
        earned by Executive during the 2.99 years immediately preceding the Change
        of
        Control, the present value of unpaid health benefits and retirement benefits
        under Paragraph 5 assuming those benefits continue to be paid until Executive
        reaches the age of 65, less any amounts required to be deducted by the Bank
        for
        federal and state taxes or other applicable requirements. The severance payment
        hereunder shall be paid to Executive in a lump sum upon

       


      
        
          
          

        

        
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      the
        effectiveness of Executive’s termination of employment from the Bank and the
        termination of this Agreement. In the event a severance payment is paid to
        Executive under this Paragraph 9(b), this Agreement shall be terminated and
        the
        Bank shall have no further obligation to Executive under this Agreement,
        except
        as provided herein.

       

      (c)           Notwithstanding
        the preceding paragraphs of this Paragraph 9, the payments or benefits to
        be
        made or afforded to Executive under this Agreement when aggregated with any
        other “golden parachute” amounts (defined under Section 280G of the Internal
        Revenue Code of 1986, as amended (the “Code”) as compensation that becomes
        payable or accelerated due to a Change in Control payable under any other
        plans,
        agreements or policies of Peoples or the Bank, shall be reduced to the highest
        amount permissible under Sections 280G and 4999 of the Code before the Executive
        becomes subject to the excess parachute payment excise tax under Section
        4999 of
        the Code and Peoples or the Bank loses all or part of its compensation deduction
        for such payments. The Executive shall determine the allocation of the reduction
        required hereby among the benefits to which the Executive is
        entitled.

       

      (d)           Compliance
        with Law and Regulation. The parties hereto expressly acknowledge and agree
        that any payments made to Executive pursuant to this Agreement or otherwise
        are
        subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k)
        and
        any regulations promulgated there under.

       

      
        	
                10.

              	
                Other
                  Termination.

              


      

       

      (a)           Disability.
        In the event of the Executive’s disability, Executive’s employment
        hereunder may be terminated by written notice from the Bank to Executive.
        In the
        event that Executive’s employment is terminated under this Paragraph 10(a),
        Executive shall receive the difference between any disability payments provided
        by the Bank’s insurance plans and his Base Salary as set forth in Paragraph 3(a)
        hereof which he would have received during the remaining Term of this Agreement,
        plus the amount of any bonus compensation payable to Executive under Section
        3(b) hereof for any number of years or portions thereof remaining in the
        Term of
        this Agreement, prorated as appropriate. Such termination shall not affect
        any
        rights which Executive may have pursuant to any insurance or other death
        benefit, retirement or stock award plans or arrangements of the Bank, or
        any
        stock option plans or options thereunder, which rights shall continue to
        be
        governed by the provisions of such plans and arrangements. For purposes of
        this
        section, “disability” shall mean any medically determinable physical or mental
        impairment which can be expected to result in death or to last for a continuous
        period of not less than 12 months and which (i) renders Executive unable
        to
        engage in any substantial gainful activity or (ii) entitles Executive to
        income
        replacement benefits for a period of not less than three months under an
        accident and benefit plan covering employees of the Bank, as reasonably
        determined by a duly licensed physician selected in good faith by the
        Bank.

       

      (b)           Death.
        If Executive’s employment is terminated by reason of Executive’s death,
        this Agreement shall terminate without further obligations of the Bank to
        Executive (or Executive’s heirs or legal representatives) under this Agreement,
        other than for payment of (i) Executive’s Base Salary which he was receiving at
        the time of death, prorated through the date of termination; (ii) the amount
        of
        any bonus compensation payable to Executive at the time of his death under
        Section 3(b) above, prorated through the date of termination; (iii) any
        compensation

       


      
        
          
          

        

        
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      previously
        deferred by Executive; (iv) any accrued vacation and/or sick leave pay; and
        (v)
        any amounts due pursuant to the terms of any applicable welfare benefit plan.
        All of the foregoing amounts shall be paid to Executive’s estate or beneficiary,
        as applicable, in a lump sum in cash within thirty (30) days after the date
        of
        termination or earlier as required by applicable law.

       

      
        	
                11.

              	
                Regulatory
                  Provisions.

              


      

       

      (a)           Suspension
        and Removal Orders. If Executive is suspended and/or temporarily prohibited
        from participating in the conduct of the Bank’s affairs by notice served under
        Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
        Section 181 8(e)(3) and (g)(1)), the Bank’s obligations under this Agreement
        shall be suspended as of the date of service, unless stayed by appropriate
        proceedings. If the charges in the notice are dismissed, the Bank may in
        its
        discretion: (i) pay Executive all or part of the compensation withheld while
        its
        obligations under this Agreement were suspended; and (ii) reinstate (in whole
        or
        in part) any of its obligations which were suspended. If Executive is removed
        and/or permanently prohibited from participating in the conduct of the Bank’s
        affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal
        Deposit Insurance Act (12 U.S.C. Section 181 8(e)(4) or (g)(1)), all obligations
        of the Bank under this Agreement shall terminate as of the effective date
        of the
        order, but vested rights of the parties shall not be affected.

