Document:

exv10w1

 

Exhibit 10.1

FORM OF

CHANGE OF CONTROL AGREEMENT

     This Change of Control Agreement (the “Agreement”), dated as of June 23, 2006 (the
“Effective Date”), is made by and between Avanir Pharmaceuticals, a California corporation
having its principal offices at 11388 Sorrento Valley Road, San Diego, CA 92121 (the
“Company”) and ______(“Employee”).

RECITALS

     A. It is expected that other entities or individuals may, from time to time, consider the
possibility of acquiring the Company in a transaction that will result in a Change of Control
(defined below), with or without the approval of the Company’s Board of Directors. The Board of
Directors recognizes that such consideration may cause Employee to consider alternative employment
opportunities. Accordingly, the Board of Directors has determined that it is in the best interests
of the Company and its shareholders to assure that the Company will have the continued dedication
and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change
of Control.

     B. The Company’s Board of Directors believes it is in the best interests of the Company and
its shareholders to enter into this Agreement to provide incentives to Employee to continue in the
service of the Company in the event of a Change of Control.

     C. The Board of Directors further believes that it is necessary to provide Employee with
certain benefits upon termination of Employee’s employment in connection with a Change of Control,
which benefits are intended to provide Employee with financial security and provide sufficient
income and encouragement to Employee to remain employed by the Company, notwithstanding the
possibility of a Change of Control.

     NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements contained
herein, and in consideration of the continuing employment of Employee by the Company, the parties
hereto agree as follows:

1. Definitions.

     1.1 “Awards” means Employee’s outstanding stock options, restricted stock awards,
restricted stock units, stock appreciation rights and other equity-based awards granted under the
Company Equity Plans, in each case that remain outstanding immediately following a Change of
Control.

     1.2 “Base Salary” means Employee’s gross monthly salary on the date of calculation,
excluding bonus and other incentive compensation.

     1.3 “Cause” shall, if applicable, have the meaning set forth in the definitive written
employment agreement between Employee and the Company (the “Employment Agreement”); provided,
however, that if there is no Employment Agreement, or if the Employment Agreement does not define
what shall constitute a termination for “cause” (or a substantially similar term), then “Cause” for
purposes of this Agreement shall mean: (i) Employee’s material breach of this

 

 

Agreement or any confidentiality agreement between the Company and Employee; (ii) Employee’s
failure or refusal to comply with the Company’s Employee Manual, the Company’s Code of Business
Conduct and Ethics, or other policies or procedures established by the Company (iii) Employee’s
appropriation (or attempted appropriation) of a material business opportunity of the Company,
including attempting to secure or securing any personal profit in connection with any transaction
entered into on behalf of the Company; (iv) Employee’s misappropriation (or attempted
misappropriation) of any of the Company’s funds or material property; (v) Employee’s conviction of,
or the entering of a guilty plea or plea of no contest with respect to a felony, the equivalent
thereof, or any other crime with respect to which imprisonment is a possible punishment; (vi)
Employee’s willful misconduct or incompetence; (vii) Employee’s physical or mental disability or
other inability to perform the essential functions of his position, with or without reasonable
accommodation; or (viii) Employee’s death.

     1.4 “CCC” means the California Code of Civil Procedure.

     1.5 A “Change of Control” shall have occurred if, and only if:

          (a) any individual, partnership, firm, corporation, association, trust, unincorporated
organization or other entity or person, or any syndicate or group deemed to be a person under
Section 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”) is or becomes
the “Beneficial Owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing 50% or more of the combined voting power of the Company’s
then outstanding securities entitled to vote in the election of directors of the Company; or

          (b) if those individuals who constituted the Board at the Effective Date cease to constitute a
majority of the Board as a result of, or in connection with, a proxy solicitation made by a third
party pursuant to Regulation 14A under the Securities Exchange Act of 1934; or

          (c) there occurs a reorganization, merger, consolidation or other corporate transaction
involving the Company (“Transaction”), in each case, with respect to which the stockholders
of the Company immediately prior to such Transaction do not, immediately after the Transaction, own
more than 50% of the combined voting power of the Company’s then outstanding securities entitled to
vote in the election of directors of the Company or of the securities of any other corporation
resulting from such Transaction; or

          (d) all or substantially all of the assets of the Company are sold, liquidated or distributed,
other than in connection with a bankruptcy, insolvency or other similar proceeding, or an
assignment for the benefit of creditors.

     1.6 A “Change of Control Termination” shall have occurred if Employee’s employment by
the Company, or any of its subsidiaries or affiliates, is terminated without Cause or the Employee
resigns in a Resignation for Good Reason, in either case within 12 months following the effective
date of a Change of Control.

     1.7 “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985.

     1.8 “Code” means the Internal Revenue Code of 1986, as amended.

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     1.9 “Company Equity Plans” means the Company’s 1994 Stock Option Plan, 1998 Stock
Option Plan, 2000 Stock Option Plan, 2003 Equity Incentive Plan and 2005 Equity Incentive Plan,
each as may be amended from time to time, and any stock option agreements, award notices, stock
purchase agreements or other agreements or instruments executed and delivered pursuant thereto.

     1.10 “Release” means a general release, in the form attached hereto as Exhibit
A, by Employee of all claims against the Company and its affiliates as of the date of the
Change of Control Termination.

     1.11 “Resignation for Good Reason” means a resignation based on:

          (a) a material reduction in Employee’s duties and responsibilities from those in effect upon
execution of this Agreement; or

          (b) a reduction by the Company in Employee’s Base Salary as of the date of this Agreement; or

          (c) a relocation of Employee’s place of work more than 50 miles without reimbursement of
reasonable relocation expenses.

          An event described in this Section 1.10 will not give rise to a Resignation for Good Reason
unless it is communicated by Employee to the Company in writing and unless it is not corrected by
the Company in a manner that is reasonably satisfactory to Employee within 10 business days of the
Company’s receipt of such written notice.

