Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
/ / Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the fiscal year ended_________________.
or
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
August 1, 1996 to June 30, 1997
Commission File Number
0-21491
BIG FOOT FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
ILLINOIS
(State or other jurisdiction of incorporation or organization)
36-4108480
(I.R.S. Employer Identification No.)
1190 RFD, LONG GROVE, IL
(Address of principal executive offices)
60047-7304
(Zip Code)
(847) 634-2100
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Common Stock, $.01 par value per share
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 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark 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 or any amendment to this
Form 10-K. / /
The aggregate market value of the voting and non-voting common equity of the
Registrant held by non-affiliates was approximately $36,800,000.00 as of July
31, 1997.
As of September 15, 1997, 2,512,750 shares of the Registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None.
<PAGE>
BIG FOOT FINANCIAL CORP.
TRANSITION REPORT ON FORM 10-K
FOR THE TRANSITION PERIOD FROM
AUGUST 1, 1996 TO JUNE 30, 1997
TABLE OF CONTENTS PAGE
PART I
ITEM 1. BUSINESS........................................................ 3
ITEM 2. PROPERTIES...................................................... 27
ITEM 3. LEGAL PROCEEDINGS............................................... 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 28
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................ 28
ITEM 6. SELECTED FINANCIAL DATA ........................................ 29
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................ 30
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK....................................... 47
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 49
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.................... 74
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............. 74
ITEM 11 EXECUTIVE COMPENSATION.......................................... 74
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER
AND MANAGEMENT............................................. 74
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 74
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K................................................ 74
2
<PAGE>
PART I
ITEM 1. BUSINESS
General. Big Foot Financial Corp., (the "Company") an Illinois
corporation, is the holding company for Fairfield Savings Bank, F.S.B. (the
"Bank"), a federally chartered stock savings bank. On December 19, 1996, the
Bank completed its conversion (the "Conversion") from a federally chartered
mutual savings bank to a federally chartered stock savings bank, and the Company
acquired all of the capital stock of the Bank. The Company issued and sold
2,512,750 shares of its common stock, $.01 par value per share (the "Common
Stock"), at a price of $10.00 per share in a subscription offering (the
"Offering") to eligible members of the Bank and to the Company's Employee Stock
Ownership Plan ("ESOP"). The Company's sole business activity consists of the
business of the Bank. The Company also invests in long and short-term investment
grade marketable securities and other liquid investments.
At June 30, 1997, the Company had total assets of $214.9 million, of
which $93.6 million was comprised of loans receivable and $107.6 million was
comprised of mortgage-backed securities. At such date, total savings deposits
were $123.0 million, borrowings were $49.6 million and stockholders' equity was
$37.0 million. The Company's Common Stock is quoted on the National Market
System of the Nasdaq Stock Market under the symbol "BFFC". Unless otherwise
disclosed, the information presented in this Report on Form 10-K represents the
activity of the Bank for the period prior to December 19, 1996 and the activity
of Big Foot Financial Corp. consolidated thereafter. Unless the context
otherwise requires, all references herein to the Bank or the Company include the
Company and the Bank on a consolidated basis.
In connection with the Conversion, the Bank changed its fiscal year-end
to June 30, 1997. The Company's and the Bank's fiscal year 1997 consisted of the
11-month period beginning August 1, 1996 and ending June 30, 1997. Accordingly,
this Report is a transition report for the period from August 1, 1996 to June
30, 1997. The Company believes that it is appropriate to compare the results for
the 11-month period ended June 30, 1997 with the years ended July 31, 1996 and
1995.
The Bank was originally founded in 1901 as an Illinois state chartered
mutual savings and loan association. On July 1, 1991, the Bank converted to a
federally chartered mutual savings bank. The Bank is subject to extensive
regulation, supervision and examination by the Office of Thrift Supervision (the
"OTS"), its primary regulator, and the Federal Deposit Insurance Corporation
(the "FDIC"), which insures its deposits. The Bank's savings deposits are
insured up to the maximum allowable amount by the Savings Association Insurance
Fund (the "SAIF") of the FDIC.
The Bank's principal business consists of gathering savings deposits
from the general public within its market area and investing those savings
deposits primarily in one- to four-family residential mortgage loans,
mortgage-backed securities and obligations of the U.S. Government. To a lesser
extent, the Bank originates multifamily residential loans, commercial real
estate loans, land, construction and development loans, consumer loans
(including loans secured by savings deposits and home improvement loans) and
commercial lines of credit. The Bank's revenues are derived principally from
interest on mortgage loans and mortgage-backed securities. The Bank's primary
sources of funds are savings deposits, proceeds from principal and interest
payments on loans, mortgage-backed and investment securities and Federal Home
Loan Bank ("FHLB") advances.
MARKET AREA. The Bank is a community-oriented financial institution
which provides a variety of financial services to meet the needs of the
communities which it serves. The Bank serves three distinct geographic markets:
the Chicago branch at 1601 North Milwaukee Avenue serves the near northwest side
of the City of Chicago, the Norridge branch at 8301 West Lawrence serves
Chicago's near northwestern suburbs and the Long Grove branch at Old McHenry
Road and Route 83 serves northern Cook and southern Lake counties. The Bank's
customer base may be categorized by branch location. In the Chicago branch, the
customer base is largely comprised of blue collar workers and young white collar
technicians and professionals. The Chicago market is experiencing new
construction and a refurbishing of its existing aged housing stock and is
becoming an active mortgage market as well as a savings market. The Norridge
branch serves a customer base split between blue and white collar workers where
the market is mature. The Norridge market has modest prospects for growth;
however, it provides the Bank with a stable source of deposits. The Long Grove
office is situated in an affluent, high growth, white collar market. This is a
dynamic market which provides the Bank with significant loan demand and
potential for growth opportunities in savings and
3
<PAGE>
lending activities. Substantially all loans originated by the Bank are
secured by real estate located in Cook, DuPage and Lake counties in Illinois.
COMPETITION. The Bank faces intense and increasing competition both in
making loans and in attracting savings deposits. The Bank's market area has a
high density of financial institutions, many of which have greater financial
resources, name recognition and market presence than the Bank, and all of which
are competitors of the Bank to varying degrees. Particularly intense competition
exists for savings deposits and the origination of all of the loan products
emphasized by the Bank.
The Bank's competition for loans comes principally from commercial
banks, other savings banks, savings and loan associations, mortgage banking
companies, finance companies and credit unions. The Bank's most direct
competition for savings deposits historically has come from other savings banks,
savings and loan associations, commercial banks and credit unions. In addition,
the Bank faces increasing 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. Trends toward the consolidation of the banking industry and the
lifting of interstate banking and branching restrictions may make it more
difficult for smaller institutions, such as the Bank, to compete effectively
with large national and regional banking institutions.
While the Bank is subject to competition from other financial
institutions which may have much greater financial and marketing resources, the
Bank believes it benefits by its community bank orientation as well as its
relatively high core deposit base. Management believes that the variety, depth
and stability of the communities in which the Bank is located support the
service and lending activities conducted by the Bank. The relative economic
stability of the Bank's lending area is reflected in the small number of
mortgage delinquencies experienced by the Bank.
IMPACT OF THE ECONOMY ON OPERATIONS. Declines in the local economy,
national economy or real estate market could adversely affect the financial
condition and results of operations of the Bank, including decreased demand for
loans or increased competition for good loans, increased non-performing loans
and loan losses and resulting additional provisions for loan losses and for
losses on real estate owned.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The Bank's loan portfolio consists
primarily of conventional first mortgage loans secured by one- to four-family
residences. At June 30, 1997, the Bank had gross loans receivable outstanding of
$94.3 million, of which $91.1 million, or 96.7% of gross loans, were one- to
four-family residential mortgage loans. The remainder consisted of $0.9 million
of multifamily mortgage loans, or 1.0% of gross loans; $384,000 of commercial
real estate mortgage loans, or 0.4% of gross loans; $403,000 of land,
construction and development loans, or 0.4% of gross loans; $1.3 million of home
equity loans, or 1.3% of gross loans; and $181,000 of other loans, or 0.2% of
gross loans.
The loans that the Bank may originate are subject to federal and state
laws and regulations. Interest rates charged by the Bank 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.
All of the Bank's lending is subject to its written, nondiscriminatory
underwriting standards and to loan origination procedures prescribed by the
Bank's Board of Directors the majority of which conform to the Federal National
Mortgage Association ("FNMA") standards. Property valuations by a member of the
Bank's appraisal staff or independent appraisers approved by the Board of
Directors are required. Detailed loan applications are obtained to determine the
borrower's ability to repay, and the more significant items on these
applications are verified through the use of credit reports, financial
statements and confirmations. Generally, the Bank will lend against the
appraised value of property up to a maximum loan to value ratio of 95%. Private
mortgage insurance is required on all loans with loan to value ratios greater
than 80%. All loans are approved by the full Board of Directors. Mortgage loans
originated by the Bank generally include due on sale clauses which provide the
Bank with the contractual right to deem the loan immediately due and payable in
the event the borrower transfers ownership of the property without the Bank's
consent. Due on sale clauses are an important means of adjusting the rates of
the Bank's fixed-rate mortgage loan portfolio, and the Bank has generally
exercised its rights under these clauses. It is the Bank's policy to require
4
<PAGE>
title insurance policies certifying or insuring that the Bank has a valid first
lien on the mortgaged real estate. Borrowers must also obtain hazard insurance
policies prior to closing and, where necessary, flood insurance policies.
Borrowers are required to maintain a noninterest-bearing escrow account or a
pledged passbook savings account with the Bank to cover charges for real estate
taxes, hazard insurance premiums and assessments.
Under the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), the aggregate amount of loans that the Bank is permitted to
make to any one borrower is generally limited to 15% of unimpaired capital and
surplus (25% if the security for such loan has a "readily ascertainable" value
or 30% for certain residential development loans). At June 30, 1997, based on
the above, the Bank's regulatory loans to one-borrower limit was approximately
$3.7 million. On the same date, the Bank had no borrowers with outstanding
balances in excess of this amount. At June 30, 1997, the two largest dollar
amounts outstanding to one borrower or group of related borrowers were
approximately $297,000 and $294,000. Both of these loans are secured by one- to
four-family properties located in the Bank's market area and, at June 30, 1997,
were performing in accordance with their terms.
The following table sets forth the composition of the Bank's mortgage
and other loan portfolios in dollar amounts and in percentages at the dates
indicated.
<TABLE>
<CAPTION>
At July 31,
---------------------------------------------
At June 30, 1997 1996 1995
---------------------- ---------------------- ----------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
-------- ---------- -------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family ................. $ 91,133 96.7% $ 76,325 95.6% $ 68,080 94.9%
Multifamily(1) ...................... 942 1.0 979 1.2 1,035 1.4
Commercial real estate .............. 384 0.4 411 0.5 441 0.6
Land, construction and development .. 403 0.4 404 0.5 166 0.2
Home equity ......................... 1,258 1.3 1,421 1.8 1,691 2.4
-------- ----- -------- ----- -------- -----
Total mortgage loans ............. $ 94,120 99.8 $ 79,540 99.6 $ 71,413 99.5
-------- ----- -------- ----- -------- -----
Other loans:
Home improvement .................... -- -- -- -- 15 --
Commercial credit lines ............. -- -- 150 0.2 131 0.2
Loans on savings deposits ........... 181 0.2 192 0.2 212 0.3
-------- ----- -------- ----- -------- -----
Total other loans ................ 181 0.2 342 0.4 358 0.5
-------- ----- -------- ----- -------- -----
Loans receivable, gross ...... $ 94,301 100.0% $ 79,882 100.0% $ 71,771 100.0%
======== ===== ======== ===== ======== =====
Less:
Loans in process .................... $ - $ - $ 111
Deferred loan fees .................. 377 438 510
Allowance for loan losses ........... 300 300 166
Capitalized interest reserve ........ -- -- --
-------- -------- --------
Loans receivable, net ........ $ 93,624 $ 79,144 $ 70,984
======== ======== ========
<CAPTION>
At July 31,
--------------------------------------------
1994 1993
---------------------- ---------------------
Percent Percent
Amount of Total Amount of Total
-------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
One- to four-family ................. $ 66,318 94.6% $ 75,456 92.4%
Multifamily(1) ...................... 1,335 1.9 1,415 1.7
Commercial real estate .............. 475 0.7 793 1.0
Land, construction and development .. 146 0.2 1,558 1.9
Home equity ......................... 1,679 2.4 2,280 2.8
-------- ----- -------- -----
Total mortgage loans ............. $ 69,953 99.8 $ 81,502 99.8
-------- ----- -------- -----
Other loans:
Home improvement .................... 15 -- -- --
Commercial credit lines ............. -- -- -- --
Loans on savings deposits ........... 135 0.2 177 0.2
-------- ----- -------- -----
Total other loans ................ 150 0.2 177 0.2
-------- ----- -------- -----
Loans receivable, gross ...... $ 70,103 100.0% $ 81,679 100.0%
======== ===== ======== =====
Less:
Loans in process .................... $ 892 $ 263
Deferred loan fees .................. 573 816
Allowance for loan losses ........... 166 184
Capitalized interest reserve ........ 46 70
-------- --------
Loans receivable, net ........ $ 68,426 $ 80,346
======== ========
- ----------
(1) Multifamily includes participations in Community Investment Corporation (CIC) of $413,000 at
June 30, 1997, $381,000 at July 31, 1996, $321,000 at July 31, 1995 and $202,000 at July 31,
1994. CIC is a not-for-profit tax-exempt corporation whose purpose is to focus the resources
and expertise of the financial community to revitalize certain neighborhoods in Chicago.
</TABLE>
Mortgage Loans. At June 30, 1997, over 96.7% of the Bank's $93.6
million mortgage loan portfolio consisted of mortgage loans secured by one- to
four-family residential real estate. While the Bank offers adjustable-rate
mortgage products, the Bank's customer base has historically favored fixed-rate
mortgage loans, which are generally priced off the FNMA delivery rate with
adjustments relating to local competition and the availability of funds. At June
30, 1997, approximately 91.7% of the Bank's mortgage portfolio was comprised of
fixed-rate loans. The balance of the mortgage loan portfolio is comprised of
adjustable rate loans, including approximately $6.0 million of one-to
four-family residential mortgages, the majority of which are tied to the
National Cost of Funds Index and adjust annually to rates from 2.5% to 2.75%
over the Index. These loans carry annual caps and life-of-the-
5
<PAGE>
loan ceilings to protect borrowers against sudden rate volatility. 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 Bank's policy to underwrite its adjustable rate mortgage
loans based on the fully indexed origination rate. The Bank currently has no
mortgage loans that are subject to negative amortization. Management intends to
continue to emphasize loans secured by single family owner-occupied units with
15 year terms. The Bank also makes home equity loans. At June 30, 1997, the Bank
had an aggregate balance of $1.3 million in home equity loans.
LAND, CONSTRUCTION AND DEVELOPMENT LOANS. The Bank offers a residential
construction loan program for custom home buyers and builders, who typically
have a longstanding business relationship with the Bank. The Bank has
established additional guidelines and progress payout procedures for these loans
in recognition of the higher degree of risk involved in making such loans. The
Bank's loss experience in construction lending on single family and multifamily
residences has been extremely favorable. See "Delinquencies and Non-Performing
Assets."
In addition to financing custom construction of homes, the Bank
finances detached residential subdivision and condominium land acquisition and
development projects. For these loans, the Bank requires feasibility studies and
economic analyses which address a property's proposed gross sale or rental
income, market absorption rate, occupancy estimates and marketing and operating
expenses in order to ascertain the discounted net sales or capitalized rental
value projections. As a general guideline, actual or projected net cash flows
from these types of lending activities should equal or exceed 120% of the debt
service (excluding condominium properties). A builder or developer's experience
in constructing and marketing properties is also evaluated by the Bank. Each
borrower must demonstrate that it has the financial capacity to fund a project's
debt service.
