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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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 0-28696
HOME BANCORP OF ELGIN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-4090333
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
16 NORTH SPRING STREET, ELGIN, ILLINOIS 60120
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE-ZIP CODE)
TELEPHONE (847) 742-3800
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K [ X ]
As of March 1, 1998, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the Registrant was
approximately $127,689,000.
As of March 1, 1998, 6,855,799 shares of Registrant's common stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE REGISTRANT'S 1997 ANNUAL REPORT TO STOCKHOLDERS ARE INCORPORATED
BY REFERENCE IN PART II.
PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR ITS 1998 ANNUAL MEETING OF
STOCKHOLDERS ARE INCORPORATED BY REFERENCE IN PART III
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<PAGE>
HOME BANCORP OF ELGIN, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C> <C>
ITEM 1. BUSINESS ...................................................................................... 1
ITEM 2. PROPERTIES .................................................................................... 28
ITEM 3. LEGAL PROCEEDINGS ............................................................................. 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........................................... 29
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ......................... 29
ITEM 6. SELECTED FINANCIAL DATA........................................................................ 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ......................................................................... 29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................... 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ................................................... 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE .......................................................................... 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............................................ 30
ITEM 11. EXECUTIVE COMPENSATION ........................................................................ 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................. 30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................................................ 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ............................... 30
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
On September 26, 1996, Home Federal Savings and Loan Association of
Elgin ("Home Federal" or the "Association") completed its conversion from mutual
to stock form and became a wholly-owned subsidiary of Home Bancorp of Elgin,
Inc. ("Home Bancorp" or the "Company"). On such date, the Company sold 7,009,250
shares of its common stock, par value $0.01 per share (the "Common Stock"), to
the public, at a per share price of $10.00. The conversion of the Association
from mutual to stock form, the formation of the Company as the holding company
for the Association and the issuance and sale of the Common Stock are herein
referred to collectively as the "Conversion." The Conversion raised $62.4
million in net proceeds, of which 50% was retained by the Company and 50% was
used by the Company to purchase all of the outstanding capital stock of the
Association. The Company used $5.6 million of retained net proceeds to fund a
loan to its Employee Stock Ownership Plan ("ESOP") to purchase 8% of the Common
Stock issued in the Conversion.
The Company's principal business activity consists of the ownership of
the Association. The Company also invests in short-term investment grade
marketable securities and other liquid investments. The Company has no
significant liabilities (other than those of the Association). The Company
neither owns nor leases any property but instead uses the premises and equipment
of the Association. At the present time, the Company does not employ any persons
other than certain officers of the Association who do not receive any extra
compensation as officers of the Company. The Company utilizes the support staff
of the Association from time to time, as needed. Additional employees may be
hired as deemed appropriate by the management of the Company. Unless otherwise
disclosed, the information presented in this Annual Report on Form 10-K
represents the activity of the Association for the period prior to September 26,
1996 and the activity of Home Bancorp and subsidiary consolidated thereafter.
The Association's principal business consists of attracting deposits
from the public and investing those deposits, along with funds generated from
operations, primarily in loans secured by mortgages on one- to four-family
residences. The Association's results of operations are dependent primarily on
net interest income, which is the difference between the interest income earned
on its interest-earning assets, such as loans and securities, and the interest
expense on its interest-bearing liabilities, such as savings deposits. The
Association also generates noninterest income such as service charges and other
fees. The Association's noninterest expenses primarily consist of employee
compensation and benefits, occupancy expenses, federal deposit insurance
premiums, net costs of real estate owned, advertising and promotion, automated
teller machine, professional services, stationery, printing and office supplies,
data processing fees and other operating expenses. The Association's results of
operations are also significantly affected by general economic and competitive
conditions (particularly changes in market interest rates), government policies
and actions of regulatory agencies. The Association exceeded all of its
regulatory capital requirements at December 31, 1997.
MARKET AREA
The Association has been, and intends to continue to be, a
community-oriented savings institution offering a variety of financial services
to meet the needs of the communities which it serves. The Association's market
area is composed of the areas surrounding its branch offices, while its lending
area is larger and includes portions of Cook, Kane, Lake, McHenry, DuPage and
DeKalb counties in Illinois. In addition to its administrative home office and
check processing center in Elgin, Illinois, the Association operates four other
branch offices. The branch offices are located in Crystal Lake, Roselle,
Bartlett and South Elgin, Illinois.
The Association's market area is largely suburban in nature and is
located primarily in the Northwestern suburbs of Chicago. Management considers
the area's economy to be strong, and a major reason for such strength is a well
balanced economic base that is not dominated by a single industrial sector. The
introduction
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<PAGE>
of riverboat gambling on the Fox River in Elgin has also contributed to an
increase in economic activity and growth in and around Elgin.
Management believes that the Association's success as a home lender
has been due, in part, to the favorable income, population and housing
demographics in Elgin and in the Association's market area. At the same time,
the growth of the market area and delineated lending area and their proximity to
Chicago has resulted in a highly competitive environment among the many
financial institutions competing for deposits and loans.
COMPETITION
The Association faces substantial competition for both the savings
deposits it accepts and the loans it makes. The Association's market area has a
high density of financial institutions, including branch offices of major
commercial banks, all of which compete with the Association to varying degrees.
The Association also encounters significant competition for savings deposits
from commercial banks, savings banks and savings and loan associations located
in its market area, as well as competition for savings deposits from non-bank
institutions such as brokerage firms, insurance companies, money market mutual
funds, other mutual funds (such as corporate and government securities funds)
and annuities. The Association offers a more limited product line than many
competitors, with an emphasis on product delivery and customer service instead.
The Association competes for savings deposits by offering a variety of customer
services and savings deposit accounts at generally competitive interest rates.
The Association and its competitors are significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates, real estate market values, government policies and actions of regulatory
authorities.
The Association's competition for loans comes principally from savings
banks, savings and loan associations, commercial banks, mortgage bankers,
brokers and other institutional lenders. The Association competes for loans
primarily by emphasizing the quality of its loan services and by charging loan
fees and interest rates that are generally competitive within its delineated
lending area. Changes in the demand for loans relative to the availability of
credit may affect the level of competition from financial institutions that may
be more willing than the Association or its competitors to make credit available
but which have not generally engaged in lending activities in the Association's
delineated lending area in the past. Competition may also increase as a result
of the lifting of restrictions on the interstate operations of financial
institutions.
Management considers the Association's reputation for customer service
as its major competitive advantage in attracting and retaining customers in its
market area and its delineated lending area. The Association also believes that
it benefits from its community orientation, as well as its established deposit
base and level of core deposits.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The Association's loan portfolio consists
primarily of conventional first mortgage loans secured by one- to four-family
residences. At December 31, 1997, the Association had gross loans receivable
outstanding of $301.9 million of which $296.8 million, or 98.29%, were one- to
four-family, residential mortgage loans. The remainder consisted of $2.4 million
of multifamily mortgage loans, or 0.79% of gross loans; $755,000 of commercial
real estate mortgage loans, or 0.25% of gross loans; $1.3 million of
construction and land loans, or 0.42% of gross loans; and $761,000 of other
loans, or 0.25% of gross loans.
The loans that the Association may originate are subject to federal
and state laws and regulations. Interest rates charged by the Association on
loans are affected by the demand for such loans, the supply of money available
for lending purposes and the rates offered by competitors. These factors are in
turn affected by, among other things, economic conditions, monetary policies of
the federal government, including the Board of Governors of the Federal Reserve
System (the "FRB"), and legislative tax policies.
The following table sets forth the composition of Association's
mortgage and other loan portfolios in dollar amounts and percentages at the
dates indicated.
2
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------------
1997 1996 1995
------------------------- ------------------------ -----------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------------ ------------ ------------ ----------- ----------- ------------
(DOLLARS IN THOUSANDS)
MORTGAGE LOANS:
<S> <C> <C> <C> <C> <C> <C>
One- to four-family ....... $ 296,769 98.29% $ 259,785 98.17% $ 265,115 98.09%
Multifamily ............... 2,394 0.79 2,628 0.99 3,106 1.15
Construction and land...... 1,265 0.42 750 0.28 456 0.17
Commercial................. 755 0.25 815 0.31 891 0.33
---------- ------- ---------- ------- --------- ------
Total mortgage loans.... 301,183 99.75 263,978 99.75 269,568 99.74
---------- ------- ---------- ------- --------- ------
OTHER LOANS:
Passbook savings (secured
by savings and time
deposits)................ 679 0.22 573 0.22 627 0.23
Consumer installment loans. 82 0.03 88 0.03 92 0.03
---------- ------- ---------- ------- --------- ------
Total other loans....... 761 0.25 661 0.25 719 0.26
---------- ------- ---------- ------- --------- ------
Gross loans........ $ 301,944 100.00% $ 264,639 100.00% $ 270,287 100.00%
========== ======= =========== ======= ========= ======
LESS:
Loans in process........... $ 914 $ 872 $ 418
Deferred loan fees......... 1,305 1,516 1,890
Allowance for loan losses.. 1,064 945 826
---------- ---------- ---------
Loans, net......... $ 298,661 $ 261,306 $ 267,153
========== ========== =========
</TABLE>
AT DECEMBER 31,
-----------------------------------------------
1994 1993
------------------------ ----------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- ------------- ------------ ---------
MORTGAGE LOANS:
One- to four-family ....... $267,727 97.63% $298,117 97.54%
Multifamily ............... 4,118 1.50 4,587 1.50
Construction and land ..... 859 0.31 1,130 0.37
Commercial ................ 862 0.31 1,039 0.34
-------- ------ -------- ------
Total mortgage loans ... 273,566 99.75 304,873 99.75
-------- ------ -------- ------
OTHER LOANS:
Passbook savings (secured
by savings and time
deposits) ............... 576 0.21 631 0.21
Consumer installment loans 100 0.04 120 0.04
-------- ------ -------- ------
Total other loans ...... 676 0.25 751 0.25
-------- ------ -------- ------
Gross loans ....... $274,242 100.00% $305,624 100.00%
======== ====== ======== ======
LESS:
Loans in process .......... $ 150 $ 505
Deferred loan fees ........ 2,403 3,034
Allowance for loan losses . 649 409
--------
Loans, net ........ $271,040 $301,676
======== ========
3
<PAGE>
LOAN MATURITY AND REPRICING. The following table shows the maturity or
period to repricing of the Association's loan portfolio at December 31, 1997.
Loans that have adjustable rates are shown as being due in the period during
which the interest rates are next subject to change. The table does not include
prepayments or scheduled principal amortization. Prepayments and scheduled
principal amortization on the Association's loan portfolio totaled $39.7 million
for the year ended December 31, 1997.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
MORTGAGE LOANS
--------------------------------------------------------------------------------
ONE- TO
FOUR- MULTI- CONSTRUCTION OTHER TOTAL
FAMILY FAMILY AND LAND COMMERCIAL LOANS LOANS
------ ------ ------------ ---------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AMOUNT DUE:
One year or less.......................... $ 20,921 $ 553 $ 69 $ 34 $664 $ 22,241
-------- ------ ------ ---- ---- --------
AFTER ONE YEAR:
One to three years ....................... 31,911 403 29 -- 80 32,423
More than three years to five years ...... 26,809 401 1,167 312 17 28,706
More than five years to ten years ........ 36,184 133 -- 245 -- 36,562
More than ten years to twenty years ...... 71,350 904 -- 164 -- 72,418
Over twenty years ........................ 109,594 -- -- -- -- 109,594
-------- ------ ------ ---- ---- --------
TOTAL DUE OR REPRICING AFTER ONE YEAR ....... 275,848 1,841 1,196 721 97 279,703
-------- ------ ------ ---- ---- --------
TOTAL AMOUNTS DUE OR REPRICING, GROSS........ $296,769 $2,394 $1,265 $755 $761 $301,944
======== ====== ====== ==== ==== ========
</TABLE>
The following table sets forth the dollar amounts in each loan category
at December 31, 1997 that are due after December 31, 1998, and whether such
loans have fixed or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER DECEMBER 31, 1998
-----------------------------------------------------
FIXED ADJUSTABLE TOTAL
----- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
MORTGAGE LOANS:
One- to four-family ................................... $ 227,367 $ 48,481 $ 275,848
Multifamily ........................................... 1,323 518 1,841
Construction and land.................................. 1,186 10 1,196
Commercial............................................. 481 240 721
OTHER LOANS.............................................. 97 -- 97
--------- --------- ---------
TOTAL LOANS......................................... $ 230,454 $ 49,249 $ 279,703
========= ========= =========
</TABLE>
ORIGINATIONS, PURCHASES, SALE AND SERVICING OF LOANS. Loan originations
are developed from continuing business with depositors and borrowers, referrals
from real estate agents, builders, and walk-in customers. Loans are originated
by the Association's staff of salaried employees. While the Association
originates both fixed-rate and adjustable-rate loans, its ability to originate
loans is dependent upon demand for loans in its delineated lending area. Demand
is affected by the local economy and interest rate environment. The Association
retains all newly originated fixed-rate and adjustable-rate mortgage loans in
its portfolio. The Association does not normally sell mortgage loans nor has it
purchased mortgage loans. The Association sold two loans in 1995 in the amount
of $169,000 on a servicing-released basis to a community housing group.
During the year ended December 31, 1997, the Association originated
$77.1 million of loans, compared to $36.3 million and $34.0 million in 1996 and
1995, respectively. Loan originations exceeded loan repayments in 1997 primarily
as a result of more aggressive advertising of the Association's loan products.
Loan repayments exceeded loan originations during the years ended December 31,
1996 and 1995 as a result of a generally rising interest rate environment and
competitive market conditions.
In periods of economic uncertainty, the Association's ability to
originate a large dollar volume of mortgage loans with acceptable underwriting
characteristics may be substantially reduced or restricted with a resultant
decrease in operating earnings. While the Association generally does not sell
loans, and presently has no intention to do so,
4
<PAGE>
it may consider selling loans in the future depending on market conditions and
the asset/liability management position of the Association. The Association does
not service loans for others and has no current plans to begin such servicing.
The following table sets forth the Association's loan originations, loan
sales and principal repayments by loan type for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
LOANS (GROSS):
At beginning of period.............................. $ 264,639 $ 270,287 $ 274,242
MORTGAGE LOANS ORIGINATED:
One- to four-family................................. 75,037 35,177 33,157
Multifamily......................................... 380 -- --
Construction and land .............................. 838 623 76
Commercial ......................................... 241 -- 119
----------- ----------- -----------
TOTAL MORTGAGE LOANS ORIGINATED................ 76,496 35,800 33,352
OTHER LOANS ORIGINATED................................... 627 478 614
----------- ----------- -----------
TOTAL LOANS ORIGINATED......................... 77,123 36,278 33,966
----------- ----------- -----------
Principal repayments................................ 39,718 41,705 37,558
Loans sold.......................................... -- -- 169
Loans transferred to real estate owned and
in judgment....................................... 100 221 194
----------- ----------- -----------
LOANS (GROSS) AT END OF PERIOD........................... $ 301,944 $ 264,639 $ 270,287
=========== =========== ===========
</TABLE>
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LENDING. The Association's
residential first mortgage loans consist of loans to purchase or refinance one-
to four-family, owner-occupied residences and, to a lesser extent, secondary
residences in the Association's lending area. At December 31, 1997, $296.8
million, or 98.3%, of the Association's gross loans consisted of one- to
four-family residential first mortgage loans. Approximately 77% of the one- to
four-family residential first mortgage loans provided for fixed rates of
interest. The Association's one- to four-family loans typically provide for
repayment of principal over a fixed period not to exceed 30 years. The
Association competitively prices one- to four-family residential mortgage loans.
At December 31, 1997, the Association had residential construction loans
(included in one- to four-family residential mortgage loans) with an aggregate
principal balance of $2.5 million outstanding to borrowers intending to live in
the properties upon completion of construction, at which time such loans would
convert into permanent mortgage loans.
The Association currently offers fixed rate mortgage loan programs and
adjustable rate mortgage loan programs with interest rates which adjust either
every three or five years. An adjustable-rate mortgage loan may carry an initial
interest rate that is less than the fully-indexed rate for the loan. All
adjustable-rate mortgage loans offered by the Association have lifetime interest
rate caps or ceilings. Generally, adjustable-rate mortgage loans pose credit
risks somewhat greater than the credit risk inherent in fixed-rate loans
primarily because, as interest rates rise, the underlying payments of the
borrowers rise, increasing the potential for default. It is the Association's
policy to underwrite its adjustable rate mortgage loans based on the initial
interest rate due to the relatively long period of time prior to the first
adjustment. For the year ended December 31, 1997, 77.4% of the mortgage loans
originated were at fixed rates.
In underwriting one- to four-family residential first mortgage loans,
the Association evaluates both the borrower's credit history and ability to make
monthly payments, and the value of the property securing the loan. All
properties are appraised by independent appraisers approved by the Board of
Directors. The Association requires borrowers to obtain title insurance, fire
and property insurance (including flood insurance, where appropriate) naming the
Association as an insured party in an amount not less than the amount of the
loan. The Association's one- to four-family mortgage loans do not contain
prepayment penalties and do not permit negative amortization of principal. Real
estate loans originated by the Association generally contain a "due on sale"
clause allowing the Association to declare the unpaid principal balance due and
payable upon the sale of the security
5
<PAGE>
property. The Association may waive the due on sale clause on loans held in its
portfolio when it is in the Association's best interest.
The Association adheres to its Board-approved underwriting guidelines
for loan originations, which though prudent in approach to credit risk and
evaluation of collateral, allow management flexibility with respect to
documentation of certain matters and certain credit requirements. Although such
underwriting guidelines are less rigid than comparable Federal National Mortgage
Association ("FNMA") or Federal Home Loan Mortgage Corporation ("FHLMC")
underwriting guidelines, the Association underwrites the substantial majority of
residential mortgage loans in accordance with FNMA's guidelines.
The Association does not currently originate residential mortgage loans
if the ratio of the loan amount to the value of the property securing the loan
(I.E., the "loan-to-value" ratio) exceeds 97%. If the loan-to-value ratio is 90%
or greater, the Association requires that borrowers obtain private mortgage
insurance in amounts intended to reduce the Association's exposure to 80% or
less of the lower of the appraised value or the purchase price of the underlying
real estate.
MULTIFAMILY MORTGAGE LENDING. The Association originates multifamily
mortgage loans generally secured by five- to ten-unit apartment buildings
located in the Association's delineated lending area. In reaching its decision
on whether to make a multifamily loan, the Association considers the
qualifications of the borrower (including the financial resources and income
level of the borrower, the borrower's experience in owning or managing similar
properties and the Association's lending experience with the borrower) as well
as the underlying property. Some of the factors considered with respect to the
underlying property include: the net operating income of the mortgaged premises
before debt service and depreciation; the debt service ratio (the ratio of the
property's net cash flow to debt service requirements); and the ratio of loan
amount to appraised value. Pursuant to the Association's underwriting policies,
a multifamily mortgage loan may only be made in an amount up to 75% of the
appraised value of the underlying property. The Association's multifamily
mortgage loans are generally fixed-rate loans and may be made with terms up to
15 years. Adjustable rate loans are offered with 3 or 5 year adjustments with 25
year terms. Properties securing a loan are appraised by an independent appraiser
approved by the Board of Directors. Title and hazard insurance are required on
all loans. At December 31, 1997, the principal balance of the Association's
multifamily mortgage loan portfolio was approximately $2.4 million, or 0.79% of
total gross loans outstanding. The Association's largest multifamily mortgage
loan at December 31, 1997 had an outstanding balance of $322,000 and is secured
by a 5-unit apartment building and an adjacent 6-unit apartment building.
Mortgage loans secured by apartment buildings and other multifamily
residential properties are generally larger and involve a greater degree of risk
than one- to four-family residential mortgage loans. Because payment on loans
secured by multifamily properties are often dependent on the successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to adverse conditions in the real estate market or
the economy. The Association seeks to minimize these risks through its
underwriting policies, which require such loans to be qualified at origination
on the basis of the property's income and debt service ratio.
COMMERCIAL REAL ESTATE LENDING. The Association occasionally originates
mortgage loans secured by commercial real estate properties located in its
delineated lending area. The Association's commercial real estate portfolio
consists of loans secured by a variety of non-residential properties, including
six mortgage loans secured by buildings owned by local churches and six loans
secured by small office buildings. At December 31, 1997, the Association had 12
commercial real estate loans with an aggregate outstanding balance of $755,000,
representing 0.25% of the Association's total loan portfolio. At that date, all
of such loans were current and performing in accordance with their terms. At
December 31, 1997, the Association's largest commercial real estate loan, the
borrower of which was a church, had an outstanding balance of $175,000.
Appraisals on properties securing commercial real estate loans
originated by the Association are performed by an independent appraiser approved
by the Board of Directors at the time the loan is made. In addition, the
Association's underwriting procedures generally require verification of the
borrower's credit history, income and financial statements, banking
relationships, references and income projections for the property. The
Association also requires title and hazard insurance for at least the principal
amount of the mortgage with a loss payable clause to the Association.
6
<PAGE>
Mortgage loans secured by commercial real estate properties, like
multifamily mortgage loans, generally present a higher level of risk than loans
secured by one- to four-family residences. This greater risk is attributable to
several factors, including the concentration of principal in a limited number of
loans and borrowers, the effects of general economic conditions on
income-producing properties and the increased difficulty of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans secured by
multifamily residential and commercial real estate is typically dependent upon
the successful operation of the related real estate project. If the cash flow
from the project is reduced (for example, if leases are not obtained or
renewed), the borrower's ability to repay the loan may be impaired. At December
31, 1997, the Association had no non-residential loans which were 30 days or
more delinquent.
CONSTRUCTION AND LAND LENDING. As a result of the relatively high level
of construction activity in the Association's delineated lending area, the
Association makes construction loans to individuals for the construction of
their primary residences and to builders for residential construction.
Loans to individuals to finance the construction of their residences
typically have a term of up to 30 years. The borrower pays interest only during
the construction period. Residential construction loans are generally
underwritten pursuant to the same guidelines used for originating permanent
residential loans, with the loan converting to a permanent mortgage loan upon
completion and final payout. At December 31, 1997, the Association had
residential construction loans (included in one- to four-family residential
mortgage loans) with an aggregate principal balance of $2.5 million outstanding
to borrowers intending to live in the properties upon completion of
construction, at which time such loans would convert into permanent mortgage
loans.
The Association has in the past originated construction loans to
builders for the construction of pre-sold one- to four-family residences in the
Association's delineated lending area. Such loans generally carry terms of up to
18 months and generally do not permit the payment of interest from loan
proceeds. At December 31, 1997, the Association had two construction loans
outstanding to builders with an aggregate principal balance of $401,000. While
the Association anticipates that it will continue to engage in this type of
lending from time to time in the future, the Association currently expects that
its total volume at any one time will be limited.
Construction loans are generally originated in amounts of up to a
maximum loan-to-value ratio of 80% of the appraised value of the property. Prior
to making a commitment to fund a construction loan, the Association requires an
independent appraisal of the property. The Association obtains personal
guarantees for all of its construction loans. Personal financial statements of
guarantors are also generally obtained as part of the Association's loan
underwriting. All of the Association's construction loans have been secured by
properties located in its delineated lending area.
The Association also originates land loans for individual building
sites. These loans are generally to individuals for eventual use as their
primary residence, and such mortgage loans are generally underwritten pursuant
to the same guidelines used for permanent residential loans. Terms of land loans
offered by the Association generally require a loan-to-value ratio of 80% of the
appraised value of the property and are 5-year balloon loans with higher
interest rates than the comparable one- to four-family residential mortgage
loans. At December 31, 1997, the Association had 32 land mortgage loans with an
aggregate outstanding balance of $1,265,000 or 0.42% of the Association's gross
loan portfolio.
Construction lending generally affords the Association an opportunity to
receive interest at rates higher than those obtainable from residential lending
and to receive higher origination and other loan fees. Nevertheless,
construction lending to persons other than owner-occupants is generally
considered to involve a higher level of credit risk than one- to four-family
residential lending due to the concentration of principal in a limited number of
loans and borrowers and the effects of general economic conditions on
construction projects, real estate developers and managers. In addition, the
nature of these loans is such that they are more difficult to evaluate and
monitor. The Association's risk of loss on a construction loan is dependent
largely upon the accuracy of the initial estimate of the property's value upon
completion of the project and the estimated cost (including interest) of the
project. If the estimate of value proves to be inaccurate, the Association may
be confronted, at or prior to the maturity of the loan, with a project having an
insufficient value to assure full repayment and/or the possibility of having to
make substantial investments to complete and sell the project. Because defaults
in repayment may not occur during the construction period, it may be difficult
to identify problem loans at an early stage. When loan payments become
7
<PAGE>
due, the cash flow from the property may not be adequate to service the debt.
CONSUMER LENDING. The Association also offers consumer loans secured by
savings deposit accounts. At December 31, 1997, such loans totaled $679,000
representing 0.22% of the Association's total loan portfolio. The Association
also offers unsecured overdraft protection loans to its qualifying customers. At
December 31, 1997, the total outstanding principal balance of such unsecured
loans was $82,000, representing 0.03% of the Association's total loan portfolio.
LOAN APPROVAL PROCEDURES AND AUTHORITY. The Board of Directors
establishes the lending policies of the Association and reviews properties
offered as security. For all loans originated by the Association, upon receipt
of a completed loan application from a prospective borrower, a credit report is
ordered and certain other information is verified by an independent credit
agency, and, if necessary, additional financial information is required to be
submitted by the borrower. An appraisal of any real estate intended to secure
the proposed loan is required. Appraisals currently are performed by an
independent appraiser designated and approved by the Association. The Board of
Directors annually approves the independent appraisers used by the Association
and approves the Association's appraisal policy. It is the Association's policy
to obtain for all real estate loans title and hazard insurance naming the
Association as an insured party in an amount not less than the amount of the
loan.
Upon the approval of an application for a real estate mortgage loan by
two senior officers, the loan may be closed and the proceeds disbursed, provided
that the following requirements are satisfied: (i) loans with a principal
balance of up to $250,000 must be reviewed by the loan committee, which must
report the results of its review to the Board of Directors; (ii) loans with a
principal balance in excess of $250,000 but less than $400,000 must be approved
by three senior officers at the level of vice-president or higher, with
ratification by the Board of Directors at its next scheduled meeting; and (iii)
loans with a principal balance equal to or greater than $400,000 are reviewed
and approved by the full Board of Directors. Second mortgage loans are made by
the Association only if the first mortgage on the subject property is also held
by the Association. The total amount of the first and second mortgages on the
property may not exceed 80% of the property's appraised value, unless otherwise
approved by two senior officers of the Association. Applications for passbook
and consumer loans are approved at the level of branch or savings supervisor.
The foregoing lending limits are reviewed annually and revised, as needed, by
the Board of Directors.
DELINQUENCIES AND NON-PERFORMING ASSETS
DELINQUENCY PROCEDURES. When a borrower fails to make a required payment
on a loan, the Association attempts to cause the delinquency to be cured by
implementing collection procedures. With respect to residential mortgage loans
originated by the Association, late notices are mailed to borrowers who are more
than eight days late in their monthly payments. A late charge equal to five
percent (5%) of the monthly principal and interest payment is assessed for loans
that are past due more than 15 days. If payments remain uncollected, additional
written and verbal contacts are made on a continuing basis with the borrower
between 18 and 90 days after the due date.
All loans 90 or more days delinquent are submitted to the Board of
Directors for its review. The Board of Directors determines the appropriate
course of action for those loans where collection efforts are unsuccessful. Its
options include modification of the loan, forbearance, deeds in lieu of
foreclosure or foreclosure.
8
<PAGE>
The following tables set forth delinquencies of the Association's loan
portfolio by type of loan at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
---------------------------------------------- ----------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
----------------------- ---------------------- ----------------------- ----------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE
----------- ----------- ---------- ----------- ----------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family........ 22 $1,072 14 $ 963 20 $ 869 14 $ 937
Multifamily................ -- -- -- -- -- -- -- --
Construction and land...... -- -- -- -- -- -- -- --
Commercial................. -- -- -- -- -- -- -- --
Other...................... -- -- -- -- -- -- -- --
----- ------ ----- ------ ----- ------ ----- -------
Total.................. 22 $1,072 14 $ 963 20 $ 869 14 $ 937
===== ====== ===== ====== ===== ====== ===== =======
Delinquent loans to 0.36% 0.32% 0.33% 0.36%
total loans (1)........... ====== ====== ====== =======
</TABLE>
AT DECEMBER 31, 1995
---------------------------------------------
60-89 DAYS 90 DAYS OR MORE
----------------------- -------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS BALANCE OF LOANS BALANCE
----------- ----------- ---------- ---------
(DOLLARS IN THOUSANDS)
One- to four-family........ 24 $ 1,093 16 $ 915
Multifamily................ -- -- -- --
Construction and land...... 2 48 -- --
Commercial................. -- -- -- --
Other...................... -- -- 1 1
----- ------- ----- ------
Total.................. 26 $ 1,141 17 $ 916
===== ======= ===== ======
Delinquent loans to 0.42% 0.34%
total loans (1)........... ======= ======
<TABLE>
AT DECEMBER 31, 1994 AT DECEMBER 31, 1993
--------------------------------------------- --------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
--------------------- --------------------- --------------------- --------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE
-------- --------- -------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family........ 10 $ 516 18 $ 974 33 $1,412 26 $1,642
Multifamily................ -- -- -- -- 1 92 -- --
Construction and land...... 2 53 1 12 1 40 -- --
Commercial................. -- -- -- -- -- -- -- --
Other...................... -- -- -- -- -- -- -- --
----- ------ ----- ------ ----- ------ ----- ------
Total.................. 12 $ 569 19 $ 986 35 $1,544 26 $1,642
===== ====== ===== ====== ===== ====== ===== ======
Delinquent loans to
total loans (1)........... 0.21% 0.36% 0.51% 0.54%
====== ====== ====== ======
</TABLE>
(1) Total loans represent gross loans less deferred loan fees and loans in
process.
9
<PAGE>
REAL ESTATE OWNED. Property acquired by the Association as a result of
foreclosure or deed in lieu of foreclosure is classified as real estate owned
("REO"). When property is acquired, it is recorded at the lower of cost or
estimated fair value, less the estimated cost of disposition. After acquisition,
all costs incurred in maintaining the property are expenses. Costs relating to
the development and improvement of the property, however, are capitalized to the
extent of net realizable value. The Association obtains an independent appraisal
on an REO property as soon as practicable after it takes possession of the
property. REO decreased $264,000 from $550,000 at December 31, 1996 to $286,000
at December 31, 1997, which was the result of adding two properties and
disposing of three properties in 1997.
NON-PERFORMING ASSETS. Loans 90 days or more delinquent are reviewed
quarterly by the Association's Asset Classification Committee quarterly, and any
loan whose collectibility is doubtful is placed on non-accrual status. The Asset
Classification Committee provides the Association's Board of Directors with a
quarterly assessment of asset quality. It is the Association's policy to place
loans on non-accrual status when either principal or interest is 90 days or more
past due, unless, in the judgment of management, the loan is well collaterized
and in the process of collection. Interest accrued and unpaid at the time a loan
is placed on non-accrual status is charged against interest income, depending on
the assessment of the ultimate collectibility of the loan. During the years
ended December 31, 1997, 1996 and 1995, the amounts of additional interest
income that would have been recorded on non-accrual loans, had they been
current, totaled $55,000, $68,000 and $36,000, respectively. These amounts were
not included in interest income for the respective periods. For all periods
presented, the Association has had no troubled-debt restructurings (which
involved forgiving a portion of interest or principal on any loans or making
loans at a rate materially less than that of market rates). Other loans which
may be potential problems are designated by management as special mention, and
such loans totaled $302,000 at December 31, 1997. See "--Classified Assets."
The following table sets forth information regarding the Association's
non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ---------------- ---------------- ----------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
One- to four-family....................... $ 963 $ 937 $ 915 $ 974 $ 1,642
Multifamily .............................. -- -- -- -- --
Construction and land..................... -- -- -- 12 --
Commercial................................ -- -- -- -- --
Other loans............................... -- -- 1 -- --
--------- --------- --------- --------- ---------
Total non-performing loans.............. 963 937 916 986 1,642
--------- --------- --------- --------- ---------
Total real estate owned and in judgment..... 286 550 496 514 433
--------- --------- --------- --------- ---------
Total non-performing assets................. $ 1,249 $ 1,487 $ 1,412 $ 1,500 $ 2,075
========= ========= ========= ========= =========
Total non-performing loans to
total loans(1) 0.32% 0.36% 0.34% 0.36% 0.54%
Total non-performing assets to
total assets.............................. 0.35% 0.42% 0.46% 0.49% 0.62%
</TABLE>
(1) Total loans represent gross loans less deferred loan fees and loans in
process.
CLASSIFIED ASSETS. Federal regulations and the Association's
Classification of Assets Policy require that the Association utilize an internal
asset classification system as a means of reporting problem and potential
problem assets. The Association has incorporated the OTS internal asset
classifications as a part of its credit monitoring system. The Association
currently classifies problem and potential problem assets as "special mention,"
"substandard," "doubtful" or "loss" assets. An asset is considered "substandard"
if it is inadequately protected by the current net worth and paying capacity of
the obligor or of the collateral pledged, if any. "Substandard" assets include
those characterized by the "distinct
10
<PAGE>
possibility" that the Association will sustain "some loss" if the deficiencies
are not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do not
currently expose the Association to sufficient risk to warrant classification in
one of the aforementioned categories but possess weaknesses or unwarranted
financial risk that, if uncorrected, could weaken the asset and increase risk in
the future are required to be designated "special mention."
When a savings association classifies one or more assets, or portions
thereof, as substandard or doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
The general valuation allowance, which is a regulatory term, represents a loss
allowance which has been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, has not been
allocated to particular problem assets. When a savings association classifies
one or more assets, or portions thereof, as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount.
The Association's Mortgage Servicing Manager reviews the Association's
loans on a monthly basis and provides delinquency reports to the Board of
Directors. The Association's Asset Classification Committee meets on a quarterly
basis and classifies assets in accordance with the management guidelines
described herein.
The following table sets forth at December 31, 1997, the Association's
carrying value of assets classified as "substandard," "doubtful" or "loss" or
designated as "special mention:"
<TABLE>
<CAPTION>
SPECIAL MENTION SUBSTANDARD DOUBTFUL LOSS
--------------- ----------- -------- ----
NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Mortgage loans:
One- to four-family........ 4 $ 302 14 $ 963 -- $ -- -- $ --
------ ------ ------ ------ ------ ------ ------ ------
Total mortgage loans.......... 4 $ 302 14 $ 963 -- $ -- -- $ --
------ ------ ------ ------ ------ ------ ------ ------
Real estate owned and in
judgment:
One- to four-family........ -- -- 3 247 -- -- -- --
Multifamily................ -- -- -- -- -- -- -- --
Construction and land...... -- -- 1 39 -- -- -- --
Commercial................. -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total real estate owned
and in judgment............. -- -- 4 286 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total......................... 4 $ 302 18 $1,249 -- $ -- -- $ --
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and the general economy. The allowance for
loan losses is maintained at an amount management considers adequate to cover
estimated losses in loans receivable which are deemed probable and estimable
based on information currently known to management. The Asset Classification
Committee reviews and approves the allowance for loan loss on a quarterly basis.
The allowance is based upon a number of factors, including current regional and
national economic conditions, actual loss experience and industry trends. In
addition, the OTS, as an integral part of its examination process, periodically
reviews the Association's allowance for loan losses. The OTS may require the
Association to make additional general or specific loan loss allowances based
upon judgments different from those of management. At December 31, 1997 and
1996, the Association's allowance for loan losses was 0.36% of total loans. The
Association had non-accrual loans of $963,000 and $937,000 at December 31, 1997
and December 31, 1996, respectively, representing 0.32% and 0.36% of total loans
at such respective dates. The Association will continue to monitor and modify
its allowance for loan losses as conditions dictate.
11
<PAGE>
The OTS, in conjunction with the other federal banking agencies,
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners in determining the
adequacy of general valuation guidelines. Generally, the policy statement
recommends that institutions have effective systems and controls to identify,
monitor and address asset quality problems; that management analyzes all
significant factors that affect the collectibility of the portfolio in a
reasonable manner; and that management establishes acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
While the Association believes that it has established an adequate allowance for
loan losses, there can be no assurance that regulators, in reviewing the
Association's loan portfolio, will not request the Association to materially
increase its allowance for loan losses, thereby negatively affecting the
Association's financial condition and earnings at that time. Management believes
that the provision for loan losses and the allowance for loan losses are
reasonable and adequate to cover any known losses and any losses reasonably
expected in the existing loan portfolio. While management estimates loan losses
using the best available information, such as independent appraisals for
significant collateral properties, no assurance can be given that future
additions to the allowance will not be necessary based on changes in economic
and real estate market conditions, further information obtained regarding known
problem loans, identification of additional problem loans and other factors,
both within and outside of management's control.
The following table sets forth activity in the Association's allowance
for loan losses and other ratios at or for
the dates indicated.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total loans outstanding at end of period(1). $299,725 $262,251 $267,979 $271,689 $302,085
-------- -------- -------- -------- --------
Balance at beginning of year................ 945 826 649 409 548
Provision for loan losses................... 120 120 180 240 240
Charge-offs:
One- to four-family....................... -- -- -- -- --
Multifamily............................... -- -- -- -- (141)
Construction and land..................... -- -- -- -- --
Commercial................................ -- -- -- -- --
Other..................................... (1) (1) (3) -- --
-------- -------- -------- -------- --------
Total charge-offs...................... (1) (1) (3) -- (141)
-------- -------- -------- -------- --------
Allocation to reserve for uncollected
interest.................................. -- -- -- -- (238)
-------- -------- -------- -------- --------
Balance at end of year...................... $ 1,064 $ 945 $ 826 $ 649 $ 409
======== ======== ======== ======== ========
Net charge-offs during the period to average
loans outstanding during the period........ --% --% --% --% 0.05%
Allowance for loan losses to total loans at
end of period.............................. 0.36 0.36 0.31 0.24 0.14
Allowance for loan losses to total
non-performing loans at end of period...... 110.51 100.85 90.17 65.82 24.91
</TABLE>
- ------------------
(1) Total loans represent gross loans less deferred loan fees and loans in
process.
12
<PAGE>
The following table sets forth the Association's allowance for loan
losses allocated by loan category and the percent of loans in each category to
total loans at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ------------------------------ -----------------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN
EACH EACH EACH
ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO
AMOUNT GROSS LOANS AMOUNT GROSS LOANS AMOUNT GROSS LOANS
------ ----------- ------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family ...... $ 1,003 98.29% $ 890 98.17% $ 779 98.09%
Multifamily .............. 23 0.79 25 0.99 25 1.15
Construction and land..... 24 0.42 14 0.28 7 0.17
Commercial................ 14 0.25 16 0.31 15 0.33
Other..................... -- 0.25 -- 0.25 -- 0.26
------- ------- ----- -------- ----- --------
Total.................. $ 1,064 100.00% $ 945 100.00% $ 826 100.00%
======= ======= ===== ======== ===== ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------------------
1994 1993
------------------------------------------- --------------------------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
EACH EACH
ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO
AMOUNT GROSS LOANS AMOUNT GROSS LOANS
------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage loans:
One- to four-family ............... $ 602 97.63% $ 378 97.54%
Multifamily ....................... 25 1.50 16 1.50
Construction and land.............. 11 0.31 8 0.37
Commercial......................... 11 0.31 7 0.34
Other.............................. -- 0.25 -- 0.25
----- -------- ----- --------
Total........................... $ 649 100.00% $ 409 100.00%
===== ======== ===== ========
</TABLE>
INVESTMENT ACTIVITIES
INVESTMENT POLICY. The investment policy of the Association, which is
established by the Board of Directors, is based upon its asset/liability
management goals and emphasizes high credit quality and diversified investments
while seeking to optimize net interest income within acceptable limits of safety
and liquidity. The Association's investment goal has been to invest available
funds in short-term, highly liquid instruments that have fixed rates. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management Strategy," "--Management of Interest Rate Risk" and
"--Liquidity and Capital Resources" in Part II Item 7, of this Report. The
policy is designed to provide and maintain liquidity to meet day-to-day,
cyclical and long-term changes in the Association's asset/liability structure.
The Association's investment policy permits it to invest in U.S.
government obligations; certain securities of various government-sponsored
agencies, including mortgage-backed securities issued/guaranteed by FNMA, FHLMC
and the Government National Mortgage Association ("GNMA"); certificates of
deposit of insured banks and savings associations; and federal funds. The
Association's investment policy prohibits investment in derivative securities.
MORTGAGE-BACKED SECURITIES AND U.S. TREASURY SECURITIES. At December
31, 1997, the carrying value of mortgage-backed securities totaled $92,000 or
0.03%, of total assets. The fair value of these mortgage-backed securities
totaled $93,000 at December 31, 1997. All mortgage-backed securities in the
Association's portfolio were held to maturity and carried at amortized cost.
13
<PAGE>
At December 31, 1997, all securities in the Association's
mortgage-backed securities portfolio were directly insured or guaranteed by
GNMA, thereby providing the certificate holder a guarantee of timely payments of
interest and scheduled principal payments, whether or not they have been
collected. The Associations' mortgage-backed securities portfolio had a weighted
average rate of 6.98% at December 31, 1997.
Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees or credit
enhancements that reduce credit risk. In addition, mortgage-backed securities
are more liquid than individual mortgage loans and may be used to collateralize
borrowings of the Association. In general, mortgage-backed securities issued or
guaranteed by GNMA, FNMA and FHLMC and certain AAA-rated mortgage-backed
pass-through securities are weighted at no more than 20% for risk-based capital
purposes, compared to the 50% risk weighting assigned to most non-securitized
residential mortgage loans. See "Regulation - Regulation Federal Savings
Associations - Capital Requirements."
The following table sets forth activity in the Association's
mortgage-backed securities held to maturity portfolio for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
------------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Amortized cost at beginning of period............................... $ 142 $ 187 $ 243
Purchases/sales (net)............................................... -- -- --
Principal repayments................................................ (50) (45) (56)
Premium and discount amortization, net.............................. -- -- --
--------- --------- ---------
Amortized cost at end of period..................................... $ 92 $ 142 $ 187
========= ========= =========
</TABLE>
The following table sets forth the amortized cost and fair value of the
Association's mortgage-backed and investment securities held to maturity at the
dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------------------
1997 1996 1995
-------------------------- ------------------------ ----------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
---- ----- ---- ----- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities
--GNMA.................................. $ 92 $ 93 $ 142 $ 143 $ 187 $ 193
========= ========= ========= ========= ========= =========
Other debt securities
--U.S. Treasury and Agency.............. $ -- $ -- $ 53,786 $ 53,797 $ 5,948 $ 6,030
========= ========= ========= ========= ========= =========
</TABLE>
The following table sets forth certain information regarding the
amortized cost, fair value and weighted average rate of the Association's
mortgage-backed and investment securities held to maturity at December 31, 1997,
by remaining period to contractual maturity. With respect to mortgage-backed
securities, the entire amount is reflected in the maturity period that includes
the final security payment date, and, accordingly, no effect has been given to
periodic repayments or possible prepayments.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
----------------------------------------------------
WEIGHTED
AMORTIZED FAIR AVERAGE
COST VALUE RATE
---------------- ---------------------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Mortgage-backed securities:
Due after 1 year but within 5 years ................ $ 92 $ 93 6.98%
------------- ------------- ----
Total .............................................. $ 92 $ 93 6.98%
============= ============= ====
</TABLE>
14
<PAGE>
SOURCES OF FUNDS
GENERAL. Savings deposits, loan and security repayments and prepayments
and cash flows generated from operations are the primary sources of the
Association's funds for use in lending, investing and for other general
purposes. To a significantly lesser extent, the Association also utilizes funds
borrowed from the FHLB of Chicago.
SAVINGS DEPOSITS. The Association offers a variety of savings deposit
accounts with a range of interest rates and terms. The Association's savings
deposits consist of passbook accounts, NOW/Super NOW accounts, money market
accounts, checking accounts and certificates of deposit. The Association offers
certificates of deposit with maturities of up to 60 months. The flow of deposits
is influenced significantly by general economic conditions, changes in money
market rates, prevailing interest rates and competition. The Association's
deposits are obtained predominantly from the areas in which its branch offices
are located. The Association relies primarily on customer service and
long-standing relationships with customers to attract and retain these deposits;
however, market interest rates and rates offered by competing financial
institutions significantly affect the Association's ability to attract and
retain deposits. Certificate accounts in excess of $100,000 are not actively
solicited by the Association nor does the Association use brokers to obtain
deposits.
The following table presents the savings deposit activity of the
Association for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Deposits............................................ $ 776,702 $ 886,737 $ 764,098
Withdrawals......................................... (789,523) (904,475) (781,552)
----------- ----------- -----------
Withdrawals in excess of deposits................... (12,821) (17,738) (17,454)
Interest credited................................... 9,244 9,561 9,488
----------- ----------- -----------
Total decrease in savings
deposits.................................... $ (3,577) $ (8,177) $ (7,966)
=========== =========== ============
</TABLE>
At December 31, 1997, the Association had $16.4 million in jumbo
certificates of deposit (accounts in amounts of $100,000 or larger) maturing as
follows:
<TABLE>
<CAPTION>
WEIGHTED
MATURITY PERIOD AMOUNT AVERAGE RATE
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Within three months..................................... $ 4,960 5.35%
After three but within six months....................... 4,418 5.73
After six but within 12 months.......................... 1,468 5.60
After 12 months......................................... 5,577 6.68
--------- ---------
Total................................................. $ 16,423 5.92%
========= =========
</TABLE>
15
<PAGE>
The following table sets forth the distribution of the Association's
savings deposits and the related weighted average interest rates at the dates
indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------------------------------
1997 1996
---------------------------------------------- ---------------------------------------------
PERCENT OF WEIGHTED PERCENT OF WEIGHTED
TOTAL AVERAGE TOTAL AVERAGE
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
--------------- -------------- ------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
NOW/Super NOW accounts................ $ 42,716 17.2% 2.25% $ 42,800 17.0% 2.25%
Money market accounts................. 16,678 6.7 3.22 16,763 6.7 3.22
Passbook accounts..................... 60,880 24.5 3.00 62,171 24.7 3.00
Certificates of deposit............... 121,908 49.1 5.84 125,192 49.7 5.79
Noninterest bearing NOW accounts...... 6,035 2.5 -- 4,869 1.9 --
--------- ---------- -------- -------- ------ ------
Totals........................... $ 248,217 100.00% 4.21% $251,795 100.00% 4.22%
========= ========== ======== ======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1995
-------------------------------------------
PERCENT OF WEIGHTED
TOTAL AVERAGE
AMOUNT DEPOSITS RATE
------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NOW/Super NOW accounts................ $ 45,001 17.3% 2.25%
Money market accounts................. 17,684 6.8 3.22
Passbook accounts..................... 65,261 25.1 3.04
Certificates of deposit............... 126,847 48.8 5.89
Noninterest bearing NOW accounts...... 5,179 2.0 --
--------- ------ ------
Totals........................... $ 259,972 100.00% 4.25%
========= ====== ======
</TABLE>
The following table presents, by interest rate ranges, the amount of
certificates of deposit outstanding at the dates indicated and the periods to
maturity of the certificates of deposit outstanding at December 31, 1997.
<TABLE>
<CAPTION>
PERIOD TO MATURITY AT DECEMBER 31, 1997
-----------------------------------------------------------------------
INTEREST RATE RANGE LESS THAN ONE YEAR ONE TO THREE YEARS FOUR TO FIVE YEARS
- ------------------------------ ----------------------- ----------------------- -----------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Below 4.00% .................. $ -- $ -- $ --
4.00% to 4.99%................ 2,799 9 --
5.00% to 5.99%................ 66,471 13,280 3,605
6.00% to 6.99%................ 2,360 7,051 10,115
7.00% and above............... -- 16,218 --
------- ------- -------
Total.................... $71,630 $36,558 $13,720
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------
INTEREST RATE RANGE 1997 1996 1995
- ------------------------------ ---------------------- ----------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Below 4.00% .................. $ -- $ -- $ 16
4.00% to 4.99%................ 2,808 12,508 7,548
5.00% to 5.99%................ 83,356 74,856 69,542
6.00% to 6.99%................ 19,526 20,879 27,216
7.00% and above............... 16,218 16,949 22,525
--------- --------- ---------
Total.................... $ 121,908 $ 125,192 $ 126,847
========= ========= =========
</TABLE>
16
<PAGE>
Savings deposits decreased $3.6 million or 1.4% from $251.8 million at
December 31, 1996 to $248.2 million at December 31, 1997. This decrease was due
to withdrawals exceeding deposits and interest credited as a result of market
conditions and competition. In an effort to address the contraction of deposits,
the Association has taken steps to increase core noninterest bearing
transactional deposit accounts and related services. These include the
relocation of the South Elgin Office along with the addition of five drive-up
lanes in the heart of the commercial and residential growth area. New services
and products have been implemented to give the Association's customers added
convenience and value. Home Banking, via personal computer or phone, is now
available and is being introduced to customers through statement stuffers and
brochures. Home Banking provides customers access to their accounts by phone for
balance and check inquiry plus transferring between their accounts, and with the
enhanced bill payment center, customers can now conveniently pay their bills
from their personal computer or phone. VISA Check, a debit card program, is also
now available and is growing in numbers of card holders and usage. These two new
products along with other services like Combined Statement and Direct Deposit,
provide customers with more convenient access to their accounts and strengthens
long term relationships by bundling these services. The Association's campaign,
"put it all together," spotlights these new convenient services and encourages
multiple relationships. Included in this campaign is an emphasis on home
mortgage loans. Specific materials have been created that were distributed to
real estate professionals to assist and inform them of the Association's
products and competitive rates. Looking ahead with these new services, products
and promotional materials in place, management is focused on establishing
multiple relationships with existing customers, while attracting new customers.
BORROWED FUNDS. The Association utilizes advances from the FHLB of
Chicago as an alternative to retail deposits to fund its operations and may do
so in the future as part of its operating strategy. The Association generally
only utilizes FHLB of Chicago borrowings as a source of liquidity. These FHLB of
Chicago advances are collateralized primarily by certain of the Association's
mortgage loans and mortgage-backed securities and secondarily by the
Association's investment in the stock of the FHLB of Chicago. FHLB of Chicago
advances are made pursuant to several different credit programs, each of which
has its own interest rate and range of maturities. The maximum amount that the
FHLB of Chicago will advance to member institutions, including the Association,
fluctuates from time to time in accordance with the policies of the OTS and the
FHLB of Chicago. See "Regulation--Regulation of Federal Savings
Associations--Federal Home Loan Bank System." At December 31, 1997, the maximum
amount of FHLB of Chicago advances available to the Association was $52 million,
based on the Association's current investment in FHLB of Chicago stock.
The following table sets forth certain information regarding the
Association's borrowed funds for the periods indicated.
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED DECEMBER 31,
1997 1996 1995
--------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLB of Chicago advances:
Maximum amount outstanding at any
month-end during the period....................................... $10,000 $ 4,000 $ 6,000
Average balance outstanding......................................... 2,917 667 1,250
Balance outstanding at end of period................................ 5,000 -- 4,000
Weighted average interest rate during the period.................... 5.97% 5.55% 6.16%
Weighted average interest rate at end of period..................... 6.92 -- 5.31
</TABLE>
PERSONNEL
As of December 31, 1997, the Association has 98 full-time employees and
49 part-time employees. The Association had experienced a low turnover rate
among its employees and, as of December 31, 1997, 69 of the Association's
employees had been with the Association for more than five years. The employees
are not represented by a collective bargaining unit and the Association
considers its relationship with its employees to be good.
17
<PAGE>
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The following is a discussion of material tax matters and does
not purport to be a comprehensive description of the tax rules applicable to the
Association or the Company. The Association has not been audited by the IRS
during the last five years. For federal income tax purposes, the Company and the
Association will file consolidated income tax returns and report their income on
a calendar year basis using the accrual method of accounting and are subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Association's tax reserve for bad debts,
discussed below.
RECENT TAX LEGISLATION REGARDING TAX BAD DEBT RESERVES
Prior to the enactment on August 20, 1996 of the Small Business Job
Protection Act of 1996 (the "Small Business Act"), for federal income tax
purposes, thrift institutions such as the Association, which met certain
definitional tests primarily relating to their assets and the nature of their
business, were permitted to establish tax reserves for bad debts and to make
annual additions thereto, which additions could, within specified limitations,
be deducted in arriving at their taxable income. The Association's deduction
with respect to "qualifying loans," which are generally loans secured by certain
interests in real property, could be computed using an amount based on a
six-year moving average of the Association's actual loss experience (the
"Experience Method"), or a percentage equal to 8.0% of the Association's taxable
income (the "PTI Method"), computed without regard to this deduction and with
additional modifications and reduced by the amount of any permitted addition to
the non-qualifying reserve.
Under the Small Business Act, the PTI Method was repealed and the
Association will be required to use the Experience Method of computing additions
to its bad debt reserve for taxable years beginning with the Association's
taxable year beginning January 1, 1996. In addition, the Association will be
required to recapture (i.e., take into taxable income) over a six-year period,
beginning with the Association's taxable year beginning January 1, 1996, the
excess of the balance of its bad debt reserves (other than the supplemental
reserve) as of December 31, 1995 over the greater of (a) its "base year
reserve," I.E., the balance of such reserves as of December 31, 1987 or (b) an
amount that would have been the balance of such reserves as of December 31, 1995
had the Association always computed the additions to its reserves using the
Experience Method. However, under the Small Business Act such recapture
requirements will be suspended for each of the two successive taxable years
beginning January 1, 1996 in which the Association originates a minimum amount
of certain residential loans during such years that is not less than the average
of the principal amounts of such loans made by the Association during its six
taxable years preceding January 1, 1996. Since the Association has already
provided a deferred tax liability equal to the amount of its bad debt recapture
for financial reporting purposes, the enactment of the Small Business Act will
not adversely impact the Association's financial condition or results of
operation.
DISTRIBUTIONS. To the extent that the Association makes "non-dividend
distributions" to shareholders, such distributions will be considered to result
in distributions from the Association's base year reserve to the extent thereof
and then from its supplemental reserve for losses on loans, and an amount based
on the amount distributed will be included in the Association's taxable income.
Non-dividend distributions include distributions in excess of the Association's
current and accumulated earnings and profits, distributions in redemption of
stock and distributions in partial or complete liquidation. However, dividends
paid out of the Association's current or accumulated earnings and profits, as
calculated for federal income tax purposes, will not constitute non-dividend
distributions and, therefore, will not be included in the Association's income.
The amount of additional taxable income created from a non-dividend
distribution is equal to the lesser of the Association's base year reserve and
supplemental reserve for losses on loans; or an amount that, when reduced by the
tax attributable to the income, is equal to the amount of the distribution.
Thus, in certain situations approximately one and one-half times the
non-dividend distribution would be includable in gross income for federal income
tax purposes, assuming a 34% federal corporate income tax rate.
18
<PAGE>
CORPORATE ALTERNATIVE MINIMUM TAX. The Internal Revenue Code of 1986,
as amended (the "Code"), imposes a tax ("AMT") on alternative minimum taxable
income ("AMTI") at a rate of 20%. Only 90% of AMTI can be offset by net
operating loss carryovers of which the Association currently has none. AMTI is
also adjusted by determining the tax treatment of certain items in a manner that
negates the deferral of income resulting from the regular tax treatment of those
items. Thus, the Association's AMTI is increased by an amount equal to 75% of
the amount by which the Association's adjusted current earnings exceeds its AMTI
(determined without regard to this adjustment and prior to reduction for net
operating losses). The Association does not expect to be subject to the AMT.
ELIMINATION OF DIVIDENDS; DIVIDENDS RECEIVED DEDUCTION. The Company may
exclude from its income 100% of dividends received from the Association as a
member of the same affiliated group of corporations. A 70% dividends received
deduction generally applies with respect to dividends received from domestic
corporations that are not members of such affiliated group, except that an 80%
dividends received deduction applies if the Company and the Association own more
than 20% of the stock of a corporation paying a dividend.
STATE AND LOCAL TAXATION
STATE OF ILLINOIS. The Association files a separate Illinois income tax
return. For Illinois income tax purposes, the Association is taxed at an
effective rate equal to 7.3% of Illinois Taxable Income. For these purposes,
"Illinois Taxable Income" generally means federal taxable income, subject to
certain adjustments (including the addition of interest income on state and
municipal obligations and the exclusion of interest income on United States
Treasury obligations). The exclusion of income on United States Treasury
obligations has the effect of reducing the Illinois Taxable Income of the
Association.
As a Delaware holding company, the Company has registered as a foreign
corporation authorized to transact business in Illinois. As such, it will file
an Illinois Foreign Corporation Annual Report and pay an annual franchise
tax to the State of Illinois.
STATE OF DELAWARE. As a Delaware holding company not earning income in
Delaware, the Company is exempted from Delaware corporate income tax but is
required to file an annual report with and has paid an annual franchise tax to
the State of Delaware.
REGULATION
GENERAL
The Association is subject to extensive regulation, examination, and
supervision by the OTS, as its chartering agency, and the FDIC, as its deposit
insurer. The Association's savings deposit accounts are insured up to applicable
limits by the SAIF administered by the FDIC, and the Association is a member of
the FHLB of Chicago. The Association must file reports with the OTS and the FDIC
concerning its activities and financial condition, and it must obtain regulatory
approvals prior to entering into certain transactions, such as mergers with, or
acquisitions of, other depository institutions. The OTS and the FDIC conduct
periodic examinations to assess the Association's compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which a savings association can engage
and is intended primarily for the protection of the insurance fund and
depositors. The Company, as a savings association holding company, is also
required to file certain reports with, and otherwise comply with, the rules and
regulations of the OTS and of the Securities and Exchange Commission (the "SEC")
under the federal securities laws.
The OTS and the FDIC have significant discretion in connection with
their supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on the Company, the Association and the operations of both.
19
<PAGE>
The following discussion is intended to be a summary of the material
statutes and regulations applicable to savings associations and their holding
companies, and it does not purport to be a comprehensive description of all such
statutes and regulations.
REGULATION OF FEDERAL SAVINGS ASSOCIATIONS
BUSINESS ACTIVITIES. The Association derives its lending and investment
powers from the Home Owners' Loan Act, as amended (the "HOLA"), and the
regulations of the OTS thereunder. Under these laws and regulations, the
Association may invest in mortgage loans secured by residential and commercial
real estate, commercial and consumer loans, certain types of debt securities and
certain other assets. The Association may also establish service corporations
that may engage in activities not otherwise permissible for the Association,
including certain real estate equity investments and securities and insurance
brokerage. These investment powers are subject to various limitations, including
(a) a prohibition against the acquisition of any corporate debt security that is
not rated in one of the four highest rating categories; (b) a limit of 400% of
an association's capital on the aggregate amount of loans secured by
non-residential real estate property; (c) a limit of 20% of an association's
assets on the aggregate amount of commercial loans, with the amount of
commercial loans in excess of 10% of assets being limited to small business
loans; (d) a limit of 35% of an association's assets on the aggregate amount of
consumer loans and acquisitions of certain debt securities; (e) a limit of 5% of
assets on non-conforming loans (loans in excess of the specific limitations of
the HOLA); and (f) a limit of the greater of 5% of assets or an association's
capital on certain construction loans made for the purpose of financing what is
or is expected to become residential property.