     1.12 “Severance Payments” means severance pay in an amount equal to [___] months of
Base Salary, plus an amount equal to the greater of (A) the aggregate bonus payment(s) received by
the Employee in the Company’s preceding fiscal year or (B) the target bonus amount, such payments
to be paid in accordance with the terms in Section 2.1(b) below. Notwithstanding the foregoing, if
the tenure of Employee’s employment with the Company at the time of termination is less than one
year, then the bonus amount calculated under this Section 1.11 shall be pro rated for the partial
year of service.

     1.13 “Severance Period” means the 12-month period following a Change of Control
Termination.

2. Change of Control Termination.

     2.1 Payment upon Change of Control Termination. Subject to Sections 2.2 and 2.3, in
the event of a Change of Control Termination:

          (a) The Company shall promptly pay Employee all accrued but unpaid Base Salary and all accrued
but unused vacation time, each through the date of termination; and

          (b) The Company shall pay Employee the Severance Payments immediately following the Deferred
Payment Date, as defined below. Since at the time of this Agreement Employee will be a “specified
employee” as defined in Section 409A of the Code and one or

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 more of the payments or benefits which may be paid pursuant to this Agreement would constitute
deferred compensation subject to Section 409A, no such payment or benefit will be provided until
the date (the “Deferred Payment Date”) which is the earliest of (A) the date which is six (6)
months and a day after Employee’s “separation from service” for any reason, other than death or
becoming “disabled” (as such terms are used in Section 409A(a)(2) of the Code), (B) the date of
Employee’s death or on which Employee becomes “disabled” (as such term is used in Section
409A(a)(2)(C) of the Code), (C) the effective date of a “change in the ownership or effective
control” of the Company (as such term is used in Section 409A(a)(2)(A)(v) of the Code) or (D) the
date such payments or benefits are no longer deemed by the Code to be subject to penalty tax or
interest. The provisions of this paragraph shall only apply to the extent required to avoid
Employee’s incurrence of any penalty tax or interest under Section 409A of the Code or any
regulations or Treasury guidance promulgated thereunder. In addition, if any provision of this
Agreement would cause Employee to incur any penalty tax or interest under Section 409A of the Code
or any regulations or Treasury guidance promulgated thereunder, the Company shall, upon the written
request of Employee, reform such provision to maintain to the maximum extent practicable the
original intent of the applicable provision without violating the provisions of Section 409A of the
Code and without creating additional cost for the Company; and

          (c) If Employee elects to continue insurance coverage as afforded to Employee according to
COBRA, the Company will reimburse Employee the amount of premiums incurred by Employee during the
Severance Period. As a result of Section 409A of the Code, Employee will pay COBRA premiums until
the Deferred Payment Date and then Company reimburse Employee for all payments made by the Employee
through such date. Thereafter, the Company will pay COBRA premiums on Employee’s behalf through
the remainder of the Severance Period. Nothing in this Agreement will extend Employee’s COBRA
period beyond the period allowed under COBRA, nor is Company assuming any responsibility for
Employee’s election to continue coverage; and

          (d) The vesting of all Awards shall accelerate in full and all rights of repurchase of Award
shares shall immediately lapse; and

          (e) The Employee shall also be entitled to receive any additional benefits provided for under
the Employment Agreement in the event of a Change in Control or a Change in Control Termination.

     2.2 Employee Release. In consideration for the benefits set forth above in Sections
2.1(b), 2.1(c) and 2.1(d), following a Change of Control Termination, Employee shall promptly
execute and deliver the Release. The Company shall have no obligation to pay or grant the benefits
set forth in Sections 2.1(b), 2.1(c) and 2.1(d) if Employee does not execute and deliver the
Release, or if Employee subsequently revokes, or attempts in writing to revoke, any portion of the
Release.

     2.3 Other Benefits. In the event that the Employment Agreement provides for specific
benefits upon a Change of Control and/or a Change of Control Termination that are materially more
favorable to the Employee than like benefits set forth herein, then the Employee shall be entitled
to those benefits set forth in the Employment Agreement in lieu of the lesser like benefits set
forth herein.

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3. Dispute Resolution Procedures. Any dispute or claim arising out of this Agreement shall
be subject to final and binding arbitration. The arbitration will be conducted by one arbitrator
who is a member of the American Arbitration Association (AAA) or of the Judicial Arbitration and
Mediation Services (JAMS). The arbitration shall be held in Orange County, California. The
arbitrator shall have all authority to determine the arbitrability of any claim and enter a final
and binding judgment at the conclusion of any proceedings in respect of the arbitration.
Notwithstanding any rule of AAA or JAMS to the contrary, the provisions of Title 9 of Part 3 of the
CCC including Section 1283.05, and successor statutes, permitting expanded discovery proceedings
shall be applicable to all disputes that are arbitrated under this paragraph. The arbitrator shall
have all power and authority to enter orders relating to such discovery as are allowed under the
CCC. The party prevailing in the resolution of any such claim will be entitled, in addition to
such other relief as may be granted, to an award of all fees and costs incurred in pursuit of the
claim (including reasonable attorneys’ fees) without regard to any statute, schedule, or rule of
court purported to restrict such award.

4. At-Will Employment. Notwithstanding anything to the contrary herein, Employee reaffirms
that Employee’s employment relationship with the Company is at-will, terminable at any time and for
any reason by either the Company or Employee. While certain paragraphs of this Agreement describe
events that could occur at a particular time in the future, nothing in this Agreement may be
construed as a guarantee of employment of any length.

5. General Provisions.

     5.1 Governing Law. This Agreement will be governed by and construed in accordance
with the laws of the State of California, without regard to conflict-of-law principles.

     5.2 Successors and Assigns. The provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Company and its successors and assigns. Employee may not
assign, pledge or encumber his interest in this Agreement or any part thereof, provided, however,
that the provisions of this Agreement shall inure to the benefit of, and be binding upon Employee’s
estate.

