-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BFj5p3n54FOjqw3aiO80+nW9q3ZblA6qT80R/Q6NtBcwYLl/5X9UhRTr3IATVNvk w8n8m97GlIz+HUbnkOqHAA== 0000950137-03-004287.txt : 20030813 0000950137-03-004287.hdr.sgml : 20030813 20030813134411 ACCESSION NUMBER: 0000950137-03-004287 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CFS BANCORP INC CENTRAL INDEX KEY: 0001058438 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 332042093 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24611 FILM NUMBER: 03840281 BUSINESS ADDRESS: STREET 1: 707 RIDGE ROAD CITY: MUNSTER STATE: IN ZIP: 46321 BUSINESS PHONE: 2198365500 MAIL ADDRESS: STREET 1: 707 RIDGE ROAD CITY: MUNSTER STATE: IN ZIP: 46321 10-Q 1 c78973e10vq.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________. Commission file number: 0-24611 CFS Bancorp, Inc. (Exact name of registrant as specified in its charter) Delaware 35-2042093 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 707 Ridge Road, Munster, Indiana 46321 (Address of principal executive offices) (219) 836-5500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b of the Exchange Act). YES [X] NO [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The Registrant had 12,160,748 shares of Common Stock issued and outstanding as of July 31, 2003. CFS BANCORP, INC. INDEX
Page No. -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Statements of Financial Condition at June 30, 2003 and (Audited) December 31, 2002 3 Consolidated Statements of Income for the Three and Six Months Ended June 30, 2003 and 2002 4 Consolidated Statements of Changes in Stockholders' Equity for the Six Months Ended June 30, 2003 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 22 Item 4. Controls and Procedures 22 PART II OTHER INFORMATION Item 1. Legal Proceedings 23 Item 2. Changes in Securities and Use of Proceeds 23 Item 3. Defaults upon Senior Securities 23 Item 4. Submission of Matters to a Vote of Security Holders 23 Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 23
2 CFS BANCORP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands)
June 30, 2003 December 31, 2002 ------------- ----------------- (Unaudited) ASSETS Cash and amounts due from depository institutions $ 15,942 $ 30,312 Interest-bearing deposits 85,805 105,479 Federal funds sold 108,887 74,350 ------------- ----------------- Cash and cash equivalents 210,634 210,141 Investment securities available-for-sale 61,794 39,064 Mortgage-backed securities available-for-sale 201,261 296,638 Mortgage-backed securities held-to-maturity (fair value 2003 - $21,397; 2002 - $21,977) 20,153 21,402 Loans receivable, net 971,303 930,348 Investment in Federal Home Loan Bank stock, at cost 26,117 25,780 Office properties and equipment 12,601 13,835 Accrued interest receivable 6,026 6,597 Real estate owned 286 893 Investment in Bank-owned life insurance 31,738 31,009 Prepaid expenses and other assets 9,827 9,055 ------------- ----------------- Total assets $ 1,551,740 $ 1,584,762 ============= ================= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $ 923,299 $ 954,222 Borrowed money 449,377 449,431 Advance payments by borrowers for taxes and insurance 6,934 4,410 Other liabilities 18,089 16,037 ------------- ----------------- Total liabilities 1,397,699 1,424,100 ------------- ----------------- Stockholders' Equity: Preferred stock, $.01 par value: Authorized shares - 15,000,000 Issued and outstanding shares - 0 at June 30, 2003 and December 31, 2002 Common stock, $.01 par value: Authorized shares - 85,000,000 Issued shares - 23,423,306 at June 30, 2003 and December 31, 2002 Outstanding shares - 12,142,948 and 12,674,597 at June 30, 2003 and December 31, 2002, respectively 234 234 Additional paid-in capital 189,605 189,786 Retained earnings, substantially restricted 106,515 107,598 Treasury stock, at cost: 11,280,358 and 10,748,709 shares at June 30, 2003, and December 31, 2002, respectively (133,373) (125,650) Unearned common stock acquired by ESOP (8,356) (8,356) Unearned common stock acquired by RRP (1,525) (2,827) Accumulated other comprehensive income (loss), net of tax 941 (123) ------------- ----------------- Total stockholders' equity 154,041 160,662 ------------- ----------------- Total liabilities and stockholders' equity $ 1,551,740 $ 1,584,762 ============= =================
See accompanying notes 3 CFS BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, --------------------------- --------------------------- 2003 2002 2003 2002 ----------- ------------ ------------ ------------ Interest income: Loans $ 14,974 $ 15,748 $ 30,214 $ 31,336 Mortgage-related securities 1,385 4,696 3,432 9,362 Other investment securities 433 523 902 856 Other 891 1,161 1,738 2,552 ----------- ------------ ------------ ------------ Total interest income 17,683 22,128 36,286 44,106 Interest expense: Deposits 4,539 6,097 9,764 13,312 Borrowings 6,672 6,881 13,272 13,679 ----------- ------------ ------------ ------------ Total interest expense 11,211 12,978 23,036 26,991 Net interest income before provision for losses on loans 6,472 9,150 13,250 17,115 Provision for losses on loans 509 350 987 550 ----------- ------------ ------------ ------------ Net interest income after provision for losses on loans 5,963 8,800 12,263 16,565 Non-interest income: Loan fees 452 290 813 695 Fees on deposit accounts 1,292 909 2,409 1,447 Insurance commissions -- 376 -- 664 Investment commissions 192 278 318 540 Gain (loss) on sale of available-for-sale investment securities - net (1) 24 (1) 271 Net gain on sale of office properties 24 -- 24 -- Income from Bank-owned life insurance 367 392 729 740 Other income 322 225 606 383 ----------- ------------ ------------ ------------ Total non-interest income 2,648 2,494 4,898 4,740 Non-interest expense: Compensation and employee benefits 4,427 5,094 8,866 10,090 Net occupancy expense 578 616 1,200 1,211 Furniture and equipment expense 480 476 957 938 Federal deposit insurance premiums 51 42 93 86 Data processing 465 584 894 936 Marketing 227 253 426 411 Other general and administrative expenses 1,427 1,387 2,802 2,566 ----------- ------------ ------------ ------------ Total non-interest expense 7,655 8,452 15,238 16,238 Income before income taxes 956 2,842 1,923 5,067 Income tax expense 258 859 571 1,520 ----------- ------------ ------------ ------------ Net income $ 698 $ 1,983 $ 1,352 $ 3,547 =========== ============ ============ ============ Per share data: Basic earnings per share $ 0.06 $ 0.16 $ 0.12 $ 0.29 Diluted earnings per share 0.06 0.16 0.12 0.28 Cash dividends declared per share 0.11 0.10 0.22 0.20 Weighted average shares outstanding 11,256,183 12,147,733 11,302,378 12,161,635 Weighted average diluted shares outstanding 11,644,232 12,669,255 11,729,637 12,670,059
See accompanying notes 4 CFS BANCORP, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands) (Unaudited)
Unearned Common Additional Stock Common Paid-In Retained Treasury Acquired Stock Capital Earnings Stock by ESOP --------- ---------- --------- --------- --------- Balance January 1, 2003 $ 234 $ 189,786 $ 107,598 ($125,650) ($ 8,356) Net income -- -- 1,352 -- -- Other comprehensive income, net of tax: Change in unrealized appreciation on available-for for-sale securities, net of reclassification adjustment -- -- -- -- -- Total comprehensive income -- -- -- -- -- Purchase of treasury stock -- -- -- (8,993) -- Amortization of awards under RRP -- -- (47) -- -- Exercise of stock options -- (207) -- 1,270 -- Tax benefit related to stock options exercised -- 26 -- -- -- Cash dividends declared on common stock -- -- (2,388) -- -- --------- ---------- --------- --------- --------- Balance at June 30, 2003 $ 234 $ 189,605 $ 106,515 ($133,373) ($ 8,356) ========= ========== ========= ========= =========
Unearned Common Accumulated Stock Other Acquired Comprehensive by RRP Income (Loss) Total --------- ------------- --------- Balance January 1, 2003 ($ 2,827) ($ 123) $ 160,662 Net income -- -- 1,352 Other comprehensive income, net of tax: Change in unrealized appreciation on available-for for-sale securities, net of reclassification adjustment -- 1,064 1,064 --------- Total comprehensive income -- -- 2,416 Purchase of treasury stock -- -- (8,993) Amortization of awards under RRP 1,302 -- 1,255 Exercise of stock options -- -- 1,063 Tax benefit related to stock options exercised -- -- 26 Cash dividends declared on common stock -- -- (2,388) --------------------------------------- Balance at June 30, 2003 ($ 1,525) $ 941 $ 154,041 ========= ============= =========
See accompanying notes 5 CFS BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Six Months Ended June 30, ------------------------- 2003 2002 --------- --------- Net income $ 1,352 $ 3,547 Adjustments to reconcile net income to net cash provided by operating activities: Provision for losses on loans 987 550 Depreciation expense 844 920 Tax benefit from exercise of stock option 26 -- Deferred income taxes (benefit) (1,187) 1,351 Amortization of cost of stock benefit plans 1,255 1,609 Change in deferred income 493 904 (Increase) decrease in interest receivable 571 (398) Decrease in accrued interest payable (113) (211) Proceeds from sale of loans held for sale 6,580 5,246 Origination of loans held for sale (7,312) (4,261) Net gain on sale of available-for-sale securities (1) (271) (Increase) decrease in prepaid expenses and other assets 3,106 (2,777) Increase (decrease) in other liabilities 2,247 (3,449) --------- --------- Net cash provided by operating activities 8,848 2,760 --------- --------- Investing activities: Available-for-sale investment securities: Purchases (149,061) (169,338) Repayments 127,145 167,183 Sales 55 1,011 Available-for-sale mortgage-related securities: Purchases (66,855) (98,496) Repayments 159,161 63,538 Held to maturity mortgage-related securities: Repayments 1,198 6,388 Purchase of Federal Home Loan Bank stock (349) (19) Redemption of Federal Home Loan Bank stock 12 159 Loan originations and principal payments on loans, net (42,541) (44,939) Additional costs on real estate owned -- (81) Proceeds from sale of real estate owned 1,445 1,008 Purchases of property and equipment (379) (874) Disposals of property and equipment 769 435 --------- --------- Net cash provided by (used in) investing activities 30,600 (74,025) --------- ---------
6 CFS BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Dollars in thousands) (Unaudited) Six Months Ended June 30, ------------------------- 2003 2002 --------- --------- Financing activities: Proceeds from exercise of stock options 1,063 527 Dividends paid on common stock (2,612) (1,188) Purchase of treasury stock (8,993) (5,740) Net increase in checking, passbook and money market accounts 32,046 41,278 Decrease in certificates of deposit (62,929) (92,477) Net increase (decrease) in advance payments by borrowers for taxes and insurance 2,524 (202) Net decrease in borrowed funds (54) (2,850) --------- --------- Net cash flows used in financing activities (38,955) (60,652) --------- --------- Increase (decrease) in cash and cash equivalents 493 (131,917) Cash and cash equivalents at beginning of period 210,141 272,067 --------- --------- Cash and cash equivalents at end of period $ 210,634 $ 140,150 ========= ========= Supplemental disclosure of non-cash activities: Transfer of loans to real estate owned $ 838 $ 1,514
See accompanying notes 7 CFS BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF FINANCIAL STATEMENTS PRESENTATION The accompanying consolidated financial statements were prepared in accordance with instructions to Form 10-Q and therefore do not include all the information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. However, all normal recurring adjustments which, in the opinion of Management, are necessary for a fair presentation of financial statements have been included. These financial statements should be read in conjunction with the audited financial statements and the notes thereto for the period ended December 31, 2002 contained in the CFS Bancorp, Inc. (the "Company") annual report to the stockholders. The results for the three and six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 2. STOCK BASED COMPENSATION The Company accounts for its stock options in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued by Employees (APB No. 25). Under APB No. 25, as the exercise price of the Company's employees' stock options which have been granted equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Compensation expense for shares granted under the Recognition and Retention Plan ("RRP") is ratably recognized over the period of service, usually the vesting period, based on the fair value of the stock on the date of grant. Pursuant to Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for Stock-Based Compensation (FAS No. 123), pro forma net income and pro forma earnings per share are presented in the following table as if the fair value method of accounting for stock-based compensation plans had been utilized.
Three Months Ended Six Months Ended June 30, June 30, --------------------- -------------------- (Dollars in thousands, except per share data) 2003 2002 2003 2002 ---- ---- ---- ---- Net Income (as reported) $ 698 $ 1,983 $ 1,352 $ 3,547 Stock based compensation expense determined using fair value method, net of tax (211) (233) (404) (422) ------- ------- ------- ------- Pro forma net income $ 487 $ 1,750 $ 948 $ 3,125 ======= ======= ======= ======= Diluted earnings per share (as reported) 0.06 0.16 0.12 0.28 Pro forma diluted earnings per share 0.04 0.14 0.08 0.25
The fair value of the option grants for the three and six months ended June 30, 2003 and 2002 was estimated using the Black-Scholes option value model, with the following assumptions: dividend yield 3.1% in 2003 and 2.9% in 2002, expected volatility of 30.2% in both 2003 and 2002, risk free interest rate of 3.9% in 2003 and 5.1% in 2002, a contract term of ten years, and an original expected life of seven years for all options granted. 8 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models such as the Black-Scholes require the input of highly subjective assumptions including the expected stock price volatility. The Company's stock options have characteristics significantly different from traded options and, inasmuch as changes in the subjective input assumptions can materially affect the fair value estimate, in Management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 3. LOAN PORTFOLIO The Company's loan portfolio consisted of the following at the dates indicated:
June 30, 2003 December 31, 2002 ------------- ----------------- (Dollars in thousands) Amount Percent Amount Percent -------- ------- -------- ------- Mortgage loans: Single-family residential $349,753 35.66% $386,050 41.11% Multi-family residential 77,980 7.95 71,170 7.58 Commercial real estate 321,892 32.82 271,426 28.91 Construction and land development: Single-family residential 14,399 1.47 12,118 1.29 Multi-family residential 65,709 6.70 63,893 6.80 Commercial and land development 105,628 10.77 88,951 9.47 Home equity 59,528 6.07 45,106 4.81 -------- ------- -------- ------- Total mortgage loans 994,889 101.44 938,714 99.97 Other loans: Commercial 42,938 4.37 40,034 4.26 Consumer 2,914 .30 2,610 .28 Undisbursed portion of loan proceeds (56,817) (5.79) (39,704) (4.23) Deferred loan fees (3,135) (.32) (2,632) (.28) -------- ------- -------- ------- Total loans receivable 980,789 100.00% 939,022 100.00% -------- ------- -------- ------- Less: Allowance for losses on loans 9,486 8,674 -------- -------- Loans receivable, net $971,303 $930,348 ======== ========
9 4. INVESTMENT SECURITIES Amortized cost of investment securities and their fair values were as follows (in thousands): Available-for-sale at June 30, 2003:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ------- Callable agency securities, corporate bonds and commercial paper $ 50,863 $ 324 $ -- $51,187 Trust preferred securities 4,933 -- 385 4,548 Equity securities 6,279 72 292 6,059 --------- ---------- ---------- ------- $ 62,075 $ 396 $ 677 $61,794 ========= ========== ========== =======
Available-for-sale at December 31, 2002:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ------- Callable agency securities, corporate bonds and commercial paper $ 30,767 $ 320 $ -- $31,087 Trust preferred securities 4,931 -- 531 4,400 Equity securities 4,400 83 906 3,577 --------- ---------- ---------- ------- $ 40,098 $ 403 $ 1,437 $39,064 ========= ========== ========== =======
10 5. MORTGAGE-BACKED SECURITIES The amortized cost of mortgage-backed securities and their fair values are as follows (in thousands): Available-for-sale at June 30, 2003:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- -------- Participation certificates $ 71,569 $ 870 $ 63 $ 72,376 Real estate mortgage investment conduits and collateralized mortgage obligations 127,991 916 22 128,885 --------- ---------- ---------- -------- $ 199,560 $ 1,786 $ 85 $201,261 ========= ========== ========== ========
Available-for-sale at December 31, 2002:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- -------- Participation certificates $ 64,084 $ 820 $ 136 $ 64,768 Real estate mortgage investment conduits and collateralized mortgage obligations 231,752 862 744 231,870 --------- ---------- ---------- -------- $ 295,836 $ 1,682 $ 880 $296,638 ========= ========== ========== ========
Held-to-maturity at June 30, 2003:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ------- Participation certificates $ 19,421 $ 1,194 $ -- $20,615 Real estate mortgage investment conduits and collateralized mortgage obligations 732 50 -- 782 --------- ---------- ---------- ------- $ 20,153 $ 1,244 $ -- $21,397 ========= ========== ========== =======
Held-to-maturity at December 31, 2002:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ------- Participation certificates $ 20,651 $ 520 $ 10 $21,161 Real estate mortgage investment conduits and collateralized mortgage obligations 751 65 -- 816 --------- ---------- ---------- ------- $ 21,402 $ 585 $ 10 $21,977 ========= ========== ========== =======
11 6. DEPOSITS The following table sets forth the dollar amount of deposits and the percentage of total deposits in various types of deposits offered by the Bank at the dates indicated.
June 30, 2003 December 31, 2002 ------------- ----------------- Amount Percent Amount Percent -------- ------- ------ ------- (Dollars in thousands) Checking accounts: Noninterest-bearing $ 34,056 3.69% $ 31,318 3.28% Interest-bearing 92,262 10.00 90,905 9.53 Money market accounts 146,605 15.88 121,693 12.76 Saving accounts 215,409 23.34 212,370 22.26 Certificates of deposit: $100,000 or less 343,270 37.19 380,493 39.90 Over $100,000 91,376 9.90 117,082 12.27 -------- ------- -------- ------- Deposits 922,978 100.00% 953,861 100.00% ======= ======= Accrued interest 321 361 -------- -------- Total $923,299 $954,222 ======== ========
7. RECENT ACCOUNTING PRONOUNCEMENTS In May 2003, Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" was issued, establishing standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement requires that an issuer classify certain financial instruments, which may previously have been classified as equity, as a liability. This generally includes financial instruments which either 1) require mandatory redemption at a specified time other than upon liquidation or termination of the entity, 2) include an obligation to either repurchase the issuer's equity shares or is indexed to such an obligation and which may require settlement in cash or 3) require the issuance of a variable number of the issuer's shares based on a monetary amount which is generally unrelated to the value of those shares. The Statement was effective for the Company as of July 1, 2003 and is not expected to have a material impact on the Company's accounting and reporting. 12 8. EARNINGS PER SHARE Set forth below is information with respect to calculation of basic and diluted earnings per share for the periods indicated.
Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2003 2002 2003 2002 ---- ---- ---- ---- (Dollars in thousands, except per share data) Net income $ 698 $ 1,983 $ 1,352 $ 3,547 Weighted average number of common shares outstanding 12,191,309 13,333,516 12,304,279 13,441,871 Average ESOP shares not committed to be released (790,726) (912,133) (805,701) (927,086) Average RRP shares not vested (144,400) (273,650) (196,200) (353,150) ------------ ------------ ------------ ------------ Weighted average number of shares outstanding for basic earnings per share computation purposes 11,256,183 12,147,733 11,302,378 12,161,635 Dilutive effects of employee stock options 388,049 521,522 427,259 508,424 ------------ ------------ ------------ ------------ Weighted average shares and common share equivalents outstanding for diluted earnings per share purposes 11,644,232 12,669,255 11,729,637 12,670,059 ============ ============ ============ ============ Basic earnings per share $ 0.06 $ 0.16 $ 0.12 $ 0.29 Diluted earnings per share 0.06 0.16 0.12 0.28
9. COMPREHENSIVE INCOME Comprehensive income is the total of reported net income and all other revenues, expenses, gains and losses that under generally accepted accounting principles are not includable in reported net income but are reflected in stockholders' equity. The following table presents the Company's comprehensive income:
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 2003 2002 2003 2002 ------ ---- ------- ------ (Dollars in thousands) Net income $ 698 $ 1,983 $ 1,352 $3,547 Net change in unrealized gain (loss) on securities available-for-sale, net 151 1,774 1,064 544 ------ ------- ------- ------ Comprehensive income $ 849 $ 3,757 $ 2,416 $4,091 ====== ======= ======= ======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS This Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated" and "potential." Examples of forward-looking statements include, but are not limited to, estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, 1) general economic 13 conditions, 2) changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation and 3) other economic, competitive, governmental, regulatory, and technological factors affecting the Company's operations, pricing, products and services. CHANGES IN FINANCIAL CONDITION At June 30, 2003 the Company's total assets amounted to $1.6 billion or approximately $33.0 million less than at December 31, 2002, while total liabilities decreased $26.4 million and stockholders' equity decreased $6.6 million over this same period. Cash and cash equivalents were $210.6 million at June 30, 2003 compared to $210.1 million at December 31, 2002. Investment securities available-for-sale were $61.8 million at June 30, 2003 compared to $39.1 million at December 31, 2002. Mortgage-backed securities available-for-sale were $201.3 million at June 30, 2003 compared to $296.6 million at December 31, 2002, while mortgage-backed securities held-to-maturity were $20.2 million at June 30, 2003 compared to $21.4 million at December 31, 2002. This aggregate net decrease of $73.9 million in investment and mortgage-backed securities was used primarily to fund originations of new commercial and multi-family real estate mortgage loans and deposit withdrawals. Net loans receivable were $971.3 million at June 30, 2003 compared to $930.3 million at December 31, 2002. This net increase of $41.0 million resulted from using maturities of investment and mortgage-backed securities to fund new loan originations. While the Company's net loan portfolio increased during the six months ended June 30, 2003, the portfolio of single-family residential mortgage loans decreased. The net reduction of $36.3 million in single-family residential mortgage loans reflected the continuing shift in the composition of the Company's loan portfolio into higher levels of investment in commercial, commercial real estate, multi-family real estate and home equity loans. Deposits decreased $30.9 million to $923.3 at June 30, 2003 from $954.2 million at December 31, 2002. The reduction was the result of a reduction of $62.9 million in certificates of deposit being partially offset by an increase in core deposits of $32.0 million. Borrowed money was $449.4 million at June 30, 2003 and December 31, 2002. Borrowed funds consist primarily of advances from the Federal Home Loan Banks of Indianapolis and Chicago. Of the Company's $430.7 million of FHLB advances at June 30, 2003, $400.0 million were fixed-rate borrowings with maturities in 2010. Such advances generally include significant prepayment penalties. Stockholders' equity was $154.0 million at June 30, 2003 compared to $160.7 million at December 31, 2002. The $6.6 million net reduction primarily was the result of the repurchase of $9.0 million of the Company's common stock offset by $1.1 million of options exercised during the first six months of 2003. This net decrease of $7.7 million was partially offset by $1.3 million of shares held in the RRP Trust becoming vested and issued to plan participants. 14 AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID The following tables set forth, for the periods indicated, information regarding 1) the total dollar amount of interest income of the Company from interest-earning assets and the resultant average yields, 2) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate, 3) net interest income, 4) interest rate spread and 5) net interest margin. Information is based on average daily balances.
Three Months Ended June 30, ---------------------------------------------------------------------------- 2003 2002 ---------------------------------------------------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ---------------------------------------------------------------------------- (Dollars in thousands) Interest - earning assets: Loans Receivable (1) Real estate loans $ 918,828 $ 14,348 6.25% $ 881,066 $ 15,325 6.96% Other loans 40,511 626 6.18 29,317 423 5.77 ---------- -------- ---------- -------- Total loans 959,339 14,974 6.24 910,383 15,748 6.92 Securities 329,916 1,818 2.20 378,340 5,219 5.52 Other interest-earning assets (2) 216,510 891 1.65 204,567 1,161 2.27 ---------- -------- ---------- -------- Total interest-earning assets 1,505,765 17,683 4.70 1,493,290 22,128 5.93 Non-interest earning assets 77,462 79,037 ---------- ---------- Total assets $1,583,227 $1,572,327 ========== ========== Interest-bearing liabilities: Deposits: Checking and money market accounts $ 262,165 663 1.01 $ 192,589 655 1.36 Passbook accounts 215,782 377 0.70 217,778 694 1.27 Certificates of deposit 451,729 3,499 3.10 468,350 4,748 4.06 ---------- -------- ---------- -------- Total deposits 929,676 4,539 1.95 878,717 6,097 2.78 Total borrowings 449,380 6,672 5.94 462,180 6,881 5.96 ---------- -------- ---------- -------- Total interest-bearing liabilities 1,379,056 11,211 3.25 1,340,897 12,978 3.87 Non-interest bearing liabilities (3) 49,082 62,964 ---------- ---------- Total liabilities 1,428,138 1,403,861 Net worth 155,089 168,466 ---------- ---------- Total liabilities and retained income $1,583,227 $1,572,327 ========== ========== Net interest-earning assets $ 126,709 $ 152,393 ========== ========== Net interest income/interest rate spread $ 6,472 1.45% $ 9,150 2.06% ======== ====== ======== ====== Net interest margin 1.72% 2.45% ====== ====== Ratio of average interest-earning assets to average interest-bearing liabilities 109.19% 111.37% ====== ======
(1) The average balance of loans receivable includes non-performing loans, interest on which is recognized on a cash basis. (2) Includes money market accounts, federal funds sold and interest-earning bank deposits. (3) Consists primarily of demand deposit accounts. 15
Six Months Ended June 30, ---------------------------------------------------------------------------- 2003 2002 ---------------------------------------------------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ---------------------------------------------------------------------------- (Dollars in thousands) Interest - earning assets: Loans Receivable (1) Real estate loans $ 911,641 $ 29,041 6.37% $ 872,021 $ 30,519 7.00% Other loans 40,386 1,173 5.81 28,335 817 5.77 ---------- -------- ---------- -------- Total loans 952,027 30,214 6.35 900,356 31,336 6.96 Securities 348,022 4,334 2.49 368,938 10,218 5.54 Other interest-earning assets (2) 211,770 1,738 1.64 235,273 2,552 2.17 ---------- -------- ---------- -------- Total interest-earning assets 1,511,819 36,286 4.80 1,504,567 44,106 5.86 Non-interest earning assets 77,600 83,676 ---------- ---------- Total assets $1,589,419 $1,588,243 ========== ========== Interest-bearing liabilities: Deposits: Checking and money market accounts $ 243,325 1,358 1.12 $185,442 1,330 1.43 Passbook accounts 214,617 888 0.83 214,356 1,469 1.37 Certificates of deposit 469,474 7,518 3.20 493,489 10,513 4.26 ---------- -------- ---------- -------- Total deposits 927,416 9,764 2.11 893,287 13,312 2.98 Total borrowings 449,393 13,272 5.91 462,406 13,679 5.92 ---------- -------- ---------- -------- Total interest-bearing liabilities 1,376,809 23,036 3.35 1,355,693 26,991 3.98 Non-interest bearing liabilities (3) 56,263 62,949 ---------- ---------- Total liabilities 1,433,072 1,418,642 Net worth 156,347 169,601 ---------- ---------- Total liabilities and retained income $1,589,419 $1,588,243 ========== ========== Net interest-earning assets $ 135,010 $ 148,874 ========== ========== Net interest income/interest rate spread $ 13,250 1.45% $ 17,115 1.88% ======== ====== ======== ====== Net interest margin 1.75% 2.28% ====== ====== Ratio of average interest-earning assets to average interest-bearing liabilities 109.81% 110.98% ====== ======
(1) The average balance of loans receivable includes non-performing loans, interest on which is recognized on a cash basis. (2) Includes money market accounts, federal funds sold and interest-earning bank deposits. (3) Consists primarily of demand deposit accounts. 16 RATE /VOLUME ANALYSIS The following tables set forth the effects of changing rates and volumes on net interest income of the Company. Information is provided with respect to 1) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate), 2) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume) and 3) changes in rate/volume (changes in rate multiplied by changes in volume).
Three Months Ended June 30, 2003 compared to Three Months Ended June 30, 2002 ------------------------------------------------- (Dollars in thousands) Increase (decrease) due to ------------------------------------------------- Total Net Rate/ Increase Rate Volume Volume (Decrease) ------- ------- ------- --------- Interest-earning assets: Loans receivable: Real estate loans ($1,567) $ 657 ($ 67) ($ 977) Other loans 30 161 12 203 ------- ------- ------- ------- (1,537) 818 (55) (774) Securities (3,134) (668) 401 (3,401) Other interest-earning assets (319) 68 (19) (270) ------- ------- ------- ------- Total net change in income on interest-earning assets (4,990) 218 327 (4,445) Interest-bearing liabilities: Deposits: Checking and money markets accounts (168) 237 (61) 8 Passbook accounts (314) (6) 3 (317) Certificates of deposit (1,120) (169) 40 (1,249) ------- ------- ------- ------- Total deposits (1,602) 62 (18) (1,558) Borrowings (19) (191) 1 (209) ------- ------- ------- ------- Total net change in expense on interest-bearing liabilities (1,621) (129) (17) (1,767) ------- ------- ------- ------- Net change in net interest income ($3,369) $ 347 $ 344 ($2,678) ======= ======= ======= =======
17
Six Months Ended June 30, 2003 compared to Six Months Ended June 30, 2002 ------------------------------------------------- (Dollars in thousands) Increase (decrease) due to ------------------------------------------------- Total Net Rate/ Increase Rate Volume Volume (Decrease) ------- ------- ------- --------- Interest-earning assets: Loans receivable: Real estate loans ($2,740) $ 1,387 ($ 125) ($1,478) Other loans 6 347 3 356 ------- ------- ------- ------- (2,734) 1,734 (122) (1,122) Securities (5,624) (579) 319 (5,884) Other interest-earning assets (621) (255) 62 (814) ------- ------- ------- ------- Total net change in income on interest-earning assets (8,979) 900 259 (7,820) Interest-bearing liabilities: Deposits: Checking and money markets accounts (295) 415 (92) 28 Passbook accounts (582) 2 (1) (581) Certificates of deposit (2,611) (512) 128 (2,995) ------- ------- ------- ------- Total deposits (3,488) (95) 35 (3,548) Borrowings (23) (385) 1 (407) ------- ------- ------- ------- Total net change in expense on interest-bearing liabilities (3,511) (480) 36 (3,955) ------- ------- ------- ------- Net change in net interest income ($5,468) $ 1,380 $ 223 ($3,865) ======= ======= ======= =======
18 RESULTS OF OPERATIONS The Company reported net income of $698,000 or $0.06 per diluted share for the three months ended June 30, 2003 compared to $2.0 million or $0.16 per diluted share for the three months ended June 30, 2002. Net income for the six months ended June 30, 2003 was $1.4 million or $0.12 per diluted share compared to $3.5 million or $0.28 per diluted share for the same period in 2002. Net interest income for the second quarter of 2003 was $6.5 million compared to $9.2 million for the second quarter of 2002. Net interest income for the first six months of 2003 was $13.3 million compared to $17.1 million for the same period in 2002. For the three months ended June 30, 2003 compared to the three months ended June 30, 2002 the interest rate spread was 1.45 percent compared to 2.06 percent respectively, while the net interest margin was 1.72 percent compared to 2.45 percent, respectively. For the six months ended June 30, 2003 compared to the same period in 2002, the interest rate spread was 1.45 percent compared to 1.88 percent, respectively, while the net interest margin was 1.75 percent compared to 2.28 percent, respectively. Interest income for the second quarter of 2003 was $17.7 million compared to $22.1 million for the second quarter of 2002. Interest income for the first six months of 2003 was $36.3 million compared to $44.1 million for the first six months of 2002. The primary reason for the decreases in the 2003 periods was the significant decline in the average yield on interest-earning assets, particularly securities. When comparing the second quarter of 2003 to the second quarter of 2002, the average yield on securities decreased by 332 basis points, similarly, comparing the first six months of 2003 to the first six months of 2002, the average yield on securities decreased by 305 basis points. This decline is attributed primarily to the accelerated amortization of premiums on mortgage-backed securities resulting from the unprecedented high level of mortgage loan refinancings due to the continuing low levels of market rates of interest. Interest expense for the three months ended June 30, 2003 was $11.2 million compared to $13.0 million for the same periods in 2002. Interest expense for the six months ended June 30, 2003 was $23.0 million compared to $27.0 million for the six months ended June 30, 2002. The decreases in the three and six months ended June 30, 2003 compared to the same periods in 2002 primarily were the result of lower average rates paid on deposits, particularly certificates of deposit, and lower average balances of certificates of deposit and borrowings, which were partially offset by higher average balances on checking and money market accounts. The Company's provision for loan losses for the three months ended June 30, 2003 was $509,000 compared to $350,000 for the three months ended June 30, 2002. The provision for loan losses for the six months ended June 30, 2003 was $987,000 compared to $550,000 for the six months ended June 30, 2002. The Company establishes provisions for losses on loans, which are charged to operations, in order to maintain the allowances for losses on loans at a level which is deemed appropriate to absorb losses inherent in the portfolio. The Company has increased its emphasis in recent years on construction and land development loans, multi-family residential real estate loans, commercial loans, and commercial real estate loans, all of which are generally deemed to involve more risk of loss than single-family residential real estate loans. As a result, the Company continued to increase its allowance for losses on loans as a percentage of total loans. Included in the 2003 provisions for loan losses is $59,000 and $87,000 for the three and six months ended June 30, 2003, respectively, relating to an overdraft on deposit product, a new program which began in the third quarter of 2002. The Company `s total non-performing loans increased by $84,000 when comparing June 30, 2003 to December 31, 2002, while total non-performing assets declined by $523,000 to $15.7 million at June 30, 2003 from $16.2 million at December 31, 2002. 19 The following table sets forth information with respect to the Company's non-performing assets at the dates indicated:
June 30, 2003 December 31, 2002 ------------- ----------------- (Dollars in thousands) Non-accrual loans: Mortgage loans: Construction and land development $ 1,693 $ 1,323 Single-family residential 6,649 7,294 Multi-family residential 1,278 36 Non-residential 4,143 5,621 Home equity 424 324 Other loans: Commercial 1,188 692 Consumer 34 35 ------------- ----------------- Total non-performing loans 15,409 15,325 Real estate owned 286 893 ------------- ----------------- Total non-performing assets $ 15,695 $ 16,218 ============= ================= Non-performing assets to total assets 1.01% 1.02% Non-performing loans to total loans 1.57 1.63
The following table is a summary of changes in the allowance for loan losses for the six months ended June 30, 2003 and the year ended December 31, 2002:
Six Months Ended Year Ended June 30, 2003 December 31, 2002 ---------------- ----------------- (Dollars in thousands) Balance at beginning of period $ 8,674 $ 7,662 Provision for loan losses 987 1,956 Charge-offs (324) (1,183) Recoveries 149 239 ---------------- ----------------- Balance at end of period $ 9,486 $ 8,674 ================ ================= Allowance for loan losses to total non-performing loans at end of period 61.56% 56.60% Allowance for loan losses to total loans at end of period 0.97 0.92
20 Non-interest income for the three months ended June 30, 2003 was $2.6 million compared to $2.5 million for the three months ended June 30, 2002 and amounted to $4.9 million for the six months ended June 30, 2003 compared to $4.7 million for the same period in 2002. The increases in non-interest income in both the three and six month periods of 2003 compared to 2002 reflected increases in fee income which was partially offset by reductions in both gains on the sale of securities and commissions on insurance and investments. The combined decrease in insurance and investment commissions was $462,000 for the three months ended June 30, 2003 when compared to the three months ended June 30, 2002 and $886,000 for the six months ended June 30, 2003 when compared to the same period in 2002. The decrease in insurance and investment commissions reflects the sale of the Company's insurance agency assets in December 2002 and the outsourcing of its securities brokerage activities in August 2002. However, corresponding reductions in certain non-interest expense from the changes to insurance and investment activities have, in large part, offset this reduction in non-interest income. Non-interest expense was $7.7 million for the three months ended June 30, 2003 compared to $8.5 million for three months ended June 30, 2002. Non-interest expense was $15.2 million for the first six months of 2003 compared to $16.2 million for the same period in 2002. For both the three months and the six months ended June 30, 2003, compared to the same periods in 2002, decreases resulted primarily from decreases in compensation and employee benefits due to reductions in the number of employees, as a result of the outsourcing of securities brokerage activities and the sale of the insurance agency's assets, previously described. Income tax expense for the three months ended June 30, 2003 was $258,000 or 27.0 percent of income before income taxes compared to $859,000 or 30.2 percent of income before income taxes for the three months ended June 30, 2002. For the six months ended June 30, 2003 income tax expense was $571,000 or 29.7 percent of income before income taxes compared to $1.5 million or 30.0 percent for the same period in 2002. The decline in the Company's effective tax rate was primarily due to implementation of various tax strategies over the past few years. The Company estimates that its effective rate for the remainder of 2003 will be approximately 29.0 percent. LIQUIDITY AND COMMITMENTS The Company's liquidity, represented by cash and cash equivalents, is a product of its operating, investing, and financing activities. The Company's primary sources of funds are deposits, borrowings, amortization, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-related securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates. In addition, the Company invests excess funds in federal funds sold and other short-term interest-earning assets which provide liquidity to meet lending requirements. Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as federal funds. The Company uses its sources of funds primarily to meet its ongoing commitments, pay maturing certificates of deposit and savings withdrawals, fund loan commitments, and maintain a portfolio of mortgage-backed and mortgage-related securities and investment securities. At June 30, 2003 the total approved investment and loan origination commitments outstanding amounted to $93.5 million. At the same date, the unadvanced portion of construction loans amounted to $56.6 million. Investment securities scheduled to mature in one year or less at June 30, 2003 were $30.7 million. 21 Based on historical experience, the Company believes that a significant portion of maturing deposits will remain with the Company. The Company anticipates that it will continue to have sufficient funds, together with borrowings, to meet its current commitments. At June 30, 2003 the Bank's regulatory capital was significantly in excess of regulatory limits set by the Office of Thrift Supervision. The current requirements and the Bank's actual levels at June 30, 2003 are set forth below (dollars in thousands):
Required Capital Actual Capital Excess Capital Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- Tangible capital $23,077 1.50% $131,644 8.56% $108,567 7.06% Core capital 61,538 4.00 131,644 8.56 70,106 4.56 Risk-based capital 86,679 8.00 141,131 13.03 54,452 5.03
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK For a discussion of the Company's asset and liability management policies as well as the potential impact of interest rate changes upon the market value of the Company's portfolio equity, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's annual report to stockholders for the year ended December 31, 2002. There has been no material change in the Company's assets and liability position or the market value of the Company's portfolio equity since December 31, 2002. ITEM 4. CONTROLS AND PROCEDURES Our Management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and regulations and are operating in an effective manner. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 22 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS FROM REGISTERED SECURITIES Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits (filed herewith unless otherwise noted). 3.1 Certificate of Incorporation of CFS Bancorp, Inc.* 3.2 Bylaws of CFS Bancorp, Inc.* 4.0 Form of Stock Certificate of CFS Bancorp, Inc.* 10.1 Employment Agreement entered into between Citizens Financial Services, FSB and Thomas F. Prisby 10.2 Employment Agreement entered into between Citizens Financial Services, FSB and James W. Prisby 10.3 Employment Agreement entered into between Citizens Financial Services, FSB and John T. Stephens 10.4 Employment Agreement entered into between CFS Bancorp, Inc. and Thomas F. Prisby 10.5 Employment Agreement entered into between CFS Bancorp, Inc. and James W. Prisby 10.6 Employment Agreement entered into between CFS Bancorp, Inc. and John T. Stephens 10.7 CFS Bancorp, Inc. Amended and Restated 1998 Stock Option Plan** 10.8 CFS Bancorp, Inc. Amended and Restated 1998 Recognition and Retention Plan and Trust Agreement** 10.9 CFS Bancorp, Inc. 2003 Stock Option Plan*** 31.1 Certificate of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certificate of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