Multifamily residential and commercial real estate and land loans are
generally considered to involve a higher degree of credit risk than one- to
four-family residential mortgage loans. This greater risk is attributable to
several factors, including the higher 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
sufficient cash flow from the related real estate project to cover operating
expenses and debt service. 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. Circumstances outside the borrower's control may
adversely affect income from the multifamily or commercial property as well as
its market value.
OTHER LOANS. The Bank also makes short term fixed-rate and
adjustable-rate other loans, such as loans secured by savings accounts and
commercial lines of credit. These loans generally have an average life of less
than two years. The shorter terms to maturity and the short term repricing
periods are helpful in managing the Bank's interest rate risk.
ORIGINATION OF LOANS. Loans are originated by the Bank's staff of
salaried loan officers. Residential loan originations can be attributed to
depositors, retail customers, telephone inquiries, newspaper ads, loan officers,
and referrals from other borrowers, real estate brokers and builders. Loan
applications are taken and processed at each of the Bank's offices.
Historically, the bulk of all loans originated by the Bank have been retained in
the Bank's portfolio.
The following table sets forth the Bank's loan originations, loan sales and
principal repayments for the periods indicated.
6
<PAGE>
<TABLE>
<CAPTION>
Eleven Months
Ended For the Year Ended July 31,
June 30, ---------------------------
1997 1996 1995
------------- ----------- ------------
(In thousands)
<S> <C> <C> <C>
Loans (gross):
At beginning of period ......................... $ 79,882 $ 71,771 $ 70,103
------------- ---------- ----------
Mortgage loans originated:
One- to four-family ............................ 23,088 19,617 11,472
Multifamily .................................... -- 86 158
Land, construction and development ............. -- 38 290
------------- ---------- ----------
Total mortgage loans originated ......... 23,088 19,741 11,920
Other loans originated:
Other loans .................................... 192 202 461
------------- ---------- ----------
Total loans originated .................. 23,280 19,943 12,381
------------- ---------- ----------
Additional draws - open-end home equity loans .. 346 549 803
Principal repayments .............................. (9,207) (12,377) (11,348)
Loans sold ........................................ -- -- --
Loans transferred to real estate owned ............ -- -- (168)
Charge-off - CIC participation .................... -- (4) --
------------- ---------- ----------
Loan balances at end of period .......... $ 94,301 $ 79,882 $ 71,771
============= ========== ==========
</TABLE>
INCOME FROM LENDING ACTIVITIES. The Bank realizes interest income and
servicing fee income from its lending activities. For the most part, interest
rates charged by the Bank on loans are determined by local competition, although
they also reflect general interest rates, demand for loans and availability of
funds.
The Bank charges service fees, late payment and other miscellaneous
service fees. During the 1997 fiscal year and the fiscal years ended July 31,
1996 and 1995, the Bank earned an aggregate of such fees equal to $23,000,
$29,000 and $35,000, respectively.
LOAN MATURITY. The following table shows the contractual maturity of
the Bank's loan portfolio at June 30, 1997. Loans are shown as due based on
their contractual terms to maturity rather than when interest rates are next
subject to change. The table does not include prepayments or scheduled
principal amortization.
<TABLE>
<CAPTION>
Mortgage loans
-------------------------------------------------------------- Total loans
Land, ------------------------
One - to construction Weighted
four- Multi- Commercial and Home Other average
Family family real estate development equity loans Amount rate
---------- ---------- ----------- ------------ ---------- ---------- ---------- ----------
Due during
periods ending
June 30,
- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 ..................... $ 144 $ -- $ -- $ 165 $ 117 $ 16 $ 442 9.17%
1999 ..................... 171 15 -- 238 53 63 540 8.82%
2000 ..................... 215 15 -- -- 94 102 426 7.97%
2001 and 2002 ............ 1,713 158 -- -- 521 -- 2,392 8.42%
2003 to 2008 ............. 13,636 110 174 -- 473 -- 14,393 7.65%
2009 to 2013 ............. 17,021 44 210 -- -- -- 17,275 7.23%
2014 to 2018 ............. 4,519 570 -- -- -- -- 5,089 8.51%
2019 and following ....... 53,714 30 -- -- -- -- 53,744 7.66%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Total loans due, gross ... $ 91,133 $ 942 $ 384 $ 403 $ 1,258 $ 181 $ 94,301 7.66%
========== ========== ========== ========== ========== ========== ========== =========
</TABLE>
The following table sets forth at June 30, 1997, the dollar amount of
loans due after June 30, 1998, and whether such loans have fixed interest rates
or adjustable interest rates.
7
<PAGE>
Due after June 30, 1998
------------------------------------
Fixed Adjustable Total
---------- ---------- ----------
(In thousands)
Mortgage loans:
One- to four-family .................. $ 84,958 $ 6,031 $ 90,989
Multifamily .......................... 898 44 942
Commercial real estate ............... 180 204 384
Land, construction and development ... -- 238 238
Home equity .......................... -- 1,141 1,141
---------- ---------- ----------
Total mortgage loans .................... 86,036 7,658 93,694
---------- ---------- ----------
Other loans ............................. 165 -- 165
---------- ---------- ----------
Total loans .......................... $ 86,201 $ 7,658 $ 93,859
========== ========== ==========
DELINQUENCIES AND NON-PERFORMING ASSETS
DELINQUENCY PROCEDURES. When a borrower fails to make a required
payment on a loan, the Bank attempts to cause the deficiency to be cured by
contacting the borrower. Contacts are made after a payment is more than 15 days
past due, and a late charge is assessed at that time. In most cases,
deficiencies are cured promptly. If the deficiency exceeds 90 days and is not
cured through the Bank's normal collection procedures, the Bank may institute
measures to remedy the default, including commencing a foreclosure action or
accepting from the mortgagor a voluntary deed of the secured property in lieu of
foreclosure. If a foreclosure action is instituted and the loan is not
reinstated, paid in full or refinanced, the property is sold at a judicial sale.
If the Bank acquires the property at judicial sale or accepts a voluntary deed
of the secured property in lieu of foreclosure, the acquired property is then
listed in the Bank's Real Estate Owned ("REO") account until it is sold. At June
30, 1997, the Bank had no REO. The Bank is permitted to finance sales from its
REO account by "loans to facilitate," which involve a lower down payment or a
longer repayment term or other more favorable features than generally would be
granted under the Bank's underwriting guidelines. Currently, the Bank has no
such "loans to facilitate."
The following table sets forth information with respect to the Bank's
non-performing assets (which includes loans that are delinquent for 90 days or
more and REO) at the dates indicated. At June 30, 1997, there were no loans
other than those included in the table below with regard to which management had
information about possible credit problems of the borrower that caused
management to seriously doubt the ability of the borrower to comply with present
loan repayment terms.
<TABLE>
<CAPTION>
At July 31,
At June 30, ------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(Dollars in thousands)
Non-performing loans:
<S> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family ......................... $ 199 $ 69 $ 193 $ 511 $ 828
Multifamily ................................. -- -- -- -- 84
Commercial real estate ...................... -- -- -- -- --
Land, construction and development .......... -- -- -- -- --
Home equity ................................. -- 49 -- -- --
Other loans ................................... -- -- -- -- --
------ ------ ------ ------ ------
Total non-performing loans ............... 199 118 193 511 912
------ ------ ------ ------ ------
Real estate owned ............................. -- -- 168 -- --
------ ------ ------ ------ ------
Total nonperforming assets ............... $ 199 $ 118 $ 361 $ 511 $ 912
====== ====== ====== ====== ======
Total non-performing loans to total loans ..... 0.21% 0.15% 0.27% 0.74% 1.13%
Total non-performing assets to total assets ... 0.09% 0.06% 0.18% 0.26% 0.49%
</TABLE>
A loan is placed on non-accrual status when it becomes 90 days or more
delinquent and when the collection of principal and/or interest becomes
doubtful. At June 30, 1997, the Bank had one single family residential loan with
an outstanding balance of $199,000 that was non accruing. At July 31, 1996 and
1995, the Bank had no non-accruing loans. For the eleven months ended June 30,
1997 and the years ended July 31, 1996, and 1995, the amount of interest income
that would have been recorded on non-accrual loans was $10,000, $0, and $1,000,
respectively.
8
<PAGE>
Interest earned on loans 90 days or more delinquent and still accruing interest
amounted to $36,000, $67,000, and $54,000 for the eleven months ended June 30,
1997 and the years ended July 31, 1996, and 1995, respectively.
The Bank's non-performing assets at June 30, 1997, consisted of one,
one-to four-family residential loan, with an aggregate outstanding principal
balance of $199,000. The property underlying the non-performing loan is located
in the Chicago metropolitan area.
CLASSIFIED ASSETS. OTS regulations require that each saving association
classify its assets on a regular basis and establish prudent valuation
allowances based on such classifications. In addition, in connection with
examinations of savings associations, OTS examiners have authority to identify
problem assets and, if appropriate, require them to be classified. OTS
regulations provide for three adverse classifications for problem assets:
Substandard, Doubtful and Loss. Substandard assets have one or more defined
weaknesses and are characterized by the distinct possibility that the savings
association will sustain some loss if the deficiencies are not corrected.
Doubtful assets have the weaknesses of Substandard assets, with the additional
characteristics that the weaknesses make collection or liquidation in full on
the basis of currently existing facts, conditions and values questionable, and
there is a high probability of loss. An asset classified Loss is considered
uncollectible and of such little value that its continuance as an asset of the
institution is not warranted. The regulations have also created a Special
Mention category, consisting of assets which do not currently expose a savings
association to a sufficient degree of risk to warrant classifications, but do
possess credit deficiencies or potential weaknesses deserving management's close
attention. Assets classified as Substandard or Doubtful require the Bank to
establish prudent valuation allowances. If an asset or portion thereof is
classified as Loss, the association must either establish specific allowances
for loan losses in the amount of 100% of the portion of the asset classified
Loss or charge off such amount. If an association does not agree with an
examiner's classification of an asset, it may appeal this determination to the
District Director of the OTS. On the basis of management's review of its loans
at June 30, 1997, the Bank had one loan, which was classified by management as
"Substandard" and no potential problem loans, which would have been classified
by management as "Special Mention."
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 the Bank's loan portfolio and the general economy. The
allowance for loan losses is maintained at an amount management considers
adequate to cover loan losses which are deemed probable and estimable. The
allowance is based upon a number of factors, including asset classifications,
economic trends, industry experience and trends, industry and geographic
concentrations, estimated collateral values, management's assessment of the
credit risk inherent in the portfolio, historical loan loss experience and the
Bank's underwriting policies. The allowance for loan losses is maintained at an
amount considered adequate to provide for potential losses. Although management
believes it uses the best information available to make determinations with
respect to the allowance for loan losses, future adjustments may be necessary if
economic conditions and the Bank's actual experience differ substantially from
the conditions and experience used in the assumptions upon which the initial
determinations are based. The OTS, in conjunction with the other federal banking
agencies, has 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 Bank believes that it has established an adequate allowance
for loan losses, there can be no assurance that regulators, in reviewing the
Bank's loan portfolio as part of a future regulatory examination, will not
request the Bank to materially increase its allowance for loan losses, thereby
negatively affecting the Bank's financial condition and earnings at that time.
Moreover, no assurance can be made 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 directors of the Bank and the Company have reviewed
the provision for loan losses and the allowance for loan losses and the
assumptions utilized by management as to their reasonableness and adequacy.
Specific valuation reserves are provided for individual loans which are
contractually past due (including loans classified Substandard or Doubtful) when
ultimate collection is considered questionable by management after reviewing the
current status of such loans and considering the net realizable value of the
security for the loan.
9
<PAGE>
The following table analyzes acitvity in the Bank's allowance for loan losses
during the periods indicated.
<TABLE>
<CAPTION>
At or for
the Eleven
Months ended At or For the Year Ended July 31,
June 30, ------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year ............... $ 300 $ 166 $ 166 $ 184 $ 597
Provision (credit) for loan losses ......... -- 138 -- (18) (392)
Chargeoffs:
Mortgage loans:
One- to four-family ...................... -- -- -- -- --
Multifamily .............................. -- (4) -- -- (21)
Commercial real estate ................... -- -- -- -- --
Land, construction and development ....... -- -- -- -- --
Home equity .............................. -- -- -- -- --
Other loans ................................ -- -- -- -- --
------- ------- ------- ------- -------
Total charge-offs ..................... -- (4) -- -- (21)
------- ------- ------- ------- -------
Recoveries ................................. -- -- -- -- --
------- ------- ------- ------- -------
Balance at end of year ..................... $ 300 $ 300 $ 166 $ 166 $ 184
======= ======= ======= ======= =======
Allowance for loan losses to total
loans at end of period(1) ................ 0.32% 0.38% 0.23% 0.24% 0.23%
Allowance for loan losses to total
non-performing loans at end of period .... 150.75 254.24 86.01 32.49 20.18
Allowance for loan losses to total
non-performing assets at end of period ... 150.75 254.24 45.98 32.49 20.18
Net charge-offs to average
loans outstanding ........................ -- 0.01 -- -- 0.02
</TABLE>
- ------------
(1) Total loans represent loans, net plus the allowance for loan losses.
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. The allocation of the allowance
to each category is not necessarily indicative of future losses and does not
restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
At July 31,
-------------------------------------
At June 30, 1997 1996
----------------------------------- -------------------------------------
Percent of Percent of
Loans in Loans in
Percent Each Percent Each
Allowance of Category to Allowance of Category to
Amount Allowance Gross Loans Amount Allowance Gross Loans
--------- --------- ----------- --------- --------- -----------
Mortgage loans: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family ................. $ 105 35.0% 96.7% $ 85 28.3% 95.6%
Multifamily ......................... 5 1.7 1.0 5 1.7 1.2
Commercial real estate .............. 4 1.3 0.4 4 1.3 0.5
Land, construction and development .. 2 0.7 0.4 2 0.7 0.5
Home equity ......................... 3 1.0 1.3 4 1.3 1.8
Other loans ............................ -- -- 0.2 -- -- 0.4
Unallocated ............................ 181 60.3 -- 200 66.7 --
--------- --------- ----------- --------- --------- -----------
Total allowance for loan losses ..... $ 300 100.0% 100.0% $ 300 100.0% 100.0%
========= ========= =========== ========= ========= ===========
<CAPTION>
At July 31,
--------------------------------------------------------------------------
1995 1994
----------------------------------- -----------------------------------
Percent of Percent of
Loans in Loans in
Percent Each Percent Each
Allowance of Category to Allowance of Category to
Amount Allowance Gross Loans Amount Allowance Gross Loans
--------- ---------- ---------- --------- ---------- ----------
Mortgage loans: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family ................. $ 79 47.6% 94.9% $ 83 50.0% 94.6%
Multifamily ......................... 6 3.6 1.4 6 3.6 1.9
Commercial real estate .............. 4 2.4 0.6 5 3.0 0.7
Land, construction and development .. 2 1.2 0.2 1 0.6 0.2
Home equity ......................... 5 3.0 2.4 4 2.4 2.4
Other loans ............................ -- -- 0.5 -- -- 0.2
Unallocated ............................ 70 42.2 -- 67 40.4 --
--------- ---------- ---------- --------- --------- ----------
Total allowance for loan losses ..... $ 166 100.0% 100.0% $ 166 100.0% 100.0%
========= ========== ========== ========= ========= ==========
<CAPTION>
At July 31,
----------------------------------
1993
----------------------------------
Percent of
Loans in
Percent Each
Allowance of Category to
Amount Allowance Gross Loans
--------- --------- ----------
Mortgage loans: (Dollars in thousands)
<S> <C> <C> <C>
One- to four-family ................. $ 101 54.9% 92.5%
Multifamily ......................... 7 3.8 1.7
Commercial real estate .............. 8 4.3 1.0
Land, construction and development .. 18 9.8 1.9
Home equity ......................... 5 2.7 2.8
Other loans ............................ -- -- 0.2
Unallocated ............................ 45 24.5 --
--------- --------- ----------
Total allowance for loan losses ..... $ 184 100.0% 100.0%
========= ========= ==========
</TABLE>
10
<PAGE>
INVESTMENT ACTIVITIES
GENERAL. The investment policy of the Bank, which is approved by the
Board of Directors, is based upon its asset/liability management goals and is
designed primarily to provide and maintain adequate liquidity, maintain a
balance of high quality, diversified investments, minimize risks to the Bank and
complement the Bank's lending activities. The investment policy is implemented
by the Chief Financial Officer and the President. The policy designates the
Chief Financial Officer as the investment manager authorized to oversee the
daily operations of the investment portfolio. Historically, the Bank has
maintained liquid assets at levels above the minimum requirements imposed by the
OTS regulations and above levels believed adequate to meet the requirements of
normal operations, including potential deposit outflows. At June 30, 1997, the
Bank's liquidity ratio for regulatory purposes was 44.01%.