     5.3 No Waiver of Breach. If either party should waive any breach of any provisions of
this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding
breach of the same or any other provision of this Agreement. The rights granted the parties are
cumulative, and the election of one will not constitute a waiver of such party’s right to assert
all other legal and equitable remedies available under the circumstances.

     5.4 Severability. The provisions of this Agreement are severable, and if any
provision will be held to be invalid or otherwise unenforceable, in whole or in part, the remainder
of the provisions, or enforceable parts of this Agreement, will not be affected.

     5.5 Entire Agreement; Amendment. This Agreement, including Exhibit A, constitutes the
entire agreement of the parties with respect to the subject matter of this Agreement, and
supersedes all prior and contemporaneous negotiations, agreements and understandings between the
parties, oral or written, except those provisions of the Employment

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Agreement expressly referred to herein. This Agreement may be amended or supplemented only by
writing signed by both of the parties hereto.

     5.6 Modification; Waivers. No modification, termination or attempted waiver of this
Agreement will be valid unless in writing, signed by the party against whom such modification,
termination or waiver is sought to be enforced.

     5.7 Duplicate Counterparts. This Agreement may be executed in duplicate counterparts;
each of, which shall be deemed an original; provided, however, such counterparts shall together
constitute only one instrument.

     5.8 Interpretation. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of this Agreement. As
used in this Agreement, words of the masculine gender shall mean and include corresponding neuter
words or words of the feminine gender.

     5.9 No Mitigation. No payment to which Employee is entitled pursuant to Section 2.1
hereof shall be reduced by reason of compensation or other income received by him for services
rendered after termination of his employment with the Company.

     5.10 Withholding of Taxes. The Company shall withhold appropriate federal, state,
local (and foreign, if applicable) income and employment taxes from any payments hereunder.

     5.11 Drafting Ambiguities; Representation by Counsel. Each party to this Agreement
and its counsel have reviewed and revised this Agreement and the Release. The rule of construction
that any ambiguities are to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement, the Release or any of the amendments to this Agreement.

* * *

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     In witness whereof, this Change of Control Agreement has been executed as of the date first
set forth above.

	 	 	 	 	 
	 	AVANIR Pharmaceuticals

 	 
	 	By:  	 	 
	 	  	 	 
	 	  	 	 
	 	 	 	 
	 	 	 	 
	 

	 	 	 	 	 
	 	Employee

	 
	 
	 
	 	 	 
		
[__________________]

 	 
	 	 	 
	 	 	 
	 	 	 
	 

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EXHIBIT A

GENERAL RELEASE

     This General Release (“Release”) is entered into effective as of
___, 200_, (the “Effective Date”) by and between Avanir Pharmaceuticals, a
California corporation, having its principal offices at [___] (“Company”) and
[___], an individual residing at [___] (“Employee”) with reference to the
following facts:

RECITALS

     A. The parties hereto entered into a Change of Control Agreement dated ___,
200___(“Agreement”), by which the parties agreed that in certain circumstances Employee
would become eligible for severance payments following a termination of service in connection with
a change in control and the reimbursement of certain insurance premiums in exchange for Employee’s
release of the Company from all claims which Employee may have against the Company.

     B. The parties desire to dispose of, fully and completely, all claims, that Employee may have
against the Company in, the manner set forth in this Release.

AGREEMENT

     1. Release. Employee, for himself/herself and his heirs, successors and
assigns, fully releases, and discharges Company, its officers, directors, employees, shareholders,
attorneys, accountants, other professionals, insurers and agents (collectively “Agents”),
and all entities related to each such party, including, but not limited to, heirs, executors,
administrators, personal representatives, assigns, parent, subsidiary and sister corporations,
affiliates, partners and co-venturers (collectively “Related Entities”), from all rights,
claims, demands, actions, causes of action, liabilities and obligations of every kind, nature and
description whatsoever, Employee now has, owns or holds or has at anytime had, owned or held or may
have against the Company, Agents or Related Entities from any source whatsoever, whether or not
arising from or related to the facts recited in this Release. Employee specifically releases and
waives any and all claims arising under any express or implied contract, rules, regulation or
ordinance, including, without limitation, Title VII of the Civil Rights Act of 1964, the Civil
Rights Act of 1991, the Americans with Disabilities Act, the California Fair Employment and Housing
Act, and the Age Discrimination in Employment Act, as amended (“ADEA”).

     2. Section 1542 Waiver. This Release is intended as a full and complete release and
discharge of any and all claims that Employee may have against the Company, Agents or Related
Entities. In making this release, Employee intends to release the Company, Agents and Related
Entities from liability of any nature whatsoever for any claim of damages or injury or for
equitable or declaratory relief of any kind, whether the claim, or any facts on which such claim
might be based, is known or unknown to Employee. Employee expressly waives all rights under §1542
of the Civil Code of the State of California, which Employee understands provides as follows:

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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE
DEBTOR.

     Employee acknowledges that he may discover facts different from or in addition to those that
he now believes to be true with respect to this Release. Employee agrees that this Release shall
remain effective notwithstanding the discovery of any different or additional facts.

     3. Waiver of Certain Claims. Employee acknowledges that he has been advised in
writing of his right to consult with an attorney prior to executing the waivers set out in this
Release, and that he has been given a 21-day period in which to consider entering into the release
of ADEA claims, if any. In addition, Employee acknowledges that he has been informed that he may
revoke a signed waiver of the ADEA claims for up to 7 days after executing this Release.

     4. No Undue Influence. This Release is executed voluntarily and without any duress or
undue influence. Employee acknowledges he has read this Release and executed it with full and free
consent. No provision of this Release shall be construed against any party by virtue of the fact
that such party or its counsel drafted such provision or the entirety of this Release.