23 - -------- * Incorporated by Reference from the Company's Registration Statement on Form S-1 filed on March 26, 1998, as amended and declared effective on May 14, 1998. ** Incorporated by Reference from the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders filed on March 23, 2001. *** Incorporated by Reference from the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders filed on March 31, 2003. (b) Reports filed on Form 8-K. On April 20, 2003, the Company filed a Current Report on Form 8-K in connection with its reporting of its earnings for the quarter ended March 31, 2003. On June 2, 2003, the Company filed a Current Report on Form 8-K in connection with the announcement that it had entered into a definitive agreement to acquire the Bolingbook, Illinois branch of Family Bank and Trust Company of Palos Hills, Illinois. On June 20, 2003, the Company filed a Current Report on Form 8-K in connection with the announcement of its quarterly dividend. SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CFS BANCORP, INC. Date: August 13, 2003 By: /s/ Thomas F. Prisby ---------------------------------------------- Thomas F. Prisby, Chairman and Chief Executive Officer Date: August 13, 2003 By: /s/ John T. Stephens ---------------------------------------------- John T. Stephens, Executive Vice President and Chief Financial Officer 24 EX-10.1 3 c78973exv10w1.txt EMPLOYMENT AGREEMENT EXHIBIT 10.1 EMPLOYMENT AGREEMENT AGREEMENT, dated this 21st day of July 2003, between Citizens Financial Services, FSB (the "Bank"), a federally chartered savings bank, and Thomas F. Prisby (the "Executive"). WITNESSETH WHEREAS, the Executive is presently an officer of CFS Bancorp, Inc. (the "Corporation") and the Bank (together, the "Employers"); WHEREAS, the Employers desire to be ensured of the Executive's continued active participation in the business of the Employers; WHEREAS, the Corporation and the Bank desire to enter into separate agreements with the Executive with respect to his employment by each of the Employers; and WHEREAS, in order to induce the Executive to remain in the employ of the Employers and in consideration of the Executive's agreeing to remain in the employ of the Employers, the parties desire to specify the severance benefits which shall be due the Executive by the Bank in the event that his employment with the Bank is terminated under specified circumstances; NOW THEREFORE, in consideration of the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows: 1) DEFINITIONS. The following words and terms shall have the meanings set forth below for the purposes of this Agreement: a) Average Annual Compensation. The Executive's "Average Annual Compensation" for purposes of this Agreement shall be deemed to mean the average level of compensation paid to the Executive by the Employers or any subsidiary thereof during the most recent five taxable years preceding the Date of Termination and which was either (i) included in the Executive's gross income for tax purposes, including but not limited to Base Salary, bonuses and amounts taxable to the Executive under any qualified or non-qualified employee benefit plans of the Employers, or (ii) deferred at the election of the Executive. b) Base Salary. "Base Salary" shall have the meaning set forth in Section 4(a) hereof. c) Cause. Termination of the Executive's employment for "Cause" shall mean termination because of personal 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. 2 d) Change in Control. "Change in Control" means the occurrence of any of the following: (i) an event that would be required to be reported in response to Item 1(a) of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the 1934 Securities and Exchange Act of 1934, as amended (1934 Act), or any successor thereto, whether or not any class of securities of the Corporation is registered under the 1934 Act; (ii) any "person" is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (iii) during any period of thirty-six consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. i) For purposes of the definition of "Change in Control," a Person or group of Persons does not include the CFS Bancorp, Inc. Employee Stock Ownership Plan Trust which forms a part of the CFS Bancorp, Inc. Employee Stock Ownership Plan (the "ESOP"), or any other employee benefit plan, subsidiary or affiliate of the Corporation, and the outstanding shares of common stock of the Corporation, on a fully diluted basis, include all shares owned by the ESOP, whether allocated or unallocated to the accounts of participants, thereunder. ii) For purposes of the definition of "Change in Control," the term "Person" means any natural person, proprietorship, partnership, corporation, limited liability company, organization, firm, business, joint venture, association, trust or other entity and any government agency, body or authority. e) Code. "Code" shall mean the Internal Revenue Code of 1986, as amended. f) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, and (ii) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given or as specified in such Notice. g) Disability. Termination by the Bank of the Executive's employment based on "Disability" shall mean termination because of any physical or mental impairment which qualifies the Executive for disability benefits under the applicable long-term disability plan maintained by the Employers or any subsidiary or, if no such plan applies, which would qualify the Executive for disability benefits under the Federal Social Security System. h) Good Reason. Termination by the Executive of the Executive's employment for "Good Reason" shall mean termination by the Executive within twenty-four (24) months following a Change in Control of the Corporation based on: 3 i) Without the Executive's express written consent, the failure to elect or to re-elect or to appoint or to re-appoint the Executive to the offices of Chairman and Chief Executive Officer of the Employers or a material adverse change made by the Employers in the Executive's functions, duties or responsibilities as Chairman and Chief Executive Officer of the Employers; ii) Without the Executive's express written consent, a reduction by either of the Employers in the Executive's Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 4(b) hereof, a reduction in the package of fringe benefits provided to the Executive, taken as a whole; iii) The principal executive office of either of the Employers is relocated outside of the Munster, Indiana area or, without the Executive's express written consent, either of the Employers require the Executive to be based anywhere other than an area in which the Employers' principal executive office is located, except for required travel on business of the Employers to an extent substantially consistent with the Executive's present business travel obligations; iv) Any purported termination of the Executive's employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (j) below; or v) The failure by the Bank to obtain the assumption of and agreement to perform this Agreement by any successor. i) IRS. "IRS" shall mean the Internal Revenue Service. j) Notice of Termination. Any purported termination of the Executive's employment by the Bank for any reason, including without limitation for Cause, Disability or Retirement, or by the Executive for any reason, including without limitation for Good Reason, shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Bank's termination of Executive's employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Section 11 hereof. k) Retirement. "Retirement" shall mean voluntary termination by the Executive after the Executive attains the age fifty-five (55), with at least five years of active service. 4 2) TERM OF EMPLOYMENT. a) The Bank hereby employs the Executive as Chairman and Chief Executive Officer, and the Executive hereby accepts said employment and agrees to render such services to the Bank on the terms and conditions set forth in this Agreement. The term of this Agreement shall be a period of three years commencing as of the date hereof (the "Commencement Date"), subject to earlier termination as provided herein. Reference herein to the term of this Agreement shall refer to both such initial term and any extended terms. The Board of Directors of the Bank shall review on a periodic basis (and no less frequently than annually) whether to permit further extensions of the term of this Agreement. As part of such review, the Board of Directors shall consider all relevant factors, including the Executive's performance hereunder, and shall either expressly approve further extensions of the time of this Agreement or decide to provide notice to the contrary. b) During the term of this Agreement, the Executive shall perform such executive services for the Bank as may be consistent with his titles and from time to time assigned to him by the Bank's Board of Directors. The Executive further agrees to serve without additional compensation as an officer and director of any of the Bank's subsidiaries and agrees that any amounts received from such corporation may be offset against the amounts due hereunder. In addition, it is agreed that the Bank may assign the Executive to one of its subsidiaries for payroll purposes. 3) LOYALTY, CONFIDENTIALITY AND NON-COMPETITION a) The Executive shall devote his or her full time and best efforts to the performance of his or her employment under this Agreement. During the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business affairs or interests of the Employers or be a director, officer or consultant to any bank, savings and loan association, credit union, thrift, savings bank, or similar institution in the Chicago CMSA. b) For a period of one year from the date of voluntary termination, or termination for Cause, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business affairs or interests of the Employers or be a director, officer or consultant to any bank, savings and loan association, credit union, thrift, savings bank, or similar institution in the Chicago CMSA. c) For purposes of this Agreement, directly or indirectly engaging in any business activity in competition with the business or affairs of the Employers includes, but is not limited to, serving or acting as an owner, partner, agent, beneficiary, or employee of any person, firm or corporate entity so engaged; except that nothing herein contained shall be deemed to prevent or limit the right of Executive to invest any of his surplus funds in the capital stock or other securities of any corporation whose stock or securities are publicly owned or are regularly traded on any public exchange, nor shall anything herein contained be 5 deemed to prevent employee from investing or limit employee's right to invest his surplus funds in real estate. d) All information relating to business of the Employers including, but not limited to, that business obtained or serviced by Executive and all customer listings, contact lists, expiration cards, asset reports, instruments, documents, papers and other material used in connection with such business, shall be the exclusive property of the Employers. Executive shall keep all such information and material confidential; none of it will be copied, reproduced or duplicated without the express written permission of the Employers, and Executive shall return all material containing such information to Employers upon their request or upon termination of employment. Executive also agrees that he or she will not utilize the confidential information or trade secrets of the Employers, either directly or indirectly, for any purposes except performance of the Executive's responsibilities and in furtherance of the Employers' business, unless otherwise expressly authorized by Employers in writing in advance. e) Executive agrees that, during his employment, and for a period of three (3) years following the date of his involuntary termination of employment for Cause, or his voluntary termination without Good Reason, the Executive: i) will not solicit any of the Employers' past or current customers or clients for the benefit of anyone other than Employers or their affiliates; ii) will not divulge the names of any of the Employers' past or then current customers to any other person, corporation or entity; iii) will not divulge to anyone, except the Employers or their representatives, any information regarding their management strategies, marketing information or goals, policies and/or other information regarding the affairs of the Employers, all of which Executive is hereby obligated to keep secret, however and whenever such information comes to his or her attention; and iv) will not, either directly or indirectly, induce or solicit any person to leave the employ of the Employers. 4) COMPENSATION AND BENEFITS. a) The Employers shall compensate and pay the Executive for his services during the term of this Agreement at a minimum base salary of $334,256 per year ("Base Salary"), which may be increased from time to time in such amounts as may be determined by the Boards of Directors of the Employers and may not be decreased without the Executive's express written consent. In addition to his Base Salary, the Executive shall be entitled to receive 6 during the term of this Agreement such bonus payments as may be determined by the Boards of Directors of the Employers. b) During the term of this Agreement, the Executive shall be entitled to participate in and receive the benefits of any pension or other retirement benefit plan, profit sharing, stock option, employee stock ownership, or other plans, benefits and privileges given to employees and executives of the Employers, to the extent commensurate with his then duties and responsibilities, as fixed by the Boards of Directors of the Employers. The Bank shall not make any changes in such plans, benefits or privileges which would adversely affect the Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Bank and does not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Bank. Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to the Executive pursuant to Section 4(a) hereof. c) During the term of this Agreement, the Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Employers. The Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of the Employers. d) In the event the Executive's employment is terminated due to Disability or Retirement, the Employers shall provide continued life, medical, dental and disability coverage substantially identical to the coverage maintained by the Employers for the Executive immediately prior to his termination. Such coverage shall cease upon the expiration of the remaining term of this Agreement. e) In the event of the Executive's death during the term of this Agreement, the Employers shall provide to the Executive's spouse continued medical and dental coverage substantially identical to the coverage maintained by the Employers for the Executive immediately prior to his death until such spouse attains the age of 65. f) The Executive's compensation, benefits and expenses shall be paid by the Corporation and the Bank in the same proportion as the time and services actually expended by the Executive on behalf of each respective Employer. g) During the term of this Agreement, the Employers shall provide to the Executive, at the Employers' cost, all perquisites which other senior executives of the Employers are generally entitled to receive, including the payment of his or her annual dues at the Ruth Lake Country Club. 7 h) During the term of the Agreement, the Employers will provide suitable office space, desk, chairs, filing cabinets, telephones and other usual and customary office furniture, fixtures and equipment adequate for the efficient performance of the duties assigned to the Executive. i) During the term of this Agreement, the Employers will provide to Executive the use of an automobile of Executive's choice at a gross purchase price not to exceed $10,000 annual lease cost. Employers agree to replace the automobile with a new one at Executive's request no more often than once every two years. Employers will pay all automobile operating expenses incurred by Executive in the performance of Executive's duties. The Employers will procure and maintain in force an automobile liability policy for the automobile with coverage, including Executive, in the minimum amount of $1,000,000 combined single limit on bodily injury and property damage. 5) EXPENSES. The Employers shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of or in connection with the business of the Employers, including, but not by way of limitation, automobile expenses and other traveling expenses, and all reasonable entertainment expenses (whether incurred at the Executive's residence, while traveling or otherwise), subject to such reasonable documentation and other limitations as may be established by the Boards of Directors of the Employers. If such expenses are paid in the first instance by the Executive, the Employers shall reimburse the Executive therefor. 6) TERMINATION. a) The Bank shall have the right, at any time upon prior Notice of Termination, to terminate the Executive's employment hereunder for any reason, including without limitation termination for Cause, Disability or Retirement, and the Executive shall have the right, upon prior Notice of Termination, to terminate his employment hereunder for any reason. b) In the event that (i) the Executive's employment is terminated by the Bank for Cause or (ii) the Executive terminates his employment hereunder other than for Disability, Retirement, death or Good Reason, the Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination. c) In the event that the Executive's employment is terminated as a result of Disability, Retirement or the Executive's death during the term of this Agreement, the Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination, except as provided for in Sections 4(d) and 4(e) hereof. d) In the event that (i) the Executive's employment is terminated by the Bank for other than Cause, Disability, Retirement or the Executive's death or (ii) such employment is terminated by the Executive (a) due to a material breach of this Agreement by the Bank, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has 8 been given by the Executive to the Employers, or (b) for Good Reason, then the Bank shall, subject to the provisions of Section 7 hereof, if applicable: i) pay to the Executive, in either thirty-six (36) equal monthly installments beginning with the first business day of the month following the Date of Termination or in a lump sum within five business days of the Date of Termination (at the Executive's election), a cash severance amount equal to three (3) times that portion of the Executive's Average Annual Compensation paid by the Bank, and ii) maintain and provide for a period ending at the earlier of (i) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (ii) the date of the Executive's full-time employment by another employer (provided that the Executive is entitled under the terms of such employment to benefits substantially similar to those described in this subparagraph (B)), at no cost to the Executive, the Executive's continued participation in all group insurance, life insurance, health and accident insurance, disability insurance and other employee benefit plans, programs and arrangements offered by the Bank in which the Executive was entitled to participate immediately prior to the Date of Termination (excluding (x) stock option and restricted stock plans of the Employers, (y) bonuses and other items of cash compensation included in Average Annual Compensation and (z) other benefits, or portions thereof, included in Average Annual Compensation), provided that in the event that the Executive's participation in any plan, program or arrangement as provided in this subparagraph (B) is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Bank shall arrange to provide the Executive with benefits substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination. 7) LIMITATION OF BENEFITS UNDER CERTAIN CIRCUMSTANCES. If the payments and benefits pursuant to Section 6 hereof, either alone or together with other payments and benefits which the Executive has the right to receive from the Bank, would constitute a "parachute payment" under Section 280G of the Code, the payments and benefits payable by the Bank pursuant to Section 6 hereof shall be reduced, in the manner determined by the Executive, by the amount, if any, which is the minimum necessary to result in no portion of the payments and benefits payable by the Bank under Section 6 being non-deductible to the Bank pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code. The parties hereto agree that the present value of the payments and benefits payable pursuant to this Agreement to the Executive upon termination shall be limited to three (3) times the Executive's Average Annual Compensation. The determination of any reduction in the payments and benefits to be made pursuant to Section 6 shall be based upon the opinion of independent counsel selected by the Bank's independent public accountants and paid by the Bank. Such counsel shall be reasonably acceptable to the Bank and the Executive; shall promptly prepare the foregoing opinion, but in no event later than thirty (30) days from the Date of Termination; and may use such actuaries as such counsel deems necessary or advisable for the purpose. Nothing contained herein shall result in a reduction of any payments or benefits to which the Executive 9 may be entitled upon termination of employment under any circumstances other than as specified in this Section 7, or a reduction in the payments and benefits specified in Section 6 below zero. 8) MITIGATION; EXCLUSIVITY OF BENEFITS. a) The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise. b) The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise. 9) WITHHOLDING. All payments required to be made by the Bank hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Bank may reasonably determine should be withheld pursuant to any applicable law or regulation. 10) ASSIGNABILITY. The Bank may assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other entity with or into which the Bank may hereafter merge or consolidate or to which the Bank may transfer all or substantially all of its assets, if in any such case said corporation, bank or other entity shall by operation of law or expressly in writing assume all obligations of the Bank hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder. The Executive may not assign or transfer this Agreement or any rights or obligations hereunder. 11) NOTICE. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below: a) To the Bank: Secretary Citizens Financial Services, FSB 707 Ridge Road Munster, Indiana 46321 b) To the Corporation: Secretary CFS Bancorp, Inc. 707 Ridge Road Munster, Indiana 46321 10 c) To the Executive: Thomas F. Prisby 105 Princeton Road Hinsdale, Illinois 60521 12) AMENDMENT; WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Bank to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13) GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of Indiana. 14) NATURE OF OBLIGATIONS. Nothing contained herein shall create or require the Bank to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Bank hereunder, such right shall be no greater than the right of any unsecured general creditor of the Bank. 15) HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 16) VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. 17) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18) REGULATORY ACTIONS. The following provisions shall be applicable to the parties to the extent that they are required to be included in employment agreements between a savings association and its employees pursuant to Section 563.39(b) of the Regulations Applicable to All Savings Associations, 12 C.F.R. Section 563.39(b), or any successor thereto, and shall be controlling in the event of a conflict with any other provision of this Agreement, including without limitation Section 6 hereof. a) If the Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Employers' affairs pursuant to notice served under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. Sections 1818(e)(3) and 1818(g)(1)), the Employers' obligations under this Agreement shall be suspended as of 11 the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Employers may, in their discretion: (i) pay the 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. b) If the Executive is removed from office and/or permanently prohibited from participating in the conduct of the Employers' affairs by an order issued under Section 8(e)(4) or Section 8(g)(1) of the FDIA (12 U.S.C. Sections 1818(e)(4) and (g)(1)), all obligations of the Employers under this Agreement shall terminate as of the effective date of the order, but vested rights of the Executive and the Employers as of the date of termination shall not be affected. c) If the Bank is in default, as defined in Section 3(x)(1) of the FDIA (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 Executive and the Employers as of the date of termination shall not be affected. d) All obligations under this Agreement shall be terminated pursuant to 12 C.F.R. Section 563.39(b)(5) (except to the extent that it is determined that continuation of the Agreement for the continued operation of the Employers is necessary): (i) by the Director of the Office of Thrift Supervision ("OTS"), or his/her designee, at the time the Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA (12 U.S.C. Section 1823(c)); or (ii) by the Director of the OTS, or his/her designee, at the time the Director or his/her designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director of the OTS to be in an unsafe or unsound condition, but vested rights of the Executive and the Employers as of the date of termination shall not be affected. 19) REGULATORY PROHIBITION. Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. Section 1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359. In the event of the Executive's termination of employment with the Bank for Cause, all employment relationships and managerial duties with the Bank shall immediately cease regardless of whether the Executive remains in the employ of the Corporation following such termination. Furthermore, following such termination for Cause, the Executive will not, directly or indirectly, influence or participate in the affairs or the operations of the Bank. 20) PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS. In the event any dispute or controversy arising under or in connection with the Executive's termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the payment of (a) all legal fees incurred by the Executive in resolving such dispute or controversy, and (2) any back-pay, including Base Salary, bonuses and any other cash compensation, fringe benefits and any compensation and benefits due to the Executive under this Agreement. 12 21) ENTIRE AGREEMENT. This Agreement embodies the entire agreement between the Bank and the Executive with respect to the matters agreed to herein. All prior agreements between the Bank and the Executive with respect to the matters agreed to herein are hereby superseded and shall have no force or effect. Notwithstanding the foregoing, nothing contained in this Agreement shall affect the agreement of even date being entered into between the Corporation and the Executive. IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written. Attest: CITIZENS FINANCIAL SERVICES, FSB /s/ Monica F. Sullivan By: /s/ John T. Stephens - ----------------------- --------------------------- EXECUTIVE /s/ Thomas F. Prisby --------------------- Thomas F. Prisby EX-10.2 4 c78973exv10w2.txt EMPLOYMENT AGREEMENT EXHIBIT 10.2 EMPLOYMENT AGREEMENT AGREEMENT, dated this 21st day of July 2003, between Citizens Financial Services, FSB (the "Bank"), a federally chartered savings bank, and James W. Prisby (the "Executive"). WITNESSETH WHEREAS, the Executive is presently an officer of CFS Bancorp, Inc. (the "Corporation") and the Bank (together, the "Employers"); WHEREAS, the Employers desire to be ensured of the Executive's continued active participation in the business of the Employers; WHEREAS, the Corporation and the Bank desire to enter into separate agreements with the Executive with respect to his employment by each of the Employers; and WHEREAS, in order to induce the Executive to remain in the employ of the Employers and in consideration of the Executive's agreeing to remain in the employ of the Employers, the parties desire to specify the severance benefits which shall be due the Executive by the Bank in the event that his employment with the Bank is terminated under specified circumstances; NOW THEREFORE, in consideration of the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows: 1) DEFINITIONS. The following words and terms shall have the meanings set forth below for the purposes of this Agreement: a) Average Annual Compensation. The Executive's "Average Annual Compensation" for purposes of this Agreement shall be deemed to mean the average level of compensation paid to the Executive by the Employers or any subsidiary thereof during the most recent five taxable years preceding the Date of Termination and which was either (i) included in the Executive's gross income for tax purposes, including but not limited to Base Salary, bonuses and amounts taxable to the Executive under any qualified or non-qualified employee benefit plans of the Employers, or (ii) deferred at the election of the Executive. b) Base Salary. "Base Salary" shall have the meaning set forth in Section 4(a) hereof. c) Cause. Termination of the Executive's employment for "Cause" shall mean termination because of personal 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. 