As required by Statement of Financial Accounting Standards ("SFAS")
115, securities are classified into three categories: trading, held-to-maturity
and available-for-sale. Securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and are reported at fair value with unrealized gains and losses included in
trading account activities in the statement of earnings. At June 30, 1997, the
Bank had no securities which were classified as trading. Securities that the
Bank has the positive intent and ability to hold to maturity are classified as
held-to-maturity and reported at amortized cost. All other securities not
classified as held-to-maturity are classified as available-for-sale.
Available-for-sale securities are reported at fair value with unrealized gains
and losses included, on an after tax basis, as a separate component of retained
earnings. At June 30, 1997, $61.4 million of mortgage-backed securities and
investments in mutual funds were classified as available-for-sale. At June 30,
1997, mortgage-backed securities held-to-maturity totaled $47.4 million and had
a fair value of $46.5 million. In 1995, the Financial Accounting Standards Board
("FASB") issued a special report allowing the transfer of securities from
held-to-maturity to the available-for-sale classification during the period from
November 15, 1995 to December 31, 1995, with no recognition of any related
unrealized gain or loss in current earnings. On December 31, 1995, the Bank
transferred mortgage-backed securities held-to-maturity with an amortized cost
of approximately $56.4 million to the available-for-sale classification. The
gross unrealized gain related to the transferred securities was approximately
$609,000.
MORTGAGE-BACKED SECURITIES. The Bank invests in mortgage-backed
securities and uses such investments to complement its mortgage lending
activities and supplement such activities at times of low mortgage loan demand.
At June 30, 1997, all securities in the Bank's mortgage-backed
securities portfolio were directly insured or guaranteed by FNMA or the Federal
Home Loan Mortgage Corporation ("FHLMC"), thereby providing the certificate
holder a guarantee of timely payments of interest and scheduled principal
payments, whether or not they are collected. The Bank's mortgage-backed
securities portfolio had a weighted average yield of 6.63% at June 30, 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 Bank. In general, mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association ("GNMA"), FNMA and
FHLMC and certain AAA rated mortgage-backed pass through securities are weighted
at no more than 20% for risk based regulatory capital purposes, compared to the
50% risk weighting assigned to most non-securitized residential mortgage loans.
While mortgage-backed securities carry a reduced credit risk as
compared to whole loans, such securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors such as the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loans and so affect both the prepayment speed,
and value, of such securities.
INVESTMENT SECURITIES. Federal savings associations have the authority
to invest in various types of liquid assets, including United States Treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds. Subject to various restrictions,
federal savings associations may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federal
11
<PAGE>
savings association is otherwise authorized to make directly. The Bank, from
time to time, has used investment securities to supplement loan volume and to
provide short- and intermediate-term assets for asset/liability management
purposes. From time to time, the Bank has invested in high quality investment
securities with various terms to maturity. At June 30, 1997, the Company had
$1.1 million investment in mutual funds.
The following table sets forth activity in the Bank's mortgage-backed
securities and investment portfolio for the periods indicated.
<TABLE>
<CAPTION>
For the
Eleven Months
Ended For the Year Ended July 31,
June 30, ----------------------------
1997 1996 1995
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Held-to-maturity:
Amortized cost at beginning of period ..... $ 44,133 $ 111,283 $ 111,987
Purchases/sales, net ...................... 10,207 -- 10,305
Transfer (to) from available-for-sale ..... -- (56,447) --
Principal repayments ...................... (6,753) (10,484) (10,817)
Premium and discount amortization, net .... (211) (219) (192)
------------ ------------ ------------
Amortized cost at end of period ........... $ 47,376 $ 44,133 $ 111,283
============ ============ ============
Available-for-sale:
Amortized cost at beginning of period ..... $ 59,898 $ -- $ --
Purchases/sales, net ...................... 10,172 10,081 --
Transfer (to) from held-to-maturity ....... -- 56,447 --
Principal repayments ...................... (8,680) (6,622) --
Premium and discount amortization, net .... (14) (8) --
------------ ------------ ------------
Amortized cost at end of period ........... $ 61,376 $ 59,898 $ --
============ ============ ============
Total mortgage-backed securities
and investment portfolio ........ $ 108,752 $ 104,031 $ 111,283
============ ============ ============
</TABLE>
The following table sets forth certain information regarding the
amortized cost and fair value of the Bank's mortgage-backed securities and
investments at the dates indicated.
<TABLE>
<CAPTION>
At July 31,
---------------------------------------------
At June 30, 1997 1996 1995
--------------------- --------------------- ---------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- --------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Held-to-maturity:
FNMA .................................... $ 44,136 $ 43,283 $ 39,135 $ 37,195 $ 78,831 $ 77,117
FHLMC ................................... 3,240 3,252 4,998 4,960 32,452 32,000
--------- --------- --------- --------- --------- ---------
Total held-to-maturity ............... $ 47,376 $ 46,535 $ 44,133 $ 42,155 $ 111,283 $ 109,117
========= ========= ========= ========= ========= =========
Available-for-sale:
FNMA .................................... $ 41,173 $ 41,152 $ 37,454 $ 36,596 $ -- $ --
FHLMC ................................... 19,187 19,067 22,444 21,682 -- --
Mutual funds ............................ 1,016 1,087 -- -- -- --
--------- --------- --------- --------- --------- ---------
Total available-for-sale .............. $ 61,376 $ 61,306 $ 59,898 $ 58,278 $ -- $ --
========= ========= ========= ========= ========= =========
Total mortgage-backed securities
and investment portfolio ...... $ 108,752 $ 107,841 $ 104,031 $ 100,433 $ 111,283 $ 109,117
========= ========= ========= ========= ========= =========
</TABLE>
12
<PAGE>
The table below sets forth certain information regarding the amortized cost,
fair value, weighted average yields and stated maturity of the Bank's
mortgage-backed securities and investment portfolio at June 30, 1997. No effect
has been given to prepayments or amortization of loans. There were no
mortgage-backed securities (exclusive of obligations of the U.S. Government and
any federal agencies) issued by any one entity with a total carrying value in
excess of 10% of stockholders' equity at June 30, 1997.
At June 30, 1997
-------------------------------
Weighted
Amortized Fair Average
Cost Value Coupon
-------- -------- ------
(Dollars in thousands)
Held-to-maturity:
Due within 1 year ....................... $ -- $ -- --%
Due after 1 year but within 5 years ..... 37,498 36,665 6.32
Due after 5 years but within 10 years ... 4,891 4,884 7.50
Due after 10 years ...................... 4,987 4,986 7.50
-------- -------- ------
Total held-to-maturity ............. $ 47,376 $ 46,535 6.57%
======== ======== ======
Available-for-sale:
No stated maturity date ................. $ 1,016 $ 1,087 n/a%
Due within 1 year ....................... 371 367 5.50
Due after 1 year but within 5 years ..... 22,545 22,344 5.94
Due after 5 years but within 10 years ... 29,295 29,418 7.18
Due after 10 years ...................... 8,149 8,090 7.00
-------- -------- ------
Total available-for-sale ........... $ 61,376 $ 61,306 6.64%
======== ======== ======
Total:
No stated maturity date ................. $ 1,016 $ 1,087 n/a%
Due within 1 year ....................... 371 367 5.50
Due after 1 year but within 5 years ..... 60,043 59,009 6.18
Due after 5 years but within 10 years ... 34,186 34,302 7.23
Due after 10 years ...................... 13,136 13,076 7.19
-------- -------- ------
Total mortgage-backed and
investment portfolio ............. $108,752 $107,841 6.61%
======== ======== ======
REAL ESTATE INVESTMENT. The investment in real estate held for sale and
development originally consisted of 158 single family detached home sites and a
15-acre commercial parcel in a Planned Unit Development named the Trails of
Olympia Fields. However, the Bank has nearly liquidated this investment through
sales. At June 30, 1997, only one five-acre commercial parcel with a book value
of $262,000 remained unsold. The Company acquired this parcel from the Bank in
the second quarter of fiscal 1997.
The Bank is currently the plaintiff in litigation brought against the
Village of Olympia Field, its trustees, The Home Owners Association of the
Trails of Olympia Fields and individual members of its Home Owners Association
for actions by these defendants that impeded the orderly development of the
Trails of Olympia Fields.
SOURCES OF FUNDS
GENERAL. Savings deposits are the primary source of the Bank's
funds for use in lending and for other general business purposes. In addition to
savings deposits, the Bank derives funds from loan and security repayments
and prepayments, from advances from the FHLB of Chicago, from other borrowings,
net revenues from operations and to a lesser extent from loan sales. Loan and
mortgage-backed securities amortizations are a relatively stable source of
funds, while savings inflows and outflows and loan and mortgage-backed
securities prepayments are significantly influenced by general interest rates
and money market conditions. Borrowings, primarily from the FHLB of Chicago, may
be used on a short term basis to compensate for reductions in normal sources of
funds at less than projected levels. They may also be used on a longer term
basis to support expanded activities.
SAVINGS DEPOSITS. The Bank offers several types of savings programs to
attract short term and long term savings deposits, including passbook, various
NOW accounts, money market deposit accounts and a variety of fixed-rate, money
market certificates. Deposit account terms vary according to the minimum balance
required, the time
13
<PAGE>
periods the funds must remain on deposit and the interest rate, among other
factors. The Bank's savings deposits are obtained predominantly from the areas
near its office locations. The Bank relies primarily on customer service and
long-standing relationships with customers to attract and retain these savings
deposits; however, market interest rates and rates offered by competing
financial institutions significantly affect the Bank's ability to attract and
retain savings deposits. Certificate accounts in excess of $100,000 are not
actively solicited by the Bank nor does the Bank use brokers to obtain savings
deposits. At June 30, 1997, the Bank had approximately $123.0 million
outstanding in savings deposits.
The authority to pay competitive rates on insured savings deposits has
allowed the Bank to be more aggressive in obtaining funds and has given it more
flexibility to minimize net deposit outflows. However, competitive interest
rates have also resulted in a more volatile cost of funds.
The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated and the weighted average interest rates on
each category of savings deposits presented. Management does not believe that
the use of year end balances instead of average monthly balances would result
in any material difference in information presented.
<TABLE>
<CAPTION>
At July 31,
------------------------------------------------------------
At June 30, 1997 1996 1995
----------------------------- ----------------------------- -----------------------------
Percent Percent Percent
of Weighted of Weighted of Weighted
Total Average Total Average Total Average
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
-------- -------- ---- -------- -------- ---- -------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing NOW accounts ... $ 4,582 3.7% --% $ 4,165 3.0% --% $ 3,799 2.6% --%
Interest-bearing NOW accounts ...... 7,178 5.9 2.02 7,310 5.3 2.02 7,295 4.9 2.02
Money market demand accounts ....... 12,281 10.0 3.12 13,035 9.5 3.12 14,717 9.9 3.16
Passbook accounts .................. 39,607 32.2 2.50 41,324 30.2 2.50 44,241 29.8 2.50
Certificates of deposit ............ 59,333 48.2 5.34 71,343 52.0 5.48 78,298 52.8 5.52
-------- ----- ---- -------- ----- ---- -------- ----- ----
Totals ........................ $122,981 100.0% 3.81% $137,177 100.0% 4.01% $148,350 100.0% 4.07%
======== ===== ==== ======== ===== ==== ======== ===== ====
</TABLE>
The following table presents the savings deposit activity of the Bank
for the periods indicated.
<TABLE>
<CAPTION>
For the
Eleven Months
Ended For the Year Ended July 31,
June 30, ---------------------------
1997 1996 1995
------------- ----------- -------------
(In thousands)
<S> <C> <C> <C>
Deposits ............................................ $ 266,195 $ 266,028 $ 265,702
Withdrawals ......................................... (284,167) (282,429) (263,875)
------------- --------- ---------
Deposits in excess of (less than) withdrawals ....... (17,972) (16,401) 1,827
Interest credited ................................... 3,776 5,228 4,693
------------- --------- ---------
Total increase (decrease) in savings deposits ... $ (14,196) $ (11,173) $ 6,520
============= ========= =========
</TABLE>
At June 30, 1997, the Bank had $5.5 million in certificate accounts
with a balance of $100,000 or greater maturity follows:
Weighted
Amount Average Rate
------------ ------------
(Dollars in thousands)
Maturity Period
Within three months ................. $ 863 5.46%
After three but within six months ... 1,793 5.17
After six but within 12 months ...... 1,849 5.30
After 12 months ..................... 1,000 5.86
------------ -----------
Total ............................ $ 5,505 5.38%
============ ===========
14
<PAGE>
The following table sets forth the amount of certificates of deposit
outstanding at the dates indicated and the remaining period to maturity of the
certificates of deposit outstanding at June 30, 1997.
<TABLE>
<CAPTION>
Period to Maturity at June 30, 1997 Total at
------------------------------------ ------------------------------------
More than July 31,
Less than One to Three to June 30, -----------------------
Interest Rate Range One Year Three Years Five Years 1997 1996 1995
- ------------------- ---------- ----------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
4.00% and below ....... $ 257 $ -- $ -- $ 257 $ 968 $ 2,439
4.01% to 5.00% ........ 1,386 628 -- 2,014 18,226 21,235
5.01% to 6.00% ........ 42,052 11,642 928 54,622 34,515 28,081
6.01% to 7.00% ........ 1,445 995 -- 2,440 17,634 26,502
7.01% and above ....... -- -- -- -- -- 41
---------- ---------- ---------- ---------- ---------- ----------
Total ............ $ 45,140 $ 13,265 $ 928 $ 59,333 $ 71,343 $ 78,298
========== ========== ========== ========== ========== ==========
</TABLE>
BORROWINGS. Although savings deposits are the primary source of funds
for the Bank's lending and investment activities and for its general business
purposes, the Bank has in the past relied upon advances from the FHLB of Chicago
and, to a lesser extent, reverse repurchase agreements, to supplement its supply
of funds and to meet deposit withdrawal requirements. The Bank may obtain
advances from the FHLB of Chicago on the security of the capital stock of the
FHLB of Chicago it owns and certain of its home mortgage loans and/or
mortgage-backed and investment securities provided certain standards related to
creditworthiness have been met. Such advances are made pursuant to several
different credit programs. Each credit program has its own interest rate and
range of maturities, and the FHLB of Chicago prescribes acceptable uses to which
the advances pursuant to each program may be used as well as limitations on the
size of such advances. Depending on the program, such limitations are based
either on a fixed percentage of assets or the Bank's creditworthiness. The FHLB
is required to review its credit limitations and standards at least once every
six months. FHLB advances have from time to time been used to meet the Bank's
liquidity needs. At June 30, 1997, the Bank had $49.6 million in FHLB of Chicago
borrowings and the capability to borrow additional funds upon complying with the
FHLB of Chicago's collateral requirements.