LOANS TO ONE BORROWER. Under the HOLA, savings associations are
generally subject to the same limits on loans to one borrower as are imposed on
national banks. Generally, under these limits, a savings association may not
make a loan or extend credit to a single or related group of borrowers in excess
of 15% of the association's unimpaired capital and surplus. Additional amounts
may be lent, not in excess of 10% of unimpaired capital and surplus, if such
loans or extensions of credit are fully secured by readily-marketable
collateral. Such collateral is defined to include certain debt and equity
securities and bullion, but generally does not include real estate. At December
31, 1997, the Association's regulatory limit on loans to one borrower was $10.4
million. However, the Association's lending policy limits loans to any one
borrower to an aggregate of $1 million. At December 31, 1997, the Association's
largest aggregate amount of loans to one borrower was $401,000, and the second
largest borrower had an aggregate balance of $385,000. The Association is in
compliance with all applicable limitations on loans to one borrower.
QTL TEST. The HOLA requires a savings association to meet a qualified
thrift lender, or "QTL" test. Under the QTL test, a savings association is
required to maintain at least 65% of its "portfolio assets" in certain
"qualified thrift investments" in at least nine months of the most recent
12-month period. "Portfolio assets" means, in general, an association's total
assets less the sum of (a) specified liquid assets up to 20% of total assets,
(b) goodwill and other intangible assets, and (c) the value of property used to
conduct the association's business. "Qualified thrift investments" includes
various types of loans made for residential and housing purposes, investments
related to such purposes, including certain mortgage-backed and related
securities, and loans for personal, family, household and certain other purposes
up to a limit of 20% of an association's portfolio assets. Recent legislation
broadened the scope of "qualified thrift investments" to include 100% of an
institution's credit card loans, education loans, and small business loans. A
savings association may also satisfy the QTL test by qualifying as a "domestic
building and loan association" as defined in the Internal Revenue Code of 1986.
At December 31, 1997, the Association maintained 99.02% of its portfolio assets
in qualified thrift investments. The Association had also met the QTL test in
each of the prior 12 months and was, therefore, a qualified thrift lender.
A savings association that fails the QTL test must either operate under
certain restrictions on its activities or convert to a bank charter. The initial
restrictions include prohibitions against (a) engaging in any new activity not
permissible for a national bank, (b) paying dividends not permissible under
national bank regulations, (c) obtaining new advances from any Federal Home Loan
Bank and (d) establishing any new branch office in a location not permissible
for a national bank in the association's home state. In addition, within one
year of the date that a savings association ceases to meet the QTL test, any
company controlling the association would have to register under, and become
subject to the requirements of, the Bank Holding Company Act of 1956, as amended
(the "BHC Act"). If the savings association does not requalify under the QTL
test within the three-year period after it failed the QTL test, it
20
<PAGE>
would be required to terminate any activity and to dispose of any investment not
permissible for a national bank and would have to repay as promptly as possible
any outstanding advances from a Federal Home Loan Bank. A savings association
that has failed the QTL test may requalify under the QTL test and be free of
such limitations, but it may do so only once.
CAPITAL REQUIREMENTS. The OTS regulations require savings associations
to meet three minimum capital standards: a tangible capital ratio requirement of
1.5% of total assets as adjusted under the OTS regulations, a leverage ratio
requirement of 3% of core capital to such adjusted total assets and a risk-based
capital ratio requirement of 8% of core and supplementary capital to total
risk-weighted assets. The OTS and the federal banking regulators have proposed
amendments to their minimum capital regulations to provide that the minimum
leverage capital ratio for a depository institution that has been assigned the
highest composite rating of 1 under the Uniform Financial Institutions Ratings
System will be 3% and that the minimum leverage capital ratio for any other
depository institution will be 4%, unless a higher leverage capital ratio is
warranted by the particular circumstances or risk profile of the depository
institution. In determining compliance with the risk-based capital requirement,
a savings association must compute its risk-weighted assets by multiplying its
assets and certain off-balance sheet items by risk-weights, which range from 0%
for cash and obligations issued by the United States Government or its agencies
to 100% for consumer and commercial loans, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
Tangible capital is defined, generally, as common stockholders' equity
(including retained earnings), certain non-cumulative perpetual preferred stock
and related earnings and minority interests in equity accounts of fully
consolidated subsidiaries, less intangibles (other than certain mortgage
servicing rights) and investments in and loans to subsidiaries engaged in
activities not permissible for a national bank. Core capital is defined
similarly to tangible capital, but core capital also includes certain qualifying
supervisory goodwill and certain purchased credit card relationships.
Supplementary capital currently includes cumulative and other perpetual
preferred stock, mandatory convertible securities, subordinated debt and
intermediate preferred stock and the allowance for loan and lease losses. The
allowance for loan and lease losses includable in supplementary capital is
limited to a maximum of 1.25% of risk- weighted assets, and the amount of
supplementary capital that may be included as total capital cannot exceed the
amount of core capital.
The OTS has promulgated a regulation that requires a savings
association with "above normal" interest rate risk, when determining compliance
with its risk-based capital requirement, to hold additional capital to account
for its "above normal" interest rate risk. Pending the resolution of related
regulatory issues, the OTS has deferred enforcement of this regulation. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) resulting from a hypothetical 2% increase or decrease in market rates
of interest, divided by the estimated economic value of the association's
assets, as calculated in accordance with guidelines set forth by the OTS. At the
times when the 3-month Treasury bond equivalent yield falls below 4%, an
association may compute its interest rate risk on the basis of a decrease equal
to one-half of that Treasury rate rather than on the basis of 2%. A savings
association whose measured interest rate risk exposure exceeds 2% would be
considered to have "above normal" risk. The interest rate risk component is an
amount equal to one-half of the difference between the association's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's total
capital in calculating compliance with its risk-based capital requirement. Any
required deduction for interest rate risk becomes effective on the last day of
the third quarter following the reporting date of the association's financial
data on which the interest rate risk was computed. The regulations authorize the
Director of the OTS to waive or defer an association's interest rate risk
component on a case-by-case basis. The OTS has indefinitely deferred the
implementation of the interest rate risk component in the computation of an
institution's risk-based capital requirements. The OTS continues to monitor the
interest rate risk of individual institutions and retains the right to impose
additional capital requirements on individual institutions. At December 31,
1997, the Association was not required to maintain any additional risk-based
capital under this rule.
At December 31, 1997, the Association met each of its capital
requirements.
21
<PAGE>
The table below presents the Association's regulatory capital as
compared to the OTS regulatory capital requirements at December 31, 1997.
<TABLE>
<CAPTION>
ASSOCIATION CAPITAL REQUIREMENTS EXCESS
--------------------- ------------------------ ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital.............. $ 69,208 20.88% $ 4,973 1.50% $ 64,235 19.38%
Core capital.................. 69,208 20.88 9,946 3.00 59,262 17.88
Risk-based capital............ 70,272 37.23 15,100 8.00 55,172 29.23
</TABLE>
A reconciliation between the Association's regulatory capital and GAAP
capital at December 31, 1997 is presented below.
<TABLE>
<CAPTION>
TANGIBLE CAPITAL CORE CAPITAL RISK-BASED CAPITAL
---------------- ------------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
GAAP capital..................................... $ 69,208 $ 69,208 $ 69,208
Allowance for loan losses includable
in supplementary capital....................... -- -- 1,064
Regulatory capital............................... 69,208 69,208 70,272
</TABLE>
LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations currently impose
limitations upon capital distributions by a savings association, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
stockholders of another institution in a cash-out merger and other distributions
charged against capital. At least 30-days written notice must be given to the
OTS of a proposed capital distribution by a savings association, and capital
distributions in excess of specified earnings or by certain institutions are
subject to approval by the OTS. An association that has capital in excess of all
fully phased-in regulatory capital requirements before and after a proposed
capital distribution and that is not otherwise restricted in making capital
distributions, may, after prior notice but without the approval of the OTS, make
capital distributions during a calendar year equal to the greater of (a) 100% of
its net earnings to date during the calendar year plus the amount that would
reduce by one-half its "surplus capital ratio" (the excess capital over its
fully phased-in capital requirements) at the beginning of the calendar year, or
(b) 75% of its net earnings for the previous four quarters. Any additional
capital distributions would require prior OTS approval. In addition, the OTS can
prohibit a proposed capital distribution, otherwise permissible under the
regulation, if the OTS has determined that the association is in need of more
than normal supervision or if it determines that a proposed distribution by an
association would constitute an unsafe or unsound practice. Furthermore, under
the OTS prompt corrective action regulations, the Association would be
prohibited from making any capital distribution if, after the distribution, the
Association failed to meet its minimum capital requirements, as described above.
See "-- Prompt Corrective Regulatory Action." The OTS has proposed amendments of
its capital distribution regulations to reduce regulatory burdens on savings
associations. If adopted as proposed, certain savings associations will be
permitted to pay capital distributions within the amounts described above for
Tier 1 institutions without notice to, or the approval of, the OTS. However, a
savings association subsidiary of a savings and loan holding company, such as
the Association, will continue to have to file a notice unless the specific
capital distribution requires an application.
LIQUIDITY. The Association is required to maintain an average daily
balance of liquid assets (cash, certain time deposits, certain bankers'
acceptances, specified United States Government, state and federal agency
obligations, shares of certain mutual funds and certain corporate debt
securities and commercial paper) equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement may be changed from time to time by the
OTS to any amount within the range of 4% to 10% depending upon economic
conditions and the savings flows of member institutions, and is currently 4%.
Monetary penalties may be imposed for failure to meet the liquidity requirement.
The Association's average liquidity ratio for the month ended December 31, 1997
was 7.97% which exceeded the applicable requirements. The Association has never
been subject to monetary penalties for failure to meet its liquidity
requirements.
22
<PAGE>
ASSESSMENTS. Savings associations are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a semi-annual basis, is computed upon the savings
association's total assets, including consolidated subsidiaries, as reported in
the association's latest quarterly Thrift Financial Report. During January 1997,
the Association paid an assessment of $85,000.
BRANCHING. Subject to certain limitations, the HOLA and the OTS
regulations permit federally chartered savings associations to establish
branches in any state of the United States. The authority to establish such
branches is available (a) in states that expressly authorize branches of savings
associations located in another state or (b) to an association that qualifies as
a "domestic building and loan association" under the Internal Revenue Code of
1986, which imposes qualification requirements similar to those for a "qualified
thrift lender" under the HOLA. See "-- QTL Test." The authority for a federal
savings association to establish an interstate branch network would facilitate a
geographic diversification of the association's activities. This authority under
the HOLA and the OTS regulations preempts any state law purporting to regulate
branching by federal savings associations.
COMMUNITY REINVESTMENT. Under the Community Reinvestment Act (the
"CRA"), as implemented by OTS regulations, a savings association has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a savings
association, to assess the association's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications by such association. The CRA also requires all institutions to make
public disclosure of their CRA ratings. The Association received a
"Satisfactory" CRA rating in its most recent examination.
In April 1995, the OTS and the other federal banking agencies adopted
amendments revising their CRA regulations. Among other things, the amended CRA
regulations substitute for the prior process-based assessment factors a new
evaluation system that would rate an institution based on its actual performance
in meeting community needs. In particular, the proposed system would focus on
three tests: (a) a lending test, to evaluate the institution's record of making
loans in its assessment areas; (b) an investment test, to evaluate the
institution's record of investing in community development projects, affordable
housing, and programs benefitting low or moderate income individuals and
businesses; and (c) a service test, to evaluate the institution's delivery of
services through its branches, ATMs and other offices. The amended CRA
regulations also clarify how an institution's CRA performance would be
considered in the application process.
TRANSACTIONS WITH RELATED PARTIES. The Association's authority to
engage in transactions with its "affiliates" is limited by the OTS regulations
and by Sections 23A and 23B of the Federal Reserve Act (the "FRA"). In general,
an affiliate of the Association is any company that controls the Association or
any other company that is controlled by a company that controls the Association,
excluding the Association's subsidiaries other than those that are insured
depository institutions. The OTS regulations prohibit a savings association (a)
from lending to any of its affiliates that is engaged in activities that are not
permissible for bank holding companies under Section 4(c) of the BHC Act and (b)
from purchasing the securities of any affiliate other than a subsidiary. Section
23A limits the aggregate amount of transactions with any individual affiliate to
10% of the capital and surplus of the savings association and also limits the
aggregate amount of transactions with all affiliates to 20% of the savings
association's capital and surplus. Extensions of credit to affiliates are
required to be secured by collateral in an amount and of a type described in
Section 23A, and the purchase of low quality assets from affiliates is generally
prohibited. Section 23B provides that certain transactions with affiliates,
including loans and asset purchases, must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to the association as those prevailing at the time for comparable
transactions with non-affiliated companies. In the absence of comparable
transactions, such transactions may only occur under terms and circumstances,
including credit standards, that in good faith would be offered to or would
apply to non-affiliated companies.
23
<PAGE>
The Association's authority to extend credit to its directors,
executive officers, and 10% shareholders, as well as to entities controlled by
such persons, is currently governed by the requirements of Sections 22(g) and
22(h) of the FRA and Regulation O of the FRB thereunder. Among other things,
these provisions require that extensions of credit to insiders (a) be made on
terms that are substantially the same as, and follow credit underwriting
procedures that are not less stringent than, those prevailing for comparable
transactions with unaffiliated persons and that do not involve more than the
normal risk of repayment or present other unfavorable features and (b) not
exceed certain limitations on the amount of credit extended to such persons,
individually and in the aggregate, which limits are based, in part, on the
amount of the association's capital. In addition, extensions of credit in excess
of certain limits must be approved by the association's board of directors.
ENFORCEMENT. Under the Federal Deposit Insurance Act (the "FDI Act"),
the OTS has primary enforcement responsibility over savings associations and has
the authority to bring enforcement action against all "institution- affiliated
parties," including any controlling stockholder or any stockholder, attorney,
appraiser or accountant who knowingly or recklessly participates in any
violation of applicable law or regulation or breach of fiduciary duty or certain
other wrongful actions that causes or is likely to cause a more than a minimal
loss or other significant adverse effect on an insured savings association.
Civil penalties cover a wide range of violations and actions and range from
$5,000 for each day during which violations of law, regulations, orders, and
certain written agreements and conditions continue, up to $1 million per day for
such violations if the person obtained a substantial pecuniary gain as a result
of such violation or knowingly or recklessly caused a substantial loss to the
institution. Criminal penalties for certain financial institution crimes include
fines of up to $1 million and imprisonment for up to 30 years. In addition,
regulators have substantial discretion to take enforcement action against an
institution that fails to comply with its regulatory requirements, particularly
with respect to its capital requirements. Possible enforcement actions range
from the imposition of a capital plan and capital directive to receivership,
conservatorship, or the termination of deposit insurance. Under the FDI Act, the
FDIC has the authority to recommend to the Director of OTS that enforcement
action be taken with respect to a particular savings association. If action is
not taken by the Director of the OTS, the FDIC has authority to take such action
under certain circumstances.
STANDARDS FOR SAFETY AND SOUNDNESS. Pursuant to the FDI Act, as amended
by FDICIA and the Riegle Community Development and Regulatory Improvement Act of
1994 (the "Community Development Act"), the OTS and the federal bank regulatory
agencies have adopted, effective August 9, 1995, a set of guidelines prescribing
safety and soundness standards pursuant to FDICIA, as amended. The guidelines
establish general standards relating to internal controls and information
systems, internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, asset quality, earnings, and compensation,
fees and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risks and exposures
specified in the guidelines. The guidelines prohibit excessive compensation as
an unsafe and unsound practice and describe compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director, or principal stockholder. In addition,
the OTS adopted regulations that authorize, but do not require, the OTS to order
an institution that has been given notice by the OTS that it is not satisfying
any of such safety and soundness standards to submit a compliance plan. If,
after being so notified, an institution fails to submit an acceptable compliance
plan or fails in any material respect to implement an accepted compliance plan,
the OTS must issue an order directing action to correct the deficiency and may
issue an order directing other actions of the types to which an undercapitalized
association is subject under the "prompt corrective action" provisions of
FDICIA. If an institution fails to comply with such an order, the OTS may seek
to enforce such order in judicial proceedings and to impose civil money
penalties. The OTS and the federal bank regulatory agencies also proposed
guidelines for asset quality and earnings standards.
REAL ESTATE LENDING STANDARDS. The OTS and the other federal banking
agencies adopted regulations to prescribe standards for extensions of credit
that (a) are secured by real estate or (b) are made for the purpose of financing
the construction of improvements on real estate. The OTS regulations require
each savings association to establish and maintain written internal real estate
lending standards that are consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its real
estate lending activities. The standards also must be consistent with
accompanying OTS guidelines, which include loan-to-value ratios for the
different types of real estate loans. Associations are also permitted to make a
limited amount of loans that do not
24
<PAGE>
conform to the proposed loan-to-value limitations so long as such exceptions are
reviewed and justified appropriately. The guidelines also list a number of
lending situations in which exceptions to the loan-to-value standards are
justified.
PROMPT CORRECTIVE REGULATORY ACTION. Under the OTS prompt corrective
action regulations, the OTS is required to take certain, and is authorized to
take other, supervisory actions against undercapitalized savings associations.
For this purpose, a savings association would be placed in one of five
categories based on the association's capital. Generally, a savings association
is treated as "well capitalized" if its ratio of total capital to risk- weighted
assets is at least 10.0%, its ratio of core capital to risk-weighted assets is
at least 6.0%, its ratio of core capital to total assets is at least 5.0%, and
it is not subject to any order or directive by the OTS to meet a specific
capital level. A savings association will be treated as "adequately capitalized"
if its ratio of total capital to risk-weighted assets is at least 8.0%, its
ratio of core capital to risk-weighted assets is at least 4.0%, and its ratio of
core capital to total assets is at least 4.0% (3.0% if the association receives
the highest rating under the Uniform Financial Institutions Rating System). A
savings association that has a total risk-based capital of less than 8.0% or a
leverage ratio or a Tier 1 capital ratio that is less than 4.0% (3.0% leverage
ratio if the association receives the highest rating under the Uniform Financial
Institutions Rating System) is considered to be "undercapitalized." A savings
association that has a total risk-based capital of less than 6.0% or a Tier 1
risk-based capital ratio or a leverage ratio of less than 3.0% is considered to
be "significantly undercapitalized." A savings association that has a tangible
capital to assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." The elements of an association's capital for purposes of the
prompt corrective action regulations are defined generally as they are under the
regulations for minimum capital requirements. See "-- Capital Requirements."
The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as an association's capital
deteriorates within the three undercapitalized categories. All associations are
prohibited from paying dividends or other capital distributions or paying
management fees to any controlling person if, following such distribution, the
association would be undercapitalized. An undercapitalized association is
required to file a capital restoration plan within 45 days of the date the
association receives notice that it is within any of the three undercapitalized
categories. The OTS is required to monitor closely the condition of an
undercapitalized association and to restrict the asset growth, acquisitions,
branching, and new lines of business of such an association. Significantly
undercapitalized associations are subject to restrictions on compensation of
senior executive officers; such an association may not, without OTS consent, pay
any bonus or provide compensation to any senior executive officer at a rate
exceeding the officer's average rate of compensation (excluding bonuses, stock
options and profit-sharing) during the 12 months preceding the month when the
association became undercapitalized. A significantly undercapitalized
association may also be subject, among other things, to forced changes in the
composition of its board of directors or senior management, additional
restrictions on transactions with affiliates, restrictions on acceptance of
deposits from correspondent associations, further restrictions on asset growth,
restrictions on rates paid on deposits, forced termination or reduction of
activities deemed risky, and any further operational restrictions deemed
necessary by the OTS.
If one or more grounds exist for appointing a conservator or receiver
for an association, the OTS may require the association to issue additional debt
or stock, sell assets, be acquired by a depository association holding company
or combine with another depository association. The OTS and the FDIC have a
broad range of grounds under which they may appoint a receiver or conservator
for an insured depository association. Under FDICIA, the OTS is required to
appoint a receiver (or with the concurrence of the FDIC, a conservator) for a
critically undercapitalized association within 90 days after the association
becomes critically undercapitalized or, with the concurrence of the FDIC, to
take such other action that would better achieve the purposes of the prompt
corrective action provisions. Such alternative action can be renewed for
successive 90-day periods. However, if the association continues to be
critically undercapitalized on average during the quarter that begins 270 days
after it first became critically undercapitalized, a receiver must be appointed,
unless the OTS makes certain findings with which the FDIC concurs and the
Director of the OTS and the Chairman of the FDIC certify that the association is
viable. In addition, an association that is critically undercapitalized is
subject to more severe restrictions on its activities, and is prohibited,
without prior approval of the FDIC from, among other things, entering into
certain material transactions or paying interest on new or renewed liabilities
at a rate that would significantly increase the association's weighted average
cost of funds.
25
<PAGE>
When appropriate, the OTS can require corrective action by a savings
association holding company under the "prompt corrective action" provisions of
FDICIA.
INSURANCE OF DEPOSIT ACCOUNTS. The Association is a member of the SAIF,
and the Association pays its deposit insurance assessments to the SAIF. The FDIC
also maintains another insurance fund, the Bank Insurance Fund (the "BIF"),
which primarily insures the deposits of banks and state chartered savings banks.
Pursuant to FDICIA, the FDIC established a new risk-based assessment
system for determining the deposit insurance assessments to be paid by insured
depository institutions. Under the assessment system, the FDIC assigns an
institution to one of three capital categories based on the institution's
financial information as of the reporting period ending seven months before the
assessment period. The three capital categories consist of (a) well capitalized,
(b) adequately capitalized, or (c) undercapitalized. The FDIC also assigns an
institution to one of three supervisory subcategories within each capital group.
The supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's primary federal
regulator and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. Under the regulation, there are
nine assessment risk classifications (I.E., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied.
Assessment rates currently range from 0.0% of deposits for an institution in the
highest category (I.E., well-capitalized and financially sound, with no more
than a few minor weaknesses) to 0.27% of deposits for an institution in the
lowest category (I.E., undercapitalized and substantial supervisory concern).
The FDIC is authorized to raise the assessment rates as necessary to maintain
the required reserve ratio of 1.25%. As a result of the Deposit Insurance Funds
Act of 1996 (the "Funds Act"), both the BIF and the SAIF currently satisfy the
reserve ratio requirement. If the FDIC determines that assessment rates should
be increased, institutions in all risk categories could be affected. The FDIC
has exercised this authority several times in the past and could raise insurance
assessment rates in the future. If such action is taken by the FDIC, it could
have an adverse effect on the earnings of the Bank.
The Funds Act also amended the FDIA to expand the assessment base for
the payments on the FICO bonds. Beginning January 1, 1997, the assessment base
for the FICO bonds included the deposits of both BIF- and SAIF- insured
institutions. Until December 31, 1999, or such earlier date on which the last
savings association ceases to exist, the rate of assessment for BIF-assessable
deposits shall be one-fifth of the rate imposed on SAIF-assessable deposits. The
annual rate of assessments for the payments on the FICO bonds for the
semi-annual period beginning on January 1, 1997 was 0.0130% for BIF-assessable
deposits and 0.0648% for SAIF-assessable deposits. For the semi-annual period
beginning on July 1, 1997, the rates of assessment for the FICO bonds was
0.0126% for BIF- assessable deposits and 0.0630% for SAIF-assessable deposits.
The Funds Act also provides for the merger of the BIF and SAIF on
January 1, 1999, with such merger being conditioned upon the prior elimination
of the thrift charter. The Funds Act required the Secretary of the Treasury to
conduct a study of relevant factors with respect to the development of a common
charter for all insured depository institutions and abolition of separate
charters for banks and thrifts and to report the Secretary's conclusions and
findings to the Congress. The Secretary of the Treasury recommended to the
Congress that the separate charter for thrifts be eliminated only if other
legislation is adopted that permits bank holding companies to engage in certain
non-financial activities. Absent legislation permitting bank holding companies
to engage in such non-financial activities, the Secretary of the Treasury
recommended that the thrift charter be retained. Other legislation has been
introduced in Congress to eliminate the federal thrift charter, but the future
of such legislation is uncertain.
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Association does not know of any practice, condition
or violation that might lead to termination of deposit insurance.
26
<PAGE>
FEDERAL HOME LOAN BANK SYSTEM. The Association is a member of the FHLB
of Chicago, which is one of the regional Federal Home Loan Banks composing the
Federal Home Loan Bank System. Each Federal Home Loan Bank provides a central
credit facility primarily for its member institutions. The Association, as a
member of the FHLB of Chicago, is required to acquire and hold shares of capital
stock in the FHLB of Chicago in an amount at least equal to the greater of 1% of
the aggregate principal amount of its unpaid residential mortgage loans and
similar obligations at the beginning of each year or 1/20 of its advances
(borrowings) from the FHLB of Chicago. The Association was in compliance with
this requirement with an investment in the capital stock of the FHLB of Chicago
at December 31, 1997, of $2.6 million. Any advances from a Federal Home Loan
Bank must be secured by specified types of collateral, and all long-term
advances may be obtained only for the purpose of providing funds for residential
housing finance.
The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts and to contribute funds for affordable housing
programs. These requirements could reduce the amount of earnings that the
Federal Home Loan Banks can pay as dividends to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. The FHLB of Chicago paid dividends on the capital
stock of $179,000, $187,000 and $202,000 during the years ended December 31,
1997, 1996 and 1995, respectively. If dividends were reduced, or interest on
future Federal Home Loan Bank advances increased, the Association's net interest
income would likely also be reduced.
FEDERAL RESERVE SYSTEM. The Association is subject to provisions of the
FRA and the FRB's regulations pursuant to which depository institutions may be
required to maintain noninterest-earning reserves against their deposit accounts
and certain other liabilities. Currently, reserves must be maintained against
transaction accounts (primarily NOW and regular checking accounts). The FRB
regulations generally require that reserves be maintained in the amount of 3% of
the aggregate of transaction accounts up to $47.8 million. The amount of
aggregate transaction accounts in excess of $47.8 million are currently subject
to a reserve ratio of 10%, which ratio the FRB may adjust between 8% and 12%.
The FRB regulations currently exempt $4.7 million of otherwise reservable
balances from the reserve requirements, which exemption is adjusted by the FRB
at the end of each year. The Association is in compliance with the foregoing
reserve requirements. Because required reserves must be maintained in the form
of either vault cash, a noninterest-bearing account at a Federal Reserve Bank,
or a pass-through account as defined by the FRB, the effect of this reserve
requirement is to reduce the Association's interest-earning assets. The balances
maintained to meet the reserve requirements imposed by the FRB may be used to
satisfy liquidity requirements imposed by the OTS. Federal Home Loan Bank System
members are also authorized to borrow from the Federal Reserve "discount
window," but FRB regulations require such institutions to exhaust all Federal
Home Loan Bank sources before borrowing from a Federal Reserve Bank.
REGULATION OF SAVINGS ASSOCIATION HOLDING COMPANIES
The Company is a non-diversified unitary savings association holding
company within the meaning of the HOLA, as amended. As such, the Company has
registered with the OTS and is subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over the Company and any of its non-savings association subsidiaries.
Among other things, this authority permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the financial safety,
soundness, or stability of a subsidiary savings association.
As a unitary savings association holding company, the Company generally
will not be restricted under existing laws as to the types of business
activities in which it may engage, provided that the Association continues to
satisfy the QTL test. See "-- Regulation of Federal Savings Associations -- QTL
Test" for a discussion of the QTL requirements. Upon any non-supervisory
acquisitions by the Company of another savings association or savings bank that
meets the QTL test and is deemed to be a savings association by the OTS and that
will be held as a separate subsidiary, the Company would become a multiple
savings association holding company and would be subject to limitations on the
types of business activities in which it could engage. The HOLA limits the
activities of a multiple savings association holding company and its non-insured
association subsidiaries primarily to activities permissible for bank holding
companies under Section 4(c)(8) of the BHC Act, subject to the prior approval of
the OTS, and to other activities authorized by OTS regulation.
27
<PAGE>
Transactions between the Association and the Company and its other
subsidiaries are subject to various conditions and limitations. See "--
Regulation of Federal Savings Associations -- Transactions with Related
Parties." The Association is required to give 30-days written notice to the OTS
prior to any declaration of the payment of any dividends or other capital
distributions to the Company. See "-- Regulation of Federal Savings Associations
- -- Limitation on Capital Distributions."
FEDERAL SECURITIES LAWS
The Company's Common Stock is registered with the SEC under Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Accordingly, the Company is subject to the information, proxy solicitation,
insider trading restrictions and other requirements of the Exchange Act.
ITEM 2. PROPERTIES
The Association conducts its business through its main office and four
branch offices set forth in the table below. The Company conducts it business
through the Association's main office located at 16 North Spring Street, Elgin,
Illinois. The Association believes that its current facilities are adequate to
meet the present and immediately foreseeable needs of the Association and the
Company.
<TABLE>
<CAPTION>
LEASED OR DATE NET BOOK VALUE AT
OWNED ACQUIRED DECEMBER 31, 1997
----- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
MAIN OFFICE:
16 North Spring St.
Elgin, IL ............................................. Owned 1923 $2,285
BRANCHES:
180 Virginia St.
Crystal Lake, IL....................................... Owned 4/74 747
56 East Irving Park Road
Roselle, IL............................................ Owned 7/75 306
300 North McLean Blvd.
South Elgin, IL........................................ Owned 11/96 1,462
200 Bartlett Ave.
Bartlett, IL........................................... Owned 9/79 861
CHECK PROCESSING:
Mail and Record Retention
Facility (No Customer Service) Annex
Fulton St., Elgin, IL.................................. Owned 2/86 372
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings in the aggregate are believed by management to be
immaterial to the Company's financial condition and results of operations.
28
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated herein by
reference to page 24 of the Company's 1997 Annual Report to Stockholders under
the caption "Market for the Company's Common Stock and Related Stockholder
Matters," which section is included in Exhibit 13.1 to this Report.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by
reference to pages 4 and 5 of the Company's 1997 Annual Report to Stockholders
under the caption "Selected Financial and Other Data of the Company," which
section is included in Exhibit 13.1 to this Report.
The Board of Directors of the Company declared three quarterly
dividends on the Company's Common Stock in the amount of $0.10 per share each,
which totaled $0.30 per share for the fiscal year ended December 31, 1997,
resulting in a dividend payout ratio of 67%. The dividend payout ratio is
calculated by dividing the dividends declared per share by the basic earnings
per share. No dividends were paid on the Company's Common Stock prior to 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this Item is incorporated herein by
reference to pages 6 through 22 of the Company's 1997 Annual Report to
Stockholders under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which section is included in
Exhibit 13.1 to this Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is incorporated herein by
reference to page 23 of the Company's 1997 Annual Report to Stockholders under
the caption "Quantitative and Qualitative Disclosures About Market Risk," which
section is included in Exhibit 13.1 to this Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by
reference to pages 25 through 49 of the Company's 1997 Annual Report to
Stockholders under the captions "Independent Auditors' Report," "Consolidated
Financial Statements" and "Notes to Consolidated Financial Statements," which
sections are included in Exhibit 13.1 to this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information included on pages 5 through 8, and page 18 of
the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders (the
"Proxy Statement") is incorporated herein by reference: "Election of Directors,"
"Information as to Nominees and Continuing Directors," "Nominees for Election as
Director," "Executive Officers," and "-- Section 16(a) -- Beneficial Ownership
Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The following information included on pages 12 through 17 of the Proxy
Statement is incorporated herein by reference: "Compensation of Directors and
Executive Officers--Directors' Compensation," "--Executive Compensation,"
"--Employment Agreements," "--Employee Retention Agreements" and "--Benefits."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information included on pages 3 and 4 of the Proxy
Statement is incorporated herein by reference: "Security Ownership of Certain
Beneficial Owners and Management--Principal Stockholders of the Company" and
"-- Security Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information included on page 18 of the Proxy Statement is
incorporated herein by reference: "Compensation of Directors and Executive
Officers--Transactions with Certain Related Persons."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) Listed below are all financial statements and exhibits
filed as part of this report:
(1) The consolidated balance sheets of Home Bancorp of Elgin,
Inc. and subsidiary as of December 31, 1997 and 1996 and
the related consolidated statements of operations, changes
in stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1997,
together with the related notes and the independent
auditors' report of KPMG Peat Marwick LLP, independent
certified public accountants.
(2) Schedules omitted as they are not applicable.
(3) Exhibits
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Certificate of Incorporation of Home Bancorp of Elgin, Inc.*
3.2 Bylaws of Home Bancorp of Elgin, Inc.*
4.3 Specimen of Stock Certificate of Home Bancorp of Elgin, Inc.*
10.1 Home Bancorp of Elgin, Inc. Employee Stock Ownership Plan and
Trust Agreement adopted effective as of January 1, 1996.*
10.2 Loan Agreement by and between the Home Bancorp of Elgin, Inc.
Employee Stock Ownership
30
<PAGE>
Plan Trust and Home Bancorp of Elgin, Inc. made and entered
into as of September 26, 1996.**
10.3 Employment Agreement between Home Bancorp of Elgin, Inc. and
George L. Purucco made and entered into as of September 26,
1996.
10.4 Employment Agreement between Home Bancorp of Elgin, Inc. and
Lyle N. Dolan made and entered into as of September 26, 1996.
10.5 Employment Agreement between Home Bancorp of Elgin, Inc. and
Kenneth L. Moran made and entered into as of September 26,
1996.
10.6 Employment Agreement between Home Federal Savings and Loan
Association of Elgin and George L. Perucco made and entered
into as of September 26, 1996.
10.7 Employment Agreement between Home Federal Savings and Loan
Association of Elgin and Lyle N. Dolan made and entered into as
of September 26, 1996.
10.8 Employment Agreement between Home Federal Savings and Loan
Association of Elgin and Kenneth L. Moran made and entered into
as of September 26, 1996.
10.9 Employee Retention Agreement between Home Federal Savings and
Loan Association of Elgin, Home Bancorp of Elgin, Inc. and
David G. Towe made and entered into as of September 26, 1996.
10.10 Employee Retention Agreement between Home Federal Savings and
Loan Association of Elgin, Home Bancorp of Elgin, Inc. and
Raymond G. Bandemer made and entered into as of September 26,
1996.
10.11 Employee Retention Agreement between Home Federal Savings and
Loan Association of Elgin, Home Bancorp of Elgin, Inc. and
Katheen A. Schroeder made and entered into as of September 26,
1996.
10.12 Employee Retention Agreement between Home Federal Savings and
Loan Association of Elgin, Home Bancorp of Elgin, Inc and Pat
A. Lenart made and entered into as of September 26, 1996.
10.13 Form of Severance Pay Plan of Home Federal Savings and Loan
Association of Elgin.*
13.1 Portions of the Home Bancorp of Elgin, Inc. 1997 Annual Report
to Stockholders.
21.1 Subsidiaries of the Registrant.*
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule (Submitted only with filing in
electronic format).
99.1 Proxy Statement for the 1998 Annual Meeting of Stockholders of
Home Bancorp of Elgin, Inc. (previously filed with the
Securities and Exchange Commission on March 12, 1998).
* Incorporated herein by reference to Registration Statement No. 333-05909
on Form S-1 of Home Bancorp of Elgin, Inc. filed with the Securities and
Exchange Commission on June 13, 1996, as amended.
** Incorporated herein by reference to the Form 10-K for the year ended
December 31, 1996 filed with the Securities and Exchange Commission on
March 28, 1997.
(b) The Company filed no reports on Form 8-K during the fourth quarter of 1997.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant certifies that it has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Elgin, State of Illinois, on March 19, 1998.
Home Bancorp of Elgin, Inc.
By: /s/ George L. Perucco
-------------------------------------
George L. Perucco
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the capacities
and on the dates indicated.
NAME TITLE DATE
/s/ George L. Perucco Director, President and Chief March 19, 1998
- ----------------------- Executive Officer (Principal
George L. Perucco executive officer)
/s/ Lyle N. Dolan Executive Vice President and March 19, 1998
- ----------------------- Treasurer (Principal financial
Lyle N. Dolan and accounting officer)
/s/ Orval M. Graening Director March 19, 1998
- -----------------------
Orval M. Graening
/s/ Henry R. Hines Director March 19, 1998
- -----------------------
Henry R. Hines
/s/ Donald E. Laird Director March 19, 1998
- -----------------------
Donald E. Laird
/s/ Leigh C. O'connor Director March 19, 1998
- -----------------------
Leigh C. O'Connor
/s/ Thomas S. Rakow Director March 19, 1998
- -----------------------
Thomas S. Rakow
/s/ Richard S. Scheflow Director March 19, 1998
- -----------------------
Richard S. Scheflow
32
HOME BANCORP OF ELGIN, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of September 26, 1996 by and between HOME BANCORP OF ELGIN, INC., a
publicly held business corporation organized and operating under the laws of the
State of Delaware and having an office at 16 North Spring Street, Elgin,
Illinois 60120-5569 ("Holding Company") and GEORGE L. PERUCCO, an individual
residing at 765 Ruth Drive, Elgin, Illinois 60123 ("Executive").
W I T N E S S E T H :
---------------------
WHEREAS, Executive currently serves the Holding Company in the
capacity of President and Chief Executive Officer; and
WHEREAS, effective as of the date of this Agreement, Home
Federal Savings and Loan Association of Elgin ("Association") has converted from
a federal mutual savings and loan association to a federal stock savings and
loan association and has become the wholly-owned subsidiary of the Holding
Company; and
WHEREAS, the Holding Company desires to assure for itself the
continued availability of the Executive's services and the ability of the
Executive to perform such services with a minimum of personal distraction in the
event of a pending or threatened Change of Control (as hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the
Holding Company on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Holding Company and
the Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Holding Company agrees to continue to employ the
Executive, and the Executive hereby agrees to such continued employment, during
the period and upon the terms and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED
EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term of
three (3) years beginning on the date of this Agreement and ending on the third
(3rd) anniversary date of this Agreement (each, an
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<PAGE>
"Anniversary Date"), plus such extensions, if any, as are provided by the Board
of Directors of the Holding Company ("Board") pursuant to section 2(b).
(b) Except as provided in section 2(c), beginning on the date
of this Agreement, the Employment Period shall automatically be extended for one
(1) additional day each day, unless either the Holding Company or the Executive
elects not to extend the Agreement further by giving written notice to the other
party, in which case the Employment Period shall end on the third (3rd)
anniversary of the date on which such written notice is given. For all purposes
of this Agreement, the term "Remaining Unexpired Employment Period" as of any
date shall mean the period beginning on such date and ending on: (i) if a notice
of non-extension has been given in accordance with this section 2(b), the third
(3rd) anniversary of the date on which such notice is given; and (ii) in all
other cases, the third (3rd) anniversary of the date as of which the Remaining
Unexpired Employment Period is being determined. Upon termination of the
Executive's employment with the Holding Company for any reason whatsoever, any
daily extensions provided pursuant to this section 2(b), if not therefore
discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Holding Company at any time from terminating the Executive's employment during
the Employment Period with or without notice for any reason; PROVIDED, HOWEVER,
that the relative rights and obligations of the Holding Company and the
Executive in the event of any such termination shall be determined under this
Agreement.
SECTION 3. DUTIES.
The Executive shall serve as President and Chief Executive
Officer of the Holding Company, having such power, authority and responsibility
and performing such duties as are prescribed by or under the By-Laws of the
Holding Company and as are customarily associated with such position. The
Executive shall devote his full business time and attention (other than during
holidays, approved vacation periods, and periods of illness or approved leaves
of absence) to the business and affairs of the Holding Company and shall use his
best efforts to advance the interests of the Holding Company.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by Executive
hereunder, the Holding Company shall pay to him a salary at an initial annual
rate of TWO HUNDRED AND FOURTEEN THOUSAND, SIX HUNDRED AND FIFTY-FIVE DOLLARS
($214,655), payable in approximately equal installments in accordance with the
Company's customary payroll practices for senior officers. The Board shall
review the Executive's annual rate of salary at such times during the Employment
Period as it deems appropriate, but not less frequently than once every twelve
months, and may, in its discretion, approve an increase therein. In addition to
salary, the Executive may receive other cash compensation from the Holding
Company for services hereunder at such times, in such amounts, and on such terms
and conditions, as the Board may determine from time to time.
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<PAGE>
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated
as an employee of the Holding Company and shall be entitled to participate in
and receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long-term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Holding Company, in accordance with the terms and conditions of such
employee benefit plans and programs and compensation plans and programs and
consistent with the Holding Company's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six (6)
years thereafter, the Holding Company shall cause the Executive to be covered by
and named as an insured under any policy or contract of insurance obtained by it
to insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of the Holding
Company or service in other capacities at the request of the Holding Company.
The coverage provided to the Executive pursuant to this section 6 shall be of
the same scope and on the same terms and conditions as the coverage (if any)
provided to other officers or directors of the Holding Company.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Holding Company shall indemnify the Executive against and hold him harmless from
any costs, liabilities, losses and exposures to the fullest extent and on the
most favorable terms and conditions that similar indemnification is offered to
any director or officer of the Holding Company or any subsidiary or affiliate
thereof.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld); PROVIDED, HOWEVER, that such service shall not materially interfere
with the performance of his duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; PROVIDED, HOWEVER, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Holding Company and generally
applicable to all similarly situated executives. The Executive may also serve as
an officer or director of the Association on such terms and conditions as the
Holding Company and the Association may mutually agree upon, and such service
shall not be
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<PAGE>
deemed to materially interfere with Executive's performance of his duties
hereunder or otherwise result in a material breach of this Agreement. If
Executive is discharged or suspended, or is subject to any regulatory
prohibition or restriction with respect to participation in the affairs of the
Association, he shall continue to perform services for the Holding Company in
accordance with this Agreement but shall not directly or indirectly provide
services to or participate in the affairs of the Association in a manner
inconsistent with the terms of such discharge or suspension or any applicable
regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
Executive's principal place of employment shall be at the
Holding Company's executive offices at the address first above written, or at
such other location within a 25-mile radius thereof at which the Holding Company
shall maintain its principal executive offices, or at such other location as the
Holding Company and the Executive may mutually agree upon. The Holding Company
shall provide Executive at his principal place of employment with a private
office, secretarial services, and other support services and facilities suitable
to his position with the Company and necessary or appropriate in connection with
the performance of his assigned duties under this Agreement. The Holding Company
shall provide to Executive for his exclusive use an automobile owned or leased
by the Holding Company and appropriate to his position, to be used in the
performance of his duties hereunder, including commuting to and from his
personal residence. The Holding Company shall reimburse Executive for his
ordinary and necessary business expenses, including, without limitation, all
expenses associated with his business use of the aforementioned automobile, fees
for memberships in such clubs and organizations as Executive and the Holding
Company shall mutually agree are necessary and appropriate for business purpos
es, and his travel and entertainment expenses incurred in connection with the
performance of his duties under this Agreement, in each case upon presentation
to the Holding Company of an itemized account of such expenses in such form as
the Holding Company may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE
BENEFITS.
(a) The Executive shall be entitled to the severance benefits
described herein in the event that his employment with the Holding Company
terminates during the Employment Period under any of the following
circumstances:
(i) Executive's voluntary resignation from employment with the
Holding Company within ninety (90) days following:
(A) the failure of the Board to appoint or re-appoint
or elect or re-elect the Executive to the position stated in
section 3 of this Agreement (or a more senior office) of the
Holding Company;
(B) if the Executive is a member of the Board as of
the date of this Agreement, the failure of the stockholders of
the Holding Company to elect or re-elect the Executive to the
Board or the failure of the Board (or
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<PAGE>
the nominating committee thereof) to nominate the Executive
for such election or re-election;
(C) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Holding Company of its material failure, whether by
amendment of the Holding Company's Or ganization Certificate
or its By-Laws, action of the Board or the Holding Company's
stockholders or otherwise, to vest in the Executive the
functions, duties, or responsibilities prescribed in section 3
of this Agreement, unless, during such thirty (30) day period,
the Holding Company fully cures such failure; or
(D) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Holding Company of its material breach of any term,
condition or covenant contained in this Agreement (including,
without limitation any reduction of Executive's rate of base
salary in effect from time to time and any change in the terms
and conditions of any compensation or benefit program in which
Executive participates which, either individually or together
with other changes, has a material adverse effect on the
aggregate value of his total compensation package), unless,
during such thirty (30) day period, the Holding Company fully
cures such failure; or
(ii) subject to the provisions of section 10, the termination
of Executive's employment with the Company for any other reason not
described in section 9(a);
then, the Holding Company shall provide the benefits and pay to Executive the
amounts described in section 9(b).
(b) Upon the termination of the Executive's employment with
the Holding Company under circumstances described in section 9(a) of this
Agreement, the Holding Company shall pay and provide to Executive (or, in the
event of his death, to his estate):
(i) his earned but unpaid compensation as of the date of the
termination of his employment with the Holding Company, such payment to
be made at the time and in the manner prescribed by law applicable to
the payment of wages but in no event later than thirty (30) days after
termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and pro grams maintained for the benefit of the Holding Company's
officers and employees;
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<PAGE>
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long-term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for
Executive, for the Remaining Unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled under
such plans (as in effect on the date of his termination of employment,
or, if his termination of employment occurs after a Change of Control,
on the date of such Change of Control, whichever benefits are greater),
if he had continued working for the Holding Company during the
Remaining Unexpired Employment Period at the highest annual rate of
compensation achieved during that portion of the Employment Period
which is prior to Executive's termination of employment with the
Holding Company;
(iv) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment, in an amount
equal to the present value of the salary that Executive would have
earned if he had continued working for the Holding Company during the
Remaining Unexpired Employment Period at the highest annual rate of
salary achieved during that portion of the Employment Period which is
prior to Executive's termination of employment with the Holding
Company, where such present value is to be determined using a discount
rate equal to the applicable short-term federal rate prescribed under
section 1274(d) of the Internal Revenue Code of 1986 ("Code"),
compounded using the compounding period corresponding to the Holding
Company's regular payroll periods for its officers, such lump sum to be
paid in lieu of all other payments of salary provided for under this
Agreement in respect of the period following any such termination;
(v) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment in an amount
equal to the excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Holding Company, if he were
one-hundred percent (100%) vested thereunder and had continued
working for the Holding Company during the Remaining Unexpired
Employment Period, such benefits to be determined as of the
date of termination of employment by adding to the service
actually recognized under such plans an additional period
equal to the Remaining Unexpired Employment Period and by
adding to the compensation recognized under such plans for the
year in which termination of employment occurs all amounts
payable under sections 9(b)(i), (iv) and (vii); over
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<PAGE>
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescr ibed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment in an amount
equal to the present value of the additional employer contributions (or
if greater in the case of a leveraged employee stock ownership plan or
similar arrangement, the additional assets allocable to him through
debt service, based on the fair market value of such assets at
termination of employment) to which he would have been entitled under
any and all qualified and non-qualified defined contribution plans
maintained by, or covering employees of, the Holding Company, as if he
were one-hundred percent (100%) vested thereunder and had continued
working for the Holding Company during the Remaining Unexpired
Employment Period at the highest annual rate of compensation achieved
during that portion of the Employment Period which is prior to the
Executive's termination of employment with the Holding Company, and
making the maximum amount of employee contributions, if any, re quired
under such plan or plans, such present value to be determined on the
basis of a discount rate, compounded using the compounding period that
corresponds to the frequency with which employer contributions are made
to the relevant plan, equal to the Applicable PBGC Rate; and
(vii) the payments that would have been made to Executive
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Holding
Company if he had continued working for the Holding Company during the
Remaining Unexpired Employment Period and had earned a bonus or
incentive award in each calendar year that ends during the Remaining
Unexpired Employment Period in an amount equal to the highest annual
bonus or incentive award actually paid to him in any calendar year
ending during the three-year period ending on the date of termination
of employment.
The Holding Company and the Executive hereby stipulate that the damages which
may be incurred by Executive following any such termination of employment are
not capable of accurate measurement as of the date first above written and that
the payments and benefits contemplated by this section 9(b) constitute
reasonable damages under the circumstances and shall be payable without any
requirement of proof of actual damage and without regard to Executive's efforts,
if any, to mitigate damages. The Holding Company and the Executive further agree
that the Holding Company may condition the payments and benefits (if any) due
under sections 9(b)(iii), (iv), (v), (vi) and (vii) on the receipt of the
Executive's resignation from any and all positions which he
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<PAGE>
holds as an officer, director or committee member with respect to the Holding
Company, the Association or any subsidiary or affiliate of either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL HOLDING
COMPANY LIABILITY.
In the event that the Executive's employment with the Holding
Company shall terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for
purposes of this Agreement shall mean 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 any material
breach of this Agreement, in each case as measured against standards
generally prevailing at the relevant time in the savings and community
banking industry; PROVIDED, HOWEVER, that the Executive shall not be
deemed to have been discharged for cause unless and until the following
procedures shall have been followed:
(i) the Board shall adopt a resolution duly approved
by affirmative vote of a majority of the entire Board at a
meeting called and held for such purpose calling for the
Executive's termination for cause and setting forth the
purported grounds for such termination ("Proposed Termination
Resolution");
(ii) as soon as practicable, and in any event within
five (5) days, after adoption of such resolution, the Board
shall furnish to the Executive a written notice of termination
which shall be accompanied by a certified copy of the Proposed
Termination Resolution ("Notice of Proposed Termination");
(iii) the Executive shall be afforded a reasonable
opportunity to to make oral and written presentations to the
members of the Board, on his own behalf, or through a
representative, who may be his legal counsel, to refute the
grounds set forth in the Proposed Termination Resolution at
one or more meetings of the Board to be held no sooner than
fifteen (15) days and no later than thirty (30) days after the
Executive's receipt of the Proposed Termination Notice
("Termination Hearings"); and
(iv) within ten (10) days following the end of the
Termination Hearings, the Board shall adopt a resolution duly
approved by affirmative vote of a majority of the entire Board
at a meeting called and held for such purpose (A) finding that
in the good faith opinion of the Board the grounds for
termination set forth in the Proposed Termination Resolution
exist and (B) terminating the Executive's employment
("Termination Resolution"); and
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<PAGE>
(v) as promptly as practicable, and in any event
within one (1) business day after adoption of the Termination
Resolution, the Board shall furnish to the Executive written
notice of termination, which notice shall include a copy of
the Termination Resolution and specify an effective date of
termination that is not later than the date on which such
notice is given;
(b) the Executive's voluntary resignation from employment with
the Holding Company for reasons other than those specified in section
9(a);
(c) the Executive's death; or
(d) a determination that the Executive is eligible for
long-term disability benefits under the Holding Company's long-term
disability insurance program or, if there is no such program, under the
federal Social Security Act;
then the Holding Company shall have no further obligations under this Agreement,
other than the payment to the Executive (or, in the event of his death, to his
estate) of his earned but unpaid salary as of the date of the termination of his
employment, and the provision of such other benefits, if any, to which he is
entitled as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained by, or covering employees of, the
Holding Company.
(e) For purposes of section 10(a), no act or failure to act,
on the part of the Executive, shall be considered "willful" unless it is done,
or omitted to be done, by the Executive in bad faith or without reasonable
belief that the Executive's action or omission was in the best interests of the
Holding Company. Any act, or failure to act, based upon authority given pursuant
to a resolution duly adopted by the Board or based upon the written advice of
counsel for the Holding Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Holding Company. The cessation of employment of the Executive shall not be
deemed to be for "cause" within the meaning of section 10(a) unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of three-fourths of the non-employee members of
the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to Executive and Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in section 10(a) above, and specifying the particulars thereof in
detail.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF
CONTROL.
(a) A Change of Control of the Holding Company ("Change of
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(i) approval by the stockholders of the Holding Company of a
transaction that would result in the reorganization, merger or
consolidation of the
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Holding Company, respectively, with one or more other persons, other
than a transaction following which:
(A) at least fifty-one percent (51%) of the equity
ownership interests of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule
13d-3 promulgated under the Securities Exchange Act of 1934,
as amended ("Exchange Act") in substantially the same relative
proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least fifty-one
percent (51%) of the outstanding equity ownership interests in
the Holding Company; and
(B) at least fifty-one percent (51%) of the
securities entitled to vote generally in the election of
directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least fifty-one
percent (51%) of the securities entitled to vote generally in
the election of directors of the Holding Company;
(ii) the acquisition of all or substantially all of the assets
of the Holding Company or beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of twenty-five percent
(25%) or more of the outstanding securities of the Holding Company
entitled to vote generally in the election of directors by any person
or by any persons acting in concert, or approval by the stockholders of
the Holding Company of any transaction which would result in such an
acquisition;
(iii) a complete liquidation or dissolution of the Holding
Company, or approval by the stockholders of the Holding Company of a
plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following
such event, at least fifty percent (50%) of the members of the board of
directors of the Holding Company do not belong to any of the following
groups:
(A) individuals who were members of the board of
directors of the Holding Company on the date of this
Agreement; or
(B) individuals who first became members of the board
of directors of the Holding Company after the date of this
Agreement either:
(I) upon election to serve as a member of
the board of directors of the Holding Company by
affirmative vote of three-
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quarters of the members of such board, or of a
nominating committee thereof, in office at the time
of such first election; or
(II) upon election by the stockholders of
the Holding Company to serve as a member of the board
of directors of the Holding Company, but only if
nominated for election by affirmative vote of
three-quarters of the members of such board, or of a
nominating committee thereof, in office at the time
of such first nomination;
PROVIDED, HOWEVER, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the board of directors of the Holding Company; or
(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Association" were substituted for the
term "Holding Company" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Holding Company, the
Association, or a subsidiary of either of them, by the Holding Company, the
Association, or a subsidiary of either of them, or by any employee benefit plan
maintained by any of them. For purposes of this section 11(a), the term "person"
shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the
Exchange Act.
(b) In the event of a Change of Control, the Executive shall
be entitled to the payments and benefits contemplated by section 9(b) in the
event of his termination employment with the Holding Company under any of the
circumstances described in section 9(a) of this Agreement or under any of the
following circumstances:
(i) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following his demotion, loss of
title, office or significant authority or responsibility, or following
any material reduction in any element of his compensation and benefits;
(ii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following (A) any relocation of
his principal place of employment outside of a 25-mile radius of the
principal place of employment immediately prior to the Change of
Control that would require a relocation of his
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residence in order to be able to commute to such new place of
employment within a commuting time not in excess of the greater of
sixty (60) minutes or the Executive's commuting time prior to the
Change of Control or (B) any material adverse change in working
conditions at such principal place of employment; or
(iii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following the failure of any
successor to the Holding Company in the Change of Control to include
the Executive in any compensation or benefit program maintained by it
or covering any of its executive officers, unless the Executive is
already covered by a substantially similar plan of the Holding Company
which is at least as favorable to him.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment
is terminated upon or following (i) a Change of Control (as defined in section
11 of this Agreement); or (ii) a change "in the ownership or effective control"
of the Holding Company or the Association or "in the ownership of a substantial
portion of the assets" of the Holding Company or the Association within the
meaning of section 280G of the Code. If this Section 12 applies, then, if for
any taxable year, the Executive shall be liable for the payment of an excise tax
under section 4999 of the Code with respect to any payment in the nature of
compensation made by the Holding Company, the Association or any direct or
indirect subsidiary or affiliate of the Holding Company or the Association to
(or for the benefit of) the Executive, the Holding Company shall pay to
Executive an amount equal to X determined under the following formula:
X = E x P
------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under
section 4999 of the Code;
P = the amount with respect to which such excise tax is
assessed, determined without regard to this section
12;
FI = the highest marginal rate of income tax applicable to
Executive under the Code for the taxable year in
question;
SLI = the sum of the highest marginal rates of income tax
applicable to Executive under all applicable state
and local laws for the taxable year in question; and
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M = the highest marginal rate of Medicare tax applicable
to Executive under the Code for the taxable year in
question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, or
otherwise, and on which an excise tax under section 4999 of the Code will be
assessed, the payment determined under this section 12(a) shall be made to the
Executive on the earlier of (i) the date the Holding Company, the Association or
any direct or indirect subsidiary or affiliate of the Holding Company or the
Association is required to withhold such tax, or (ii) the date the tax is
required to be paid by the Executive.
(b) Notwithstanding anything in this section 12 to the
contrary, in the event that Executive's liability for the excise tax under
section 4999 of the Code for a taxable year is subse quently determined to be
different than the amount determined by the formula (X + P) x E, where X, P and
E have the meanings provided in section 12(a), the Executive or the Holding
Company, as the case may be, shall pay to the other party at the time that the
amount of such excise tax is finally determined, an appropriate amount, plus
interest, such that the payment made under section 12(a), when increased by the
amount of the payment made to Executive under this section 12(b) by the Holding
Company, or when reduced by the amount of the payment made to the Holding
Company under this section 12(b) by the Executive, equals the amount that should
have properly been paid to Executive under section 12(a). The interest paid
under this section 12(b) shall be determined at the rate provided under section
1274(b)(2)(B) of the Code. To confirm that the proper amount, if any, was paid
to Executive under this section 12, Executive shall furnish to the Holding
Company a copy of each tax return which reflects a liability for an excise tax
payment made by the Holding Company, at least 20 days before the date on which
such return is required to be filed with the Internal Revenue Service.
SECTION 13. COVENANT NOT TO COMPETE.
In the event of the Executive's termination of employment with
the Holding Company prior to the expiration of the Employment Period, for a
period of one (1) year following the date of his termination of employment with
the Holding Company (or, if less, for the Remaining Unexpired Employment
Period), the Executive shall not, without the written consent of the Holding
Company, become an officer, employee, consultant, director or trustee of any
competitor (as herein defined) if in this capacity he would be working within
one hundred (100) miles of the place where the headquarters of the Holding
Company are located on the date of the Executive's termination of employment.
For this purpose, a "competitor" is any savings bank, savings and loan
association, savings and loan holding company, bank or bank holding company, or
any direct or indirect subsidiary or affiliate of any such entity. This section
13 shall not apply if Executive's employment is terminated without cause or due
to death or voluntary resignation as described in section 9(a). If the
Executive's employment shall be terminated on account of disability as provided
in section 10(d) of this Agreement, this section 13 shall not apply if (a) the
Executive first offers, by written notice, to accept a similar position with, or
perform similar services for, the Holding Company on substantially the same
terms and conditions proposed by the competitor and (b) the Holding Company
declines to accept such offer within ten (10) days after such notice is given.
Page 13 of 19
<PAGE>
SECTION 14. CONFIDENTIALITY.
Unless the Executive obtains the prior written consent of the
Holding Company, he shall keep confidential and shall refrain from using for the
benefit of himself, or any person or entity other than the Holding Company or
any entity which is a subsidiary of the Holding Company or of which the Holding
Company is a subsidiary, any material document or information obtained from the
Holding Company, or from its parent or subsidiaries, in the course of his
employment with any of them concerning their properties, operations or business
(unless such document or information is readily ascertainable from public or
published information or trade sources or has otherwise been made available to
the public through no fault of his own) until the same ceases to be material (or
becomes so ascertainable or available); PROVIDED, HOWEVER, that nothing in this
section 14 shall prevent Executive, with or without the Holding Company's
consent, from participating in or disclosing documents or information in
connection with any judicial or administrative investigation, inquiry or
proceeding to the extent that such participation or disclosure is required under
applicable law.
SECTION 15. SOLICITATION.
Executive hereby covenants and agrees that, for a period of
one (1) year following his termination of employment with the Holding Company,
he shall not, without the written consent of the Holding Company, either
directly or indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Holding Company, the Association or any affiliate, as of the date
of this Agreement, of either of them, to terminate his or his
employment and accept employment or become affiliated with, or provide
services for compensation in any capacity whatsoever to, any savings
bank, savings and loan association, bank, bank holding company, savings
and loan holding company, or other institution engaged in the business
of accepting deposits and making loans, doing business within one
hundred (100) miles of the headquarters of the Holding Company, the
Association or any affiliate, as of the date of this Agreement, of
either of them;
(b) provide any information, advice or recommendation with
respect to any such officer or employee of any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Holding Company, the
Association, or any affiliate, as of the date of this Agreement, of
either of them, that is intended, or that a reasonable person acting in
like circumstances would expect, to have the effect of causing any
officer or employee of the Holding Company, the Association, or any
affiliate, as of the date of this Agreement, of either of them, to
terminate his employment and accept employment
Page 14 of 19
<PAGE>
or become affiliated with, or provide services for compensation in any
capacity whatsoever to, any savings bank, savings and loan association,
bank, bank holding company, savings and loan holding company, or other
institution engaged in the business of accepting deposits and making
loans, doing business within one hundred (100) miles of the
headquarters of the Holding Company, the Association, or any affiliate,
as of the date of this Agreement, of either of them; or
(c) solicit, provide any information, advice or recommendation
or take any other action intended, or that a reasonable person acting
in like circumstances would expect, to have the effect of causing any
customer of the Holding Company to terminate an existing business or
commercial relationship with the Holding Company.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR
PROGRAMS.