     5. Governing Law. This Release is made and entered into in the State of California
and accordingly the rights and obligations of the parties hereunder shall in all respects be
construed, interpreted, enforced and governed in accordance with the laws of the State of
California as applied to contracts entered into by and between residents of California to be wholly
performed within California.

     6. Severability. If any provision of this Release is held to be invalid, void or
unenforceable, the balance of the provisions of this Release shall, nevertheless, remain in full
force and effect and shall in no way be affected, impaired or invalidated.

     7. Counterparts. This Release may be executed simultaneously in one or more
counterparts, each of, which shall be deemed an original, but all of which together shall
constitute one and the same instrument. This Release may be executed by facsimile, with originals
to follow by overnight courier.

     8. Dispute Resolution Proceedings. Any dispute or claim arising out of this Release
shall be subject to final and binding arbitration. The arbitration will be conducted by one
arbitrator who is a member of the American Arbitration Association (AAA) or of the Judicial
Arbitration and Mediation Services (JAMS) and will be governed by the Model Employment Arbitration
rules of AAA. The arbitration shall be held in Orange County, California. The arbitrator shall
have all authority to determine the arbitrability of any claim and enter a final and binding
judgment at the conclusion of any proceedings in respect of the arbitration. Any final judgment
only may be appealed on the grounds of improper bias or improper conduct of the arbitrator.
Notwithstanding any rule of AAA or JAMS to the contrary, the provisions of Title 9 of Part 3 of the
California Code of Civil Procedure (the “Code”) including Section 1283.05, and successor
statutes, permitting expanded discovery proceedings shall be applicable to all disputes

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that are arbitrated under this paragraph. The arbitrator shall have all power and authority to
enter orders relating to such discovery as are allowed under the Code. The party prevailing in the
resolution of any such claim will be entitled, in addition to such other relief as may be granted,
to an award of all fees and costs incurred in pursuit of the claim (including reasonable attorneys’
fees) without regard to any statute, schedule, or rule of court purported to restrict such award.

     9. Entire Agreement. This Agreement constitutes the entire agreement of the parties
with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous
negotiations, agreements and understandings between the parties, oral or written.

     10. Modification; Waivers. No modification, termination or attempted waiver of this
Agreement will be valid unless in writing, signed by the party against whom such modification,
termination or waiver is sought to be enforced.

     11. Amendment. This Agreement may be amended or supplemented only by writing signed
by Employee and the Company.

	 	 	 	 	 	 	 
	Dated:

	 	 
	 	 	 	 
	 

	 	 
	 	 	 	 
	 

	 	 	 	 	 	Employee Name

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SCHEDULE TO

FORM OF

CHANGE OF CONTROL AGREEMENT

(June 23, 2006)

Below is a list of employees of Avanir Pharmaceuticals who have entered into the foregoing form of
Change of Control Agreement, along with each Employee’s respective title and severance benefit
payable under Section 1.12 of the agreement:

	 	 	 	 	 
	 	 	 	 	Cash Severance Benefit
	Name	 	Position	 	Under Section 1.12
	James E. Berg

	 	Vice President, Clinical, Regulatory Affairs & Product Development
	 	12 months
	 
	 	 	 	 
	R. Martin Emanuele

	 	Vice President, Business Development & Licensing
	 	12 months
	 
	 	 	 	 
	Gregory P. Hanson

	 	Vice President & Chief Accounting Officer
	 	12 months
	 
	 	 	 	 
	Keith Katkin

	 	Senior Vice President, Sales & Marketing
	 	24 months
	 
	 	 	 	 
	Randall Kaye, M.D.

	 	Vice President, Medical Affairs
	 	12 months
	 
	 	 	 	 
	Jagadish Sircar, Ph.D.

	 	Vice President, Drug Discovery
	 	12 months
	 
	 	 	 	 
	Michael J. Puntoriero

	 	Senior Vice President & Chief Financial Officer
	 	24 months
	 
	 	 	 	 
	Mathew R. Ruth

	 	Vice President, Sales
	 	12 months

4<PAGE>

                                                                    EXHIBIT 10.1

                                 PSB GROUP, INC.

                               PEOPLES STATE BANK

                              EMPLOYMENT AGREEMENT

     THIS AGREEMENT (this "AGREEMENT") is made and entered into as of the 5th
day of July, 2006 (the "EFFECTIVE DATE"), by and between PSB Group, Inc., a bank
holding company organized under the laws of the State of Michigan (the
"COMPANY"), Peoples State Bank, a banking association chartered under the laws
of the State of Michigan with its main office located in Madison Heights,
Michigan (the "BANK") and Michael J. Tierney ("EXECUTIVE").

     WHEREAS, the Company, the Bank and Executive desire the Executive to serve
as President and Chief Executive Officer of the Company and President and Chief
Executive Officer of the Bank; and

     WHEREAS, the Board of Directors of the Company and the Board of Directors
of the Bank have each approved and authorized the execution of the Agreement
with Executive.

     NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:

     1. EMPLOYMENT; DUTIES. Commencing on January 1, 2007, Executive shall serve
in the capacity of President and Chief Executive Officer of the Company.
Commencing on the Effective Date, Executive shall serve as President and Chief
Executive Officer of the Bank. Upon assuming each position, Executive shall
perform services and discharge the duties of the President and Chief Executive
Officer of the Company and the Bank, respectively, and perform such other
reasonable services and duties of an executive, professional or administrative
nature as may from time to time be assigned to him by the Board of Directors of
the Company or the Board of Directors of the Bank, as the case may be,
(collectively the "BOARD OF DIRECTORS" or

<PAGE>

"BOARD"). Executive hereby accepts such employment for the compensation and upon
the terms and conditions provided in this Agreement. Executive agrees to serve
the Company and the Bank faithfully and competently and to devote his full-time
efforts to the promotion of the business of the Company, the Bank and their
affiliates, excepting his reasonable leave time, periods of illness and the
like.