The Bank at times sells securities under agreements to repurchase,
which transactions are treated as financings, and the obligation to repurchase
the securities sold is reflected as a liability in the statements of financial
condition. The dollar amount of securities underlying the agreements remains in
the asset account and are held in safekeeping. There were no securities sold
under agreements to repurchase outstanding at or during the eleven months ended
June 30, 1997 and the years ended July 31, 1996 and 1995.
The following table sets forth certain information regarding borrowings
at the dates and for the periods indicated:
<TABLE>
<CAPTION>
At or for the
Eleven Months At or for the year ended
ended July 31,
June 30, -------------------------
1997 1996 1995
-------------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
FHLB of Chicago advances:
Maximum amount outstanding at any month-end during the period .... $49,600 $43,000 $35,300
Average balance outstanding ...................................... 43,849 37,800 33,685
Balance outstanding at end of period ............................. 49,600 39,900 32,300
Weighted average interest rate during the period ................. 6.22% 6.68% 6.74%
Weighted average interest rate at end of period .................. 6.41% 6.75% 6.83%
</TABLE>
15
<PAGE>
SUBSIDIARY ACTIVITIES
As a federally chartered savings bank, the Bank is permitted to invest
an amount equal to 2% of its assets in service corporation subsidiaries with an
additional investment of 1% of assets where such investment serves primarily
community, inner city and community development. In addition to investments in
service corporations, federal institutions are permitted to invest an unlimited
amount in operating subsidiaries engaged solely in activities which a federal
savings bank may engage in directly. The Bank currently does not have any
subsidiary operations.
PERSONNEL
At June 30, 1997, the Bank employed 52 full time and 14 part time
employees. At June 30, 1997, 44% of the Bank's employees had been with the Bank
for more than ten years. The employees are not represented by a collective
bargaining unit, and the Bank considers its relationship with its employees to
be good. The Bank seeks to compensate its personnel at a level competitive with
its savings institution peers in order to retain highly qualified employees.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The following is a discussion of material federal income tax
matters and does not purport to be a comprehensive description of the federal
income tax rules applicable to the Bank or the Company. The Bank has not been
audited by the IRS during the last five years. For federal income tax purposes,
after the Conversion, the Company and the Bank may file consolidated income tax
returns. The Company and the Bank report their income on a fiscal 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 Bank's tax reserve for bad debts, discussed below.
TAX BAD DEBT RESERVES. The 1996 Tax Act, which was enacted on August
20, 1996, made significant changes to provisions of the Internal Revenue Code of
1986 (the "Code") relating to a savings institution's use of bad debt reserves
for federal income tax purposes and requires such institutions to recapture
(i.e., take into income) certain portions of their accumulated bad debt
reserves. The effect of the 1996 Tax Act on the Bank is discussed below. Prior
to the enactment of the 1996 Tax Act, the Bank was permitted to establish tax
reserves for bad debts and to make annual additions thereto, which additions,
within specified formula limits, were deducted in arriving at the Bank's taxable
income. The Bank's deduction with respect to "qualifying loans," which are
generally loans secured by certain interests in real property, was permitted to
be computed using an amount based on a six-year moving average of the Bank's
charge-offs for actual losses (the "Experience Method"), or a percentage equal
to 8% of the Bank'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 loan reserve. The Bank's deduction
with respect to nonqualifying loans was required to be computed under the
Experience Method. Each year the Bank reviewed the most favorable way to
calculate the deduction attributable to an addition to the tax bad debt
reserves.
THE 1996 TAX ACT. Under the 1996 Tax Act, the PTI Method was repealed
for thrifts and the Bank, as a "small bank" (one with assets having an adjusted
basis of $500 million or less), will be required to use only the Experience
Method of computing additions to its bad debt reserves for the tax year
beginning August 1, 1996. In addition, the Bank will be required to recapture
(i.e., take into income) over a six year period beginning with the Bank's
taxable year which began August 1, 1996 the excess of the balance of its bad
debt reserves for losses on nonqualifying and qualifying loans (other than the
supplement reserves) as of July 31, 1996 over the greater of (a) the balance of
such reserves as of July 31, 1988 or (b) an amount that would have been the
balance of such reserves as of July 31, 1996 had the Bank always computed the
additions to its reserves using the Experience Method. The Bank's post-July 31,
1988 nonqualifying and qualifying bad debt reserves at July 31, 1996 was
approximately $499,000 which will require the
16
<PAGE>
Bank to report an additional tax liability of approximately $194,000. As of
June 30, 1997, this liability had already been provided for and will not have an
adverse impact on the Bank's financial condition or results of operations.
DISTRIBUTIONS. Under the 1996 Tax Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of July 31, 1988) and then from the Bank's
supplemental reserve for losses on loans, to the extent thereof, and an amount
based on the amount distributed (but not in excess of the amount of such
reserves) will be included in the Bank's income. The balance of the Bank's tax
bad debt reserve as of July 31, 1988 was $3,685,478. The balance of the Bank's
supplemental reserve for losses was $2,463,159. Non-dividend distributions
include distributions in excess of the Bank's current and accumulated earnings
and profits, as calculated for federal income tax purposes, distributions in
redemption of stock, and distributions in partial or complete liquidation.
Dividends paid out of the Bank's current or accumulated earnings and profits
will not be so included in the Bank's income.
The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if the Bank makes a
non-dividend distribution to the Company, approximately one and one-half times
the amount of such distribution (but not in excess of the amount of such
reserves) would be includable in income for federal income tax purposes,
assuming a 34% federal corporate income tax rate.
CORPORATE ALTERNATIVE MINIMUM TAX. 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. 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 Bank's AMTI is increased by an amount equal to 75% of the amount by
which the Bank's adjusted current earnings exceeds its AMTI (determined without
regard to this adjustment and prior to reduction for net operating losses). The
Bank 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 Bank 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 Bank own more than 20% of the
stock of a corporation paying a dividend.
STATE AND LOCAL TAXATION
The Bank may file a combined Illinois income tax return with the
Company. For Illinois income tax purposes, the Bank 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 Bank. As of July 31,
1996, the Bank has approximately $11.1 million of Illinois' net loss deduction
carryforward that can be utilized to reduce Illinois taxable income.
As an Illinois holding company, the Company will pay an annual
franchise tax to the State of Illinois.
The Company may file a separate Illinois income tax return or it may
file a combined Illinois income tax return with the Bank. The Company will be
taxed at an effective rate equal to 7.3% of Illinois taxable income as defined
above.
17
<PAGE>
REGULATION
GENERAL
The Bank is subject to extensive regulation, examination, and
supervision by the OTS, as its chartering agency, and the FDIC, as its deposit
insurer. The Bank's deposit accounts are insured up to applicable limits by the
SAIF administered by the FDIC, and the Bank is a member of the FHLB of Chicago.
The Bank 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 Bank'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 Bank and the operations of both.
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 Bank 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 Bank 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
Bank may also establish service corporations that may engage in activities not
otherwise permissible for the Bank, 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; (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 nonconforming 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 June 30,
1997, the Bank's regulatory limit on loans to one borrower was $3.7 million. At
June 30, 1997, the Bank's largest aggregate amount of loans to one borrower was
$297,000, and the second largest borrower had an aggregate balance of $294,000.
The Bank 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) certain intangibles, including goodwill and credit card and purchased
mortgage servicing rights, and (c) the value of property
18
<PAGE>
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, consumer loans, small business loans, education loans, and
credit card loans. At June 30, 1997, the Bank maintained 99% of its portfolio
assets in qualified thrift investments. The Bank had also met the QTL test in
each of the prior 12 months and was, therefore, a qualified thrift lender. 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.
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 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 total risk-based capital to total
risk-weighted assets. 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 noncumulative
perpetual preferred stock and related earnings and minority interests in equity
accounts of fully consolidated subsidiaries, less intangibles (other than
certain purchased 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 requirements, to hold additional capital
to account for its "above normal" interest rate risk. Pending 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. An institution with assets of
less than $300 million and risk-based capital ratios in excess of 12% is not
subject to the interest rate risk component, unless the OTS determines
otherwise. The rule also provides that the Director of the OTS may waive or
defer an institution'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
19
<PAGE>
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 June 30, 1997, the Bank met each of its capital requirements.
The table below presents the Bank's regulatory capital as compared to
the OTS regulatory capital requirements at June 30, 1997.
<TABLE>
<CAPTION>
Bank Capital Bank
Bank Requirements Excess
-------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tangible capital ..... $ 24,834 12.13% $ 3,070 1.50% $ 21,764 10.63%
Core capital ......... 24,834 12.13 6,141 3.00 18,693 9.13
Risk-based capital ... 25,134 34.03 5,908 8.00 19,226 26.03
</TABLE>
A reconciliation between the Bank's regulatory capital and GAAP capital
at June 30, 1997 is presented below.
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
GAAP capital ................................... $ 24,737 $ 24,737 $ 24,737
Unrealized loss on mortgage-backed securites
available-for-sale, net of tax .............. 97 97 97
Allowance for loan loss ........................ -- -- 300
---------- ---------- ----------
Regulatory capital ............................. $ 24,834 $ 24,834 $ 25,134
========== ========== ==========
</TABLE>
LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations currently impose
limitations upon capital distributions by savings associations, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
shareholders 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 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 Bank would be prohibited from
making any capital distribution if, after the distribution, the Bank failed to
meet its minimum capital requirements, as described above.
LIQUIDITY. The Bank is required to maintain an average daily balance of
liquid assets (cash, certain time deposits, bankers' acceptances, specified
United States Government, state or 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 5%. OTS regulations also require each
savings association to maintain an average daily balance of short-term liquid
assets at a specified percentage (currently 1%) of the total of its net
withdrawable deposit accounts and borrowings payable in one year or
20
<PAGE>
less. Monetary penalties may be imposed for failure to meet these liquidity
requirements. The Bank's average liquidity ratio for the month ended June 30,
1997, was 42.9%, which exceeded the applicable requirements. The Bank has never
been subject to monetary penalties for failure to meet its liquidity
requirements.
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 semiannual 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 July 1997,
the Bank paid the semiannual assessment of $29,312.
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 either
satisfies the "QTL" test for a qualified thrift lender or 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 Bank 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 system will 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
benefiting 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 Bank'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 Bank is any company that controls the Bank or any other company
that is controlled by a company that controls the Bank, excluding the Bank'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
nonaffiliated 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
nonaffiliated companies.
21
<PAGE>
The Bank'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 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, 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 standards, 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.
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 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
22
<PAGE>
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 on the CAMEL 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 on the
CAMEL 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.
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 depositary 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.
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 Bank is a member of the SAIF, and
the Bank pays its deposit insurance assessments to the SAIF. The FDIC also
maintains another insurance fund, the BIF, which primarily insures the deposits
of banks and state chartered savings banks.
Pursuant to FDICIA, the FDIC established a risk based assessment system
for determining the deposit insurance assessments to be paid by insured
depositary institutions. Under the assessment system, the FDIC assigns
23
<PAGE>
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 "1996 Act"), both the BIF and the SAIF currently satisfy the
reserve ratio requirement. The 1996 Act authorized the FDIC to impose a special
one-time assessment on all institutions with SAIF-assessable deposits in the
amount necessary to recapitalize the SAIF-assessable deposits as of March 31,
1995. For the Bank, the special assessment was $936,000. The impact on
operations, net of related tax effects, reduced reported earnings by $617,000
for the eleven months ended June 30, 1997.
The 1996 Act also provides that the FDIC cannot assess regular
insurance assessments for an insurance fund unless required to maintain or to
achieve the designated reserve ratio of 1.25%, except on those of its member
institutions that are not classified as "well capitalized" or that have been
found to have "moderately severe" or "unsatisfactory" financial, operational or
compliance weaknesses. The Bank has not been so classified by the FDIC or the
OTS.
In addition, the 1996 Act expanded the assessment base for the payments
on the bonds (the "FICO bonds") issued in the late 1980s by the Financing
Corporation to recapitalize the now defunct Federal Savings and Loan Insurance
Corporation to include the deposits of both BIF- and SAIF-insured institutions
beginning January 1, 1997. 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 will 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 are 0.0126% for BIF-assessable deposits and 0.0630% for
SAIF-assessable deposits.
The 1996 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 Secretary of the Treasury is required 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 has recommended 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 such non-financial activity, the Secretary of the
Treasury recommended retention of the thrift charter. The Secretary of the
Treasury also recommended the merger of the BIF and the SAIF irrespective of
whether the thrift charter is eliminated. Other proposed legislation has been
introduced in Congress that would require thrift institutions to convert to bank
charters.
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 Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
FEDERAL HOME LOAN BANK SYSTEM. The Bank 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 Bank, 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 Bank was in compliance with this requirement with
an investment in the capital stock of the FHLB of Chicago at June 30, 1997,
24
<PAGE>
of $2.5 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 Bank earned dividends on the FHLB of Chicago
capital stock in amounts equal to $138,000, $148,000, and $143,000 during the
eleven months ended June 30, 1997, and the fiscal years ended July 31, 1996 and
1995, respectively. If dividends were reduced, or interest on future Federal
Home Loan Bank advances increased, the Bank's net interest income would likely
also be reduced.
FEDERAL RESERVE SYSTEM. The Bank is subject to provisions of the FRA
and the FRB's regulations pursuant to which depositary institutions may be
required to maintain non-interest-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 $49.3 million. The amount of
aggregate transaction accounts in excess of $49.3 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 $4.4 million of otherwise reservable
balances from the reserve requirements, which exemption is adjusted by the FRB
at the end of each year. The Bank is in compliance with the foregoing reserve
requirements. Because required reserves must be maintained in the form of either
vault cash, a non-interest bearing account at a Federal Reserve Bank, or a
passthrough account as defined by the FRB, the effect of this reserve
requirement is to reduce the Bank'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 bank holding company
within the meaning of the HOLA, as amended. As such, the Company is subject to
OTS regulations, examinations, supervision and reporting requirements. In
addition, the OTS has enforcement authority over the Company and its non-savings
association subsidiaries, if any. 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
institution.
The HOLA prohibits a savings association holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring another savings
association or holding company thereof, without prior written approval of the
OTS; acquiring or retaining, with certain exceptions, more than 5% of a
non-subsidiary savings association, a non-subsidiary holding company, or a
non-subsidiary company engaged in activities other than those permitted by the
HOLA; or acquiring or retaining control of a depository institution that is not
insured by the FDIC. In evaluating an application by a holding company to
acquire a savings association, the OTS must consider the financial and
managerial resources and future prospects of the company and savings association
involved, the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community and competitive factors.
As a unitary savings bank holding company, the Company generally is not
restricted under existing laws as to the types of business activities in which
it may engage, provided that the Bank continues to satisfy the QTL test. Upon
any non-supervisory acquisition 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 noninsured 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.