The termination of Executive's employment during the term of
this Agreement or thereafter, whether by the Holding Company or by the
Executive, shall have no effect on the rights and obligations of the parties
hereto under the Holding Company's qualified or non-qualified retirement,
pension, savings, thrift, profit-sharing or stock bonus plans, group life,
health (includ ing hospitalization, medical and major medical), dental, accident
and long term disability insurance plans or such other employee benefit plans or
programs, or compensation plans or programs, as may be maintained by, or cover
employees of, the Holding Company from time to time.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Executive, his legal representatives and testate or intestate
distributees, and the Holding Company and its successors and assigns, including
any successor by merger or consolidation or a statutory receiver or any other
person or firm or corporation to which all or substantially all of the assets
and business of the Holding Company may be sold or otherwise transferred.
Failure of the Holding Company to obtain from any successor its express written
assumption of the Holding Company's obligations hereunder at least sixty (60)
days in advance of the scheduled effective date of any such succession shall be
deemed a material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
Page 15 of 19
<PAGE>
If to the Executive:
Mr. George L. Perucco
765 Ruth Drive
Elgin, Illinois 60123
If to the Holding Company:
Home Bancorp of Elgin, Inc.
16 North Spring Street
Elgin, Illinois 60120-5569
Attention: BOARD OF DIRECTORS --
NON-EMPLOYEE DIRECTORS
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. EDWARD BRIGHT, ESQ.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Holding Company shall indemnify, hold harmless and defend
the Executive against reasonable costs, including legal fees, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement; PROVIDED, HOWEVER, that the Executive shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the Holding
Company's obligations hereunder shall be conclusive evidence of Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
Page 16 of 19
<PAGE>
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of
Illinois applicable to contracts entered into and to be performed entirely
within the State of Illinois.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or rep resentations relating to the subject
matter hereof. No modifications of this Agreement shall be
valid unless made in writing and signed by the parties hereto.
SECTION 26. GUARANTEE.
The Holding Company hereby agrees to guarantee the payment by
the Association of any benefits and compensation to which Executive is or may be
entitled to under the terms and conditions of the employment agreement dated as
of September 26, 1996 between the Association and the Executive, a copy of which
is attached hereto as Exhibit A ("Association Agreement").
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<PAGE>
SECTION 27. NON-DUPLICATION.
In the event that the Executive shall perform services for the
Association or any other direct or indirect subsidiary of the Holding Company,
any compensation or benefits provided to Executive by such other employer shall
be applied to offset the obligations of the Holding Company hereunder, it being
intended that this Agreement set forth the aggregate compensation and benefits
payable to Executive for all services to the Holding Company and all of its
direct or indirect subsidiaries.
SECTION 28. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any
payments to Executive by the Holding Company, whether 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. ss.1828(k), and any
regulations promulgated thereunder.
IN WITNESS WHEREOF, the Holding Company has caused this
Agreement to be executed and Executive has hereunto set his hand, all as of the
day and year first above written.
/s/ George L. Perucco
---------------------
George L. Perucco
ATTEST: HOME BANCORP OF ELGIN, INC.
By /s/ Kathleen A. Schroeder
-------------------------
Secretary By /s/ Leigh C. O'Connor
-------------------------
NAME: Leigh C. O'Connor
TITLE: Chairman, Compensation
Committee
[Seal]
Page 18 of 19
<PAGE>
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
GEORGE L. PERUCCO, to me known, and known to me to be the individual described
in the foregoing instrument, who, being by me duly sworn, did depose and say
that he resides at the address set forth in said instrument, and that he signed
his name to the foregoing instrument.
/s/ Ruth E. Bart
------------------------------
Notary Public
[SEAL]
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
Leigh C. O'Connor, to me known, who, being by me duly sworn, did depose and say
that he resides at 366 Hamilton Ave., Elgin, IL 60123, that he is a member of
the Board of Directors of HOME BANCORP OF ELGIN, INC., the Delaware corporation
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such seal; that
it was so affixed by order of the Board of Directors of said corporation; and
that he signed his name thereto by like order.
/s/ Ruth E. Bart
------------------------------
Notary Public
[SEAL]
Page 19 of 19
HOME BANCORP OF ELGIN, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of September 26, 1996 by and between HOME BANCORP OF ELGIN, INC., a
publicly held business corporation organized and operating under the laws of the
State of Delaware and having an office at 16 North Spring Street, Elgin,
Illinois 60120-5569 ("Holding Company") and LYLE N. DOLAN, an individual
residing at 10N815 Oxford Lane, Elgin, Illinois 60123 ("Executive").
W I T N E S S E T H :
---------------------
WHEREAS, Executive currently serves the Holding Company in the
capacity of Executive Vice President and Treasurer; and
WHEREAS, effective as of the date of this Agreement, Home
Federal Savings and Loan Association of Elgin ("Association") has converted from
a federal mutual savings and loan association to a federal stock savings and
loan association and has become the wholly-owned subsidiary of the Holding
Company; and
WHEREAS, the Holding Company desires to assure for itself the
continued availability of the Executive's services and the ability of the
Executive to perform such services with a minimum of personal distraction in the
event of a pending or threatened Change of Control (as hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the
Holding Company on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Holding Company and
the Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Holding Company agrees to continue to employ the
Executive, and the Executive hereby agrees to such continued employment, during
the period and upon the terms and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED
EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term of
two (2) years beginning on the date of this Agreement and ending on the second
(2nd) anniversary date of this Agreement (each, an
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<PAGE>
"Anniversary Date"), plus such extensions, if any, as are provided by the Board
of Directors of the Holding Company ("Board") pursuant to section 2(b).
(b) Except as provided in section 2(c), beginning on the date
of this Agreement, the Employment Period shall automatically be extended for one
(1) additional day each day, unless either the Holding Company or the Executive
elects not to extend the Agreement further by giving written notice to the other
party, in which case the Employment Period shall end on the second (2nd)
anniversary of the date on which such written notice is given. For all purposes
of this Agreement, the term "Remaining Unexpired Employment Period" as of any
date shall mean the period beginning on such date and ending on: (i) if a notice
of non-extension has been given in accordance with this section 2(b), the second
(2nd) anniversary of the date on which such notice is given; and (ii) in all
other cases, the second (2nd) anniversary of the date as of which the Remaining
Unexpired Employment Period is being determined. Upon termination of the
Executive's employment with the Holding Company for any reason whatsoever, any
daily extensions provided pursuant to this section 2(b), if not therefore
discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Holding Company at any time from terminating the Executive's employment during
the Employment Period with or without notice for any reason; PROVIDED, HOWEVER,
that the relative rights and obligations of the Holding Company and the
Executive in the event of any such termination shall be determined under this
Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Executive Vice President and
Treasurer of the Holding Company, having such power, authority and
responsibility and performing such duties as are prescribed by or under the
By-Laws of the Holding Company and as are customarily associated with such
position. The Executive shall devote his full business time and attention (other
than during holidays, approved vacation periods, and periods of illness or
approved leaves of absence) to the business and affairs of the Holding Company
and shall use his best efforts to advance the interests of the Holding Company.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by Executive
hereunder, the Holding Company shall pay to him a salary at an initial annual
rate of ONE HUNDRED AND THIRTY-FOUR THOUSAND, SEVEN HUNDRED AND FIFTY-THREE
DOLLARS ($134,753), payable in approximately equal installments in accordance
with the Company's customary payroll practices for senior officers. The Board
shall review the Executive's annual rate of salary at such times during the
Employment Period as it deems appropriate, but not less frequently than once
every twelve months, and may, in its discretion, approve an increase therein. In
addition to salary, the Executive may receive other cash compensation from the
Holding
Page 2 of 19
<PAGE>
Company for services hereunder at such times, in such amounts, and on such terms
and conditions, as the Board may determine from time to time.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated
as an employee of the Holding Company and shall be entitled to participate in
and receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long-term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Holding Company, in accordance with the terms and conditions of such
employee benefit plans and programs and compensation plans and programs and
consistent with the Holding Company's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six (6)
years thereafter, the Holding Company shall cause the Executive to be covered by
and named as an insured under any policy or contract of insurance obtained by it
to insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of the Holding
Company or service in other capacities at the request of the Holding Company.
The coverage provided to the Executive pursuant to this section 6 shall be of
the same scope and on the same terms and conditions as the coverage (if any)
provided to other officers or directors of the Holding Company.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Holding Company shall indemnify the Executive against and hold him harmless from
any costs, liabilities, losses and exposures to the fullest extent and on the
most favorable terms and conditions that similar indemnification is offered to
any director or officer of the Holding Company or any subsidiary or affiliate
thereof.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld); PROVIDED, HOWEVER, that such service shall not materially interfere
with the performance of his duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; PROVIDED, HOWEVER, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by
Page 3 of 19
<PAGE>
the Holding Company and generally applicable to all similarly situated
executives. The Executive may also serve as an officer or director of the
Association on such terms and conditions as the Holding Company and the
Association may mutually agree upon, and such service shall not be deemed to
materially interfere with Executive's performance of his duties hereunder or
otherwise result in a material breach of this Agreement. If Executive is
discharged or suspended, or is subject to any regulatory prohibition or
restriction with respect to participation in the affairs of the Association, he
shall continue to perform services for the Holding Company in accordance with
this Agreement but shall not directly or indirectly provide services to or
participate in the affairs of the Association in a manner inconsistent with the
terms of such discharge or suspension or any applicable regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
Executive's principal place of employment shall be at the
Holding Company's executive offices at the address first above written, or at
such other location within a 25-mile radius thereof at which the Holding Company
shall maintain its principal executive offices, or at such other location as the
Holding Company and the Executive may mutually agree upon. The Holding Company
shall provide Executive at his principal place of employment with a private
office, secretarial services, and other support services and facilities suitable
to his position with the Company and necessary or appropriate in connection with
the performance of his assigned duties under this Agreement. The Holding Company
shall provide to Executive for his exclusive use an automobile owned or leased
by the Holding Company and appropriate to his position, to be used in the
performance of his duties hereunder, including commuting to and from his
personal residence. The Holding Company shall reimburse Executive for his
ordinary and necessary business expenses, including, without limitation, all
expenses associated with his business use of the aforementioned automobile, fees
for memberships in such clubs and organizations as Executive and the Holding
Company shall mutually agree are necessary and appropriate for business purpos
es, and his travel and entertainment expenses incurred in connection with the
performance of his duties under this Agreement, in each case upon presentation
to the Holding Company of an itemized account of such expenses in such form as
the Holding Company may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE
BENEFITS.
(a) The Executive shall be entitled to the severance benefits
described herein in the event that his employment with the Holding Company
terminates during the Employment Period under any of the following
circumstances:
(i) Executive's voluntary resignation from employment with the
Holding Company within ninety (90) days following:
(A) the failure of the Board to appoint or re-appoint
or elect or re-elect the Executive to the position stated in
section 3 of this Agreement (or a more senior office) of the
Holding Company;
Page 4 of 19
<PAGE>
(B) if the Executive is a member of the Board as of
the date of this Agreement, the failure of the stockholders of
the Holding Company to elect or re-elect the Executive to the
Board or the failure of the Board (or the nominating committee
thereof) to nominate the Executive for such election or
re-election;
(C) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Holding Company of its material failure, whether by
amendment of the Holding Company's Or ganization Certificate
or its By-Laws, action of the Board or the Holding Company's
stockholders or otherwise, to vest in the Executive the
functions, duties, or responsibilities prescribed in section 3
of this Agreement, unless, during such thirty (30) day period,
the Holding Company fully cures such failure; or
(D) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Holding Company of its material breach of any term,
condition or covenant contained in this Agreement (including,
without limitation any reduction of Executive's rate of base
salary in effect from time to time and any change in the terms
and conditions of any compensation or benefit program in which
Executive participates which, either individually or together
with other changes, has a material adverse effect on the
aggregate value of his total compensation package), unless,
during such thirty (30) day period, the Holding Company fully
cures such failure; or
(ii) subject to the provisions of section 10, the termination
of Executive's employment with the Company for any other reason not
described in section 9(a);
then, the Holding Company shall provide the benefits and pay to Executive the
amounts described in section 9(b).
(b) Upon the termination of the Executive's employment with
the Holding Company under circumstances described in section 9(a) of this
Agreement, the Holding Company shall pay and provide to Executive (or, in the
event of his death, to his estate):
(i) his earned but unpaid compensation as of the date of the
termination of his employment with the Holding Company, such payment to
be made at the time and in the manner prescribed by law applicable to
the payment of wages but in no event later than thirty (30) days after
termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and pro-
Page 5 of 19
<PAGE>
grams maintained for the benefit of the Holding Company's officers and
employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long-term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for
Executive, for the Remaining Unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled under
such plans (as in effect on the date of his termination of employment,
or, if his termination of employment occurs after a Change of Control,
on the date of such Change of Control, whichever benefits are greater),
if he had continued working for the Holding Company during the
Remaining Unexpired Employment Period at the highest annual rate of
compensation achieved during that portion of the Employment Period
which is prior to Executive's termination of employment with the
Holding Company;
(iv) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment, in an amount
equal to the present value of the salary that Executive would have
earned if he had continued working for the Holding Company during the
Remaining Unexpired Employment Period at the highest annual rate of
salary achieved during that portion of the Employment Period which is
prior to Executive's termination of employment with the Holding
Company, where such present value is to be determined using a discount
rate equal to the applicable short-term federal rate prescribed under
section 1274(d) of the Internal Revenue Code of 1986 ("Code"),
compounded using the compounding period corresponding to the Holding
Company's regular payroll periods for its officers, such lump sum to be
paid in lieu of all other payments of salary provided for under this
Agreement in respect of the period following any such termination;
(v) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment in an amount
equal to the excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Holding Company, if he were
one-hundred percent (100%) vested thereunder and had continued
working for the Holding Company during the Remaining Unexpired
Employment Period, such benefits to be determined as of the
date of termination of employment by adding to the service
actually recognized under such plans an additional period
equal to the Remaining Unexpired Employment Period and by
adding to the compensation recognized under such plans for the
year in which termination of employment occurs all amounts
payable under sections 9(b)(i), (iv) and (vii); over
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<PAGE>
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment in an amount
equal to the present value of the additional employer contributions (or
if greater in the case of a leveraged employee stock ownership plan or
similar arrangement, the additional assets allocable to him through
debt service, based on the fair market value of such assets at
termination of employment) to which he would have been entitled under
any and all qualified and non-qualified defined contribution plans
maintained by, or covering employees of, the Holding Company, as if he
were one-hundred percent (100%) vested thereunder and had continued
working for the Holding Company during the Remaining Unexpired
Employment Period at the highest annual rate of compensation achieved
during that portion of the Employment Period which is prior to the
Executive's termination of employment with the Holding Company, and
making the maximum amount of employee contributions, if any, re quired
under such plan or plans, such present value to be determined on the
basis of a discount rate, compounded using the compounding period that
corresponds to the frequency with which employer contributions are made
to the relevant plan, equal to the Applicable PBGC Rate; and
(vii) the payments that would have been made to Executive
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Holding
Company if he had continued working for the Holding Company during the
Remaining Unexpired Employment Period and had earned a bonus or
incentive award in each calendar year that ends during the Remaining
Unexpired Employment Period in an amount equal to the highest annual
bonus or incentive award actually paid to him in any calendar year
ending during the three-year period ending on the date of termination
of employment.
The Holding Company and the Executive hereby stipulate that the damages which
may be incurred by Executive following any such termination of employment are
not capable of accurate measurement as of the date first above written and that
the payments and benefits contemplated by this section 9(b) constitute
reasonable damages under the circumstances and shall be payable without any
requirement of proof of actual damage and without regard to Executive's efforts,
if any, to mitigate damages. The Holding Company and the Executive further agree
that the Holding Company may condition the payments and benefits (if any) due
under sections 9(b)(iii), (iv), (v), (vi) and (vii) on the receipt of the
Executive's resignation from any and all positions which he
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<PAGE>
holds as an officer, director or committee member with respect to the Holding
Company, the Association or any subsidiary or affiliate of either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL HOLDING
COMPANY LIABILITY.
In the event that the Executive's employment with the Holding
Company shall terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for
purposes of this Agreement shall mean 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 any material
breach of this Agreement, in each case as measured against standards
generally prevailing at the relevant time in the savings and community
banking industry; PROVIDED, HOWEVER, that the Executive shall not be
deemed to have been discharged for cause unless and until the following
procedures shall have been followed:
(i) the Board shall adopt a resolution duly approved
by affirmative vote of a majority of the entire Board at a
meeting called and held for such purpose calling for the
Executive's termination for cause and setting forth the
purported grounds for such termination ("Proposed Termination
Resolution");
(ii) as soon as practicable, and in any event within
five (5) days, after adoption of such resolution, the Board
shall furnish to the Executive a written notice of termination
which shall be accompanied by a certified copy of the Proposed
Termination Resolution ("Notice of Proposed Termination");
(iii) the Executive shall be afforded a reasonable
opportunity to to make oral and written presentations to the
members of the Board, on his own behalf, or through a
representative, who may be his legal counsel, to refute the
grounds set forth in the Proposed Termination Resolution at
one or more meetings of the Board to be held no sooner than
fifteen (15) days and no later than thirty (30) days after the
Executive's receipt of the Proposed Termination Notice
("Termination Hearings"); and
(iv) within ten (10) days following the end of the
Termination Hearings, the Board shall adopt a resolution duly
approved by affirmative vote of a majority of the entire Board
at a meeting called and held for such purpose (A) finding that
in the good faith opinion of the Board the grounds for
termination set forth in the Proposed Termination Resolution
exist and (B) terminating the Executive's employment
("Termination Resolution"); and
Page 8 of 19
<PAGE>
(v) as promptly as practicable, and in any event
within one (1) business day after adoption of the Termination
Resolution, the Board shall furnish to the Executive written
notice of termination, which notice shall include a copy of
the Termination Resolution and specify an effective date of
termination that is not later than the date on which such
notice is given;
(b) the Executive's voluntary resignation from employment with
the Holding Company for reasons other than those specified in section
9(a);
(c) the Executive's death; or
(d) a determination that the Executive is eligible for
long-term disability benefits under the Holding Company's long-term
disability insurance program or, if there is no such program, under the
federal Social Security Act;
then the Holding Company shall have no further obligations under this Agreement,
other than the payment to the Executive (or, in the event of his death, to his
estate) of his earned but unpaid salary as of the date of the termination of his
employment, and the provision of such other benefits, if any, to which he is
entitled as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained by, or covering employees of, the
Holding Company.
(e) For purposes of section 10(a), no act or failure to act,
on the part of the Executive, shall be considered "willful" unless it is done,
or omitted to be done, by the Executive in bad faith or without reasonable
belief that the Executive's action or omission was in the best interests of the
Holding Company. Any act, or failure to act, based upon authority given pursuant
to a resolution duly adopted by the Board or based upon the written advice of
counsel for the Holding Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Holding Company. The cessation of employment of the Executive shall not be
deemed to be for "cause" within the meaning of section 10(a) unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of three-fourths of the non-employee members of
the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to Executive and Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in section 10(a) above, and specifying the particulars thereof in
detail.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF
CONTROL.
(a) A Change of Control of the Holding Company ("Change of
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(i) approval by the stockholders of the Holding Company of a
transaction that would result in the reorganization, merger or
consolidation of the
Page 9 of 19
<PAGE>
Holding Company, respectively, with one or more other persons, other
than a transaction following which:
(A) at least fifty-one percent (51%) of the equity
ownership interests of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule
13d-3 promulgated under the Securities Exchange Act of 1934,
as amended ("Exchange Act") in substantially the same relative
proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least fifty-one
percent (51%) of the outstanding equity ownership interests in
the Holding Company; and
(B) at least fifty-one percent (51%) of the
securities entitled to vote generally in the election of
directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least fifty-one
percent (51%) of the securities entitled to vote generally in
the election of directors of the Holding Company;
(ii) the acquisition of all or substantially all of the assets
of the Holding Company or beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of twenty-five percent
(25%) or more of the outstanding securities of the Holding Company
entitled to vote generally in the election of directors by any person
or by any persons acting in concert, or approval by the stockholders of
the Holding Company of any transaction which would result in such an
acquisition;
(iii) a complete liquidation or dissolution of the Holding
Company, or approval by the stockholders of the Holding Company of a
plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following
such event, at least fifty percent (50%) of the members of the board of
directors of the Holding Company do not belong to any of the following
groups:
(A) individuals who were members of the board of
directors of the Holding Company on the date of this
Agreement; or
(B) individuals who first became members of the board
of directors of the Holding Company after the date of this
Agreement either:
(I) upon election to serve as a member of
the board of directors of the Holding Company by
affirmative vote of three-
Page 10 of 19
<PAGE>
quarters of the members of such board, or of a
nominating committee thereof, in office at the time
of such first election; or
(II) upon election by the stockholders of
the Holding Company to serve as a member of the board
of directors of the Holding Company, but only if
nominated for election by affirmative vote of
three-quarters of the members of such board, or of a
nominating committee thereof, in office at the time
of such first nomination;
PROVIDED, HOWEVER, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the board of directors of the Holding Company; or
(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Association" were substituted for the
term "Holding Company" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Holding Company, the
Association, or a subsidiary of either of them, by the Holding Company, the
Association, or a subsidiary of either of them, or by any employee benefit plan
maintained by any of them. For purposes of this section 11(a), the term "person"
shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the
Exchange Act.
(b) In the event of a Change of Control, the Executive shall
be entitled to the payments and benefits contemplated by section 9(b) in the
event of his termination employment with the Holding Company under any of the
circumstances described in section 9(a) of this Agreement or under any of the
following circumstances:
(i) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following his demotion, loss of
title, office or significant authority or responsibility, or following
any material reduction in any element of his compensation and benefits;
(ii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following (A) any relocation of
his principal place of employment outside of a 25-mile radius of the
principal place of employment immediately prior to the Change of
Control that would require a relocation of his
Page 11 of 19
<PAGE>
residence in order to be able to commute to such new place of
employment within a commuting time not in excess of the greater of
sixty (60) minutes or the Executive's commuting time prior to the
Change of Control or (B) any material adverse change in working
conditions at such principal place of employment; or
(iii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following the failure of any
successor to the Holding Company in the Change of Control to include
the Executive in any compensation or benefit program maintained by it
or covering any of its executive officers, unless the Executive is
already covered by a substantially similar plan of the Holding Company
which is at least as favorable to him.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment
is terminated upon or following (i) a Change of Control (as defined in section
11 of this Agreement); or (ii) a change "in the ownership or effective control"
of the Holding Company or the Association or "in the ownership of a substantial
portion of the assets" of the Holding Company or the Association within the
meaning of section 280G of the Code. If this Section 12 applies, then, if for
any taxable year, the Executive shall be liable for the payment of an excise tax
under section 4999 of the Code with respect to any payment in the nature of
compensation made by the Holding Company, the Association or any direct or
indirect subsidiary or affiliate of the Holding Company or the Association to
(or for the benefit of) the Executive, the Holding Company shall pay to
Executive an amount equal to X determined under the following formula:
E x P
X = ------------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under
section 4999 of the Code;
P = the amount with respect to which such excise tax is
assessed, determined without regard to this section
12;
FI = the highest marginal rate of income tax applicable to
Executive under the Code for the taxable year in
question;
SLI = the sum of the highest marginal rates of income tax
applicable to Executive under all applicable state
and local laws for the taxable year in question; and
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<PAGE>
M = the highest marginal rate of Medicare tax
applicable to Executive under the Code for the
taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, or
otherwise, and on which an excise tax under section 4999 of the Code will be
assessed, the payment determined under this section 12(a) shall be made to the
Executive on the earlier of (i) the date the Holding Company, the Association or
any direct or indirect subsidiary or affiliate of the Holding Company or the
Association is required to withhold such tax, or (ii) the date the tax is
required to be paid by the Executive.
(b) Notwithstanding anything in this section 12 to the
contrary, in the event that Executive's liability for the excise tax under
section 4999 of the Code for a taxable year is subse quently determined to be
different than the amount determined by the formula (X + P) x E, where X, P and
E have the meanings provided in section 12(a), the Executive or the Holding
Company, as the case may be, shall pay to the other party at the time that the
amount of such excise tax is finally determined, an appropriate amount, plus
interest, such that the payment made under section 12(a), when increased by the
amount of the payment made to Executive under this section 12(b) by the Holding
Company, or when reduced by the amount of the payment made to the Holding
Company under this section 12(b) by the Executive, equals the amount that should
have properly been paid to Executive under section 12(a). The interest paid
under this section 12(b) shall be determined at the rate provided under section
1274(b)(2)(B) of the Code. To confirm that the proper amount, if any, was paid
to Executive under this section 12, Executive shall furnish to the Holding
Company a copy of each tax return which reflects a liability for an excise tax
payment made by the Holding Company, at least 20 days before the date on which
such return is required to be filed with the Internal Revenue Service.
SECTION 13. COVENANT NOT TO COMPETE.
In the event of the Executive's termination of employment with
the Holding Company prior to the expiration of the Employment Period, for a
period of one (1) year following the date of his termination of employment with
the Holding Company (or, if less, for the Remaining Unexpired Employment
Period), the Executive shall not, without the written consent of the Holding
Company, become an officer, employee, consultant, director or trustee of any
competitor (as herein defined) if in this capacity he would be working within
one hundred (100) miles of the place where the headquarters of the Holding
Company are located on the date of the Executive's termination of employment.
For this purpose, a "competitor" is any savings bank, savings and loan
association, savings and loan holding company, bank or bank holding company, or
any direct or indirect subsidiary or affiliate of any such entity. This section
13 shall not apply if Executive's employment is terminated without cause or due
to death or voluntary resignation as described in section 9(a). If the
Executive's employment shall be terminated on account of disability as provided
in section 10(d) of this Agreement, this section 13 shall not apply if (a) the
Executive first offers, by written notice, to accept a similar position with, or
perform similar services for, the Holding Company on substantially the same
terms and conditions proposed by the competitor and (b) the Holding Company
declines to accept such offer within ten (10) days after such notice is given.
Page 13 of 19
<PAGE>
SECTION 14. CONFIDENTIALITY.
Unless the Executive obtains the prior written consent of the
Holding Company, he shall keep confidential and shall refrain from using for the
benefit of himself, or any person or entity other than the Holding Company or
any entity which is a subsidiary of the Holding Company or of which the Holding
Company is a subsidiary, any material document or information obtained from the
Holding Company, or from its parent or subsidiaries, in the course of his
employment with any of them concerning their properties, operations or business
(unless such document or information is readily ascertainable from public or
published information or trade sources or has otherwise been made available to
the public through no fault of his own) until the same ceases to be material (or
becomes so ascertainable or available); PROVIDED, HOWEVER, that nothing in this
section 14 shall prevent Executive, with or without the Holding Company's
consent, from participating in or disclosing documents or information in
connection with any judicial or administrative investigation, inquiry or
proceeding to the extent that such participation or disclosure is required under
applicable law.
SECTION 15. SOLICITATION.
Executive hereby covenants and agrees that, for a period of
one (1) year following his termination of employment with the Holding Company,
he shall not, without the written consent of the Holding Company, either
directly or indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Holding Company, the Association or any affiliate, as of the date
of this Agreement, of either of them, to terminate his or his
employment and accept employment or become affiliated with, or provide
services for compensation in any capacity whatsoever to, any savings
bank, savings and loan association, bank, bank holding company, savings
and loan holding company, or other institution engaged in the business
of accepting deposits and making loans, doing business within one
hundred (100) miles of the headquarters of the Holding Company, the
Association or any affiliate, as of the date of this Agreement, of
either of them;
(b) provide any information, advice or recommendation with
respect to any such officer or employee of any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Holding Company, the
Association, or any affiliate, as of the date of this Agreement, of
either of them, that is intended, or that a reasonable person acting in
like circumstances would expect, to have the effect of causing any
officer or employee of the Holding Company, the Association, or any
affiliate, as of the date of this Agreement, of either of them, to
terminate his employment and accept employment
Page 14 of 19
<PAGE>
or become affiliated with, or provide services for compensation in any
capacity whatsoever to, any savings bank, savings and loan association,
bank, bank holding company, savings and loan holding company, or other
institution engaged in the business of accepting deposits and making
loans, doing business within one hundred (100) miles of the
headquarters of the Holding Company, the Association, or any affiliate,
as of the date of this Agreement, of either of them; or
(c) solicit, provide any information, advice or recommendation
or take any other action intended, or that a reasonable person acting
in like circumstances would expect, to have the effect of causing any
customer of the Holding Company to terminate an existing business or
commercial relationship with the Holding Company.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR
PROGRAMS.
The termination of Executive's employment during the term of
this Agreement or thereafter, whether by the Holding Company or by the
Executive, shall have no effect on the rights and obligations of the parties
hereto under the Holding Company's qualified or non-qualified retirement,
pension, savings, thrift, profit-sharing or stock bonus plans, group life,
health (includ ing hospitalization, medical and major medical), dental, accident
and long term disability insurance plans or such other employee benefit plans or
programs, or compensation plans or programs, as may be maintained by, or cover
employees of, the Holding Company from time to time.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Executive, his legal representatives and testate or intestate
distributees, and the Holding Company and its successors and assigns, including
any successor by merger or consolidation or a statutory receiver or any other
person or firm or corporation to which all or substantially all of the assets
and business of the Holding Company may be sold or otherwise transferred.
Failure of the Holding Company to obtain from any successor its express written
assumption of the Holding Company's obligations hereunder at least sixty (60)
days in advance of the scheduled effective date of any such succession shall be
deemed a material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
Page 15 of 19
<PAGE>
If to the Executive:
Mr. Lyle N. Dolan
10N815 Oxford Lane
Elgin, Illinois 60123
If to the Holding Company:
Home Bancorp of Elgin, Inc.
16 North Spring Street
Elgin, Illinois 60120-5569
Attention: BOARD OF DIRECTORS -- NON-EMPLOYEE
DIRECTORS
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. EDWARD BRIGHT, ESQ.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Holding Company shall indemnify, hold harmless and defend
the Executive against reasonable costs, including legal fees, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement; PROVIDED, HOWEVER, that the Executive shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the Holding
Company's obligations hereunder shall be conclusive evidence of Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
Page 16 of 19
<PAGE>
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of
Illinois applicable to contracts entered into and to be performed entirely
within the State of Illinois.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or rep resentations relating to the subject
matter hereof. No modifications of this Agreement shall be
valid unless made in writing and signed by the parties hereto.
SECTION 26. GUARANTEE.
The Holding Company hereby agrees to guarantee the payment by
the Association of any benefits and compensation to which Executive is or may be
entitled to under the terms and conditions of the employment agreement dated as
of September 26, 1996 between the Association and the Executive, a copy of which
is attached hereto as Exhibit A ("Association Agreement").
Page 17 of 19
<PAGE>
SECTION 27. NON-DUPLICATION.
In the event that the Executive shall perform services for the
Association or any other direct or indirect subsidiary of the Holding Company,
any compensation or benefits provided to Executive by such other employer shall
be applied to offset the obligations of the Holding Company hereunder, it being
intended that this Agreement set forth the aggregate compensation and benefits
payable to Executive for all services to the Holding Company and all of its
direct or indirect subsidiaries.
SECTION 28. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any
payments to Executive by the Holding Company, whether 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. ss.1828(k), and any
regulations promulgated thereunder.
IN WITNESS WHEREOF, the Holding Company has caused this
Agreement to be executed and Executive has hereunto set his hand, all as of the
day and year first above written.
/s/ Lyle N. Dolan
------------------------------
LYLE N. DOLAN
ATTEST: HOME BANCORP OF ELGIN, INC.
By /s/ Kathleen A. Schroeder By /s/ Leigh C. O'Connor
----------------------------- -----------------------------
Secretary NAME: Leigh C. O'Connor
TITLE: Chairman, Compensation
Committee
Page 18 of 19
<PAGE>
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
LYLE N. DOLAN, to me known, and known to me to be the individual described in
the foregoing instrument, who, being by me duly sworn, did depose and say that
he resides at the address set forth in said instrument, and that he signed his
name to the foregoing instrument.
/s/ Ruth E. Bart
--------------------------
Notary Public
[SEAL]
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
LEIGH C. O'CONNOR, to me known, who, being by me duly sworn, did depose and say
that he resides at 366 Hamilton Ave., Elgin, IL 60123, that he is a member of
the Board of Directors of HOME BANCORP OF ELGIN, INC., the Delaware corporation
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such seal; that
it was so affixed by order of the Board of Directors of said corporation; and
that he signed his name thereto by like order.
/s/ Ruth E. Bart
--------------------------
Notary Public
[SEAL]
Page 19 of 19
HOME BANCORP OF ELGIN, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of September 26, 1996 by and between HOME BANCORP OF ELGIN, INC., a
publicly held business corporation organized and operating under the laws of the
State of Delaware and having an office at 16 North Spring Street, Elgin,
Illinois 60120-5569 ("Holding Company") and KENNETH L. MORAN, an individual
residing at 1021 Mohawk Drive, Elgin, Illinois 60120 ("Executive").
W I T N E S S E T H :
---------------------
WHEREAS, Executive currently serves the Holding Company in the
capacity of Senior Vice President and Chief Lending Officer; and
WHEREAS, effective as of the date of this Agreement, Home
Federal Savings and Loan Association of Elgin ("Association") has converted from
a federal mutual savings and loan association to a federal stock savings and
loan association and has become the wholly-owned subsidiary of the Holding
Company; and
WHEREAS, the Holding Company desires to assure for itself the
continued availability of the Executive's services and the ability of the
Executive to perform such services with a minimum of personal distraction in the
event of a pending or threatened Change of Control (as hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the
Holding Company on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Holding Company and
the Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Holding Company agrees to continue to employ the
Executive, and the Executive hereby agrees to such continued employment, during
the period and upon the terms and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED
EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term of
two (2) years beginning on the date of this Agreement and ending on the second
(2nd) anniversary date of this Agreement (each, an
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<PAGE>
"Anniversary Date"), plus such extensions, if any, as are provided by the Board
of Directors of the Holding Company ("Board") pursuant to section 2(b).
(b) Except as provided in section 2(c), beginning on the date
of this Agreement, the Employment Period shall automatically be extended for one
(1) additional day each day, unless either the Holding Company or the Executive
elects not to extend the Agreement further by giving written notice to the other
party, in which case the Employment Period shall end on the second (2nd)
anniversary of the date on which such written notice is given. For all purposes
of this Agreement, the term "Remaining Unexpired Employment Period" as of any
date shall mean the period beginning on such date and ending on: (i) if a notice
of non-extension has been given in accordance with this section 2(b), the second
(2nd) anniversary of the date on which such notice is given; and (ii) in all
other cases, the second (2nd) anniversary of the date as of which the Remaining
Unexpired Employment Period is being determined. Upon termination of the
Executive's employment with the Holding Company for any reason whatsoever, any
daily extensions provided pursuant to this section 2(b), if not therefore
discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Holding Company at any time from terminating the Executive's employment during
the Employment Period with or without notice for any reason; PROVIDED, HOWEVER,
that the relative rights and obligations of the Holding Company and the
Executive in the event of any such termination shall be determined under this
Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Senior Vice President and Chief
Lending Officer of the Holding Company, having such power, authority and
responsibility and performing such duties as are prescribed by or under the
By-Laws of the Holding Company and as are customarily associated with such
position. The Executive shall devote his full business time and attention (other
than during holidays, approved vacation periods, and periods of illness or
approved leaves of absence) to the business and affairs of the Holding Company
and shall use his best efforts to advance the interests of the Holding Company.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by Executive
hereunder, the Holding Company shall pay to him a salary at an initial annual
rate of ONE HUNDRED AND NINE THOUSAND, TWO HUNDRED AND FORTY-TWO DOLLARS
($109,242), payable in approximately equal installments in accordance with the
Company's customary payroll practices for senior officers. The Board shall
review the Executive's annual rate of salary at such times during the Employment
Period as it deems appropriate, but not less frequently than once every twelve
months, and may, in its discretion, approve an increase therein. In addition to
salary, the Executive may receive other cash compensation from the Holding
Company for services hereunder
Page 2 of 19
<PAGE>
at such times, in such amounts, and on such terms and conditions, as the Board
may determine from time to time.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated
as an employee of the Holding Company and shall be entitled to participate in
and receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long-term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Holding Company, in accordance with the terms and conditions of such
employee benefit plans and programs and compensation plans and programs and
consistent with the Holding Company's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six (6)
years thereafter, the Holding Company shall cause the Executive to be covered by
and named as an insured under any policy or contract of insurance obtained by it
to insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of the Holding
Company or service in other capacities at the request of the Holding Company.
The coverage provided to the Executive pursuant to this section 6 shall be of
the same scope and on the same terms and conditions as the coverage (if any)
provided to other officers or directors of the Holding Company.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Holding Company shall indemnify the Executive against and hold him harmless from
any costs, liabilities, losses and exposures to the fullest extent and on the
most favorable terms and conditions that similar indemnification is offered to
any director or officer of the Holding Company or any subsidiary or affiliate
thereof.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld); PROVIDED, HOWEVER, that such service shall not materially interfere
with the performance of his duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; PROVIDED, HOWEVER, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by
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<PAGE>
the Holding Company and generally applicable to all similarly situated
executives. The Executive may also serve as an officer or director of the
Association on such terms and conditions as the Holding Company and the
Association may mutually agree upon, and such service shall not be deemed to
materially interfere with Executive's performance of his duties hereunder or
otherwise result in a material breach of this Agreement. If Executive is
discharged or suspended, or is subject to any regulatory prohibition or
restriction with respect to participation in the affairs of the Association, he
shall continue to perform services for the Holding Company in accordance with
this Agreement but shall not directly or indirectly provide services to or
participate in the affairs of the Association in a manner inconsistent with the
terms of such discharge or suspension or any applicable regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
Executive's principal place of employment shall be at the
Holding Company's executive offices at the address first above written, or at
such other location within a 25-mile radius thereof at which the Holding Company
shall maintain its principal executive offices, or at such other location as the
Holding Company and the Executive may mutually agree upon. The Holding Company
shall provide Executive at his principal place of employment with a private
office, secretarial services, and other support services and facilities suitable
to his position with the Company and necessary or appropriate in connection with
the performance of his assigned duties under this Agreement. The Holding Company
shall provide to Executive for his exclusive use an automobile owned or leased
by the Holding Company and appropriate to his position, to be used in the
performance of his duties hereunder, including commuting to and from his
personal residence. The Holding Company shall reimburse Executive for his
ordinary and necessary business expenses, including, without limitation, all
expenses associated with his business use of the aforementioned automobile, fees
for memberships in such clubs and organizations as Executive and the Holding
Company shall mutually agree are necessary and appropriate for business purpos
es, and his travel and entertainment expenses incurred in connection with the
performance of his duties under this Agreement, in each case upon presentation
to the Holding Company of an itemized account of such expenses in such form as
the Holding Company may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE
BENEFITS.
(a) The Executive shall be entitled to the severance benefits
described herein in the event that his employment with the Holding Company
terminates during the Employment Period under any of the following
circumstances:
(i) Executive's voluntary resignation from employment with the
Holding Company within ninety (90) days following:
(A) the failure of the Board to appoint or re-appoint
or elect or re-elect the Executive to the position stated in
section 3 of this Agreement (or a more senior office) of the
Holding Company;
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<PAGE>
(B) if the Executive is a member of the Board as of
the date of this Agreement, the failure of the stockholders of
the Holding Company to elect or re-elect the Executive to the
Board or the failure of the Board (or the nominating committee
thereof) to nominate the Executive for such election or
re-election;
(C) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Holding Company of its material failure, whether by
amendment of the Holding Company's Or ganization Certificate
or its By-Laws, action of the Board or the Holding Company's
stockholders or otherwise, to vest in the Executive the
functions, duties, or responsibilities prescribed in section 3
of this Agreement, unless, during such thirty (30) day period,
the Holding Company fully cures such failure; or
(D) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Holding Company of its material breach of any term,
condition or covenant contained in this Agreement (including,
without limitation any reduction of Executive's rate of base
salary in effect from time to time and any change in the terms
and conditions of any compensation or benefit program in which
Executive participates which, either individually or together
with other changes, has a material adverse effect on the
aggregate value of his total compensation package), unless,
during such thirty (30) day period, the Holding Company fully
cures such failure; or
(ii) subject to the provisions of section 10, the termination
of Executive's employment with the Company for any other reason not
described in section 9(a);
then, the Holding Company shall provide the benefits and pay to Executive the
amounts described in section 9(b).
(b) Upon the termination of the Executive's employment with
the Holding Company under circumstances described in section 9(a) of this
Agreement, the Holding Company shall pay and provide to Executive (or, in the
event of his death, to his estate):
(i) his earned but unpaid compensation as of the date of the
termination of his employment with the Holding Company, such payment to
be made at the time and in the manner prescribed by law applicable to
the payment of wages but in no event later than thirty (30) days after
termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and pro-
Page 5 of 19
<PAGE>
grams maintained for the benefit of the Holding Company's officers and
employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long-term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for
Executive, for the Remaining Unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled under
such plans (as in effect on the date of his termination of employment,
or, if his termination of employment occurs after a Change of Control,
on the date of such Change of Control, whichever benefits are greater),
if he had continued working for the Holding Company during the
Remaining Unexpired Employment Period at the highest annual rate of
compensation achieved during that portion of the Employment Period
which is prior to Executive's termination of employment with the
Holding Company;
(iv) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment, in an amount
equal to the present value of the salary that Executive would have
earned if he had continued working for the Holding Company during the
Remaining Unexpired Employment Period at the highest annual rate of
salary achieved during that portion of the Employment Period which is
prior to Executive's termination of employment with the Holding
Company, where such present value is to be determined using a discount
rate equal to the applicable short-term federal rate prescribed under
section 1274(d) of the Internal Revenue Code of 1986 ("Code"),
compounded using the compounding period corresponding to the Holding
Company's regular payroll periods for its officers, such lump sum to be
paid in lieu of all other payments of salary provided for under this
Agreement in respect of the period following any such termination;
(v) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment in an amount
equal to the excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Holding Company, if he were
one-hundred percent (100%) vested thereunder and had continued
working for the Holding Company during the Remaining Unexpired
Employment Period, such benefits to be determined as of the
date of termination of employment by adding to the service
actually recognized under such plans an additional period
equal to the Remaining Unexpired Employment Period and by
adding to the compensation recognized under such plans for the
year in which termination of employment occurs all amounts
payable under sections 9(b)(i), (iv) and (vii); over
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<PAGE>
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment in an amount
equal to the present value of the additional employer contributions (or
if greater in the case of a leveraged employee stock ownership plan or
similar arrangement, the additional assets allocable to him through
debt service, based on the fair market value of such assets at
termination of employment) to which he would have been entitled under
any and all qualified and non-qualified defined contribution plans
maintained by, or covering employees of, the Holding Company, as if he
were one-hundred percent (100%) vested thereunder and had continued
working for the Holding Company during the Remaining Unexpired
Employment Period at the highest annual rate of compensation achieved
during that portion of the Employment Period which is prior to the
Executive's termination of employment with the Holding Company, and
making the maximum amount of employee contributions, if any, re quired
under such plan or plans, such present value to be determined on the
basis of a discount rate, compounded using the compounding period that
corresponds to the frequency with which employer contributions are made
to the relevant plan, equal to the Applicable PBGC Rate; and
(vii) the payments that would have been made to Executive
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Holding
Company if he had continued working for the Holding Company during the
Remaining Unexpired Employment Period and had earned a bonus or
incentive award in each calendar year that ends during the Remaining
Unexpired Employment Period in an amount equal to the highest annual
bonus or incentive award actually paid to him in any calendar year
ending during the three-year period ending on the date of termination
of employment.
The Holding Company and the Executive hereby stipulate that the damages which
may be incurred by Executive following any such termination of employment are
not capable of accurate measurement as of the date first above written and that
the payments and benefits contemplated by this section 9(b) constitute
reasonable damages under the circumstances and shall be payable without any
requirement of proof of actual damage and without regard to Executive's efforts,
if any, to mitigate damages. The Holding Company and the Executive further agree
that the Holding Company may condition the payments and benefits (if any) due
under sections 9(b)(iii), (iv), (v), (vi) and (vii) on the receipt of the
Executive's resignation from any and all positions which he
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<PAGE>
holds as an officer, director or committee member with respect to the Holding
Company, the Association or any subsidiary or affiliate of either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL HOLDING
COMPANY LIABILITY.
In the event that the Executive's employment with the Holding
Company shall terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for
purposes of this Agreement shall mean 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 any material
breach of this Agreement, in each case as measured against standards
generally prevailing at the relevant time in the savings and community
banking industry; PROVIDED, HOWEVER, that the Executive shall not be
deemed to have been discharged for cause unless and until the following
procedures shall have been followed:
(i) the Board shall adopt a resolution duly approved
by affirmative vote of a majority of the entire Board at a
meeting called and held for such purpose calling for the
Executive's termination for cause and setting forth the
purported grounds for such termination ("Proposed Termination
Resolution");
(ii) as soon as practicable, and in any event within
five (5) days, after adoption of such resolution, the Board
shall furnish to the Executive a written notice of termination
which shall be accompanied by a certified copy of the Proposed
Termination Resolution ("Notice of Proposed Termination");
(iii) the Executive shall be afforded a reasonable
opportunity to make oral and written presentations to the
members of the Board, on his own behalf, or through a
representative, who may be his legal counsel, to refute the
grounds set forth in the Proposed Termination Resolution at
one or more meetings of the Board to be held no sooner than
fifteen (15) days and no later than thirty (30) days after the
Executive's receipt of the Proposed Termination Notice
("Termination Hearings"); and
(iv) within ten (10) days following the end of the
Termination Hearings, the Board shall adopt a resolution duly
approved by affirmative vote of a majority of the entire Board
at a meeting called and held for such purpose (A) finding that
in the good faith opinion of the Board the grounds for
termination set forth in the Proposed Termination Resolution
exist and (B) terminating the Executive's employment
("Termination Resolution"); and
Page 8 of 19
<PAGE>
(v) as promptly as practicable, and in any event
within one (1) business day after adoption of the Termination
Resolution, the Board shall furnish to the Executive written
notice of termination, which notice shall include a copy of
the Termination Resolution and specify an effective date of
termination that is not later than the date on which such
notice is given;
(b) the Executive's voluntary resignation from employment with
the Holding Company for reasons other than those specified in section
9(a);
(c) the Executive's death; or
(d) a determination that the Executive is eligible for
long-term disability benefits under the Holding Company's long-term
disability insurance program or, if there is no such program, under the
federal Social Security Act;
then the Holding Company shall have no further obligations under this Agreement,
other than the payment to the Executive (or, in the event of his death, to his
estate) of his earned but unpaid salary as of the date of the termination of his
employment, and the provision of such other benefits, if any, to which he is
entitled as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained by, or covering employees of, the
Holding Company.
(e) For purposes of section 10(a), no act or failure to act,
on the part of the Executive, shall be considered "willful" unless it is done,
or omitted to be done, by the Executive in bad faith or without reasonable
belief that the Executive's action or omission was in the best interests of the
Holding Company. Any act, or failure to act, based upon authority given pursuant
to a resolution duly adopted by the Board or based upon the written advice of
counsel for the Holding Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Holding Company. The cessation of employment of the Executive shall not be
deemed to be for "cause" within the meaning of section 10(a) unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of three-fourths of the non-employee members of
the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to Executive and Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in section 10(a) above, and specifying the particulars thereof in
detail.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF
CONTROL.
(a) A Change of Control of the Holding Company ("Change of
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(i) approval by the stockholders of the Holding Company of a
transaction that would result in the reorganization, merger or
consolidation of the
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<PAGE>
Holding Company, respectively, with one or more other persons, other
than a transaction following which:
(A) at least fifty-one percent (51%) of the equity
ownership interests of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule
13d-3 promulgated under the Securities Exchange Act of 1934,
as amended ("Exchange Act") in substantially the same relative
proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least fifty-one
percent (51%) of the outstanding equity ownership interests in
the Holding Company; and
(B) at least fifty-one percent (51%) of the
securities entitled to vote generally in the election of
directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least fifty-one
percent (51%) of the securities entitled to vote generally in
the election of directors of the Holding Company;
(ii) the acquisition of all or substantially all of the assets
of the Holding Company or beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of twenty-five percent
(25%) or more of the outstanding securities of the Holding Company
entitled to vote generally in the election of directors by any person
or by any persons acting in concert, or approval by the stockholders of
the Holding Company of any transaction which would result in such an
acquisition;
(iii) a complete liquidation or dissolution of the Holding
Company, or approval by the stockholders of the Holding Company of a
plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following
such event, at least fifty percent (50%) of the members of the board of
directors of the Holding Company do not belong to any of the following
groups:
(A) individuals who were members of the board of
directors of the Holding Company on the date of this
Agreement; or
(B) individuals who first became members of the board
of directors of the Holding Company after the date of this
Agreement either:
(I) upon election to serve as a member of
the board of directors of the Holding Company by
affirmative vote of three-
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<PAGE>
quarters of the members of such board, or of a
nominating committee thereof, in office at the time
of such first election; or
(II) upon election by the stockholders of
the Holding Company to serve as a member of the board
of directors of the Holding Company, but only if
nominated for election by affirmative vote of
three-quarters of the members of such board, or of a
nominating committee thereof, in office at the time
of such first nomination;
PROVIDED, HOWEVER, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the board of directors of the Holding Company; or
(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Association" were substituted for the
term "Holding Company" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Holding Company, the
Association, or a subsidiary of either of them, by the Holding Company, the
Association, or a subsidiary of either of them, or by any employee benefit plan
maintained by any of them. For purposes of this section 11(a), the term "person"
shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the
Exchange Act.
(b) In the event of a Change of Control, the Executive shall
be entitled to the payments and benefits contemplated by section 9(b) in the
event of his termination employment with the Holding Company under any of the
circumstances described in section 9(a) of this Agreement or under any of the
following circumstances:
(i) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following his demotion, loss of
title, office or significant authority or responsibility, or following
any material reduction in any element of his compensation and benefits;
(ii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following (A) any relocation of
his principal place of employment outside of a 25-mile radius of the
principal place of employment immediately prior to the Change of
Control that would require a relocation of his
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<PAGE>
residence in order to be able to commute to such new place of
employment within a commuting time not in excess of the greater of
sixty (60) minutes or the Executive's commuting time prior to the
Change of Control or (B) any material adverse change in working
conditions at such principal place of employment; or
(iii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following the failure of any
successor to the Holding Company in the Change of Control to include
the Executive in any compensation or benefit program maintained by it
or covering any of its executive officers, unless the Executive is
already covered by a substantially similar plan of the Holding Company
which is at least as favorable to him.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment
is terminated upon or following (i) a Change of Control (as defined in section
11 of this Agreement); or (ii) a change "in the ownership or effective control"
of the Holding Company or the Association or "in the ownership of a substantial
portion of the assets" of the Holding Company or the Association within the
meaning of section 280G of the Code. If this Section 12 applies, then, if for
any taxable year, the Executive shall be liable for the payment of an excise tax
under section 4999 of the Code with respect to any payment in the nature of
compensation made by the Holding Company, the Association or any direct or
indirect subsidiary or affiliate of the Holding Company or the Association to
(or for the benefit of) the Executive, the Holding Company shall pay to
Executive an amount equal to X determined under the following formula:
E x P
X = ------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under
section 4999 of the Code;
P = the amount with respect to which such excise tax is
assessed, determined without regard to this section
12;
FI = the highest marginal rate of income tax applicable to
Executive under the Code for the taxable year in
question;
SLI = the sum of the highest marginal rates of income tax
applicable to Executive under all applicable state
and local laws for the taxable year in question; and
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<PAGE>
M = the highest marginal rate of Medicare tax applicable
to Executive under the Code for the taxable year in
question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, or
otherwise, and on which an excise tax under section 4999 of the Code will be
assessed, the payment determined under this section 12(a) shall be made to the
Executive on the earlier of (i) the date the Holding Company, the Association or
any direct or indirect subsidiary or affiliate of the Holding Company or the
Association is required to withhold such tax, or (ii) the date the tax is
required to be paid by the Executive.
(b) Notwithstanding anything in this section 12 to the
contrary, in the event that Executive's liability for the excise tax under
section 4999 of the Code for a taxable year is subse quently determined to be
different than the amount determined by the formula (X + P) x E, where X, P and
E have the meanings provided in section 12(a), the Executive or the Holding
Company, as the case may be, shall pay to the other party at the time that the
amount of such excise tax is finally determined, an appropriate amount, plus
interest, such that the payment made under section 12(a), when increased by the
amount of the payment made to Executive under this section 12(b) by the Holding
Company, or when reduced by the amount of the payment made to the Holding
Company under this section 12(b) by the Executive, equals the amount that should
have properly been paid to Executive under section 12(a). The interest paid
under this section 12(b) shall be determined at the rate provided under section
1274(b)(2)(B) of the Code. To confirm that the proper amount, if any, was paid
to Executive under this section 12, Executive shall furnish to the Holding
Company a copy of each tax return which reflects a liability for an excise tax
payment made by the Holding Company, at least 20 days before the date on which
such return is required to be filed with the Internal Revenue Service.
SECTION 13. COVENANT NOT TO COMPETE.
In the event of the Executive's termination of employment with
the Holding Company prior to the expiration of the Employment Period, for a
period of one (1) year following the date of his termination of employment with
the Holding Company (or, if less, for the Remaining Unexpired Employment
Period), the Executive shall not, without the written consent of the Holding
Company, become an officer, employee, consultant, director or trustee of any
competitor (as herein defined) if in this capacity he would be working within
one hundred (100) miles of the place where the headquarters of the Holding
Company are located on the date of the Executive's termination of employment.
For this purpose, a "competitor" is any savings bank, savings and loan
association, savings and loan holding company, bank or bank holding company, or
any direct or indirect subsidiary or affiliate of any such entity. This section
13 shall not apply if Executive's employment is terminated without cause or due
to death or voluntary resignation as described in section 9(a). If the
Executive's employment shall be terminated on account of disability as provided
in section 10(d) of this Agreement, this section 13 shall not apply if (a) the
Executive first offers, by written notice, to accept a similar position with, or
perform similar services for, the Holding Company on substantially the same
terms and conditions proposed by the competitor and (b) the Holding Company
declines to accept such offer within ten (10) days after such notice is given.
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<PAGE>
SECTION 14. CONFIDENTIALITY.
Unless the Executive obtains the prior written consent of the
Holding Company, he shall keep confidential and shall refrain from using for the
benefit of himself, or any person or entity other than the Holding Company or
any entity which is a subsidiary of the Holding Company or of which the Holding
Company is a subsidiary, any material document or information obtained from the
Holding Company, or from its parent or subsidiaries, in the course of his
employment with any of them concerning their properties, operations or business
(unless such document or information is readily ascertainable from public or
published information or trade sources or has otherwise been made available to
the public through no fault of his own) until the same ceases to be material (or
becomes so ascertainable or available); PROVIDED, HOWEVER, that nothing in this
section 14 shall prevent Executive, with or without the Holding Company's
consent, from participating in or disclosing documents or information in
connection with any judicial or administrative investigation, inquiry or
proceeding to the extent that such participation or disclosure is required under
applicable law.
SECTION 15. SOLICITATION.
Executive hereby covenants and agrees that, for a period of
one (1) year following his termination of employment with the Holding Company,
he shall not, without the written consent of the Holding Company, either
directly or indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Holding Company, the Association or any affiliate, as of the date
of this Agreement, of either of them, to terminate his or his
employment and accept employment or become affiliated with, or provide
services for compensation in any capacity whatsoever to, any savings
bank, savings and loan association, bank, bank holding company, savings
and loan holding company, or other institution engaged in the business
of accepting deposits and making loans, doing business within one
hundred (100) miles of the headquarters of the Holding Company, the
Association or any affiliate, as of the date of this Agreement, of
either of them;
(b) provide any information, advice or recommendation with
respect to any such officer or employee of any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Holding Company, the
Association, or any affiliate, as of the date of this Agreement, of
either of them, that is intended, or that a reasonable person acting in
like circumstances would expect, to have the effect of causing any
officer or employee of the Holding Company, the Association, or any
affiliate, as of the date of this Agreement, of either of them, to
terminate his employment and accept employment
Page 14 of 19
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or become affiliated with, or provide services for compensation in any
capacity whatsoever to, any savings bank, savings and loan association,
bank, bank holding company, savings and loan holding company, or other
institution engaged in the business of accepting deposits and making
loans, doing business within one hundred (100) miles of the
headquarters of the Holding Company, the Association, or any affiliate,
as of the date of this Agreement, of either of them; or
(c) solicit, provide any information, advice or recommendation
or take any other action intended, or that a reasonable person acting
in like circumstances would expect, to have the effect of causing any
customer of the Holding Company to terminate an existing business or
commercial relationship with the Holding Company.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR
PROGRAMS.
The termination of Executive's employment during the term of
this Agreement or thereafter, whether by the Holding Company or by the
Executive, shall have no effect on the rights and obligations of the parties
hereto under the Holding Company's qualified or non-qualified retirement,
pension, savings, thrift, profit-sharing or stock bonus plans, group life,
health (includ ing hospitalization, medical and major medical), dental, accident
and long term disability insurance plans or such other employee benefit plans or
programs, or compensation plans or programs, as may be maintained by, or cover
employees of, the Holding Company from time to time.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Executive, his legal representatives and testate or intestate
distributees, and the Holding Company and its successors and assigns, including
any successor by merger or consolidation or a statutory receiver or any other
person or firm or corporation to which all or substantially all of the assets
and business of the Holding Company may be sold or otherwise transferred.
Failure of the Holding Company to obtain from any successor its express written
assumption of the Holding Company's obligations hereunder at least sixty (60)
days in advance of the scheduled effective date of any such succession shall be
deemed a material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
Page 15 of 19
<PAGE>
If to the Executive:
Kenneth L. Moran
1021 Mohawk Drive
Elgin, Illinois 60120
If to the Holding Company:
Home Bancorp of Elgin, Inc.
16 North Spring Street
Elgin, Illinois 60120-5569
Attention: BOARD OF DIRECTORS -- NON-EMPLOYEE
DIRECTORS
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. EDWARD BRIGHT, ESQ.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Holding Company shall indemnify, hold harmless and defend
the Executive against reasonable costs, including legal fees, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement; PROVIDED, HOWEVER, that the Executive shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the Holding
Company's obligations hereunder shall be conclusive evidence of Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
Page 16 of 19
<PAGE>
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of
Illinois applicable to contracts entered into and to be performed entirely
within the State of Illinois.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or rep resentations relating to the subject
matter hereof. No modifications of this Agreement shall be
valid unless made in writing and signed by the parties hereto.
SECTION 26. GUARANTEE.
The Holding Company hereby agrees to guarantee the payment by
the Association of any benefits and compensation to which Executive is or may be
entitled to under the terms and conditions of the employment agreement dated as
of September 26, 1996 between the Association and the Executive, a copy of which
is attached hereto as Exhibit A ("Association Agreement").