2 d) Change in Control. "Change in Control" means the occurrence of any of the following: (i) an event that would be required to be reported in response to Item 1(a) of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the 1934 Securities and Exchange Act of 1934, as amended (1934 Act), or any successor thereto, whether or not any class of securities of the Corporation is registered under the 1934 Act; (ii) any "person" is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (iii) during any period of thirty-six consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. i) For purposes of the definition of "Change in Control," a Person or group of Persons does not include the CFS Bancorp, Inc. Employee Stock Ownership Plan Trust which forms a part of the CFS Bancorp, Inc. Employee Stock Ownership Plan (the "ESOP"), or any other employee benefit plan, subsidiary or affiliate of the Corporation, and the outstanding shares of common stock of the Corporation, on a fully diluted basis, include all shares owned by the ESOP, whether allocated or unallocated to the accounts of participants, thereunder. ii) For purposes of the definition of "Change in Control," the term "Person" means any natural person, proprietorship, partnership, corporation, limited liability company, organization, firm, business, joint venture, association, trust or other entity and any government agency, body or authority. e) Code. "Code" shall mean the Internal Revenue Code of 1986, as amended. f) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, and (ii) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given or as specified in such Notice. g) Disability. Termination by the Bank of the Executive's employment based on "Disability" shall mean termination because of any physical or mental impairment which qualifies the Executive for disability benefits under the applicable long-term disability plan maintained by the Employers or any subsidiary or, if no such plan applies, which would qualify the Executive for disability benefits under the Federal Social Security System. h) Good Reason. Termination by the Executive of the Executive's employment for "Good Reason" shall mean termination by the Executive within twenty-four (24) months following a Change in Control of the Corporation based on: 3 i) Without the Executive's express written consent, the failure to elect or to re-elect or to appoint or to re-appoint the Executive to the offices of Vice Chairman, President and Chief Operating Officer of the Employers or a material adverse change made by the Employers in the Executive's functions, duties or responsibilities as Vice Chairman, President and Chief Operating Officer of the Employers; ii) Without the Executive's express written consent, a reduction by either of the Employers in the Executive's Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 4(b) hereof, a reduction in the package of fringe benefits provided to the Executive, taken as a whole; iii) The principal executive office of either of the Employers is relocated outside of the Munster, Indiana area or, without the Executive's express written consent, either of the Employers require the Executive to be based anywhere other than an area in which the Employers' principal executive office is located, except for required travel on business of the Employers to an extent substantially consistent with the Executive's present business travel obligations; iv) Any purported termination of the Executive's employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (j) below; or v) The failure by the Bank to obtain the assumption of and agreement to perform this Agreement by any successor. i) IRS. "IRS" shall mean the Internal Revenue Service. j) Notice of Termination. Any purported termination of the Executive's employment by the Bank for any reason, including without limitation for Cause, Disability or Retirement, or by the Executive for any reason, including without limitation for Good Reason, shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Bank's termination of Executive's employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Section 11 hereof. k) Retirement. "Retirement" shall mean voluntary termination by the Executive after the Executive attains the age fifty-five (55), with at least five years of active service. 4 2) TERM OF EMPLOYMENT. a) The Bank hereby employs the Executive as Vice Chairman, President and Chief Operating Officer, and the Executive hereby accepts said employment and agrees to render such services to the Bank on the terms and conditions set forth in this Agreement. The term of this Agreement shall be a period of three years commencing as of the date hereof (the "Commencement Date"), subject to earlier termination as provided herein. Reference herein to the term of this Agreement shall refer to both such initial term and any extended terms. The Board of Directors of the Bank shall review on a periodic basis (and no less frequently than annually) whether to permit further extensions of the term of this Agreement. As part of such review, the Board of Directors shall consider all relevant factors, including the Executive's performance hereunder, and shall either expressly approve further extensions of the time of this Agreement or decide to provide notice to the contrary. b) During the term of this Agreement, the Executive shall perform such executive services for the Bank as may be consistent with his titles and from time to time assigned to him by the Bank's Board of Directors. The Executive further agrees to serve without additional compensation as an officer and director of any of the Bank's subsidiaries and agrees that any amounts received from such corporation may be offset against the amounts due hereunder. In addition, it is agreed that the Bank may assign the Executive to one of its subsidiaries for payroll purposes. 3) LOYALTY, CONFIDENTIALITY AND NON-COMPETITION a) The Executive shall devote his or her full time and best efforts to the performance of his or her employment under this Agreement. During the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business affairs or interests of the Employers or be a director, officer or consultant to any bank, savings and loan association, credit union, thrift, savings bank, or similar institution in the Chicago CMSA. b) For a period of one year from the date of voluntary termination, or termination for Cause, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business affairs or interests of the Employers or be a director, officer or consultant to any bank, savings and loan association, credit union, thrift, savings bank, or similar institution in the Chicago CMSA. c) For purposes of this Agreement, directly or indirectly engaging in any business activity in competition with the business or affairs of the Employers includes, but is not limited to, serving or acting as an owner, partner, agent, beneficiary, or employee of any person, firm or corporate entity so engaged; except that nothing herein contained shall be deemed to prevent or limit the right of Executive to invest any of his surplus funds in the capital stock or other securities of any corporation whose stock or securities are publicly owned or are regularly traded on any public exchange, nor shall anything herein contained be 5 deemed to prevent employee from investing or limit employee's right to invest his surplus funds in real estate. d) All information relating to business of the Employers including, but not limited to, that business obtained or serviced by Executive and all customer listings, contact lists, expiration cards, asset reports, instruments, documents, papers and other material used in connection with such business, shall be the exclusive property of the Employers. Executive shall keep all such information and material confidential; none of it will be copied, reproduced or duplicated without the express written permission of the Employers, and Executive shall return all material containing such information to Employers upon their request or upon termination of employment. Executive also agrees that he or she will not utilize the confidential information or trade secrets of the Employers, either directly or indirectly, for any purposes except performance of the Executive's responsibilities and in furtherance of the Employers' business, unless otherwise expressly authorized by Employers in writing in advance. e) Executive agrees that, during his employment, and for a period of three (3) years following the date of his involuntary termination of employment for Cause, or his voluntary termination without Good Reason, the Executive: i) will not solicit any of the Employers' past or current customers or clients for the benefit of anyone other than Employers or their affiliates; ii) will not divulge the names of any of the Employers' past or then current customers to any other person, corporation or entity; iii) will not divulge to anyone, except the Employers or their representatives, any information regarding their management strategies, marketing information or goals, policies and/or other information regarding the affairs of the Employers, all of which Executive is hereby obligated to keep secret, however and whenever such information comes to his or her attention; and iv) will not, either directly or indirectly, induce or solicit any person to leave the employ of the Employers. 4) COMPENSATION AND BENEFITS. a) The Employers shall compensate and pay the Executive for his services during the term of this Agreement at a minimum base salary of $304,460 per year ("Base Salary"), which may be increased from time to time in such amounts as may be determined by the Boards of Directors of the Employers and may not be decreased without the Executive's express written consent. In addition to his Base Salary, the Executive shall be entitled to receive 6 during the term of this Agreement such bonus payments as may be determined by the Boards of Directors of the Employers. b) During the term of this Agreement, the Executive shall be entitled to participate in and receive the benefits of any pension or other retirement benefit plan, profit sharing, stock option, employee stock ownership, or other plans, benefits and privileges given to employees and executives of the Employers, to the extent commensurate with his then duties and responsibilities, as fixed by the Boards of Directors of the Employers. The Bank shall not make any changes in such plans, benefits or privileges which would adversely affect the Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Bank and does not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Bank. Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to the Executive pursuant to Section 4(a) hereof. c) During the term of this Agreement, the Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Employers. The Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of the Employers. d) In the event the Executive's employment is terminated due to Disability or Retirement, the Employers shall provide continued life, medical, dental and disability coverage substantially identical to the coverage maintained by the Employers for the Executive immediately prior to his termination. Such coverage shall cease upon the expiration of the remaining term of this Agreement. e) In the event of the Executive's death during the term of this Agreement, the Employers shall provide to the Executive's spouse continued medical and dental coverage substantially identical to the coverage maintained by the Employers for the Executive immediately prior to his death until such spouse attains the age of 65. f) The Executive's compensation, benefits and expenses shall be paid by the Corporation and the Bank in the same proportion as the time and services actually expended by the Executive on behalf of each respective Employer. g) During the term of this Agreement, the Employers shall provide to the Executive, at the Employers' cost, all perquisites which other senior executives of the Employers are generally entitled to receive, including the payment of his or her annual dues at the Briar Ridge Country Club. 7 h) During the term of the Agreement, the Employers will provide suitable office space, desk, chairs, filing cabinets, telephones and other usual and customary office furniture, fixtures and equipment adequate for the efficient performance of the duties assigned to the Executive. 5) EXPENSES. The Employers shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of or in connection with the business of the Employers, including, but not by way of limitation, automobile expenses and other traveling expenses, and all reasonable entertainment expenses (whether incurred at the Executive's residence, while traveling or otherwise), subject to such reasonable documentation and other limitations as may be established by the Boards of Directors of the Employers. If such expenses are paid in the first instance by the Executive, the Employers shall reimburse the Executive therefor. 6) TERMINATION. a) The Bank shall have the right, at any time upon prior Notice of Termination, to terminate the Executive's employment hereunder for any reason, including without limitation termination for Cause, Disability or Retirement, and the Executive shall have the right, upon prior Notice of Termination, to terminate his employment hereunder for any reason. b) In the event that (i) the Executive's employment is terminated by the Bank for Cause or (ii) the Executive terminates his employment hereunder other than for Disability, Retirement, death or Good Reason, the Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination. c) In the event that the Executive's employment is terminated as a result of Disability, Retirement or the Executive's death during the term of this Agreement, the Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination, except as provided for in Sections 4(d) and 4(e) hereof. d) In the event that (i) the Executive's employment is terminated by the Bank for other than Cause, Disability, Retirement or the Executive's death or (ii) such employment is terminated by the Executive (a) due to a material breach of this Agreement by the Bank, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has been given by the Executive to the Employers, or (b) for Good Reason, then the Bank shall, subject to the provisions of Section 7 hereof, if applicable: i) pay to the Executive, in either thirty-six (36) equal monthly installments beginning with the first business day of the month following the Date of Termination or in a lump sum within five business days of the Date of Termination (at the Executive's election), a cash severance amount equal to three (3) times that portion of the Executive's Average Annual Compensation paid by the Bank, and 8 ii) maintain and provide for a period ending at the earlier of (i) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (ii) the date of the Executive's full-time employment by another employer (provided that the Executive is entitled under the terms of such employment to benefits substantially similar to those described in this subparagraph (B)), at no cost to the Executive, the Executive's continued participation in all group insurance, life insurance, health and accident insurance, disability insurance and other employee benefit plans, programs and arrangements offered by the Bank in which the Executive was entitled to participate immediately prior to the Date of Termination (excluding (x) stock option and restricted stock plans of the Employers, (y) bonuses and other items of cash compensation included in Average Annual Compensation and (z) other benefits, or portions thereof, included in Average Annual Compensation), provided that in the event that the Executive's participation in any plan, program or arrangement as provided in this subparagraph (B) is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Bank shall arrange to provide the Executive with benefits substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination. 7) LIMITATION OF BENEFITS UNDER CERTAIN CIRCUMSTANCES. If the payments and benefits pursuant to Section 6 hereof, either alone or together with other payments and benefits which the Executive has the right to receive from the Bank, would constitute a "parachute payment" under Section 280G of the Code, the payments and benefits payable by the Bank pursuant to Section 6 hereof shall be reduced, in the manner determined by the Executive, by the amount, if any, which is the minimum necessary to result in no portion of the payments and benefits payable by the Bank under Section 6 being non-deductible to the Bank pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code. The parties hereto agree that the present value of the payments and benefits payable pursuant to this Agreement to the Executive upon termination shall be limited to three (3) times the Executive's Average Annual Compensation. The determination of any reduction in the payments and benefits to be made pursuant to Section 6 shall be based upon the opinion of independent counsel selected by the Bank's independent public accountants and paid by the Bank. Such counsel shall be reasonably acceptable to the Bank and the Executive; shall promptly prepare the foregoing opinion, but in no event later than thirty (30) days from the Date of Termination; and may use such actuaries as such counsel deems necessary or advisable for the purpose. Nothing contained herein shall result in a reduction of any payments or benefits to which the Executive may be entitled upon termination of employment under any circumstances other than as specified in this Section 7, or a reduction in the payments and benefits specified in Section 6 below zero. 9 8) MITIGATION; EXCLUSIVITY OF BENEFITS. a) The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise. b) The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise. 9) WITHHOLDING. All payments required to be made by the Bank hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Bank may reasonably determine should be withheld pursuant to any applicable law or regulation. 10) ASSIGNABILITY. The Bank may assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other entity with or into which the Bank may hereafter merge or consolidate or to which the Bank may transfer all or substantially all of its assets, if in any such case said corporation, bank or other entity shall by operation of law or expressly in writing assume all obligations of the Bank hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder. The Executive may not assign or transfer this Agreement or any rights or obligations hereunder. 11) NOTICE. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below: a) To the Bank: Secretary Citizens Financial Services, FSB 707 Ridge Road Munster, Indiana 46321 b) To the Corporation: Secretary CFS Bancorp, Inc. 707 Ridge Road Munster, Indiana 46321 c) To the Executive: James W. Prisby 1211 Royal Dublin Lane Dyer, Indiana 46311 10 12) AMENDMENT; WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Bank to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13) GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of Indiana. 14) NATURE OF OBLIGATIONS. Nothing contained herein shall create or require the Bank to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Bank hereunder, such right shall be no greater than the right of any unsecured general creditor of the Bank. 15) HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 16) VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. 17) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18) REGULATORY ACTIONS. The following provisions shall be applicable to the parties to the extent that they are required to be included in employment agreements between a savings association and its employees pursuant to Section 563.39(b) of the Regulations Applicable to All Savings Associations, 12 C.F.R. Section 563.39(b), or any successor thereto, and shall be controlling in the event of a conflict with any other provision of this Agreement, including without limitation Section 6 hereof. a) If the Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Employers' affairs pursuant to notice served under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. Sections 1818(e)(3) and 1818(g)(1)), the Employers' 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 Employers may, in their discretion: (i) pay the 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. 11 b) If the Executive is removed from office and/or permanently prohibited from participating in the conduct of the Employers' affairs by an order issued under Section 8(e)(4) or Section 8(g)(1) of the FDIA (12 U.S.C. Sections 1818(e)(4) and (g)(1)), all obligations of the Employers under this Agreement shall terminate as of the effective date of the order, but vested rights of the Executive and the Employers as of the date of termination shall not be affected. c) If the Bank is in default, as defined in Section 3(x)(1) of the FDIA (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 Executive and the Employers as of the date of termination shall not be affected. d) All obligations under this Agreement shall be terminated pursuant to 12 C.F.R. Section 563.39(b)(5) (except to the extent that it is determined that continuation of the Agreement for the continued operation of the Employers is necessary): (i) by the Director of the Office of Thrift Supervision ("OTS"), or his/her designee, at the time the Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA (12 U.S.C. Section 1823(c)); or (ii) by the Director of the OTS, or his/her designee, at the time the Director or his/her designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director of the OTS to be in an unsafe or unsound condition, but vested rights of the Executive and the Employers as of the date of termination shall not be affected. 19) REGULATORY PROHIBITION. Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. Section 1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359. In the event of the Executive's termination of employment with the Bank for Cause, all employment relationships and managerial duties with the Bank shall immediately cease regardless of whether the Executive remains in the employ of the Corporation following such termination. Furthermore, following such termination for Cause, the Executive will not, directly or indirectly, influence or participate in the affairs or the operations of the Bank. 20) PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS. In the event any dispute or controversy arising under or in connection with the Executive's termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the payment of (a) all legal fees incurred by the Executive in resolving such dispute or controversy, and (2) any back-pay, including Base Salary, bonuses and any other cash compensation, fringe benefits and any compensation and benefits due to the Executive under this Agreement. 21) ENTIRE AGREEMENT. This Agreement embodies the entire agreement between the Bank and the Executive with respect to the matters agreed to herein. All prior agreements between the Bank and the Executive with respect to the matters agreed to herein are hereby superseded and shall 12 have no force or effect. Notwithstanding the foregoing, nothing contained in this Agreement shall affect the agreement of even date being entered into between the Corporation and the Executive. IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written. Attest: CITIZENS FINANCIAL SERVICES, FSB /s/ Monica F. Sullivan By: /s/ John T. Stephens - ---------------------- ------------------------- EXECUTIVE /s/ James W. Prisby ----------------------------- James W. Prisby EX-10.3 5 c78973exv10w3.txt EMPLOYMENT AGREEMENT EXHIBIT 10.3 EMPLOYMENT AGREEMENT AGREEMENT, dated this 21st day of July 2003, between Citizens Financial Services, FSB (the "Bank"), a federally chartered savings bank, and John T. Stephens (the "Executive"). WITNESSETH WHEREAS, the Executive is presently an officer of CFS Bancorp, Inc. (the "Corporation") and the Bank (together, the "Employers"); WHEREAS, the Employers desire to be ensured of the Executive's continued active participation in the business of the Employers; WHEREAS, the Corporation and the Bank desire to enter into separate agreements with the Executive with respect to his employment by each of the Employers; and WHEREAS, in order to induce the Executive to remain in the employ of the Employers and in consideration of the Executive's agreeing to remain in the employ of the Employers, the parties desire to specify the severance benefits which shall be due the Executive by the Bank in the event that his employment with the Bank is terminated under specified circumstances; NOW THEREFORE, in consideration of the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows: 1) DEFINITIONS. The following words and terms shall have the meanings set forth below for the purposes of this Agreement: a) Average Annual Compensation. The Executive's "Average Annual Compensation" for purposes of this Agreement shall be deemed to mean the average level of compensation paid to the Executive by the Employers or any subsidiary thereof during the most recent five taxable years preceding the Date of Termination and which was either (i) included in the Executive's gross income for tax purposes, including but not limited to Base Salary, bonuses and amounts taxable to the Executive under any qualified or non-qualified employee benefit plans of the Employers, or (ii) deferred at the election of the Executive. b) Base Salary. "Base Salary" shall have the meaning set forth in Section 4(a) hereof. c) Cause. Termination of the Executive's employment for "Cause" shall mean termination because of personal 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. 