     2. SERVICE ON THE BOARD OF DIRECTORS. Upon the Effective Date, Executive
shall be appointed to the Board of Directors of the Company and the Board of
Directors of the Bank. During the Term of this Agreement (as defined in Section
10 hereof), the Company agrees to nominate Executive as a nominee to serve on
the Company's Board of Directors. During the Term of this Agreement, the
Company, in its capacity as sole shareholder of the Bank, agrees to cause
Executive to be elected as a director of the Bank. Executive shall be entitled
to receive fees for serving on the Board of Directors in the same manner as
other members of the Boards of Directors of the Company and the Bank.

     3. BASE SALARY. During the Term of this Agreement, the Company agrees to
pay Executive a base salary ("BASE SALARY") at the rate of Two Hundred
Forty-Five Thousand Dollars ($245,000) per annum, payable in accordance with the
customary payroll practices of the Company; provided, however, that the rate of
Executive's Base Salary beginning in 2008 shall be reviewed by the Board of
Directors, and Executive shall be entitled to receive an increase in his Base
Salary at such percentage or in such an amount, if any, as the Board of
Directors, in its sole discretion may decide.

     4. SIGNING BONUS. Upon the Effective Date, Executive shall be paid the sum
of Twenty-Five Thousand Dollars ($25,000).

     5. MANDATORY BONUS. Executive shall be paid a bonus of Fifty Thousand
Dollars ($50,000) not later than March 31, 2007, unless he voluntarily
terminates his employment hereunder prior to January 1, 2007.

<PAGE>

     6. DISCRETIONARY BONUS. For 2007 and thereafter, Executive shall be
entitled to receive an annual discretionary bonus in an amount which shall be
based on performance criteria established by the Board of Directors and
Executive. No other compensation provided for in this Agreement shall be deemed
a substitute for Executive's eligibility to receive bonuses when and as declared
by the Board of Directors or as provided for by any plan or program of the
Company.

     7. STOCK GRANTS. On the Effective Date, Executive shall be issued 2,500
shares of common stock of the Company. In addition, Executive will also be
granted 2,500 shares of restricted stock. Such stock grants shall be governed by
the terms of the Restricted Stock Agreement between the Company and Executive of
even date herewith (the "STOCK AGREEMENT").

     8. EXPENSES. During the Term of this Agreement, Executive shall be entitled
to receive prompt reimbursement of all reasonable expenses incurred (in
accordance with the policies and procedures of the Company and the Bank) in
performing services under this Agreement, provided that Executive properly
accounts for expenses in accordance with the policies of the Company and the
Bank.

     9. EMPLOYEE BENEFITS.

          (a) Car Allowance. The Company will provide a vehicle to Executive at
the Company's expense. The Company will also insure Executive's vehicle and
provide for its maintenance at the Company's expense.

          (b) Club Membership. The Company will pay the initial fees for
membership and reimburse Executive for dues at Wyngate Country Club and at the
Detroit Athletic Club. This allowance will be subject to annual review by the
Board and may be maintained or increased as the Board deems appropriate.

<PAGE>

          (c) Nonqualified Retirement Benefit. It is anticipated by the Company
and Executive that the Company will be providing BOLI benefits to its senior
executive staff and that Executive shall be provided with these BOLI benefits.
However, in the event that the Company does not provide BOLI benefits or these
benefits do not equal at least $60,000 in annual benefits for a minimum of 10
years, the Company agrees that, provided Executive is employed by the Company
for at least 10 years, then he, or his designated beneficiary (if he dies before
receiving the full benefit) will be guaranteed an annual retirement benefit of
at least $60,000 for a period of 10 years commencing upon his reaching age 65.
The Company and Executive agree that the $60,000 annual "pension" is a
conservative estimate of the pension benefit that Executive was forgoing by
terminating his employment with his prior employer.

          (d) Other Fringe Benefits. Executive shall be entitled to receive
benefits under any fringe benefit plan or policy as are otherwise made available
and upon the same terms as other senior management employees of the Company and
the Bank.

          (e) Paid Leave Time. Executive shall be entitled to five (5) weeks of
annual leave time in accordance with the standard policies or practices of the
Company and the Bank for senior management officers. Executive shall not take
any leave in excess of a two week period at a time unless approved in advance by
the Board of Directors. Executive shall receive his Base Salary and other
benefits during periods of leave. Executive shall also be entitled to paid legal
holidays in accordance with the policies of the Company and the Bank.

          (f) Conferences and Continuing Education. Executive shall be permitted
to attend appropriate banking conventions and professional development meetings
necessary to keep Executive abreast of developments in the industry. All
reasonable expenses of attending such meetings, including the attendance by
Executive's spouse, shall be at the expense of the Company.

          (g) Withholding. Executive acknowledges that the Company may withhold
any applicable federal, state or local withholding or other taxes from payments
that become due to him.

<PAGE>

     10. TERM OF AGREEMENT. The term ("TERM") of this Agreement shall be for
three (3) years, beginning on the Effective Date. At the expiration of the
initial Term and each extended Term, this Agreement will automatically renew for
one (1) year unless the Company or the Bank, on the one hand, or the Executive,
on the other hand, notifies the other in writing not less than one hundred
eighty (180) days prior to the expiration of the then current Term of its intent
not to extend this Agreement beyond the then current Term. This Agreement and
Executive's employment hereunder may also be terminated in accordance with the
provisions of Section 12 hereof.