Page 17 of 19
<PAGE>
SECTION 27. NON-DUPLICATION.
In the event that the Executive shall perform services for the
Association or any other direct or indirect subsidiary of the Holding Company,
any compensation or benefits provided to Executive by such other employer shall
be applied to offset the obligations of the Holding Company hereunder, it being
intended that this Agreement set forth the aggregate compensation and benefits
payable to Executive for all services to the Holding Company and all of its
direct or indirect subsidiaries.
SECTION 28. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any
payments to Executive by the Holding Company, whether 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. ss.1828(k), and any regulations promulgated thereunder.
IN WITNESS WHEREOF, the Holding Company has caused this
Agreement to be executed and Executive has hereunto set his hand, all as of the
day and year first above written.
/s/ Kenneth L. Moran
------------------------------------------
KENNETH L. MORAN
ATTEST: HOME BANCORP OF ELGIN, INC.
By /s/ Kathleen A. Schroeder
-------------------------
Secretary By /s/ Leigh C. O'Connor
----------------------------------------
NAME: Leigh C. O'Connor
TITLE: Chairman, Compensation Committee
[Seal]
Page 18 of 19
<PAGE>
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
KENNETH L. MORAN, to me known, and known to me to be the individual described in
the foregoing instrument, who, being by me duly sworn, did depose and say that
he resides at the address set forth in said instrument, and that he signed his
name to the foregoing instrument.
/s/ Ruth E. Bart
------------------------------
Notary Public
[SEAL]
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
LEIGH C. O'CONNOR, to me known, who, being by me duly sworn, did depose and say
that he resides at 366 Hamilton Ave., Elgin, IL 60123, that he is a member of
the Board of Directors of HOME BANCORP OF ELGIN, INC., the Delaware corporation
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such seal; that
it was so affixed by order of the Board of Directors of said corporation; and
that he signed his name thereto by like order.
/s/ Ruth E. Bart
------------------------------
Notary Public
[SEAL]
Page 19 of 19
HOME FEDERAL SAVINGS AND LOAN ASSOCIATION OF ELGIN
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of September 26, 1996 by and between HOME FEDERAL SAVINGS AND LOAN
ASSOCIATION OF ELGIN, a savings and loan association organized and operating
under the federal laws of the United States and having an office at 16 North
Spring Street, Elgin, Illinois 60120 ("Association") and GEORGE L. PERUCCO, an
individual residing at 765 Ruth Drive, Elgin, Illinois 60123, ("Executive").
W I T N E S S E T H :
-------------------
WHEREAS, Executive currently serves the Association in the
capacity of President and Chief Executive Officer; and
WHEREAS, effective as of the date of this Agreement, the
Association has converted from a federal mutual savings and loan association to
a federal stock savings and loan association and has become the wholly-owned
subsidiary of Home Bancorp of Elgin, Inc., a publicly-held Delaware corporation
("Holding Company"); and
WHEREAS, the Association desires to assure for itself the
continued availability of the Executive's services and the ability of the
Executive to perform such services with a minimum of personal distraction in the
event of a pending or threatened Change of Control (as hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the
Association on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Association and the
Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Association agrees to continue to employ the Executive,
and the Executive hereby agrees to such continued employment, during the period
and upon the terms and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED
EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term of
three (3) years beginning on the date of this Agreement. Prior to the first
(1st) anniversary of the date of this Agreement and on each
Page 1 of 18
<PAGE>
anniversary date thereafter (each, an "Anniversary Date"), the Board of
Directors of the Association ("Board") shall review the terms of this Agreement
and the Executive's performance of services hereunder and may, in the absence of
objection from the Executive, approve an extension of the Employment Agreement.
In such event, the Employment Agreement shall be extended to the third (3rd)
anniversary of the relevant Anniversary Date.
(b) For all purposes of this Agreement, the term "Remaining
Unexpired Employment Period" as of any date shall mean the period beginning on
such date and ending on the Anniversary Date on which the Employment Period (as
extended pursuant to section 2(a) of this Agreement) is then scheduled to
expire.
(c) Nothing in this Agreement shall be deemed to prohibit the
Association at any time from terminating the Executive's employment during the
Employment Period with or without notice for any reason; PROVIDED, HOWEVER, that
the relative rights and obligations of the Association and the Executive in the
event of any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
Executive shall serve as the President and Chief Executive
Officer of the Association, having such power, authority and responsibility and
performing such duties as are prescribed by or under the By-Laws of the
Association and as are customarily associated with such position, including
without limitation, the general direction of all of the business and affairs of
the Association, the hiring and supervision of all senior management personnel,
and long-term strategic planning for the Association, including growth by merger
and acquisition. The Executive shall devote his full business time and attention
(other than during holidays, approved vacation periods, and periods of illness
or approved leaves of absence) to the business and affairs of the Association
and shall use his best efforts to advance the interests of the Association.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the
Executive hereunder, the Association shall pay to him a salary at an initial
annual rate of TWO HUNDRED AND FOURTEEN THOUSAND, SIX HUNDRED AND FIFTY-FIVE
DOLLARS ($214,655), payable in approximately equal installments in accordance
with the Association's customary payroll practices for senior officers. The
Board shall review the Executive's annual rate of salary at such times as it
deems appropriate, but not less frequently than once every twelve months, and
may, in its discretion, approve an increase therein. In addition to salary,
Executive may receive other cash compensation from the Association for services
hereunder at such times, in such amounts and on such terms and conditions as the
Board may determine from time to time.
Page 2 of 18
<PAGE>
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated
as an employee of the Association and shall be eligible to participate in and
receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long-term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Association, in accordance with the terms and conditions of such employee
benefit plans and programs and compensation plans and programs and consistent
with the Association's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six (6)
years thereafter, the Association shall cause the Executive to be covered by and
named as an insured under any policy or contract of insurance obtained by it to
insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of the
Association or service in other capacities at the request of the Association.
The coverage provided to the Executive pursuant to this section 6 shall be of
the same scope and on the same terms and conditions as the coverage (if any)
provided to other officers or directors of the Association.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Association shall indemnify, and shall cause its subsidiaries and affiliates to
indemnify the Executive against and hold him harmless from any costs,
liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Association or any subsidiary or affiliate thereof.
This section 6(b) shall not be applicable where section 18 is applicable.
SECTION 7. OUTSIDE ACTIVITIES.
Executive may serve as a member of the boards of directors of
such business, community and charitable organizations as he may disclose to and
as may be approved by the Board (which approval shall not be unreasonably
withheld); PROVIDED, HOWEVER, that such service shall not materially interfere
with the performance of his duties under this Agreement. Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; PROVIDED, HOWEVER, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Association and generally
applicable to all similarly situated executives. Executive may also serve as an
officer or director of the Holding Company on terms and conditions as the
Association and the Holding Company may mutually agree upon, and such service
shall not be deemed to materially interfere with the Executive's performance of
his duties hereunder or otherwise to result in a material breach of this
Agreement.
Page 3 of 18
<PAGE>
SECTION 8. WORKING FACILITIES AND EXPENSES.
Executive's principal place of employment shall be at the
Association's executive offices at the address first above written, or at such
other location within a 25-mile radius thereof at which the Association shall
maintain its principal executive offices, or at such other location as the
Association and Executive may mutually agree upon. The Association shall provide
the Executive at his principal place of employment with a private office,
secretarial services and other support services and facilities suitable to his
position with the Association and necessary or appropriate in connection with
the performance of his assigned duties under this Agreement. The Association
shall reimburse Executive for his ordinary and necessary business expenses,
including, without limitation, fees for memberships in such clubs and
organizations as Executive and the Association shall mutually agree are
necessary and appropriate for business purposes, and his travel and
entertainment expenses incurred in connection with the performance of his duties
under this Agreement, in each case upon presentation to the Association of an
itemized account of such expenses in such form as the Association may reasonably
require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE
BENEFITS.
(a) Executive shall be entitled to the severance benefits
described herein in the event that his employment with the Association
terminates during the Employment Period under any of the following
circumstances:
(i) Executive's voluntary resignation from employment with the
Association within ninety (90) days following:
(A) the failure of the Board to appoint or re-appoint
or elect or re-elect the Executive to the office described in
section 3 of this Agreement (or a more senior office) of the
Association;
(B) if the Executive is a member of the Board as of
the date of this Agreement, the failure of the stockholders of
the Association to elect or re-elect Executive to the Board or
the failure of the Board (or the nominating committee thereof)
to nominate Executive for such election or re-election;
(C) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Association of its material failure, whether by
amendment of the Association's Organization Certificate or
By-Laws, action of the Board or the Association's stockholders
or otherwise, to vest in the Executive the functions, duties,
or responsibilities prescribed in section 3 of this Agreement,
unless, during such thirty (30) day period, the Association
fully cures such failure;
(D) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Association of its
Page 4 of 18
<PAGE>
material breach of any term, condition or covenant contained
in this Agreement (including, without limitation any reduction
of Executive's rate of base salary in effect from time to time
and any change in the terms and conditions of any compensation
or benefit program in which the Executive participates which,
alone or together with other changes, has a material adverse
effect on the aggregate value of his total compensation
package), unless, during such thirty (30) day period, the
Association fully cures such failure; or
(ii) the termination of Executive's employment with the
Association for any other reason not described in section 10(a);
then, subject to section 25, the Association shall provide the benefits and pay
to Executive the amounts described in section 9(b).
(b) Upon the termination of the Executive's employment with
the Association under circumstances described in section 9(a) of this Agreement,
the Association shall pay and provide to the Executive (or, in the event of his
death, to his estate):
(i) his earned but unpaid compensation (including, without
limitation, all items which constitute wages under applicable law and
the payment of which is not otherwise provided for under this section
9(b)) as of the date of the termination of his employment with the
Association, such payment to be made at the time and in the manner
prescribed by law applicable to the payment of wages but in no event
later than thirty (30) days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and pro grams maintained for the benefit of the Association's
officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Executive, for the Remaining Unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled under
such plans (as in effect on the date of his termination of employment,
or, if his termination of employment occurs after a Change of Control,
on the date of such Change of Control, whichever benefits are greater)
if he had continued working for the Association during the Remaining
Unexpired Employment Period at the highest annual rate of compensation
achieved during that portion of the Employment Period which is prior to
Executive's termination of employment with the Association;
(iv) within thirty (30) days following his termination of
employment with the Association, a lump sum payment, in an amount equal
to the present value of the salary that Executive would have earned if
he had continued working for the
Page 5 of 18
<PAGE>
Association during the Remaining Unexpired Employment Period at the
highest annual rate of salary achieved during that portion of the
Employment Period which is prior to Executive's termination of
employment with the Association, where such present value is to be
determined using a discount rate equal to the applicable short-term
federal rate prescribed under section 1274(d) of the Internal Revenue
Code of 1986 ("Code"), compounded using the compounding period
corresponding to the Association's regular payroll periods for its
officers, such lump sum to be paid in lieu of all other payments of
salary provided for under this Agreement in respect of the period
following any such termination;
(v) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Association) if he were one-hundred
percent (100%) vested thereunder and had continued working for
the Association during the Remaining Unexpired Employment
Period, such benefits to be determined as of the date of
termination of employment by adding to the service actually
recognized under such plans an additional period equal to the
Remaining Unexpired Employment Period and by adding to the
compensation recognized under such plans for the year in which
termination of employment occurs all amounts payable under
sections 9(b)(i), (iv) and (vii); over
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescr ibed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefits Guaranty Corporation for
the valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the present value of the additional employer contributions (or if
greater in the case of a leveraged employee stock ownership plan or
similar arrangement, the additional assets allocable to him through
debt service, based on the fair market value of such assets at
termination of employment) to which he would have been entitled under
any and all qualified and non-qualified defined contribution plans
maintained by, or covering employees of, the Association, if he were
one-hundred percent (100%) vested thereunder and had continued working
for the Association during the Remaining Unexpired Em ployment Period
at the highest annual rate of compensation achieved during that
Page 6 of 18
<PAGE>
portion of the Employment Period which is prior to Executive's
termination of employment with the Association, and making the maximum
amount of employee contributions, if any, required under such plan or
plans, such present value to be determined on the basis of a discount
rate, compounded using the compounding period that corresponds to the
frequency with which employer contributions are made to the relevant
plan, equal to the Applicable PBGC Rate; and
(vii) the payments that would have been made to Executive
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the
Association if he had continued working for the Association during the
Remaining Unexpired Employment Period and had earned a bonus or
incentive award in each calendar year that ends during the Remaining
Unexpired Employment Period in an amount equal to the highest annual
bonus or incentive award actually paid to him in any calendar year
ending during the three-year period ending on the date of his
termination of employment.
The Association and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to Executive's efforts, if any, to
mitigate damages. The Association and the Executive further agree that the
Association may condition the payments and benefits (if any) due under sections
9(b)(iii), (iv), (v), (vi) and (vii) on the receipt of Executive's resignation
from any and all positions which he holds as an officer, director or committee
member with respect to the Association, the Holding Company or any subsidiary or
affiliate of either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL ASSOCIATION
LIABILITY.
In the event that the Executive's employment with the
Association shall terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for
purposes of this Agreement shall mean 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 any material
breach of this Agreement, in each case as measured against standards
generally prevailing at the relevant time in the savings and community
banking industry; PROVIDED, HOWEVER, that the Executive shall not be
deemed to have been discharged for cause unless and until the following
procedures shall have been followed:
(i) the Board shall adopt a resolution duly approved
by affirmative vote of a majority of the entire Board at a
meeting called and held for such purpose calling for the
Executive's termination for cause and
Page 7 of 18
<PAGE>
setting forth the purported grounds for such termination
("Proposed Termination Resolution");
(ii) as soon as practicable, and in any event within
five (5) days, after adoption of such resolution, the Board
shall furnish to the Executive a written notice of termination
which shall be accompanied by a certified copy of the Proposed
Termination Resolution ("Notice of Proposed Termination");
(iii) the Executive shall be afforded a reasonable
opportunity to make oral and written presentations to the
members of the Board, on his own behalf, or through a
representative, who may be his legal counsel, to refute the
grounds set forth in the Proposed Termination Resolution at
one or more meetings of the Board to be held no sooner than
fifteen (15) days and no later than thirty (30) after the
Executive's receipt of the Proposed Termination Notice
("Termination Hearings"); and
(iv) within ten (10) days following the end of the
Termination Hearings, the Board shall adopt a resolution duly
approved by affirmative vote of a majority of the entire Board
at a meeting called and held for such purpose (A) finding that
in the good faith opinion of the Board the grounds for
termination set forth in the Proposed Termination Resolution
exist and (B) terminating the Executive's employment
("Termination Resolution"); and
(v) as promptly as practicable, and in any event
within one (1) business day after adoption of the Termination
Resolution, the Board shall furnish to the Executive written
notice of termination, which notice shall include a copy of
the Termination Resolution and specify an effective date of
termination that is not later than the date on which such
notice is given;
(b) the Executive's voluntary resignation from employment with
the Association for reasons other than those specified in section
9(a)(i);
(c) the Executive's death; or
(d) a determination that the Executive is eligible for
long-term disability benefits under the Association's long-term
disability insurance program or, if there is no such program, under the
federal Social Security Act;
then the Association shall have no further obligations under this
Agreement, other than the payment to Executive (or, in the event of his
death, to his estate) of his earned but unpaid salary as of the date of
the termination of his employment, and the provision of such other
benefits, if any, to which he is entitled as a former employee under
the employee benefit plans and programs and compensation plans and
programs maintained by, or covering employees of, the Association.
Page 8 of 18
<PAGE>
(e) For purposes of section 10(a), no act or failure to act,
on the part of the Executive, shall be considered "willful" unless it
is done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive's action or omission was
in the best interests of the Association. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted by the
Board or based upon the written advice of counsel for the Association
shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the
Association. The cessation of employment of the Executive shall not be
deemed to be for "cause" within the meaning of section 10(a) unless and
until there shall have been delivered to Executive a copy of a
resolution duly adopted by the affirmative vote of three-fourths of the
non-employee members of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice is provided to Executive
and Executive is given an opportunity, together with counsel, to be
heard before the Board), finding that, in the good faith opinion of the
Board, Executive is guilty of the conduct described in section 10(a)
above, and specifying the particulars thereof in detail.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF
CONTROL.
(a) A Change of Control of the Association ("Change of
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(i) approval by the stockholders of the Association of a
transaction that would result in the reorganization, merger or
consolidation of the Association, respectively, with one or more other
persons, other than a transaction following which:
(A) at least fifty-one percent (51%) of the equity
ownership interests of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule
13d-3 promulgated under the Securities Exchange Act of 1934,
as amended ("Exchange Act")) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least fifty-one
percent (51%) of the outstanding equity ownership interests in
the Association; and
(B) at least fifty-one percent (51%) of the
securities entitled to vote generally in the election of
directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least fifty-one
percent (51%) of the securities entitled to vote generally in
the election of directors of the Association;
Page 9 of 18
<PAGE>
(ii) the acquisition of all or substantially all of the assets
of the Association or beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of twenty-five percent (25%)
or more of the outstanding securities of the Association entitled to
vote generally in the election of directors by any person or by any
persons acting in concert, or approval by the stockholders of the
Association of any transaction which would result in such an
acquisition; or
(iii) a complete liquidation or dissolution of the
Association, or approval by the stockholders of the Association of a
plan for such liquidation or dissolution; or
(iv) the occurrence of any event if, immediately following
such event, at least fifty percent (50%) of the members of the board of
directors of the Association do not belong to any of the following
groups:
(A) individuals who were members of the board of
directors of the Association on the date of this Agreement; or
(B) individuals who first became members of the board
of directors of the Association after the date of this
Agreement either:
(I) upon election to serve as a member of
the board of directors of the Association by
affirmative vote of three-quarters (3/4) of the
members of such board, or of a nominating committee
thereof, in office at the time of such first
election; or
(II) upon election by the stockholders of
the Association to serve as a member of the board of
directors of the Association, but only if nominated
for election by affirmative vote of three-quarters
(3/4) of the members of the board of directors of the
Association, or of a nominating committee thereof, in
office at the time of such first nomination;
PROVIDED, HOWEVER, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the board of directors of the Association;
(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Holding Company" were substituted for
the term "Association" therein.
Page 10 of 18
<PAGE>
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Holding Company, the
Association, or a subsidiary of either of them, by the Holding Company, the
Association, or a subsidiary of either of them, or by any employee benefit plan
maintained by any of them. For purposes of this section 11 the term "person"
shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the
Exchange Act.
(b) In the event of a Change of Control, the Executive shall
be entitled to the payments and benefits contemplated by section 9(b) in the
event of his termination employment with the Association under any of the
circumstances described in section 9(a) of this Agreement or under any of the
following circumstances:
(i) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period and within ninety (90) days
following his demotion, loss of title, office or significant authority
or responsibility, or following any material reduction in any element
of his package of compensation and benefits;
(ii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period and within ninety (90) days
following (A) any relocation of his principal place of employment
outside of a 25-mile radius of the principal place of employment
immediately prior to the Change of Control that would require a
relocation of his residence in order to be able to commute to such new
place of employment within a commuting time not in excess of the
greater of sixty (60) minutes or the Executive's commuting time prior
to the Change of Control or (B) any material adverse change in working
conditions at such principal place of employment; or
(iii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following the failure of any
successor to the Association in the Change of Control to include the
Executive in any compensation or benefit program maintained by it or
covering any of its executive officers, unless the Executive is already
covered by a substantially similar plan of the Association which is at
least as favorable to him.
SECTION 12. COVENANT NOT TO COMPETE.
In the event of the Executive's termination of employment with
the Association prior to the expiration of the Employment Period, for a period
of one (1) year following the date of his termination of employment with the
Association (or, if less, for the Remaining Unexpired Employment Period), the
Executive shall not, without the written consent of the Association, become an
officer, employee, consultant, director or trustee of any competitor (as herein
defined) if in this capacity he would be working within one hundred (100) miles
of the place where the headquarters of the Association are located on the date
of the Executive's termination of employment. For this purpose, a "competitor"
is any savings bank, savings and loan association, savings and loan holding
company, bank or bank holding company, or any direct or indirect subsidiary or
affiliate of any such entity. This section 12 shall not apply if the Executive's
em-
Page 11 of 18
<PAGE>
ployment is terminated without cause or due to death or voluntary resignation
as described in section 9(a). If the Executive's employment shall be terminated
on account of disability as provided in section 10(d) of this Agreement, this
section 12 shall not apply if (a) the Executive first offers, by written notice,
to accept a similar position with, or perform similar services for, the
Association on substantially the same terms and conditions proposed by the
competitor and (b) the Association declines to accept such offer within ten (10)
days after such notice is given.
SECTION 13. CONFIDENTIALITY.
Unless the Executive obtains the prior written consent of the
Association, he shall keep confidential and shall refrain from using for the
benefit of himself, or any person or entity other than the Association or any
entity which is a subsidiary of the Association or of which the Association is a
subsidiary, any material document or information obtained from the Association,
or from its parent or subsidiaries, in the course of his employment with any of
them concerning their properties, operations or business (unless such document
or information is readily ascertainable from public or published information or
trade sources or has otherwise been made available to the public through no
fault of his own) until the same ceases to be material (or becomes so
ascertainable or available); PROVIDED, HOWEVER, that nothing in this section 13
shall prevent the Executive, with or without the Association's consent, from
participating in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding to the extent
that such participation or disclosure is required under applicable law.
SECTION 14. SOLICITATION.
Executive hereby covenants and agrees that, for a period of
one (1) year following his termination of employment with the Association, he
shall not, without the written consent of the Association, either directly or
indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Association, the Holding Company or any affiliate, as of the date
of this Agreement, of either of them to terminate his employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Association, the Holding Company
or any affiliate, as of the date of this Agreement, of either of them;
(b) provide any information, advice or recommendation with
respect to any such officer or employee of any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other
Page 12 of 18
<PAGE>
institution engaged in the business of accepting deposits and making
loans, doing business within one hundred (100) miles of the
headquarters of the Association, the Holding Company or any affiliate,
as of the date of this Agreement, of either of them that is intended,
or that a reasonable person acting in like circumstances would expect,
to have the effect of causing any officer or employee of the
Association, the Holding Company or any affiliate, as of the date of
this Agreement, of either of them to terminate his employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Association, the Holding
Company, or any affiliate, as of the date of this Agreement, of either
of them;
(c) solicit, provide any information, advice or recommendation
or take any other action intended, or that a reasonable person acting
in like circumstances would expect, to have the effect of causing any
customer of the Association to terminate an existing business or
commercial relationship with the Association.
SECTION 15. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR
PROGRAMS.
The termination of Executive's employment during the term of
this Agreement or thereafter, whether by the Association or by Executive, shall
have no effect on the rights and obligations of the parties hereto under the
Association's qualified or non-qualified retirement, pension, savings, thrift,
profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Association from time to time.
SECTION 16. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon Executive, his legal representatives and testate or intestate distributees,
and the Association and its successors and as signs, including any successor by
merger or consolidation or any other person or firm or corporation to which all
or substantially all of the assets and business of the Association may be sold
or otherwise transferred. Failure of the Association to obtain from any
successor its express written assumption of the Association's obligations
hereunder at least sixty (60) days in advance of the scheduled effective date of
any such succession shall be deemed a material breach of this Agreement unless
cured within ten (10) days after notice thereof by Executive to the Association.
Page 13 of 18
<PAGE>
SECTION 17. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Executive:
George L. Perucco
765 Ruth Drive
Elgin, Illinois 60123
If to the Association:
Home Federal Savings and Loan Association of Elgin
16 Spring Street
Elgin, Illinois 60120
Attention: BOARD OF DIRECTORS -- NON-EMPLOYEE
DIRECTORS
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. EDWARD BRIGHT, ESQ.
SECTION 18. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Association shall indemnify, hold harmless and defend the
Executive against reasonable costs, including legal fees, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement; PROVIDED, HOWEVER, that Executive shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the
Association's obligations hereunder shall be conclusive evidence of Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise. This provision
shall be inoperative if and to the extent
Page 14 of 18
<PAGE>
that, but only if and to the extent that, it shall be determined that compliance
herewith would violate any applicable law or regulation.
SECTION 19. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 20. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 21. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 22. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of
Illinois applicable to contracts entered into and to be performed entirely
within the State of Illinois.
SECTION 23. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 24. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or rep-
Page 15 of 18
<PAGE>
resentations relating to the subject matter hereof. No modifications of this
Agreement shall be valid unless made in writing and signed by the parties
hereto.
SECTION 25. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the
Association:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to
Executive under section 9(b) hereof (exclusive of amounts described in
section 9(b)(i)) exceed the lesser of (i) three times the Executive's
average annual total compensation for the last five consecutive
calendar years to end prior to his termination of employment with the
Association (or for his entire period of employment with the
Association if less than five calendar years) and (ii) the maximum
amount that may be paid without producing an "excess parachute payment"
(as such term is defined in section 280G of the Code), the
applicability of such provision to the Executive and any such maximum
amount to be determined in good faith by the firm of independent
certified public accountants regularly retained to audit the
Association's books and records.
(b) Notwithstanding anything herein contained to the contrary,
any payments to Executive by the Association, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their
compliance with section 18(k) of the Federal Deposit Insurance Act
("FDI Act"), 12 U.S.C. ss.1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Association
pursuant to a notice served under section 8(e)(3) or 8(g)(1) of the FDI
Act, 12 U.S.C. ss.1818(e)(3) or 1818(g)(1), the Association's
obligations under this Agreement shall be suspended as of the date of
service of such notice, unless stayed by appropriate proceedings. If
the charges in such notice are dismissed, the Association, in its
discretion, may (i) pay to Executive all or part of the compensation
withheld while the Association's obligations hereunder were suspended
and (ii) reinstate, in whole or in part, any of the obligations which
were suspended.
(d) Notwithstanding anything herein contained to the contrary,
if Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order
issued under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1), all prospective obligations of the Association
under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Association and
Executive shall not be affected.
Page 16 of 18
<PAGE>
(e) Notwithstanding anything herein contained to the contrary,
if the Association is in default (within the meaning of section 3(x)(1)
of the FDI Act, 12 U.S.C. ss.1813(x)(1), all prospective obligations of
the Association under this Agreement shall terminate as of the date of
default, but vested rights and obligations of the Association and
Executive shall not be affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Association hereunder shall be
terminated, except to the extent that a continuation of this Agreement
is necessary for the continued operation of the Association: (i) by the
Director of the Office of Thrift Supervision ("OTS") or his designee at
the time the Federal Deposit Insurance Corporation ("FDIC") enters into
an agreement to provide assistance to or on behalf of the Association
under the authority contained in section 13(c) of the FDI Act, 12
U.S.C. ss.1823(c); (ii) by the Director of the OTS or his designee at
the time such Director or designee approves a supervisory merger to
resolve problems related to the operation of the Association or when
the Association is determined by such Director to be in an unsafe or
unsound condition. The vested rights and obligations of the parties
shall not be affected.
If and to the extent that any of the foregoing provisions shall cease to be
required or by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
IN WITNESS WHEREOF, the Association has caused this Agreement
to be executed and Executive has hereunto set his hand, all as of the day and
year first above written.
/s/ George L. Perucco
---------------------
GEORGE L. PERUCCO
ATTEST: HOME FEDERAL SAVINGS AND LOAN
ASSOCIATION OF ELGIN
By /s/ Kathleen A. Schroeder
-----------------------------
Secretary By /s/ Leigh C. O'Connor
----------------------------------
NAME: Leigh C. O'Connor
TITLE: Chairman, Compensation
Committee
[Seal]
Page 17 of 18
<PAGE>
STATE OF ILLINOIS )
: ss.:
COUNTY OF KANE )
On this 15th day of January, 1998, before me personally came
GEORGE L. PERUCCO, to me known, and known to me to be the individual described
in the foregoing instrument, who, being by me duly sworn, did depose and say
that he resides at the address set forth in said instrument, and that he signed
his name to the foregoing instrument.
/s/ Ruth E. Bart
----------------------------------------
Notary Public
[SEAL]
STATE OF ILLINOIS )
: ss.:
COUNTY OF KANE )
On this 15th day of January, 1998, before me personally came
LEIGH C. O'CONNOR, to me known, who, being by me duly sworn, did depose and say
that he resides at 366 Hamilton Ave., Elgin, IL 60123, that he is a member of
the Board of Directors of HOME FEDERAL SAVINGS AND LOAN ASSOCIATION, the savings
and loan association described in and which executed the foregoing instrument;
that he knows the seal of said mutual savings and loan association; that the
seal affixed to said instrument is such seal; that it was so affixed by order of
the Board of Directors of said savings and loan association; and that he signed
his name thereto by like order.
/s/ Ruth E. Bart
----------------------------------------
Notary Public
[SEAL]
Page 18 of 18
HOME FEDERAL SAVINGS AND LOAN ASSOCIATION OF ELGIN
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of September 26, 1996 by and between HOME FEDERAL SAVINGS AND LOAN
ASSOCIATION OF ELGIN, a savings and loan association organized and operating
under the federal laws of the United States and having an office at 16 North
Spring Street, Elgin, Illinois 60120 ("Association") and LYLE N. DOLAN, an
individual residing at 10N815 Oxford Lane, Elgin, Illinois 60123, ("Executive").
W I T N E S S E T H :
---------------------
WHEREAS, Executive currently serves the Association in the
capacity of Executive Vice President and Treasurer; and
WHEREAS, effective as of the date of this Agreement, the
Association has converted from a federal mutual savings and loan association to
a federal stock savings and loan association and has become the wholly-owned
subsidiary of Home Bancorp of Elgin, Inc., a publicly-held Delaware corporation
("Holding Company"); and
WHEREAS, the Association desires to assure for itself the
continued availability of the Executive's services and the ability of the
Executive to perform such services with a minimum of personal distraction in the
event of a pending or threatened Change of Control (as hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the
Association on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Association and the
Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Association agrees to continue to employ the Executive,
and the Executive hereby agrees to such continued employment, during the period
and upon the terms and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED
EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term of
two (2) years beginning on the date of this Agreement. Prior to the first (1st)
anniversary of the date of this Agreement and on each
Page 1 of 18
<PAGE>
anniversary date thereafter (each, an "Anniversary Date"), the Board of
Directors of the Association ("Board") shall review the terms of this Agreement
and the Executive's performance of services hereunder and may, in the absence of
objection from the Executive, approve an extension of the Employment Agreement.
In such event, the Employment Agreement shall be extended to the second (2nd)
anniversary of the relevant Anniversary Date.
(b) For all purposes of this Agreement, the term "Remaining
Unexpired Employment Period" as of any date shall mean the period beginning on
such date and ending on the Anniversary Date on which the Employment Period (as
extended pursuant to section 2(a) of this Agreement) is then scheduled to
expire.
(c) Nothing in this Agreement shall be deemed to prohibit the
Association at any time from terminating the Executive's employment during the
Employment Period with or without notice for any reason; PROVIDED, HOWEVER, that
the relative rights and obligations of the Association and the Executive in the
event of any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
Executive shall serve as the Executive Vice President and
Treasurer of the Association, having such power, authority and responsibility
and performing such duties as are prescribed by or under the By-Laws of the
Association and as are customarily associated with such position, including
without limitation, the general direction of all of the business and affairs of
the Association, the hiring and supervision of all senior management personnel,
and long-term strategic planning for the Association, including growth by merger
and acquisition. The Executive shall devote his full business time and attention
(other than during holidays, approved vacation periods, and periods of illness
or approved leaves of absence) to the business and affairs of the Association
and shall use his best efforts to advance the interests of the Association.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the
Executive hereunder, the Association shall pay to him a salary at an initial
annual rate of ONE HUNDRED AND THIRTY- FOUR THOUSAND, SEVEN HUNDRED AND
FIFTY-THREE DOLLARS ($134,753), payable in approximately equal installments in
accordance with the Association's customary payroll practices for senior
officers. The Board shall review the Executive's annual rate of salary at such
times as it deems appropriate, but not less frequently than once every twelve
months, and may, in its discretion, approve an increase therein. In addition to
salary, Executive may receive other cash compensation from the Association for
services hereunder at such times, in such amounts and on such terms and
conditions as the Board may determine from time to time.
Page 2 of 18
<PAGE>
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated
as an employee of the Association and shall be eligible to participate in and
receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long-term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Association, in accordance with the terms and conditions of such employee
benefit plans and programs and compensation plans and programs and consistent
with the Association's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six (6)
years thereafter, the Association shall cause the Executive to be covered by and
named as an insured under any policy or contract of insurance obtained by it to
insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of the
Association or service in other capacities at the request of the Association.
The coverage provided to the Executive pursuant to this section 6 shall be of
the same scope and on the same terms and conditions as the coverage (if any)
provided to other officers or directors of the Association.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Association shall indemnify, and shall cause its subsidiaries and affiliates to
indemnify the Executive against and hold him harmless from any costs,
liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Association or any subsidiary or affiliate thereof.
This section 6(b) shall not be applicable where section 18 is applicable.
SECTION 7. OUTSIDE ACTIVITIES.
Executive may serve as a member of the boards of directors of
such business, community and charitable organizations as he may disclose to and
as may be approved by the Board (which approval shall not be unreasonably
withheld); PROVIDED, HOWEVER, that such service shall not materially interfere
with the performance of his duties under this Agreement. Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; PROVIDED, HOWEVER, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Association and generally
applicable to all similarly situated executives. Executive may also serve as an
officer or director of the Holding Company on terms and conditions as the
Association and the Holding Company may mutually agree upon, and such service
shall not be deemed to materially interfere with the Executive's performance of
his duties hereunder or otherwise to result in a material breach of this
Agreement.
Page 3 of 18
<PAGE>
SECTION 8. WORKING FACILITIES AND EXPENSES.
Executive's principal place of employment shall be at the
Association's executive offices at the address first above written, or at such
other location within a 25-mile radius thereof at which the Association shall
maintain its principal executive offices, or at such other location as the
Association and Executive may mutually agree upon. The Association shall provide
the Executive at his principal place of employment with a private office,
secretarial services and other support services and facilities suitable to his
position with the Association and necessary or appropriate in connection with
the performance of his assigned duties under this Agreement. The Association
shall reimburse Executive for his ordinary and necessary business expenses,
including, without limitation, fees for memberships in such clubs and
organizations as Executive and the Association shall mutually agree are
necessary and appropriate for business purposes, and his travel and
entertainment expenses incurred in connection with the performance of his duties
under this Agreement, in each case upon presentation to the Association of an
itemized account of such expenses in such form as the Association may reasonably
require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE
BENEFITS.
(a) Executive shall be entitled to the severance benefits
described herein in the event that his employment with the Association
terminates during the Employment Period under any of the following
circumstances:
(i) Executive's voluntary resignation from employment with the
Association within ninety (90) days following:
(A) the failure of the Board to appoint or re-appoint
or elect or re-elect the Executive to the office described in
section 3 of this Agreement (or a more senior office) of the
Association;
(B) if the Executive is a member of the Board as of
the date of this Agreement, the failure of the stockholders of
the Association to elect or re-elect Executive to the Board or
the failure of the Board (or the nominating committee thereof)
to nominate Executive for such election or re-election;
(C) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Association of its material failure, whether by
amendment of the Association's Organization Certificate or
By-Laws, action of the Board or the Association's stockholders
or otherwise, to vest in the Executive the functions, duties,
or responsibilities prescribed in section 3 of this Agreement,
unless, during such thirty (30) day period, the Association
fully cures such failure;
(D) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Association of its
Page 4 of 18
<PAGE>
material breach of any term, condition or covenant contained
in this Agreement (including, without limitation any reduction
of Executive's rate of base salary in effect from time to time
and any change in the terms and conditions of any compensation
or benefit program in which the Executive participates which,
alone or together with other changes, has a material adverse
effect on the aggregate value of his total compensation
package), unless, during such thirty (30) day period, the
Association fully cures such failure; or
(ii) the termination of Executive's employment with the
Association for any other reason not described in section 10(a);
then, subject to section 25, the Association shall provide the benefits and pay
to Executive the amounts described in section 9(b).
(b) Upon the termination of the Executive's employment with
the Association under circumstances described in section 9(a) of this Agreement,
the Association shall pay and provide to the Executive (or, in the event of his
death, to his estate):
(i) his earned but unpaid compensation (including, without
limitation, all items which constitute wages under applicable law and
the payment of which is not otherwise provided for under this section
9(b)) as of the date of the termination of his employment with the
Association, such payment to be made at the time and in the manner
prescribed by law applicable to the payment of wages but in no event
later than thirty (30) days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and pro grams maintained for the benefit of the Association's
officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Executive, for the Remaining Unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled under
such plans (as in effect on the date of his termination of employment,
or, if his termination of employment occurs after a Change of Control,
on the date of such Change of Control, whichever benefits are greater)
if he had continued working for the Association during the Remaining
Unexpired Employment Period at the highest annual rate of compensation
achieved during that portion of the Employment Period which is prior to
Executive's termination of employment with the Association;
(iv) within thirty (30) days following his termination of
employment with the Association, a lump sum payment, in an amount equal
to the present value of the salary that Executive would have earned if
he had continued working for the
Page 5 of 18
<PAGE>
Association during the Remaining Unexpired Employment Period at the
highest annual rate of salary achieved during that portion of the
Employment Period which is prior to Executive's termination of
employment with the Association, where such present value is to be
determined using a discount rate equal to the applicable short-term
federal rate prescribed under section 1274(d) of the Internal Revenue
Code of 1986 ("Code"), compounded using the compounding period
corresponding to the Association's regular payroll periods for its
officers, such lump sum to be paid in lieu of all other payments of
salary provided for under this Agreement in respect of the period
following any such termination;
(v) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Association) if he were one-hundred
percent (100%) vested thereunder and had continued working for
the Association during the Remaining Unexpired Employment
Period, such benefits to be determined as of the date of
termination of employment by adding to the service actually
recognized under such plans an additional period equal to the
Remaining Unexpired Employment Period and by adding to the
compensation recognized under such plans for the year in which
termination of employment occurs all amounts payable under
sections 9(b)(i), (iv) and (vii); over
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescr ibed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefits Guaranty Corporation for
the valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the present value of the additional employer contributions (or if
greater in the case of a leveraged employee stock ownership plan or
similar arrangement, the additional assets allocable to him through
debt service, based on the fair market value of such assets at
termination of employment) to which he would have been entitled under
any and all qualified and non-qualified defined contribution plans
maintained by, or covering employees of, the Association, if he were
one-hundred percent (100%) vested thereunder and had continued working
for the Association during the Remaining Unexpired Em ployment Period
at the highest annual rate of compensation achieved during that
Page 6 of 18
<PAGE>
portion of the Employment Period which is prior to Executive's
termination of employment with the Association, and making the maximum
amount of employee contributions, if any, required under such plan or
plans, such present value to be determined on the basis of a discount
rate, compounded using the compounding period that corresponds to the
frequency with which employer contributions are made to the relevant
plan, equal to the Applicable PBGC Rate; and
(vii) the payments that would have been made to Executive
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the
Association if he had continued working for the Association during the
Remaining Unexpired Employment Period and had earned a bonus or
incentive award in each calendar year that ends during the Remaining
Unexpired Employment Period in an amount equal to the highest annual
bonus or incentive award actually paid to him in any calendar year
ending during the three-year period ending on the date of his
termination of employment.
The Association and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to Executive's efforts, if any, to
mitigate damages. The Association and the Executive further agree that the
Association may condition the payments and benefits (if any) due under sections
9(b)(iii), (iv), (v), (vi) and (vii) on the receipt of Executive's resignation
from any and all positions which he holds as an officer, director or committee
member with respect to the Association, the Holding Company or any subsidiary or
affiliate of either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL ASSOCIATION
LIABILITY.
In the event that the Executive's employment with the
Association shall terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for
purposes of this Agreement shall mean 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 any material
breach of this Agreement, in each case as measured against standards
generally prevailing at the relevant time in the savings and community
banking industry; PROVIDED, HOWEVER, that the Executive shall not be
deemed to have been discharged for cause unless and until the following
procedures shall have been followed:
(i) the Board shall adopt a resolution duly approved
by affirmative vote of a majority of the entire Board at a
meeting called and held for such purpose calling for the
Executive's termination for cause and
Page 7 of 18
<PAGE>
setting forth the purported grounds for such termination
("Proposed Termination Resolution");
(ii) as soon as practicable, and in any event within
five (5) days, after adoption of such resolution, the Board
shall furnish to the Executive a written notice of termination
which shall be accompanied by a certified copy of the Proposed
Termination Resolution ("Notice of Proposed Termination");
(iii) the Executive shall be afforded a reasonable
opportunity to make oral and written presentations to the
members of the Board, on his own behalf, or through a
representative, who may be his legal counsel, to refute the
grounds set forth in the Proposed Termination Resolution at
one or more meetings of the Board to be held no sooner than
fifteen (15) days and no later than thirty (30) after the
Executive's receipt of the Proposed Termination Notice
("Termination Hearings"); and
(iv) within ten (10) days following the end of the
Termination Hearings, the Board shall adopt a resolution duly
approved by affirmative vote of a majority of the entire Board
at a meeting called and held for such purpose (A) finding that
in the good faith opinion of the Board the grounds for
termination set forth in the Proposed Termination Resolution
exist and (B) terminating the Executive's employment
("Termination Resolution"); and
(v) as promptly as practicable, and in any event
within one (1) business day after adoption of the Termination
Resolution, the Board shall furnish to the Executive written
notice of termination, which notice shall include a copy of
the Termination Resolution and specify an effective date of
termination that is not later than the date on which such
notice is given;
(b) the Executive's voluntary resignation from employment with
the Association for reasons other than those specified in section
9(a)(i);
(c) the Executive's death; or
(d) a determination that the Executive is eligible for
long-term disability benefits under the Association's long-term
disability insurance program or, if there is no such program, under the
federal Social Security Act;
then the Association shall have no further obligations under this
Agreement, other than the payment to Executive (or, in the event of his
death, to his estate) of his earned but unpaid salary as of the date of
the termination of his employment, and the provision of such other
benefits, if any, to which he is entitled as a former employee under
the employee benefit plans and programs and compensation plans and
programs maintained by, or covering employees of, the Association.
Page 8 of 18
<PAGE>
(e) For purposes of section 10(a), no act or failure to act,
on the part of the Executive, shall be considered "willful" unless it
is done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive's action or omission was
in the best interests of the Association. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted by the
Board or based upon the written advice of counsel for the Association
shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the
Association. The cessation of employment of the Executive shall not be
deemed to be for "cause" within the meaning of section 10(a) unless and
until there shall have been delivered to Executive a copy of a
resolution duly adopted by the affirmative vote of three-fourths of the
non-employee members of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice is provided to Executive
and Executive is given an opportunity, together with counsel, to be
heard before the Board), finding that, in the good faith opinion of the
Board, Executive is guilty of the conduct described in section 10(a)
above, and specifying the particulars thereof in detail.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF
CONTROL.
(a) A Change of Control of the Association ("Change of
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(i) approval by the stockholders of the Association of a
transaction that would result in the reorganization, merger or
consolidation of the Association, respectively, with one or more other
persons, other than a transaction following which:
(A) at least fifty-one percent (51%) of the equity
ownership interests of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule
13d-3 promulgated under the Securities Exchange Act of 1934,
as amended ("Exchange Act")) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least fifty-one
percent (51%) of the outstanding equity ownership interests in
the Association; and
(B) at least fifty-one percent (51%) of the
securities entitled to vote generally in the election of
directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least fifty-one
percent (51%) of the securities entitled to vote generally in
the election of directors of the Association;
Page 9 of 18
<PAGE>
(ii) the acquisition of all or substantially all of the assets
of the Association or beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of twenty-five percent (25%)
or more of the outstanding securities of the Association entitled to
vote generally in the election of directors by any person or by any
persons acting in concert, or approval by the stockholders of the
Association of any transaction which would result in such an
acquisition; or
(iii) a complete liquidation or dissolution of the
Association, or approval by the stockholders of the Association of a
plan for such liquidation or dissolution; or
(iv) the occurrence of any event if, immediately following
such event, at least fifty percent (50%) of the members of the board of
directors of the Association do not belong to any of the following
groups:
(A) individuals who were members of the board of
directors of the Association on the date of this Agreement; or
(B) individuals who first became members of the board
of directors of the Association after the date of this
Agreement either:
(I) upon election to serve as a member of
the board of directors of the Association by
affirmative vote of three-quarters (3/4) of the
members of such board, or of a nominating committee
thereof, in office at the time of such first
election; or
(II) upon election by the stockholders of
the Association to serve as a member of the board of
directors of the Association, but only if nominated
for election by affirmative vote of three-quarters
(3/4) of the members of the board of directors of the
Association, or of a nominating committee thereof, in
office at the time of such first nomination;
PROVIDED, HOWEVER, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the board of directors of the Association;
(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Holding Company" were substituted for
the term "Association" therein.
Page 10 of 18
<PAGE>
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Holding Company, the
Association, or a subsidiary of either of them, by the Holding Company, the
Association, or a subsidiary of either of them, or by any employee benefit plan
maintained by any of them. For purposes of this section 11 the term "person"
shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the
Exchange Act.
(b) In the event of a Change of Control, the Executive shall
be entitled to the payments and benefits contemplated by section 9(b) in the
event of his termination employment with the Association under any of the
circumstances described in section 9(a) of this Agreement or under any of the
following circumstances:
(i) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period and within ninety (90) days
following his demotion, loss of title, office or significant authority
or responsibility, or following any material reduction in any element
of his package of compensation and benefits;
(ii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period and within ninety (90) days
following (A) any relocation of his principal place of employment
outside of a 25-mile radius of the principal place of employment
immediately prior to the Change of Control that would require a
relocation of his residence in order to be able to commute to such new
place of employment within a commuting time not in excess of the
greater of sixty (60) minutes or the Executive's commuting time prior
to the Change of Control or (B) any material adverse change in working
conditions at such principal place of employment; or
(iii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following the failure of any
successor to the Association in the Change of Control to include the
Executive in any compensation or benefit program maintained by it or
covering any of its executive officers, unless the Executive is already
covered by a substantially similar plan of the Association which is at
least as favorable to him.
SECTION 12. COVENANT NOT TO COMPETE.
In the event of the Executive's termination of employment with
the Association prior to the expiration of the Employment Period, for a period
of one (1) year following the date of his termination of employment with the
Association (or, if less, for the Remaining Unexpired Employment Period), the
Executive shall not, without the written consent of the Association, become an
officer, employee, consultant, director or trustee of any competitor (as herein
defined) if in this capacity he would be working within one hundred (100) miles
of the place where the headquarters of the Association are located on the date
of the Executive's termination of employment. For this purpose, a "competitor"
is any savings bank, savings and loan association, savings and loan holding
company, bank or bank holding company, or any direct or indirect subsidiary or
affiliate of any such entity. This section 12 shall not apply if the Executive's
em-
Page 11 of 18
<PAGE>
ployment is terminated without cause or due to death or voluntary resignation
as described in section 9(a). If the Executive's employment shall be terminated
on account of disability as provided in section 10(d) of this Agreement, this
section 12 shall not apply if (a) the Executive first offers, by written notice,
to accept a similar position with, or perform similar services for, the
Association on substantially the same terms and conditions proposed by the
competitor and (b) the Association declines to accept such offer within ten (10)
days after such notice is given.
SECTION 13. CONFIDENTIALITY.
Unless the Executive obtains the prior written consent of the
Association, he shall keep confidential and shall refrain from using for the
benefit of himself, or any person or entity other than the Association or any
entity which is a subsidiary of the Association or of which the Association is a
subsidiary, any material document or information obtained from the Association,
or from its parent or subsidiaries, in the course of his employment with any of
them concerning their properties, operations or business (unless such document
or information is readily ascertainable from public or published information or
trade sources or has otherwise been made available to the public through no
fault of his own) until the same ceases to be material (or becomes so
ascertainable or available); PROVIDED, HOWEVER, that nothing in this section 13
shall prevent the Executive, with or without the Association's consent, from
participating in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding to the extent
that such participation or disclosure is required under applicable law.
SECTION 14. SOLICITATION.
Executive hereby covenants and agrees that, for a period of
one (1) year following his termination of employment with the Association, he
shall not, without the written consent of the Association, either directly or
indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Association, the Holding Company or any affiliate, as of the date
of this Agreement, of either of them to terminate his employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Association, the Holding Company
or any affiliate, as of the date of this Agreement, of either of them;
(b) provide any information, advice or recommendation with
respect to any such officer or employee of any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other
Page 12 of 18
<PAGE>
institution engaged in the business of accepting deposits and making
loans, doing business within one hundred (100) miles of the
headquarters of the Association, the Holding Company or any affiliate,
as of the date of this Agreement, of either of them that is intended,
or that a reasonable person acting in like circumstances would expect,
to have the effect of causing any officer or employee of the
Association, the Holding Company or any affiliate, as of the date of
this Agreement, of either of them to terminate his employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Association, the Holding
Company, or any affiliate, as of the date of this Agreement, of either
of them;
(c) solicit, provide any information, advice or recommendation
or take any other action intended, or that a reasonable person acting
in like circumstances would expect, to have the effect of causing any
customer of the Association to terminate an existing business or
commercial relationship with the Association.
SECTION 15. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR
PROGRAMS.
The termination of Executive's employment during the term of
this Agreement or thereafter, whether by the Association or by Executive, shall
have no effect on the rights and obligations of the parties hereto under the
Association's qualified or non-qualified retirement, pension, savings, thrift,
profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Association from time to time.
SECTION 16. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon Executive, his legal representatives and testate or intestate distributees,
and the Association and its successors and as signs, including any successor by
merger or consolidation or any other person or firm or corporation to which all
or substantially all of the assets and business of the Association may be sold
or otherwise transferred. Failure of the Association to obtain from any
successor its express written assumption of the Association's obligations
hereunder at least sixty (60) days in advance of the scheduled effective date of
any such succession shall be deemed a material breach of this Agreement unless
cured within ten (10) days after notice thereof by Executive to the Association.
Page 13 of 18
<PAGE>
SECTION 17. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Executive:
Lyle N. Dolan
10N815 Oxford Lane
Elgin, Illinois 60123
If to the Association:
Home Federal Savings and Loan Association of Elgin
16 Spring Street
Elgin, Illinois 60120
Attention: BOARD OF DIRECTORS -- NON-EMPLOYEE
DIRECTORS
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. EDWARD BRIGHT, ESQ.
SECTION 18. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Association shall indemnify, hold harmless and defend the
Executive against reasonable costs, including legal fees, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement; PROVIDED, HOWEVER, that Executive shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the
Association's obligations hereunder shall be conclusive evidence of Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise. This provision
shall be inoperative if and to the extent
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<PAGE>
that, but only if and to the extent that, it shall be determined that compliance
herewith would violate any applicable law or regulation.
SECTION 19. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 20. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 21. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 22. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of
Illinois applicable to contracts entered into and to be performed entirely
within the State of Illinois.
SECTION 23. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 24. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or rep-
Page 15 of 18
<PAGE>
resentations relating to the subject matter hereof. No modifications of this
Agreement shall be valid unless made in writing and signed by the parties
hereto.
SECTION 25. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the
Association:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to
Executive under section 9(b) hereof (exclusive of amounts described in
section 9(b)(i)) exceed the lesser of (i) three times the Executive's
average annual total compensation for the last five consecutive
calendar years to end prior to his termination of employment with the
Association (or for his entire period of employment with the
Association if less than five calendar years) and (ii) the maximum
amount that may be paid without producing an "excess parachute payment"
(as such term is defined in section 280G of the Code), the
applicability of such provision to the Executive and any such maximum
amount to be determined in good faith by the firm of independent
certified public accountants regularly retained to audit the
Association's books and records.
(b) Notwithstanding anything herein contained to the contrary,
any payments to Executive by the Association, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their
compliance with section 18(k) of the Federal Deposit Insurance Act
("FDI Act"), 12 U.S.C. ss.1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Association
pursuant to a notice served under section 8(e)(3) or 8(g)(1) of the FDI
Act, 12 U.S.C. ss.1818(e)(3) or 1818(g)(1), the Association's
obligations under this Agreement shall be suspended as of the date of
service of such notice, unless stayed by appropriate proceedings. If
the charges in such notice are dismissed, the Association, in its
discretion, may (i) pay to Executive all or part of the compensation
withheld while the Association's obligations hereunder were suspended
and (ii) reinstate, in whole or in part, any of the obligations which
were suspended.
(d) Notwithstanding anything herein contained to the contrary,
if Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order
issued under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1), all prospective obligations of the Association
under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Association and
Executive shall not be affected.
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<PAGE>
(e) Notwithstanding anything herein contained to the contrary,
if the Association is in default (within the meaning of section 3(x)(1)
of the FDI Act, 12 U.S.C. ss.1813(x)(1), all prospective obligations of
the Association under this Agreement shall terminate as of the date of
default, but vested rights and obligations of the Association and
Executive shall not be affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Association hereunder shall be
terminated, except to the extent that a continuation of this Agreement
is necessary for the continued operation of the Association: (i) by the
Director of the Office of Thrift Supervision ("OTS") or his designee at
the time the Federal Deposit Insurance Corporation ("FDIC") enters into
an agreement to provide assistance to or on behalf of the Association
under the authority contained in section 13(c) of the FDI Act, 12
U.S.C. ss.1823(c); (ii) by the Director of the OTS or his designee at
the time such Director or designee approves a supervisory merger to
resolve problems related to the operation of the Association or when
the Association is determined by such Director to be in an unsafe or
unsound condition. The vested rights and obligations of the parties
shall not be affected.
If and to the extent that any of the foregoing provisions shall cease to be
required or by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
IN WITNESS WHEREOF, the Association has caused this Agreement
to be executed and Executive has hereunto set his hand, all as of the day and
year first above written.
/s/ Lyle N. Dolan
------------------------------
LYLE N. DOLAN
ATTEST: HOME FEDERAL SAVINGS AND LOAN
ASSOCIATION OF ELGIN
By /s/ Kathleen A. Schroeder By /s/ Leigh C. O'Connor
----------------------------- -----------------------------
Secretary NAME: Leigh C. O'Connor
TITLE: Chairman, Compensation
Committee
Page 17 of 18
<PAGE>
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
LYLE N. DOLAN, to me known, and known to me to be the individual described in
the foregoing instrument, who, being by me duly sworn, did depose and say that
he resides at the address set forth in said instrument, and that he signed his
name to the foregoing instrument.
/s/ Ruth E. Bart
--------------------------
Notary Public
[SEAL]
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
LEIGH C. O'CONNOR, to me known, who, being by me duly sworn, did depose and say
that he resides at 366 Hamilton Ave., Elgin, IL 60123, that he is a member of
the Board of Directors of HOME FEDERAL SAVINGS AND LOAN ASSOCIATION, the savings
and loan association described in and which executed the foregoing instrument;
that he knows the seal of said mutual savings and loan association; that the
seal affixed to said instrument is such seal; that it was so affixed by order of
the Board of Directors of said savings and loan association; and that he signed
his name thereto by like order.
/s/ Ruth E. Bart
--------------------------
Notary Public
[SEAL]
HOME FEDERAL SAVINGS AND LOAN ASSOCIATION OF ELGIN
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of September 26, 1996 by and between HOME FEDERAL SAVINGS AND LOAN
ASSOCIATION OF ELGIN, a savings and loan association organized and operating
under the federal laws of the United States and having an office at 16 North
Spring Street, Elgin, Illinois 60120 ("Association") and KENNETH L. MORAN, an
individual residing at 1021 Mohawk Drive, Elgin, Illinois 60120, ("Executive").
W I T N E S S E T H :
---------------------
WHEREAS, Executive currently serves the Association in the
capacity of Senior Vice President and Chief Lending Officer; and
WHEREAS, effective as of the date of this Agreement, the
Association has converted from a federal mutual savings and loan association to
a federal stock savings and loan association and has become the wholly-owned
subsidiary of Home Bancorp of Elgin, Inc., a publicly-held Delaware corporation
("Holding Company"); and
WHEREAS, the Association desires to assure for itself the
continued availability of the Executive's services and the ability of the
Executive to perform such services with a minimum of personal distraction in the
event of a pending or threatened Change of Control (as hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the
Association on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Association and the
Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Association agrees to continue to employ the Executive,
and the Executive hereby agrees to such continued employment, during the period
and upon the terms and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED
EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term of
two (2) years beginning on the date of this Agreement. Prior to the first (1st)
anniversary of the date of this Agreement and on each
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anniversary date thereafter (each, an "Anniversary Date"), the Board of
Directors of the Association ("Board") shall review the terms of this Agreement
and the Executive's performance of services hereunder and may, in the absence of
objection from the Executive, approve an extension of the Employment Agreement.
In such event, the Employment Agreement shall be extended to the second (2nd)
anniversary of the relevant Anniversary Date.
(b) For all purposes of this Agreement, the term "Remaining
Unexpired Employment Period" as of any date shall mean the period beginning on
such date and ending on the Anniversary Date on which the Employment Period (as
extended pursuant to section 2(a) of this Agreement) is then scheduled to
expire.
(c) Nothing in this Agreement shall be deemed to prohibit the
Association at any time from terminating the Executive's employment during the
Employment Period with or without notice for any reason; PROVIDED, HOWEVER, that
the relative rights and obligations of the Association and the Executive in the
event of any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
Executive shall serve as the Senior Vice President and Chief
Lending Officer of the Association, having such power, authority and
responsibility and performing such duties as are prescribed by or under the
By-Laws of the Association and as are customarily associated with such position,
including without limitation, the general direction of all of the business and
affairs of the Association, the hiring and supervision of all senior management
personnel, and long-term strategic planning for the Association, including
growth by merger and acquisition. The Executive shall devote his full business
time and attention (other than during holidays, approved vacation periods, and
periods of illness or approved leaves of absence) to the business and affairs of
the Association and shall use his best efforts to advance the interests of the
Association.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the
Executive hereunder, the Association shall pay to him a salary at an initial
annual rate of ONE HUNDRED AND NINE THOUSAND, TWO HUNDRED AND FORTY-TWO DOLLARS
($109,242), payable in approximately equal installments in accordance with the
Association's customary payroll practices for senior officers. The Board shall
review the Executive's annual rate of salary at such times as it deems
appropriate, but not less frequently than once every twelve months, and may, in
its discretion, approve an increase therein. In addition to salary, Executive
may receive other cash compensation from the Association for services hereunder
at such times, in such amounts and on such terms and conditions as the Board may
determine from time to time.
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SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated
as an employee of the Association and shall be eligible to participate in and
receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long-term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Association, in accordance with the terms and conditions of such employee
benefit plans and programs and compensation plans and programs and consistent
with the Association's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six (6)
years thereafter, the Association shall cause the Executive to be covered by and
named as an insured under any policy or contract of insurance obtained by it to
insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of the
Association or service in other capacities at the request of the Association.
The coverage provided to the Executive pursuant to this section 6 shall be of
the same scope and on the same terms and conditions as the coverage (if any)
provided to other officers or directors of the Association.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Association shall indemnify, and shall cause its subsidiaries and affiliates to
indemnify the Executive against and hold him harmless from any costs,
liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Association or any subsidiary or affiliate thereof.
This section 6(b) shall not be applicable where section 18 is applicable.
SECTION 7. OUTSIDE ACTIVITIES.
Executive may serve as a member of the boards of directors of
such business, community and charitable organizations as he may disclose to and
as may be approved by the Board (which approval shall not be unreasonably
withheld); PROVIDED, HOWEVER, that such service shall not materially interfere
with the performance of his duties under this Agreement. Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; PROVIDED, HOWEVER, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Association and generally
applicable to all similarly situated executives. Executive may also serve as an
officer or director of the Holding Company on terms and conditions as the
Association and the Holding Company may mutually agree upon, and such service
shall not be deemed to materially interfere with the Executive's performance of
his duties hereunder or otherwise to result in a material breach of this
Agreement.