       

      (b)           Termination
        by Default. If the Bank is in default (as defined in Section 3(x)(1) of the
        Federal Deposit Insurance Act (12 U.S.C. Section 1813(x)(1)), all obligations
        under this Agreement shall terminate as of the date of default, but vested
        rights of the parties shall not be affected.

       

      (c)           Supervisory
        Assistance or Merger. All obligations under this Agreement shall be
        terminated, except to the extent that it is determined that continuation
        of the
        Agreement is necessary for the continued operation of the Bank: (i) by the
        Director of the Office of Thrift Supervision (the “Director”) or his or her
        designee, at the time that the Federal Deposit Insurance Corporation or the
        Office of Thrift Supervision enters into an agreement to provide assistance
        to
        or on behalf of the Bank under the authority contained in Section 13(c) of
        the
        Federal Deposit Insurance Act (12 U.S.C. Section 1823(c)); or (ii) by the
        Director or his or her designee, at the time that the Director or his or
        her
        designee approves a supervisory merger to resolve problems related to the
        operation of the Bank or when the Bank is in an unsafe or unsound condition.
        All
        rights of the parties that have already vested, however, shall not be affected
        by such action.

       

      
        	
                12.

              	
                Payments
                  to Specified Employees.

              


      

       

      (a)           To
        the extent the Executive is a “specified employee” (as defined below) as of a
        separation from service, payments due to the Executive under this Agreement
        upon
        a separation from service that represent payment of deferred compensation
        that
        is subject to Section 409A of the Code shall begin no sooner than six months
        after the Executive’s separation from service; provided, however, that any
        payments not made during the six month period described in this Section 12(a)
        shall be made in a single lump sum as soon as administratively practicable
        after
        the expiration of such six month period; provided, further, that, to the
        extent
        this Agreement provides for payment of deferred compensation only upon an
        involuntary separation from service or pursuant to a window program, the
        six
        month delay required under this Section 12(a) shall not

       


      
        
          
          

        

        
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      apply
        to
        the portion of any payment resulting from the Executive’s “involuntary
        separation from service” (as defined in Treasury Reg. Section 1.409A-1(n)
        and including a “separation from service for good reason,” as defined in
        Treasury Reg. Section 1.409A-1(n)(2)) that (i) is payable no later than the
        last day of the second year following the year in which the separation from
        service occurs, and (ii) does not exceed two times the lesser of (1) the
        Executive’s annualized compensation for the year prior to the year in which the
        separation from service occurs, or (2) the dollar limit described in
        Section 401(a)(17) of the Code.

       

      (b)           To
        the extent any life, health, disability or other welfare benefit coverage
        provided to the Executive under this Agreement would be taxable to the
        Executive, the taxable amount of such coverage shall not exceed the applicable
        dollar amount under Section 402(g)(1)(B) of the Code determined as of the
        year in which the Executive’s separation from service occurs.  The
        intent of the foregoing sentence is to permit Peoples and the Bank to treat
        the
        provision of such benefits as a limited payment under Treasury Reg.
        Section 1.409A-1(a)(9)(v)(D) so as to avoid application of the six month
        delay rule for specified employees.  For purposes of this Agreement,
        any reference to severance of employment or termination of employment shall
        mean
        a “separation from service” as defined in Treasury Reg.
        Section 1.409A-1(h).

       

      (c)           For
        purposes of this Agreement, the term “specified employee” shall have the meaning
        set forth in Treasury Reg. Section 1.409A-1(i) and shall include, without
        limitation, (1) an officer of the Bank or Peoples having annual compensation
        greater than $130,000 (as adjusted for inflation under the Code), (2) a five
        percent owner of the Bank or Peoples, or (3) a one percent owner of the Bank
        or
        Peoples having annual compensation of more than $150,000.  The
        determination of whether the Executive is a “specified employee” shall be made
        by the Bank in good faith applying the applicable Treasury
        regulations.

       

      
        	
                13.

              	
                Disclosure
                  or Use of Trade Secrets/Non-Compete
                  Agreement.