     11. CONFIDENTIALITY, NON-SOLICITATION; NONCOMPETE.

          (a) Executive recognizes and acknowledges that his knowledge of
customers, potential customers, trade secrets, business strategies, financial
data, costs, prices, other business marketing information and business
activities and plans of the Company and the Bank and their affiliates
("CONFIDENTIAL INFORMATION") is a valuable, special and unique asset of the
business of the Company and the Bank and their affiliates. Executive will not,
during or after the term of his employment, disclose any Confidential
Information to any person, firm, corporation, or other entity for any reason or
purpose whatsoever. Executive may disclose information regarding the business
activities of the Company and the Bank and their affiliates to representatives
of the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation and the Office of Financial and Insurance Services of the
State of Michigan and any other regulatory or judicial body pursuant to a formal
regulatory request or subpoena, and Executive also may disclose Confidential
Information when such disclosure, in the reasonable judgment of Executive, is in
the best interest of the Company and the Bank and their affiliates and does not
violate any law or regulation, including but not limited to disclosure to
business or trade associations or industry organizations of which Company or the
Bank is a member or a participant.

<PAGE>

          (b) Executive agrees that for a period of twelve (12) months (the
"RESTRICTED PERIOD") following termination of his employment hereunder, he will
not solicit any employee of the Company, the Bank or their affiliates to
terminate their employment with the Company, the Bank or their affiliates or to
become employed by any other corporation, bank or other organization.

          (c) The Company, the Bank and Executive have jointly reviewed the
customer lists and operations of the Company and the Bank and agree that the
Company's and the Bank's primary service area for its lending and deposit
activities encompasses a fifty (50) mile radius from the Bank's office in
Madison Heights, Michigan (the "TERRITORY"). Executive agrees that in the event
he is terminated without Cause (as hereinafter defined) or if he terminates his
employment with Good Reason (as hereinafter defined), during the Restricted
Period, he will not, without the Company's prior written consent, directly or
indirectly Compete with the Company or the Bank or their affiliates. In this
event, the Restricted Period shall be the shorter of the Restricted Period set
forth above (12 months) or the period during which Executive continues to
receive his Base Salary hereunder. For purposes of this Section 11:

               (i) "COMPETE" means directly or indirectly owning, managing,
operating or controlling a Competitor, or directly or indirectly serving as an
employee, officer or director of or a consultant to a Competitor or soliciting
or inducing any customer of the Company, the Bank or their affiliates to become
a customer of a Competitor.

               (ii) "COMPETITOR" means any person, firm, partnership,
corporation, trust or other entity that owns, controls or is a bank, savings
association, credit union or similar financial institution (a "FINANCIAL
INSTITUTION") that is physically located and conducts substantial lending and
deposit taking activities within the Territory and which Financial Institution
has consolidated assets of $500 million or less as of the date of Executive's
termination of employment hereunder.

<PAGE>

          (d) Notwithstanding the foregoing, Executive shall be permitted to
invest in Financial Institutions solely as a passive or minority investor and in
which he does not have an ownership interest of greater than five percent (5%).

          (e) The parties hereto, recognizing that irreparable injury will
result to the Company, the Bank and their affiliates in the event of Executive's
breach of any provision of this Section 11, agree that in the event of any such
breach or threatened breach by Executive, the Company or the Bank will be
entitled to obtain from the Oakland County Circuit Court preliminary and
permanent injunctive relief of Executive, Executive's partners, agents,
employees and all persons acting for or under the direction of Executive.

     12. TERMINATION. Executive's employment under this Agreement shall be
terminated upon any of the following occurrences:

          (a) Death. Executive's employment under this Agreement shall terminate
upon his death. Executive's estate shall be entitled to receive payments of Base
Salary and any other compensation and other benefits accrued as of the date of
death.

          (b) Termination of Employment by the Board of Directors Without Cause.
In the event the Board of Directors terminates Executive's employment without
"Cause" (as defined in Section 12(d)), Executive shall be entitled to continue
to receive his Base Salary and to continue to participate in the Company's
health care plan for the then remaining Term of this Agreement. In the event,
after the termination of Executive's employment, coverage of Executive under the
Company's health care plan does not qualify under the federal tax laws for the
same tax treatment as coverage of active employees of the Company, or if the
insurer for the health care plan prohibits Executive's continued participation
in such plan, the Company may, in

<PAGE>

its discretion, either provide substantially equivalent health care coverage to
Executive or pay to Executive an amount in cash equal to the cost to the Company
of Executive's continued participation in the Company's health care plan.

          (c) Disability.

               (i) If, as a result of Executive's incapacity, due to physical or
mental illness rendering him unable to perform the duties required of him under
this Agreement for a period of 90 days in a 120-day period ("DISABILITY"), and
within thirty (30) days after written notice of potential termination is given,
he shall not have returned to the full-time performance of his duties, the
Company may terminate Executive's employment. Except as provided below,
Executive shall only be entitled to receive payments of Base Salary and any
other compensation and benefits through the end of his then current employment
term. The determination of Disability shall be made by a medical board certified
physician mutually acceptable to the Company and Executive (or Executive's legal
representative, if one has been appointed), and if the parties cannot mutually
agree to the selection of a physician, then each party shall select a physician
and the two physicians selected shall select a third physician who shall make
such determination. Notwithstanding the foregoing, in the event of termination
of employment by the Company pursuant to this Section 12(c), if Executive is
deemed ineligible to receive disability benefits under the Company's long term
disability plan, Executive shall be entitled to continue to receive his Base
Salary and to continue to participate in the Company's health care plan for the
then remaining Term of this Agreement. In such event, if after termination of
Executive's employment, coverage of Executive under the Company's health care
plan does not qualify under the federal tax laws for the same tax treatment as
coverage of active employees of the Company, or if the insurer for the health
care plan prohibits Executive's continued participation in such plan, the
Company may, in its discretion, either provide substantially equivalent health
care coverage to Executive or pay to Executive an amount in cash equal to the
cost to the Company of Executive's continued participation in the Company's
health care plan.

<PAGE>

               (ii) During any period of Disability, Executive shall be entitled
to receive benefits as provided in any disability insurance program the Company
may have in effect.