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SECTION 8. WORKING FACILITIES AND EXPENSES.
Executive's principal place of employment shall be at the
Association's executive offices at the address first above written, or at such
other location within a 25-mile radius thereof at which the Association shall
maintain its principal executive offices, or at such other location as the
Association and Executive may mutually agree upon. The Association shall provide
the Executive at his principal place of employment with a private office,
secretarial services and other support services and facilities suitable to his
position with the Association and necessary or appropriate in connection with
the performance of his assigned duties under this Agreement. The Association
shall reimburse Executive for his ordinary and necessary business expenses,
including, without limitation, fees for memberships in such clubs and
organizations as Executive and the Association shall mutually agree are
necessary and appropriate for business purposes, and his travel and
entertainment expenses incurred in connection with the performance of his duties
under this Agreement, in each case upon presentation to the Association of an
itemized account of such expenses in such form as the Association may reasonably
require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE
BENEFITS.
(a) Executive shall be entitled to the severance benefits
described herein in the event that his employment with the Association
terminates during the Employment Period under any of the following
circumstances:
(i) Executive's voluntary resignation from employment with the
Association within ninety (90) days following:
(A) the failure of the Board to appoint or re-appoint
or elect or re-elect the Executive to the office described in
section 3 of this Agreement (or a more senior office) of the
Association;
(B) if the Executive is a member of the Board as of
the date of this Agreement, the failure of the stockholders of
the Association to elect or re-elect Executive to the Board or
the failure of the Board (or the nominating committee thereof)
to nominate Executive for such election or re-election;
(C) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Association of its material failure, whether by
amendment of the Association's Organization Certificate or
By-Laws, action of the Board or the Association's stockholders
or otherwise, to vest in the Executive the functions, duties,
or responsibilities prescribed in section 3 of this Agreement,
unless, during such thirty (30) day period, the Association
fully cures such failure;
(D) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Association of its
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material breach of any term, condition or covenant contained
in this Agreement (including, without limitation any reduction
of Executive's rate of base salary in effect from time to time
and any change in the terms and conditions of any compensation
or benefit program in which the Executive participates which,
alone or together with other changes, has a material adverse
effect on the aggregate value of his total compensation
package), unless, during such thirty (30) day period, the
Association fully cures such failure; or
(ii) the termination of Executive's employment with the
Association for any other reason not described in section 10(a);
then, subject to section 25, the Association shall provide the benefits and pay
to Executive the amounts described in section 9(b).
(b) Upon the termination of the Executive's employment with
the Association under circumstances described in section 9(a) of this Agreement,
the Association shall pay and provide to the Executive (or, in the event of his
death, to his estate):
(i) his earned but unpaid compensation (including, without
limitation, all items which constitute wages under applicable law and
the payment of which is not otherwise provided for under this section
9(b)) as of the date of the termination of his employment with the
Association, such payment to be made at the time and in the manner
prescribed by law applicable to the payment of wages but in no event
later than thirty (30) days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and pro grams maintained for the benefit of the Association's
officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Executive, for the Remaining Unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled under
such plans (as in effect on the date of his termination of employment,
or, if his termination of employment occurs after a Change of Control,
on the date of such Change of Control, whichever benefits are greater)
if he had continued working for the Association during the Remaining
Unexpired Employment Period at the highest annual rate of compensation
achieved during that portion of the Employment Period which is prior to
Executive's termination of employment with the Association;
(iv) within thirty (30) days following his termination of
employment with the Association, a lump sum payment, in an amount equal
to the present value of the salary that Executive would have earned if
he had continued working for the
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Association during the Remaining Unexpired Employment Period at the
highest annual rate of salary achieved during that portion of the
Employment Period which is prior to Executive's termination of
employment with the Association, where such present value is to be
determined using a discount rate equal to the applicable short-term
federal rate prescribed under section 1274(d) of the Internal Revenue
Code of 1986 ("Code"), compounded using the compounding period
corresponding to the Association's regular payroll periods for its
officers, such lump sum to be paid in lieu of all other payments of
salary provided for under this Agreement in respect of the period
following any such termination;
(v) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Association) if he were one-hundred
percent (100%) vested thereunder and had continued working for
the Association during the Remaining Unexpired Employment
Period, such benefits to be determined as of the date of
termination of employment by adding to the service actually
recognized under such plans an additional period equal to the
Remaining Unexpired Employment Period and by adding to the
compensation recognized under such plans for the year in which
termination of employment occurs all amounts payable under
sections 9(b)(i), (iv) and (vii); over
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescr ibed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefits Guaranty Corporation for
the valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the present value of the additional employer contributions (or if
greater in the case of a leveraged employee stock ownership plan or
similar arrangement, the additional assets allocable to him through
debt service, based on the fair market value of such assets at
termination of employment) to which he would have been entitled under
any and all qualified and non-qualified defined contribution plans
maintained by, or covering employees of, the Association, if he were
one-hundred percent (100%) vested thereunder and had continued working
for the Association during the Remaining Unexpired Em ployment Period
at the highest annual rate of compensation achieved during that
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portion of the Employment Period which is prior to Executive's
termination of employment with the Association, and making the maximum
amount of employee contributions, if any, required under such plan or
plans, such present value to be determined on the basis of a discount
rate, compounded using the compounding period that corresponds to the
frequency with which employer contributions are made to the relevant
plan, equal to the Applicable PBGC Rate; and
(vii) the payments that would have been made to Executive
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the
Association if he had continued working for the Association during the
Remaining Unexpired Employment Period and had earned a bonus or
incentive award in each calendar year that ends during the Remaining
Unexpired Employment Period in an amount equal to the highest annual
bonus or incentive award actually paid to him in any calendar year
ending during the three-year period ending on the date of his
termination of employment.
The Association and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to Executive's efforts, if any, to
mitigate damages. The Association and the Executive further agree that the
Association may condition the payments and benefits (if any) due under sections
9(b)(iii), (iv), (v), (vi) and (vii) on the receipt of Executive's resignation
from any and all positions which he holds as an officer, director or committee
member with respect to the Association, the Holding Company or any subsidiary or
affiliate of either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL ASSOCIATION
LIABILITY.
In the event that the Executive's employment with the
Association shall terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for
purposes of this Agreement shall mean 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 any material
breach of this Agreement, in each case as measured against standards
generally prevailing at the relevant time in the savings and community
banking industry; PROVIDED, HOWEVER, that the Executive shall not be
deemed to have been discharged for cause unless and until the following
procedures shall have been followed:
(i) the Board shall adopt a resolution duly approved
by affirmative vote of a majority of the entire Board at a
meeting called and held for such purpose calling for the
Executive's termination for cause and
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setting forth the purported grounds for such termination
("Proposed Termination Resolution");
(ii) as soon as practicable, and in any event within
five (5) days, after adoption of such resolution, the Board
shall furnish to the Executive a written notice of termination
which shall be accompanied by a certified copy of the Proposed
Termination Resolution ("Notice of Proposed Termination");
(iii) the Executive shall be afforded a reasonable
opportunity to make oral and written presentations to the
members of the Board, on his own behalf, or through a
representative, who may be his legal counsel, to refute the
grounds set forth in the Proposed Termination Resolution at
one or more meetings of the Board to be held no sooner than
fifteen (15) days and no later than thirty (30) after the
Executive's receipt of the Proposed Termination Notice
("Termination Hearings"); and
(iv) within ten (10) days following the end of the
Termination Hearings, the Board shall adopt a resolution duly
approved by affirmative vote of a majority of the entire Board
at a meeting called and held for such purpose (A) finding that
in the good faith opinion of the Board the grounds for
termination set forth in the Proposed Termination Resolution
exist and (B) terminating the Executive's employment
("Termination Resolution"); and
(v) as promptly as practicable, and in any event
within one (1) business day after adoption of the Termination
Resolution, the Board shall furnish to the Executive written
notice of termination, which notice shall include a copy of
the Termination Resolution and specify an effective date of
termination that is not later than the date on which such
notice is given;
(b) the Executive's voluntary resignation from employment with
the Association for reasons other than those specified in section
9(a)(i);
(c) the Executive's death; or
(d) a determination that the Executive is eligible for
long-term disability benefits under the Association's long-term
disability insurance program or, if there is no such program, under the
federal Social Security Act;
then the Association shall have no further obligations under this
Agreement, other than the payment to Executive (or, in the event of his
death, to his estate) of his earned but unpaid salary as of the date of
the termination of his employment, and the provision of such other
benefits, if any, to which he is entitled as a former employee under
the employee benefit plans and programs and compensation plans and
programs maintained by, or covering employees of, the Association.
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<PAGE>
(e) For purposes of section 10(a), no act or failure to act,
on the part of the Executive, shall be considered "willful" unless it
is done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive's action or omission was
in the best interests of the Association. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted by the
Board or based upon the written advice of counsel for the Association
shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the
Association. The cessation of employment of the Executive shall not be
deemed to be for "cause" within the meaning of section 10(a) unless and
until there shall have been delivered to Executive a copy of a
resolution duly adopted by the affirmative vote of three-fourths of the
non-employee members of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice is provided to Executive
and Executive is given an opportunity, together with counsel, to be
heard before the Board), finding that, in the good faith opinion of the
Board, Executive is guilty of the conduct described in section 10(a)
above, and specifying the particulars thereof in detail.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF
CONTROL.
(a) A Change of Control of the Association ("Change of
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(i) approval by the stockholders of the Association of a
transaction that would result in the reorganization, merger or
consolidation of the Association, respectively, with one or more other
persons, other than a transaction following which:
(A) at least fifty-one percent (51%) of the equity
ownership interests of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule
13d-3 promulgated under the Securities Exchange Act of 1934,
as amended ("Exchange Act")) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least fifty-one
percent (51%) of the outstanding equity ownership interests in
the Association; and
(B) at least fifty-one percent (51%) of the
securities entitled to vote generally in the election of
directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least fifty-one
percent (51%) of the securities entitled to vote generally in
the election of directors of the Association;
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(ii) the acquisition of all or substantially all of the assets
of the Association or beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of twenty-five percent (25%)
or more of the outstanding securities of the Association entitled to
vote generally in the election of directors by any person or by any
persons acting in concert, or approval by the stockholders of the
Association of any transaction which would result in such an
acquisition; or
(iii) a complete liquidation or dissolution of the
Association, or approval by the stockholders of the Association of a
plan for such liquidation or dissolution; or
(iv) the occurrence of any event if, immediately following
such event, at least fifty percent (50%) of the members of the board of
directors of the Association do not belong to any of the following
groups:
(A) individuals who were members of the board of
directors of the Association on the date of this Agreement; or
(B) individuals who first became members of the board
of directors of the Association after the date of this
Agreement either:
(I) upon election to serve as a member of
the board of directors of the Association by
affirmative vote of three-quarters (3/4) of the
members of such board, or of a nominating committee
thereof, in office at the time of such first
election; or
(II) upon election by the stockholders of
the Association to serve as a member of the board of
directors of the Association, but only if nominated
for election by affirmative vote of three-quarters
(3/4) of the members of the board of directors of the
Association, or of a nominating committee thereof, in
office at the time of such first nomination;
PROVIDED, HOWEVER, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the board of directors of the Association;
(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Holding Company" were substituted for
the term "Association" therein.
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In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Holding Company, the
Association, or a subsidiary of either of them, by the Holding Company, the
Association, or a subsidiary of either of them, or by any employee benefit plan
maintained by any of them. For purposes of this section 11 the term "person"
shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the
Exchange Act.
(b) In the event of a Change of Control, the Executive shall
be entitled to the payments and benefits contemplated by section 9(b) in the
event of his termination employment with the Association under any of the
circumstances described in section 9(a) of this Agreement or under any of the
following circumstances:
(i) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period and within ninety (90) days
following his demotion, loss of title, office or significant authority
or responsibility, or following any material reduction in any element
of his package of compensation and benefits;
(ii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period and within ninety (90) days
following (A) any relocation of his principal place of employment
outside of a 25-mile radius of the principal place of employment
immediately prior to the Change of Control that would require a
relocation of his residence in order to be able to commute to such new
place of employment within a commuting time not in excess of the
greater of sixty (60) minutes or the Executive's commuting time prior
to the Change of Control or (B) any material adverse change in working
conditions at such principal place of employment; or
(iii) resignation, voluntary or otherwise, by the Executive at
any time during the Employment Period following the failure of any
successor to the Association in the Change of Control to include the
Executive in any compensation or benefit program maintained by it or
covering any of its executive officers, unless the Executive is already
covered by a substantially similar plan of the Association which is at
least as favorable to him.
SECTION 12. COVENANT NOT TO COMPETE.
In the event of the Executive's termination of employment with
the Association prior to the expiration of the Employment Period, for a period
of one (1) year following the date of his termination of employment with the
Association (or, if less, for the Remaining Unexpired Employment Period), the
Executive shall not, without the written consent of the Association, become an
officer, employee, consultant, director or trustee of any competitor (as herein
defined) if in this capacity he would be working within one hundred (100) miles
of the place where the headquarters of the Association are located on the date
of the Executive's termination of employment. For this purpose, a "competitor"
is any savings bank, savings and loan association, savings and loan holding
company, bank or bank holding company, or any direct or indirect subsidiary or
affiliate of any such entity. This section 12 shall not apply if the Executive's
em-
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ployment is terminated without cause or due to death or voluntary resignation
as described in section 9(a). If the Executive's employment shall be terminated
on account of disability as provided in section 10(d) of this Agreement, this
section 12 shall not apply if (a) the Executive first offers, by written notice,
to accept a similar position with, or perform similar services for, the
Association on substantially the same terms and conditions proposed by the
competitor and (b) the Association declines to accept such offer within ten (10)
days after such notice is given.
SECTION 13. CONFIDENTIALITY.
Unless the Executive obtains the prior written consent of the
Association, he shall keep confidential and shall refrain from using for the
benefit of himself, or any person or entity other than the Association or any
entity which is a subsidiary of the Association or of which the Association is a
subsidiary, any material document or information obtained from the Association,
or from its parent or subsidiaries, in the course of his employment with any of
them concerning their properties, operations or business (unless such document
or information is readily ascertainable from public or published information or
trade sources or has otherwise been made available to the public through no
fault of his own) until the same ceases to be material (or becomes so
ascertainable or available); PROVIDED, HOWEVER, that nothing in this section 13
shall prevent the Executive, with or without the Association's consent, from
participating in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding to the extent
that such participation or disclosure is required under applicable law.
SECTION 14. SOLICITATION.
Executive hereby covenants and agrees that, for a period of
one (1) year following his termination of employment with the Association, he
shall not, without the written consent of the Association, either directly or
indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Association, the Holding Company or any affiliate, as of the date
of this Agreement, of either of them to terminate his employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Association, the Holding Company
or any affiliate, as of the date of this Agreement, of either of them;
(b) provide any information, advice or recommendation with
respect to any such officer or employee of any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other
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institution engaged in the business of accepting deposits and making
loans, doing business within one hundred (100) miles of the
headquarters of the Association, the Holding Company or any affiliate,
as of the date of this Agreement, of either of them that is intended,
or that a reasonable person acting in like circumstances would expect,
to have the effect of causing any officer or employee of the
Association, the Holding Company or any affiliate, as of the date of
this Agreement, of either of them to terminate his employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Association, the Holding
Company, or any affiliate, as of the date of this Agreement, of either
of them;
(c) solicit, provide any information, advice or recommendation
or take any other action intended, or that a reasonable person acting
in like circumstances would expect, to have the effect of causing any
customer of the Association to terminate an existing business or
commercial relationship with the Association.
SECTION 15. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR
PROGRAMS.
The termination of Executive's employment during the term of
this Agreement or thereafter, whether by the Association or by Executive, shall
have no effect on the rights and obligations of the parties hereto under the
Association's qualified or non-qualified retirement, pension, savings, thrift,
profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Association from time to time.
SECTION 16. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon Executive, his legal representatives and testate or intestate distributees,
and the Association and its successors and as signs, including any successor by
merger or consolidation or any other person or firm or corporation to which all
or substantially all of the assets and business of the Association may be sold
or otherwise transferred. Failure of the Association to obtain from any
successor its express written assumption of the Association's obligations
hereunder at least sixty (60) days in advance of the scheduled effective date of
any such succession shall be deemed a material breach of this Agreement unless
cured within ten (10) days after notice thereof by Executive to the Association.
Page 13 of 18
<PAGE>
SECTION 17. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Executive:
Kenneth L. Moran
1021 Mohawk Drive
Elgin, Illinois 60120
If to the Association:
Home Federal Savings and Loan Association of Elgin
16 Spring Street
Elgin, Illinois 60120
Attention: BOARD OF DIRECTORS -- NON-EMPLOYEE
DIRECTORS
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. EDWARD BRIGHT, ESQ.
SECTION 18. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Association shall indemnify, hold harmless and defend the
Executive against reasonable costs, including legal fees, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement; PROVIDED, HOWEVER, that Executive shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the
Association's obligations hereunder shall be conclusive evidence of Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise. This provision
shall be inoperative if and to the extent
Page 14 of 18
<PAGE>
that, but only if and to the extent that, it shall be determined that compliance
herewith would violate any applicable law or regulation.
SECTION 19. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 20. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 21. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 22. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of
Illinois applicable to contracts entered into and to be performed entirely
within the State of Illinois.
SECTION 23. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 24. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or rep-
Page 15 of 18
<PAGE>
resentations relating to the subject matter hereof. No modifications of this
Agreement shall be valid unless made in writing and signed by the parties
hereto.
SECTION 25. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the
Association:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to
Executive under section 9(b) hereof (exclusive of amounts described in
section 9(b)(i)) exceed the lesser of (i) three times the Executive's
average annual total compensation for the last five consecutive
calendar years to end prior to his termination of employment with the
Association (or for his entire period of employment with the
Association if less than five calendar years) and (ii) the maximum
amount that may be paid without producing an "excess parachute payment"
(as such term is defined in section 280G of the Code), the
applicability of such provision to the Executive and any such maximum
amount to be determined in good faith by the firm of independent
certified public accountants regularly retained to audit the
Association's books and records.
(b) Notwithstanding anything herein contained to the contrary,
any payments to Executive by the Association, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their
compliance with section 18(k) of the Federal Deposit Insurance Act
("FDI Act"), 12 U.S.C. ss.1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Association
pursuant to a notice served under section 8(e)(3) or 8(g)(1) of the FDI
Act, 12 U.S.C. ss.1818(e)(3) or 1818(g)(1), the Association's
obligations under this Agreement shall be suspended as of the date of
service of such notice, unless stayed by appropriate proceedings. If
the charges in such notice are dismissed, the Association, in its
discretion, may (i) pay to Executive all or part of the compensation
withheld while the Association's obligations hereunder were suspended
and (ii) reinstate, in whole or in part, any of the obligations which
were suspended.
(d) Notwithstanding anything herein contained to the contrary,
if Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order
issued under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1), all prospective obligations of the Association
under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Association and
Executive shall not be affected.
Page 16 of 18
<PAGE>
(e) Notwithstanding anything herein contained to the contrary,
if the Association is in default (within the meaning of section 3(x)(1)
of the FDI Act, 12 U.S.C. ss.1813(x)(1), all prospective obligations of
the Association under this Agreement shall terminate as of the date of
default, but vested rights and obligations of the Association and
Executive shall not be affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Association hereunder shall be
terminated, except to the extent that a continuation of this Agreement
is necessary for the continued operation of the Association: (i) by the
Director of the Office of Thrift Supervision ("OTS") or his designee at
the time the Federal Deposit Insurance Corporation ("FDIC") enters into
an agreement to provide assistance to or on behalf of the Association
under the authority contained in section 13(c) of the FDI Act, 12
U.S.C. ss.1823(c); (ii) by the Director of the OTS or his designee at
the time such Director or designee approves a supervisory merger to
resolve problems related to the operation of the Association or when
the Association is determined by such Director to be in an unsafe or
unsound condition. The vested rights and obligations of the parties
shall not be affected.
If and to the extent that any of the foregoing provisions shall cease to be
required or by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
IN WITNESS WHEREOF, the Association has caused this Agreement
to be executed and Executive has hereunto set his hand, all as of the day and
year first above written.
/s/ Kenneth L. Moran
------------------------------------------
KENNETH L. MORAN
ATTEST: HOME FEDERAL SAVINGS AND LOAN
ASSOCIATION OF ELGIN
By /s/ Kathleen A. Schroeder
-------------------------
Secretary By /s/ Leigh C. O'Connor
----------------------------------------
NAME: Leigh C. O'Connor
TITLE: Chairman, Compensation Committee
[Seal]
Page 17 of 18
<PAGE>
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me
personally came KENNETH L. MORAN, to me known, and known to me to be the
individual described in the foregoing instrument, who, being by me duly sworn,
did depose and say that he resides at the address set forth in said instrument,
and that he signed his name to the foregoing instrument.
/s/ Ruth E. Bart
------------------------------
Notary Public
[SEAL]
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me
personally came LEIGH C. O'CONNOR, to me known, who, being by me duly sworn, did
depose and say that he resides at
366 Hamilton Ave., Elgin, IL 60123, that he is a member of the Board
of Directors of HOME FEDERAL SAVINGS AND LOAN ASSOCIATION, the savings and loan
association described in and which executed the foregoing instrument; that he
knows the seal of said mutual savings and loan association; that the seal
affixed to said instrument is such seal; that it was so affixed by order of the
Board of Directors of said savings and loan association; and that he signed his
name thereto by like order.
/s/ Ruth E. Bart
------------------------------
Notary Public
[SEAL]
Page 18 of 18
EMPLOYEE RETENTION AGREEMENT
This EMPLOYEE RETENTION AGREEMENT ("Agreement") is made and
entered into as of the 26th day of September, 1996, by and among HOME FEDERAL
SAVINGS AND LOAN ASSOCIATION OF ELGIN, a mutual savings and loan association
organized and operating under the federal laws of the United States and having
its executive offices at 16 North Spring Street, Elgin, Illinois 60120
("Association"); HOME BANCORP OF ELGIN, INC., a business corporation organized
and existing under the laws of the State of Delaware and also having its
executive offices at 16 North Spring Street, Elgin, Illinois 60120 ("Holding
Company"); and DAVID G. TOWE, an individual residing at 10N768 Williamsburg,
Elgin, Illinois 60123 ("Employee").
W I T N E S S E T H :
---------------------
WHEREAS, effective as of the date of this Agreement, the
Association has converted from a federal mutual savings and loan association to
a federal stock savings and loan association and has become a wholly-owned
subsidiary of the Holding Company; and
WHEREAS, the Association desires to secure for itself the
continued availability of the Employee's services; and
WHEREAS, the Association recognizes that a third party may at
some time in the future pursue a Change of Control of the Association or the
Holding Company and that this possibility may result in the departure or
distraction of the Association's employees; and
WHEREAS, the Association has determined that appropriate steps
should be taken to encourage the continued attention and dedication of the
Association's employees, including the Employee, to their duties for the
Association without the distraction that may arise from the possibility of a
Change of Control of the Association or the Holding Company; and
WHEREAS, the Association believes that, by assuring certain
employees, including the Employee, of reasonable financial security in the event
of a Change of Control of the Association or the Holding Company, such employees
will be in a position to perform their duties free from financial self-interest
and in the best interests of the Association and its shareholders; and
WHEREAS, for purposes of securing the Employee's services for
the Association, the Board of Directors of the Association ("Board") has
authorized the proper employees of the Association to enter into an employee
retention agreement with the Employee on the terms and conditions set forth
herein; and
WHEREAS, the Board of Directors of the Holding Company has
authorized the Holding Company to guarantee the Association's obligations under
such an employee retention agreement; and
<PAGE>
-2-
WHEREAS, the Employee is willing to make his services
available to the Association on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the Association, the
Holding Company and the Employee hereby agree as follows:
SECTION 1. EFFECTIVE DATE.
(a) This Agreement shall be effective as of the date first
above written and shall remain in effect during the term of this Agreement which
shall be for a period of three (3) years commencing on the date of this
Agreement, plus such extensions as are provided pursuant to section 1(b);
PROVIDED, HOWEVER, that if the term of this Agreement has not otherwise
terminated, the term of this Agreement will terminate on the date of the
Employee's termination of employment with the Association; and PROVIDED,
FURTHER, that the obligations under section 8 of this Agreement shall survive
the term of this Agreement if payments become due hereunder.
(b) Prior to each anniversary date of this Agreement, the
Board shall consider the advisability of an extension of the term in light of
the circumstances then prevailing and may, in its discretion, approve an
extension to take effect as of the upcoming anniversary date. If an extension is
approved, the term of this Agreement shall be extended so that it will expire
three (3) years after such anniversary date.
(c) Notwithstanding anything herein contained to the contrary:
(i) the Employee's employment with the Association may be terminated at any
time, subject to the terms and conditions of this Agreement; and (ii) nothing in
this Agreement shall mandate or prohibit a continuation of the Employee's
employment following the expiration of the Assurance Period upon such terms and
conditions as the Association and the Employee may mutually agree upon.
SECTION 2. ASSURANCE PERIOD.
(a) The assurance period ("Assurance Period") shall be for a
period commencing on the date of a Change of Control, as defined in section 10
of this Agreement, and ending on the second (2nd) anniversary of the date on
which the Assurance Period commences, plus such extensions as are provided
pursuant to the following sentence. The Assurance Period shall be automatically
extended for one (1) additional day each day, unless either the Association or
the Employee elects not to extend the Assurance Period further by giving written
notice to the other party, in which case the Assurance Period shall become fixed
and shall end on the second (2nd) anniversary of the date on which such written
notice is given; PROVIDED, HOWEVER, that if, following a Change of Control, the
Office of Thrift Supervision (or its successor) is the Association's primary
federal regulator, the Agreement shall be subject to extension not more
frequently than annually and only upon review and approval of the Board.
<PAGE>
-3-
(b) Upon termination of the Employee's employment with the
Association, any daily extensions provided pursuant to the preceding sentence,
if not theretofore discontinued, shall cease and the remaining unexpired
Assurance Period under this Agreement shall be a fixed period ending on the
later of the second (2nd) anniversary of the date of the Change of Control, as
defined in section 10 of this Agreement, or the second (2nd) anniversary of the
date on which the daily extensions were discontinued.
SECTION 3. DUTIES.
During the period of the Employee's employment that falls
within the Assurance Period, the Employee shall: (a) except to the extent
allowed under section 6 of this Agreement, devote his full business time and
attention (other than during weekends, holidays, vacation per iods, and periods
of illness, disability or approved leaves of absence) to the business and
affairs of the Association and use his best efforts to advance the Association's
interests; (b) serve in the position to which the Employee is appointed by the
Association, which, during the Assurance Period, shall be the position that the
Employee held on the day before the Assurance Period commenced or any higher
office at the Association to which he may subsequently be appointed; and (c)
subject to the direction of the Board and the By-laws of the Association, have
such functions, duties, responsibilities and authority commonly associated with
such position.
SECTION 4. COMPENSATION.
In consideration for the services rendered by the Employee
during the Assurance Period, the Association shall pay to the Employee during
the Assurance Period a salary at an annual rate equal to the greater of:
(a) the annual rate of salary in effect for the Employee on
the day before the Assurance Period commenced; or
(b) such higher annual rate as may be prescribed by or under
the authority of the Board;
PROVIDED, HOWEVER, that in no event shall the Employee's annual rate of salary
under this Agreement in effect at a particular time during the Assurance Period
be reduced without the Employee's prior written consent. The annual salary
payable under this section 4 shall be subject to review at least once annually
and shall be paid in accordance with the Association's customary payroll
practices. Nothing in this section 4 shall be deemed to prevent the Employee
from receiving additional compensation other than salary for his services to the
Association, or additional compensation for his services to the Holding Company,
upon such terms and conditions as may be prescribed by or under the authority of
the Board or the Board of Directors of the Holding Company.
<PAGE>
-4-
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
Except as otherwise provided in this Agreement, the Employee
shall, during the Assurance Period, be treated as an employee of the Association
and be eligible to participate in and receive benefits under any qualified or
non-qualified defined benefit or defined contribution retirement plan, group
life, health (including hospitalization, medical and major medical), dental,
accident and long term disability insurance plans, and such other employee
benefit plans and programs, including, but not limited to, any incentive
compensation plans or programs (whether or not employee benefit plans or
programs), any stock option and appreciation rights plan, em ployee stock
ownership plan and restricted stock plan, as may from time to time be maintained
by, or cover employees of, the Association, in accordance with the terms and
conditions of such employee benefit plans and programs and compensation plans
and programs and with the Association's customary practices.
SECTION 6. BOARD MEMBERSHIPS.
The Employee may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld), and he may engage in personal business and investment activities for
his own account; PROVIDED, HOWEVER, that such service and personal business and
investment activities shall not materially interfere with the performance of his
duties under this Agreement.
SECTION 7. WORKING FACILITIES AND EXPENSES.
During the Assurance Period, the Employee's principal place of
employment shall be at the Association's executive offices at the address first
above written, or at such other location within a 25-mile radios thereof at
which the Association shall maintain its principal executive offices, or at such
other location as the Association and the Employee may mutually agree upon. The
Association shall provide the Employee, at his principal place of employment,
support servic es and facilities suitable to his position with the Association
and necessary or appropriate in connection with the performance of his assigned
duties under this Agreement. The Association shall reimburse the Employee for
his ordinary and necessary business expenses, including, without limitation, the
Employee's travel and entertainment expenses, incurred in connection with the
performance of the Employee's duties under this Agreement, upon presentation to
the Association of an itemized account of such expenses in such form as the
Association may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH ASSOCIATION
LIABILITY.
(a) In the event that the Employee's employment with the
Association shall terminate during the Assurance Period, or prior to the
commencement of the Assurance Period but within three (3) months of and in
connection with a Change of Control as defined in section 10 of this Agreement,
on account of:
<PAGE>
-5-
(i) The Employee's voluntary resignation from employment with
the Association within ninety (90) days following:
(A) the failure of the Association to appoint or
re-appoint or elect or re-elect the Employee to serve in the
same position in which the Employee was serving on the day
before the Assurance Period commenced, or a more senior
office;
(B) the expiration of a thirty (30) day period
following the date on which the Employee gives written notice
to the Association of its material failure, whether by
amendment of the Association's Organization Certificate or
By-laws, action of the Board or the Holding Company's
stockholders or otherwise, to vest in the Employee the
functions, duties, or responsibilities vested in the Employee
on the day before the Assurance Period commenced (or the
functions, duties and responsibilities of a more senior office
to which the Employee may be appointed), unless during such
thirty (30) day period, the Association fully cures such
failure;
(C) the failure of the Association to cure a material
breach of this Agreement by the Association, within thirty
(30) days following written notice from the Employee of such
material breach;
(D) a reduction in the compensation provided to the
Employee, or a material reduction in the benefits provided to
the Employee under the Association's program of employee
benefits, compared with the compensa tion and benefits that
were provided to the Employee on the day before the Assurance
Period commenced;
(E) a change in the Employee's principal place of
employment outside of a 25-mile radius of his principal place
of employment immediately prior to the Change of Control that
would require a relocation of his residence in order to be
able to commute to such new place of employment within a
one-way commuting time not in excess of the greater of (I) 60
minutes or (II) the Employee's commuting time immediately
prior to such change; or
(ii) the discharge of the Employee by the Association for any
reason other than for "cause" as provided in section 9(a);
then, subject to section 21, the Association shall provide the benefits and pay
to the Employee the amounts provided for under section 8(b) of this Agreement;
PROVIDED, HOWEVER, that if benefits or payments become due hereunder as a result
of the Employee's termination of employment prior to the commencement of the
Assurance Period, the benefits and payments provided for under section 8(b) of
this Agreement shall be determined as though the Employee had remained in the
<PAGE>
-6-
service of the Association (upon the terms and conditions in effect at the time
of his actual termination of service) and had not terminated employment with the
Association until the date on which the Employee's Assurance Period would have
commenced.
(b) Upon the termination of the Employee's employment with the
Association under circumstances described in section 8(a) of this Agreement, the
Association shall pay and provide to the Employee (or, in the event of the
Employee's death, to the Employee's estate):
(i) the Employee's earned but unpaid compensation (including,
without limitation, all items which constitute wages under applicable
law and the payment of which is not otherwise provided for under this
section 8(b)) as of the date of the termination of the Employee's
employment with the Association, such payment to be made at the time
and in the manner prescribed by law applicable to the payment of wages
but in no event later than thirty (30) days after termination of
employment;
(ii) the benefits, if any, to which the Employee is entitled
as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the
Association's officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long-term disability
insurance benefits, in addition to that provided pursuant to section
8(b)(ii) and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Employee, for the remaining unexpired Assurance Period, coverage
equivalent to the coverage to which the Employee would have been enti
tled under such plans (as in effect on the date of his termination of
employment, or, if his termination of employment occurs after a Change
of Control, on the date of such Change of Control, whichever benefits
are greater) if the Employee had con tinued working for the Association
during the remaining unexpired Assurance Period at the highest annual
rate of compensation achieved during the Employee's period of actual
employment with the Association, it being understood that the
Employee's "qualifying event" for purposes of continuation coverage
under the Consolidated Budget Reconciliation Act ("COBRA") shall occur
at the expiration of this period;
(iv) within thirty (30) days following the Employee's
termination of employment with the Association, a lump sum payment, in
an amount equal to the present value of the salary that the Employee
would have earned if the Employee had continued working for the
Association during the remaining unexpired Assurance Period at the
highest annual rate of salary achieved during the Employee's period of
employment with the Association beginning three years before the date
of the Change of Control and ending on the date of termination of
<PAGE>
-7-
employment, where such present value is to be determined using a
discount rate equal to the applicable short-term federal rate
prescribed under section 1274(d) of the Internal Revenue Code of 1986
("Code"), compounded using the compounding periods corresponding to the
Association's regular payroll periods for its employees, such lump sum
to be paid in lieu of all other payments of salary provided for under
this Agreement in respect of the period following any such termination;
(v) within thirty (30) days following the Employee's
termination of employment with the Association, a lump sum payment in
an amount equal to the excess, if any, of:
(A) the present value of the aggregate benefits to
which the Employee would be entitled under any and all
qualified and non-qualified defined benefit pension plans
maintained by, or covering employees of, the Association if
the Employee were 100% vested thereunder and had con tinued
working for the Association during the remaining unexpired
Assurance Period, such benefits to be determined as of the
date of termination of employment by adding to the service
actually recognized under such plans an additional period
equal to the remaining unexpired Assurance Period and by
adding to the compensation recognized under such plans for the
year in which termination of employment occurs all amounts
payable under sections 8(b)(i) and (vii); over
(B) the present value of the benefits to which the
Employee is actually entitled under such defined benefit
pension plans as of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Employee's termination of employment occurs ("Applicable PBGC Rate");
and
(vi) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the present value of the additional employer contributions (or if
greater in the case of a leveraged employee stock ownership plan or
similar arrangement, the additional assets allocable to him through
debt service, based on the fair market value of such assets at
termination of employment) to which he would have been entitled under
any and all qualified and non-qualified defined contribution plans
maintained by, or covering employees of, the Association, as if he were
100% vested thereunder and had continued
<PAGE>
-8-
working for the Association during the Remaining Unexpired Employment
Period at the highest annual rate of compensation achieved during that
portion of the Employment Period which is prior to the Employee's
termination of employment with the Association, and making the maximum
amount of employee contributions, if any, required under such plan or
plans, such present value to be determined on the basis of a discount
rate, compounded using the compounding period that corresponds to the
frequency with which employer contributions are made to the relevant
plan, equal to the Applicable PBGC Rate; and
(vii) the payments that would have been made to the Employee
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the
Association, if he had continued working for the Association during the
remaining unexpired Assurance Period and had earned in each calendar
year that ends during the remaining unexpired Assurance Period a bonus
in an amount equal to the highest annual bonus or incentive award
actually paid to him in any calendar year ending during the period
beginning three years prior to the Change of Control and ending on the
date of termination of employment.
The Association and the Employee hereby stipulate that the damages which may be
incurred by the Employee following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 8(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Employee's efforts, if any, to
mitigate damages.
SECTION 9. TERMINATION WITHOUT ADDITIONAL ASSOCIATION
LIABILITY.
In the event that the Employee's employment with the
Association shall terminate during the Assurance Period on account of:
(a) the discharge of the Employee for "cause," which, for
purposes of this Agreement shall mean 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 any material breach of this Agreement, in each case as
measured against standards generally prevailing at the relevant time in the
savings and community banking industry; PROVIDED, HOWEVER, that the Employee
shall not be deemed to have been discharged for cause unless and until the
following procedures shall have been followed:
(i) the Board shall adopt a resolution duly approved
by affirmative vote of a majority of the entire Board at a
meeting called and held for such purpose calling for the
Employee's termination for cause and
<PAGE>
-9-
setting forth the purported grounds for such termination
("Proposed Termination Resolution");
(ii) as soon as practicable, and in any event within
five (5) days, after adoption of such resolution, the Board
shall furnish to the Employee a written notice of termination
which shall be accompanied by a certified copy of the Proposed
Termination Resolution ("Notice of Proposed Termination");
(iii) the Employee shall be afforded a reasonable
opportunity to make oral and written presentations to the
members of the Board, on his own behalf, or through a
representative, who may be his legal counsel, to refute the
grounds set forth in the Proposed Termination Resolution at
one or more meetings of the Board to be held no sooner than
fifteen (15) days and no later than thirty (30) after the
Employee's receipt of the Proposed Termination Notice
("Termination Hearings"); and
(iv) within ten (10) days following the end of the
Termination Hearings, the Board shall adopt a resolution duly
approved by affirmative vote of a majority of the entire Board
at a meeting called and held for such purpose (A) finding that
in the good faith opinion of the Board the grounds for
termination set forth in the Proposed Termination Resolution
exist and (B) terminating the Employee's employment
("Termination Resolution"); and
(v) as promptly as practicable, and in any event
within one (1) business day after adoption of the Termination
Resolution, the Board shall furnish to the Employee written
notice of termination, which notice shall include a copy of
the Termination Resolution and specify an effective date of
termination that is not later than the date on which such
notice is given;
(b) the Employee's voluntary resignation from employment with
the Association for reasons other than those specified in section 8(a)(i); or
(c) the Employee's death; or
(d) a determination that the Employee is eligible for
long-term disability benefits under the Association's long-term disability
insurance program or, if there is no such program, under the federal Social
Security Act;
then the Association shall have no further obligations under this Agreement,
other than the payment to the Employee (or, in the event of his death, to his
estate) of his earned but unpaid salary as of the date of the termination of his
employment, and the provision of such other benefits, if any, to which the
Employee is entitled as a former employee under the employee
<PAGE>
-10-
benefit plans and programs and compensation plans and programs maintained by, or
covering employees of, the Association.
(e) For purposes of section 9(a), no act or failure to act, on
the part of the Employee, shall be considered "willful" unless it is done, or
omitted to be done, by the Employee in bad faith or without reasonable belief
that the Employee's action or omission was in the best interests of the
Association. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or based upon the written advice of
counsel for the Association shall be conclusively presumed to be done, or
omitted to be done, by the Employee in good faith and in the best interests of
the Association. The cessation of employment of the Employee shall not be deemed
to be for "cause" within the meaning of section 9(a) unless and until there
shall have been delivered to Employee a copy of a resolution duly adopted by the
affirmative vote of three-fourths of the non-employee members of the Board at a
meeting of the Board called and held for such purpose (after reasonable notice
is provided to Employee and Employee is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the good faith opinion
of the Board, Employee is guilty of the conduct described in section 9(a) above,
and specifying the particulars thereof in detail.
SECTION 10. CHANGE OF CONTROL.
(a) A Change of Control of the Association ("Change of
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(i) approval by the stockholders of the Association of a
transaction that would result in the reorganization, merger or
consolidation of the Association, respectively, with one or more other
persons, other than a transaction following which:
(A) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended "Exchange Act") in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the outstanding equity ownership
interests in the Association; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51%
<PAGE>
-11-
of the securities entitled to vote generally in the election
of directors of the Association;
(ii) the acquisition of substantially all of the assets of the
Association or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the outstanding
securities of the Association entitled to vote generally in the
election of directors by any person or by any persons acting in
concert, or approval by the stockholders of the Association of any
transaction which would result in an acquisition; or
(iii) a complete liquidation or dissolution of the
Association, or approval by the stockholders of the Association of a
plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following
such event, at least fifty percent (50%) of the members of the board of
directors of the Association do not belong to any of the following
groups:
(A) individuals who were members of the board of
directors of the Association on the date of this Agreement; or
(B) individuals who first became members of the board
of directors of the Association after the date of this
Agreement either:
(I) upon election to serve as a member of
the such board by affirmative vote of three-quarters
(3/4) of the members of such board, or a nominating
committee thereof, in office at the time of such
first election; or
(II) upon election by the stockholders of
the Association to serve as a member of such board,
but only if nominated for election by affirmative
vote of three-quarters (3/4) of the members of such
board, or of a nominating committee thereof, in
office at the time of such first nomination;
PROVIDED, HOWEVER, that such individual's election or nomination did
not result from an actual or threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf of the Board of the
Association;
(v) any event which would be described in section 10(a)(i),
(ii), (iii) or (iv) if the term "Holding Company" were substituted for
the term "Association" therein.
<PAGE>
-12-
(b) In no event, however, shall a Change of Control be deemed
to have occurred as a result of any acquisition of securities or assets of the
Holding Company, the Association or any subsidiary of either of them, by the
Holding Company, the Association or any subsidiary of either of them, or by any
employee benefit plan maintained by any of them. For purposes of this section
10, the term "person" shall have the meaning assigned to it under sections
13(d)(3) or 14(d)(2) of the Exchange Act.
SECTION 11. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR
PROGRAMS.
The termination of the Employee's employment during the
Assurance Period or thereafter, whether by the Association or by the Employee,
shall have no effect on the rights and obligations of the parties hereto under
the Association's Pension Plan, group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability insurance
plans or such other employee benefit plans or programs, or compensation plans or
programs (whether or not employee benefit plans or programs) and any defined
contribution plan, employee stock ownership plan, stock option and appreciation
rights plan, and restricted stock plan, as may be maintained by, or cover
employees of, the Association from time to time; PROVIDED, HOWEVER, that nothing
in this Agreement shall be deemed to duplicate any compensation or benefits
provided under any agreement, plan or program covering the Employee to which the
Association or the Holding Company is a party and any duplicative amount payable
under any such agreement, plan or program shall be applied as an offset to
reduce the amounts otherwise payable hereunder.
SECTION 12. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Employee, his legal representatives and testate or intestate
distributees, and the Association and the Holding Company, their respective
successors and assigns, including any successor by merger or consolidation or a
statutory receiver or any other person or firm or corporation to which all or
substantially all of the respective assets and business of the Association or
the Holding Company may be sold or otherwise transferred.
SECTION 13. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
<PAGE>
-13-
If to the Employee:
David G. Towe
10N768 Williamsburg
Elgin, Illinois 60123
If to the Association:
Home Federal Savings and Loan Association
16 North Spring Street
Elgin, Illinois 60120
Attention: CORPORATE SECRETARY
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. EDWARD BRIGHT, ESQ.
If to the Holding Company:
Home Bancorp of Elgin, Inc.
16 North Spring Street
Elgin, Illinois 60120
Attention: BOARD OF DIRECTORS
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. EDWARD BRIGHT, ESQ.
<PAGE>
-14-
SECTION 14. INDEMNIFICATION AND ATTORNEYS' FEES.
The Association shall indemnify, hold harmless and defend the
Employee against reasonable costs, including legal fees, incurred by the
Employee in connection with or arising out of any action, suit or proceeding in
which the Employee may be involved, as a result of the Employee's efforts, in
good faith, to defend or enforce the terms of this Agreement; provided, however,
that the Employee shall have substantially prevailed on the merits pursuant to a
judgment, decree or order of a court of competent jurisdiction or of an
arbitrator in an arbitration proceeding, or in a settlement. For purposes of
this Agreement, any settlement agreement which provides for payment of any
amounts in settlement of the Association's obligations hereunder shall be
conclusive evidence of the Employee's entitlement to indemnification hereunder,
and any such indemnification payments shall be in addition to amounts payable
pursuant to such settlement agreement, unless such settlement agreement
expressly provides otherwise. This provision shall be inoperative if and to the
extent that, but only if and to the extent that, it shall be determined that
compliance herewith would violate any applicable law or regulation.
SECTION 15. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 16. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 17. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 18. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States, and in the absence of
controlling federal law, the laws of the State of Illinois, without reference to
conflicts of law principles.
<PAGE>
-15-
SECTION 19. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 20. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or rep resentations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 21. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the
Association:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to the
Employee under section 8(b) hereof (exclusive of amounts described in
section 8(b)(i)) exceed the lesser of (i) three times the Employee's
average annual total compensation for the last five consecutive
calendar years to end prior to his termination of employment with the
Association (or for his entire period of employment with the
Association if less than five calendar years) and (ii) the maximum
amount that may be paid without producing an "excess parachute payment"
(as such term is defined in section 280G of the Code or any successor
provision), the applicability of such provision to the Employee and any
such maximum amount to be determined in good faith by the firm of
independent certified public accountants regularly retained to audit
the Association's books and records.
(b) Notwithstanding anything herein contained to the contrary,
any payments to the Employee by the Association, whether pursuant to
this Agreement or otherwise, are subject to and conditioned upon their
compliance with section 18(k) of the Federal Deposit Insurance Act
("FDI Act"), 12 U.S.C. ss.1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Employee is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Association
pursuant to a notice served under section 8(e)(3) or 8(g)(1) of the FDI
Act, 12 U.S.C. ss.1818(e)(3) or 1818(g)(1), the Association's
obligations under this Agreement shall be suspended as of the date of
service of such notice, unless stayed by appropriate proceedings. If
the charges in such notice are dismissed, the Association, in its
discretion, may
<PAGE>
-16-
(i) pay to the Employee all or part of the compensation withheld while
the Association's obligations hereunder were suspended and (ii)
reinstate, in whole or in part, any of the obligations which were
suspended.
(d) Notwithstanding anything herein contained to the contrary,
if the Employee is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order
issued under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1), all prospective obligations of the Association
under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Association and the
Employee shall not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Association is in default (within the meaning of section 3(x)(1)
of the FDI Act, 12 U.S.C. ss.1813(x)(1), all prospective obligations of
the Association under this Agreement shall terminate as of the date of
default, but vested rights and obligations of the Association and the
Employee shall not be affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Association hereunder shall be
terminated, except to the extent that a continuation of this Agreement
is necessary for the continued operation of the Association: (i) by the
Director of the Office of Thrift Supervision ("OTS") or his designee at
the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the Association
under the authority contained in section 13(c) of the FDI Act, 12
U.S.C. ss.1823(c); (ii) by the Director of the OTS or his designee at
the time such Director or designee approves a supervisory merger to
resolve problems related to the operation of the Association or when
the Association is determined by such Director to be in an unsafe or
unsound condition. The vested rights and obligations of the parties
shall not be affected.
If and to the extent that any of the foregoing provisions shall cease to be
required or apply by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
SECTION 22. GUARANTY.
The Holding Company hereby irrevocably and unconditionally
guarantees to the Employee the payment of all amounts, and the performance of
all other obligations, due from the Association in accordance with the terms of
this Agreement as and when due without any requirement of presentment, demand of
payment, protest or notice of dishonor or nonpayment.
<PAGE>
-17-
IN WITNESS WHEREOF, the Association and the Holding Company
have caused this Agreement to be executed and the Employee has hereunto set his
hand, all as of the day and year first above written.
/s/ David G. Towe
------------------------------------------
DAVID G. TOWE
ATTEST: HOME FEDERAL SAVINGS AND LOAN
ASSOCIATION OF ELGIN
By /s/ Kathleen A. Schroeder
-------------------------
Secretary By /s/ Leigh C. O'Connor
----------------------------------------
NAME: Leigh C. O'Connor
TITLE: Chairman, Compensation Committee
[Seal]
ATTEST: HOME BANCORP OF ELGIN, INC.
By /s/ Kathleen A. Schroeder
-------------------------
Secretary By /s/ Leigh C. O'Connor
----------------------------------------
NAME: Leigh C. O'Connor
TITLE: Chairman, Compensation Committee
[Seal]
<PAGE>
-18-
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
David G. Towe, to me known, and known to me to be the individual described in
the foregoing instrument, who, being by me duly sworn, did depose and say that
he resides at the address set forth in said instrument, and that he signed his
name to the foregoing instrument.
/s/ Ruth E. Bart
------------------------------
Notary Public
[Seal]
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998 before me personally came
LEIGH C. O'CONNOR, to me known, who, being by me duly sworn, did depose and say
that he resides at 366 Hamilton Ave., Elgin, IL 60123, that he is a member of
the Board of Directors of Home Federal Savings and Loan Association of Elgin,
the savings association described in and which executed the foregoing
instrument; that he knows the seal of said savings association; that the seal
affixed to said instrument is such seal; that it was so affixed by authority of
the Board of Directors of said savings association; and that he signed his name
thereto by like authority.
/s/ Ruth E. Bart
------------------------------
Notary Public
[Seal]
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
LEIGH C. O'CONNOR, to me known, who, being by me duly sworn, did depose and say
that he resides at 366 Hamilton Ave., Elgin, IL 60123, that he is a member of
the Board of Directors of Home Bancorp of Elgin, Inc., the corporation described
in and which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such seal; that it was
so affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
/s/ Ruth E. Bart
------------------------------
Notary Public
[Seal]
EMPLOYEE RETENTION AGREEMENT
This EMPLOYEE RETENTION AGREEMENT ("Agreement") is made and
entered into as of the 26th day of September, 1996, by and among HOME FEDERAL
SAVINGS AND LOAN ASSOCIATION OF ELGIN, a mutual savings and loan association
organized and operating under the federal laws of the United States and having
its executive offices at 16 North Spring Street, Elgin, Illinois 60120
("Association"); HOME BANCORP OF ELGIN, INC., a business corporation organized
and existing under the laws of the State of Delaware and also having its
executive offices at 16 North Spring Street, Elgin, Illinois 60120 ("Holding
Company"); and RAYMOND G. BANDEMER, an individual residing at 707 Scott Drive,
Elgin, Illinois 60123 ("Employee").
W I T N E S S E T H :
---------------------
WHEREAS, effective as of the date of this Agreement, the
Association has converted from a federal mutual savings and loan association to
a federal stock savings and loan association and has become a wholly-owned
subsidiary of the Holding Company; and
WHEREAS, the Association desires to secure for itself the
continued availability of the Employee's services; and
WHEREAS, the Association recognizes that a third party may at
some time in the future pursue a Change of Control of the Association or the
Holding Company and that this possibility may result in the departure or
distraction of the Association's employees; and
WHEREAS, the Association has determined that appropriate steps
should be taken to encourage the continued attention and dedication of the
Association's employees, including the Employee, to their duties for the
Association without the distraction that may arise from the possibility of a
Change of Control of the Association or the Holding Company; and
WHEREAS, the Association believes that, by assuring certain
employees, including the Employee, of reasonable financial security in the event
of a Change of Control of the Association or the Holding Company, such employees
will be in a position to perform their duties free from financial self-interest
and in the best interests of the Association and its shareholders; and
WHEREAS, for purposes of securing the Employee's services for
the Association, the Board of Directors of the Association ("Board") has
authorized the proper employees of the Association to enter into an employee
retention agreement with the Employee on the terms and conditions set forth
herein; and
WHEREAS, the Board of Directors of the Holding Company has
authorized the Holding Company to guarantee the Association's obligations under
such an employee retention agreement; and
<PAGE>
-2-
WHEREAS, the Employee is willing to make his services
available to the Association on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the Association, the
Holding Company and the Employee hereby agree as follows:
SECTION 1. EFFECTIVE DATE.
(a) This Agreement shall be effective as of the date first
above written and shall remain in effect during the term of this Agreement which
shall be for a period of three (3) years commencing on the date of this
Agreement, plus such extensions as are provided pursuant to section 1(b);
PROVIDED, HOWEVER, that if the term of this Agreement has not otherwise
terminated, the term of this Agreement will terminate on the date of the
Employee's termination of employment with the Association; and PROVIDED,
FURTHER, that the obligations under section 8 of this Agreement shall survive
the term of this Agreement if payments become due hereunder.
(b) Prior to each anniversary date of this Agreement, the
Board shall consider the advisability of an extension of the term in light of
the circumstances then prevailing and may, in its discretion, approve an
extension to take effect as of the upcoming anniversary date. If an extension is
approved, the term of this Agreement shall be extended so that it will expire
three (3) years after such anniversary date.
(c) Notwithstanding anything herein contained to the contrary:
(i) the Employee's employment with the Association may be terminated at any
time, subject to the terms and conditions of this Agreement; and (ii) nothing in
this Agreement shall mandate or prohibit a continuation of the Employee's
employment following the expiration of the Assurance Period upon such terms and
conditions as the Association and the Employee may mutually agree upon.
SECTION 2. ASSURANCE PERIOD.
(a) The assurance period ("Assurance Period") shall be for a
period commencing on the date of a Change of Control, as defined in section 10
of this Agreement, and ending on the second (2nd) anniversary of the date on
which the Assurance Period commences, plus such extensions as are provided
pursuant to the following sentence. The Assurance Period shall be automatically
extended for one (1) additional day each day, unless either the Association or
the Employee elects not to extend the Assurance Period further by giving written
notice to the other party, in which case the Assurance Period shall become fixed
and shall end on the second (2nd) anniversary of the date on which such written
notice is given; PROVIDED, HOWEVER, that if, following a Change of Control, the
Office of Thrift Supervision (or its successor) is the Association's primary
federal regulator, the Agreement shall be subject to extension not more
frequently than annually and only upon review and approval of the Board.
<PAGE>
-3-
(b) Upon termination of the Employee's employment with the
Association, any daily extensions provided pursuant to the preceding sentence,
if not theretofore discontinued, shall cease and the remaining unexpired
Assurance Period under this Agreement shall be a fixed period ending on the
later of the second (2nd) anniversary of the date of the Change of Control, as
defined in section 10 of this Agreement, or the second (2nd) anniversary of the
date on which the daily extensions were discontinued.
SECTION 3. DUTIES.
During the period of the Employee's employment that falls
within the Assurance Period, the Employee shall: (a) except to the extent
allowed under section 6 of this Agreement, devote his full business time and
attention (other than during weekends, holidays, vacation per iods, and periods
of illness, disability or approved leaves of absence) to the business and
affairs of the Association and use his best efforts to advance the Association's
interests; (b) serve in the position to which the Employee is appointed by the
Association, which, during the Assurance Period, shall be the position that the
Employee held on the day before the Assurance Period commenced or any higher
office at the Association to which he may subsequently be appointed; and (c)
subject to the direction of the Board and the By-laws of the Association, have
such functions, duties, responsibilities and authority commonly associated with
such position.
SECTION 4. COMPENSATION.
In consideration for the services rendered by the Employee
during the Assurance Period, the Association shall pay to the Employee during
the Assurance Period a salary at an annual rate equal to the greater of:
(a) the annual rate of salary in effect for the Employee on
the day before the Assurance Period commenced; or
(b) such higher annual rate as may be prescribed by or under
the authority of the Board;
PROVIDED, HOWEVER, that in no event shall the Employee's annual rate of salary
under this Agreement in effect at a particular time during the Assurance Period
be reduced without the Employee's prior written consent. The annual salary
payable under this section 4 shall be subject to review at least once annually
and shall be paid in accordance with the Association's customary payroll
practices. Nothing in this section 4 shall be deemed to prevent the Employee
from receiving additional compensation other than salary for his services to the
Association, or additional compensation for his services to the Holding Company,
upon such terms and conditions as may be prescribed by or under the authority of
the Board or the Board of Directors of the Holding Company.
<PAGE>
-4-
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
Except as otherwise provided in this Agreement, the Employee
shall, during the Assurance Period, be treated as an employee of the Association
and be eligible to participate in and receive benefits under any qualified or
non-qualified defined benefit or defined contribution retirement plan, group
life, health (including hospitalization, medical and major medical), dental,
accident and long term disability insurance plans, and such other employee
benefit plans and programs, including, but not limited to, any incentive
compensation plans or programs (whether or not employee benefit plans or
programs), any stock option and appreciation rights plan, em ployee stock
ownership plan and restricted stock plan, as may from time to time be maintained
by, or cover employees of, the Association, in accordance with the terms and
conditions of such employee benefit plans and programs and compensation plans
and programs and with the Association's customary practices.
SECTION 6. BOARD MEMBERSHIPS.
The Employee may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld), and he may engage in personal business and investment activities for
his own account; PROVIDED, HOWEVER, that such service and personal business and
investment activities shall not materially interfere with the performance of his
duties under this Agreement.
SECTION 7. WORKING FACILITIES AND EXPENSES.
During the Assurance Period, the Employee's principal place of
employment shall be at the Association's executive offices at the address first
above written, or at such other location within a 25-mile radios thereof at
which the Association shall maintain its principal executive offices, or at such
other location as the Association and the Employee may mutually agree upon. The
Association shall provide the Employee, at his principal place of employment,
support servic es and facilities suitable to his position with the Association
and necessary or appropriate in connection with the performance of his assigned
duties under this Agreement. The Association shall reimburse the Employee for
his ordinary and necessary business expenses, including, without limitation, the
Employee's travel and entertainment expenses, incurred in connection with the
performance of the Employee's duties under this Agreement, upon presentation to
the Association of an itemized account of such expenses in such form as the
Association may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH ASSOCIATION
LIABILITY.
(a) In the event that the Employee's employment with the
Association shall terminate during the Assurance Period, or prior to the
commencement of the Assurance Period but within three (3) months of and in
connection with a Change of Control as defined in section 10 of this Agreement,
on account of:
<PAGE>
-5-
(i) The Employee's voluntary resignation from employment with
the Association within ninety (90) days following:
(A) the failure of the Association to appoint or
re-appoint or elect or re-elect the Employee to serve in the
same position in which the Employee was serving on the day
before the Assurance Period commenced, or a more senior
office;
(B) the expiration of a thirty (30) day period
following the date on which the Employee gives written notice
to the Association of its material failure, whether by
amendment of the Association's Organization Certificate or
By-laws, action of the Board or the Holding Company's
stockholders or otherwise, to vest in the Employee the
functions, duties, or responsibilities vested in the Employee
on the day before the Assurance Period commenced (or the
functions, duties and responsibilities of a more senior office
to which the Employee may be appointed), unless during such
thirty (30) day period, the Association fully cures such
failure;
(C) the failure of the Association to cure a material
breach of this Agreement by the Association, within thirty
(30) days following written notice from the Employee of such
material breach;
(D) a reduction in the compensation provided to the
Employee, or a material reduction in the benefits provided to
the Employee under the Association's program of employee
benefits, compared with the compensa tion and benefits that
were provided to the Employee on the day before the Assurance
Period commenced;
(E) a change in the Employee's principal place of
employment outside of a 25-mile radius of his principal place
of employment immediately prior to the Change of Control that
would require a relocation of his residence in order to be
able to commute to such new place of employment within a
one-way commuting time not in excess of the greater of (I) 60
minutes or (II) the Employee's commuting time immediately
prior to such change; or
(ii) the discharge of the Employee by the Association for any
reason other than for "cause" as provided in section 9(a);
then, subject to section 21, the Association shall provide the benefits and pay
to the Employee the amounts provided for under section 8(b) of this Agreement;
PROVIDED, HOWEVER, that if benefits or payments become due hereunder as a result
of the Employee's termination of employment prior to the commencement of the
Assurance Period, the benefits and payments provided for under section 8(b) of
this Agreement shall be determined as though the Employee had remained in the
<PAGE>
-6-
service of the Association (upon the terms and conditions in effect at the time
of his actual termination of service) and had not terminated employment with the
Association until the date on which the Employee's Assurance Period would have
commenced.