The OTS is prohibited from approving any acquisition that would result
in a multiple savings association holding company controlling savings
associations in more than one state, subject to two exceptions: an acquisition
of a savings association in another state (a) in a supervisory transaction or
(b) pursuant to authority under the laws of the state of the association to be
acquired that specifically permit such acquisitions. The conditions imposed upon
25
<PAGE>
interstate acquisitions by those states that have enacted authorizing
legislation vary. Some states impose conditions of reciprocity, which have the
effect of requiring that the laws of both the state in which the acquiring
holding company is located (as determined by the location of its subsidiary
savings association) and the state in which the association to be acquired is
located, have each enacted legislation allowing its savings associations to be
acquired by out-of-state holding companies on the condition that the laws of the
other state authorize such transactions on terms no more restrictive than those
imposed on the acquiror by the state of the target association. Some of these
states also impose regional limitations, which restrict such acquisitions to
states within a defined geographic region. Other states allow full nationwide
banking without any condition of reciprocity. Some states do not authorize
interstate acquisitions of savings associations.
Transactions between the Bank and the Company and its other
subsidiaries are subject to various conditions and limitations. The Bank 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.
FEDERAL SECURITIES LAW
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").
The Company is subject to information, proxy solicitation, insider trading
restrictions and other requirements under the Exchange Act.
ITEM 2. PROPERTIES
The Bank conducts its business through its corporate office and two
branch locations, as set forth in the following table.
26
<PAGE>
<TABLE>
<CAPTION>
Date Lease Net Book
Leased Leased or Expiration Value at
or Owned Acquired Date June 30, 1997
---------- ---------- ---------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Main Office:
Old McHenry Road
Long Grove, Illinois 60047 .... Owned 1980 -- $ 3,654
Branches:
1601 North Milwaukee Avenue
Chicago, Illinois 60647 ....... Owned 1941 -- 492
8301 West Lawrence
Norridge, Illinois 60656 ...... (1) 1976 4/2006(2) 28
</TABLE>
- -------------
(1) Land leased, building owned by the Bank.
(2) The Bank has two five-year renewal options.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its operations, the Bank is a party to
routine litigation involving claims incidental to the savings bank business.
Management believes that no current litigation, threatened or pending, to which
the Bank or its assets is or may become a party poses a substantial likelihood
of potential loss or exposure which would have a material adverse effect on the
financial position of the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of shareholders was held on June 24, 1997. The
approval and adoption of the Big Foot Financial Corp. 1997 Stock Option Plan
(the "Stock Option Plan") was the purpose of the meeting. Shares that were
eligible to vote and present at the meeting in person or by proxy amounted to
1,781,969 shares; the Stock Option Plan was approved, with 1,624,603 shares
eligible to vote voting in favor of the Stock Option Plan; 96,428 shares
eligible to vote were voted against the Stock Option Plan, and 17,832 shares
eligible to vote abstained. There were 43,106 broker held non-voted shares.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Big Foot Financial Corporation's common stock is traded over the
counter and is listed on the Nasdaq National Market System of the Nasdaq Stock
Market under the symbol "BFFC." At June 30, 1997, there were 2,512,750 shares of
Big Foot Financial Corp. common stock issued and outstanding and there were
approximately 522 holders of record. The price range of the common stock from
the date the common stock began trading on December 20, 1996 was as follows:
QUARTER ENDED HIGH LOW DIVIDENDS
January 31, 1997 14.25 12.313 N/A
April 30, 1997 15.00 13.25 N/A
Two-month Period ended June 30, 1997 16.125 14.625 N/A
The stock price The stock price information set forth in the table
above was provided by the National Association of Securities Dealers, Inc.
High, low, and closing prices and daily trading volume are reported in most
major newspapers.
The Company The Company has not paid a cash dividend since its
incorporation. The Board of Directors may consider the payment of cash
dividends, dependent on the results of operations and financial condition of the
Company, tax considerations, industry standards, economic conditions, regulatory
restrictions, general business practices, and other factors. The Company's
ability to pay dividends is dependent on the dividend payments it receives from
its subsidiary, Fairfield Savings Bank, F.S.B. which are subject to regulations
and the Bank's continued compliance with all regulatory capital requirements.
See Note 15 of the Notes to the Consolidated Financial Statements for
information regarding limitations of the Bank's ability to pay dividends to the
Company.
27
<PAGE>
ITEM 6.
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
At or for the At or for the fiscal year ended
Eleven Months ---------------------------------------------------------
ended July 31
June 30, ---------------------------------------------------------
1997 1996 (1) 1995 (1) 1994 (1) 1993 (1)
------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets ............................................ $ 214,896 $ 194,624 $ 200,251 $ 195,207 $ 186,997
Loans receivable (net) .................................. 93,624 79,144 70,984 68,426 80,346
Allowance for loan losses ............................... 300 300 166 166 184
Mortgage-backed securities .............................. 107,595 102,411 111,283 111,987 47,524
Savings deposits ........................................ 122,981 137,177 148,350 141,830 131,504
Borrowed funds .......................................... 49,600 39,900 32,300 34,300 36,600
Stockholders' equity .................................... 36,977 13,579 14,423 13,441 11,851
SELECTED OPERATING DATA:
Net interest income before provision
for loan losses ................................. 5,346 4,704 5,341 6,129 6,541
Net income .............................................. 220 226 982 2,110 2,013
Net income excluding
special SAIF assessment, net of tax ............. 837 n/a n/a n/a n/a
SELECTED FINANCIAL RATIOS:
Bank Capital ratios:
Tangible ........................................ 12.13% 7.35% 7.05% 6.50% 6.34%
Core ............................................ 12.13 7.35 7.05 6.50 6.34
Risk-based ...................................... 34.03 21.59 21.28 19.63 16.38
Return on average assets ................................ 0.11 0.11 0.51 1.09 1.08
Return on average assets
excluding special SAIF assessment, net of tax ... 0.41 n/a n/a n/a n/a
Return on average stockholders' equity .................. 0.82 1.58 6.98 16.93 19.61
Return on average stockholders' equity
excluding special SAIF assessment, net of tax ... 3.13 n/a n/a n/a n/a
Consolidated equity to assets at end of period .......... 17.21 6.98 7.20 6.89 6.34
Noninterest expense to average assets ................... 2.59 2.36 2.45 2.63 2.51
Noninterest expense to average assets
excluding special SAIF assessment, net of tax ... 2.13 n/a n/a n/a n/a
Nonperforming assets as a percent of
total assets .................................... 0.09 0.06 0.18 0.26 0.49
Allowance for loan losses as a percent of
total loans ..................................... 0.32 0.38 0.23 0.24 0.23
PER SHARE DATA:
Primary earnings per share .............................. $ 0.27 n/a n/a n/a n/a
Book value .............................................. 14.72 n/a n/a n/a n/a
STOCK QUOTES:
High .................................................... $ 16.125 n/a n/a n/a n/a
Low ..................................................... 12.313 n/a n/a n/a n/a
At June 30, 1997 ........................................ 16.125 n/a n/a n/a n/a
</TABLE>
- --------------------------------------------------------------
(1) Fairfield Savings Bank, F.S.B. only.
28
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Big Foot Financial Corp., (the "Company"), an Illinois corporation, is
the holding company for Fairfield Savings Bank, F.S.B. (the "Bank"), a federally
chartered stock savings bank. On December 19, 1996, the Bank completed its
conversion (the "Conversion") from a federally chartered mutual savings bank to
a federally chartered stock savings bank, and all of the capital stock of the
Bank was acquired by the Company. The Company issued and sold 2,512,750 shares
of its common stock, $.01 par value per share, at a price of $10.00 per share in
a subscription offering (the "Offering") to eligible members of the Bank and to
the Company's Employee Stock Ownership Plan ("ESOP"). Net proceeds from the
Offering amounted to approximately $22.0 million. At June 30, 1997, there were
2,512,750 shares outstanding. The Company's sole business activity consists of
the ownership of the Bank. The Company also invests in long and short-term
investment grade marketable securities and other liquid investments. The
financial data presented in this Annual Report represents the activity of Bank
for the period prior to the Conversion and the consolidated activity of Big Foot
Financial Corp. and subsidiary thereafter.
The business of the Bank is that of a financial intermediary engaged
primarily in attracting savings deposits from the general public and using such
deposits to originate one- to four-family residential mortgage loans and, to a
lesser extent, multifamily residential loans, commercial real estate loans,
land, construction and development loans and consumer loans primarily in its
market area. The Bank maintains an investment portfolio consisting primarily of
mortgage-backed securities. The operations of the Bank are influenced
significantly by general economic conditions and by policies of financial
institution regulatory agencies, including the Office of Thrift Supervision (the
"OTS") and the Federal Deposit Insurance Corporation (the "FDIC"). The Bank's
cost of funds is influenced by interest rates on competing investments and
general market interest rates. Lending activities are affected by the demand for
financing of real estate and other types of loans, which in turn is affected by
the interest rates at which such financings may be offered.
The Bank's earnings are primarily dependent on its net interest income,
which is determined by the difference (the "spread") between the yields earned
on its interest earning assets, such as loans and investments, and the rates
paid on its interest bearing liabilities, primarily savings deposits and
borrowings. Results of operations are also dependent upon the level of the
Bank's noninterest income, including fee income and service charges, and by
noninterest expenses, principally its general and administrative expenses.
MANAGEMENT STRATEGY
Home Lending and Asset Quality. The Bank's strategy has been to
maintain its focus as a traditional consumer oriented financial intermediary
serving the markets in which its offices are located.
The Bank has emphasized, and intends to continue to emphasize, the
origination of one-to four-family residential mortgage loans in its lending
area, which is defined generally as Cook, Du
29
<PAGE>
Page and Lake Counties in Illinois. At June 30, 1997, one- to four-family family
residential mortgage loans totaled $91.1 million or approximately 97% of gross
loans, of which $85.1 million or about 90% of gross loans are at fixed rates of
interest. Approximately 3% of gross loans consisted of multifamily mortgage
loans, land, construction and development loans, home equity and other loans.
For the 1997 fiscal year, the Bank originated $23.1 million of mortgage loans.
The Bank also invests in mortgage-backed securities. The Bank's holdings of
mortgage-backed securities totaled $107.6 million at June 30, 1997, representing
over 50% of total assets.
The Bank pays particular attention to both the value estimates applied
to the collateral securing loans as well as to the creditworthiness of its
prospective borrowers and employs rigorous underwriting standards to minimize
risk of loss. As a result of this strategy, historically the Bank has had
minimal loss experience in its lending operations. The Bank's ratio of
non-performing loans to total loans at year end ranged from 0.15% to 1.13% for
the last five fiscal year ends and was 0.21% at June 30, 1997. Non-performing
assets to total assets ranged from 0.06% to 0.49% for the last five fiscal year
ends and was at 0.09% at June 30, 1997. The Bank's ratio of allowance for loan
losses to non-performing loans ranged from 20.18% to 254.24% for the last five
fiscal year ends and was 150.75% at June 30, 1997.
SAVINGS DEPOSITS AND BORROWED MONEY. The Bank's savings deposits are
derived principally from its primary market area. The Bank's strategy has been
to maintain a high level of stable savings deposits by providing quality service
to its customers without significantly increasing its cost of funds. The Bank's
low-cost deposit base, consisting of passbook accounts, noninterest bearing
demand accounts, NOW accounts and money market demand accounts, totaled $63.6
million or 51.8% of total savings deposits and had a weighted average effective
rate of 2.38% at June 30, 1997. For the past three years, these accounts have
consistently accounted for more than 47% of total savings deposits and had a
weighted average effective rate of not more than 2.45% throughout this period.
At June 30, 1997, money market demand accounts totaled $12.3 million or 10.0% of
total savings deposits and had a weighted average effective rate of 3.12%. The
Bank has consistently maintained an overall cost of funds lower than the
National Median Cost of Funds Rate as determined by the OTS. At June 30, 1997,
the Bank's cost of savings deposits was 3.81% and its cost of funds (including
FHLB borrowings) was 4.56%, or 34 basis points below the National Median Cost of
Funds Rate. The Bank has not and does not intend to use brokered deposits as a
source of funds.
MANAGEMENT OF INTEREST RATE RISK. The Bank's business strategy also
seeks to reduce the Bank's vulnerability to increases in interest rates.
Pursuant to this strategy, the Bank, (i) emphasizes the origination of mortgage
loans with terms of 15-years, instead of 30-year terms, (ii) seeks to attract
and maintain passbook accounts, which are considered by management to be more
resistant to increases in interest rates and (iii) purchases mortgage-backed
securities primarily with maturities of five and seven years.
Asset/Liability Management
The principal objectives of the Bank's interest rate risk management
activities are to: (i) evaluate the interest rate risk included in certain
balance sheet accounts; (ii) determine the level of risk appropriate given the
Bank's business focus, operating environment, capital and liquidity requirements
and performance objectives; and (iii) manage this risk consistent with Board
30
<PAGE>
approved guidelines. Through such management, the Bank seeks to reduce
vulnerability 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 Bank monitors its interest rate risk as such
risk relates to its operating strategies. The change in levels of interest rates
is an uncertainty that could have an impact on the earnings of the Bank. The
Bank's Chief Financial Officer is charged with the responsibility of developing
and implementing an interest rate risk management and reporting system. This
system measures the Bank's exposure to interest rate risk and provides reports
quarterly to management and the Board of Directors to ensure compliance with the
limits and controls of the policy.
To the extent consistent with its interest rate spread objectives and
market conditions, the Bank attempts to manage its interest rate risk and has
taken several steps in this regard. First, a majority of the Bank's
mortgage-backed and related securities acquisitions since 1993 have been
securities having a balloon maturity of five or seven years. At June 30, 1997,
the Company had $107.6 million in mortgage-backed securities, approximately
$94.5 million of which mature in ten years or less. The Bank's portfolio of
securities available-for-sale is marked-to-market monthly and is carried on the
books of the Bank at fair value. Any sale of such securities may result in a
gain or loss to the Bank to the extent the market value at the time of sale
exceeds or is less than the amortized cost.
Second, a significant portion of the Bank's deposits are passbook
accounts, which are considered by management to be somewhat more resistant to
interest rate changes than most other types of accounts. At June 30, 1997, the
Bank had $39.6 million in passbook accounts. Finally, although the Bank makes
minimal adjustable rate loans due to competitive factors, the Bank's fixed rate
lending program emphasizes loans with terms of 15 years or less. At June 30,
1997, the Bank had $35.5 million or 37.6% of total loans with remaining terms of
15 years or less.
Despite the efforts taken by the Bank to seek to reduce its level of
interest rate risk, and the Bank's intent to continue to seek to reduce its
exposure to interest rate risk, the Bank has remained vulnerable to increases in
interest rates. There can be no assurance that the Bank will not experience
changes in net income and net interest income during periods of increasing or
decreasing interest rates.
Net Portfolio Value ("NPV") analysis provides a quantification of
interest rate risk. In essence, this approach calculates the difference between
the present value of liabilities, expected cash flows from assets and cash flows
from off balance sheet contracts. Under OTS regulations, an institution's
"normal" level of interest rate risk in the event of an immediate and sustained
200 basis point change in interest rates is a decrease in the institution's NPV
in an amount not exceeding 2% of the present value of its assets. The Bank's
change in present value of its assets in a sustained 200 basis point change in
interest rate is projected to be approximately 2.82%. Most thrift institutions
with greater than "normal" interest rate exposure must take a deduction from
their total capital available to meet their risk based capital requirement. The
amount of that deduction is one-half of the difference between (a) the
institution's actual calculated exposure to the 200 basis point interest rate
increase or decrease (whichever results in the greater pro forma decrease in
NPV) and (b) its "normal" level of exposure which is 2% of the present value of
its assets. However, savings institutions with less than $300 million in assets
and risk-based capital ratios in excess of 12%, will be exempt from this
requirement unless the OTS determines otherwise. At present, the Bank meets both
conditions to be exempt from this additional capital requirement. The OTS has
indefinitely deferred the implementation of the interest rate risk
31
<PAGE>
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.