2 d) Change in Control. "Change in Control" means the occurrence of any of the following: (i) an event that would be required to be reported in response to Item 1(a) of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the 1934 Securities and Exchange Act of 1934, as amended (1934 Act), or any successor thereto, whether or not any class of securities of the Corporation is registered under the 1934 Act; (ii) any "person" is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (iii) during any period of thirty-six consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. i) For purposes of the definition of "Change in Control," a Person or group of Persons does not include the CFS Bancorp, Inc. Employee Stock Ownership Plan Trust which forms a part of the CFS Bancorp, Inc. Employee Stock Ownership Plan (the "ESOP"), or any other employee benefit plan, subsidiary or affiliate of the Corporation, and the outstanding shares of common stock of the Corporation, on a fully diluted basis, include all shares owned by the ESOP, whether allocated or unallocated to the accounts of participants, thereunder. ii) For purposes of the definition of "Change in Control," the term "Person" means any natural person, proprietorship, partnership, corporation, limited liability company, organization, firm, business, joint venture, association, trust or other entity and any government agency, body or authority. e) Code. "Code" shall mean the Internal Revenue Code of 1986, as amended. f) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, and (ii) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given or as specified in such Notice. g) Disability. Termination by the Bank of the Executive's employment based on "Disability" shall mean termination because of any physical or mental impairment which qualifies the Executive for disability benefits under the applicable long-term disability plan maintained by the Employers or any subsidiary or, if no such plan applies, which would qualify the Executive for disability benefits under the Federal Social Security System. h) Good Reason. Termination by the Executive of the Executive's employment for "Good Reason" shall mean termination by the Executive within twenty-four (24) months following a Change in Control of the Corporation based on: 3 i) Without the Executive's express written consent, the failure to elect or to re-elect or to appoint or to re-appoint the Executive to the offices of Executive Vice President, Treasurer and Chief Financial Officer of the Employers or a material adverse change made by the Employers in the Executive's functions, duties or responsibilities as Executive Vice President, Treasurer and Chief Financial Officer of the Employers; ii) Without the Executive's express written consent, a reduction by either of the Employers in the Executive's Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 4(b) hereof, a reduction in the package of fringe benefits provided to the Executive, taken as a whole; iii) The principal executive office of either of the Employers is relocated outside of the Munster, Indiana area or, without the Executive's express written consent, either of the Employers require the Executive to be based anywhere other than an area in which the Employers' principal executive office is located, except for required travel on business of the Employers to an extent substantially consistent with the Executive's present business travel obligations; iv) Any purported termination of the Executive's employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (j) below; or v) The failure by the Bank to obtain the assumption of and agreement to perform this Agreement by any successor. i) IRS. "IRS" shall mean the Internal Revenue Service. j) Notice of Termination. Any purported termination of the Executive's employment by the Bank for any reason, including without limitation for Cause, Disability or Retirement, or by the Executive for any reason, including without limitation for Good Reason, shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Bank's termination of Executive's employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Section 11 hereof. k) Retirement. "Retirement" shall mean voluntary termination by the Executive after the Executive attains the age fifty-five (55), with at least five years of active service. 4 2) TERM OF EMPLOYMENT. a) The Bank hereby employs the Executive as Executive Vice President, Treasurer and Chief Financial Officer, and the Executive hereby accepts said employment and agrees to render such services to the Bank on the terms and conditions set forth in this Agreement. The term of this Agreement shall be a period of three years commencing as of the date hereof (the "Commencement Date"), subject to earlier termination as provided herein. Reference herein to the term of this Agreement shall refer to both such initial term and any extended terms. The Board of Directors of the Bank shall review on a periodic basis (and no less frequently than annually) whether to permit further extensions of the term of this Agreement. As part of such review, the Board of Directors shall consider all relevant factors, including the Executive's performance hereunder, and shall either expressly approve further extensions of the time of this Agreement or decide to provide notice to the contrary. b) During the term of this Agreement, the Executive shall perform such executive services for the Bank as may be consistent with his titles and from time to time assigned to him by the Bank's Board of Directors. The Executive further agrees to serve without additional compensation as an officer and director of any of the Bank's subsidiaries and agrees that any amounts received from such corporation may be offset against the amounts due hereunder. In addition, it is agreed that the Bank may assign the Executive to one of its subsidiaries for payroll purposes. 3) LOYALTY, CONFIDENTIALITY AND NON-COMPETITION a) The Executive shall devote his or her full time and best efforts to the performance of his or her employment under this Agreement. During the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business affairs or interests of the Employers or be a director, officer or consultant to any bank, savings and loan association, credit union, thrift, savings bank, or similar institution in the Chicago CMSA. b) For a period of one year from the date of voluntary termination, or termination for Cause, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business affairs or interests of the Employers or be a director, officer or consultant to any bank, savings and loan association, credit union, thrift, savings bank, or similar institution in the Chicago CMSA. c) For purposes of this Agreement, directly or indirectly engaging in any business activity in competition with the business or affairs of the Employers includes, but is not limited to, serving or acting as an owner, partner, agent, beneficiary, or employee of any person, firm or corporate entity so engaged; except that nothing herein contained shall be deemed to prevent or limit the right of Executive to invest any of his surplus funds in the capital stock or other securities of any corporation whose stock or securities are publicly owned or are regularly traded on any public exchange, nor shall anything herein contained be 5 deemed to prevent employee from investing or limit employee's right to invest his surplus funds in real estate. d) All information relating to business of the Employers including, but not limited to, that business obtained or serviced by Executive and all customer listings, contact lists, expiration cards, asset reports, instruments, documents, papers and other material used in connection with such business, shall be the exclusive property of the Employers. Executive shall keep all such information and material confidential; none of it will be copied, reproduced or duplicated without the express written permission of the Employers, and Executive shall return all material containing such information to Employers upon their request or upon termination of employment. Executive also agrees that he or she will not utilize the confidential information or trade secrets of the Employers, either directly or indirectly, for any purposes except performance of the Executive's responsibilities and in furtherance of the Employers' business, unless otherwise expressly authorized by Employers in writing in advance. e) Executive agrees that, during his employment, and for a period of three (3) years following the date of his involuntary termination of employment for Cause, or his voluntary termination without Good Reason, the Executive: i) will not solicit any of the Employers' past or current customers or clients for the benefit of anyone other than Employers or their affiliates; ii) will not divulge the names of any of the Employers' past or then current customers to any other person, corporation or entity; iii) will not divulge to anyone, except the Employers or their representatives, any information regarding their management strategies, marketing information or goals, policies and/or other information regarding the affairs of the Employers, all of which Executive is hereby obligated to keep secret, however and whenever such information comes to his or her attention; and iv) will not, either directly or indirectly, induce or solicit any person to leave the employ of the Employers. 4) COMPENSATION AND BENEFITS. a) The Employers shall compensate and pay the Executive for his services during the term of this Agreement at a minimum base salary of $$223,496 per year ("Base Salary"), which may be increased from time to time in such amounts as may be determined by the Boards of Directors of the Employers and may not be decreased without the Executive's express written consent. In addition to his Base Salary, the Executive shall be entitled to receive during the term of this Agreement such bonus payments as may be determined by the Boards of Directors of the Employers. 6 b) During the term of this Agreement, the Executive shall be entitled to participate in and receive the benefits of any pension or other retirement benefit plan, profit sharing, stock option, employee stock ownership, or other plans, benefits and privileges given to employees and executives of the Employers, to the extent commensurate with his then duties and responsibilities, as fixed by the Boards of Directors of the Employers. The Bank shall not make any changes in such plans, benefits or privileges which would adversely affect the Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Bank and does not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Bank. Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to the Executive pursuant to Section 4(a) hereof. c) During the term of this Agreement, the Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Employers. The Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of the Employers. d) In the event the Executive's employment is terminated due to Disability or Retirement, the Employers shall provide continued life, medical, dental and disability coverage substantially identical to the coverage maintained by the Employers for the Executive immediately prior to his termination. Such coverage shall cease upon the expiration of the remaining term of this Agreement. e) In the event of the Executive's death during the term of this Agreement, the Employers shall provide to the Executive's spouse continued medical and dental coverage substantially identical to the coverage maintained by the Employers for the Executive immediately prior to his death until such spouse attains the age of 65. f) The Executive's compensation, benefits and expenses shall be paid by the Corporation and the Bank in the same proportion as the time and services actually expended by the Executive on behalf of each respective Employer. g) During the term of this Agreement, the Employers shall provide to the Executive, at the Employers' cost, all perquisites which other senior executives of the Employers are generally entitled to receive, including the payment of his or her annual dues at the Briar Ridge Country Club. h) During the term of the Agreement, the Employers will provide suitable office space, desk, chairs, filing cabinets, telephones and other usual and customary office furniture, fixtures 7 and equipment adequate for the efficient performance of the duties assigned to the Executive. 5) EXPENSES. The Employers shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of or in connection with the business of the Employers, including, but not by way of limitation, automobile expenses and other traveling expenses, and all reasonable entertainment expenses (whether incurred at the Executive's residence, while traveling or otherwise), subject to such reasonable documentation and other limitations as may be established by the Boards of Directors of the Employers. If such expenses are paid in the first instance by the Executive, the Employers shall reimburse the Executive therefor. 6) TERMINATION. a) The Bank shall have the right, at any time upon prior Notice of Termination, to terminate the Executive's employment hereunder for any reason, including without limitation termination for Cause, Disability or Retirement, and the Executive shall have the right, upon prior Notice of Termination, to terminate his employment hereunder for any reason. b) In the event that (i) the Executive's employment is terminated by the Bank for Cause or (ii) the Executive terminates his employment hereunder other than for Disability, Retirement, death or Good Reason, the Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination. c) In the event that the Executive's employment is terminated as a result of Disability, Retirement or the Executive's death during the term of this Agreement, the Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination, except as provided for in Sections 4(d) and 4(e) hereof. d) In the event that (i) the Executive's employment is terminated by the Bank for other than Cause, Disability, Retirement or the Executive's death or (ii) such employment is terminated by the Executive (a) due to a material breach of this Agreement by the Bank, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has been given by the Executive to the Employers, or (b) for Good Reason, then the Bank shall, subject to the provisions of Section 7 hereof, if applicable: i) pay to the Executive, in either thirty-six (36) equal monthly installments beginning with the first business day of the month following the Date of Termination or in a lump sum within five business days of the Date of Termination (at the Executive's election), a cash severance amount equal to three (3) times that portion of the Executive's Average Annual Compensation paid by the Bank, and 8 ii) maintain and provide for a period ending at the earlier of (i) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (ii) the date of the Executive's full-time employment by another employer (provided that the Executive is entitled under the terms of such employment to benefits substantially similar to those described in this subparagraph (B)), at no cost to the Executive, the Executive's continued participation in all group insurance, life insurance, health and accident insurance, disability insurance and other employee benefit plans, programs and arrangements offered by the Bank in which the Executive was entitled to participate immediately prior to the Date of Termination (excluding (x) stock option and restricted stock plans of the Employers, (y) bonuses and other items of cash compensation included in Average Annual Compensation and (z) other benefits, or portions thereof, included in Average Annual Compensation), provided that in the event that the Executive's participation in any plan, program or arrangement as provided in this subparagraph (B) is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Bank shall arrange to provide the Executive with benefits substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination. 7) LIMITATION OF BENEFITS UNDER CERTAIN CIRCUMSTANCES. If the payments and benefits pursuant to Section 6 hereof, either alone or together with other payments and benefits which the Executive has the right to receive from the Bank, would constitute a "parachute payment" under Section 280G of the Code, the payments and benefits payable by the Bank pursuant to Section 6 hereof shall be reduced, in the manner determined by the Executive, by the amount, if any, which is the minimum necessary to result in no portion of the payments and benefits payable by the Bank under Section 6 being non-deductible to the Bank pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code. The parties hereto agree that the present value of the payments and benefits payable pursuant to this Agreement to the Executive upon termination shall be limited to three (3) times the Executive's Average Annual Compensation. The determination of any reduction in the payments and benefits to be made pursuant to Section 6 shall be based upon the opinion of independent counsel selected by the Bank's independent public accountants and paid by the Bank. Such counsel shall be reasonably acceptable to the Bank and the Executive; shall promptly prepare the foregoing opinion, but in no event later than thirty (30) days from the Date of Termination; and may use such actuaries as such counsel deems necessary or advisable for the purpose. Nothing contained herein shall result in a reduction of any payments or benefits to which the Executive may be entitled upon termination of employment under any circumstances other than as specified in this Section 7, or a reduction in the payments and benefits specified in Section 6 below zero. 8) MITIGATION; EXCLUSIVITY OF BENEFITS. a) The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be 9 reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise. b) The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise. 9) WITHHOLDING. All payments required to be made by the Bank hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Bank may reasonably determine should be withheld pursuant to any applicable law or regulation. 10) ASSIGNABILITY. The Bank may assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other entity with or into which the Bank may hereafter merge or consolidate or to which the Bank may transfer all or substantially all of its assets, if in any such case said corporation, bank or other entity shall by operation of law or expressly in writing assume all obligations of the Bank hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder. The Executive may not assign or transfer this Agreement or any rights or obligations hereunder. 11) NOTICE. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below: a) To the Bank: Secretary Citizens Financial Services, FSB 707 Ridge Road Munster, Indiana 46321 b) To the Corporation: Secretary CFS Bancorp, Inc. 707 Ridge Road Munster, Indiana 46321 a) To the Executive: John T. Stephens 1940 Birchwood Court Munster, Indiana 46321 12) AMENDMENT; WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer or officers as may be specifically designated by the Board of 10 Directors of the Bank to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13) GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of Indiana. 14) NATURE OF OBLIGATIONS. Nothing contained herein shall create or require the Bank to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Bank hereunder, such right shall be no greater than the right of any unsecured general creditor of the Bank. 15) HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 16) VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. 17) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18) REGULATORY ACTIONS. The following provisions shall be applicable to the parties to the extent that they are required to be included in employment agreements between a savings association and its employees pursuant to Section 563.39(b) of the Regulations Applicable to All Savings Associations, 12 C.F.R. Section 563.39(b), or any successor thereto, and shall be controlling in the event of a conflict with any other provision of this Agreement, including without limitation Section 6 hereof. a) If the Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Employers' affairs pursuant to notice served under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. Sections 1818(e)(3) and 1818(g)(1)), the Employers' 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 Employers may, in their discretion: (i) pay the 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. b) If the Executive is removed from office and/or permanently prohibited from participating in the conduct of the Employers' affairs by an order issued under Section 8(e)(4) or Section 8(g)(1) of the FDIA (12 U.S.C. Sections 1818(e)(4) and (g)(1)), all obligations of the Employers 11 under this Agreement shall terminate as of the effective date of the order, but vested rights of the Executive and the Employers as of the date of termination shall not be affected. c) If the Bank is in default, as defined in Section 3(x)(1) of the FDIA (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 Executive and the Employers as of the date of termination shall not be affected. d) All obligations under this Agreement shall be terminated pursuant to 12 C.F.R. Section 563.39(b)(5) (except to the extent that it is determined that continuation of the Agreement for the continued operation of the Employers is necessary): (i) by the Director of the Office of Thrift Supervision ("OTS"), or his/her designee, at the time the Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA (12 U.S.C. Section 1823(c)); or (ii) by the Director of the OTS, or his/her designee, at the time the Director or his/her designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director of the OTS to be in an unsafe or unsound condition, but vested rights of the Executive and the Employers as of the date of termination shall not be affected. 19) REGULATORY PROHIBITION. Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. Section 1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359. In the event of the Executive's termination of employment with the Bank for Cause, all employment relationships and managerial duties with the Bank shall immediately cease regardless of whether the Executive remains in the employ of the Corporation following such termination. Furthermore, following such termination for Cause, the Executive will not, directly or indirectly, influence or participate in the affairs or the operations of the Bank. 20) PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS. In the event any dispute or controversy arising under or in connection with the Executive's termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the payment of (a) all legal fees incurred by the Executive in resolving such dispute or controversy, and (2) any back-pay, including Base Salary, bonuses and any other cash compensation, fringe benefits and any compensation and benefits due to the Executive under this Agreement. 21) ENTIRE AGREEMENT. This Agreement embodies the entire agreement between the Bank and the Executive with respect to the matters agreed to herein. All prior agreements between the Bank and the Executive with respect to the matters agreed to herein are hereby superseded and shall have no force or effect. Notwithstanding the foregoing, nothing contained in this Agreement shall affect the agreement of even date being entered into between the Corporation and the Executive. 12 IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written. Attest: CITIZENS FINANCIAL SERVICES, FSB /s/ Monica F. Sullivan By: /s/ James W. Prisby - ---------------------- ----------------------------- EXECUTIVE /s/ John T. Stephens --------------------------------- John T. Stephens EX-10.4 6 c78973exv10w4.txt EMPLOYMENT AGREEMENT EXHIBIT 10.4 EMPLOYMENT AGREEMENT AGREEMENT, dated this 21st day of July 2003, between CFS Bancorp, Inc. (the "Corporation"), a Delaware corporation, and Thomas F. Prisby (the "Executive"). WITNESSETH WHEREAS, the Executive is presently an officer of the Corporation and Citizens Financial Services, FSB (the "Bank") (together, the "Employers"); WHEREAS, the Employers desire to be ensured of the Executive's continued active participation in the business of the Employers; WHEREAS, the Corporation and the Bank desire to enter into separate agreements with the Executive with respect to his employment by each of the Employers; and WHEREAS, in order to induce the Executive to remain in the employ of the Employers and in consideration of the Executive's agreeing to remain in the employ of the Employers, the parties desire to specify the severance benefits which shall be due the Executive by the Corporation in the event that his employment with the Corporation is terminated under specified circumstances; NOW THEREFORE, in consideration of the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows: 1) DEFINITIONS. The following words and terms shall have the meanings set forth below for the purposes of this Agreement: a) Average Annual Compensation. The Executive's "Average Annual Compensation" for purposes of this Agreement shall be deemed to mean the average level of compensation paid to the Executive by the Employers or any subsidiary thereof during the most recent five taxable years preceding the Date of Termination and which was either (i) included in the Executive's gross income for tax purposes, including but not limited to Base Salary, bonuses and amounts taxable to the Executive under any qualified or non-qualified employee benefit plans of the Employers, or (ii) deferred at the election of the Executive. b) Base Salary. "Base Salary" shall have the meaning set forth in Section 4(a) hereof. c) Cause. Termination of the Executive's employment for "Cause" shall mean termination because of personal 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. d) Change in Control. "Change in Control" means the occurrence of any of the following: (i) an event that would be required to be reported in response to Item 1(a) of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Securities and Exchange Act of 1934 Act, as amended (1934 Act), or any successor thereto, whether or not any class of securities of the Corporation is registered under the 1934 Act; (ii) any "person" is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (iii) during any period of thirty-six consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. i) For purposes of the definition of "Change in Control," a Person or group of Persons does not include the CFS Bancorp, Inc. Employee Stock Ownership Plan Trust which forms a part of the CFS Bancorp, Inc. Employee Stock Ownership Plan (the "ESOP"), or any other employee benefit plan, subsidiary or affiliate of the Corporation, and the outstanding shares of common stock of the Corporation, on a fully diluted basis, include all shares owned by the ESOP, whether allocated or unallocated to the accounts of participants, thereunder. ii) For purposes of the definition of "Change in Control," the term "Person" means any natural person, proprietorship, partnership, corporation, limited liability company, organization, firm, business, joint venture, association, trust or other entity and any government agency, body or authority. e) Code. "Code" shall mean the Internal Revenue Code of 1986, as amended. f) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, and (ii) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given or as specified in such Notice. g) Disability. Termination by the Corporation of the Executive's employment based on "Disability" shall mean termination because of any physical or mental impairment which qualifies the Executive for disability benefits under the applicable long-term disability plan maintained by the Employers or any subsidiary or, if no such plan applies, which would qualify the Executive for disability benefits under the Federal Social Security System. h) Good Reason. Termination by the Executive of the Executive's employment for "Good Reason" shall mean termination by the Executive within twenty-four (24) months following a Change in Control of the Corporation based on: 2 (i) Without the Executive's express written consent, the failure to elect or to re-elect or to appoint or to re-appoint the Executive to the offices of Chairman and Chief Executive Officer of the Employers or a material adverse change made by the Employers in the Executive's functions, duties or responsibilities as Chairman and Chief Executive Officer of the Employers; (ii) Without the Executive's express written consent, a reduction by either of the Employers in the Executive's Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 4(b) hereof, a reduction in the package of fringe benefits provided to the Executive, taken as a whole; (iii) The principal executive office of either of the Employers is relocated outside of the Munster, Indiana area or, without the Executive's express written consent, either of the Employers require the Executive to be based anywhere other than an area in which the Employers' principal executive office is located, except for required travel on business of the Employers to an extent substantially consistent with the Executive's present business travel obligations; (iv) Any purported termination of the Executive's employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (j) below; or (v) The failure by the Corporation to obtain the assumption of and agreement to perform this Agreement by any successor. i) IRS. "IRS" shall mean the Internal Revenue Service. j) Notice of Termination. Any purported termination of the Executive's employment by the Corporation for any reason, including without limitation for Cause, Disability or Retirement, or by the Executive for any reason, including without limitation for Good Reason, shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Corporation's termination of the Executive's employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Section 11 hereof. 