          (d) Termination of Employment by the Board of Directors for Cause. In
the event Executive's employment is terminated for "Cause," no continued
payments or benefits shall be due under this Agreement. For purposes of this
Agreement, termination for "Cause" shall be defined as termination due to
Executive's criminal conduct constituting a felony offense, alcohol or drug
abuse which impairs the Employee's performance of his duties, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties or to follow one or more specific written
directives of the Board, reasonable in nature and scope, or material breach of
any provision of this Agreement (which is not cured within thirty (30) days
after its occurrence and notice to Executive). Any determination of "Cause" as
defined by this Section 12(d) shall be determined by a majority vote of the
Board of Directors, with Executive abstaining from voting on the matter.

          (e) Termination Following Change of Control.

               (i) If, within twelve (12) months following a Change of Control,
this Agreement is terminated by the Company without Cause or by Executive for
"Good Reason," Executive shall be entitled to his Base Salary and to continue to
participate in the Company's health care plan for a period of three (3) years
following such termination. In the event, after the termination of Executive's
employment, coverage of Executive under the Company's health care plan does not
qualify under the federal tax laws for the same tax treatment as coverage of
active employees of the Company, or if the insurer for the health care plan
prohibits Executive's continued participation in such plan, the Company may, in
its discretion, either provide substantially equivalent health care coverage to
Executive or pay to Executive an amount in cash

<PAGE>

equal to the cost to the Company of Executive's continued participation in the
Company's health care plan. In the event of termination by Executive for Good
Reason, Executive shall provide notice to the Board of Directors specifying the
facts and circumstances surrounding his belief that "Good Reason" exists and the
Company shall have the right to cure those matters within thirty (30) days from
the date of notice.

               (ii) For purposes of this Agreement, "Good Reason" shall include
the occurrence of any of the following events which have not been consented to
in advance by Executive in writing: (A) if Executive would be required to move
his personal residence or perform his principal job functions more than fifty
(50) miles from Executive's primary office as of the Effective Date; (B) if, in
the organizational structure of the Company or the Bank, Executive would be
required to report to a person or persons other than the Board of Directors; (C)
if the Company should fail to maintain Executive's Base Salary or fail to
maintain employee benefit plans or arrangements generally comparable to those in
place at the Effective Date, except to the extent that such reduction in
employee benefit plans is part of an overall adjustment in benefits for all
employees of the Company or the Bank; (D) if Executive would be assigned
substantial duties and responsibilities other than those normally associated
with his position as referenced in Section 1 of this Agreement; or (E) if
Executive is removed from or not re-nominated to the Board of Directors of the
Company or the Bank.

               (iii) For purposes of this Agreement, a Change in Control of the
Company shall be deemed to have occurred if and when: (A) any person (as such
term is defined in Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 ACT")) acquires beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of more than 50% of the
combined voting power of the then outstanding voting securities of the Company;
or (B) the individuals who were members of the Board of Directors of the Company
on the Effective Date (the "CURRENT BOARD MEMBERS") cease for any reason (other
than the reasons specified in Subsection 12(e)(iv) below) to constitute a
majority of the Board of the Company or its

<PAGE>

successor; however, if the election or the nomination for election of any new
director of the Company or its successor is approved by a vote of a majority of
the individuals who are Current Board Members, such new director shall, for the
purposes of this Section 12(e)(iii), be considered a Current Board Member; or
(C) the Company's shareholders approve (1) a merger or consolidation of the
Company and the shareholders of the Company immediately before such merger or
consolidation do not, as a result of such merger or consolidation, own, directly
or indirectly, more than 50% of the combined voting power of the then
outstanding voting securities of the entity resulting from such merger or
consolidation in substantially the same proportion as their ownership of the
combined voting power of the outstanding securities of the Company immediately
before such merger or consolidation; or (2) a complete liquidation or
dissolution or an agreement for the sale or other disposition of all or
substantially all of the assets of the Company.

               (iv) Notwithstanding and in lieu of Section 12(e)(iii), a Change
of Control will not be deemed to have occurred: (A) solely because more than 50%
of the combined voting power of the then outstanding voting securities of the
Company are acquired by (1) a trustee or other fiduciary holding securities
under one or more employee benefit plans maintained for employees of the Bank or
the Company, or (2) any person pursuant to the will or trust of any existing
shareholder of the Company, or who is a member of the immediate family of such
shareholder, or (3) any corporation which, immediately prior or following to
such acquisition, is owned directly or indirectly by persons who were
shareholders of the Company immediately prior to the acquisition in the same
proportion as their ownership of stock in the Company immediately prior to such
acquisition; or (B) if Executive agrees in writing that the transaction or event
in question does not constitute a Change of Control for the purposes of this
Agreement.

               (v) All payments that become due to Executive under this Section
12 will be made in accordance with the Company's or its successors regular
payroll practices as then in effect, subject to any delay in payments required
by Section 409A of the Internal Revenue Code of 1986 (the "CODE") or other
applicable law. In the event a delay in payments is

<PAGE>

required by Section 409A of the Code, then payments under this Section 12 will
commence to Executive on the six month anniversary of the date that Executive's
employment with the Company terminates and the first payment to Executive shall
be a lump sum payment of the amount that would have otherwise been payable to
Executive had a delay in payment not been required pursuant to Section 409A of
the Code. The remainder of the payments to Executive will be made in accordance
with the Company's or its successor's regular payroll practices then in effect.
The Company will be obligated to make all payments that become due to Executive
under this Section 12(e) whether or not he obtains other employment following
termination or takes steps to mitigate any damages that he claims to have
sustained as a result of termination. The payments and other benefits provided
for in this Section 12(e) are intended to supplement any compensation or other
benefits that have accrued or vested with respect to Executive or his account as
of the effective date of termination.