(b) Upon the termination of the Employee's employment with the
Association under circumstances described in section 8(a) of this Agreement, the
Association shall pay and provide to the Employee (or, in the event of the
Employee's death, to the Employee's estate):
(i) the Employee's earned but unpaid compensation (including,
without limitation, all items which constitute wages under applicable
law and the payment of which is not otherwise provided for under this
section 8(b)) as of the date of the termination of the Employee's
employment with the Association, such payment to be made at the time
and in the manner prescribed by law applicable to the payment of wages
but in no event later than thirty (30) days after termination of
employment;
(ii) the benefits, if any, to which the Employee is entitled
as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the
Association's officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long-term disability
insurance benefits, in addition to that provided pursuant to section
8(b)(ii) and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Employee, for the remaining unexpired Assurance Period, coverage
equivalent to the coverage to which the Employee would have been enti
tled under such plans (as in effect on the date of his termination of
employment, or, if his termination of employment occurs after a Change
of Control, on the date of such Change of Control, whichever benefits
are greater) if the Employee had con tinued working for the Association
during the remaining unexpired Assurance Period at the highest annual
rate of compensation achieved during the Employee's period of actual
employment with the Association, it being understood that the
Employee's "qualifying event" for purposes of continuation coverage
under the Consolidated Budget Reconciliation Act ("COBRA") shall occur
at the expiration of this period;
(iv) within thirty (30) days following the Employee's
termination of employment with the Association, a lump sum payment, in
an amount equal to the present value of the salary that the Employee
would have earned if the Employee had continued working for the
Association during the remaining unexpired Assurance Period at the
highest annual rate of salary achieved during the Employee's period of
employment with the Association beginning three years before the date
of the Change of Control and ending on the date of termination of
<PAGE>
-7-
employment, where such present value is to be determined using a
discount rate equal to the applicable short-term federal rate
prescribed under section 1274(d) of the Internal Revenue Code of 1986
("Code"), compounded using the compounding periods corresponding to the
Association's regular payroll periods for its employees, such lump sum
to be paid in lieu of all other payments of salary provided for under
this Agreement in respect of the period following any such termination;
(v) within thirty (30) days following the Employee's
termination of employment with the Association, a lump sum payment in
an amount equal to the excess, if any, of:
(A) the present value of the aggregate benefits to
which the Employee would be entitled under any and all
qualified and non-qualified defined benefit pension plans
maintained by, or covering employees of, the Association if
the Employee were 100% vested thereunder and had con tinued
working for the Association during the remaining unexpired
Assurance Period, such benefits to be determined as of the
date of termination of employment by adding to the service
actually recognized under such plans an additional period
equal to the remaining unexpired Assurance Period and by
adding to the compensation recognized under such plans for the
year in which termination of employment occurs all amounts
payable under sections 8(b)(i) and (vii); over
(B) the present value of the benefits to which the
Employee is actually entitled under such defined benefit
pension plans as of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Employee's termination of employment occurs ("Applicable PBGC Rate");
and
(vi) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the present value of the additional employer contributions (or if
greater in the case of a leveraged employee stock ownership plan or
similar arrangement, the additional assets allocable to him through
debt service, based on the fair market value of such assets at
termination of employment) to which he would have been entitled under
any and all qualified and non-qualified defined contribution plans
maintained by, or covering employees of, the Association, as if he were
100% vested thereunder and had continued
<PAGE>
-8-
working for the Association during the Remaining Unexpired Employment
Period at the highest annual rate of compensation achieved during that
portion of the Employment Period which is prior to the Employee's
termination of employment with the Association, and making the maximum
amount of employee contributions, if any, required under such plan or
plans, such present value to be determined on the basis of a discount
rate, compounded using the compounding period that corresponds to the
frequency with which employer contributions are made to the relevant
plan, equal to the Applicable PBGC Rate; and
(vii) the payments that would have been made to the Employee
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the
Association, if he had continued working for the Association during the
remaining unexpired Assurance Period and had earned in each calendar
year that ends during the remaining unexpired Assurance Period a bonus
in an amount equal to the highest annual bonus or incentive award
actually paid to him in any calendar year ending during the period
beginning three years prior to the Change of Control and ending on the
date of termination of employment.
The Association and the Employee hereby stipulate that the damages which may be
incurred by the Employee following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 8(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Employee's efforts, if any, to
mitigate damages.
SECTION 9. TERMINATION WITHOUT ADDITIONAL ASSOCIATION
LIABILITY.
In the event that the Employee's employment with the
Association shall terminate during the Assurance Period on account of:
(a) the discharge of the Employee for "cause," which, for
purposes of this Agreement shall mean 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 any material breach of this Agreement, in each case as
measured against standards generally prevailing at the relevant time in the
savings and community banking industry; PROVIDED, HOWEVER, that the Employee
shall not be deemed to have been discharged for cause unless and until the
following procedures shall have been followed:
(i) the Board shall adopt a resolution duly approved
by affirmative vote of a majority of the entire Board at a
meeting called and held for such purpose calling for the
Employee's termination for cause and
<PAGE>
-9-
setting forth the purported grounds for such termination
("Proposed Termination Resolution");
(ii) as soon as practicable, and in any event within
five (5) days, after adoption of such resolution, the Board
shall furnish to the Employee a written notice of termination
which shall be accompanied by a certified copy of the Proposed
Termination Resolution ("Notice of Proposed Termination");
(iii) the Employee shall be afforded a reasonable
opportunity to make oral and written presentations to the
members of the Board, on his own behalf, or through a
representative, who may be his legal counsel, to refute the
grounds set forth in the Proposed Termination Resolution at
one or more meetings of the Board to be held no sooner than
fifteen (15) days and no later than thirty (30) after the
Employee's receipt of the Proposed Termination Notice
("Termination Hearings"); and
(iv) within ten (10) days following the end of the
Termination Hearings, the Board shall adopt a resolution duly
approved by affirmative vote of a majority of the entire Board
at a meeting called and held for such purpose (A) finding that
in the good faith opinion of the Board the grounds for
termination set forth in the Proposed Termination Resolution
exist and (B) terminating the Employee's employment
("Termination Resolution"); and
(v) as promptly as practicable, and in any event
within one (1) business day after adoption of the Termination
Resolution, the Board shall furnish to the Employee written
notice of termination, which notice shall include a copy of
the Termination Resolution and specify an effective date of
termination that is not later than the date on which such
notice is given;
(b) the Employee's voluntary resignation from employment with
the Association for reasons other than those specified in section 8(a)(i); or
(c) the Employee's death; or
(d) a determination that the Employee is eligible for
long-term disability benefits under the Association's long-term disability
insurance program or, if there is no such program, under the federal Social
Security Act;
then the Association shall have no further obligations under this Agreement,
other than the payment to the Employee (or, in the event of his death, to his
estate) of his earned but unpaid salary as of the date of the termination of his
employment, and the provision of such other benefits, if any, to which the
Employee is entitled as a former employee under the employee
<PAGE>
-10-
benefit plans and programs and compensation plans and programs maintained by, or
covering employees of, the Association.
(e) For purposes of section 9(a), no act or failure to act, on
the part of the Employee, shall be considered "willful" unless it is done, or
omitted to be done, by the Employee in bad faith or without reasonable belief
that the Employee's action or omission was in the best interests of the
Association. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or based upon the written advice of
counsel for the Association shall be conclusively presumed to be done, or
omitted to be done, by the Employee in good faith and in the best interests of
the Association. The cessation of employment of the Employee shall not be deemed
to be for "cause" within the meaning of section 9(a) unless and until there
shall have been delivered to Employee a copy of a resolution duly adopted by the
affirmative vote of three-fourths of the non-employee members of the Board at a
meeting of the Board called and held for such purpose (after reasonable notice
is provided to Employee and Employee is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the good faith opinion
of the Board, Employee is guilty of the conduct described in section 9(a) above,
and specifying the particulars thereof in detail.
SECTION 10. CHANGE OF CONTROL.
(a) A Change of Control of the Association ("Change of
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(i) approval by the stockholders of the Association of a
transaction that would result in the reorganization, merger or
consolidation of the Association, respectively, with one or more other
persons, other than a transaction following which:
(A) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended "Exchange Act") in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the outstanding equity ownership
interests in the Association; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51%
<PAGE>
-11-
of the securities entitled to vote generally in the election
of directors of the Association;
(ii) the acquisition of substantially all of the assets of the
Association or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the outstanding
securities of the Association entitled to vote generally in the
election of directors by any person or by any persons acting in
concert, or approval by the stockholders of the Association of any
transaction which would result in an acquisition; or
(iii) a complete liquidation or dissolution of the
Association, or approval by the stockholders of the Association of a
plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following
such event, at least fifty percent (50%) of the members of the board of
directors of the Association do not belong to any of the following
groups:
(A) individuals who were members of the board of
directors of the Association on the date of this Agreement; or
(B) individuals who first became members of the board
of directors of the Association after the date of this
Agreement either:
(I) upon election to serve as a member of
the such board by affirmative vote of three-quarters
(3/4) of the members of such board, or a nominating
committee thereof, in office at the time of such
first election; or
(II) upon election by the stockholders of
the Association to serve as a member of such board,
but only if nominated for election by affirmative
vote of three-quarters (3/4) of the members of such
board, or of a nominating committee thereof, in
office at the time of such first nomination;
PROVIDED, HOWEVER, that such individual's election or nomination did
not result from an actual or threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf of the Board of the
Association;
(v) any event which would be described in section 10(a)(i),
(ii), (iii) or (iv) if the term "Holding Company" were substituted for
the term "Association" therein.
<PAGE>
-12-
(b) In no event, however, shall a Change of Control be deemed
to have occurred as a result of any acquisition of securities or assets of the
Holding Company, the Association or any subsidiary of either of them, by the
Holding Company, the Association or any subsidiary of either of them, or by any
employee benefit plan maintained by any of them. For purposes of this section
10, the term "person" shall have the meaning assigned to it under sections
13(d)(3) or 14(d)(2) of the Exchange Act.
SECTION 11. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR
PROGRAMS.
The termination of the Employee's employment during the
Assurance Period or thereafter, whether by the Association or by the Employee,
shall have no effect on the rights and obligations of the parties hereto under
the Association's Pension Plan, group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability insurance
plans or such other employee benefit plans or programs, or compensation plans or
programs (whether or not employee benefit plans or programs) and any defined
contribution plan, employee stock ownership plan, stock option and appreciation
rights plan, and restricted stock plan, as may be maintained by, or cover
employees of, the Association from time to time; PROVIDED, HOWEVER, that nothing
in this Agreement shall be deemed to duplicate any compensation or benefits
provided under any agreement, plan or program covering the Employee to which the
Association or the Holding Company is a party and any duplicative amount payable
under any such agreement, plan or program shall be applied as an offset to
reduce the amounts otherwise payable hereunder.
SECTION 12. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Employee, his legal representatives and testate or intestate
distributees, and the Association and the Holding Company, their respective
successors and assigns, including any successor by merger or consolidation or a
statutory receiver or any other person or firm or corporation to which all or
substantially all of the respective assets and business of the Association or
the Holding Company may be sold or otherwise transferred.
SECTION 13. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
<PAGE>
-13-
If to the Employee:
Raymond G. Bandemer
707 Scott Drive
Elgin, Illinois 60123
If to the Association:
Home Federal Savings and Loan Association
16 North Spring Street
Elgin, Illinois 60120
Attention: CORPORATE SECRETARY
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. EDWARD BRIGHT, ESQ.
If to the Holding Company:
Home Bancorp of Elgin, Inc.
16 North Spring Street
Elgin, Illinois 60120
Attention: BOARD OF DIRECTORS
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. EDWARD BRIGHT, ESQ.
<PAGE>
-14-
SECTION 14. INDEMNIFICATION AND ATTORNEYS' FEES.
The Association shall indemnify, hold harmless and defend the
Employee against reasonable costs, including legal fees, incurred by the
Employee in connection with or arising out of any action, suit or proceeding in
which the Employee may be involved, as a result of the Employee's efforts, in
good faith, to defend or enforce the terms of this Agreement; provided, however,
that the Employee shall have substantially prevailed on the merits pursuant to a
judgment, decree or order of a court of competent jurisdiction or of an
arbitrator in an arbitration proceeding, or in a settlement. For purposes of
this Agreement, any settlement agreement which provides for payment of any
amounts in settlement of the Association's obligations hereunder shall be
conclusive evidence of the Employee's entitlement to indemnification hereunder,
and any such indemnification payments shall be in addition to amounts payable
pursuant to such settlement agreement, unless such settlement agreement
expressly provides otherwise. This provision shall be inoperative if and to the
extent that, but only if and to the extent that, it shall be determined that
compliance herewith would violate any applicable law or regulation.
SECTION 15. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 16. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 17. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 18. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States, and in the absence of
controlling federal law, the laws of the State of Illinois, without reference to
conflicts of law principles.
<PAGE>
-15-
SECTION 19. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 20. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or rep resentations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 21. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the
Association:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to the
Employee under section 8(b) hereof (exclusive of amounts described in
section 8(b)(i)) exceed the lesser of (i) three times the Employee's
average annual total compensation for the last five consecutive
calendar years to end prior to his termination of employment with the
Association (or for his entire period of employment with the
Association if less than five calendar years) and (ii) the maximum
amount that may be paid without producing an "excess parachute payment"
(as such term is defined in section 280G of the Code or any successor
provision), the applicability of such provision to the Employee and any
such maximum amount to be determined in good faith by the firm of
independent certified public accountants regularly retained to audit
the Association's books and records.
(b) Notwithstanding anything herein contained to the contrary,
any payments to the Employee by the Association, whether pursuant to
this Agreement or otherwise, are subject to and conditioned upon their
compliance with section 18(k) of the Federal Deposit Insurance Act
("FDI Act"), 12 U.S.C. ss.1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Employee is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Association
pursuant to a notice served under section 8(e)(3) or 8(g)(1) of the FDI
Act, 12 U.S.C. ss.1818(e)(3) or 1818(g)(1), the Association's
obligations under this Agreement shall be suspended as of the date of
service of such notice, unless stayed by appropriate proceedings. If
the charges in such notice are dismissed, the Association, in its
discretion, may
<PAGE>
-16-
(i) pay to the Employee all or part of the compensation withheld while
the Association's obligations hereunder were suspended and (ii)
reinstate, in whole or in part, any of the obligations which were
suspended.
(d) Notwithstanding anything herein contained to the contrary,
if the Employee is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order
issued under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1), all prospective obligations of the Association
under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Association and the
Employee shall not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Association is in default (within the meaning of section 3(x)(1)
of the FDI Act, 12 U.S.C. ss.1813(x)(1), all prospective obligations of
the Association under this Agreement shall terminate as of the date of
default, but vested rights and obligations of the Association and the
Employee shall not be affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Association hereunder shall be
terminated, except to the extent that a continuation of this Agreement
is necessary for the continued operation of the Association: (i) by the
Director of the Office of Thrift Supervision ("OTS") or his designee at
the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the Association
under the authority contained in section 13(c) of the FDI Act, 12
U.S.C. ss.1823(c); (ii) by the Director of the OTS or his designee at
the time such Director or designee approves a supervisory merger to
resolve problems related to the operation of the Association or when
the Association is determined by such Director to be in an unsafe or
unsound condition. The vested rights and obligations of the parties
shall not be affected.
If and to the extent that any of the foregoing provisions shall cease to be
required or apply by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
SECTION 22. GUARANTY.
The Holding Company hereby irrevocably and unconditionally
guarantees to the Employee the payment of all amounts, and the performance of
all other obligations, due from the Association in accordance with the terms of
this Agreement as and when due without any requirement of presentment, demand of
payment, protest or notice of dishonor or nonpayment.
<PAGE>
-17-
IN WITNESS WHEREOF, the Association and the Holding Company
have caused this Agreement to be executed and the Employee has hereunto set his
hand, all as of the day and year first above written.
/s/ Raymond G. Bandemer
------------------------------------------
RAYMOND G. BANDEMER
ATTEST: HOME FEDERAL SAVINGS AND LOAN
ASSOCIATION OF ELGIN
By /s/ Kathleen A. Schroeder
-------------------------
Secretary By /s/ Leigh C. O'Connor
----------------------------------------
NAME: Leigh C. O'Connor
[Seal] TITLE: Chairman, Compensation Committee
ATTEST: HOME BANCORP OF ELGIN, INC.
By /s/ Kathleen A. Schroeder
-------------------------
Secretary By /s/ Leigh C. O'Connor
----------------------------------------
NAME: Leigh C. O'Connor
TITLE: Chairman, Compensation Committee
[Seal]
<PAGE>
-18-
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
Raymond G. Bandemer, to me known, and known to me to be the individual described
in the foregoing instrument, who, being by me duly sworn, did depose and say
that he resides at the address set forth in said instrument, and that he signed
his name to the foregoing instrument.
/s/ Ruth E. Bart
------------------------------
Notary Public
[SEAL]
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
LEIGH C. O'CONNOR, to me known, who, being by me duly sworn, did depose and say
that he resides at 366 Hamilton Ave., Elgin, IL 60123, that he is a member of
the Board of Directors of Home Federal Savings and Loan Association of Elgin,
the savings association described in and which executed the foregoing
instrument; that he knows the seal of said savings association; that the seal
affixed to said instrument is such seal; that it was so affixed by authority of
the Board of Directors of said savings association; and that he signed his name
thereto by like authority.
/s/ Ruth E. Bart
------------------------------
Notary Public
[SEAL]
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
LEIGH C. O'CONNOR, to me known, who, being by me duly sworn, did depose and say
that he resides at 366 Hamilton Ave., Elgin, IL 60123, that he is a member of
the Board of Directors of Home Bancorp of Elgin, Inc., the corporation described
in and which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such seal; that it was
so affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
/s/ Ruth E. Bart
------------------------------
Notary Public
[SEAL]
EMPLOYEE RETENTION AGREEMENT
This EMPLOYEE RETENTION AGREEMENT ("Agreement") is made and
entered into as of the 26th day of September, 1996, by and among HOME FEDERAL
SAVINGS AND LOAN ASSOCIATION OF ELGIN, a mutual savings and loan association
organized and operating under the federal laws of the United States and having
its executive offices at 16 North Spring Street, Elgin, Illinois 60120
("Association"); HOME BANCORP OF ELGIN, INC., a business corporation organized
and existing under the laws of the State of Delaware and also having its
executive offices at 16 North Spring Street, Elgin, Illinois 60120 ("Holding
Company"); and KATHLEEN A. SCHROEDER, an individual residing at 510 Willis
Street, Elgin, Illinois 60123 ("Employee").
W I T N E S S E T H :
---------------------
WHEREAS, effective as of the date of this Agreement, the
Association has converted from a federal mutual savings and loan association to
a federal stock savings and loan association and has become a wholly-owned
subsidiary of the Holding Company; and
WHEREAS, the Association desires to secure for itself the
continued availability of the Employee's services; and
WHEREAS, the Association recognizes that a third party may at
some time in the future pursue a Change of Control of the Association or the
Holding Company and that this possibility may result in the departure or
distraction of the Association's employees; and
WHEREAS, the Association has determined that appropriate steps
should be taken to encourage the continued attention and dedication of the
Association's employees, including the Employee, to their duties for the
Association without the distraction that may arise from the possibility of a
Change of Control of the Association or the Holding Company; and
WHEREAS, the Association believes that, by assuring certain
employees, including the Employee, of reasonable financial security in the event
of a Change of Control of the Association or the Holding Company, such employees
will be in a position to perform their duties free from financial self-interest
and in the best interests of the Association and its shareholders; and
WHEREAS, for purposes of securing the Employee's services for
the Association, the Board of Directors of the Association ("Board") has
authorized the proper employees of the Association to enter into an employee
retention agreement with the Employee on the terms and conditions set forth
herein; and
WHEREAS, the Board of Directors of the Holding Company has
authorized the Holding Company to guarantee the Association's obligations under
such an employee retention agreement; and
<PAGE>
-2-
WHEREAS, the Employee is willing to make his services
available to the Association on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the Association, the
Holding Company and the Employee hereby agree as follows:
SECTION 1. EFFECTIVE DATE.
(a) This Agreement shall be effective as of the date first
above written and shall remain in effect during the term of this Agreement which
shall be for a period of three (3) years commencing on the date of this
Agreement, plus such extensions as are provided pursuant to section 1(b);
PROVIDED, HOWEVER, that if the term of this Agreement has not otherwise
terminated, the term of this Agreement will terminate on the date of the
Employee's termination of employment with the Association; and PROVIDED,
FURTHER, that the obligations under section 8 of this Agreement shall survive
the term of this Agreement if payments become due hereunder.
(b) Prior to each anniversary date of this Agreement, the
Board shall consider the advisability of an extension of the term in light of
the circumstances then prevailing and may, in its discretion, approve an
extension to take effect as of the upcoming anniversary date. If an extension is
approved, the term of this Agreement shall be extended so that it will expire
three (3) years after such anniversary date.
(c) Notwithstanding anything herein contained to the contrary:
(i) the Employee's employment with the Association may be terminated at any
time, subject to the terms and conditions of this Agreement; and (ii) nothing in
this Agreement shall mandate or prohibit a continuation of the Employee's
employment following the expiration of the Assurance Period upon such terms and
conditions as the Association and the Employee may mutually agree upon.
SECTION 2. ASSURANCE PERIOD.
(a) The assurance period ("Assurance Period") shall be for a
period commencing on the date of a Change of Control, as defined in section 10
of this Agreement, and ending on the second (2nd) anniversary of the date on
which the Assurance Period commences, plus such extensions as are provided
pursuant to the following sentence. The Assurance Period shall be automatically
extended for one (1) additional day each day, unless either the Association or
the Employee elects not to extend the Assurance Period further by giving written
notice to the other party, in which case the Assurance Period shall become fixed
and shall end on the second (2nd) anniversary of the date on which such written
notice is given; PROVIDED, HOWEVER, that if, following a Change of Control, the
Office of Thrift Supervision (or its successor) is the Association's primary
federal regulator, the Agreement shall be subject to extension not more
frequently than annually and only upon review and approval of the Board.
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(b) Upon termination of the Employee's employment with the
Association, any daily extensions provided pursuant to the preceding sentence,
if not theretofore discontinued, shall cease and the remaining unexpired
Assurance Period under this Agreement shall be a fixed period ending on the
later of the second (2nd) anniversary of the date of the Change of Control, as
defined in section 10 of this Agreement, or the second (2nd) anniversary of the
date on which the daily extensions were discontinued.
SECTION 3. DUTIES.
During the period of the Employee's employment that falls
within the Assurance Period, the Employee shall: (a) except to the extent
allowed under section 6 of this Agreement, devote his full business time and
attention (other than during weekends, holidays, vacation per iods, and periods
of illness, disability or approved leaves of absence) to the business and
affairs of the Association and use his best efforts to advance the Association's
interests; (b) serve in the position to which the Employee is appointed by the
Association, which, during the Assurance Period, shall be the position that the
Employee held on the day before the Assurance Period commenced or any higher
office at the Association to which he may subsequently be appointed; and (c)
subject to the direction of the Board and the By-laws of the Association, have
such functions, duties, responsibilities and authority commonly associated with
such position.
SECTION 4. COMPENSATION.
In consideration for the services rendered by the Employee
during the Assurance Period, the Association shall pay to the Employee during
the Assurance Period a salary at an annual rate equal to the greater of:
(a) the annual rate of salary in effect for the Employee on
the day before the Assurance Period commenced; or
(b) such higher annual rate as may be prescribed by or under
the authority of the Board;
PROVIDED, HOWEVER, that in no event shall the Employee's annual rate of salary
under this Agreement in effect at a particular time during the Assurance Period
be reduced without the Employee's prior written consent. The annual salary
payable under this section 4 shall be subject to review at least once annually
and shall be paid in accordance with the Association's customary payroll
practices. Nothing in this section 4 shall be deemed to prevent the Employee
from receiving additional compensation other than salary for his services to the
Association, or additional compensation for his services to the Holding Company,
upon such terms and conditions as may be prescribed by or under the authority of
the Board or the Board of Directors of the Holding Company.
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SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
Except as otherwise provided in this Agreement, the Employee
shall, during the Assurance Period, be treated as an employee of the Association
and be eligible to participate in and receive benefits under any qualified or
non-qualified defined benefit or defined contribution retirement plan, group
life, health (including hospitalization, medical and major medical), dental,
accident and long term disability insurance plans, and such other employee
benefit plans and programs, including, but not limited to, any incentive
compensation plans or programs (whether or not employee benefit plans or
programs), any stock option and appreciation rights plan, em ployee stock
ownership plan and restricted stock plan, as may from time to time be maintained
by, or cover employees of, the Association, in accordance with the terms and
conditions of such employee benefit plans and programs and compensation plans
and programs and with the Association's customary practices.
SECTION 6. BOARD MEMBERSHIPS.
The Employee may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld), and he may engage in personal business and investment activities for
his own account; PROVIDED, HOWEVER, that such service and personal business and
investment activities shall not materially interfere with the performance of his
duties under this Agreement.
SECTION 7. WORKING FACILITIES AND EXPENSES.
During the Assurance Period, the Employee's principal place of
employment shall be at the Association's executive offices at the address first
above written, or at such other location within a 25-mile radios thereof at
which the Association shall maintain its principal executive offices, or at such
other location as the Association and the Employee may mutually agree upon. The
Association shall provide the Employee, at his principal place of employment,
support servic es and facilities suitable to his position with the Association
and necessary or appropriate in connection with the performance of his assigned
duties under this Agreement. The Association shall reimburse the Employee for
his ordinary and necessary business expenses, including, without limitation, the
Employee's travel and entertainment expenses, incurred in connection with the
performance of the Employee's duties under this Agreement, upon presentation to
the Association of an itemized account of such expenses in such form as the
Association may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH ASSOCIATION
LIABILITY.
(a) In the event that the Employee's employment with the
Association shall terminate during the Assurance Period, or prior to the
commencement of the Assurance Period but within three (3) months of and in
connection with a Change of Control as defined in section 10 of this Agreement,
on account of:
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(i) The Employee's voluntary resignation from employment with
the Association within ninety (90) days following:
(A) the failure of the Association to appoint or
re-appoint or elect or re-elect the Employee to serve in the
same position in which the Employee was serving on the day
before the Assurance Period commenced, or a more senior
office;
(B) the expiration of a thirty (30) day period
following the date on which the Employee gives written notice
to the Association of its material failure, whether by
amendment of the Association's Organization Certificate or
By-laws, action of the Board or the Holding Company's
stockholders or otherwise, to vest in the Employee the
functions, duties, or responsibilities vested in the Employee
on the day before the Assurance Period commenced (or the
functions, duties and responsibilities of a more senior office
to which the Employee may be appointed), unless during such
thirty (30) day period, the Association fully cures such
failure;
(C) the failure of the Association to cure a material
breach of this Agreement by the Association, within thirty
(30) days following written notice from the Employee of such
material breach;
(D) a reduction in the compensation provided to the
Employee, or a material reduction in the benefits provided to
the Employee under the Association's program of employee
benefits, compared with the compensa tion and benefits that
were provided to the Employee on the day before the Assurance
Period commenced;
(E) a change in the Employee's principal place of
employment outside of a 25-mile radius of his principal place
of employment immediately prior to the Change of Control that
would require a relocation of his residence in order to be
able to commute to such new place of employment within a
one-way commuting time not in excess of the greater of (I) 60
minutes or (II) the Employee's commuting time immediately
prior to such change; or
(ii) the discharge of the Employee by the Association for any
reason other than for "cause" as provided in section 9(a);
then, subject to section 21, the Association shall provide the benefits and pay
to the Employee the amounts provided for under section 8(b) of this Agreement;
PROVIDED, HOWEVER, that if benefits or payments become due hereunder as a result
of the Employee's termination of employment prior to the commencement of the
Assurance Period, the benefits and payments provided for under section 8(b) of
this Agreement shall be determined as though the Employee had remained in the
<PAGE>
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service of the Association (upon the terms and conditions in effect at the time
of his actual termination of service) and had not terminated employment with the
Association until the date on which the Employee's Assurance Period would have
commenced.
(b) Upon the termination of the Employee's employment with the
Association under circumstances described in section 8(a) of this Agreement, the
Association shall pay and provide to the Employee (or, in the event of the
Employee's death, to the Employee's estate):
(i) the Employee's earned but unpaid compensation (including,
without limitation, all items which constitute wages under applicable
law and the payment of which is not otherwise provided for under this
section 8(b)) as of the date of the termination of the Employee's
employment with the Association, such payment to be made at the time
and in the manner prescribed by law applicable to the payment of wages
but in no event later than thirty (30) days after termination of
employment;
(ii) the benefits, if any, to which the Employee is entitled
as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the
Association's officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long-term disability
insurance benefits, in addition to that provided pursuant to section
8(b)(ii) and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Employee, for the remaining unexpired Assurance Period, coverage
equivalent to the coverage to which the Employee would have been enti
tled under such plans (as in effect on the date of his termination of
employment, or, if his termination of employment occurs after a Change
of Control, on the date of such Change of Control, whichever benefits
are greater) if the Employee had con tinued working for the Association
during the remaining unexpired Assurance Period at the highest annual
rate of compensation achieved during the Employee's period of actual
employment with the Association, it being understood that the
Employee's "qualifying event" for purposes of continuation coverage
under the Consolidated Budget Reconciliation Act ("COBRA") shall occur
at the expiration of this period;
(iv) within thirty (30) days following the Employee's
termination of employment with the Association, a lump sum payment, in
an amount equal to the present value of the salary that the Employee
would have earned if the Employee had continued working for the
Association during the remaining unexpired Assurance Period at the
highest annual rate of salary achieved during the Employee's period of
employment with the Association beginning three years before the date
of the Change of Control and ending on the date of termination of
<PAGE>
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employment, where such present value is to be determined using a
discount rate equal to the applicable short-term federal rate
prescribed under section 1274(d) of the Internal Revenue Code of 1986
("Code"), compounded using the compounding periods corresponding to the
Association's regular payroll periods for its employees, such lump sum
to be paid in lieu of all other payments of salary provided for under
this Agreement in respect of the period following any such termination;
(v) within thirty (30) days following the Employee's
termination of employment with the Association, a lump sum payment in
an amount equal to the excess, if any, of:
(A) the present value of the aggregate benefits to
which the Employee would be entitled under any and all
qualified and non-qualified defined benefit pension plans
maintained by, or covering employees of, the Association if
the Employee were 100% vested thereunder and had con tinued
working for the Association during the remaining unexpired
Assurance Period, such benefits to be determined as of the
date of termination of employment by adding to the service
actually recognized under such plans an additional period
equal to the remaining unexpired Assurance Period and by
adding to the compensation recognized under such plans for the
year in which termination of employment occurs all amounts
payable under sections 8(b)(i) and (vii); over
(B) the present value of the benefits to which the
Employee is actually entitled under such defined benefit
pension plans as of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Employee's termination of employment occurs ("Applicable PBGC Rate");
and
(vi) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the present value of the additional employer contributions (or if
greater in the case of a leveraged employee stock ownership plan or
similar arrangement, the additional assets allocable to him through
debt service, based on the fair market value of such assets at
termination of employment) to which he would have been entitled under
any and all qualified and non-qualified defined contribution plans
maintained by, or covering employees of, the Association, as if he were
100% vested thereunder and had continued
<PAGE>
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working for the Association during the Remaining Unexpired Employment
Period at the highest annual rate of compensation achieved during that
portion of the Employment Period which is prior to the Employee's
termination of employment with the Association, and making the maximum
amount of employee contributions, if any, required under such plan or
plans, such present value to be determined on the basis of a discount
rate, compounded using the compounding period that corresponds to the
frequency with which employer contributions are made to the relevant
plan, equal to the Applicable PBGC Rate; and
(vii) the payments that would have been made to the Employee
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the
Association, if he had continued working for the Association during the
remaining unexpired Assurance Period and had earned in each calendar
year that ends during the remaining unexpired Assurance Period a bonus
in an amount equal to the highest annual bonus or incentive award
actually paid to him in any calendar year ending during the period
beginning three years prior to the Change of Control and ending on the
date of termination of employment.
The Association and the Employee hereby stipulate that the damages which may be
incurred by the Employee following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 8(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Employee's efforts, if any, to
mitigate damages.
SECTION 9. TERMINATION WITHOUT ADDITIONAL ASSOCIATION
LIABILITY.
In the event that the Employee's employment with the
Association shall terminate during the Assurance Period on account of:
(a) the discharge of the Employee for "cause," which, for
purposes of this Agreement shall mean 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 any material breach of this Agreement, in each case as
measured against standards generally prevailing at the relevant time in the
savings and community banking industry; PROVIDED, HOWEVER, that the Employee
shall not be deemed to have been discharged for cause unless and until the
following procedures shall have been followed:
(i) the Board shall adopt a resolution duly approved
by affirmative vote of a majority of the entire Board at a
meeting called and held for such purpose calling for the
Employee's termination for cause and
<PAGE>
-9-
setting forth the purported grounds for such termination
("Proposed Termination Resolution");
(ii) as soon as practicable, and in any event within
five (5) days, after adoption of such resolution, the Board
shall furnish to the Employee a written notice of termination
which shall be accompanied by a certified copy of the Proposed
Termination Resolution ("Notice of Proposed Termination");
(iii) the Employee shall be afforded a reasonable
opportunity to make oral and written presentations to the
members of the Board, on his own behalf, or through a
representative, who may be his legal counsel, to refute the
grounds set forth in the Proposed Termination Resolution at
one or more meetings of the Board to be held no sooner than
fifteen (15) days and no later than thirty (30) after the
Employee's receipt of the Proposed Termination Notice
("Termination Hearings"); and
(iv) within ten (10) days following the end of the
Termination Hearings, the Board shall adopt a resolution duly
approved by affirmative vote of a majority of the entire Board
at a meeting called and held for such purpose (A) finding that
in the good faith opinion of the Board the grounds for
termination set forth in the Proposed Termination Resolution
exist and (B) terminating the Employee's employment
("Termination Resolution"); and
(v) as promptly as practicable, and in any event
within one (1) business day after adoption of the Termination
Resolution, the Board shall furnish to the Employee written
notice of termination, which notice shall include a copy of
the Termination Resolution and specify an effective date of
termination that is not later than the date on which such
notice is given;
(b) the Employee's voluntary resignation from employment with
the Association for reasons other than those specified in section 8(a)(i); or
(c) the Employee's death; or
(d) a determination that the Employee is eligible for
long-term disability benefits under the Association's long-term disability
insurance program or, if there is no such program, under the federal Social
Security Act;
then the Association shall have no further obligations under this Agreement,
other than the payment to the Employee (or, in the event of his death, to his
estate) of his earned but unpaid salary as of the date of the termination of his
employment, and the provision of such other benefits, if any, to which the
Employee is entitled as a former employee under the employee
<PAGE>
-10-
benefit plans and programs and compensation plans and programs maintained by, or
covering employees of, the Association.
(e) For purposes of section 9(a), no act or failure to act, on
the part of the Employee, shall be considered "willful" unless it is done, or
omitted to be done, by the Employee in bad faith or without reasonable belief
that the Employee's action or omission was in the best interests of the
Association. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or based upon the written advice of
counsel for the Association shall be conclusively presumed to be done, or
omitted to be done, by the Employee in good faith and in the best interests of
the Association. The cessation of employment of the Employee shall not be deemed
to be for "cause" within the meaning of section 9(a) unless and until there
shall have been delivered to Employee a copy of a resolution duly adopted by the
affirmative vote of three-fourths of the non-employee members of the Board at a
meeting of the Board called and held for such purpose (after reasonable notice
is provided to Employee and Employee is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the good faith opinion
of the Board, Employee is guilty of the conduct described in section 9(a) above,
and specifying the particulars thereof in detail.
SECTION 10. CHANGE OF CONTROL.
(a) A Change of Control of the Association ("Change of
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(i) approval by the stockholders of the Association of a
transaction that would result in the reorganization, merger or
consolidation of the Association, respectively, with one or more other
persons, other than a transaction following which:
(A) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended "Exchange Act") in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the outstanding equity ownership
interests in the Association; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51%
<PAGE>
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of the securities entitled to vote generally in the election
of directors of the Association;
(ii) the acquisition of substantially all of the assets of the
Association or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the outstanding
securities of the Association entitled to vote generally in the
election of directors by any person or by any persons acting in
concert, or approval by the stockholders of the Association of any
transaction which would result in an acquisition; or
(iii) a complete liquidation or dissolution of the
Association, or approval by the stockholders of the Association of a
plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following
such event, at least fifty percent (50%) of the members of the board of
directors of the Association do not belong to any of the following
groups:
(A) individuals who were members of the board of
directors of the Association on the date of this Agreement; or
(B) individuals who first became members of the board
of directors of the Association after the date of this
Agreement either:
(I) upon election to serve as a member of
the such board by affirmative vote of three-quarters
(3/4) of the members of such board, or a nominating
committee thereof, in office at the time of such
first election; or
(II) upon election by the stockholders of
the Association to serve as a member of such board,
but only if nominated for election by affirmative
vote of three-quarters (3/4) of the members of such
board, or of a nominating committee thereof, in
office at the time of such first nomination;
PROVIDED, HOWEVER, that such individual's election or nomination did
not result from an actual or threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf of the Board of the
Association;
(v) any event which would be described in section 10(a)(i),
(ii), (iii) or (iv) if the term "Holding Company" were substituted for
the term "Association" therein.
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(b) In no event, however, shall a Change of Control be deemed
to have occurred as a result of any acquisition of securities or assets of the
Holding Company, the Association or any subsidiary of either of them, by the
Holding Company, the Association or any subsidiary of either of them, or by any
employee benefit plan maintained by any of them. For purposes of this section
10, the term "person" shall have the meaning assigned to it under sections
13(d)(3) or 14(d)(2) of the Exchange Act.
SECTION 11. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR
PROGRAMS.
The termination of the Employee's employment during the
Assurance Period or thereafter, whether by the Association or by the Employee,
shall have no effect on the rights and obligations of the parties hereto under
the Association's Pension Plan, group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability insurance
plans or such other employee benefit plans or programs, or compensation plans or
programs (whether or not employee benefit plans or programs) and any defined
contribution plan, employee stock ownership plan, stock option and appreciation
rights plan, and restricted stock plan, as may be maintained by, or cover
employees of, the Association from time to time; PROVIDED, HOWEVER, that nothing
in this Agreement shall be deemed to duplicate any compensation or benefits
provided under any agreement, plan or program covering the Employee to which the
Association or the Holding Company is a party and any duplicative amount payable
under any such agreement, plan or program shall be applied as an offset to
reduce the amounts otherwise payable hereunder.
SECTION 12. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Employee, his legal representatives and testate or intestate
distributees, and the Association and the Holding Company, their respective
successors and assigns, including any successor by merger or consolidation or a
statutory receiver or any other person or firm or corporation to which all or
substantially all of the respective assets and business of the Association or
the Holding Company may be sold or otherwise transferred.
SECTION 13. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
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If to the Employee:
Kathleen A. Schroeder
510 Willis Street
Elgin, Illinois 60123
If to the Association:
Home Federal Savings and Loan Association
16 North Spring Street
Elgin, Illinois 60120
Attention: CORPORATE SECRETARY
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. EDWARD BRIGHT, ESQ.
If to the Holding Company:
Home Bancorp of Elgin, Inc.
16 North Spring Street
Elgin, Illinois 60120
Attention: BOARD OF DIRECTORS
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. EDWARD BRIGHT, ESQ.
<PAGE>
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SECTION 14. INDEMNIFICATION AND ATTORNEYS' FEES.
The Association shall indemnify, hold harmless and defend the
Employee against reasonable costs, including legal fees, incurred by the
Employee in connection with or arising out of any action, suit or proceeding in
which the Employee may be involved, as a result of the Employee's efforts, in
good faith, to defend or enforce the terms of this Agreement; provided, however,
that the Employee shall have substantially prevailed on the merits pursuant to a
judgment, decree or order of a court of competent jurisdiction or of an
arbitrator in an arbitration proceeding, or in a settlement. For purposes of
this Agreement, any settlement agreement which provides for payment of any
amounts in settlement of the Association's obligations hereunder shall be
conclusive evidence of the Employee's entitlement to indemnification hereunder,
and any such indemnification payments shall be in addition to amounts payable
pursuant to such settlement agreement, unless such settlement agreement
expressly provides otherwise. This provision shall be inoperative if and to the
extent that, but only if and to the extent that, it shall be determined that
compliance herewith would violate any applicable law or regulation.
SECTION 15. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 16. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 17. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 18. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States, and in the absence of
controlling federal law, the laws of the State of Illinois, without reference to
conflicts of law principles.
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SECTION 19. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 20. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or rep resentations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 21. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the
Association:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to the
Employee under section 8(b) hereof (exclusive of amounts described in
section 8(b)(i)) exceed the lesser of (i) three times the Employee's
average annual total compensation for the last five consecutive
calendar years to end prior to his termination of employment with the
Association (or for his entire period of employment with the
Association if less than five calendar years) and (ii) the maximum
amount that may be paid without producing an "excess parachute payment"
(as such term is defined in section 280G of the Code or any successor
provision), the applicability of such provision to the Employee and any
such maximum amount to be determined in good faith by the firm of
independent certified public accountants regularly retained to audit
the Association's books and records.
(b) Notwithstanding anything herein contained to the contrary,
any payments to the Employee by the Association, whether pursuant to
this Agreement or otherwise, are subject to and conditioned upon their
compliance with section 18(k) of the Federal Deposit Insurance Act
("FDI Act"), 12 U.S.C. ss.1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Employee is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Association
pursuant to a notice served under section 8(e)(3) or 8(g)(1) of the FDI
Act, 12 U.S.C. ss.1818(e)(3) or 1818(g)(1), the Association's
obligations under this Agreement shall be suspended as of the date of
service of such notice, unless stayed by appropriate proceedings. If
the charges in such notice are dismissed, the Association, in its
discretion, may
<PAGE>
-16-
(i) pay to the Employee all or part of the compensation withheld while
the Association's obligations hereunder were suspended and (ii)
reinstate, in whole or in part, any of the obligations which were
suspended.
(d) Notwithstanding anything herein contained to the contrary,
if the Employee is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order
issued under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1), all prospective obligations of the Association
under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Association and the
Employee shall not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Association is in default (within the meaning of section 3(x)(1)
of the FDI Act, 12 U.S.C. ss.1813(x)(1), all prospective obligations of
the Association under this Agreement shall terminate as of the date of
default, but vested rights and obligations of the Association and the
Employee shall not be affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Association hereunder shall be
terminated, except to the extent that a continuation of this Agreement
is necessary for the continued operation of the Association: (i) by the
Director of the Office of Thrift Supervision ("OTS") or his designee at
the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the Association
under the authority contained in section 13(c) of the FDI Act, 12
U.S.C. ss.1823(c); (ii) by the Director of the OTS or his designee at
the time such Director or designee approves a supervisory merger to
resolve problems related to the operation of the Association or when
the Association is determined by such Director to be in an unsafe or
unsound condition. The vested rights and obligations of the parties
shall not be affected.
If and to the extent that any of the foregoing provisions shall cease to be
required or apply by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
SECTION 22. GUARANTY.
The Holding Company hereby irrevocably and unconditionally
guarantees to the Employee the payment of all amounts, and the performance of
all other obligations, due from the Association in accordance with the terms of
this Agreement as and when due without any requirement of presentment, demand of
payment, protest or notice of dishonor or nonpayment.
<PAGE>
-17-
IN WITNESS WHEREOF, the Association and the Holding Company
have caused this Agreement to be executed and the Employee has hereunto set his
hand, all as of the day and year first above written.
/s/ Kathleen A. Schroeder
------------------------------
KATHLEEN A. SCHROEDER
ATTEST: HOME FEDERAL SAVINGS AND LOAN
ASSOCIATION OF ELGIN
By /s/ Kenneth L. Moran
----------------------------
Senior Vice President By /s/ Leigh C. O'Connor
--------------------------
NAME: Leigh C. O'Connor
TITLE: Chairman, Compensation Committee
[SEAL]
ATTEST: HOME BANCORP OF ELGIN, INC.
By /s/ Kenneth L. Moran
----------------------------
Senior Vice President By /s/ Leigh C. O'Connor
--------------------------
NAME: Leigh C. O'Connor
TITLE: Chairman, Compensation Committee
[SEAL]
<PAGE>
-18-
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
Kathleen A. Schroeder, to me known, and known to me to be the individual
described in the foregoing instrument, who, being by me duly sworn, did depose
and say that he resides at the address set forth in said instrument, and that he
signed his name to the foregoing instrument.
/s/ Ruth E. Bart
-----------------------
Notary Public
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
LEIGH C. O'CONNOR, to me known, who, being by me duly sworn, did depose and say
that he resides at 366 Hamilton Ave., Elgin, IL 60123, that he is a member of
the Board of Directors of Home Federal Savings and Loan Association of Elgin,
the savings association described in and which executed the foregoing
instrument; that he knows the seal of said savings association; that the seal
affixed to said instrument is such seal; that it was so affixed by authority of
the Board of Directors of said savings association; and that he signed his name
thereto by like authority.
/s/ Ruth E. Bart
-----------------------
Notary Public
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
LEIGH C. O'CONNOR, to me known, who, being by me duly sworn, did depose and say
that he resides at 366 Hamilton Ave., Elgin, IL 60123, that he is a member of
the Board of Directors of Home Bancorp of Elgin, Inc., the corporation described
in and which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such seal; that it was
so affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
/s/ Ruth E. Bart
-----------------------
Notary Public
EMPLOYEE RETENTION AGREEMENT
This EMPLOYEE RETENTION AGREEMENT ("Agreement") is made and
entered into as of the 26th day of September, 1996, by and among HOME FEDERAL
SAVINGS AND LOAN ASSOCIATION OF ELGIN, a mutual savings and loan association
organized and operating under the federal laws of the United States and having
its executive offices at 16 North Spring Street, Elgin, Illinois 60120
("Association"); HOME BANCORP OF ELGIN, INC., a business corporation organized
and existing under the laws of the State of Delaware and also having its
executive offices at 16 North Spring Street, Elgin, Illinois 60120 ("Holding
Company"); and PAT A. LENART, an individual residing at 39W574 Juliet Drive,
Elgin, Illinois 60123 ("Employee").
W I T N E S S E T H :
---------------------
WHEREAS, effective as of the date of this Agreement, the
Association has converted from a federal mutual savings and loan association to
a federal stock savings and loan association and has become a wholly-owned
subsidiary of the Holding Company; and
WHEREAS, the Association desires to secure for itself the
continued availability of the Employee's services; and
WHEREAS, the Association recognizes that a third party may at
some time in the future pursue a Change of Control of the Association or the
Holding Company and that this possibility may result in the departure or
distraction of the Association's employees; and
WHEREAS, the Association has determined that appropriate steps
should be taken to encourage the continued attention and dedication of the
Association's employees, including the Employee, to their duties for the
Association without the distraction that may arise from the possibility of a
Change of Control of the Association or the Holding Company; and
WHEREAS, the Association believes that, by assuring certain
employees, including the Employee, of reasonable financial security in the event
of a Change of Control of the Association or the Holding Company, such employees
will be in a position to perform their duties free from financial self-interest
and in the best interests of the Association and its shareholders; and
WHEREAS, for purposes of securing the Employee's services for
the Association, the Board of Directors of the Association ("Board") has
authorized the proper employees of the Association to enter into an employee
retention agreement with the Employee on the terms and conditions set forth
herein; and
WHEREAS, the Board of Directors of the Holding Company has
authorized the Holding Company to guarantee the Association's obligations under
such an employee retention agreement; and
<PAGE>
-2-
WHEREAS, the Employee is willing to make his services
available to the Association on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the Association, the
Holding Company and the Employee hereby agree as follows:
SECTION 1. EFFECTIVE DATE.
(a) This Agreement shall be effective as of the date first
above written and shall remain in effect during the term of this Agreement which
shall be for a period of three (3) years commencing on the date of this
Agreement, plus such extensions as are provided pursuant to section 1(b);
PROVIDED, HOWEVER, that if the term of this Agreement has not otherwise
terminated, the term of this Agreement will terminate on the date of the
Employee's termination of employment with the Association; and PROVIDED,
FURTHER, that the obligations under section 8 of this Agreement shall survive
the term of this Agreement if payments become due hereunder.
(b) Prior to each anniversary date of this Agreement, the
Board shall consider the advisability of an extension of the term in light of
the circumstances then prevailing and may, in its discretion, approve an
extension to take effect as of the upcoming anniversary date. If an extension is
approved, the term of this Agreement shall be extended so that it will expire
three (3) years after such anniversary date.
(c) Notwithstanding anything herein contained to the contrary:
(i) the Employee's employment with the Association may be terminated at any
time, subject to the terms and conditions of this Agreement; and (ii) nothing in
this Agreement shall mandate or prohibit a continuation of the Employee's
employment following the expiration of the Assurance Period upon such terms and
conditions as the Association and the Employee may mutually agree upon.
SECTION 2. ASSURANCE PERIOD.
(a) The assurance period ("Assurance Period") shall be for a
period commencing on the date of a Change of Control, as defined in section 10
of this Agreement, and ending on the second (2nd) anniversary of the date on
which the Assurance Period commences, plus such extensions as are provided
pursuant to the following sentence. The Assurance Period shall be automatically
extended for one (1) additional day each day, unless either the Association or
the Employee elects not to extend the Assurance Period further by giving written
notice to the other party, in which case the Assurance Period shall become fixed
and shall end on the second (2nd) anniversary of the date on which such written
notice is given; PROVIDED, HOWEVER, that if, following a Change of Control, the
Office of Thrift Supervision (or its successor) is the Association's primary
federal regulator, the Agreement shall be subject to extension not more
frequently than annually and only upon review and approval of the Board.
<PAGE>
-3-
(b) Upon termination of the Employee's employment with the
Association, any daily extensions provided pursuant to the preceding sentence,
if not theretofore discontinued, shall cease and the remaining unexpired
Assurance Period under this Agreement shall be a fixed period ending on the
later of the second (2nd) anniversary of the date of the Change of Control, as
defined in section 10 of this Agreement, or the second (2nd) anniversary of the
date on which the daily extensions were discontinued.
SECTION 3. DUTIES.
During the period of the Employee's employment that falls
within the Assurance Period, the Employee shall: (a) except to the extent
allowed under section 6 of this Agreement, devote his full business time and
attention (other than during weekends, holidays, vacation per iods, and periods
of illness, disability or approved leaves of absence) to the business and
affairs of the Association and use his best efforts to advance the Association's
interests; (b) serve in the position to which the Employee is appointed by the
Association, which, during the Assurance Period, shall be the position that the
Employee held on the day before the Assurance Period commenced or any higher
office at the Association to which he may subsequently be appointed; and (c)
subject to the direction of the Board and the By-laws of the Association, have
such functions, duties, responsibilities and authority commonly associated with
such position.
SECTION 4. COMPENSATION.
In consideration for the services rendered by the Employee
during the Assurance Period, the Association shall pay to the Employee during
the Assurance Period a salary at an annual rate equal to the greater of:
(a) the annual rate of salary in effect for the Employee on
the day before the Assurance Period commenced; or
(b) such higher annual rate as may be prescribed by or under
the authority of the Board;
PROVIDED, HOWEVER, that in no event shall the Employee's annual rate of salary
under this Agreement in effect at a particular time during the Assurance Period
be reduced without the Employee's prior written consent. The annual salary
payable under this section 4 shall be subject to review at least once annually
and shall be paid in accordance with the Association's customary payroll
practices. Nothing in this section 4 shall be deemed to prevent the Employee
from receiving additional compensation other than salary for his services to the
Association, or additional compensation for his services to the Holding Company,
upon such terms and conditions as may be prescribed by or under the authority of
the Board or the Board of Directors of the Holding Company.
<PAGE>
-4-
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
Except as otherwise provided in this Agreement, the Employee
shall, during the Assurance Period, be treated as an employee of the Association
and be eligible to participate in and receive benefits under any qualified or
non-qualified defined benefit or defined contribution retirement plan, group
life, health (including hospitalization, medical and major medical), dental,
accident and long term disability insurance plans, and such other employee
benefit plans and programs, including, but not limited to, any incentive
compensation plans or programs (whether or not employee benefit plans or
programs), any stock option and appreciation rights plan, em ployee stock
ownership plan and restricted stock plan, as may from time to time be maintained
by, or cover employees of, the Association, in accordance with the terms and
conditions of such employee benefit plans and programs and compensation plans
and programs and with the Association's customary practices.
SECTION 6. BOARD MEMBERSHIPS.
The Employee may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld), and he may engage in personal business and investment activities for
his own account; PROVIDED, HOWEVER, that such service and personal business and
investment activities shall not materially interfere with the performance of his
duties under this Agreement.
SECTION 7. WORKING FACILITIES AND EXPENSES.
During the Assurance Period, the Employee's principal place of
employment shall be at the Association's executive offices at the address first
above written, or at such other location within a 25-mile radios thereof at
which the Association shall maintain its principal executive offices, or at such
other location as the Association and the Employee may mutually agree upon. The
Association shall provide the Employee, at his principal place of employment,
support servic es and facilities suitable to his position with the Association
and necessary or appropriate in connection with the performance of his assigned
duties under this Agreement. The Association shall reimburse the Employee for
his ordinary and necessary business expenses, including, without limitation, the
Employee's travel and entertainment expenses, incurred in connection with the
performance of the Employee's duties under this Agreement, upon presentation to
the Association of an itemized account of such expenses in such form as the
Association may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH ASSOCIATION
LIABILITY.
(a) In the event that the Employee's employment with the
Association shall terminate during the Assurance Period, or prior to the
commencement of the Assurance Period but within three (3) months of and in
connection with a Change of Control as defined in section 10 of this Agreement,
on account of:
<PAGE>
-5-
(i) The Employee's voluntary resignation from employment with
the Association within ninety (90) days following:
(A) the failure of the Association to appoint or
re-appoint or elect or re-elect the Employee to serve in the
same position in which the Employee was serving on the day
before the Assurance Period commenced, or a more senior
office;
(B) the expiration of a thirty (30) day period
following the date on which the Employee gives written notice
to the Association of its material failure, whether by
amendment of the Association's Organization Certificate or
By-laws, action of the Board or the Holding Company's
stockholders or otherwise, to vest in the Employee the
functions, duties, or responsibilities vested in the Employee
on the day before the Assurance Period commenced (or the
functions, duties and responsibilities of a more senior office
to which the Employee may be appointed), unless during such
thirty (30) day period, the Association fully cures such
failure;
(C) the failure of the Association to cure a material
breach of this Agreement by the Association, within thirty
(30) days following written notice from the Employee of such
material breach;
(D) a reduction in the compensation provided to the
Employee, or a material reduction in the benefits provided to
the Employee under the Association's program of employee
benefits, compared with the compensa tion and benefits that
were provided to the Employee on the day before the Assurance
Period commenced;
(E) a change in the Employee's principal place of
employment outside of a 25-mile radius of his principal place
of employment immediately prior to the Change of Control that
would require a relocation of his residence in order to be
able to commute to such new place of employment within a
one-way commuting time not in excess of the greater of (I) 60
minutes or (II) the Employee's commuting time immediately
prior to such change; or
(ii) the discharge of the Employee by the Association for any
reason other than for "cause" as provided in section 9(a);
then, subject to section 21, the Association shall provide the benefits and pay
to the Employee the amounts provided for under section 8(b) of this Agreement;
PROVIDED, HOWEVER, that if benefits or payments become due hereunder as a result
of the Employee's termination of employment prior to the commencement of the
Assurance Period, the benefits and payments provided for under section 8(b) of
this Agreement shall be determined as though the Employee had remained in the
<PAGE>
-6-
service of the Association (upon the terms and conditions in effect at the time
of his actual termination of service) and had not terminated employment with the
Association until the date on which the Employee's Assurance Period would have
commenced.
(b) Upon the termination of the Employee's employment with the
Association under circumstances described in section 8(a) of this Agreement, the
Association shall pay and provide to the Employee (or, in the event of the
Employee's death, to the Employee's estate):
(i) the Employee's earned but unpaid compensation (including,
without limitation, all items which constitute wages under applicable
law and the payment of which is not otherwise provided for under this
section 8(b)) as of the date of the termination of the Employee's
employment with the Association, such payment to be made at the time
and in the manner prescribed by law applicable to the payment of wages
but in no event later than thirty (30) days after termination of
employment;
(ii) the benefits, if any, to which the Employee is entitled
as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the
Association's officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long-term disability
insurance benefits, in addition to that provided pursuant to section
8(b)(ii) and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Employee, for the remaining unexpired Assurance Period, coverage
equivalent to the coverage to which the Employee would have been enti
tled under such plans (as in effect on the date of his termination of
employment, or, if his termination of employment occurs after a Change
of Control, on the date of such Change of Control, whichever benefits
are greater) if the Employee had con tinued working for the Association
during the remaining unexpired Assurance Period at the highest annual
rate of compensation achieved during the Employee's period of actual
employment with the Association, it being understood that the
Employee's "qualifying event" for purposes of continuation coverage
under the Consolidated Budget Reconciliation Act ("COBRA") shall occur
at the expiration of this period;
(iv) within thirty (30) days following the Employee's
termination of employment with the Association, a lump sum payment, in
an amount equal to the present value of the salary that the Employee
would have earned if the Employee had continued working for the
Association during the remaining unexpired Assurance Period at the
highest annual rate of salary achieved during the Employee's period of
employment with the Association beginning three years before the date
of the Change of Control and ending on the date of termination of
<PAGE>
-7-
employment, where such present value is to be determined using a
discount rate equal to the applicable short-term federal rate
prescribed under section 1274(d) of the Internal Revenue Code of 1986
("Code"), compounded using the compounding periods corresponding to the
Association's regular payroll periods for its employees, such lump sum
to be paid in lieu of all other payments of salary provided for under
this Agreement in respect of the period following any such termination;
(v) within thirty (30) days following the Employee's
termination of employment with the Association, a lump sum payment in
an amount equal to the excess, if any, of:
(A) the present value of the aggregate benefits to
which the Employee would be entitled under any and all
qualified and non-qualified defined benefit pension plans
maintained by, or covering employees of, the Association if
the Employee were 100% vested thereunder and had con tinued
working for the Association during the remaining unexpired
Assurance Period, such benefits to be determined as of the
date of termination of employment by adding to the service
actually recognized under such plans an additional period
equal to the remaining unexpired Assurance Period and by
adding to the compensation recognized under such plans for the
year in which termination of employment occurs all amounts
payable under sections 8(b)(i) and (vii); over
(B) the present value of the benefits to which the
Employee is actually entitled under such defined benefit
pension plans as of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Employee's termination of employment occurs ("Applicable PBGC Rate");
and
(vi) within thirty (30) days following his termination of
employment with the Association, a lump sum payment in an amount equal
to the present value of the additional employer contributions (or if
greater in the case of a leveraged employee stock ownership plan or
similar arrangement, the additional assets allocable to him through
debt service, based on the fair market value of such assets at
termination of employment) to which he would have been entitled under
any and all qualified and non-qualified defined contribution plans
maintained by, or covering employees of, the Association, as if he were
100% vested thereunder and had continued
<PAGE>
-8-
working for the Association during the Remaining Unexpired Employment
Period at the highest annual rate of compensation achieved during that
portion of the Employment Period which is prior to the Employee's
termination of employment with the Association, and making the maximum
amount of employee contributions, if any, required under such plan or
plans, such present value to be determined on the basis of a discount
rate, compounded using the compounding period that corresponds to the
frequency with which employer contributions are made to the relevant
plan, equal to the Applicable PBGC Rate; and
(vii) the payments that would have been made to the Employee
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the
Association, if he had continued working for the Association during the
remaining unexpired Assurance Period and had earned in each calendar
year that ends during the remaining unexpired Assurance Period a bonus
in an amount equal to the highest annual bonus or incentive award
actually paid to him in any calendar year ending during the period
beginning three years prior to the Change of Control and ending on the
date of termination of employment.