3 k) Retirement. "Retirement" shall mean voluntary termination by the Executive after the Executive attains the age fifty-five (55), with at least five years of active service. 2) TERM OF EMPLOYMENT. a) The Corporation hereby employs the Executive as Chairman and Chief Executive Officer, and the Executive hereby accepts said employment and agrees to render such services to the Corporation on the terms and conditions set forth in this Agreement. The term of this Agreement shall be a period of three years commencing as of the date hereof (the "Commencement Date"), subject to earlier termination as provided herein. Beginning on the day following the Commencement Date, and on each day thereafter, the term of this Agreement shall be extended for a period of one day in addition to the then-remaining term, provided that the Corporation has not given notice to the Executive in writing at least 60 days prior to such day that the term of this Agreement shall not be extended further. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms. The Board of Directors of the Corporation shall review on a periodic basis (and no less frequently than annually) whether to permit further extensions of the term of this Agreement. As part of such review, the Board of Directors shall consider all relevant factors, including the Executive's performance hereunder, and shall either expressly approve further extensions of the time of this Agreement or decide to provide notice to the contrary. b) During the term of this Agreement, the Executive shall perform such executive services for the Corporation as may be consistent with his titles and from time to time assigned to him by the Corporation's Board of Directors. The Executive further agrees to serve without additional compensation as an officer and director of any of the Corporation's subsidiaries and agrees that any amounts received from such corporation may be offset against the amounts due hereunder. In addition, it is agreed that the Corporation may assign the Executive to one of its subsidiaries for payroll purposes. 3) LOYALTY, CONFIDENTIALITY AND NON-COMPETITION a) The Executive shall devote his or her full time and best efforts to the performance of his employment under this Agreement. During the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business affairs or interests of the Corporation or be a director, officer or consultant to any bank, savings and loan association, credit union, thrift, savings bank, or similar institution in the Chicago CMSA. b) For a period of one year from the date of voluntary termination, or termination for Cause, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business affairs or interests of the Corporation 4 or be a director, officer or consultant to any bank, savings and loan association, credit union, thrift, savings bank, or similar institution in the Chicago CMSA. c) For purposes of this Agreement, directly or indirectly engaging in any business activity in competition with the business or affairs of the Corporation includes, but is not limited to, serving or acting as an owner, partner, agent, beneficiary, or employee of any person, firm or corporate entity so engaged; except that nothing herein contained shall be deemed to prevent or limit the right of Executive to invest any of his surplus funds in the capital stock or other securities of any corporation whose stock or securities are publicly owned or are regularly traded on any public exchange, nor shall anything herein contained be deemed to prevent Executive from investing or limit Executive's right to invest his surplus funds in real estate. d) All information relating to business of the Employers including, but not limited to, that business obtained or serviced by Executive and all customer listings, contact lists, expiration cards, asset reports, instruments, documents, papers and other material used in connection with such business, shall be the exclusive property of the Employers. Executive shall keep all such information and material confidential; none of it will be copied, reproduced or duplicated without the express written permission of the Employers, and Executive shall return all material containing such information to the Employers upon their request or upon termination of employment. Executive also agrees that he or she will not utilize the confidential information or trade secrets of the Employers, either directly or indirectly, for any purposes except performance of the Executive's responsibilities and in furtherance of the Employers' business, unless otherwise expressly authorized by the Employers in writing in advance. e) Executive agrees that, during his employment, and for a period of three (3) years following the date of his involuntary termination of employment for Cause, or his voluntary termination without Good Reason, the Executive: i) will not solicit any of the Employers' past or current customers or clients for the benefit of anyone other than the Employers or their affiliates; ii) will not divulge the names of any of the Employers' past or then current customers to any other person, corporation or entity; iii) will not divulge to anyone, except the Employers or their representatives, any information regarding their management strategies, marketing information or goals, policies and/or other information regarding the affairs of the Employer, all of which Executive is hereby obligated to keep secret, however and whenever such information comes to his or her attention; and iv) will not, either directly or indirectly, induce or solicit any person to leave the employ of the Employers. 5 4) COMPENSATION AND BENEFITS. a) The Employers shall compensate and pay the Executive for his services during the term of this Agreement at a minimum base salary of $334,256 per year ("Base Salary"), which may be increased from time to time in such amounts as may be determined by the Boards of Directors of the Employers and may not be decreased without the Executive's express written consent. In addition to his Base Salary, the Executive shall be entitled to receive during the term of this Agreement such bonus payments as may be determined by the Boards of Directors of the Employers. b) During the term of this Agreement, the Executive shall be entitled to participate in and receive the benefits of any pension or other retirement benefit plan, profit sharing, stock option, employee stock ownership, or other plans, benefits and privileges given to employees and executives of the Employers, to the extent commensurate with his then duties and responsibilities, as fixed by the Boards of Directors of the Employers. The Corporation shall not make any changes in such plans, benefits or privileges which would adversely affect the Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Corporation and does not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Corporation. Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to the Executive pursuant to Section 4(a) hereof. c) During the term of this Agreement, the Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Employers. The Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of the Employers. d) In the event the Executive's employment is terminated due to Disability or Retirement, the Employers shall provide continued life, medical, dental and disability coverage substantially identical to the coverage maintained by the Employers for the Executive immediately prior to his termination. Such coverage such spouse attains shall cease upon the expiration of the remaining term of this Agreement. e) In the event of the Executive's death during the term of this Agreement, the Employers shall provide to the Executive's spouse continued medical and dental coverage substantially identical to the coverage maintained by the Employers for the Executive immediately prior to his death until such spouse attains the age of 65. 6 f) The Executive's compensation, benefits and expenses shall be paid by the Corporation and the Bank in the same proportion as the time and services actually expended by the Executive on behalf of each respective Employer. g) During the term of the Agreement, the Employers will provide suitable office space, desk, chairs, filing cabinets, telephones and other usual and customary office furniture, fixtures and equipment adequate for the efficient performance of the duties assigned to the Executive. h) During the term of this Agreement, the Employers shall provide to the Executive, at the Employer's cost, all perquisites which other senior executives of the Company are generally entitled to receive, including the payment of his or her annual dues at the Ruth Lake Country Club. i) During the term of this Agreement, the Employers will provide to Executive the use of an automobile of Executive's choice at a gross purchase price not to exceed $10,000 annual lease cost. The Employers agree to replace the automobile with a new one at Executive's request no more often than once every two years. Corporation will pay all automobile operating expenses incurred by Executive in the performance of Executive's duties. Corporation will procure and maintain in force an automobile liability policy for the automobile with coverage, including Executive, in the minimum amount of $1,000,000 combined single limit on bodily injury and property damage. 5) EXPENSES. The Employers shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of or in connection with the business of the Employers, including, but not by way of limitation, automobile expenses and other traveling expenses, and all reasonable entertainment expenses (whether incurred at the Executive's residence, while traveling or otherwise), subject to such reasonable documentation and other limitations as may be established by the Boards of Directors of the Employers. If such expenses are paid in the first instance by the Executive, the Employers shall reimburse the Executive therefor. 6) TERMINATION. a) The Corporation shall have the right, at any time upon prior Notice of Termination, to terminate the Executive's employment hereunder for any reason, including without limitation termination for Cause, Disability or Retirement, and the Executive shall have the right, upon prior Notice of Termination, to terminate his employment hereunder for any reason. b) In the event that (i) the Executive's employment is terminated by the Corporation for Cause or (ii) the Executive terminates his employment hereunder other than for Disability, 7 Retirement, death or Good Reason, the Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination. c) In the event that the Executive's employment is terminated as a result of Disability, Retirement or the Executive's death during the term of this Agreement, the Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination, except as provided for in Sections 4(d) and 4(e) hereof. d) In the event that (i) the Executive's employment is terminated by the Corporation for other than Cause, Disability, Retirement or the Executive's death or (ii) such employment is terminated by the Executive (a) due to a material breach of this Agreement by the Corporation, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has been given by the Executive to the Employers, or (b) for Good Reason, then the Corporation shall: i) pay to the Executive, in either thirty-six (36) equal monthly installments beginning with the first business day of the month following the Date of Termination or in a lump sum within five business days of the Date of Termination (at the Executive's election), a cash severance amount equal to three (3) times that portion of the Executive's Average Annual Compensation paid by the Corporation, and ii) maintain and provide for a period ending at the earlier of (i) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (ii) the date of the Executive's full-time employment by another employer (provided that the Executive is entitled under the terms of such employment to benefits substantially similar to those described in this subparagraph (B)), at no cost to the Executive, the Executive's continued participation in all group insurance, life insurance, health and accident insurance, disability insurance and other employee benefit plans, programs and arrangements offered by the Corporation in which the Executive was entitled to participate immediately prior to the Date of Termination (excluding (x) stock option and restricted stock plans of the Employers, (y) bonuses and other items of cash compensation included in Average Annual Compensation, and (z) other benefits, or portions thereof, included in Average Annual Compensation), provided that in the event that the Executive's participation in any plan, program or arrangement as provided in this subparagraph (B) is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Corporation shall arrange to provide the Executive with benefits substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination. 8 7) PAYMENT OF ADDITIONAL BENEFITS UNDER CERTAIN CIRCUMSTANCES. a) If the payments and benefits pursuant to Section 4 hereof, either alone or together with other payments and benefits which the Executive has the right to receive from the Employers (including, without limitation, the payments and benefits which the Executive would have the right to receive from the Bank pursuant to Section 4 of the Agreement between the Bank and the Executive dated this even date ("Bank Agreement"), before giving effect to any reduction in such amounts pursuant to Section 7 of the Bank Agreement), would constitute a "parachute payment" as defined in Section 280G(b)(2) of the Code (the "Initial Parachute Payment," which includes the amounts paid pursuant to clause (A) below), then the Corporation shall pay to the Executive, in thirty-six (36) equal monthly installments beginning with the first business day of the month following the Date of Termination or in a lump sum within five business days of the Date of Termination (at the Executive's election), a cash amount equal to the sum of the following: i) the amount by which the payments and benefits that would have otherwise been paid by the Bank to the Executive pursuant to Section 4 of the Bank Agreement are reduced by the provisions of Section 7 of the Bank Agreement; ii) twenty (20) percent (or such other percentage equal to the tax rate imposed by Section 4999 of the Code) of the amount by which the Initial Parachute Payment exceeds the Executive's "base amount" from the Employers, as defined in Section 280G(b)(3) of the Code, with the difference between the Initial Parachute Payment and the Executive's base amount being hereinafter referred to as the "Initial Excess Parachute Payment"; iii) such additional amount (tax allowance) as may be necessary to compensate the Executive for the payment by the Executive of state and federal income and excise taxes on the payment provided under clause (B) above and on any payments under this clause (C). In computing such tax allowance, the payment to be made under clause (B) above shall be multiplied by the "gross up percentage" ("GUP"). The GUP shall be determined as follows: GUP = Tax Rate / 1 - Tax Rate iv) Tax Rate The Tax Rate for purposes of computing the GUP shall be the highest marginal federal and state income and employment-related tax rate, including any applicable excise tax rate, applicable to the Executive in the year in which the payment under clause (B) above is made. 9 v) Notwithstanding the foregoing, if it shall subsequently be determined in a final judicial determination or a final administrative settlement to which the Executive is a party that the actual excess parachute payment as defined in Section 280G(b)(1) of the Code is different from the Initial Excess Parachute Payment (such different amount being hereafter referred to as the "Determinative Excess Parachute Payment"), then the Corporation's independent tax counsel or accountants shall determine the amount (the "Adjustment Amount") which either the Executive must pay to the Corporation or the Corporation must pay to the Executive in order to put the Executive (or the Corporation, as the case may be) in the same position the Executive (or the Corporation, as the case may be) would have been if the Initial Excess Parachute Payment had been equal to the Determinative Excess Parachute Payment. In determining the Adjustment Amount, the independent tax counsel or accountants shall take into account any and all taxes (including any penalties and interest) paid by or for the Executive or refunded to the Executive or for the Executive's benefit. As soon as practicable after the Adjustment Amount has been so determined, the Corporation shall pay the Adjustment Amount to the Executive or the Executive shall repay the Adjustment Amount to the Corporation, as the case may be. b) In each calendar year that the Executive receives payments of benefits under this Section 7, the Executive shall report on his state and federal income tax returns such information as is consistent with the determination made by the independent tax counsel or accountants of the Corporation as described above. The Corporation shall indemnify and hold the Executive harmless from any and all losses, costs and expenses (including without limitation, reasonable attorneys' fees, interest, fines and penalties) which the Executive incurs as a result of so reporting such information. The Executive shall promptly notify the Company in writing whenever the Executive receives notice of the institution of a judicial or administrative proceeding, formal or informal, in which the federal tax treatment under Section 4999 of the Code of any amount paid or payable under this Section 7 is being reviewed or is in dispute. The Corporation shall assume control, at its expense, over all legal and accounting matters pertaining to such federal tax treatment (except to the extent necessary or appropriate for the Executive to resolve any such proceeding with respect to any matter unrelated to amounts paid or payable pursuant to this Section) and the Executive shall cooperate fully with the Corporation in any such proceeding. The Executive shall not enter into any compromise or settlement or otherwise prejudice any rights the Corporation may have in connection therewith without the prior consent of the Corporation. 8) MITIGATION; EXCLUSIVITY OF BENEFITS. a) The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise. 10 b) The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise. 9) WITHHOLDING. All payments required to be made by the Corporation hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Corporation may reasonably determine should be withheld pursuant to any applicable law or regulation. 10) ASSIGNABILITY. The Corporation may assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other entity with or into which the Corporation may hereafter merge or consolidate or to which the Corporation may transfer all or substantially all of its assets, if in any such case said corporation, bank or other entity shall by operation of law or expressly in writing assume all obligations of the Corporation hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder. The Executive may not assign or transfer this Agreement or any rights or obligations hereunder. 11) NOTICE. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below: a) To the Corporation: Secretary CFS Bancorp, Inc. 707 Ridge Road Munster, Indiana 46321 b) To the Bank: Secretary Citizens Financial Services, FSB 707 Ridge Road Munster, Indiana 46321 c) To the Executive: Thomas F. Prisby 105 Princeton Road Hinsdale, Illinois 60521 12) AMENDMENT; WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Corporation to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this 11 Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13) GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of Indiana. 14) NATURE OF OBLIGATIONS. Nothing contained herein shall create or require the Corporation to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Corporation hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation. 15) HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 16) VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. 17) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18) REGULATORY PROHIBITION. Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. Section 1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359. In the event of the Executive's termination of employment with the Bank for Cause, all employment relationships and managerial duties with the Bank shall immediately cease regardless of whether the Executive remains in the employ of the Corporation following such termination. Furthermore, following such termination for Cause, the Executive will not, directly or indirectly, influence or participate in the affairs or the operations of the Bank. 19) PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS. In the event any dispute or controversy arising under or in connection with the Executive's termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the payment of (a) all legal fees incurred by the Executive in resolving such dispute or controversy, and (2) any back-pay, including Base Salary, bonuses and any other cash compensation, fringe benefits and any compensation and benefits due to the Executive under this Agreement. 12 20) INDEMNIFICATION. The Corporation shall provide the 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 the Executive (and his heirs, executors and administrators) to the fullest extent permitted under Delaware law 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 Corporation (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities). Such expenses and liabilities shall include, but shall not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements. 21) ENTIRE AGREEMENT. This Agreement embodies the entire agreement between the Corporation and the Executive with respect to the matters agreed to herein. All prior agreements between the Corporation and the Executive with respect to the matters agreed to herein are hereby superseded and shall have no force or effect. Notwithstanding the foregoing, nothing contained in this Agreement shall affect the agreement of even date being entered into between the Bank and the Executive. IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written. Attest: CFS BANCORP, INC. /s/ Monica F. Sullivan By: /s/ John T. Stephens - ---------------------- -------------------------------- EXECUTIVE /s/ Thomas F. Prisby ------------------------------------ Thomas F. Prisby 13 EX-10.5 7 c78973exv10w5.txt EMPLOYMENT AGREEMENT EXHIBIT 10.5 EMPLOYMENT AGREEMENT AGREEMENT, dated this 21st day of July 2003, between CFS Bancorp, Inc. (the "Corporation"), a Delaware corporation, and James W. Prisby (the "Executive"). WITNESSETH WHEREAS, the Executive is presently an officer of the Corporation and Citizens Financial Services, FSB (the "Bank") (together, the "Employers"); WHEREAS, the Employers desire to be ensured of the Executive's continued active participation in the business of the Employers; WHEREAS, the Corporation and the Bank desire to enter into separate agreements with the Executive with respect to his employment by each of the Employers; and WHEREAS, in order to induce the Executive to remain in the employ of the Employers and in consideration of the Executive's agreeing to remain in the employ of the Employers, the parties desire to specify the severance benefits which shall be due the Executive by the Corporation in the event that his employment with the Corporation is terminated under specified circumstances; NOW THEREFORE, in consideration of the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows: 1) DEFINITIONS. The following words and terms shall have the meanings set forth below for the purposes of this Agreement: a) Average Annual Compensation. The Executive's "Average Annual Compensation" for purposes of this Agreement shall be deemed to mean the average level of compensation paid to the Executive by the Employers or any subsidiary thereof during the most recent five taxable years preceding the Date of Termination and which was either (i) included in the Executive's gross income for tax purposes, including but not limited to Base Salary, bonuses and amounts taxable to the Executive under any qualified or non-qualified employee benefit plans of the Employers, or (ii) deferred at the election of the Executive. b) Base Salary. "Base Salary" shall have the meaning set forth in Section 4(a) hereof. c) Cause. Termination of the Executive's employment for "Cause" shall mean termination because of personal 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. d) Change in Control. "Change in Control" means the occurrence of any of the following: (i) an event that would be required to be reported in response to Item 1(a) of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Securities and Exchange Act of 1934 Act, as amended (1934 Act), or any successor thereto, whether or not any class of securities of the Corporation is registered under the 1934 Act; (ii) any "person" is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (iii) during any period of thirty-six consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. i) For purposes of the definition of "Change in Control," a Person or group of Persons does not include the CFS Bancorp, Inc. Employee Stock Ownership Plan Trust which forms a part of the CFS Bancorp, Inc. Employee Stock Ownership Plan (the "ESOP"), or any other employee benefit plan, subsidiary or affiliate of the Corporation, and the outstanding shares of common stock of the Corporation, on a fully diluted basis, include all shares owned by the ESOP, whether allocated or unallocated to the accounts of participants, thereunder. ii) For purposes of the definition of "Change in Control," the term "Person" means any natural person, proprietorship, partnership, corporation, limited liability company, organization, firm, business, joint venture, association, trust or other entity and any government agency, body or authority. e) Code. "Code" shall mean the Internal Revenue Code of 1986, as amended. f) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, and (ii) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given or as specified in such Notice. g) Disability. Termination by the Corporation of the Executive's employment based on "Disability" shall mean termination because of any physical or mental impairment which qualifies the Executive for disability benefits under the applicable long-term disability plan maintained by the Employers or any subsidiary or, if no such plan applies, which would qualify the Executive for disability benefits under the Federal Social Security System. h) Good Reason. Termination by the Executive of the Executive's employment for "Good Reason" shall mean termination by the Executive within twenty-four (24) months following a Change in Control of the Corporation based on: 2 (i) Without the Executive's express written consent, the failure to elect or to re-elect or to appoint or to re-appoint the Executive to the offices of Vice Chairman, President and Chief Operating Officer of the Employers or a material adverse change made by the Employers in the Executive's functions, duties or responsibilities as Vice Chairman, President and Chief Operating Officer of the Employers; (ii) Without the Executive's express written consent, a reduction by either of the Employers in the Executive's Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 4(b) hereof, a reduction in the package of fringe benefits provided to the Executive, taken as a whole; (iii) The principal executive office of either of the Employers is relocated outside of the Munster, Indiana area or, without the Executive's express written consent, either of the Employers require the Executive to be based anywhere other than an area in which the Employers' principal executive office is located, except for required travel on business of the Employers to an extent substantially consistent with the Executive's present business travel obligations; (iv) Any purported termination of the Executive's employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (j) below; or (v) The failure by the Corporation to obtain the assumption of and agreement to perform this Agreement by any successor. i) IRS. "IRS" shall mean the Internal Revenue Service. j) Notice of Termination. Any purported termination of the Executive's employment by the Corporation for any reason, including without limitation for Cause, Disability or Retirement, or by the Executive for any reason, including without limitation for Good Reason, shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Corporation's termination of the Executive's employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Section 11 hereof. 