              


      

       

      During
        the Term hereof, Executive will have access to and become acquainted with
        what
        Executive and the Bank acknowledge are trade secrets of the Bank. Executive
        shall not use or disclose any trade secrets or, directly or indirectly, cause
        them to be used or disclosed in any manner, during the Term hereof or for
        a
        period of one (1) year after the termination of this Agreement, except as
        may be
        required or requested by the Bank, by court order or under applicable law
        or
        regulation. While Executive is employed by the Bank and for a period of one
        year
        after termination of Executive’s employment by the Bank for cause or by the
        Executive, Executive shall not directly or indirectly engage in any bank
        or
        bank-related business which competes with the business of the Bank as conducted
        during Executive’s employment by the Bank for any financial institution,
        including, but not limited to, banks, savings associations and credit unions
        within a 50-mile radius of Three Rivers, Michigan.

       

      
        	
                14.

              	
                Return
                  of Documents.

              


      

       

      Executive
        expressly agrees that all manuals, documents, files, reports, studies or
        other
        materials used and/or developed by Executive for the Bank during the Term
        of
        this Agreement or prior thereto while Executive was employed by the Bank
        are
        solely the property of the Bank, and that Executive has no right, title or
        interest therein. Upon termination of this Agreement,

       


      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      


      Executive
        or Executive’s representative shall promptly deliver possession of all such
        materials (including any copies thereof) to the Bank.

       

      15.           Notices.

       

      All
        notices, demands or other communications hereunder shall be in writing and
        shall
        be deemed to have been duly given if delivered in person, or sent by United
        States mail, certified or registered, with return receipt requested, if to
        Executive, addressed to Executive at the last residence address of Executive
        as
        shown in the records of the Bank, and if to the Bank, addressed to the Chairman
        of the Board at the Bank’s principal office.

       

      
        	
                16.

              	
                Governing
                  Law and Jurisdiction.

              


      

       

      This
        Agreement shall be governed by and interpreted in accordance with the laws
        of
        the State of Indiana. Each of the parties hereto consents to the jurisdiction
        of
        the Indiana or federal courts, as the case may be, for the enforcement of
        this
        Agreement and matters pertaining to the transactions and activities contemplated
        hereby.

       

      
        	
                17.

              	
                Attorneys’
                  Fees.

              


      

       

      In
        the
        event that a dispute arises with respect to this Agreement, the prevailing
        party
        in such dispute shall be entitled to recover all expenses, including, without
        limitation, reasonable attorneys' fees, incurred in connection with such
        dispute.

       

      
        	
                18.

              	
                Benefit
                  of Agreement.

              


      

       

      This
        Agreement shall be binding upon and shall inure to the benefit of the parties
        hereto and their respective successors and assigns; provided, however, that
        Executive may not assign any interest in this Agreement without the prior
        written consent of the Bank.

       

      
        	
                19.

              	
                Captions.

              


      

       

      Captions
        and paragraph heading used in this Agreement are for convenience only and
        shall
        not be used in interpreting or construing this Agreement.

       

      
        	
                20.

              	
                Entire
                  Agreement.

              


      

       

      This
        Agreement contains the entire agreement of the parties with respect to the
        employment of Executive by the Bank, and it expressly
        supersedes any and all other agreements, either oral or written, relating
        thereto.

       

      
        	
                21.

              	
                Severability.

              


      

       

      Should
        any provision of this Agreement for any reason be declared invalid, void
        or
        unenforceable by a court of competent jurisdiction, the validity and binding
        effect of any remaining portions of this Agreement shall remain in full force
        and effect as if this Agreement had been executed with such invalid, void
        or
        unenforceable provisions eliminated; provided, however, that the remaining
        provisions still reflect the intent of the parties to this
        Agreement.

       


      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      


      22.           Amendments.

       

      This Agreement
        may not be amended or modified except by a written agreement signed by Executive
        and the Bank. This Agreement and any amendment thereof may be executed in
        counterparts.

       


      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      



      IN
        WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
        day
        and year first above written.

       

      
        	 	
                PEOPLES
                  BANCORP

              
	 	 	 	 	 
	 	 	 	
                By:

              	 /s/
                G. R. Gatton
	 	 	 	 	
                G.
                  Richard Gatton

                Chairman
                  of the Board

              
	 	 	 	 	 
	 	 	
                PEOPLES
                  FEDERAL SAVINGS BANK OF

                DEKALB
                  COUNTY

                 

              
	 	 	 	
                By:

              	 /s/
                M. F. Winkler III
	 	 	 	 	
                Maurice
                  F. Winkler, III

                President
                  and Chief Executive Officer

              
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	
                EXECUTIVE

              
	 	 	 	 	 
	 	 	 	 	 /s/
                Jeffrey H. Gatton
	 	 	 	 	
                Jeffrey
                  H. Gatton

              


      

       

       

       

       

      
12