The Association and the Employee hereby stipulate that the damages which may be
incurred by the Employee following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 8(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Employee's efforts, if any, to
mitigate damages.
SECTION 9. TERMINATION WITHOUT ADDITIONAL ASSOCIATION
LIABILITY.
In the event that the Employee's employment with the
Association shall terminate during the Assurance Period on account of:
(a) the discharge of the Employee for "cause," which, for
purposes of this Agreement shall mean 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 any material breach of this Agreement, in each case as
measured against standards generally prevailing at the relevant time in the
savings and community banking industry; PROVIDED, HOWEVER, that the Employee
shall not be deemed to have been discharged for cause unless and until the
following procedures shall have been followed:
(i) the Board shall adopt a resolution duly approved
by affirmative vote of a majority of the entire Board at a
meeting called and held for such purpose calling for the
Employee's termination for cause and
<PAGE>
-9-
setting forth the purported grounds for such termination
("Proposed Termination Resolution");
(ii) as soon as practicable, and in any event within
five (5) days, after adoption of such resolution, the Board
shall furnish to the Employee a written notice of termination
which shall be accompanied by a certified copy of the Proposed
Termination Resolution ("Notice of Proposed Termination");
(iii) the Employee shall be afforded a reasonable
opportunity to make oral and written presentations to the
members of the Board, on his own behalf, or through a
representative, who may be his legal counsel, to refute the
grounds set forth in the Proposed Termination Resolution at
one or more meetings of the Board to be held no sooner than
fifteen (15) days and no later than thirty (30) after the
Employee's receipt of the Proposed Termination Notice
("Termination Hearings"); and
(iv) within ten (10) days following the end of the
Termination Hearings, the Board shall adopt a resolution duly
approved by affirmative vote of a majority of the entire Board
at a meeting called and held for such purpose (A) finding that
in the good faith opinion of the Board the grounds for
termination set forth in the Proposed Termination Resolution
exist and (B) terminating the Employee's employment
("Termination Resolution"); and
(v) as promptly as practicable, and in any event
within one (1) business day after adoption of the Termination
Resolution, the Board shall furnish to the Employee written
notice of termination, which notice shall include a copy of
the Termination Resolution and specify an effective date of
termination that is not later than the date on which such
notice is given;
(b) the Employee's voluntary resignation from employment with
the Association for reasons other than those specified in section 8(a)(i); or
(c) the Employee's death; or
(d) a determination that the Employee is eligible for
long-term disability benefits under the Association's long-term disability
insurance program or, if there is no such program, under the federal Social
Security Act;
then the Association shall have no further obligations under this Agreement,
other than the payment to the Employee (or, in the event of his death, to his
estate) of his earned but unpaid salary as of the date of the termination of his
employment, and the provision of such other benefits, if any, to which the
Employee is entitled as a former employee under the employee
<PAGE>
-10-
benefit plans and programs and compensation plans and programs maintained by, or
covering employees of, the Association.
(e) For purposes of section 9(a), no act or failure to act, on
the part of the Employee, shall be considered "willful" unless it is done, or
omitted to be done, by the Employee in bad faith or without reasonable belief
that the Employee's action or omission was in the best interests of the
Association. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or based upon the written advice of
counsel for the Association shall be conclusively presumed to be done, or
omitted to be done, by the Employee in good faith and in the best interests of
the Association. The cessation of employment of the Employee shall not be deemed
to be for "cause" within the meaning of section 9(a) unless and until there
shall have been delivered to Employee a copy of a resolution duly adopted by the
affirmative vote of three-fourths of the non-employee members of the Board at a
meeting of the Board called and held for such purpose (after reasonable notice
is provided to Employee and Employee is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the good faith opinion
of the Board, Employee is guilty of the conduct described in section 9(a) above,
and specifying the particulars thereof in detail.
SECTION 10. CHANGE OF CONTROL.
(a) A Change of Control of the Association ("Change of
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(i) approval by the stockholders of the Association of a
transaction that would result in the reorganization, merger or
consolidation of the Association, respectively, with one or more other
persons, other than a transaction following which:
(A) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended "Exchange Act") in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the outstanding equity ownership
interests in the Association; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51%
<PAGE>
-11-
of the securities entitled to vote generally in the election
of directors of the Association;
(ii) the acquisition of substantially all of the assets of the
Association or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the outstanding
securities of the Association entitled to vote generally in the
election of directors by any person or by any persons acting in
concert, or approval by the stockholders of the Association of any
transaction which would result in an acquisition; or
(iii) a complete liquidation or dissolution of the
Association, or approval by the stockholders of the Association of a
plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following
such event, at least fifty percent (50%) of the members of the board of
directors of the Association do not belong to any of the following
groups:
(A) individuals who were members of the board of
directors of the Association on the date of this Agreement; or
(B) individuals who first became members of the board
of directors of the Association after the date of this
Agreement either:
(I) upon election to serve as a member of
the such board by affirmative vote of three-quarters
(3/4) of the members of such board, or a nominating
committee thereof, in office at the time of such
first election; or
(II) upon election by the stockholders of
the Association to serve as a member of such board,
but only if nominated for election by affirmative
vote of three-quarters (3/4) of the members of such
board, or of a nominating committee thereof, in
office at the time of such first nomination;
PROVIDED, HOWEVER, that such individual's election or nomination did
not result from an actual or threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf of the Board of the
Association;
(v) any event which would be described in section 10(a)(i),
(ii), (iii) or (iv) if the term "Holding Company" were substituted for
the term "Association" therein.
<PAGE>
-12-
(b) In no event, however, shall a Change of Control be deemed
to have occurred as a result of any acquisition of securities or assets of the
Holding Company, the Association or any subsidiary of either of them, by the
Holding Company, the Association or any subsidiary of either of them, or by any
employee benefit plan maintained by any of them. For purposes of this section
10, the term "person" shall have the meaning assigned to it under sections
13(d)(3) or 14(d)(2) of the Exchange Act.
SECTION 11. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR
PROGRAMS.
The termination of the Employee's employment during the
Assurance Period or thereafter, whether by the Association or by the Employee,
shall have no effect on the rights and obligations of the parties hereto under
the Association's Pension Plan, group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability insurance
plans or such other employee benefit plans or programs, or compensation plans or
programs (whether or not employee benefit plans or programs) and any defined
contribution plan, employee stock ownership plan, stock option and appreciation
rights plan, and restricted stock plan, as may be maintained by, or cover
employees of, the Association from time to time; PROVIDED, HOWEVER, that nothing
in this Agreement shall be deemed to duplicate any compensation or benefits
provided under any agreement, plan or program covering the Employee to which the
Association or the Holding Company is a party and any duplicative amount payable
under any such agreement, plan or program shall be applied as an offset to
reduce the amounts otherwise payable hereunder.
SECTION 12. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Employee, his legal representatives and testate or intestate
distributees, and the Association and the Holding Company, their respective
successors and assigns, including any successor by merger or consolidation or a
statutory receiver or any other person or firm or corporation to which all or
substantially all of the respective assets and business of the Association or
the Holding Company may be sold or otherwise transferred.
SECTION 13. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
<PAGE>
-13-
If to the Employee:
Pat A. Lenart
39W574 Juliet Drive
Elgin, Illinois 60123
If to the Association:
Home Federal Savings and Loan Association
16 North Spring Street
Elgin, Illinois 60120
Attention: CORPORATE SECRETARY
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. EDWARD BRIGHT, ESQ.
If to the Holding Company:
Home Bancorp of Elgin, Inc.
16 North Spring Street
Elgin, Illinois 60120
Attention: BOARD OF DIRECTORS
WITH A COPY TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. EDWARD BRIGHT, ESQ.
<PAGE>
-14-
SECTION 14. INDEMNIFICATION AND ATTORNEYS' FEES.
The Association shall indemnify, hold harmless and defend the
Employee against reasonable costs, including legal fees, incurred by the
Employee in connection with or arising out of any action, suit or proceeding in
which the Employee may be involved, as a result of the Employee's efforts, in
good faith, to defend or enforce the terms of this Agreement; provided, however,
that the Employee shall have substantially prevailed on the merits pursuant to a
judgment, decree or order of a court of competent jurisdiction or of an
arbitrator in an arbitration proceeding, or in a settlement. For purposes of
this Agreement, any settlement agreement which provides for payment of any
amounts in settlement of the Association's obligations hereunder shall be
conclusive evidence of the Employee's entitlement to indemnification hereunder,
and any such indemnification payments shall be in addition to amounts payable
pursuant to such settlement agreement, unless such settlement agreement
expressly provides otherwise. This provision shall be inoperative if and to the
extent that, but only if and to the extent that, it shall be determined that
compliance herewith would violate any applicable law or regulation.
SECTION 15. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 16. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 17. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 18. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States, and in the absence of
controlling federal law, the laws of the State of Illinois, without reference to
conflicts of law principles.
<PAGE>
-15-
SECTION 19. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 20. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or rep resentations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 21. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the
Association:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to the
Employee under section 8(b) hereof (exclusive of amounts described in
section 8(b)(i)) exceed the lesser of (i) three times the Employee's
average annual total compensation for the last five consecutive
calendar years to end prior to his termination of employment with the
Association (or for his entire period of employment with the
Association if less than five calendar years) and (ii) the maximum
amount that may be paid without producing an "excess parachute payment"
(as such term is defined in section 280G of the Code or any successor
provision), the applicability of such provision to the Employee and any
such maximum amount to be determined in good faith by the firm of
independent certified public accountants regularly retained to audit
the Association's books and records.
(b) Notwithstanding anything herein contained to the contrary,
any payments to the Employee by the Association, whether pursuant to
this Agreement or otherwise, are subject to and conditioned upon their
compliance with section 18(k) of the Federal Deposit Insurance Act
("FDI Act"), 12 U.S.C. ss.1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Employee is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Association
pursuant to a notice served under section 8(e)(3) or 8(g)(1) of the FDI
Act, 12 U.S.C. ss.1818(e)(3) or 1818(g)(1), the Association's
obligations under this Agreement shall be suspended as of the date of
service of such notice, unless stayed by appropriate proceedings. If
the charges in such notice are dismissed, the Association, in its
discretion, may
<PAGE>
-16-
(i) pay to the Employee all or part of the compensation withheld while
the Association's obligations hereunder were suspended and (ii)
reinstate, in whole or in part, any of the obligations which were
suspended.
(d) Notwithstanding anything herein contained to the contrary,
if the Employee is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order
issued under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1), all prospective obligations of the Association
under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Association and the
Employee shall not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Association is in default (within the meaning of section 3(x)(1)
of the FDI Act, 12 U.S.C. ss.1813(x)(1), all prospective obligations of
the Association under this Agreement shall terminate as of the date of
default, but vested rights and obligations of the Association and the
Employee shall not be affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Association hereunder shall be
terminated, except to the extent that a continuation of this Agreement
is necessary for the continued operation of the Association: (i) by the
Director of the Office of Thrift Supervision ("OTS") or his designee at
the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the Association
under the authority contained in section 13(c) of the FDI Act, 12
U.S.C. ss.1823(c); (ii) by the Director of the OTS or his designee at
the time such Director or designee approves a supervisory merger to
resolve problems related to the operation of the Association or when
the Association is determined by such Director to be in an unsafe or
unsound condition. The vested rights and obligations of the parties
shall not be affected.
If and to the extent that any of the foregoing provisions shall cease to be
required or apply by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
SECTION 22. GUARANTY.
The Holding Company hereby irrevocably and unconditionally
guarantees to the Employee the payment of all amounts, and the performance of
all other obligations, due from the Association in accordance with the terms of
this Agreement as and when due without any requirement of presentment, demand of
payment, protest or notice of dishonor or nonpayment.
<PAGE>
-17-
IN WITNESS WHEREOF, the Association and the Holding Company
have caused this Agreement to be executed and the Employee has hereunto set his
hand, all as of the day and year first above written.
/s/ Pat A. Lenart
------------------------------------------
PAT A. LENART
ATTEST: HOME FEDERAL SAVINGS AND LOAN
ASSOCIATION OF ELGIN
By /s/ Kathleen A. Schroeder
-------------------------
Secretary By /s/ Leigh C. O'Connor
----------------------------------------
NAME: Leigh C. O'Connor
[Seal] TITLE: Chairman, Compensation Committee
ATTEST: HOME BANCORP OF ELGIN, INC.
By /s/ Kathleen A. Schroeder
-------------------------
Secretary By /s/ Leigh C. O'Connor
----------------------------------------
NAME: Leigh C. O'Connor
TITLE: Chairman, Compensation Committee
[Seal]
<PAGE>
-18-
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
Pat A. Lenart, to me known, and known to me to be the individual described in
the foregoing instrument, who, being by me duly sworn, did depose and say that
he resides at the address set forth in said instrument, and that he signed his
name to the foregoing instrument.
/s/ Ruth E. Bart
------------------------------
Notary Public
[SEAL]
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
LEIGH C. O'CONNOR, to me known, who, being by me duly sworn, did depose and say
that he resides at 366 Hamilton Ave., Elgin, IL 60123, that he is a member of
the Board of Directors of Home Federal Savings and Loan Association of Elgin,
the savings association described in and which executed the foregoing
instrument; that he knows the seal of said savings association; that the seal
affixed to said instrument is such seal; that it was so affixed by authority of
the Board of Directors of said savings association; and that he signed his name
thereto by like authority.
/s/ Ruth E. Bart
------------------------------
Notary Public
[SEAL]
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this 15th day of January, 1998, before me personally came
LEIGH C. O'CONNOR, to me known, who, being by me duly sworn, did depose and say
that he resides at 366 Hamilton Ave., Elgin, IL 60123, that he is a member of
the Board of Directors of Home Bancorp of Elgin, Inc., the corporation described
in and which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such seal; that it was
so affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
/s/ Ruth E. Bart
------------------------------
Notary Public
[SEAL]
SELECTED FINANCIAL AND OTHER DATA OF THE COMPANY
The selected financial and other data of the Company set forth below is derived
in part from, and should be read in conjunction with, the Consolidated Financial
Statements of the Company and Notes thereto presented elsewhere in this Annual
Report.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- -------------- -------------- --------------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets ............................. $ 352,595 $ 356,335 $ 304,520 $ 306,956 $ 334,390
Loans receivable, net (1) ................ 298,661 261,306 267,153 271,040 301,676
Investment securities held to maturity.... -- 53,786 5,948 5,918 --
Savings deposits ......................... 248,217 251,795 259,972 267,938 293,932
Borrowed funds ........................... 5,000 -- 4,000 -- 7,000
Stockholders' equity ..................... 95,215 99,881 36,683 34,319 29,961
SELECTED OPERATING DATA:
Interest income .......................... $ 25,029 $ 23,059 $ 22,925 $ 24,669 $ 27,652
Interest expense on savings deposits and
borrowed funds ........................ 10,550 10,881 10,850 10,484 11,791
--------- --------- --------- --------- ---------
Net interest income before provision for
loan losses ........................... 14,479 12,178 12,075 14,185 15,861
Provision for loan losses ................ 120 120 180 240 240
--------- --------- --------- --------- ---------
Net interest income after provision for
loan losses ........................... 14,359 12,058 11,895 13,945 15,621
Noninterest income, excluding gain on
sale of branches ...................... 1,288 1,221 1,150 1,471 1,566
Gain on sale of branches ................. -- -- -- 1,683 822
--------- --------- -------- -------- ---------
Noninterest income ....................... 1,288 1,221 1,150 3,154 2,388
Noninterest expense ...................... 11,002 12,220 9,069 9,624 10,402
--------- --------- -------- -------- --------
Income before income tax expense and
cumulative effect of change in
accounting principle .................. 4,645 1,059 3,976 7,475 7,607
Income tax expense ....................... 1,802 417 1,612 3,117 2,998
--------- ------- ------- -------- --------
Income before cumulative effect of change
in accounting principle ............... 2,843 642 2,364 4,358 4,609
Cumulative effect of change in accounting
for income taxes (2) .................. -- -- -- -- 348
-------- --------- -------- -------- ----------
Net income ............................... $ 2,843 $ 642 $ 2,364 $ 4,358 $ 4,261
======== ========= ======== ======== =========
Basic earnings per share (3) (4) ......... $ 0.45 $ 0.10 NA NA NA
Diluted earnings per share (3) (4) ....... $ 0.44 $ 0.10 NA NA NA
(Notes on following page)
</TABLE>
<PAGE>
SELECTED FINANCIAL AND OTHER DATA OF THE COMPANY
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- --------------- --------------- ----------
(Dollars in thousands, except shares and per share amounts)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS (5):
PERFORMANCE RATIOS:
Return on average assets (6) (7)........... 0.80% 0.20% 0.78% 1.33% 1.22%
Return on average equity (6) (7)........... 2.93 1.11 6.53 13.45 15.26
Average interest rate spread (8)........... 3.11 3.28 3.78 4.31 4.60
Net interest margin (9).................... 4.27 4.02 4.19 4.53 4.77
Average interest-earning assets to average
interest-bearing liabilities .......... 137.33 120.29 111.09 106.84 104.71
Noninterest expense to average assets (6) 3.10 3.81 2.99 2.93 2.98
CAPITAL RATIOS (5):
Average equity to average assets .......... 27.32 18.07 11.93 9.84 7.99
Equity to total assets at end of period ... 27.00 28.03 12.05 11.18 8.96
Consolidated tangible capital ............. 27.00 28.03 11.96 11.18 8.95
Consolidated core capital ................. 27.00 28.03 11.96 11.18 8.95
Consolidated total risk-based capital ..... 50.13 61.90 23.32 21.90 16.39
ASSET QUALITY RATIOS AND OTHER DATA (5):
Total non-performing loans (10) $ 963 $ 937 $ 916 $ 986 $ 1,642
Real estate owned, net .................... 286 550 496 514 433
Non-performing loans to total loans ....... 0.32% 0.36% 0.34% 0.36% 0.54%
Non-performing assets to total assets ..... 0.35 0.42 0.46 0.49 0.62
Allowance for loan losses to:
Non-performing loans .................. 110.51 100.85 90.17 65.82 24.91
Total loans (11)....................... 0.36 0.36 0.31 0.24 0.14
Number of shares outstanding (4) ............. 6,855,799 7,009,250 NA NA NA
Book value per share (4) ..................... $ 13.89 $ 14.25 NA NA NA
Full service offices ......................... 5 5 5 5 7
(1) Loans receivable, net, represents gross loans less net deferred loan fees,
loans in process and allowance for loan losses.
(2) Pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), on January 1, 1993, the
Association changed prospectively from the deferred method to the
liability method of accounting for income taxes. The effect of the
adoption of this standard is reflected in the financial statements as the
cumulative effect of change in accounting principle.
(3) For the year ended December 31, 1996, earnings per share was calculated as
if the Company's initial public offering had taken place on January 1,
1996.
(4) Per share information for the years ended December 31, 1995, 1994, and
1993 cannot be computed, because the Company did not issue stock until
September 26, 1996.
(5) With the exception of end-of-period ratios, all ratios are based on
average monthly balances during the indicated periods. Asset Quality
Ratios and Capital Ratios are end-of-period ratios.
(6) Includes one-time charge of $1,759,000 ($1,077,000 net of tax effects)
associated with the recapitalization of the Savings Association Insurance
Fund (the "SAIF") and a loss on curtailment of pension plan of $837,000
($512,000 net of tax effects) for the year ended December 31, 1996.
Excluding the SAIF recapitalization charge and the loss on curtailment of
the pension plan, the return on average assets and average equity would
have been 0.70% and 3.85%, respectively, for the year ended December 31,
1996. Likewise, the ratio of noninterest expense to average assets would
have been 3.00% for the year ended December 31, 1996.
(7) Includes gain on sale of branches. Return on average assets excluding the
gain on sale of branches would have been 1.03% and 1.08% in 1994 and 1993,
respectively. Return on average equity excluding the gain on sale of
branches would have been 10.42% and 13.48% in 1994 and 1993, respectively.
(8) The average interest rate spread represents the difference between the
weighted average yield on interest-earning assets and the weighted average
cost of interest-bearing liabilities.
(9) The net interest margin represents net interest income as a percent of
average interest-earning assets. (10) Non-performing loans consist of
non-accrual loans; the Company did not have any loans that were 90 days or
more past due and still accruing at any of the dates presented. (11) Total
loans represents gross loans less deferred loan fees and loans in process.
(10) Non-performing loans consist of non-accrual loans, the Company did not
have any loans that were 90 days or more past due and still accruing at
any of the dates presented.
(11) Total loans represents gross loans less deferred loan fees and loans in
process.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
On September 26, 1996, Home Federal Savings and Loan Association of Elgin
("Home Federal" or the "Association") completed its conversion from mutual to
stock form and became a wholly-owned subsidiary of Home Bancorp of Elgin, Inc.
("Home Bancorp" or the "Company"). On such date, the Company sold 7,009,250
shares of its common stock, par value $.01 per share to the public, at a per
share price of $10.00. The conversion and offering raised $62.4 million in net
proceeds. The Company's sole business activity consists of the ownership of the
Association. The Company also invests in short-term investment grade marketable
securities and other liquid investments. The financial data presented in this
Annual Report represents the activity of the Association for the period prior to
September 26, 1996 and the activity of Home Bancorp and subsidiary consolidated
thereafter. The Association's principal business consists of attracting deposits
from the public and investing those deposits, along with funds generated from
operations, primarily in loans secured by mortgages on one- to four-family
residences. The Association's results of operations are dependent primarily on
net interest income, which is the difference between the interest income earned
on its interest-earning assets, such as loans and securities, and the interest
expense on its interest-bearing liabilities, such as savings deposits. The
Association also generates noninterest income such as service charges and other
fees. The Association's noninterest expenses primarily consist of employee
compensation and benefits, occupancy expenses, federal deposit insurance
premiums, data processing fees and other operating expenses. The Association's
results of operations are also significantly affected by general economic and
competitive conditions (particularly changes in market interest rates),
government policies and actions of regulatory agencies. The Association exceeded
all of its regulatory capital requirements at December 31, 1997.
MANAGEMENT STRATEGY
The Association's business strategy provides for an operating plan that,
among other things, (i) emphasizes the origination of one- to four-family
residential mortgage loans (secured by properties located in portions of Cook,
Kane, Lake, McHenry, DuPage, and DeKalb counties in Illinois, the Association's
delineated lending area), with a particular emphasis on the origination of
adjustable-rate mortgage loans; (ii) provides for the origination of
multifamily, commercial real estate, construction, land and other loans
(consisting primarily of passbook savings and consumer loans) in the
Association's delineated lending area; (iii) requires the Association to
maintain high asset quality by originating all loans in strict compliance with
its underwriting standards; (iv) focuses on attracting transactional deposit
accounts; and (v) seeks to reduce general and administrative expenses. The
Association seeks to attract and retain customers by providing a high level of
personal service, a variety of loan and deposit products and extended office
hours, as well as 13 ATMs at convenient locations throughout the Association's
market area.
The Association's business strategy has focused on improving the
Association's profitability and capital position and increasing transactional
deposit accounts and loans made at market rates. Certain steps taken by
management to implement such strategy prior to the conversion in 1996, including
branch sales, have succeeded in increasing the Association's capital level and
reducing its operating expenses, but have also had the effect of decreasing
total assets and total savings deposits. Such reductions in assets and savings
deposits, when combined with the Association's sensitivity to interest rates,
also resulted in a reduction in net income. However, in an effort to address the
contraction of deposits, the Association has taken steps to increase core
noninterest bearing transactional deposit accounts and related services. These
include the relocation of the South Elgin Office along with the addition of five
drive-up lanes in the heart of the commercial and residential growth area. New
services and products have been implemented to give the Association's customers
added convenience and value. Home Banking, via personal computer or phone, is
now available and is being introduced to customers through statement stuffers
and brochures. Home Banking provides customers access to their accounts by phone
for balance and check inquiry plus transferring between their accounts, and with
the enhanced bill payment center, customers can now conveniently pay their bills
from their personal computer or phone. VISA Check, a debit card program, is also
now available and is growing in numbers of card holders and usage. These two new
products along with other services like Combined Statement and Direct Deposit,
provide customers with more convenient access to their accounts and strengthens
long term relationships by bundling these services. The Association's campaign,
"put it all together", spotlights these new convenient services and encourages
multiple relationships. Included in this campaign is an emphasis on home
mortgage loans. Specific materials have been created that were distributed to
real estate professionals to assist and inform them of the Association's
products and competitive rates. Looking ahead with these new services, products
and promotional materials in place, management is focused on establishing
multiple relationships with existing customers while attracting new customers.
<PAGE>
MANAGEMENT OF INTEREST RATE RISK
The principal objectives of the Company's and Association's interest rate
risk management activities are to (i) evaluate the interest rate risk included
in certain balance sheet accounts, (ii) determine the appropriate level of risk
given the Company's business focus, operating environment, capital and liquidity
requirements and performance objectives, (iii) establish prudent asset
concentration guidelines and (iv) manage the risk consistent with guidelines
approved by the Board of Directors. The Association seeks to reduce the
vulnerability of its operating results to changes in interest rates and to
manage the ratio of interest rate sensitive assets to interest rate sensitive
liabilities within specified maturities or repricing dates. The Association
closely monitors its interest rate risk as such risk relates to its operating
strategies through its Asset/Liability Management Committee (the "ALCO
Committee") which reports to the Association's Board of Directors on at least a
quarterly basis. The ALCO Committee is responsible for reviewing and monitoring
the interest rate risk position of the Association to ensure compliance with the
Association's business plan. The ALCO Committee is also responsible for
informing the Board of Directors of regulatory developments affecting the
Association's policy regarding asset and liability management. The extent of the
movement of interest rates, higher or lower, is an uncertainty that could have a
negative impact on the earnings of the Association and the Company.
As a traditional thrift lender, the Association has a significant amount of
its interest-earning assets invested in fixed-rate mortgage loans with
contractual maturities of up to 30 years. At December 31, 1997, an aggregate of
$229.4 million, or 72.6%, of total interest-earning assets were invested in such
assets.
The Association has taken several actions designed to manage its level of
interest rate risk under various market conditions. These actions have included:
(i) increasing the interest rate sensitivity of the Association's one- to
four-family residential loan portfolio through the origination of
adjustable-rate mortgage loans and 15-year fixed rate mortgage loans, as market
conditions permit; (ii) increasing the proportion of liquid assets invested in
instruments with maturities of two years or less; and (iii) undertaking an
effort to lengthen the maturities of its certificates of deposit. Neither the
Company nor the Association engages in trading activities or uses derivative
instruments to control interest rate risk. Even though such activities may be
permitted with the approval of the Board of Directors, the Company and the
Association do not intend to engage in such activities in the immediate future.
Management believes that maintaining a high level of capital also serves to
reduce the effects of the Association's exposure to interest rate risk, and
certain other techniques that reduce interest rate risk but give rise to other
forms of risk are not acceptable solutions.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring a company's interest rate sensitivity "gap." An asset or liability is
said to be interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing within the same time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. A gap is considered
positive when the amount of interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities. A gap is considered negative when the
amount of interest rate sensitive liabilities exceeds the amount of interest
rate sensitive assets. During a period of rising interest rates, therefore, a
negative gap theoretically would tend to adversely affect net interest income.
Conversely, during a period of falling interest rates, a negative gap position
would theoretically tend to result in an increase in net interest income. Based
upon the assumptions used in the following table, at December 31, 1997, the
Company's total interest-bearing liabilities maturing or repricing within one
year exceeded its total interest-earning assets maturing or repricing in the
same time period by $63.5 million, representing a one-year cumulative "gap," as
a percentage of total assets of negative 18.0%. As a result, the Company is
vulnerable to increases in interest rates.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1997, which are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods shown. Except as stated below, the amount of
assets and liabilities shown which reprice or mature during a particular period
were determined based on the earlier of term to repricing or the term to
repayment of the asset or liability. The table is intended to provide an
approximation of the projected repricing of assets and liabilities at December
31, 1997 on the basis of contractual maturities, anticipated prepayments and
scheduled rate adjustments within a three-month period and subsequent selected
time intervals. For purposes of presentation in the following table, the Company
utilized the national deposit decay rate assumptions published by the OTS as of
December 31, 1997 which, for NOW/Super NOW accounts, money market accounts and
passbook accounts in the one year or less category were 59%, 65% and 80%,
respectively. The loan amounts in the table reflect principal balances expected
to be redeployed and/or repriced as a result of contractual amortization and
anticipated early payoffs of adjustable-rate loans and fixed-rate loans
<PAGE>
and as a result of contractual rate adjustments on adjustable-rate loans. The
amounts attributable to mortgage-backed securities reflect principal balances
expected to be redeployed and/or repriced as a result of anticipated principal
repayments.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
------------------------------------------------------------------------------------------
MORE THAN MORE THAN MORE THAN MORE THAN
3 MONTHS 3 MONTHS 6 MONTHS 1 YEAR 3 YEARS MORE THAN
OR LESS TO 6 MONTHS TO 1 YEAR TO 3 YEARS TO 5 YEARS 5 YEARS TOTAL
------------- ----------- --------- ---------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable(1)..................... $16,620 $15,583 $ 28,146 $96,983 $ 41,372 $ 101,021 $ 299,725
Mortgage-backed securities held to
maturity................................ 6 6 12 46 22 -- 92
Interest-earning deposits............... 34,709 -- -- -- -- -- 34,709
FHLB of Chicago stock................... 2,606 -- -- -- -- -- 2,606
-------- ------- -------- ------- -------- -------- ---------
Total interest-earning assets....... $ 53,941 $15,589 $ 28,158 $97,029 $ 41,394 $ 101,021 $ 337,132
======== ======= ======== ======= ======== ========= =========
INTEREST-BEARING LIABILITIES:
NOW/Super NOW accounts................ $ 6,321 $ 6,321 $12,642 $ 5,997 $ 3,962 $ 7,474 $42,717
Money market accounts................. 2,706 2,706 5,412 3,572 1,393 889 16,678
Passbook accounts..................... 12,108 12,108 24,218 3,453 2,495 6,498 60,880
Certificates of deposit............... 26,793 14,943 29,894 36,558 13,720 -- 121,908
Borrowed funds........................ 5,000 -- -- -- -- -- 5,000
------- ------- ------- ------- ------- ------- -------
Total interest-bearing liabilities. $52,928 $36,078 $72,166 $49,580 $21,570 $14,861 $247,183
======= ======= ======= ======= ======= ======= ========
Interest sensitivity gap per period..... $ 1,013 $(20,489) $(44,008) $47,449 $19,824 $86,160
Cumulative interest sensitivity gap..... 1,013 (19,476) (63,484) (16,035) 3,789 89,949
Cumulative interest sensitivity gap
as a percent of total assets.......... 0.29% (5.52)% (18.00)% (4.55)% 1.07% 25.51%
Cumulative total interest-earning assets
as a percent of cumulative total
interest-
bearing liabilities................... 101.91% 78.12% 60.61% 92.39% 101.63% 136.39%
</TABLE>
- --------------------
(1) Loans receivable represents gross loans less net deferred loan fees and
loans in process.
Certain shortcomings are inherent in the methods of analysis presented in
the table setting forth the maturing and repricing of interest-earning
assets and interest-bearing liabilities. For example, although certain
assets and liabilities may have similar maturities or periods to repricing,
they may react in different degrees to changes in market interest rates.
Also, the interest on certain types of assets and liabilities may fluctuate
in advance of changes in market interest rates while interest rates on other
types of assets may lag behind changes in market rates. Additionally,
certain assets, such as adjustable-rate loans, have features which restrict
changes in interest rates both on a short-term basis and over the life of
the asset. Further, in the event of a change in interest rates, prepayment
and early withdrawal levels would likely deviate significantly from those
assumed in calculating the table. Finally, the ability of many borrowers to
make scheduled payments on their adjustable-rate loans may decrease in the
event of an interest rate increase. As a result, the actual effect of
changing interest rates may differ from that presented in the foregoing
table.
<PAGE>
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
The following table sets forth certain information relating to the
Company's average balance sheet at and for the years ended December 31, 1997,
1996 and 1995 and reflects the average yield on assets and average cost of
liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods shown. Average balances are derived from average
monthly balances which does not differ materially from average daily balances.
The yields and costs include fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
AT DECEMBER 31, ----------------------------------------------------------------------------------
1997 1997 1996 1995
----------------- ------------------------ --------------------------- --------------------------
WEIGHTED AVERAGE AVERAGE AVERAGE
AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE (1) BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ------- -------- ---- ------- -------- ---- ------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Real estate loans(2).... $298,964 7.59% $280,127 $21,671 7.74% 264,219 $20,936 7.92% $269,323 $21,719 8.06%
Other loans............. 761 9.04 651 60 9.22 603 56 9.29 670 60 8.96
Mortgage-backed
securities............ 92 6.98 114 8 7.02 160 11 6.88 213 15 7.04
Investment securities... -- -- 26,773 1,643 6.14 14,385 780 5.42 5,934 360 6.07
Interest-earning
deposits.............. 34,709 6.37 28,614 1,468 5.13 21,187 1,089 5.14 8,981 569 6.34
FHLB of Chicago stock... 2,606 7.00 2,624 179 6.82 2,741 187 6.82 3,045 202 6.63
----- ---- ----- --- ---- ----- --- ---- ----- --- ----
Total interest-earning
assets.............. 337,132 7.78% 338,903 $25,029 7.39% 303,295 $23,059 7.60% 288,166 $22,925 7.96%
------- ---- ------- ------- ---- ------- ------- ---- ------- ------- ----
Allowance for loan
losses................ (1,064) (1,010) (890) (746)
Noninterest-earning
assets................ 16,527 16,376 18,349 15,769
------ ------ ------ ------
Total assets.......... $352,595 $354,269 $320,754 $303,189
======== ======== ======== ========
LIABILITIES AND EQUITY:
Interest-bearing
liabilities:
NOW/Super Now
accounts.............. $ 42,717 2.25% $ 42,227 $ 898 2.13 $ 42,544 $ 906 2.13% $ 43,035 $ 980 2.28%
Money market accounts... 16,678 3.22 16,522 527 3.19 17,111 556 3.25 19,927 565 2.84
Passbook accounts....... 60,880 3.00 61,881 1,903 3.08 64,523 2,017 3.13 69,362 2,137 3.08
Certificates of
deposit............... 121,908 5.84 123,239 7,048 5.72 127,286 7,365 5.79 125,820 7,091 5.64
Borrowed funds.......... 5,000 6.92 2,917 174 5.97 667 37 5.55 1,250 77 6.16
----- ---- ----- --- ---- --- -- ---- ----- -- ----
Total interest-bearing
liabilities......... 247,183 4.37% 246,786 10,550 4.28% 252,131 10,881 4.32% 259,394 10,850 4.18%
------- ----- -------- ------ ----- ------- ------ ------ -------- ------ ----
Noninterest-bearing
NOW accounts............ 6,035 5,802 6,132 3,410
Other noninterest-bearing
liabilities............ 4,162 4,812 4,531 4,208
----- ----- ----- -----
Total liabilities..... 257,380 257,400 262,794 267,012
------- ------- ------- -------
Equity.................... 95,215 96,869 57,960 36,177
------ ------ ------ ------
Total liabilities and
equity.............. $352,595 $354,269 $320,754 $303,189
======== ======== ======== ========
Net interest income......... $14,479 $12,178 $12,075
======= ======= =======
Interest rate spread(3)..... 3.41% 3.11% 3.28% 3.78%
==== ==== ==== ====
Net interest margin(4)...... 4.27% 4.02% 4.19%
==== ==== ====
Ratio of interest-earning
assets to Interest-bearing
liabilities................ 136.39% 137.33% 120.29% 111.09%
====== ====== ====== ======
</TABLE>
- ------------------
(1) The weighted average rate represents the coupon associated with each asset
and liability, weighted by the principal balance associated with each asset
and liability.
(2) In computing the average balance of loans, non-accrual loans have been
included.
(3) Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin on interest-earning assets represents net interest
income as a percentage of average interest-earning assets.
<PAGE>
RATE/VOLUME ANALYSIS
Net interest income can also be analyzed in terms of the impact of
changing interest rates on interest-earning assets and interest-bearing
liabilities and the change in the volume or amount of these assets and
liabilities. In general, increases in the volume or amount of interest-bearing
liabilities, as well as increases in the interest rates paid on interest-bearing
liabilities, and decreases in the volume or amount of interest-earning assets,
as well as decreases in the yields earned on interest-earning assets, have the
effect of reducing the Company's net interest income. Conversely, increases in
the volume or amount of the Company's interest-earning assets, as well as
increases in the yields earned on interest-earning assets, and decreases in the
volume or amount of interest-bearing liabilities, as well as decreases in the
rates paid on interest-bearing liabilities, have the effect of increasing the
Company's net interest income. The following table represents the extent to
which changes in interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the Company's interest
income and interest expense during the periods indicated. Information is
provided in each category with respect to (i) changes attributable to changes in
volume (change in volume multiplied by prior rate), (ii) changes attributable to
changes in rate (changes in rate multiplied by prior volume) and (iii) the net
change. Changes attributable to the combined impact of volume and rate have been
allocated proportionately to separately reflect the changes due to the volume
and the changes due to rate.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
COMPARED TO COMPARED TO
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------------- ------------------------------------
INCREASE/(DECREASE) DUE TO INCREASE/(DECREASE) DUE TO
----------------------------------- ------------------------------------
VOLUME RATE NET VOLUME RATE NET
---------- ---------- ---------- ------------ ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Real estate loans..................................... $ 1,196 $ (461) $ 735 $ (408) $ (375) $ (783)
Other loans........................................... 4 -- 4 (6) 2 (4)
Mortgage-backed securities............................ (3) -- (3) (4) -- (4)
Investment securities................................. 748 115 863 454 (34) 420
Interest-earning deposits............................. 381 (2) 379 604 (84) 520
FHLB of Chicago stock................................. (8) -- (8) (21) 6 (15)
-------- -------- -------- -------- -------- --------
Total............................................ $ 2,318 $ (348) $ 1,970 $ 619 $ (485) $ 134
======== ======== ======== ======== ======== ========
Interest-bearing liabilities:
NOW/Super Now accounts............................... $ (7) $ (1) $ (8) $ (11) $ (63) $ (74)
Money market accounts................................ (19) (10) (29) (86) 77 (9)
Passbook accounts.................................... (82) (32) (114) (152) 32 (120)
Certificates of deposit.............................. (232) (85) (317) 83 191 274
Borrowed funds....................................... 134 3 137 (33) (7) (40)
-------- -------- -------- -------- -------- --------
Total........................................... $ (206) $ (125) $ (331) $ (199) $ 230 $ 31
======== ======== ======== ========= ======== ========
Net change in net interest income........................ $ 2,524 $ 223 $ 2,301 $ 818 $ (715) $ 103
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND DECEMBER 31, 1996
Total assets decreased $3.7 million or 1.0% from $356.3 million at
December 31, 1996 to $352.6 million at December 31, 1997. The decrease in total
assets was primarily due to the disbursement of funds for the $3.6 million
decrease in savings deposits, $769,000 decrease in accrued interest payable and
other liabilities, $2.5 million purchase of treasury stock and $3.9 million of
common stock acquired by the Recognition and Retention Plan (the "RRP"), which
were partially offset by receipt of $5.0 million in advances from the Federal
Home Loan Bank of Chicago, $770,000 net increase in retained earnings and a
$561,000 decrease in common stock acquired by the Employee Stock Ownership Plan
(the "ESOP"). The significant changes in the composition of assets consisted of
a decrease of $53.8 million in securities held to maturity which was offset, in
part, by increases of $1.2 million in cash and due from banks, $12.4 million in
interest-earning deposits and $37.4 million in loans receivable.
Cash and due from banks increased $1.2 million or 21.0% from $5.7
million at December 31, 1996 to $6.9 million at December 31, 1997. This increase
was primarily due to the transfer of funds from interest-earning deposits.
Interest-earning deposits increased $12.4 million or 55.4% from $22.3
million at December 31, 1996 to $34.7 million at December 31, 1997. This
increase was primarily due to proceeds of $53.8 million from maturing investment
securities which was partially offset by the disbursement of funds for the $1.2
million transfer of funds to cash and due from banks, the $37.4 million increase
in loans receivable and $2.5 million for the purchase of treasury stock.
Investment securities held to maturity decreased $53.8 million or
100.0%. All the securities matured and the funds were transferred to
interest-earning deposits.
Loans receivable increased $37.4 million or 14.3% from $261.3 million
at December 31, 1996 to $298.7 million at December 31, 1997. This increase was
primarily the result of more aggressive advertising of the Association's loan
products resulting in higher loan originations, offset to a lesser degree by
loan repayments.
Savings deposits decreased $3.6 million or 1.4% from $251.8 million at
December 31, 1996 to $248.2 million at December 31, 1997. This decrease was due
to withdrawals exceeding deposits and interest credited.
Advances from the Federal Home Loan Bank of Chicago increased $5.0
million. These funds were used primarily to fund loan originations.
Stockholders' equity decreased by $4.7 million or 4.7% from $99.9
million at December 31, 1996 to $95.2 million at December 31, 1997. This
decrease was primarily due to the purchase of treasury stock and common stock
acquired by the RRP which was offset by increases in additional paid-in capital,
retained earnings and a decrease in common stock acquired by the ESOP. Treasury
stock increased $2.5 million for the year ended December 31, 1997. This increase
is due to the implementation of the Company's 5% Stock Repurchase Program
("Repurchase Program") with the purchase of 153,451 shares of common stock in
the open market. The Office of Thrift Supervision ("OTS"), the Association's
primary federal regulator, approved the Repurchase Program on May 6, 1997. An
additional 197,011 shares of common stock may be repurchased by the Company
under the Repurchase Program. Unearned RRP compensation increased $3.9 million
for the year ended December 31, 1997. This increase is primarily due to the
purchase of 280,370 shares of the Company's common stock for the Company's RRP.
The cost of the stock purchased for the RRP was $4.5 million, which was
partially offset by RRP expense of $600,000. Additional paid-in capital
increased $371,000 due to the release of stock for the ESOP. Retained earnings
increased $770,000 or 2.1% from $37,325,000 at December 31, 1996 to $38,095,000
at December 31, 1997. This increase is the net income of $2,843,000 for the year
ended December 31, 1997 which was partially offset by the payment of $2,072,000
in dividends on the Company's common stock. Common stock acquired by the ESOP
decreased $561,000 due to the cost of releasing stock of the plan.
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
GENERAL. Net income for the year ended December 31, 1997 increased $2.2
million from $642,000, or $0.10 diluted earnings per share, for the year ended
December 31, 1996 to $2.8 million, or $0.44 diluted earnings per share, for the
year ended December 31, 1997. The $2.2 million increase was primarily due to an
increase of $2.3 million in net interest income before provision for loan losses
and a $1.2 million decrease in noninterest expense. These were partially offset
by an increase of $1.4 million in income tax expense.
INTEREST INCOME. Interest income increased $2.0 million or 8.5% from
$23,059,000 for the year ended December 31, 1996 to $25,029,000 for the year
ended December 31, 1997. This was due primarily to an increase in the average
balance of interest-earning assets of $35.6 million or 11.7% from $303.3 million
for the year ended December 31, 1996 to $338.9 million for the year ended
December 31, 1997. This increase was partially offset by a decrease in the
average yield earned on average interest-earning assets of 21 basis points from
7.60% for the year ended December 31, 1996 to 7.39% for the year ended December
31, 1997. The increase in the average balance of interest-earning assets was
primarily due to receipt of the net proceeds from the Offering, which was
partially offset by the decrease in interest-earning assets due to market
conditions. The average yield earned on interest-earning assets decreased
primarily as a result of the change in the composition of interest-earning
assets and lower average yields on real estate loans. The average balance of
investment securities and interest-earning deposits increased $19.8 million from
$35.6 million for the year ended December 31, 1996 to $55.4 million for the year
ended December 31, 1997. These assets are the lowest yielding components of
interest-earning assets, and, as a result of the increase in these assets and
the 18 basis point decrease in average yield on real estate loans from 7.92% for
the year ended December 31, 1996 to 7.74% for the year ended December 31, 1997,
the average yield was reduced. The average yield on real estate loans decreased
as a result of the rates on new loan originations being lower than the rates on
loans repaid due to general market conditions.
INTEREST EXPENSE. Interest expense decreased $331,000 or 3.0% from
$10,881,000 for the year ended December 31, 1996 to $10,550,000 for the year
ended December 31, 1997. This decrease was primarily due to the decrease in the
average balance of interest-bearing liabilities of $5.3 million or 2.1% from
$252.1 million for the year ended December 31, 1996 to $246.8 million for the
year ended December 31, 1997. Interest expense also decreased as a result of the
4 basis point decrease in the average rate paid on interest-bearing liabilities
from 4.32% for the year ended December 31, 1996 to 4.28% for the year ended
December 31, 1997. The decrease in the average balance of interest-bearing
liabilities was due to competitive market conditions.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest
income before provision for loan losses increased $2.3 million or 18.9% from
$12.1 million for the year ended December 31, 1996 to $14.4 million for the year
ended December 31, 1997. This increase was primarily due to an increase in
average interest-earning assets, which was primarily attributable to the
investment of the net proceeds of the offering which were received by the
Company on September 26, 1996. This was offset, in part, by a 17 basis point
decrease in the interest rate spread from 3.28% for the year ended December 31,
1996 to 3.11% for the year ended December 31, 1997. The net interest margin
increased by 25 basis points from 4.02% for the year ended December 31, 1996 to
4.27% for the year ended December 31, 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $120,000
for each period. Management determined that keeping the provision for loan
losses at the same level was appropriate in light of its current review of the
Company's loan portfolio, asset quality, delinquent and non-performing loans,
the Company's historically low loan loss experience and the national and
regional economies. The ratio of the allowance for loan losses to non-performing
loans was 110.51% and 100.85% at December 31, 1997 and December 31, 1996,
respectively, and the ratio of the allowance for loan losses to total loans was
0.36% at both respective dates. Management believes that the provision for loan
losses and the allowance for loan losses are reasonable and adequate to cover
any known losses and any losses reasonably expected in the existing loan
portfolio. While management estimates loan losses using the best available
information, such as independent appraisals for significant collateral
properties, no assurance can be given that future additions to the allowance
will not be necessary based on changes in economic and real estate market
conditions, further information obtained regarding known problem loans,
identification of additional problem loans, regulatory examinations and other
factors, both within and outside of management's control.
<PAGE>
NONINTEREST INCOME. Noninterest income increased $67,000 or 5.5% from
$1,221,000 for the year ended December 31, 1996 to $1,288,000 for the year ended
December 31, 1997. The increase was primarily due to an increase in other income
of $184,000 from $23,000 for the year ended December 31, 1996 to $207,000 for
the year ended December 31, 1997, which was due primarily to the receipt of
$182,000 in excess funds from the liquidation of the Association's pension plan
in connection with the Conversion. In addition, gain on sale of real estate
owned increased $58,000 or 280.5% from $21,000 for the year ended December 31,
1996 to $79,000 for the year ended December 31, 1997. These increases were
partially offset by the $174,000 decrease in service fee income from $1,176,000
for the year ended December 31, 1996 to $1,002,000 for the year ended December
31, 1997. The decrease in service fee income was primarily due to the changes
made to the account pricing structures for NOW accounts and ATM transaction fees
for competitive purposes.
NONINTEREST EXPENSE. Noninterest expense decreased $1.2 million or
10.0% from $12.2 million for the year ended December 31, 1996 to $11.0 million
for the year ended December 31, 1997. This decrease was primarily due to a
decrease in federal deposit insurance premiums, which was offset, in part, by
increases in compensation and benefits, and other expense. Federal deposit
insurance premium expense decreased $2,225,000 or 91.2% from $2,441,000 for the
year ended December 31, 1996 to $216,000 for the year ended December 31, 1997.
The decrease was primarily due to the one time SAIF assessment of $1.8 million
in the year ended December 31, 1996 as well as the related reduction in deposit
insurance rates. Compensation and benefits expense increased by $380,000 or 7.4%
from $5,157,000 for the year ended December 31, 1996 to $5,537,000 for the year
ended December 31, 1997. This increase is primarily due to an increase in ESOP
expense of $745,000 and an increase in RRP expense of $600,000. The ESOP was in
effect for only three months in 1996, and the RRP was established in 1997. This
increase was offset by a decrease in pension expense of $1,016,000, which
included $837,000 in 1996 for the termination of the Association's pension plan
in connection with the Conversion. The remainder of the increase in compensation
and benefits expense was due to normal salary increases. Professional services
expense increased $348,000 or 313.9% from $111,000 for the year ended December
31, 1996 to $459,000 for the year ended December 31, 1997. This increase is
primarily attributable to additional services provided as a result of operations
as a public company. Stationery, printing, and office supplies expense increased
$58,000 or 24.4% from $240,000 at December 31, 1996 to $298,000 at December 31,
1997. This increase was primarily due to the cost of reports required of a
public company. Other noninterest expense increased $254,000 or 29.5% from
$859,000 for the year ended December 31, 1996 to $1,113,000 for the year ended
December 31, 1997. This increase was primarily due to increases in transfer
agent fees, franchise taxes, and other fees and services resulting from
operations as a public company.
INCOME TAX EXPENSE. Income tax expense increased $1,385,000 from
$417,000 for the year ended December 31, 1996 to $1,802,000 for the year ended
December 31, 1997. This increase was primarily due to a higher level of taxable
income. The effective tax rate was 38.8% for the year ended December 31, 1997
and 39.4% for the year ended December 31, 1996.
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND DECEMBER 31, 1995
Total assets increased $51.8 million or 17.0% from $304.5 million at
December 31, 1995 to $356.3 million at December 31, 1996. The increase in total
assets was primarily due to net proceeds from the initial public offering (the
"Offering") of $62.4 million which was partially offset by the repayment of $4.0
million of borrowed funds and disbursement of funds resulting from the decrease
in savings deposits of $8.2 million.
Cash and due from banks decreased $4.3 million or 43.5% from $10.0
million at December 31, 1995 to $5.7 million at December 31, 1996. The decrease
was primarily due to funds disbursed to repay borrowed funds of $4.0 million,
disbursements for withdrawals of $8.2 million in savings deposits and
disbursements of $l.4 million for office properties and equipment. These
decreases were offset by the funds received from the decrease in loans
receivable of $5.8 million, the $378,000 decrease in Federal Home Loan Bank
("FHLB") of Chicago stock, $1.1 million transferred from interest-earning
deposits, and $1.5 million of net cash provided by operating activities.
Interest-earning deposits increased $13.7 million or 160.1% from $8.6
million at December 31, 1995 to $22.3 million at December 31, 1996. The increase
was primarily due to receipt of $14.8 million, a part of the proceeds from the
Offering. This was offset by a $1.1 million transfer of funds to cash and due
from banks.
Investment securities increased $47.9 million or 804.3% from $5.9
million at December 31, 1995 to $53.8 million at December 31, 1996. The increase
was primarily due to the $47.6 million purchase of investment securities using
proceeds from the Offering.
Loans receivable decreased $5.9 million or 2.2% from $267.2 million at
December 31, 1995 to $261.3 million at December 31, 1996. The decrease was
primarily due to loan repayments exceeding loan originations.
Office properties and equipment increased $747,000 or 11.0% from
$6,817,000 at December 31, 1995 to $7,564,000 at December 31, 1996. The increase
was primarily due to the cost for the new South Elgin branch office.
Savings deposits decreased $8.2 million or 3.1% from $260.0 million at
December 31, 1995 to $251.8 million at December 31, 1996. Savings deposits
decreased $4.7 million as a result of withdrawals directed by depositors for
purchase of stock in the Offering and $3.5 million as a result of market
conditions and the purchase of stock in the Offering by account holders that
paid with a check drawn on the Association.
Borrowed funds decreased $4.0 million from December 31, 1995 as a
result of all borrowed funds being repaid in 1996.
Stockholders' equity increased $63.2 million or 172.3% from $36.7
million at December 31, 1995 to $99.9 million at December 31, 1996. The increase
is primarily due to net proceeds from the conversion of $62.4 million. The
remainder of the increase was from operations for 1996. The book value per share
of common stock was $14.25 at December 31, 1996.
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
GENERAL. Net income for the year ended December 31, 1996 decreased $1.7
million or 72.8% from $2.4 million for the year ended December 31, 1995 to
$642,000 or $0.10 per share. The $1.7 million decrease was primarily due to an
increase of $3.1 million in noninterest expense, which was offset, in part, by
an increase of $104,000 in net interest income before provision for loan losses,
a decrease of $60,000 in provision for loan losses, an increase of $71,000 in
noninterest income and a decrease of $1.2 million in income tax expense. The
$3.1 million increase in noninterest expense was primarily due to an increase of
$1.2 million in compensation and benefits expense and an increase of $1.7
million in federal deposit insurance premiums. The $1.2 million increase in
compensation and benefits expense was primarily due to pension curtailment
expense of $837,000 resulting from the termination of the Association's pension
plan in connection with the conversion, expense of $189,000 as a result of the
adoption of the ESOP, and normal salary increases. The $1.7 million increase in
federal deposit insurance premiums was due to the one-time charge of $1.8
million resulting from the assessment to recapitalize the SAIF. The decrease in
income tax expense of $1.2 million was attributable to lower taxable income.
Home Bancorp's net income for the year ended December 31, 1996, excluding the
one-time after-tax charge of $1,077,000 for the recapitalization of the SAIF and
excluding the one-time after-tax charge of $512,000 for the curtailment of the
Association's pension plan, would have been $2,231,000 or $0.35 per share as
compared to net income of $2,364,000 for the year ended December 31, 1995.
INTEREST INCOME. Interest income increased $134,000 or 0.6% from $22.9
million for the year ended December 31, 1995 to $23.1 million for the year ended
December 31, 1996. The increase was due primarily to an increase in the average
balance of interest-earning assets of $15.1 million or 5.3% from $288.2 million
for the year ended December 31, 1995 to $303.3 million for the year ended
December 31, 1996. This increase was partially offset by a decrease in the
average yield on interest-earning assets of 36 basis points from 7.96% for the
year ended December 31, 1995 to 7.60% for the year ended December 31, 1996 and
the $5.1 million or 1.9% decrease in the average balance of real estate loans
from $269.3 million for the year ended December 31, 1995 to $264.2 million for
the year ended December 31, 1996. The increase in the average balance of
interest-earning assets was primarily due to receipt of the net proceeds from
the Offering which was partially offset by the decrease in the average balance
of interest-earning assets due to market conditions. The average rate on
interest-earning assets decreased primarily as a result of the rates on new loan
originations being lower than the rates on loans repaid, and lower average rates
on interest-earning deposits and investment securities for the year ended
December 31, 1996 compared to the year ended December 31, 1995. The decrease in
the average real estate loans was the result of competitive market conditions
and the decision by management not to offer loans at rates below market.
INTEREST EXPENSE. Interest expense increased $31,000 or 0.3% from
$10,850,000 for the year ended December 31, 1995 to $10,881,000 for the year
ended December 31, 1996. This increase was primarily due to the increase in the
average rate paid on interest-bearing liabilities of 14 basis points from 4.18%
for the year ended December 31, 1995 to 4.32% for the year ended December 31,
1996. This is due primarily to new certificates of deposit earning higher rates
of interest than maturing deposits. This increase was offset, in part, by a
decrease in the average balance of interest-bearing liabilities of $7.3 million
or 2.8% from $259.4 million for the year ended December 31, 1995 to $252.1
million for the year ended December 31, 1996. The decrease in average
interest-bearing liabilities was due to competitive market conditions and the
Association's decision not to offer above market interest rates on its savings
deposits.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest
income before provision for loan losses increased $104,000 or 0.9% from $12.1
million for the year ended December 31, 1995 to $12.2 million for the year ended
December 31, 1996. This was primarily due to the 9.2% increase in the ratio of
average interest-earning assets to average interest-bearing liabilities from
111.09% for the year ended December 31, 1995 to 120.29% for the year ended
December 31, 1996. This increase was offset, in part, by the 50 basis point
decrease in the average interest rate spread from 3.78% for the year ended
December 31, 1995 to 3.28% for the year ended December 31, 1996.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased
$60,000 or 33.3% from $180,000 for the year ended December 31, 1995 to $120,000
for the year ended December 31, 1996. Management determined
<PAGE>
that decreasing the provision for loan losses was appropriate in light of its
review of the Association's loan portfolio, asset quality, delinquent and
non-performing loans, the historically low loan loss experience and the national
and regional economies. Management also considered the fact that the Association
had a slightly smaller loan portfolio in the year ended December 31, 1996 as
compared to the year ended December 31, 1995. The ratio of the allowance for
loan losses to non-performing loans was 100.85% and 90.17% at December 31, 1996
and December 31, 1995, respectively, and the ratio of the allowance for loan
losses to total loans was 0.36% and 0.31% at such respective dates. Management
believes that the provision for loan losses and the allowance for loan losses
are reasonable and adequate to cover any known losses and any losses reasonably
expected in the existing loan portfolio. While management estimates loan losses
using the best available information, such as independent appraisals for
significant collateral properties, no assurance can be given that future
additions to the allowance will not be necessary based on changes in economic
and real estate market conditions, further information obtained regarding known
problem loans, identification of additional problem loans and other factors,
both within and outside of management's control.
NONINTEREST INCOME. Noninterest income increased $71,000 or 6.2% from
$1,150,000 for the year ended December 31, 1995 to $1,221,000 for the year ended
December 31, 1996. The increase was primarily due to an increase in service fee
income of $47,000 from $1,129,000 for the year ended December 31, 1995 to
$1,176,000 for the year ended December 31, 1996. The increase in service fee
income is due primarily to a change in the Association's ATM processors, which
resulted in service fee income and expenses being accounted for on a gross basis
as a part of both noninterest income and noninterest expense. In addition, in
1996 the Association sold real estate owned and realized a gain of $20,600.
There were no gains on sale of real estate owned in 1995.
NONINTEREST EXPENSE. Noninterest expense increased $3.1 million or
34.7% from $9.1 million for the year ended December 31, 1995 to $12.2 million
for the year ended December 31, 1996. The increase was primarily due to
increases in compensation and benefits expense, federal deposit insurance
premium expense, advertising and promotion expense, automated teller machine
expense and other expense. Compensation and benefits expense increased $1.3
million or 31.2% from $3.9 million for the year ended December 31, 1995 to $5.2
million for the year ended December 31, 1996. The $1.3 million increase was
primarily due to a one-time pension curtailment expense of $837,000 resulting
from the termination of the Association's pension plan in connection with the
conversion, additional expense of $189,000 as a result of the adoption of the
ESOP, and normal salary increases. The $1.7 million or 244.3% increase in
federal deposit insurance premiums was due to the one-time charge of $1.8
million resulting from the recently enacted assessment to recapitalize the SAIF.