3 k) Retirement. "Retirement" shall mean voluntary termination by the Executive after the Executive attains the age fifty-five (55), with at least five years of active service. 2) TERM OF EMPLOYMENT. a) The Corporation hereby employs the Executive as Vice Chairman, President and Chief Operating Officer, and the Executive hereby accepts said employment and agrees to render such services to the Corporation on the terms and conditions set forth in this Agreement. The term of this Agreement shall be a period of three years commencing as of the date hereof (the "Commencement Date"), subject to earlier termination as provided herein. Beginning on the day following the Commencement Date, and on each day thereafter, the term of this Agreement shall be extended for a period of one day in addition to the then-remaining term, provided that the Corporation has not given notice to the Executive in writing at least 60 days prior to such day that the term of this Agreement shall not be extended further. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms. The Board of Directors of the Corporation shall review on a periodic basis (and no less frequently than annually) whether to permit further extensions of the term of this Agreement. As part of such review, the Board of Directors shall consider all relevant factors, including the Executive's performance hereunder, and shall either expressly approve further extensions of the time of this Agreement or decide to provide notice to the contrary. b) During the term of this Agreement, the Executive shall perform such executive services for the Corporation as may be consistent with his titles and from time to time assigned to him by the Corporation's Board of Directors. The Executive further agrees to serve without additional compensation as an officer and director of any of the Corporation's subsidiaries and agrees that any amounts received from such corporation may be offset against the amounts due hereunder. In addition, it is agreed that the Corporation may assign the Executive to one of its subsidiaries for payroll purposes. 3) LOYALTY, CONFIDENTIALITY AND NON-COMPETITION a) The Executive shall devote his or her full time and best efforts to the performance of his employment under this Agreement. During the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business affairs or interests of the Corporation or be a director, officer or consultant to any bank, savings and loan association, credit union, thrift, savings bank, or similar institution in the Chicago CMSA. b) For a period of one year from the date of voluntary termination, or termination for Cause, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business affairs or interests of the Corporation 4 or be a director, officer or consultant to any bank, savings and loan association, credit union, thrift, savings bank, or similar institution in the Chicago CMSA. c) For purposes of this Agreement, directly or indirectly engaging in any business activity in competition with the business or affairs of the Corporation includes, but is not limited to, serving or acting as an owner, partner, agent, beneficiary, or employee of any person, firm or corporate entity so engaged; except that nothing herein contained shall be deemed to prevent or limit the right of Executive to invest any of his surplus funds in the capital stock or other securities of any corporation whose stock or securities are publicly owned or are regularly traded on any public exchange, nor shall anything herein contained be deemed to prevent Executive from investing or limit Executive's right to invest his surplus funds in real estate. d) All information relating to business of the Employers including, but not limited to, that business obtained or serviced by Executive and all customer listings, contact lists, expiration cards, asset reports, instruments, documents, papers and other material used in connection with such business, shall be the exclusive property of the Employers. Executive shall keep all such information and material confidential; none of it will be copied, reproduced or duplicated without the express written permission of the Employers, and Executive shall return all material containing such information to the Employers upon their request or upon termination of employment. Executive also agrees that he or she will not utilize the confidential information or trade secrets of the Employers, either directly or indirectly, for any purposes except performance of the Executive's responsibilities and in furtherance of the Employers' business, unless otherwise expressly authorized by the Employers in writing in advance. e) Executive agrees that, during his employment, and for a period of three (3) years following the date of his involuntary termination of employment for Cause, or his voluntary termination without Good Reason, the Executive: i) will not solicit any of the Employers' past or current customers or clients for the benefit of anyone other than the Employers or their affiliates; ii) will not divulge the names of any of the Employers' past or then current customers to any other person, corporation or entity; iii) will not divulge to anyone, except the Employers or their representatives, any information regarding their management strategies, marketing information or goals, policies and/or other information regarding the affairs of the Employer, all of which Executive is hereby obligated to keep secret, however and whenever such information comes to his or her attention; and iv) will not, either directly or indirectly, induce or solicit any person to leave the employ of the Employers. 5 4) COMPENSATION AND BENEFITS. a) The Employers shall compensate and pay the Executive for his services during the term of this Agreement at a minimum base salary of $304,460 per year ("Base Salary"), which may be increased from time to time in such amounts as may be determined by the Boards of Directors of the Employers and may not be decreased without the Executive's express written consent. In addition to his Base Salary, the Executive shall be entitled to receive during the term of this Agreement such bonus payments as may be determined by the Boards of Directors of the Employers. b) During the term of this Agreement, the Executive shall be entitled to participate in and receive the benefits of any pension or other retirement benefit plan, profit sharing, stock option, employee stock ownership, or other plans, benefits and privileges given to employees and executives of the Employers, to the extent commensurate with his then duties and responsibilities, as fixed by the Boards of Directors of the Employers. The Corporation shall not make any changes in such plans, benefits or privileges which would adversely affect the Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Corporation and does not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Corporation. Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to the Executive pursuant to Section 4(a) hereof. c) During the term of this Agreement, the Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Employers. The Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of the Employers. d) In the event the Executive's employment is terminated due to Disability or Retirement, the Employers shall provide continued life, medical, dental and disability coverage substantially identical to the coverage maintained by the Employers for the Executive immediately prior to his termination. Such coverage such spouse attains shall cease upon the expiration of the remaining term of this Agreement. e) In the event of the Executive's death during the term of this Agreement, the Employers shall provide to the Executive's spouse continued medical and dental coverage substantially identical to the coverage maintained by the Employers for the Executive immediately prior to his death until such spouse attains the age of 65. 6 f) The Executive's compensation, benefits and expenses shall be paid by the Corporation and the Bank in the same proportion as the time and services actually expended by the Executive on behalf of each respective Employer. g) During the term of the Agreement, the Employers will provide suitable office space, desk, chairs, filing cabinets, telephones and other usual and customary office furniture, fixtures and equipment adequate for the efficient performance of the duties assigned to the Executive. h) During the term of this Agreement, the Employers shall provide to the Executive, at the Employer's cost, all perquisites which other senior executives of the Company are generally entitled to receive, including the payment of his or her annual dues at the Briar Ridge Country Club. 5) EXPENSES. The Employers shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of or in connection with the business of the Employers, including, but not by way of limitation, automobile expenses and other traveling expenses, and all reasonable entertainment expenses (whether incurred at the Executive's residence, while traveling or otherwise), subject to such reasonable documentation and other limitations as may be established by the Boards of Directors of the Employers. If such expenses are paid in the first instance by the Executive, the Employers shall reimburse the Executive therefor. 6) TERMINATION. a) The Corporation shall have the right, at any time upon prior Notice of Termination, to terminate the Executive's employment hereunder for any reason, including without limitation termination for Cause, Disability or Retirement, and the Executive shall have the right, upon prior Notice of Termination, to terminate his employment hereunder for any reason. b) In the event that (i) the Executive's employment is terminated by the Corporation for Cause or (ii) the Executive terminates his employment hereunder other than for Disability, Retirement, death or Good Reason, the Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination. c) In the event that the Executive's employment is terminated as a result of Disability, Retirement or the Executive's death during the term of this Agreement, the Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination, except as provided for in Sections 4(d) and 4(e) hereof. 7 d) In the event that (i) the Executive's employment is terminated by the Corporation for other than Cause, Disability, Retirement or the Executive's death or (ii) such employment is terminated by the Executive (a) due to a material breach of this Agreement by the Corporation, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has been given by the Executive to the Employers, or (b) for Good Reason, then the Corporation shall: i) pay to the Executive, in either thirty-six (36) equal monthly installments beginning with the first business day of the month following the Date of Termination or in a lump sum within five business days of the Date of Termination (at the Executive's election), a cash severance amount equal to three (3) times that portion of the Executive's Average Annual Compensation paid by the Corporation, and ii) maintain and provide for a period ending at the earlier of (i) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (ii) the date of the Executive's full-time employment by another employer (provided that the Executive is entitled under the terms of such employment to benefits substantially similar to those described in this subparagraph (B)), at no cost to the Executive, the Executive's continued participation in all group insurance, life insurance, health and accident insurance, disability insurance and other employee benefit plans, programs and arrangements offered by the Corporation in which the Executive was entitled to participate immediately prior to the Date of Termination (excluding (x) stock option and restricted stock plans of the Employers, (y) bonuses and other items of cash compensation included in Average Annual Compensation, and (z) other benefits, or portions thereof, included in Average Annual Compensation), provided that in the event that the Executive's participation in any plan, program or arrangement as provided in this subparagraph (B) is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Corporation shall arrange to provide the Executive with benefits substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination. 8 7) PAYMENT OF ADDITIONAL BENEFITS UNDER CERTAIN CIRCUMSTANCES. a) If the payments and benefits pursuant to Section 4 hereof, either alone or together with other payments and benefits which the Executive has the right to receive from the Employers (including, without limitation, the payments and benefits which the Executive would have the right to receive from the Bank pursuant to Section 4 of the Agreement between the Bank and the Executive dated this even date ("Bank Agreement"), before giving effect to any reduction in such amounts pursuant to Section 7 of the Bank Agreement), would constitute a "parachute payment" as defined in Section 280G(b)(2) of the Code (the "Initial Parachute Payment," which includes the amounts paid pursuant to clause (A) below), then the Corporation shall pay to the Executive, in thirty-six (36) equal monthly installments beginning with the first business day of the month following the Date of Termination or in a lump sum within five business days of the Date of Termination (at the Executive's election), a cash amount equal to the sum of the following: i) the amount by which the payments and benefits that would have otherwise been paid by the Bank to the Executive pursuant to Section 4 of the Bank Agreement are reduced by the provisions of Section 7 of the Bank Agreement; ii) twenty (20) percent (or such other percentage equal to the tax rate imposed by Section 4999 of the Code) of the amount by which the Initial Parachute Payment exceeds the Executive's "base amount" from the Employers, as defined in Section 280G(b)(3) of the Code, with the difference between the Initial Parachute Payment and the Executive's base amount being hereinafter referred to as the "Initial Excess Parachute Payment"; iii) such additional amount (tax allowance) as may be necessary to compensate the Executive for the payment by the Executive of state and federal income and excise taxes on the payment provided under clause (B) above and on any payments under this clause (C). In computing such tax allowance, the payment to be made under clause (B) above shall be multiplied by the "gross up percentage" ("GUP"). The GUP shall be determined as follows: GUP = Tax Rate / 1 - Tax Rate iv) Tax Rate The Tax Rate for purposes of computing the GUP shall be the highest marginal federal and state income and employment-related tax rate, including any applicable excise tax rate, applicable to the Executive in the year in which the payment under clause (B) above is made. 9 v) Notwithstanding the foregoing, if it shall subsequently be determined in a final judicial determination or a final administrative settlement to which the Executive is a party that the actual excess parachute payment as defined in Section 280G(b)(1) of the Code is different from the Initial Excess Parachute Payment (such different amount being hereafter referred to as the "Determinative Excess Parachute Payment"), then the Corporation's independent tax counsel or accountants shall determine the amount (the "Adjustment Amount") which either the Executive must pay to the Corporation or the Corporation must pay to the Executive in order to put the Executive (or the Corporation, as the case may be) in the same position the Executive (or the Corporation, as the case may be) would have been if the Initial Excess Parachute Payment had been equal to the Determinative Excess Parachute Payment. In determining the Adjustment Amount, the independent tax counsel or accountants shall take into account any and all taxes (including any penalties and interest) paid by or for the Executive or refunded to the Executive or for the Executive's benefit. As soon as practicable after the Adjustment Amount has been so determined, the Corporation shall pay the Adjustment Amount to the Executive or the Executive shall repay the Adjustment Amount to the Corporation, as the case may be. b) In each calendar year that the Executive receives payments of benefits under this Section 7, the Executive shall report on his state and federal income tax returns such information as is consistent with the determination made by the independent tax counsel or accountants of the Corporation as described above. The Corporation shall indemnify and hold the Executive harmless from any and all losses, costs and expenses (including without limitation, reasonable attorneys' fees, interest, fines and penalties) which the Executive incurs as a result of so reporting such information. The Executive shall promptly notify the Company in writing whenever the Executive receives notice of the institution of a judicial or administrative proceeding, formal or informal, in which the federal tax treatment under Section 4999 of the Code of any amount paid or payable under this Section 7 is being reviewed or is in dispute. The Corporation shall assume control, at its expense, over all legal and accounting matters pertaining to such federal tax treatment (except to the extent necessary or appropriate for the Executive to resolve any such proceeding with respect to any matter unrelated to amounts paid or payable pursuant to this Section) and the Executive shall cooperate fully with the Corporation in any such proceeding. The Executive shall not enter into any compromise or settlement or otherwise prejudice any rights the Corporation may have in connection therewith without the prior consent of the Corporation. 8) MITIGATION; EXCLUSIVITY OF BENEFITS. a) The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise. 10 b) The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise. 9) WITHHOLDING. All payments required to be made by the Corporation hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Corporation may reasonably determine should be withheld pursuant to any applicable law or regulation. 10) ASSIGNABILITY. The Corporation may assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other entity with or into which the Corporation may hereafter merge or consolidate or to which the Corporation may transfer all or substantially all of its assets, if in any such case said corporation, bank or other entity shall by operation of law or expressly in writing assume all obligations of the Corporation hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder. The Executive may not assign or transfer this Agreement or any rights or obligations hereunder. 11) NOTICE. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below: a) To the Corporation: Secretary CFS Bancorp, Inc. 707 Ridge Road Munster, Indiana 46321 b) To the Bank: Secretary Citizens Financial Services, FSB 707 Ridge Road Munster, Indiana 46321 c) To the Executive: James W. Prisby 1211 Royal Dublin Lane Dyer, Indiana 46311 12) AMENDMENT; WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Corporation to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this 11 Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13) GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of Indiana. 14) NATURE OF OBLIGATIONS. Nothing contained herein shall create or require the Corporation to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Corporation hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation. 15) HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 16) VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. 17) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18) REGULATORY PROHIBITION. Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. Section 1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359. In the event of the Executive's termination of employment with the Bank for Cause, all employment relationships and managerial duties with the Bank shall immediately cease regardless of whether the Executive remains in the employ of the Corporation following such termination. Furthermore, following such termination for Cause, the Executive will not, directly or indirectly, influence or participate in the affairs or the operations of the Bank. 19) PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS. In the event any dispute or controversy arising under or in connection with the Executive's termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the payment of (a) all legal fees incurred by the Executive in resolving such dispute or controversy, and (2) any back-pay, including Base Salary, bonuses and any other cash compensation, fringe benefits and any compensation and benefits due to the Executive under this Agreement. 12 20) INDEMNIFICATION. The Corporation shall provide the 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 the Executive (and his heirs, executors and administrators) to the fullest extent permitted under Delaware law 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 Corporation (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities). Such expenses and liabilities shall include, but shall not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements. 21) ENTIRE AGREEMENT. This Agreement embodies the entire agreement between the Corporation and the Executive with respect to the matters agreed to herein. All prior agreements between the Corporation and the Executive with respect to the matters agreed to herein are hereby superseded and shall have no force or effect. Notwithstanding the foregoing, nothing contained in this Agreement shall affect the agreement of even date being entered into between the Bank and the Executive. IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written. Attest: CFS BANCORP, INC. /s/ Monica F. Sullivan By: /s/ John T. Stephens - ---------------------- -------------------- EXECUTIVE /s/ James W. Prisby ------------------------ James W. Prisby 13 EX-10.6 8 c78973exv10w6.txt EMPLOYMENT AGREEMENT EXHIBIT 10.6 EMPLOYMENT AGREEMENT AGREEMENT, dated this 21st day of July 2003, between CFS Bancorp, Inc. (the "Corporation"), a Delaware corporation, and John T. Stephens (the "Executive"). WITNESSETH WHEREAS, the Executive is presently an officer of the Corporation and Citizens Financial Services, FSB (the "Bank") (together, the "Employers"); WHEREAS, the Employers desire to be ensured of the Executive's continued active participation in the business of the Employers; WHEREAS, the Corporation and the Bank desire to enter into separate agreements with the Executive with respect to his employment by each of the Employers; and WHEREAS, in order to induce the Executive to remain in the employ of the Employers and in consideration of the Executive's agreeing to remain in the employ of the Employers, the parties desire to specify the severance benefits which shall be due the Executive by the Corporation in the event that his employment with the Corporation is terminated under specified circumstances; NOW THEREFORE, in consideration of the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows: 1) DEFINITIONS. The following words and terms shall have the meanings set forth below for the purposes of this Agreement: a) Average Annual Compensation. The Executive's "Average Annual Compensation" for purposes of this Agreement shall be deemed to mean the average level of compensation paid to the Executive by the Employers or any subsidiary thereof during the most recent five taxable years preceding the Date of Termination and which was either (i) included in the Executive's gross income for tax purposes, including but not limited to Base Salary, bonuses and amounts taxable to the Executive under any qualified or non-qualified employee benefit plans of the Employers, or (ii) deferred at the election of the Executive. b) Base Salary. "Base Salary" shall have the meaning set forth in Section 4(a) hereof. c) Cause. Termination of the Executive's employment for "Cause" shall mean termination because of personal 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. d) Change in Control. "Change in Control" means the occurrence of any of the following: (i) an event that would be required to be reported in response to Item 1(a) of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Securities and Exchange Act of 1934 Act, as amended (1934 Act), or any successor thereto, whether or not any class of securities of the Corporation is registered under the 1934 Act; (ii) any "person" is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (iii) during any period of thirty-six consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. i) For purposes of the definition of "Change in Control," a Person or group of Persons does not include the CFS Bancorp, Inc. Employee Stock Ownership Plan Trust which forms a part of the CFS Bancorp, Inc. Employee Stock Ownership Plan (the "ESOP"), or any other employee benefit plan, subsidiary or affiliate of the Corporation, and the outstanding shares of common stock of the Corporation, on a fully diluted basis, include all shares owned by the ESOP, whether allocated or unallocated to the accounts of participants, thereunder. ii) For purposes of the definition of "Change in Control," the term "Person" means any natural person, proprietorship, partnership, corporation, limited liability company, organization, firm, business, joint venture, association, trust or other entity and any government agency, body or authority. e) Code. "Code" shall mean the Internal Revenue Code of 1986, as amended. f) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, and (ii) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given or as specified in such Notice. g) Disability. Termination by the Corporation of the Executive's employment based on "Disability" shall mean termination because of any physical or mental impairment which qualifies the Executive for disability benefits under the applicable long-term disability plan maintained by the Employers or any subsidiary or, if no such plan applies, which would qualify the Executive for disability benefits under the Federal Social Security System. h) Good Reason. Termination by the Executive of the Executive's employment for "Good Reason" shall mean termination by the Executive within twenty-four (24) months following a Change in Control of the Corporation based on: 2 (i) Without the Executive's express written consent, the failure to elect or to re-elect or to appoint or to re-appoint the Executive to the offices of Executive Vice President, Treasurer and Chief Financial Officer of the Employers or a material adverse change made by the Employers in the Executive's functions, duties or responsibilities as Executive Vice President, Treasurer and Chief Financial Officer of the Employers; (ii) Without the Executive's express written consent, a reduction by either of the Employers in the Executive's Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 4(b) hereof, a reduction in the package of fringe benefits provided to the Executive, taken as a whole; (iii) The principal executive office of either of the Employers is relocated outside of the Munster, Indiana area or, without the Executive's express written consent, either of the Employers require the Executive to be based anywhere other than an area in which the Employers' principal executive office is located, except for required travel on business of the Employers to an extent substantially consistent with the Executive's present business travel obligations; (iv) Any purported termination of the Executive's employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (j) below; or (v) The failure by the Corporation to obtain the assumption of and agreement to perform this Agreement by any successor. i) IRS. "IRS" shall mean the Internal Revenue Service. j) Notice of Termination. Any purported termination of the Executive's employment by the Corporation for any reason, including without limitation for Cause, Disability or Retirement, or by the Executive for any reason, including without limitation for Good Reason, shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Corporation's termination of the Executive's employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Section 11 hereof. 