Presented below, as of June 30, 1997, is an analysis of the Bank's estimated
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts in interest rates, up and down 400 basis points in 100 point
increments. The NPV is prepared for the Bank by the OTS as of the end of each
calendar quarter. The regulatory focus of Asset and Liability Management allows
institutions to perform an in-house estimate of risk as the basis for measuring
risk-based capital. The Bank has demonstrated through its past pricing action
that passbook accounts function as relatively fixed rate deposits, and as such,
the passbook accounts are not rate sensitive deposits. Based upon the Bank's
historical experience of its passbook accounts, the Bank calculates the Core
Deposit Intangible value for those accounts. This calculation is substituted for
the OTS calculation and then a new set of ratios is computed. The Bank's asset
and liability structure results in a decrease in NPV in a rising interest rate
scenario and an increase in NPV in a declining interest rate scenario. During
periods of rising interest rates, the value of monetary assets declines more
rapidly than the value of monetary liabilities rises. Conversely, during periods
of falling interest rates, the value of monetary assets rises more rapidly than
the value of monetary liabilities declines. However, the amount of change in
value of specific assets and liabilities due to changes in interest rates is not
the same in a rising rate environment as in a falling interest rate environment
(i.e., the amount of value increase under a specific rate decline may not equal
the amount of value decrease under an identical upward interest rate movement).
<TABLE>
<CAPTION>
NPV as % of Economic
Change in Net Portfolio Value Value of Assets
Interest Rates ----------------------------- -----------------------
In Basis Points $ % %
(Rate Shocks) Amount Change Change NPV Ratio Change
------------ ------ --------- -------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
400 20,119 (14,834) -42% . 10.20% -6.09%
300 23,904 (11,049) -32% . 11.86% -4.44%
200 27,768 (7,185) -21% . 13.47% -2.82%
100 31,556 (3,397) -10% . 14.99% -1.30%
Static (1) 34,953 16.29%
(100) 37,053 2,100 6% 17.05% 0.76%
(200) 36,217 1,264 4% 16.67% 0.38%
(300) 35,824 871 2% 16.46% 0.17%
(400) 34,144 (809) -2% 15.75% -0.54%
------------ ------ --------- -------- ----------- ----------
</TABLE>
- ----------------------------
(1) Based on the economic value of the Bank's assets assuming no change in
interest rates
As noted above, the market value of the Bank's net assets would be anticipated
to decline significantly in the event of certain designated increases in
interest rates. For instance, in the event of a 200 basis point increase in
interest rates, NPV is anticipated to fall by $7.2 million or 21%. On the other
hand, a decrease in interest rates is anticipated to cause an increase in NPV.
The level of interest rate risk in the NPV table set forth above at June 30,
1997 is within the Bank's current guidelines for acceptable interest rate risk.
Certain assumptions utilized by the OTS in assessing the interest rate
risk of thrift institutions were employed in preparing the previous table. These
assumptions related to interest rates, loan prepayment rates and the market
value of certain assets under the various interest rate
32
<PAGE>
scenarios. However, the Bank uses its internal assumptions for passbook decay
rate based on the Bank's historical experience. It was also assumed that
delinquency rates did not change as a result of changes in interest rates
although there can be no assurance that this will be the case. In the event that
interest rates do not change in the designated amounts, there can be no
assurance that the Bank's assets and liabilities would perform as set forth
above. In addition, a change in Treasury rates in the designated amounts
accompanied by a change in the shape of the Treasury yield curve would cause
changes to the NPV significantly different than indicated above.
Certain shortcomings are inherent in the methods of analysis presented in the
computation of NPV. 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 rates 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 that restrict changes in interest rates both in the near
term 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 the table. Finally, the ability of 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.
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 tables set forth certain information relating to the
Bank's average balance sheet 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 monthly balance of assets
and liabilities, respectively, for the periods presented. The eleven month
results for 1997 fiscal year have been annualized to calculate the Average
Yield/Cost. Average balances are derived from month end balances. Management
does not believe that the use of month end balances instead of daily balances
has caused any material difference in the information presented. The yields and
costs include fees, which are considered adjustments to yields.
33
<PAGE>
<TABLE>
<CAPTION>
For the Eleven Months ended
At June 30, 1997 June 30, 1997
-------------------- ------------------------------
Weighted Average
Potential Average Average Yield/
Balance Rate(1) Balance Interest Cost(6)
--------- -------- -------- -------- --------
ASSET: (Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities ............... $107,595 6.63% $105,347 $ 6,048 6.26%
Loans receivable (2) ..................... 93,924 7.66 83,707 5,954 7.76
Investment securities (3) ................ 1,087 4.31 430 17 4.31
Interest-earning deposits ................ 1,701 6.29 4,131 310 8.19
Stock in FHLB-Chicago .................... 2,480 6.75 2,215 138 6.80
-------- -------- -------- -------- --------
Total interest-earning assets ......... 206,787 7.08% 195,830 12,467 6.94%
-------- -------- -------- -------- --------
Allowance for loan losses ................ (300) (300)
Noninterest-earning assets ............... 8,409 9,108
-------- --------
Total assets .......................... $214,896 $204,638
======== ========
LIABILITIES & EQUITY:
Interest-bearing liabilities:
NOW accounts ............................. $ 7,178 2.02% $ 7,080 $ 132 2.03%
Money market demand accounts ............. 12,281 3.12 12,840 366 3.11
Passbook/statement savings accounts ...... 39,607 2.50 40,257 923 2.50
Certificates of deposit .................. 59,333 5.34 64,184 3,158 5.37
Borrowed money ........................... 49,600 6.41 44,000 2,542 6.30
-------- -------- -------- -------- --------
Total interest-bearing liabilities .... 167,999 4.68% 168,361 7,121 4.61%
-------- -------- -------- -------- --------
Noninterest-bearing NOW accounts ......... 4,582 4,470
Other noninterest-bearing liabilities .... 5,338 5,092
-------- --------
Total liabilities ..................... 177,919 177,923
-------- --------
Equity ................................... 36,977 26,715
-------- --------
Total liabilities and equity .......... $214,896 $204,638
======== ========
Net interest income ...................... $ 5,346
========
Interest rate spread (4) ................. 2.40% 2.33%
======== ========
Net interest earning assets .............. $ 38,788 $ 27,469
======== ========
Net interest margin (5)................... 2.98%
========
Ratio of interest-earning assets
to interest-bearing liabilities........ 123.09% 116.32%
======== ========
</TABLE>
(NOTES ON FOLLOWING PAGE)
34
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended July 31,
------------------------------------------------------------------
1996 1995
------------------------------- --------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
--------- -------- -------- -------- -------- --------
ASSET: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage-backed securities ............... $110,734 $ 6,844 6.18% $107,009 $ 6,494 6.07%
Loans receivable (2) ..................... 75,264 6,027 8.01 69,280 5,663 8.17
Investment securities (3) ................ -- -- -- 769 78 10.14
Interest-earning deposits ................ 2,601 136 5.23 5,309 296 5.58
Stock in FHLB-Chicago .................... 2,157 147 6.82 2,241 143 6.38
-------- -------- -------- -------- -------- --------
Total interest-earning assets ......... 190,756 13,154 6.90% 184,608 12,674 6.87%
-------- -------- -------- -------- -------- --------
Allowance for loan losses ................ (187) (166)
Noninterest-earning assets ............... 9,064 9,760
-------- --------
Total assets .......................... $199,633 $194,202
======== ========
LIABILITIES & EQUITY:
Interest-bearing liabilities:
NOW accounts ............................. $ 7,263 $ 146 2.01% $ 7,681 $ 155 2.02%
Money market demand accounts ............. 14,031 437 3.11 15,858 467 2.94
Passbook/statement savings accounts ...... 42,094 1,054 2.50 45,213 1,130 2.50
Certificates of deposit .................. 75,064 4,287 5.71 68,858 3,312 4.81
Borrowed money ........................... 37,800 2,526 6.68 33,685 2,269 6.74
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities .... 176,252 8,450 4.79% 171,295 7,333 4.28%
-------- -------- -------- -------- -------- --------
Noninterest-bearing NOW accounts ......... 4,115 3,820
Other noninterest-bearing liabilities .... 4,942 5,012
-------- --------
Total liabilities ..................... 185,309 180,127
-------- --------
Equity ................................... 14,324 14,075
-------- --------
Total liabilities and equity .......... $199,633 $194,202
======== ========
Net interest income ...................... $ 4,704 $ 5,341
======== ========
Interest rate spread (4) ................. 2.11% 2.59%
======== ========
Net interest earning assets .............. $ 14,504 $ 13,313
======== ========
Net interest margin (5) .................. 2.47% 2.89%
======== ========
Ratio of interest-earning assets
to interest-bearing liabilities ..... 108.23% 107.77%
======== ========
(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 receivable, non-accrual loans have been included.
(3) Includes investment in mutual funds.
(4) Average interest rate spread represents the difference between the average rate earned on interest-earning assets
and the average rate paid on interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of average interest-earning assets.
(6) Eleven month results have been annualized to calculate the Average Yield/Cost.
</TABLE>
35
<PAGE>
RATE/VOLUME ANALYSIS
Net interest income can also be analyzed in terms of the impact changing
interest rates have 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 Bank's net interest income. Conversely, increases in the volume or
amount of the Bank'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 Bank's net
interest income. The following table sets forth certain information regarding
changes in interest income and interest expense for the periods indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to changes in volume (changes in
volume multiplied by old rate), changes in rates (changes in rates multiplied by
old volume) and changes in rate volume (changes in rates multiplied by changes
in volume). Changes attributable to the combined impact of rate volume have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
Eleven Months Ended Year Ended
June 30, 1997 July 31, 1996
Compared to Compared to
Year Ended Year Ended
July 31, 1996 July 31, 1995
------------------------------------ -----------------------------------
Increase/ Increase/
(Decrease) (Decrease)
Due to Due to
---------------------- ---------- ----------------------- ---------
Volume Rate Net Volume Rate Net
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage-backed securities ........... $ (1,086) $ 290 $ (796) $ 230 $ 120 $ 350
Loans receivbable .................... (101) 28 (73) 471 (107) 364
Investment securities (1) ............ 17 0 17 (39) (39) (78)
Interest-earning deposits ............ 89 85 174 (142) (18) (160)
Stock in FHLB of Chicago ............. (9) 0 (9) (4) 8 4
---------- --------- ---------- --------- ---------- ---------
Total ............................ $ (1,090) $ 403 $ (687) $ 516 $ (36) $ 480
========== ========= ========== ========= ========== =========
Interest-bearing liabilities:
NOW accounts ......................... $ (19) $ 5 $ (14) $ (8) $ (1) $ (9)
Money market demand accounts ......... (71) 0 (71) (60) 30 (30)
Passbook/statement savings accounts .. (131) 0 (131) (76) 0 (76)
Certificates of deposit .............. (800) (329) (1,129) 317 658 975
Borrowed money ....................... 25 (9) 16 277 (20) 257
---------- --------- ---------- --------- ---------- ---------
Total ............................ $ (996) $ (333) $ (1,329) $ 450 $ 667 $ 1,117
---------- --------- ---------- --------- ---------- ---------
Net change in net interest
income ......................... $ (94) $ 736 $ 642 $ 66 $ (703) $ (637)
========== ========= ========== ========= ========== =========
</TABLE>
(1) Includes investment in mutual funds.
36
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND JULY 31, 1996
The financial data presented in this Annual Report represents the activity
of the Bank for the period prior to the Conversion and the consolidated activity
of Big Foot Financial Corp. and subsidiary thereafter.
Total assets increased $20.3 million to $214.9 million at June 30, 1997,
from $194.6 million at July 31, 1996. The asset growth was funded through
increased borrowings and the net proceeds of the Conversion. Asset growth was
concentrated in loans, which increased $14.5 million to $93.6 million at June
30, 1997, from $79.1 million at July 31, 1996. Loan originations totaled $23.3
million for the eleven months ended June 30, 1997, compared to $19.9 million for
the year ended July 31, 1996, representing an increase of $3.4 million. The
increase was due primarily to an increase in the origination of one- to
four-family residential mortgage loans reflecting increased loan demand
experienced by the Bank. Total mortgage-backed securities ("MBS") increased $5.2
million to $107.6 million at June 30, 1997, compared to $102.4 million at July
31, 1996. This increase is primarily due to the purchases of MBS in an amount
that exceeded principal repayments and amortizations received during the year as
well as the reduction of the loss in the market value adjustment for the
available-for-sale portfolio during the year. There was no Real Estate Owned
("REO") at June 30, 1997 and July 31, 1996.
The allowance for loan losses at June 30, 1997 and July 31, 1996 was
$300,000. At June 30, 1997 and July 31, 1996, the ratio of the allowance for
loan losses to non-performing loans was 150.8% and 254.2%, respectively.
Non-performing loans increased to a balance of $199,000 at June 30, 1997,
causing this ratio to decline. This increase was due to one single-family loan.
Savings deposits decreased $14.2 million to $123.0 million at June 30,
1997 from $137.2 million at July 31, 1996, due primarily to a non-renewal in
certificates of deposit with original maturities of 19 months. The Bank had
attracted these funds by offering above-market rates of interest in prior fiscal
years. Upon maturity, the Bank sought to retain these funds by offering market
rates of interest, and, while a portion of such funds were retained, the Bank
experienced an overall decrease in such funds. All 19 month certificates of
deposit have matured and have either been retained by the Bank or withdrawn. In
addition, the reduction in savings deposits was also attributable to the
withdrawal of $5.1 million to purchase stock in the Conversion.
Stockholders' equity was $37.0 million at June 30, 1997 and $13.6 million
at July 31, 1996. The increase was due to the infusion of the $22.0 million in
net proceeds from the initial public offering completed December 19, 1996, a
decrease in the net unrealized loss on the available-for-sale portfolio of $1.0
million, and an increase of $220,000 in retained earnings.
37
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE ELEVEN MONTH FISCAL YEAR ENDED JUNE 30,
1997 AND THE TWELVE MONTH FISCAL YEAR ENDED JULY 31, 1996
GENERAL. During fiscal year 1997, the Bank changed its fiscal year to
coincide with the calendar quarters. The Company's and the Bank's fiscal year
ended June 30, 1997. Therefore, the Consolidated Statement of Earnings data are
for an eleven month period for the 1997 fiscal year ("1997 fiscal year") and a
twelve month period for the 1996 fiscal year ("1996 fiscal year").
All rates and yields for the 1997 fiscal year have been annualized to
provide for a more meaningful comparison.
Net income for the eleven months ended June 30, 1997 was $220,000 compared
to $226,000 for the fiscal year ended July 31, 1996. To address and resolve the
SAIF/BIF assessment disparity, the Deposit Insurance Funds Act of 1996 ( the
"1996 Act") became law on September 30, 1996. The 1996 Act authorized the FDIC
to impose a special assessment on all institutions with SAIF-insured deposits in
an amount necessary to recapitalize the SAIF. The Bank incurred an expense for
the special SAIF assessment of $936,000. The impact (after tax) reduced net
earnings by $617,000 for the fiscal year ended June 30, 1997.
Net income for the fiscal year of 1997, excluding the non-recurring SAIF
assessment, would have been $837,000. The increase in net income was due to both
an increase in net interest income after provision for loan losses of $780,000,
as well as reductions in noninterest expense (excluding the SAIF assessment) of
$348,000 for the 1997 fiscal year, as compared to the 1996 fiscal year.