Advertising and promotion expense increased $69,000 or 18.6% from $371,000 for
the year ended December 31, 1995 to $440,000 for the year ended December 31,
1996. The increase in advertising and promotion expense was primarily due to the
promotion expense associated with the grand opening of the newly relocated South
Elgin office. Automated teller machine expense increased $102,000 or 32.5% from
$314,000 for the year ended December 31, 1995 to $416,000 for the year ended
December 31, 1996. The increase was primarily due to a change in the
Association's ATM processors, which resulted in service fee income and expenses
being accounted for on a gross basis as a part of both noninterest income and
noninterest expense. Stationery, printing, and office supplies expense increased
$56,000 or 30.8% from $183,000 for the year ended December 31, 1995 to $240,000
for the year ended December 31, 1996. This increase was primarily due to the
relocation of the South Elgin office and the conversion. Other expense increased
$25,000 or 2.9% from $888,000 for the year ended December 31, 1995 to $913,000
for the year ended December 31, 1996. This increase was primarily due to a
one-time increase in insurance expense for additional coverage required in
connection with the conversion and increased real estate expense for repair of
real estate owned.
INCOME TAX EXPENSE. Income tax expense decreased $1.2 million or 74.1%
from $1.6 million for the year ended December 31, 1995 to $417,000 for the year
ended December 31, 1996. This was attributable to a decrease in income before
income taxes of $2.9 million. The effective tax rate for the year ended December
31, 1996 was 39.4% which was comparable to 40.5% for the year ended December 31,
1995.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are the Association's savings
deposits and principal and interest payments on loans and securities and, to a
limited extent, borrowings from the FHLB of Chicago. While maturities and
scheduled amortization of loans and securities provide an indication of the
timing of the receipt of funds, changes in interest rates, economic conditions
and competition strongly influence mortgage prepayment rates and savings deposit
flows, reducing the predictability of the timing of sources of funds. Cash flows
from the Company's operating activities amounted to $3.5 million, $1.5 million
and $1.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
The Association is required to maintain an average daily balance of
liquid assets as a percentage of net withdrawable savings deposit accounts plus
short-term borrowings, as defined by the regulations of the OTS. The minimum
required liquidity ratio is currently 4.0%. At December 31, 1997, 1996 and 1995,
the Association's liquidity ratio were 7.97%, 20.67% and 8.24%, respectively.
The decrease in the liquidity ratio for 1997 was primarily attributable to the
disbursement of funds for the increase in loans receivable. Management believes
it will have adequate resources to fund all commitments on a short-term and
long-term basis in accordance with its business strategy.
The primary investing activities of the Company are the origination of
mortgage and other loans and the purchase of U. S. government or U. S.
government agency securities. During the years ended December 31, 1997, 1996,
and 1995, the Company's disbursements for loan originations totalled $76.5
million, $36.3 million and $34.0 million, respectively. These activities were
funded primarily by net savings deposit inflows and principal repayments on
loans and securities. The Company had borrowings of $5.0 million and $4.0
million at December 31, 1997 and 1995, respectively. There were no borrowings
outstanding at December 31, 1996. Cash flows provided by investing activities
amounted to $17.4 million and $2.8 million for the years ended December 31, 1997
and 1995, respectively. Cash flows used in investing activities of the Company
amounted to $42.4 million for the year ended December 31, 1996.
For the years ended December 31, 1997, 1996 and 1995, the Company
experienced net decrease in savings deposits (including the effect of interest
credited) of $3.6 million, $8.2 million and $8.0 million, respectively. The
decreases in savings deposits were a result of competitive market conditions and
management's decision not to offer above-market interest rates on its savings
deposits. Management does not expect savings deposits to continue to decrease in
the future. In fact management expects some growth of deposits in the future
although no assurance can be given that such growth will occur. Steps that
management has taken to increase transaction accounts have included providing
drive-up lanes for the first time at the relocated South Elgin branch office
which opened in November 1996. In 1997, new services and products have been
implemented to give the Association's customers added convenience and value. See
"Management Strategy".
Cash flows used in financing activities amounted to $7.3 million and
$4.2 million for the years ended December 31, 1997 and 1995, respectively. Cash
flows provided by financing activities of the Company amounted to $50.3 million
for the year ended December 31, 1996. This was primarily from net proceeds of
$62.4 million from the Offering.
See the "Consolidated Statements of Cash Flows" in the Financial
Statements included in this Annual Report for the sources and uses of cash flows
for operating activities, investing activities and financing activities for each
of the years ended December 31, 1997, 1996 and 1995.
The Company has other sources of liquidity if a need for additional
funds arises, including the ability to obtain FHLB of Chicago advances of up to
$52 million based on the Association's current investment in FHLB of Chicago
stock.
At December 31, 1997, the Company had outstanding loan origination
commitments of $3.7 million, undisbursed loans in process of $914,000 and unused
lines of consumer credit of $255,000. The Company anticipates that it will have
sufficient funds available to meet its current origination and other lending
commitments.
<PAGE>
Certificates of deposit scheduled to mature in one year or less from December
31, 1997 totalled $71.6 million. Based upon the Company's most recent experience
and pricing strategy, management believes that a significant portion of such
deposits will remain with the Association.
At December 31, 1997, the Association exceeded all of its regulatory
capital requirements with a tangible capital level of $69.2 million, or 20.88%
of total assets, which is above the required level of $5.0 million or 1.50%;
core capital of $69.2 million, or 20.88% of total assets, which is above the
required level of $9.9 million or 3.00%; and total risk-based capital of $70.3
million, or 37.23% of risk-weighted assets, which is above the required level of
$15.1 million, or 8.00%.
YEAR 2000 PROBLEM
The "Year 2000 Problem" centers on the inability of computer systems to
recognize the Year 2000. Many existing computer programs and systems were
originally programmed with six digit dates that provided only two digits to
identify the calendar year in the date field, without considering the upcoming
change in the century. With the impending millennium, these programs and
computers will recognize "00" as the year 1900 rather than the year 2000. Like
most financial service providers, the Company and the Association may be
significantly affected by the Year 2000 Problem due to the nature of financial
information. Software, hardware and equipment both within and outside the
Company's direct control and with whom the Company electronically or
operationally interfaces (e.g., third party vendors providing data processing,
information system management, maintenance of computer systems and credit bureau
information) are likely to be affected. Furthermore, if computer systems are not
adequately changed to identify the Year 2000, many computer applications could
fail or create erroneous results. As a result, many calculations that rely on
the date field information, such as interest, payment or due dates and other
operating functions, may generate results that could be significantly misstated,
and the Company could experience a temporary inability to process transactions,
send statements or engage in similar normal business activities. In addition,
under certain circumstances, failure to adequately address the Year 2000 Problem
could adversely affect the creditworthiness of the Association's borrowers.
Thus, if not adequately addressed, the Year 2000 Problem could result in a
significant adverse impact on the Company's products, services and competitive
condition.
In order to address the Year 2000 issue and to minimize its potential
adverse impact, management has begun a process to identify areas that will be
affected by the Year 2000 Problem, assess its potential impact on the operations
of the Association, monitor the progress of third party software vendors in
addressing the matter, test changes provided by these vendors and develop
contingency plans for any critical systems that are not effectively
reprogrammed. The Company's plan is divided into these five phases: (1)
awareness; (2) assessment; (3) renovation; (4) validation; and (5)
implementation.
The Company has substantially completed the first two phases of the
plan and is currently working internally and with external vendors on the final
three phases. Because the Company outsources its data processing and item
processing operations, a significant component of the Year 2000 plan is working
with external vendors to test and certify their systems as Year 2000 compliant.
The Company's external vendors have surveyed its programs to inventory the
necessary changes and have begun correcting the applicable computer programs and
replacing equipment so that the Company's information systems will be Year 2000
compliant prior to June 30, 1998. This will enable the Company to devote
substantial time to the testing of the upgraded systems prior to the arrival of
the millennium. The Company expects to complete its timetable for carrying out
its plans to address year 2000 issues by June 30, 1998.
The Company presently believes that with modifications to existing
software and conversions to new software, the Year 2000 Problem will be
mitigated without causing a material adverse impact on the operations of the
Company. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Problem could have a material impact on the
operations of the Company.
In addition, monitoring and managing the year 2000 project will result
in additional direct and indirect costs to the Company and the Association.
Direct costs include potential charges by third party software vendors for
<PAGE>
product enhancements, costs involved in testing software products for year 2000
compliance and any resulting costs for developing and implementing contingency
plans for critical software products that are not enhanced. Indirect costs will
principally consist of the time devoted by existing employees in monitoring
software vendor progress, testing enhanced software products and implementing
any necessary contingency plans. The Company currently estimates that the
aggregate direct and indirect costs will not exceed $100,000 and does not
believe that such costs will have a material effect on its results of
operations. Both direct and indirect costs of addressing the Year 2000 Problem
will be charged to earnings as incurred. Such costs have not been material to
date.
The costs of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes and similar uncertainties. In
addition, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
IMPACT OF INFLATION AND CHANGING PRICES
The Company's Financial Statements and Notes thereto presented herein
have been prepared in accordance with General Accepted Accounting Principles
("GAAP"), which generally require the measurement of financial position and
operating results in terms of historical dollars without considering the changes
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the increased cost of the Company's operations.
Unlike industrial companies, nearly all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a greater
impact on the Company's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement 128, "Earnings Per Share." Statement 128 supersedes APB Opinion
No. 15, "Earnings Per Share," and specifies the computation, presentation, and
disclosure requirements for earnings per share ("EPS") for entities with
publicly held common stock or potential common stock. It replaces the
presentations of primary EPS with the presentation of basic EPS, and replaces
fully diluted EPS with diluted EPS.
Earnings per share of common stock for the year ended December 31, 1997
have been calculated according to the guidelines of Statement 128, and earnings
per share of common stock for the year ended December 31, 1996 have been
restated to conform with Statement 128. In this computation, net income was not
adjusted for the additional income which could have been earned had the net
proceeds from the offering been available for investment as of January 1, 1996.
Earnings per share information for 1995 cannot be computed because the Company
did not issue stock until September 26, 1996.
In June 1997, the FASB issued Statement 130, "Reporting Comprehensive
Income." Statement 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of general purpose
financial statements. Statement 130 is effective for both interim and annual
periods beginning after December 15, 1997, and is not expected to have a
material impact on the consolidated financial statements.
In June 1997, the FASB issued Statement 131, "Disclosures about
Segments of an Enterprise and Related Information." Statement 131 establishes
standards for the way public business enterprises are to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information
<PAGE>
about operating segments in interim financial reports issued to shareholders.
Statement 131 is effective for financial periods beginning after
December 15, 1997, and is not expected to have a material impact on the Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The OTS requires all regulated thrift institutions to calculate the
estimated change in the institution's net portfolio value ("NPV") assuming
instantaneous, parallel shifts in the Treasury yield curve of 100 to 400 basis
points either up or down in 100 basis point increments. The NPV is defined as
the present value of expected cash flows from existing assets less the present
value of expected cash flows from existing liabilities plus the present value of
net expected cash inflows from existing off-balance sheet contracts.
The OTS provides all institutions that file a schedule entitled the
Consolidated Maturity/Rate schedule ("CMR") as a part of their quarterly Thrift
Financial Report with an interest rate sensitivity report of NPV. The OTS
simulation model uses a discounted cash flow analysis and an option-based
pricing approach to measuring the interest rate sensitivity of NPV. The OTS
model estimates the economic value of each type of asset, liability, and
off-balance sheet contract under the assumption that the Treasury yield curve
shifts instantaneously and parallel up and down 100 to 400 basis points in 100
basis point increments. The OTS allows thrifts with under $500 million in total
assets to use the results of the OTS' interest rate sensitivity model, which is
based on information provided by the institution, to estimate the sensitivity of
NPV. Since the Association had less than $500 million in total assets at
December 31, 1997, the results discussed in this section were provided by the
OTS analysis.
The OTS model utilizes an option-based pricing approach to estimate the
sensitivity of mortgage loans. The most significant embedded option in these
types of assets is the prepayment option of the borrowers. The OTS model uses
various price indications and prepayment assumptions to estimate sensitivity of
mortgage loans.
In the OTS model the value of deposit accounts appears on the asset and
liability side of the NPV analysis. In estimating the value of certificates of
deposit (the "CD") account, the liability portion of the CD is represented by
the implied value when comparing the difference between the CD face rate and
available wholesale CD rates. On the asset side of the NPV calculation, the
value of the "customer relationship" due to the rollover of retail CD deposits
represents an intangible asset in the NPV calculation.
Other deposit accounts such as transaction accounts, money market
deposit accounts, passbook accounts, and noninterest bearing accounts also are
included on the asset and liability side of the NPV calculation in the OTS
model. The accounts are valued at 100% of the respective account balances on the
liability side. On the assets side of the analysis, the value of the "customer
relationship" of the various types of deposit accounts is reflected as a deposit
intangible.
The NPV sensitivity of borrowed funds is estimated by the OTS model
based on a discounted cash flow approach. The cash flows are assumed to consist
of monthly interest payments with principal paid at maturity.
The OTS model is based only on the Association's balance sheet. The
assets and liabilities at the Parent Company level are short-term in nature,
primarily cash and equivalents, and were not considered in the analysis, because
they would not have a material effect on the analysis of NPV sensitivity. See
also "Management of Interest Rate Risk" for a discussion of the Company's
strategy in managing its exposure to interest rate risks. The following table
sets forth the Association's interest rate sensitivity of NPV as of December 31,
1997.
<PAGE>
<TABLE>
<CAPTION>
Net Portfolio Value as a %
Net Portfolio Value of Present Value of Assets
-------------------------------------- --------------------------
Changes in Percent
Interest Rates Amount Change Change NPV Ratio Change
-------------- ------ ------ ------ --------- ------
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
+400 bp* $ 53,775 $ -27,005 -33% 17.38% -618 bp*
+300 60,769 -20,011 -25 19.12 -444
+200 67,938 -12,842 -16 20.80 -276
+100 74,913 -5,868 -7 22.34 -122
0 80,780 23.56
-100 84,316 +3,535 +4 24.21 +65
-200 84,747 +3,966 +5 24.17 +61
-300 85,231 +4,450 +6 24.13 +57
-400 87,200 +6,420 +8 24.41 +85
*basis points
</TABLE>
<PAGE>
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Home Bancorp of Elgin, Inc.'s common stock is traded on the Nasdaq National
Market and is listed under the symbol "HBEI." As of December 31, 1997, there
were 6,855,799 shares of common stock outstanding, which were held by
approximately 968 stockholders of record. On December 31, 1997, the last trading
date of 1997, the Company's common stock closed at $17.875 per share. The price
range of the common stock and dividends declared on the common stock from
September 26, 1996 to December 31, 1997 was as follows:
<TABLE>
<CAPTION>
Price Range Cash Dividend
------------------- Declared
High Low Per Share
---- --- ---------
<S> <C> <C> <C>
For the fiscal year ended December 31, 1996:
Third Quarter (9/26/96 - 9/30/96) .................. $12.125 $11.25 --
Fourth Quarter ..................................... 13.50 11.75 --
For the fiscal year ended December 31, 1997:
First Quarter ...................................... $15.75 $12.875 --
Second Quarter ..................................... 16.50 14.125 $ 0.10
Third Quarter ...................................... 19.50 16.125 0.10
Fourth Quarter ..................................... 18.75 15.875 0.10
</TABLE>
The Board of Directors declared 3 quarterly dividends on the Common Stock
of $0.10 per share each, which totaled $0.30 per share for the fiscal year ended
December 31, 1997. In the future, declarations of dividends by the Board of
Directors, if any, will depend upon a number of factors, including, investment
opportunities available to the Company or the Association, capital requirements,
regulatory limitations, the Company's and the Association's financial condition,
results of operations, tax considerations, general economic conditions, industry
standards and other factors. No assurances can be given, however, that any
dividends will continue to be paid.
As the principal asset of the Company, the Association will provide the
principal source of funds for payment of dividends by the Company. The
Association will not be permitted to pay dividends on its capital stock if,
among other things, its stockholders' equity would be reduced below the amount
required for the liquidation account established by the Association in
connection with the conversion. Regulations of the Office of Thrift Supervision
may limit the Association's ability to make capital distributions including
payment of dividends to the Company.
Unlike the Association, the Company is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders, although the
source of such dividends may be dependent, in part, upon dividends from the
Association. The Company is subject, however, to the requirements of Delaware
law, which generally limit dividends to an amount equal to the excess of the net
assets of the Company (the amount by which total assets exceed total
liabilities) over its statutory capital, or if there is no such excess, to its
net profits for the current and/or immediately preceding fiscal year.
<PAGE>
HOME BANCORP OF ELGIN, INC.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page(s)
-------
Independent Auditors' Report............................................... 1
Consolidated Financial Statements:
Balance Sheets as of December 31, 1997 and 1996....................... 2
Statements of Earnings for the years ended December 31, 1997,
1996, and 1995..................................................... 3
Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996, and 1995.................................. 4
Statements of Cash Flows for the years ended December 31, 1997,
1996, and 1995..................................................... 5
Notes to Consolidated Financial Statements ........................... 6-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Home Bancorp of Elgin, Inc.
Elgin, Illinois:
We have audited the accompanying consolidated balance sheets of Home Bancorp of
Elgin, Inc. and subsidiary (the Company) as of December 31, 1997 and 1996, and
the related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Home Bancorp of
Elgin, Inc. and subsidiary as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
January 26, 1998
1
<PAGE>
HOME BANCORP OF ELGIN, INC.
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
ASSETS 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 6,852,441 5,661,507
Interest-earning deposits 34,708,634 22,341,178
Investment securities held to maturity (note 2) - 53,785,506
Loans receivable, net (note 3) 298,660,986 261,305,887
Government National Mortgage Association
mortgage-backed securities held to maturity 91,546 142,028
Accrued interest receivable (note 4) 1,436,775 1,701,337
Real estate owned and in judgment, at lower of cost or fair value (net of
allowance for losses of $20,000 at
December 31, 1997 and 1996) 285,602 549,550
Federal Home Loan Bank of Chicago stock, at cost 2,606,000 2,678,000
Office properties and equipment, net (note 5) 7,113,124 7,564,243
Prepaid expenses and other assets 839,751 605,752
- -----------------------------------------------------------------------------------------------------------------------
$ 352,594,859 356,334,988
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
Savings deposits (note 6) 248,217,361 251,794,846
Borrowed funds (note 7) 5,000,000 -
Advance payments by borrowers for taxes and
insurance 2,285,319 2,012,440
Accrued interest payable and other liabilities 1,877,195 2,646,853
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 257,379,875 256,454,139
Stockholders' equity:
Preferred stock, $.01 par value, 3,000,000 shares
authorized; none outstanding - -
Common stock, $.01 par value; 12,000,000 shares authorized,
7,009,250 shares issued; 6,855,799 and 7,009,250 shares
outstanding at December 31, 1997 and 1996, respectively 70,093 70,093
Additional paid-in capital 68,324,277 67,953,355
Retained earnings, substantially restricted 38,095,172 37,324,616
Treasury stock, at cost (153,451 shares) (2,469,602) -
Common stock acquired by Recognition and Retention Plan (3,898,481) -
Common stock acquired by Employee Stock Ownership Plan (4,906,475) (5,467,215)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 95,214,984 99,880,849
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 352,594,859 356,334,988
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
HOME BANCORP OF ELGIN, INC.
Consolidated Statements of Earnings
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans secured by real estate $ 21,670,728 20,935,854 21,719,506
Other loans 60,017 55,990 60,009
Mortgage-backed securities held to maturity 8,368 11,323 15,131
Investment securities held to maturity 1,643,418 780,480 360,000
Interest-earning deposits 1,467,561 1,089,273 568,537
Federal Home Loan Bank of Chicago stock 178,865 186,538 201,817
- -------------------------------------------------------------------------------------------------------------------------
25,028,957 23,059,458 22,925,000
- -------------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings deposits 10,375,699 10,843,847 10,773,428
Borrowed funds 173,807 37,261 76,961
- -------------------------------------------------------------------------------------------------------------------------
10,549,506 10,881,108 10,850,389
- -------------------------------------------------------------------------------------------------------------------------
Net interest income before provision for loan losses 14,479,451 12,178,350 12,074,611
Provision for loan losses 120,000 120,000 180,000
- -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 14,359,451 12,058,350 11,894,611
- -------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Service fee income 1,002,357 1,176,021 1,129,082
Gain on sale of real estate owned 78,560 20,647 -
Gain on sale of office properties and equipment - 1,216 -
Other income 207,363 23,228 21,073
- -------------------------------------------------------------------------------------------------------------------------
1,288,280 1,221,112 1,150,155
- -------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Compensation and benefits 5,537,418 5,156,608 3,931,277
Occupancy expense 1,607,816 1,556,536 1,607,595
Federal deposit insurance premiums 216,235 2,441,413 709,346
Advertising and promotion 440,100 440,496 371,421
Automatic teller machine 415,798 416,257 313,886
Professional services 459,078 110,921 114,887
Stationery, printing, and office supplies 298,065 239,518 183,106
Data processing 915,696 945,888 949,789
Other 1,112,705 913,039 887,546
- -------------------------------------------------------------------------------------------------------------------------
11,002,911 12,220,676 9,068,853
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,644,820 1,058,786 3,975,913
Income tax expense 1,802,179 417,166 1,611,896
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 2,842,641 641,620 2,364,017
- -------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ .45 .10 N/A
Diluted .44 .10 N/A
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HOME BANCORP OF ELGIN, INC.
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Common Common
Additional stock stock
Preferred Common paid-in Retained Treasury acquired acquired
stock stock capital earnings stock by RRP by ESOP Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ - - - 34,318,979 - - - 34,318,979
Net income - - - 2,364,017 - - - 2,364,017
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 - - - 36,682,996 - - - 36,682,996
Net income - - - 641,620 - - - 641,620
Net proceeds of common stock issued - 70,093 67,904,289 - - - (5,607,400) 62,366,982
Cost of ESOP shares released - - - - - - 140,185 140,185
Market adjustment for committed
ESOP shares - - 49,066 - - - - 49,066
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 - 70,093 67,953,355 37,324,616 - - (5,467,215) 99,880,849
Net income - - - 2,842,641 - - - 2,842,641
Purchase of treasury stock
(153,451 shares) - - - - (2,469,602) - - (2,469,602)
Cash dividends ($.10 per share) - - - (2,072,085) - - - (2,072,085)
Purchase of RRP stock - - - - - (4,498,248) - (4,498,248)
Amortization of award of RRP stock - - - - - 599,767 - 599,767
Cost of ESOP shares released - - - - - - 560,740 560,740
Market adjustment for committed
ESOP shares - - 370,922 - - - - 370,922
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ - 70,093 68,324,277 38,095,172 (2,469,602) (3,898,481) (4,906,475) 95,214,984
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HOME BANCORP OF ELGIN, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,842,641 641,620 2,364,017
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 653,127 609,529 740,415
Provision for deferred income taxes (92,006) 119,014 169,984
Provision for possible loan losses 120,000 120,000 180,000
Accretion of discounts, net (588,933) (265,324) (30,278)
Market adjustment for committed ESOP shares 370,922 49,066 -
Cost of ESOP shares released 560,740 140,185 -
Cost of Recognition and Retention Plan 599,767 - -
Decrease in deferred loan fees (211,975) (373,787) (513,104)
Gain on sale of real estate owned (78,560) (20,647) -
Gain on sale of office properties and equipment - (1,216) -
Federal Home Loan Bank of Chicago stock dividend - - (46,300)
Decrease (increase) in accrued interest receivable 264,562 (217,422) (213,374)
Decrease (increase) in prepaid expenses and other assets, net (233,999) 164,695 (101,037)
Increase (decrease) in accrued interest payable
and other liabilities, net (677,652) 522,038 (810,719)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,528,634 1,487,751 1,739,604
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net decrease (increase) in loans receivable (37,281,436) 6,068,328 4,238,149
Repayment of mortgage-backed securities held to maturity 50,947 44,261 56,579
Purchase of investment securities held to maturity - (47,572,435) -
Maturity of investment securities held to maturity 54,373,974 - -
Purchase of office properties and equipment (202,008) (1,356,484) (1,483,769)
Proceeds from sale of real estate owned 360,820 - -
Proceeds from the sale of office properties and equipment - 1,216 -
Redemption of stock in the Federal Home
Loan Bank of Chicago 72,000 378,200 -
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 17,374,297 (42,436,914) 2,810,959
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in Federal Home Loan Bank of Chicago advances 5,000,000 (4,000,000) 4,000,000
Net proceeds from sale of stock - 62,366,982 -
Purchase of RRP stock (4,498,248) - -
Purchase of Treasury stock (2,469,602) - -
Dividends paid on common stock (2,072,085)
Decrease in savings deposits (3,577,485) (8,176,950) (7,966,235)
Net increase (decrease) in advance payments by borrowers
for taxes and insurance 272,879 152,589 (192,747)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (7,344,541) 50,342,621 (4,158,982)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 13,558,390 9,393,458 391,581
Cash and cash equivalents at beginning of year 28,002,685 18,609,227 18,217,646
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 41,561,075 28,002,685 18,609,227
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 10,511,944 10,922,792 10,810,205
Income taxes 1,185,789 550,000 1,298,000
Noncash transfer of loans receivable to real estate owned and
in judgment, net 100,000 220,652 194,218
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Home Bancorp of Elgin, Inc. and subsidiary (the Company) prepares its
financial statements on the basis of generally accepted accounting
principles. The following is a description of the more significant of
those policies which the Company follows in preparing and presenting its
financial statements.
REORGANIZATION TO A STOCK CORPORATION
On April 18, 1996, the Board of Directors of Home Federal Savings and
Loan Association of Elgin (the Association) adopted a plan of conversion
(which was amended on June 6, 1996) pursuant to which the Association
converted from a federally chartered mutual savings and loan association
to a federally chartered stock savings and loan association with the
concurrent formation of the Company. On September 26, 1996, the Company
sold 7,009,250 shares of common stock at $10.00 per share in a
subscription offering. Total net proceeds, after reflecting conversion
expenses of approximately $2,100,000 and including the sale of common
stock to the ESOP, were approximately $68,000,000 and are reflected as
common stock and additional paid-in capital on the accompanying
consolidated balance sheet. The Company utilized $28,300,000 of the net
proceeds to acquire all of the issued and outstanding capital stock of
the Association.
As part of the conversion, the Association established a liquidation
account for the benefit of eligible depositors as of the eligibility
date, who continue to maintain deposits in the Association following the
conversion. The balance in this account decreases each year in which
deposit balances of eligible account holders decline. In the unlikely
event of a complete liquidation of the Association, each eligible
depositor who has continued to maintain deposits in the Association
following the conversion will be entitled to receive a liquidation
distribution from the liquidation account, based on his or her
proportionate share of the then total remaining qualifying deposits,
prior to any distribution to Home Bancorp of Elgin, Inc. as the sole
shareholder of the Association. Dividends cannot be paid from retained
earnings allocated to the liquidation account.
Prior to the stock conversion, the Company had not issued any stock, had
no assets or liabilities, and had not engaged in any business activities
other than of an organizational nature. Accordingly, operating
activities prior to September 26, 1996 reflect the operations of the
Association only.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Home
Bancorp of Elgin, Inc. and its wholly owned subsidiary, Home Federal
Savings and Loan Association of Elgin. All significant intercompany
balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from these
estimates.
PENDING ACCOUNTING CHANGES
Statement 130, "Reporting Comprehensive Income," establishes standards
for reporting and presentation of comprehensive income and its
components in a full set of general-purpose financial statements.
Statement 130 is effective for both interim and annual periods beginning
after December 15, 1997 and is not expected to have a material impact on
the consolidated financial statements.
6
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Statement 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way public business
enterprises are to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued
to shareholders. Statement 131 is effective for financial periods
beginning after December 15, 1997 and is not expected to have a material
impact on the Company.
INVESTMENT SECURITIES
Investment securities which the Company has the positive intent and
ability to hold to maturity are classified as held to maturity and
recorded at amortized cost. Investments purchased for the purpose of
being sold are classified as trading securities and recorded at fair
value with any changes in fair value included in earnings. All other
investments that are not classified as held to maturity or trading are
classified as available for sale. Investments available for sale are
recorded at fair value with any changes in fair value reflected as a
separate component of stockholders' equity, net of related tax effects.
Gains and losses on the sale of securities are determined using the
specific identification method.
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances less loans in
process, deferred loan fees, and allowance for loan losses. Interest
income is accrued as earned based upon the principal balance
outstanding.
The allowance for loan losses is increased by charges to operations and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Company's
past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral, and current and
prospective economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Company's allowance. Such agencies may require the Company to
recognize additions to the allowance based on their judgments about
information available to them at the time of their examination. In the
opinion of management, the allowance is adequate to absorb foreseeable
losses. Interest income is not recognized on loans which are 90 days or
greater delinquent or on loans which management believes the interest is
uncollectible.
Certain nonrefundable loan fees and direct costs of loan origination are
deferred at the time a loan is originated. Net deferred loan fees are
recognized as yield adjustments over the contractual life of the loan
using the interest method.
The Company follows Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," (Statement 114) and
Statement 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition Disclosures" (Statement 118). Statement 114 requires
that impaired loans be measured at the present value of expected future
cash flows discounted at the loan's effective interest rate, or, as a
practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral-dependent. Statement
118 eliminates the provisions in Statement 114 that describe how a
creditor should report interest income on an impaired loan, and allows a
creditor to use existing methods to recognize and measure interest
income on an impaired loan. Homogeneous loans that are collectively
evaluated for impairment, including real estate mortgage loans and
consumer loans, are excluded from the provisions of Statement 114.
7
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
Compensation expense under the ESOP is equal to the fair value of common
shares released or committed to be released annually to participants in
the ESOP. Common stock purchased by the ESOP and not committed to be
released to participants is included in the consolidated balance sheet
at cost as a reduction of stockholders' equity.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of office properties and equipment are
computed using the straight-line method over the estimated useful lives
of the related assets. Estimated useful lives used in calculating
depreciation and amortization expense range from 3 years to 50 years.
INCOME TAXES
Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
EARNINGS PER SHARE
In February 1997, the FASB issued Statement 128, "Earnings Per Share."
Statement 128 supersedes APB Opinion No. 15, "Earnings Per Share," and
specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock or
potential common stock. It replaces the presentations of primary EPS
with the presentation of basic EPS, and replaces fully diluted EPS with
diluted EPS.
Earnings per share of common stock for the year ended December 31, 1997
have been calculated according to the guidelines of Statement 128, and
earnings per share of common stock for the year ended December 31, 1996
have been restated to conform with Statement 128. In this computation,
net income was not adjusted for the additional income which could have
been earned had the net proceeds from the offering been available for
investment as of January 1, 1996. Earnings per share information for
1995 cannot be computed because the Company did not issue stock until
September 26, 1996.
8
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The components of basic and diluted earnings per share are as follows:
- --------------------------------------------------------------------------------
Year ended
December 31,
----------------------------
1997 1996
- --------------------------------------------------------------------------------
Basic:
Net income $ 2,842,641 641,620
Weighted average common
shares outstanding 6,382,052 6,448,655
- --------------------------------------------------------------------------------
Basic earnings per share $ .45 .10
- ------------------------------------------------------------------------------
Diluted:
Net income 2,842,641 641,620
Weighted average common
shares outstanding 6,382,052 6,448,655
Stock options 51,284 -
- ------------------------------------------------------------------------------
Diluted weighted average common
shares outstanding 6,433,336 6,448,655
- ------------------------------------------------------------------------------
Diluted earnings per share $ .44 .10
- ------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks and interest-earning deposits.
(2) INVESTMENT SECURITIES HELD TO MATURITY
The amortized cost and estimated fair value of investment securities
held to maturity at December 31, 1996 is summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Government and
agency obligations $ 53,785,506 11,564 - 53,797,070
- -------------------------------------------------------------------------------------------------------
There were no sales of investment securities held to maturity in 1997,
1996, or 1995.
</TABLE>
9
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(3) Loans Receivable
A comparative summary of loans receivable follows:
- -------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------
Mortgage loans:
One to four-family $ 296,769,340 259,784,613
Multifamily 2,393,527 2,628,060
Construction and land 1,265,095 750,011
Commercial 754,986 815,027
- -------------------------------------------------------------------------------
Total mortgage loans 301,182,948 263,977,711
- -------------------------------------------------------------------------------
Other loans:
Passbook savings 679,366 573,450
Consumer installment loans 81,548 87,790
- -------------------------------------------------------------------------------
Total other loans 760,914 661,240
- -------------------------------------------------------------------------------
Gross loans receivable 301,943,862 264,638,951
Less:
Loans in process (914,463) (871,918)
Deferred loan fees (1,304,372) (1,516,347)
Allowance for loan losses (1,064,041) (944,799)
- -------------------------------------------------------------------------------
$ 298,660,986 261,305,887
- -------------------------------------------------------------------------------
Activity in the allowance for loan losses is summarized as follows for
the years ended December 31:
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Balance at beginning of year $ 944,799 825,711 649,357
Provision for loan losses 120,000 120,000 180,000
Charge-offs (758) (912) (3,646)
- --------------------------------------------------------------------------------
$ 1,064,041 944,799 825,711
- --------------------------------------------------------------------------------
Loans receivable delinquent three months or more at December 31 are as
follows:
- -------------------------------------------------------------------------------
Percentage of
Number gross loans
of loans Amount receivable
- -------------------------------------------------------------------------------
1997 14 $ 962,811 0.32%
1996 14 936,842 0.36
1995 17 915,472 0.34
- -------------------------------------------------------------------------------
10
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The Company discontinues recognizing interest on loans 90 days and
greater delinquent and on loans where collection of interest is
doubtful. The reduction in interest income associated with loans 90 days
and greater delinquent, based on their original contractual terms, was
approximately $55,000, $68,000, and $36,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
No loans were identified as impaired under the provisions of Statement
114 by the Company at or during the years ended December 31, 1997 and
1996.
(4) Accrued Interest Receivable
Accrued interest receivable is summarized as follows:
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
Loans receivable $ 1,468,100 1,310,132
Mortgage-backed securities held to maturity 564 881
Investment securities held to maturity - 435,149
Interest-earning deposits 9,700 -
FHLB of Chicago stock 45,980 47,121
Reserve for uncollected interest (87,569) (91,946)
- --------------------------------------------------------------------------------
$ 1,436,775 1,701,337
- --------------------------------------------------------------------------------
(5) Office Properties and Equipment
A comparative summary of office properties and equipment follows:
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
Land $ 1,668,985 1,667,515
Office buildings 5,702,264 5,646,704
Office building improvements 1,689,753 1,689,753
Parking lot improvements 364,921 364,921
Furniture, fixtures, and equipment 5,826,622 5,693,385
Automobiles 151,632 152,551
- --------------------------------------------------------------------------------
15,404,177 15,214,829
Less accumulated depreciation and amortization 8,291,053 7,650,586
- --------------------------------------------------------------------------------
$ 7,113,124 7,564,243
- --------------------------------------------------------------------------------
Depreciation and amortization expense was $653,127, $609,529 and
$740,415 for the years ended December 31, 1997, 1996, and 1995,
respectively.
11
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
(6) Savings Deposits
Savings deposits are summarized as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Stated or weighted
average interest rate 1997 1996
--------------------- -------------------- ---------------------
1997 1996 Amount Percent Amount Percent
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NOW/Super NOW accounts 2.25% 2.25 $ 42,716,106 17.2% $ 42,800,521 17.0%
Money market accounts 3.22 3.22 16,678,291 6.7 16,762,715 6.7
Passbook accounts 3.00 3.00 60,879,714 24.5 62,170,750 24.7
Noninterest-bearing
NOW accounts - - 6,035,400 2.5 4,868,813 1.9
- ----------------------------------------------------------------------------------------------------------------------------
126,309,511 50.9 126,602,799 50.3
- ----------------------------------------------------------------------------------------------------------------------------
Certificate accounts 5.84 5.79 121,907,850 49.1 125,192,047 49.7
- ----------------------------------------------------------------------------------------------------------------------------
4.21% 4.22 $ 248,217,361 100.0% $ 251,794,846 100.0%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 1996
-------------------- ---------------------
Amount Percent Amount Percent
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contractual maturity of certificate accounts:
Under 12 months $ 71,630,311 58.8% $ 73,110,643 58.4%
12 months to 36 months 36,557,895 30.0 28,164,669 22.5
Over 36 months 13,719,644 11.2 23,916,735 19.1
- ----------------------------------------------------------------------------------------------------------------------------
$ 121,907,850 100.0% $ 125,192,047 100.0%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate amount of savings deposits greater than $100,000 was
approximately $22,276,000 and $21,284,000 at December 31, 1997 and 1996,
respectively.
Interest expense on savings deposits is summarized as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NOW/Super NOW accounts $ 897,486 905,686 979,694
Money market accounts 526,594 556,368 565,157
Passbook accounts 1,903,320 2,016,972 2,137,021
Certificate accounts 7,048,299 7,364,821 7,091,556
- ----------------------------------------------------------------------------------------------------------------------------
$ 10,375,699 10,843,847 10,773,428
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(7) Borrowed Funds
At December 31, 1997, borrowed funds consisted of advances from the
Federal Home Loan Bank of Chicago in the amount of $5,000,000 which were
due on demand under an open line of credit. The interest rate on the
advances at December 31, 1997 was 6.92%. The Company has a collateral
pledge agreement whereby it agrees to keep on hand, free of all other
pledges, loans, and encumbrances, performing loans with unpaid principal
balances aggregating no less than 167% of the outstanding secured
advances. All stock in the Federal Home Loan Bank of Chicago and all
mortgage-backed securities are also pledged as additional collateral for
advances. There were no borrowed funds at December 31, 1996.
(8) Regulatory Matters
The Association is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Association must meet
specific capital guidelines that involve quantitative measures of the
entity's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Association's
capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Association to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier 1 capital to
risk-weighted assets, of Tier 1 capital to total assets, and of tangible
capital to average assets. As of December 31, 1997 and 1996, the
Association met the capital adequacy requirements to which it is
subject. There are no conditions or events since year end that
management believes would affect the Association.
The most recent notification from the federal banking agencies on
February 14, 1996, categorized the Association as well capitalized under
the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that have changed the
Association's category.
13
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
The following table summarizes the Company's and the Association's actual capital and required capital at December
31, 1997 and 1996 (dollars in thousands):
- --------------------------------------------------------------------------------------------------------------------------
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes action
----------------- --------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997:
Total capital (to risk-weighted assets):
Consolidated $ 96,279 50.13% $ N/A N/A $ N/A N/A
Home Federal Savings and
Loan Association 70,272 37.23 15,100 8.00% 18,874 10.00%
- ---------------------------------------------------------------------------------------------------------------------------
Tier 1 capital (to risk-weighted assets):
Consolidated 95,215 49.34 N/A N/A N/A N/A
Home Federal Savings and
Loan Association 69,208 36.67 N/A N/A 11,324 6.00
- ---------------------------------------------------------------------------------------------------------------------------
Tier 1 capital (to total assets):
Consolidated 95,215 27.00 N/A N/A N/A N/A
Home Federal Savings and
Loan Association 69,208 20.88 9,946 3.00 16,663 5.00
- ---------------------------------------------------------------------------------------------------------------------------
Tangible capital:
Consolidated 95,215 27.00 N/A N/A N/A N/A
Home Federal Savings and
Loan Association 69,208 20.88 4,973 1.50 N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes action
----------------- --------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996:
Total capital (to risk-weighted assets):
Consolidated $ 100,826 61.90% $ N/A N/A $ N/A N/A
Home Federal Savings and
Loan Association 66,586 41.09 12,964 8.00% 16,205 10.00%
- ---------------------------------------------------------------------------------------------------------------------------
Tier 1 capital (to risk-weighted assets):
Consolidated 99,881 61.32 N/A N/A N/A N/A
Home Federal Savings and
Loan Association 65,641 40.51 N/A N/A 9,722 6.00
- ---------------------------------------------------------------------------------------------------------------------------
Tier 1 capital (to total assets):
Consolidated 99,881 28.03 N/A N/A N/A N/A
Home Federal Savings and
Loan Association 65,641 20.05 9,824 3.00 16,373 5.00
- ---------------------------------------------------------------------------------------------------------------------------
Tangible capital:
Consolidated 99,881 28.03 N/A N/A N/A N/A
Home Federal Savings and
Loan Association 65,641 20.05 4,912 1.50 N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(9) Income Taxes
Income tax expense is summarized as follows for the years ended December
31:
- --------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------
Current:
Federal $ 1,632,187 264,908 1,131,782
State 261,998 33,244 310,130
- --------------------------------------------------------------------------
1,894,185 298,152 1,441,912
- --------------------------------------------------------------------------
Deferred:
Federal (74,953) 96,956 138,478
State (17,053) 22,058 31,506
- --------------------------------------------------------------------------
(92,006) 119,014 169,984
- --------------------------------------------------------------------------
$ 1,802,179 417,166 1,611,896
- --------------------------------------------------------------------------
15
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
The reasons for the difference between the effective tax rate and the corporate Federal income tax rate
are summarized as follows:
- ---------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 34.0% 34.0 34.0
Items affecting Federal income tax rate:
State income taxes, net of Federal income tax benefit 3.5 3.4 5.9
Tax expense on recomputed base year tax reserve - - -
Other, net 1.3 2.0 .6
- ---------------------------------------------------------------------------------------------------------------
Effective income tax rate 38.8% 39.4 40.5
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The tax effects of temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities are presented below.
- ---------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Deferred loan fees $ 494,829 659,771
General allowance for losses on loans 463,701 430,246
Future benefit state tax expense 54,413 65,322
Recognition retention plan 246,983 -
- ---------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 1,259,926 1,155,339
- ---------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Excess of tax bad debt reserve over base year amount 1,848,099 1,847,791
Dividends received in stock, not recognized for tax purposes 164,429 168,959
Depreciation 191,974 175,171
- ---------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 2,204,502 2,191,921
- ---------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $ 944,576 1,036,582
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
No valuation allowance for deferred tax assets at December 31, 1997 and
1996 has been recorded, as the Company believes it is more likely than
not that the deferred tax assets will be realized in the future.
Retained earnings at December 31, 1997 and 1996 include $4,798,000 for
which no provision for Federal income tax has been made. These amounts
represent allocations of income to bad debt deductions for tax purposes
only. Reduction of amounts so allocated for purposes other than tax bad
debt losses will create income for tax purposes only, which will be
subject to the then-current corporate income tax rate.
16
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(10) Officer, Director, and Employee Benefit Plans
Employee Stock Ownership Plan (ESOP)
In conjunction with the Association's conversion, the Association formed
an ESOP. The ESOP covers substantially all employees that are age 21 or
over and with at least 1,000 hours of service. The ESOP borrowed
$5,607,400 from the Company and purchased 560,740 common shares issued
in the conversion. The Association has committed to make discretionary
contributions to the ESOP sufficient to service the requirements of the
loan over a period of 10 years. During the years ended December 31, 1997
and 1996, 56,074 and 14,018 shares were allocated. ESOP expense
recognized for the years ended December 31, 1997 and 1996 was $932,000
and $189,000.
Stock Option Plan
On April 17, 1997, the Company's stockholders approved the Company's
adoption of a stock option plan (the Plan) pursuant to which the
Company's Board of Directors may grant stock options to directors,
officers, and employees of the Company and the Association. The number
of shares of common stock authorized under the Plan is 700,925, equal to
10% of the total number of shares issued in the Company's initial stock
offering. Substantially all options were granted in 1997. Options vest
at a rate of 20% per year. The exercise price is equal to the fair
market value of the common stock at the date of grant, and the option
term cannot exceed 10 years.
A summary of the status of the Company's stock option transactions under
the Plan for the year ended December 31, 1997 is presented below:
- --------------------------------------------------------------------------------
Weighted
average
Shares exercise price
- --------------------------------------------------------------------------------
Options outstanding at December 31, 1996 - $ -
Options granted 700,921 14.81
Options exercised - -
- -------------------------------------------------------------------------------
Options outstanding at December 31, 1997 700,921 14.81
- -------------------------------------------------------------------------------
Exercisable at year end - -
- -------------------------------------------------------------------------------
Weighted-average grant date fair value
of options granted during the year $ 3.03
- -------------------------------------------------------------------------------
As of December 31, 1997, the Company adopted the disclosure provisions
of Financial Accounting Standards Board Statement No. 123, "Accounting
for Stock-Based Compensation" (Statement 123). The per share
weighted-average fair value of stock options granted during 1997 was
$3.03, on the date of grant using the Black Scholes options pricing
model with the following weighted-average assumptions as of December 31,
1997: an expected dividend yield of 2.2%, expected volatility of 14.3%,
risk-free interest rate of 6.3%, and an expected life of five years.
17
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Under Statement 123, the Company is required to disclose pro forma net
income and earnings per share for 1997 as if compensation expense
relative to the fair value of options granted had been included in
earnings. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under Statement 123, the
Company's net income would have been reduced to the pro forma amounts
indicated below:
- --------------------------------------------------------------------------------
Net income:
As reported $ 2,843
Pro forma 1,443
Earnings per share:
Basic:
As reported 0.45
Pro forma 0.23
Diluted:
As reported 0.44
Pro forma 0.22
- --------------------------------------------------------------------------------
RECOGNITION AND RETENTION PLAN (RRP)
On April 17, 1997, the Company's stockholders approved the Company's
adoption of an RRP, which was authorized to acquire 4%, or 280,370
shares, of the common stock issued in the Company's initial public
offering. The shares were purchased in the open market at a weighted
average price of $16.04 per share. The cost of the contribution to the
RRP is being amortized to compensation expense as the Association's
employees and directors become vested in those shares. At December 31,
1997, restricted share awards were granted with respect to substantially
all of the shares purchased by the RRP. The aggregate purchase price of
all shares acquired by the RRP is reflected as a reduction of
stockholders' equity and, to the extent shares have been awarded, is
shown as amortized expense as the Company's employees and directors
become vested in their stock awards. Shares vest at a rate of 20% per
year with the first vesting period ending May 1, 1998. There were no
shares distributed to employees for the year ended December 31, 1997.
For the year ended December 31, 1997, $599,766 was recorded as
compensation expense.
PENSION PLAN
On June 6, 1996, the Board of Directors of the Association terminated
its noncontributory pension plan effective August 31, 1996. Plan
benefits ceased to accrue on June 30, 1996. Upon termination, all
benefits became 100% vested, and all persons entitled to benefits were
eligible to request an immediate lump sum settlement of the benefit
entitlement. The Association recorded a pension curtailment expense of
$837,000 in 1996 in conjunction with the termination of the pension
plan. The pension plan was liquidated in January, 1997 and $182,000 in
excess funds reverted back to the Company.
18
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
The Association's pension plan financial data at December 31, 1996 is
shown below:
FUNDED STATUS
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $2,891,088 at 1996 $ 2,891,088
- --------------------------------------------------------------------------------
Projected benefit obligation 2,891,088
Plan assets at fair value 1,420,829
- --------------------------------------------------------------------------------
Projected benefit obligation greater than plan assets 1,470,259
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions (288,678)
Unrecognized net asset at January 1, 1987 being recognized
over 14 years 47,181
Unrecognized prior service cost -
- --------------------------------------------------------------------------------
Accrued pension cost before additional minimum liability 1,228,762
Additional minimum liability 241,497
- --------------------------------------------------------------------------------
Accrued pension cost after additional minimum liability $ 1,470,259
- --------------------------------------------------------------------------------
NET PERIODIC PENSION COST
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Service cost $ 81,946 114,166
Interest cost on projected benefit obligation 139,956 129,277
Actual return on plan assets (96,484) (88,394)
Net amortization and deferral (17,399) (15,921)
- --------------------------------------------------------------------------------
Net periodic pension cost $ 108,019 139,128
- --------------------------------------------------------------------------------
The rates used in the actuarial valuations are as follows:
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Discount rate 4.75 % 7.25
Long-term rate of return 8.00 8.00
Salary progression - 6.00
- --------------------------------------------------------------------------------
19
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(11) COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Company was obligated under an operating lease
on property used for branch operations. Rental expense for 1997, 1996,
and 1995 was $37,000, $62,000 and $75,000, respectively. Future required
minimum annual rental payments under noncancelable lease agreements are
as follows:
- --------------------------------------------------------------------------------
Year ended
December 31, Amount
- --------------------------------------------------------------------------------
1998 $ 27,000
1999 27,000
2000 27,000
2001 27,000
2002 13,500
- --------------------------------------------------------------------------------
$ 121,500
- --------------------------------------------------------------------------------
The Company is involved in various legal proceedings incidental to the
normal course of business. Although the outcome of such litigation
cannot be predicted with any certainty, management is of the opinion,
based on the advice of legal counsel, that final disposition of any
litigation should not have a material effect on the consolidated
financial statements of the Company.
(12) CONCENTRATIONS OF CREDIT RISK AND FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of its business. These instruments represent
commitments to originate first mortgage loans which the Company plans to
fund within the normal commitment period of 60 to 180 days. At December
31, 1997, the Company had commitments to originate fixed and variable
rate mortgage loans of approximately $3,704,000 and $2,305,000,
respectively, at rates ranging between 6.625% and 8.75%. The Company
evaluated each customer's creditworthiness on a loan-by-loan basis, thus
the Company adequately controls its credit risk on these commitments, as
it does for loans recorded on the balance sheet.
Substantially all of the Company's mortgage loans are secured by
single-family homes in the northwestern suburban area of Chicago.
(13) DIVIDEND RESTRICTIONS
The OTS imposes limitations upon all capital distributions by savings
institutions, including cash dividends. An institution that exceeds all
fully phased-in capital requirements before and after a proposed capital
distribution (Tier 1 Association), and has not been advised by the OTS
that it is in need of more than normal supervision, could, after prior
notice but without the approval of the OTS, make capital distributions
during a calendar year up to the higher of (i) 100% of its net income to
date during the calendar year plus the amount that would reduce by
one-half its surplus capital ratio (the excess capital over its fully
phased-in capital requirements) at the beginning of the calendar year;
or (ii) 75% of its net income over the most recent four-quarter period.
Any additional capital distributions would require prior regulatory
approval. The OTS has the ability to object to a capital distribution
notice on safety and soundness grounds.
20
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(14) FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" (Statement 107), requires the
disclosure of estimated fair values of all asset, liability, and
off-balance sheet financial instruments. Statement 107 defines fair
value as the amount at which the instrument could be exchanged in a
current transaction between willing parties. Fair value estimates,
methods, and assumptions are set forth below for the Company's financial
instruments.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1997 1996
--------------------------------- ------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 6,852,441 6,852,441 5,661,507 5,661,507
Interest-earning deposits 34,708,634 34,708,634 22,341,178 22,341,178
Investment securities
held to maturity - - 53,785,506 53,797,070
Loans receivable 301,943,862 305,216,735 264,638,951 266,294,948
Mortgage-backed securities
held to maturity 91,546 91,721 142,028 142,522
Accrued interest receivable 1,436,775 1,436,775 1,701,337 1,701,337
Federal Home Loan Bank
of Chicago stock 2,606,000 2,606,000 2,678,000 2,678,000
- ------------------------------------------------------------------------------------------------------------------
Total financial assets $ 347,639,258 350,912,306 350,948,507 352,616,562
- ------------------------------------------------------------------------------------------------------------------
Financial liabilities:
Nonmaturing savings deposits 126,309,511 126,309,511 126,602,799 126,602,799
Savings deposits with
stated maturities 121,907,850 122,587,856 125,192,047 126,276,699
Borrowed funds 5,000,000 5,000,000 - -
Accrued interest payable 156,141 156,141 118,578 118,578
- ------------------------------------------------------------------------------------------------------------------
Total financial liabilities $ 253,373,502 254,053,508 251,913,424 252,998,076
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
CASH AND DUE FROM BANKS AND INTEREST-EARNING DEPOSITS
The carrying value of cash and due from banks and interest-earning
deposits approximates fair value due to the short period of time between
origination of the instruments and their expected realization.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
HELD TO MATURITY
The fair value of investment and mortgage-backed securities held to
maturity is estimated based on quoted market prices.
21
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
LOANS RECEIVABLE
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type and then further segmented
into fixed and variable rate interest terms and by performing and
nonperforming categories. The fair value of performing fixed rate loans
is calculated by discounting contractual cash flows adjusted for
prepayment estimates using discount rates based on new loan rates
adjusted to reflect differences in servicing and credit costs. For
variable rate loans, fair value is estimated to be book value, as these
loans reprice frequently or have a relatively short term to maturity and
there has been little or no change in credit quality since origination.
Fair value for nonperforming loans is calculated by discounting
estimated future cash flows using a C-rated bond yield with principal
and interest assumed paid in 18 months.
ACCRUED INTEREST RECEIVABLE
The carrying amount of accrued interest receivable approximates its fair
value due to the relatively short period of time between accrual and
expected realization.
FEDERAL HOME LOAN BANK OF CHICAGO STOCK
The fair value of this stock is based on its redemption value.
SAVINGS DEPOSITS
Under Statement 107, the fair value of savings deposits with no stated
maturity, such as noninterest-bearing demand deposits, NOW/Super NOW
accounts, money market accounts, and passbook accounts, is equal to the
amount payable on demand as of December 31, 1997 and 1996. The fair
value of certificates of deposit is based on the discounted value of
contractual cash flows. The fair value estimates do not include the
benefit that results from the low-cost funding provided by the deposit
liabilities compared to the cost of borrowing funds in the market.
BORROWED FUNDS
The fair value of advances from the Federal Home Loan Bank of Chicago is
equal to the amount payable on demand as of December 31, 1997 due to the
variable interest rate on the debt.
ACCRUED INTEREST PAYABLE
The carrying amount of accrued interest payable approximates its fair
value due to the relatively short period of time between accrual and
expected realization.
LIMITATIONS
The fair value estimates are made at a specific point in time based on
relevant market information and information about the financial
instrument. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are subjective in
nature and involve uncertainties and matters of significant judgment,
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
22
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In addition, the fair value estimates are based on existing on- and
off-balance sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. Significant
assets and liabilities that are not considered financial assets or
liabilities include the mortgage origination operation, deferred taxes,
and property, plant, and equipment. In addition, the tax ramifications
related to the realization of unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered
in any of the estimates.
(15) CONDENSED PARENT COMPANY ONLY FINANCIAL INFORMATION
The following condensed statements of financial condition as of December
31, 1997 and 1996 and statements of earnings and cash flows for the
period from September 26, 1996 (date of commencement of operations) to
December 31, 1996 and year ended December 31, 1997 for Home Bancorp of
Elgin, Inc. should be read in conjunction with the consolidated
financial statements and the notes thereto.
<TABLE>
<CAPTION>
Condensed Statements of Financial Condition
- ---------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 2,697,343 4,155,239
Interest-earning deposits 18,355,010 -
Investment securities held to maturity - 24,776,445
Equity investment in the Association 69,207,245 65,592,033
Loan receivable from the Association 4,906,475 5,467,215
Other assets 9,700 1,993
- ---------------------------------------------------------------------------------------------------
$ 95,175,773 99,992,925
- ---------------------------------------------------------------------------------------------------
Liabilities - other liabilities (39,211) 161,142
- ---------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock 70,093 70,093
Additional paid-in capital 68,324,277 67,904,289
Retained earnings 38,095,172 37,324,616
Treasury stock (2,469,602) -
Common stock acquired by Recognition and Retention Plan (3,898,481) -
Common stock acquired by Employee Stock Ownership Plan (4,906,475) (5,467,215)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 95,214,984 99,831,783
- ---------------------------------------------------------------------------------------------------
$ 95,175,773 99,992,925
- ---------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Condensed Statements of Earnings
- ------------------------------------------------------------------------------------------------------------
Year ended Period from
December 31, September 26, 1996 to
1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Equity in undistributed earnings of the Association $ 2,634,484 494,550
Interest income 1,740,705 511,270
Noninterest expense (1,400,579) (98,549)
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 2,974,610 907,271
Income tax expense 131,969 160,162
- ------------------------------------------------------------------------------------------------------------
Net income $ 2,842,641 747,109
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
- ------------------------------------------------------------------------------------------------------------
Year ended Period from
December 31, September 26, 1996 to
1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 2,842,641 747,109
Equity in undistributed earnings of the Association (2,634,484) (494,550)
Accretion of discounts (223,555) (237,526)
Cost of RRP 599,767 -
Increase in other assets (7,707) (1,993)
Increase (decrease) in other liabilities (200,353) 161,142
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 376,309 174,182
- ------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of capital stock of the Association - (28,379,791)
Origination of loan receivable - (5,607,400)
Repayment of loan receivable 560,740 140,185
Maturity of investments held to maturity 25,000,000 -
Purchase of investment securities held to maturity - (24,538,919)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 25,560,740 (58,385,925)
- ------------------------------------------------------------------------------------------------------------
Financing activities:
Net proceeds from sale of common stock - 62,366,982
Dividends paid on common stock (2,072,085) -
Purchase of treasury stock (2,469,602) -
Purchase of RRP stock (4,498,248) -
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (9,039,935) 62,366,982
- ------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 16,897,114 4,155,239
Cash and cash equivalents at beginning of period 4,155,239 -
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 21,052,353 4,155,239
- ------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
HOME BANCORP OF ELGIN, INC.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(16) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited income and expense and per share data on a quarterly basis for the
three-month periods indicated:
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997 Year ended December 31, 1996
------------------------------------- ---------------------------------------
1st qtr. 2nd qtr. 3rd qtr. 4th qtr. 1st qtr. 2nd qtr. 3rd qtr. 4th qtr.
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 6,147 6,294 6,326 6,262 5,629 5,578 5,655 6,197
Interest expense 2,569 2,612 2,730 2,639 2,773 2,713 2,773 2,622
- --------------------------------------------------------------------------------------------------------------------------
Net interest income before
provision for loan losses 3,578 3,682 3,596 3,623 2,856 2,865 2,882 3,575
Provision for loan losses 30 30 30 30 30 30 30 30
- --------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 3,548 3,652 3,566 3,593 2,826 2,835 2,852 3,545
Other income 472 251 262 304 319 308 305 289
Noninterest expense (1) 2,569 2,728 2,811 2,895 2,303 2,323 4,123 2,635
Curtailment of pension plan - - - - - 837 - -
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) before income
tax expense (benefit) 1,451 1,175 1,017 1,002 842 (17) (966) 1,199
Income tax expense
(benefit) 563 456 394 389 330 (7) (375) 468
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) 888 719 623 613 512 (10) (591) 731
Earnings (loss) per share(2) (3):
Basic .14 .11 .10 .10 .08 - (.09) .11
Diluted .14 .10 .10 .10 .08 - (.09) .11
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends declared
per share $ - .10 .10 .10 - - - -
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Third quarter noninterest expense for 1996 includes a one-time
special assessment charge resulting from legislation passed on
September 30, 1996, regarding the Savings Association Insurance
Fund (SAIF). To cover the special assessment called for by the
legislation, the Company recorded a pretax charge of $1.8 million.
(2) For the quarters ended March 31, 1996 and June 30, 1996, earnings
per share were computed as if the Company's initial public
offering (which occurred on September 26, 1996) had taken place on
January 1, 1996. In this computation, net income was not adjusted
for the additional income which could have been earned had the net
proceeds from the offering been available for investment as of
January 1, 1996.
(3) The 1996 and first three quarters of 1997 earnings per share
amounts have been restated to comply with Statement of Financial
Accounting Standards 128, "Earnings per Share."
25
[Letterhead of KPMG Peat Marwick LLP]
The Board of Directors
Home Bancorp of Elgin, Inc.:
We consent to the incorporation by reference in the registration statement (No.
333-31889) on Form S-8 of Home Bancorp of Elgin, Inc. of our report dated
January 26, 1998, relating to the consolidated balance sheets of Home Bancorp of
Elgin, Inc. and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997, which report
is incorporated by reference in the December 31, 1997 annual report on Form 10-K
of Home Bancorp of Elgin, Inc.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and the statements of income of Home Bancorp of
Elgin, Inc. and Subsidiary and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0001016325
<NAME> HOME BANCORP OF ELGIN, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,852,441
<INT-BEARING-DEPOSITS> 34,708,634
<FED-FUNDS-SOLD> 0
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0
0
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</TABLE>