3 k) Retirement. "Retirement" shall mean voluntary termination by the Executive after the Executive attains the age fifty-five (55), with at least five years of active service. 2) TERM OF EMPLOYMENT. a) The Corporation hereby employs the Executive as Executive as Executive Vice President, Treasurer and Chief Financial Officer, and the Executive hereby accepts said employment and agrees to render such services to the Corporation on the terms and conditions set forth in this Agreement. The term of this Agreement shall be a period of three years commencing as of the date hereof (the "Commencement Date"), subject to earlier termination as provided herein. Beginning on the day following the Commencement Date, and on each day thereafter, the term of this Agreement shall be extended for a period of one day in addition to the then-remaining term, provided that the Corporation has not given notice to the Executive in writing at least 60 days prior to such day that the term of this Agreement shall not be extended further. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms. The Board of Directors of the Corporation shall review on a periodic basis (and no less frequently than annually) whether to permit further extensions of the term of this Agreement. As part of such review, the Board of Directors shall consider all relevant factors, including the Executive's performance hereunder, and shall either expressly approve further extensions of the time of this Agreement or decide to provide notice to the contrary. b) During the term of this Agreement, the Executive shall perform such executive services for the Corporation as may be consistent with his titles and from time to time assigned to him by the Corporation's Board of Directors. The Executive further agrees to serve without additional compensation as an officer and director of any of the Corporation's subsidiaries and agrees that any amounts received from such corporation may be offset against the amounts due hereunder. In addition, it is agreed that the Corporation may assign the Executive to one of its subsidiaries for payroll purposes. 3) LOYALTY, CONFIDENTIALITY AND NON-COMPETITION a) The Executive shall devote his or her full time and best efforts to the performance of his employment under this Agreement. During the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business affairs or interests of the Corporation or be a director, officer or consultant to any bank, savings and loan association, credit union, thrift, savings bank, or similar institution in the Chicago CMSA. b) For a period of one year from the date of voluntary termination, or termination for Cause, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business affairs or interests of the Corporation 4 or be a director, officer or consultant to any bank, savings and loan association, credit union, thrift, savings bank, or similar institution in the Chicago CMSA. c) For purposes of this Agreement, directly or indirectly engaging in any business activity in competition with the business or affairs of the Corporation includes, but is not limited to, serving or acting as an owner, partner, agent, beneficiary, or employee of any person, firm or corporate entity so engaged; except that nothing herein contained shall be deemed to prevent or limit the right of Executive to invest any of his surplus funds in the capital stock or other securities of any corporation whose stock or securities are publicly owned or are regularly traded on any public exchange, nor shall anything herein contained be deemed to prevent Executive from investing or limit Executive's right to invest his surplus funds in real estate. d) All information relating to business of the Employers including, but not limited to, that business obtained or serviced by Executive and all customer listings, contact lists, expiration cards, asset reports, instruments, documents, papers and other material used in connection with such business, shall be the exclusive property of the Employers. Executive shall keep all such information and material confidential; none of it will be copied, reproduced or duplicated without the express written permission of the Employers, and Executive shall return all material containing such information to the Employers upon their request or upon termination of employment. Executive also agrees that he or she will not utilize the confidential information or trade secrets of the Employers, either directly or indirectly, for any purposes except performance of the Executive's responsibilities and in furtherance of the Employers' business, unless otherwise expressly authorized by the Employers in writing in advance. e) Executive agrees that, during his employment, and for a period of three (3) years following the date of his involuntary termination of employment for Cause, or his voluntary termination without Good Reason, the Executive: i) will not solicit any of the Employers' past or current customers or clients for the benefit of anyone other than the Employers or their affiliates; ii) will not divulge the names of any of the Employers' past or then current customers to any other person, corporation or entity; iii) will not divulge to anyone, except the Employers or their representatives, any information regarding their management strategies, marketing information or goals, policies and/or other information regarding the affairs of the Employer, all of which Executive is hereby obligated to keep secret, however and whenever such information comes to his or her attention; and iv) will not, either directly or indirectly, induce or solicit any person to leave the employ of the Employers. 5 4) COMPENSATION AND BENEFITS. a) The Employers shall compensate and pay the Executive for his services during the term of this Agreement at a minimum base salary of $223,496 per year ("Base Salary"), which may be increased from time to time in such amounts as may be determined by the Boards of Directors of the Employers and may not be decreased without the Executive's express written consent. In addition to his Base Salary, the Executive shall be entitled to receive during the term of this Agreement such bonus payments as may be determined by the Boards of Directors of the Employers. b) During the term of this Agreement, the Executive shall be entitled to participate in and receive the benefits of any pension or other retirement benefit plan, profit sharing, stock option, employee stock ownership, or other plans, benefits and privileges given to employees and executives of the Employers, to the extent commensurate with his then duties and responsibilities, as fixed by the Boards of Directors of the Employers. The Corporation shall not make any changes in such plans, benefits or privileges which would adversely affect the Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Corporation and does not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Corporation. Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to the Executive pursuant to Section 4(a) hereof. c) During the term of this Agreement, the Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Employers. The Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of the Employers. d) In the event the Executive's employment is terminated due to Disability or Retirement, the Employers shall provide continued life, medical, dental and disability coverage substantially identical to the coverage maintained by the Employers for the Executive immediately prior to his termination. Such coverage such spouse attains shall cease upon the expiration of the remaining term of this Agreement. e) In the event of the Executive's death during the term of this Agreement, the Employers shall provide to the Executive's spouse continued medical and dental coverage substantially identical to the coverage maintained by the Employers for the Executive immediately prior to his death until such spouse attains the age of 65. 6 f) The Executive's compensation, benefits and expenses shall be paid by the Corporation and the Bank in the same proportion as the time and services actually expended by the Executive on behalf of each respective Employer. g) During the term of the Agreement, the Employers will provide suitable office space, desk, chairs, filing cabinets, telephones and other usual and customary office furniture, fixtures and equipment adequate for the efficient performance of the duties assigned to the Executive. h) During the term of this Agreement, the Employers shall provide to the Executive, at the Employer's cost, all perquisites which other senior executives of the Company are generally entitled to receive, including the payment of his or her annual dues at the Briar Ridge Country Club. 5) EXPENSES. The Employers shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of or in connection with the business of the Employers, including, but not by way of limitation, automobile expenses and other traveling expenses, and all reasonable entertainment expenses (whether incurred at the Executive's residence, while traveling or otherwise), subject to such reasonable documentation and other limitations as may be established by the Boards of Directors of the Employers. If such expenses are paid in the first instance by the Executive, the Employers shall reimburse the Executive therefor. 6) TERMINATION. a) The Corporation shall have the right, at any time upon prior Notice of Termination, to terminate the Executive's employment hereunder for any reason, including without limitation termination for Cause, Disability or Retirement, and the Executive shall have the right, upon prior Notice of Termination, to terminate his employment hereunder for any reason. b) In the event that (i) the Executive's employment is terminated by the Corporation for Cause or (ii) the Executive terminates his employment hereunder other than for Disability, Retirement, death or Good Reason, the Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination. c) In the event that the Executive's employment is terminated as a result of Disability, Retirement or the Executive's death during the term of this Agreement, the Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination, except as provided for in Sections 4(d) and 4(e) hereof. 7 d) In the event that (i) the Executive's employment is terminated by the Corporation for other than Cause, Disability, Retirement or the Executive's death or (ii) such employment is terminated by the Executive (a) due to a material breach of this Agreement by the Corporation, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has been given by the Executive to the Employers, or (b) for Good Reason, then the Corporation shall: i) pay to the Executive, in either thirty-six (36) equal monthly installments beginning with the first business day of the month following the Date of Termination or in a lump sum within five business days of the Date of Termination (at the Executive's election), a cash severance amount equal to three (3) times that portion of the Executive's Average Annual Compensation paid by the Corporation, and ii) maintain and provide for a period ending at the earlier of (i) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (ii) the date of the Executive's full-time employment by another employer (provided that the Executive is entitled under the terms of such employment to benefits substantially similar to those described in this subparagraph (B)), at no cost to the Executive, the Executive's continued participation in all group insurance, life insurance, health and accident insurance, disability insurance and other employee benefit plans, programs and arrangements offered by the Corporation in which the Executive was entitled to participate immediately prior to the Date of Termination (excluding (x) stock option and restricted stock plans of the Employers, (y) bonuses and other items of cash compensation included in Average Annual Compensation, and (z) other benefits, or portions thereof, included in Average Annual Compensation), provided that in the event that the Executive's participation in any plan, program or arrangement as provided in this subparagraph (B) is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Corporation shall arrange to provide the Executive with benefits substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination. 8 7) PAYMENT OF ADDITIONAL BENEFITS UNDER CERTAIN CIRCUMSTANCES. a) If the payments and benefits pursuant to Section 4 hereof, either alone or together with other payments and benefits which the Executive has the right to receive from the Employers (including, without limitation, the payments and benefits which the Executive would have the right to receive from the Bank pursuant to Section 4 of the Agreement between the Bank and the Executive dated this even date ("Bank Agreement"), before giving effect to any reduction in such amounts pursuant to Section 7 of the Bank Agreement), would constitute a "parachute payment" as defined in Section 280G(b)(2) of the Code (the "Initial Parachute Payment," which includes the amounts paid pursuant to clause (A) below), then the Corporation shall pay to the Executive, in thirty-six (36) equal monthly installments beginning with the first business day of the month following the Date of Termination or in a lump sum within five business days of the Date of Termination (at the Executive's election), a cash amount equal to the sum of the following: i) the amount by which the payments and benefits that would have otherwise been paid by the Bank to the Executive pursuant to Section 4 of the Bank Agreement are reduced by the provisions of Section 7 of the Bank Agreement; ii) twenty (20) percent (or such other percentage equal to the tax rate imposed by Section 4999 of the Code) of the amount by which the Initial Parachute Payment exceeds the Executive's "base amount" from the Employers, as defined in Section 280G(b)(3) of the Code, with the difference between the Initial Parachute Payment and the Executive's base amount being hereinafter referred to as the "Initial Excess Parachute Payment"; iii) such additional amount (tax allowance) as may be necessary to compensate the Executive for the payment by the Executive of state and federal income and excise taxes on the payment provided under clause (B) above and on any payments under this clause (C). In computing such tax allowance, the payment to be made under clause (B) above shall be multiplied by the "gross up percentage" ("GUP"). The GUP shall be determined as follows: GUP = Tax Rate/1 - Tax Rate iv) Tax Rate The Tax Rate for purposes of computing the GUP shall be the highest marginal federal and state income and employment-related tax rate, including any applicable excise tax rate, applicable to the Executive in the year in which the payment under clause (B) above is made. 9 v) Notwithstanding the foregoing, if it shall subsequently be determined in a final judicial determination or a final administrative settlement to which the Executive is a party that the actual excess parachute payment as defined in Section 280G(b)(1) of the Code is different from the Initial Excess Parachute Payment (such different amount being hereafter referred to as the "Determinative Excess Parachute Payment"), then the Corporation's independent tax counsel or accountants shall determine the amount (the "Adjustment Amount") which either the Executive must pay to the Corporation or the Corporation must pay to the Executive in order to put the Executive (or the Corporation, as the case may be) in the same position the Executive (or the Corporation, as the case may be) would have been if the Initial Excess Parachute Payment had been equal to the Determinative Excess Parachute Payment. In determining the Adjustment Amount, the independent tax counsel or accountants shall take into account any and all taxes (including any penalties and interest) paid by or for the Executive or refunded to the Executive or for the Executive's benefit. As soon as practicable after the Adjustment Amount has been so determined, the Corporation shall pay the Adjustment Amount to the Executive or the Executive shall repay the Adjustment Amount to the Corporation, as the case may be. b) In each calendar year that the Executive receives payments of benefits under this Section 7, the Executive shall report on his state and federal income tax returns such information as is consistent with the determination made by the independent tax counsel or accountants of the Corporation as described above. The Corporation shall indemnify and hold the Executive harmless from any and all losses, costs and expenses (including without limitation, reasonable attorneys' fees, interest, fines and penalties) which the Executive incurs as a result of so reporting such information. The Executive shall promptly notify the Company in writing whenever the Executive receives notice of the institution of a judicial or administrative proceeding, formal or informal, in which the federal tax treatment under Section 4999 of the Code of any amount paid or payable under this Section 7 is being reviewed or is in dispute. The Corporation shall assume control, at its expense, over all legal and accounting matters pertaining to such federal tax treatment (except to the extent necessary or appropriate for the Executive to resolve any such proceeding with respect to any matter unrelated to amounts paid or payable pursuant to this Section) and the Executive shall cooperate fully with the Corporation in any such proceeding. The Executive shall not enter into any compromise or settlement or otherwise prejudice any rights the Corporation may have in connection therewith without the prior consent of the Corporation. 8) MITIGATION; EXCLUSIVITY OF BENEFITS. a) The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise. 10 b) The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise. 9) WITHHOLDING. All payments required to be made by the Corporation hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Corporation may reasonably determine should be withheld pursuant to any applicable law or regulation. 10) ASSIGNABILITY. The Corporation may assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other entity with or into which the Corporation may hereafter merge or consolidate or to which the Corporation may transfer all or substantially all of its assets, if in any such case said corporation, bank or other entity shall by operation of law or expressly in writing assume all obligations of the Corporation hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder. The Executive may not assign or transfer this Agreement or any rights or obligations hereunder. 11) NOTICE. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below: a) To the Corporation: Secretary CFS Bancorp, Inc. 707 Ridge Road Munster, Indiana 46321 b) To the Bank: Secretary Citizens Financial Services, FSB 707 Ridge Road Munster, Indiana 46321 c) To the Executive: John T. Stephens 1940 Birchwood Court Munster, Indiana 46321 12) AMENDMENT; WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Corporation to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this 11 Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13) GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of Indiana. 14) NATURE OF OBLIGATIONS. Nothing contained herein shall create or require the Corporation to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Corporation hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation. 15) HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 16) VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. 17) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18) REGULATORY PROHIBITION. Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. Section 1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359. In the event of the Executive's termination of employment with the Bank for Cause, all employment relationships and managerial duties with the Bank shall immediately cease regardless of whether the Executive remains in the employ of the Corporation following such termination. Furthermore, following such termination for Cause, the Executive will not, directly or indirectly, influence or participate in the affairs or the operations of the Bank. 19) PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS. In the event any dispute or controversy arising under or in connection with the Executive's termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the payment of (a) all legal fees incurred by the Executive in resolving such dispute or controversy, and (2) any back-pay, including Base Salary, bonuses and any other cash compensation, fringe benefits and any compensation and benefits due to the Executive under this Agreement. 12 20) INDEMNIFICATION. The Corporation shall provide the 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 the Executive (and his heirs, executors and administrators) to the fullest extent permitted under Delaware law 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 Corporation (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities). Such expenses and liabilities shall include, but shall not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements. 21) ENTIRE AGREEMENT. This Agreement embodies the entire agreement between the Corporation and the Executive with respect to the matters agreed to herein. All prior agreements between the Corporation and the Executive with respect to the matters agreed to herein are hereby superseded and shall have no force or effect. Notwithstanding the foregoing, nothing contained in this Agreement shall affect the agreement of even date being entered into between the Bank and the Executive. IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written. Attest: CFS BANCORP, INC. /s/ Monica F. Sullivan By: James W. Prisby - ---------------------- -------------------- EXECUTIVE /s/ John T. Stephens ------------------------ John T. Stephens 13 EX-31.1 9 c78973exv31w1.txt CERTIFICATE OF CEO EXHIBIT 31.1 PURSUANT TO RULES 13a-14 AND 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER I, Thomas F. Prisby, certify that: 1. I have reviewed this quarterly report on Form 10-Q of CFS Bancorp, Inc. (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: August 13, 2003 By: /s/ Thomas F. Prisby ----------------------------- Thomas F. Prisby Chairman of the Board and Chief Executive Officer EX-31.2 10 c78973exv31w2.txt CERTIFICATE OF CFO EXHIBIT 31.2 PURSUANT TO RULES 13a-14 AND 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER I, John T. Stephens, certify that: 1. I have reviewed this quarterly report on Form 10-Q of CFS Bancorp, Inc. (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: August 13, 2003 By: /s/ John T. Stephens --------------------------------- John T. Stephens Executive Vice President and Chief Financial Officer EX-32.1 11 c78973exv32w1.txt CERTIFICATION OF CEO EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Thomas F. Prisby, Chairman and Chief Executive Officer of CFS Bancorp, Inc. (the "Company"), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) The Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m (a) or 78o(d)) and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 13, 2003 By: /s/ Thomas F. Prisby --------------------------------- Thomas F. Prisby, Chairman and Chief Executive Officer A signed original of this written statement required by Section 901 has been provided to CFS Bancorp, Inc., will be retained by CFS Bancorp, Inc., and will be furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 12 c78973exv32w2.txt CERTIFICATION OF CFO EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, John T. Stephens, Executive Vice President and Chief Financial Officer of CFS Bancorp, Inc. (the "Company"), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) The Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m (a) or 78o(d)) and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 13, 2003 By: /s/ John T. Stephens ------------------------------ John T. Stephens, Executive Vice President and Chief Financial Officer A signed original of this written statement required by Section 901 has been provided to CFS Bancorp, Inc., will be retained by CFS Bancorp, Inc., and will be furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----