INTEREST INCOME. Interest income totaled $12.5 million for the eleven
months ended June 30, 1997, compared to $13.2 million for the fiscal year ended
July 31, 1996. This change reflects both a $5.1 million increase in total
average interest-earning assets and an increase of 4 basis points in the average
yield on such assets for the 1997 fiscal year over the 1996 fiscal year.
Interest income on loans receivable was $6.0 million for the 1997 fiscal year,
reflecting a $8.4 million increase in the average balance of loans and the
effect of a 25 basis point decrease in the average yield to 7.76%. Interest
income on all mortgage-backed securities decreased $796,000 to $6.0 million for
the 1997 fiscal year from $6.8 million for the 1996 fiscal year. The decrease is
due primarily to a $5.4 million decrease in the average balance to $105.3
million, resulting from amortizations and prepayments exceeding purchases of
such securities during 1997. This was partially offset by an 8 basis point
increase in the average yield to 6.26%.
INTEREST EXPENSE. Interest expense was $7.1 million for the eleven months
ended June 30, 1997, compared to $8.4 million for the fiscal year ended July 31,
1996. This change reflects both a decrease in average interest-bearing savings
deposits of $14.1 million during the 1997 fiscal year and a decrease of 20 basis
points in the average rate paid for deposits. Certificates of Deposit that
matured during the 1997 fiscal year were generally renewed at a lower interest
rate. Similarly, although average balances on borrowings increased for the year,
new advances were obtained at a rate lower than those on maturing advances
causing a 38 basis point decrease in the average rate paid on borrowings.
38
<PAGE>
NET INTEREST INCOME. Net interest income before provision for loan losses
for the 1997 fiscal year was $5.3 million, as compared to $4.7 million for the
1996 fiscal year. The average yield on interest-earning assets increased from
6.90% for the 1996 fiscal year to 6.94% for the 1997 fiscal year, and the Bank's
average rate paid on interest-bearing liabilities decreased from 4.79% for the
1996 fiscal year to 4.61% for the 1997 fiscal year. These changes in yields
earned and rates paid resulted in the average interest rate spread increasing by
22 basis points to 2.33% and the net interest margin increasing by 51 basis
points to 2.98% for the 1997 fiscal year, as compared to 2.11% and 2.47%,
respectively, for the 1996 fiscal year.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $0 and
$138,000 for the 1997 fiscal year and the 1996 fiscal year, respectively. At
June 30, 1997, the allowance for loan losses as a percentage of non-performing
loans and total loans, was 150.75% and 0.32%, respectively, as compared to
254.2% and 0.38%, respectively, at July 31, 1996. The percentage of
non-performing loans to total loans increased to 0.21% at June 30, 1997, from
0.15% at July 31, 1996. 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 loan portfolio. While
management estimates loan losses using the best available information, no
assurance can be made that future additions to the allowance will not be
necessary.
NONINTEREST INCOME. Noninterest income for the eleven months ended June
30, 1997 was $282,000 compared to $485,000 for the fiscal year ended July 31,
1996. This change was primarily due to non-recurring settlements of litigation
of $184,000 in fiscal 1996 as compared to $21,000 in 1997, and a $24,000
decrease in service charges and servicing fees in fiscal 1997.
NONINTEREST EXPENSE. Noninterest expense was $5.3 million for 1997 fiscal
year compared to $4.7 million for the fiscal year ended July 31, 1996. The
Bank's ratio of noninterest expense to average assets was 2.59% in the 1997
fiscal year (2.13% excluding the special SAIF assessment) compared to 2.36% in
the 1996 fiscal year. Compensation and benefits expense totaled $2.3 million for
the of 1997 fiscal year compared to $2.2 million for the 1996 fiscal year.
Compensation expenses increased due to increased staffing levels, general salary
increases, and increases in benefit expenses associated with the new ESOP. The
Bank was assessed and paid to the FDIC a one-time special SAIF assessment of
$936,000. After this special assessment in September 1996, regular deposit
insurance premiums were reduced in subsequent periods so that the net increase
in deposit insurance premiums for 1997 was $760,000. Professional services
expenses decreased $98,000, from $359,000 for the 1996 fiscal year to $261,000
for the 1997 fiscal year. Professional services expense reduction reflects lower
legal fees relating to litigation and regulatory matters. Other noninterest
expense increased $95,000 to $708,000 for the 1997 fiscal year compared to
$613,000 for the 1996 fiscal year. Other expenses increased primarily due to a
fraud loss of $50,000 suffered by the Bank. The majority of the remaining
increases in other expenses was due to insurance premium increases and loan
origination expenses.
INCOME TAX EXPENSE. Income tax expense decreased $5,000 to $112,000 for
1997 fiscal year from $117,000 for the fiscal year ended July 31, 1996. This
decrease was due to a decrease of $11,000 in pretax income.
39
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT JULY 31, 1996 AND 1995
Total assets decreased $5.7 million to $194.6 million at July 31, 1996
from $200.3 million at July 31, 1995. Total liabilities also declined $4.8
million to $181.0 million at July 31, 1996 from $185.8 million at July 31, 1995.
Mortgage-backed securities (including both held-to-maturity and
available-for-sale) decreased $8.9 million to $102.4 million at July 31, 1996
from $111.3 million at July 31, 1995. This decrease is due primarily to the
amount of amortization and repayments during the 1996 fiscal year exceeding
purchases in the first quarter of the year and the reinvestment of such proceeds
in one- to four-family mortgage loans meeting the Bank's underwriting criteria.
Loans receivable increased $8.1 to $79.1 million at July 31, 1996 from $71.0
million at July 31, 1995 due to increased loan demand and the origination of new
loans for the Bank's portfolio exceeding loan repayments. Interest earning
deposits were $2.0 million and $7.0 million at July 31, 1996 and 1995,
respectively, a decrease of $5.0 million. The Bank reduced its level of interest
earning deposits primarily to fund the outflow of savings deposits experienced
during the fiscal year. Prepaid expenses and other assets increased more than
$80,000 to $389,000 at July 31, 1996. This increase is due primarily to a
$133,000 increase in deferred conversion expenses.
Total savings deposits decreased $11.1 million to $137.2 million at July
31, 1996 from $148.3 million at July 31, 1995. This decrease was due primarily
to a non-renewal of certificates of deposit that matured in fiscal year 1996.
The Bank had attracted these funds by offering above-market rates of interest in
prior fiscal years. Upon maturity, the Bank sought to retain these funds by
offering market rates of interest, and, while a portion of such funds were
retained, the Bank experienced a $7.0 million overall decrease in such funds. In
addition, management believes that the reduction in deposits also resulted, in
part, from disintermediation-the flow of funds away from savings institutions
into direct investments, such as corporate securities, mutual funds and other
investment vehicles. These direct investments, because of the absence of federal
deposit insurance premiums and reserve requirements, among other reasons, may
pay higher rates of return than savings institutions. FHLB of Chicago advances
increased $7.6 million to $39.9 million at July 31, 1996 from $32.3 million at
July 31, 1995 due primarily to management's decision to increase the Bank's
level of short-term borrowings to fund mortgage loan originations and offset the
net outflow of savings deposits. Total retained earnings decreased $800,000 to
$13.6 million at July 31, 1996 from $14.4 million at July 31, 1995. Net income
for the period of $226,000 was more than offset by a $1.1 million write down
adjustment to fair value of securities available for sale.
COMPARISON OF OPERATING RESULTS FOR FISCAL YEARS ENDED JULY 31, 1996 AND 1995
GENERAL. Net income for the fiscal year ended July 31, 1996 was $226,000
compared to $982,000 for the fiscal year ended July 31, 1995. The $756,000, or
77.0%, decrease was primarily attributable to a one-time gain of $557,000 on the
sale of real estate held for development in 1995, with no comparable gain
recorded in 1996. Net income in 1996 was also lower due to a $637,000 decrease
in net interest income before provision for loan losses, which was partially
offset by a $321,000 decrease in income tax expense.
40
<PAGE>
INTEREST INCOME. Interest income totaled $13.2 million for the fiscal year
ended July 31, 1996, compared to $12.7 million for the fiscal year ended July
31, 1995. This increase reflects a $6.1 million in total average
interest-earning assets in the 1996 fiscal year compared to the 1995 fiscal
year, while the average yield on such assets increased 3 basis points from 6.87%
to 6.90% over the same period. Interest income on loans receivable increased
$364,000 to $6.0 million for the 1996 fiscal year. Higher loan demand increased
the Bank's average balance of loans by $6.0 million. Generally, yields earned on
new mortgage loan originations were lower than rates earned on loan repayments,
which caused a 16 basis point decrease in the average yield on loans to 8.01%
from 8.17%. Interest income on mortgage-backed securities increased $350,000 to
$6.8 million for the 1996 fiscal year from $6.5 million for the 1995 fiscal
year. The increase is due primarily to a $3.7 million increase in the average
balance of mortgage-backed securities to $110.7 million from $107.0 million and
an 11 basis point increase in the average yield to 6.18% from 6.07%. The average
balance of mortgage-backed securities increased in 1996 due to purchases of such
securities in the first quarter of 1996. Interest income on interest-earning
deposits decreased $160,000 to $136,000 for the 1996 fiscal year, due to a $2.7
million decrease in average balance and a 35 basis point decrease in average
yield from 5.58% to 5.23%. These funds are generally deposited in overnight
money, which earn interest at the Federal Reserve Bank's Federal Fund rate,
which rate decreased by 25 basis points in fiscal year 1996.
INTEREST EXPENSE. Interest expense increased $1.1 million to $8.4 million
for the fiscal year ended July 31, 1996, compared to $7.3 million for the fiscal
year ended July 31, 1995. This increase reflects both an increase in average
interest-bearing liabilities of $5.0 million during the 1996 fiscal year and an
increase in the average rate paid on such liabilities of 51 basis points over
the same period. The increase in average interest-bearing liabilities is
primarily attributable to an increase in the average balance of certificates of
deposit to $75.1 million for the 1996 fiscal year from $68.9 million for the
1995 fiscal year. The average balance of certificates of deposit increased due
to the inflow of funds which resulted from an above-market interest rate
promotion in mid-1995 with such funds remaining on deposit during 1996. The
average cost of certificates of deposit increased 90 basis points due to the
higher cost of the above market interest rate certificates of deposit originated
in the prior fiscal year. The net effect was an increase of 60 basis points in
the average rate paid on savings deposits. Interest expense on borrowed money
increased $257,000 as the average balance of borrowings from the FHLB of Chicago
increased $4.1 million to $37.8 million for the fiscal year ended July 31, 1996
from $33.7 million for the fiscal year ended July 31, 1995, and the average cost
of such borrowings decreased to 6.68% from 6.74%.
NET INTEREST INCOME. Net interest income before provision for loan losses
decreased $637,000 to $4.7 million for the fiscal year ended July 31, 1996, from
$5.3 million for the fiscal year ended July 31, 1995. Interest income increased
$479,000 to $13.2 million for the fiscal year ended July 31, 1996 from $12.7
million for the fiscal year ended July 31, 1995 due to an increase of $6.1
million, from $184.6 million to $190.8 million, in the average balance of
interest-earning assets. Interest expense increased $1.1 million to $8.4 million
for the fiscal year ended July 31, 1996 from $7.3 million for the fiscal year
ended July 31, 1995. This increase was the result of an increase in the average
balance of interest-bearing liabilities of $5.0 million, from $171.3 million to
$176.3 million, as well as an increase in the average cost of funds of 51 basis
points from 4.28% to 4.79%.
PROVISION FOR LOAN LOSSES. For the fiscal year ended July 31, 1996,
$138,000 was allocated to the provision for loan losses. For the fiscal year
ended July 31, 1995, the provision was $0.
41
<PAGE>
The 1996 provision increased the allowance for loan losses from $166,000 at July
31, 1995 to $300,000 at July 31, 1996. At July 31, 1996, the ratios of the
allowance for loan losses to non-performing loans and to total loans were
254.24% and 0.38%, respectively, which were well below the Bank's peer group
average. 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 loan portfolio. While management
estimates loan losses using the best available information, no assurance can be
made that future additions to the allowance will not be necessary.
NONINTEREST INCOME. Noninterest income for the fiscal year ended July 31,
1996 decreased $361,000 to $485,000 from $846,000 for the fiscal year ended July
31, 1995. For the fiscal year ended July 31, 1995, the Bank had gains on the
sale of real estate held for sale and development in the amount of $557,000.
These gains relate to a subdivision called Trails of Olympia Fields. The final
residential lots were sold in fiscal year 1995 in addition to a portion of the
adjoining "Commercial property." There were no sales of these properties in
fiscal year 1996. Noninterest income was also affected by an increase in other
noninterest income of $77,000 for the 1996 fiscal year compared to the 1995
fiscal year. Litigation settlements increased from $51,671 for the fiscal year
ended July 31, 1995 to $184,415 for the fiscal year ended July 31, 1996 due to
the settlement of two claims in connection with the development of the Trails of
Olympia Fields.
NONINTEREST EXPENSE. Noninterest expense decreased $58,000 to $4.7 million
for the fiscal year ended July 31, 1996 from $4.8 million for the fiscal year
ended July 31, 1995. The Bank's ratio of noninterest expenses to average assets
decreased to 2.36% in the 1996 fiscal year from 2.45% in the 1995 fiscal year.
Compensation related expenses decreased $229,000. The Senior Management Officer
Bonus program ("SMO") long term award was terminated in 1996, and no annual
award was made in 1996, which resulted in a $144,000 decline in compensation
expense in fiscal year 1996. Real estate held for sale and development expenses
were $140,000 and $237,000 in the fiscal year 1996 and 1995, respectively, or a
decline of $97,000. Occupancy expenses increased $82,000 or 8.6% during the
fiscal year ended July 31, 1996 due primarily to an increase in utility and
depreciation expenses. Professional services expenses increased $162,000 or
82.2% during the fiscal year ended July 31, 1996 as a result of increased legal
fees incurred in connection with claims against a municipality and certain
parties involved in the development of the Trails of Olympia Fields.
INCOME TAX EXPENSE. Income tax expense decreased $321,000 or 73.3%, to
$117,000 for the fiscal year ended July 31, 1996 from $438,000 for the fiscal
year ended July 31, 1995. This decrease was due to the decrease of $1.1 million
or 75.9% in pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
The term "liquidity" as used by a savings bank refers to the ability of
the institution to produce sufficient cash to meet withdrawals, fund loan
commitments and pay operating expenses. Cash needed to fund these requirements
is generated by savings deposits, loan repayments, securities sales, FHLB
advances, and other sources of income.
The Bank's primary sources of funds are savings deposits, principal and
interest payments on loans and securities and 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,
42
<PAGE>
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 operating
activities amounted to $2.1million, $165,000, and $908,000 for the 1997, 1996
and 1995 fiscal years respectively.
The Bank is required to maintain an average daily balance of liquid assets
and short term liquid assets as a percentage of net withdrawable deposit
accounts plus short term borrowings as defined by the regulations of the OTS.
The minimum required liquidity and short term liquidity ratios are currently
5.0% and 1.0%, respectively. At June 30, 1997, July 31, 1996 and 1995, the
Bank's liquidity ratios were 42.9%, 42.4%, and 27.1%, respectively, and its
short term liquidity ratios were 2.2%, 2.7%, and 10.8%, respectively. The levels
of the Bank's short term assets are dependent on the Bank's operating, financing
and investing activities during any given period. 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 Bank are the origination of
mortgage and other loans and the purchase of mortgage-backed and other
securities. During the eleven months ended June 30, 1997, and the fiscal years
ended July 31, 1996 and 1995, the Bank's disbursements for loan originations
totaled $23.3 million, $19.9 million, and $12.4 million, respectively. These
activities were funded primarily by principal repayments on loans and securities
and FHLB advances. Net cash flows used in investing activities amounted to $20.1
million, $510,000, and $1.6 million for the fiscal years ended June 30, 1997,
July 31, 1996 and 1995, respectively.