               (vi) In the event it shall be determined that any payment made
hereunder or pursuant to any other plan following a Change in Control (whether
paid or payable pursuant to the terms of this Agreement) would be subject to the
excise tax imposed by Section 4999 of Code, then payments pursuant to this
Agreement or payments under any other agreement or plan that are treated as a
parachute payment, as such term is defined under Section 280G of the Code, shall
be reduced to the maximum amount that may be paid to Executive or for his
benefit without any such payment constituting a "parachute payment," as defined
in Section 280G of the Code. The determination of the maximum amount payable to
Executive or for his benefit shall be made by an accounting firm mutually
acceptable to Executive and the Company, and unless Executive directs otherwise,
payments that are considered to be partially contingent upon a Change in Control
shall be the last payments to be reduced.

          (f) Termination by Executive. If Executive terminates this Agreement
without Good Reason (as defined above), he shall provide at least sixty (60)
days written notice to the Board of Directors. Upon such termination, Executive
shall receive only the Base Salary

<PAGE>

and any other compensation and benefits accrued up to Executive's termination
date. If Executive terminates the Agreement with Good Reason, he shall be
entitled to his Base Salary and to continue to participate in the Company's
health care plan for the then remaining Term of this Agreement. In the event,
after the termination of Executive's employment, coverage of Executive under the
Company's health care plan does not qualify under the federal tax laws for the
same tax treatment as coverage of active employees of the Company, or if the
insurer for the health care plan prohibits Executive's continued participation
in such plan, the Company may, in its discretion, either provide substantially
equivalent health care coverage to Executive or pay to Executive an amount in
cash equal to the cost to the Company of Executive's continued participation in
the Company's health care plan.

          (g) Termination Upon Mutual Agreement. This Agreement may be
terminated at any time upon the mutual written consent of Executive and the
Company. Upon such termination, Executive shall receive only the Base Salary and
any other compensation and benefits accrued up to Executive's termination date.

          (h) Stock Based Compensation. Notwithstanding anything to the contrary
contained herein, upon Executive's termination from Employment, any rights he
has to stock based compensation, including, but not limited to, rights under the
Company's Employee Stock Ownership Plan or the Stock Agreement, shall be
governed exclusively by the terms of such plans and the Stock Agreement.

          (i) Executive agrees that upon any termination of Executive's
employment pursuant to this Section 12, he will immediately resign from all
positions he has with the Company and the Bank and their affiliates, including
all Boards of Directors.

<PAGE>

     13. INDEMNIFICATION. The Company shall provide Executive (including his
heirs, executors and administrators) with coverage under a standard directors'
and officers' liability insurance policy at its expense, or in lieu thereof,
shall indemnify Executive (and his heirs, executors and administrators) to the
fullest extent permitted under law and applicable regulation 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 (whether or not
he continues to be a director or officer at the time of incurring such expenses
or liabilities). Such expenses and liabilities may include, but are not limited
to, judgment, court costs and attorneys' fees and the cost of reasonable
settlements. The Company shall pay such expenses and liabilities in advance of a
final judicial decision (hereinafter an "advancement of expenses"); provided,
however, that, an advancement of expenses incurred by Executive in his capacity
as a director or officer of the Company (and not in any other capacity in which
his service was or is rendered by Executive including, without limitation,
services to an employee benefit plan) shall be made only upon delivery to the
Company of an undertaking, by or on behalf of Executive, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal that Executive is not entitled to be
indemnified for such expenses under this Section 13 or otherwise.

     14. SOURCE OF PAYMENTS. Executive and the Company intend that Executive
will be a dual employee of the Company and the Bank. The Company and the Bank
may allocate among the Company and the Bank any portion of Executive's salary,
cash bonus and other compensation and benefits that the Company and the Bank
deem to be a lawful and appropriate allocation. Notwithstanding any provision
herein to the contrary, to the extent that payments and benefits, as provided by
this Agreement, are paid to or received by Executive from any of the Company,
the Bank or any of their affiliates, such compensation payments and benefits
paid by any such source will be treated as amounts paid to Executive under this
Agreement.

<PAGE>

     15. SUCCESSORS AND ASSIGNS.

          (a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Company or the Bank which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets of the Company or the Bank.

          (b) Since the Company is contracting for the unique and personal
skills of Executive, Executive shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of
the Company.

          (c) In the event that Executive dies post-separation from employment
but during a period in which he is receiving his Base Salary and/or other
employment benefits, the Company shall pay all sums to which the Executive would
have been entitled, had the Executive survived, to such beneficiary or
beneficiaries as shall have been designated by the Executive in writing. The
Executive may change any beneficiary designation by a subsequent writing filed
with the Company. If there is no beneficiary designation in effect at the date
of death of the Executive, the Company shall make any payment due hereunder to
the spouse of the Executive, or to the Executive's estate, if the Executive's
spouse has predeceased the Executive.

     16. AMENDMENTS. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by all
parties, except as herein otherwise specifically provided.

     17. APPLICABLE LAW. This Agreement shall be governed by all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of Michigan, except to the extent that Federal law shall be
deemed to apply.

     18. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.

<PAGE>

     19. NOTICES. Any notices, requests, demands and other communications
provided for or deemed necessary by this Agreement shall be sufficient if set
forth in writing and delivered in person or sent by registered or certified
mail, postage prepaid, to, in the case of Executive, the address listed below or
the last address filed in writing by Executive with the Company, or, in the case
of the Company, to the Company at its main office to the attention of the Board
of Directors.

     20. ENTIRE AGREEMENT. This Agreement and the Stock Agreement, together with
any understanding or modifications thereof as may be agreed to in writing by the
parties, shall constitute the entire agreement between the parties hereto.

     IN WITNESS WHEREOF, the parties have executed this Agreement, effective as
of the date first written above.

PSB GROUP, INC.

By: /s/ Robert L. Cole                  /s/ Michael J. Tierney
    ---------------------------------   ----------------------------------------
Its: President and CEO                  Michael J. Tierney

                                               [Personal Address Omitted]
PEOPLES STATE BANK                                       Address

By: /s/ Robert L. Cole
    ---------------------------------
Its: President and CEO

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