For the 1997 and 1996 fiscal years, the Bank experienced net decreases in
deposits (including the effect of interest credited) of $14.2 million and $11.2
million, respectively. The decrease in deposits in 1997 and 1996 was due
primarily to a decrease in certificates of deposit that matured in the
respective fiscal years. The Bank attracted these funds by offering above-market
rates of interest in prior fiscal years. Upon maturity, the Bank sought to
retain these funds by offering market rates of interest, and while a portion of
such funds were retained, the Bank experienced a decrease in such funds. In
addition, management believes that the reduction in deposits resulted, in part,
from disintermediation-the flow of funds away from savings institutions into
direct investments, such as corporate securities, mutual funds and other
investment vehicles, which direct investments, because of the absence of federal
deposit insurance premiums and reserve requirements, among other reasons, may
pay higher rates of return than savings institutions. In fiscal year 1997, there
was an in flow of $22.0 million from the net proceeds from the sale of the
Company's stock in the Conversion.
Net cash flows provided by financing activities amounted to $17.3 million
for the 1997 fiscal year and $4.5 million for the fiscal year ended July 31,
1995. Net cash flows used in financing activities amounted to $4.1 million for
the year ended July 31, 1996.
The Bank's most liquid assets are cash and cash equivalents, which consist
of short term highly liquid investments with original maturities of less than
three months that are readily convertible to known amounts of cash and
interest-bearing savings deposits. The level of these assets is dependent on the
Bank's operating, financing and investing activities during any given period. At
June 30, 1997 and July 31, 1996, cash and cash equivalents totaled $3.9 million
and $4.6 million, respectively.
43
<PAGE>
The Bank has other sources of liquidity if a need for additional funds
arises, including the ability to obtain FHLB advances. At June 30, 1997, the
Bank had outstanding $49.6 million in FHLB advances. The Bank utilizes
borrowings primarily to offset outflows in deposits at times when the Bank does
not believe that it can replace such funds with lower costing deposit products.
In addition, the Bank has at times used a portion of the borrowed funds to fund
the purchase of mortgage-backed securities at a time when the spread between the
rate paid on the borrowed funds and the yield earned on such securities was
favorable.
At June 30, 1997, the Bank had outstanding mortgage loan origination
commitments of $3.1 million and unused lines of consumer credit of $496,000. The
Bank anticipates that it will have sufficient funds available to meet its
current origination and other lending commitments. Certificates of deposit
scheduled to mature in less than one year from June 30, 1997 totaled $45.1
million. Based upon the Bank's most recent experience and pricing strategy,
management believes that a significant portion of such deposits will remain with
the Bank.
At June 30, 1997, the Bank exceeded all of its regulatory capital
requirements with tangible capital of $24.8 million, or 12.13% of total adjusted
assets, which is above the required level of $3.1 million or 1.5%; core capital
of $24.8 million, or 12.13% of total adjusted assets, which is above the
required level of $6.1 million or 3.0%; and total risk based capital of $25.1
million, or 34.0% of risk-weighted assets, which is above the required level of
$5.9 million, or 8%.
IMPACT OF INFLATION AND CHANGING PRICES
The Bank's Financial Statements and Notes thereto presented herein have
been prepared in accordance with 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 Bank's operations. Unlike industrial companies, nearly all of the
assets and liabilities of the Bank are monetary in nature. As a result, interest
rates have a greater impact on the Bank'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 November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" (Statement 123).
This statement establishes financial accounting standards for stock-based
employee compensation plans. Statement 123 permits the Company to choose either
the new fair value based method, or the current accounting prescribed by
Accounting Principles Board (APB) Opinion 25, using the intrinsic value based
method of accounting for its stock-based compensation arrangements. Statement
123 requires pro forma disclosures of net earnings and earnings per share
computed as if the fair value based method had been applied in APB Opinion 25.
Statement 123 applies to all stock-based employee compensation plans in which an
employer grants shares of its stock or other equity instruments to employees
except for employee stock ownership plans. Statement 123 also applies to plans
in which the employer incurs liabilities to employees in amounts based on the
price of the employer's stock (e.g., stock option plans, stock purchase plans,
restricted stock plans and stock appreciation rights). Statement 123 also
specifies the accounting for transactions in which a company issues stock
options or other equity instruments for services provided by non-employees
44
<PAGE>
or to acquire goods or services from outside suppliers or vendors. The
disclosure provisions of Statement 123 are effective for fiscal years beginning
after December 15, 1995, however, disclosure of the pro forma net earnings and
earnings per share, as if the fair value method of accounting for stock-based
compensation had been elected, is required for all awards granted in fiscal
years beginning after December 31, 1994. The Company accounts for its
stock-based compensation arrangements as prescribed in APB Opinion 25.
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (Statement 125), which supersedes FASB
Statements No. 76, "Extinguishments of Debt", and No. 77, "Reporting by
Transferors for Transfers of Receivables with Recourse." This statement amends
FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," and amends and extends to all servicing assets and liabilities, the
accounting standards for mortgage servicing rights now set forth in Statement
65, and supersedes Statement 122. Statement 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. After a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered
and derecognizes liabilities when extinguished. Statement 125 provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. A transfer of financial assets
in which the transferor surrenders control over those assets is accounting for a
sale to the extent that consideration other than beneficial interests in the
transferred assets is received in exchange.
Statement 125 further requires that liabilities and derivatives incurred
or obtained by transferors as part of a transfer of financial assets be
initially measured at fair value, if practicable. It also requires that
servicing assets and other retained interests in the transferred assets be
measured by allocating the previous carrying amount between the assets sold, if
any, and retained interests, if any, based on their relative fair values on the
date of the transfer. Statement 125 also requires that servicing assets and
liabilities be subsequently measured by (a) amortization in proportion to and
over the period of estimated net servicing income or loss and (b) assessment for
asset impairment or increased obligation based on their fair values. Statement
125 requires that a liability be derecognized if and only if either (i) the
debtor pays the creditor and is relieved of its obligation for the liability or
(ii) the debtor is legally released from being the primary obligor under the
liability either judicially or by the creditor. Therefore, a liability is not
considered extinguished by an in-substance defeasance.
Statement 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after January 1, 1997, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management of the Company does not expect the impact of Statement 125 to have a
material impact on the Company's financial statements.
In December 1996, the FASB issued Statement of Financial Accounting
Standards No. 127 "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125" (Statement 127). This statement delays until 1998 the
effective date of certain of the provisions of Statement 125 that deal with
securities lending, repurchase and dollar repurchase agreements, and for the
recording of collateral. The other provisions of Statement 125 are effective for
transfers occurring on or after July 1, 1997.
45
<PAGE>
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" (Statement 128). 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. Statement
128 was issued to simplify the computation of EPS and make the U.S. standard
more compatible with the EPS standards of other countries and that of the
International Accounting Standards Committee. It replaces the presentation of
primary EPS with a presentation of basic EPS and replaces fully diluted EPS with
diluted EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Basic EPS, unlike primary EPS, excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared the earnings of the entity. Diluted EPS is
computed similarly to fully diluted EPS under APB 15.
Statement 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted (although pro forma EPS disclosure in the footnotes for periods prior
to required adoption is permitted). After adoption, all prior-period EPS data
presented shall be restated to conform with Statement 128. The Company does not
expect adoption of Statement 128 to have a significant impact on the Company's
consolidated financial statements.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure" (Statement 129). Statement 129 provides required
disclosures for the capital structure of both public and nonpublic companies and
is effective for financial statements for periods ending after December 15,
1997. The required disclosures had been included in a number of separate
statements and opinions. As such, the issuance of Statement 129 is not expected
to require significant revision of prior disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(Statement 130). Statement 130 establishes standards for reporting and the
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 Company.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (Statement 131). 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 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.
46
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 instantaneous and parallel up and down 100 to 400 basis points in 100
basis point increments. The OTS allows thrifts under $500 million in total
assets to use the results of their interest rate sensitivity model, which is
based on information provided by the institution, to estimate the sensitivity of
NPV.
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. At June 30, 1997, the price indications for adjustable rate
mortgage loans ranged from approximately 87 to 106 of the underlying mortgage
balances. The price indications for fixed rate mortgage loans securities varied
from 71 to 118 of the underlying mortgage balances. Prepayment rates for
mortgage loans ranged from 6 to 37 CPR as of June 30, 1997.
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 accounts, 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 NOW accounts, money market demand
accounts, passbook accounts, and non-interest-bearing accounts also are included
on the asset and liability side of the NPV calculation in the OTS model. These
accounts are valued at 100% of the respective account balances on the liability
side. On the asset side of the analysis, the value of the "customer
relationship" of the various types of deposit accounts is reflected as a deposit
intangible.
47
<PAGE>
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 or semi-annual interest payments with principal paid at maturity
(dependent upon the type of borrowing). These cash flows are discounted based
upon London Interbank Offered Rates ("LIBOR").
The OTS model is based on only the Bank level balance sheet. Various
asset and liability categories were adjusted to reflect the consolidated NPV of
the Company. These adjustments were not material to the outcome of the
simulation analysis of NPV. The table under "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Asset/Liability
Management" in Item 7 of the Report on Form 10-K sets forth the Company's
interest rate sensitivity of NPV as of June 30, 1997 and is incorporated in this
Item 7A by reference.
48
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE(S)
Independent Auditors' Report ............................................. 1
Consolidated Financial Statements:
Consolidated Balance Sheets.......................................... 2
Consolidated Statements of Earnings.................................. 3
Consolidated Statements of Stockholders' Equity...................... 4
Consolidated Statements of Cash Flows................................ 5
Notes to Consolidated Financial Statements................................ 6-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Big Foot Financial Corp.
and Subsidiary
Long Grove, Illinois:
We have audited the accompanying consolidated balance sheets of Big Foot
Financial Corp. and subsidiary (the Company) as of June 30, 1997 and July
31, 1996, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for the eleven-month period ended June
30, 1997 and for each of the years in the two-year period ended July 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 Big
Foot Financial Corp. and subsidiary as of June 30, 1997 and July 31, 1996,
and the results of their operations and their cash flows for the
eleven-month period ended June 30, 1997 and for each of the years in the
two-year period ended July 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
July 25, 1997
1
<PAGE>
<TABLE>
<CAPTION>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 1997 and July 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------
June 30, July 31,
Assets 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 2,191,000 2,568,612
Interest-earning deposits 1,701,132 2,040,308
Mortgage-backed securities held-to-maturity, at amortized cost (note 2) 47,376,322 44,133,079
Mortgage-backed securities available-for-sale, at fair value (note 2) 60,219,205 58,277,886
Investment in mutual funds, at fair value (note 2) 1,087,287 -
Loans receivable, net (note 3) 93,623,836 79,143,572
Accrued interest receivable (note 4) 1,050,578 963,823
Investment in real estate held for sale and development 262,259 262,259
Stock in Federal Home Loan Bank of Chicago, at cost 2,480,000 2,045,000
Office properties and equipment, net (note 5) 4,736,664 4,801,007
Prepaid expenses and other assets 167,766 388,891
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 214,896,049 194,624,437
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------------------------
Savings deposits (note 6) 122,980,817 137,176,770
Borrowed money (note 7) 49,600,000 39,900,000
Advance payments by borrowers for taxes and insurance 1,609,838 1,800,216
Accrued interest payable and other liabilities 3,728,241 2,167,964
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 177,918,896 181,044,950
- ----------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares
authorized; none issued and outstanding - -
Common stock, $.01 par value, 8,000,000 shares
authorized; 2,512,750 issued and outstanding
at June 30, 1997 25,128 -
Additional paid-in capital 24,038,934 -
Retained earnings - substantially restricted 14,868,464 14,648,789
Common stock acquired by ESOP (1,909,690) -
Unrealized loss on securities available-for-sale,
net of tax (45,683) (1,069,302)
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 36,977,153 13,579,487
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 214,896,049 194,624,437
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Earnings
Eleven months ended June 30, 1997 and 1996 (unaudited) and years ended July 31,
1996 and 1995
- -------------------------------------------------------------------------------------------------------------------------
Eleven months ended Year ended
June 30, July 31,
-------------------------- --------------------------
1997 1996 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Interest income:
Mortgage-backed securities held-to-maturity $ 2,447,395 2,546,127 2,755,626 6,493,643
Mortgage-backed securities available-for-sale 3,600,566 3,769,364 4,088,066 -
Investment in mutual funds and repurchase
agreements 16,737 - - 78,691
Loans receivable 5,954,201 5,508,051 6,026,328 5,663,087
Interest-earning deposits 309,755 124,738 136,222 296,037
Federal Home Loan Bank of Chicago stock 138,067 136,225 147,302 142,609
- -------------------------------------------------------------------------------------------------------------------------
Total interest income 12,466,721 12,084,505 13,153,544 12,674,067
- -------------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings deposits (note 6) 4,578,779 5,453,299 5,924,074 5,063,988
Borrowed money 2,541,792 2,301,905 2,525,598 2,268,816
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense 7,120,571 7,755,204 8,449,672 7,332,804
- -------------------------------------------------------------------------------------------------------------------------
Net interest income before provision for loan losses 5,346,150 4,329,301 4,703,872 5,341,263
Provision for loan losses (note 3) - 137,558 137,558 -
- -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 5,346,150 4,191,743 4,566,314 5,341,263
- -------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Gain on sale of investment securities available-for-sale 314 - - -
Gain on sale of real estate owned - 35,448 35,448 -
Gain on sale of real estate held for sale and development - - - 556,880
Service fees 188,400 194,025 212,109 225,733
Litigation settlements (note 14) 21,145 184,415 184,415 51,671
Other 71,750 50,576 53,000 11,449
- -------------------------------------------------------------------------------------------------------------------------
Total noninterest income 281,609 464,464 484,972 845,733
- -------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Compensation and benefits 2,277,996 2,066,092 2,226,288 2,455,579
Office occupancy 894,735 940,801 1,032,676 951,018
Federal deposit insurance premiums 1,097,211 309,538 337,220 325,463
Real estate held for development 56,826 132,439 139,847 237,148
Professional services 260,731 346,172 359,217 197,151
Other 708,185 574,569 613,042 600,082
- -------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 5,295,684 4,369,611 4,708,290 4,766,441
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 332,075 286,596 342,996 1,420,555
Income tax expense (note 8) 112,400 98,300 117,000 438,400
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 219,675 188,296 225,996 982,155
- -------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Primary $ 0.27 N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Eleven months ended June 30, 1997 and years ended July 31, 1996 and 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized
Common loss
Additional stock on securities
Preferred Common paid-in Retaining acquired available-for-sale
stock stock capital earnings by ESOP net of tax Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1994 $ - - - 13,440,638 - - 13,440,638
Net income for the year
ended July 31, 1995 - - - 982,155 - - 982,155
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1995 - - - 14,422,793 - - 14,422,793
Net income for the year
ended July 31, 1996 - - - 225,996 - - 225,996
Change in unrealized loss on
securities available-for-sale - - - - - (1,069,302) (1,069,302)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1996 - - - 14,648,789 - (1,069,302) 13,579,487
Net income for the eleven
months ended June 30, 1997 - - - 219,675 - - 219,675
Net proceeds of common
stock issued - 25,128 23,977,372 - (2,010,200) - 21,992,300
Cost of ESOP shares released - - - - 100,510 - 100,510
Market adjustment for
committed ESOP shares - - 61,562 - - - 61,562
Change in unrealized loss on
securities available-for-sale - - - - - 1,023,619 1,023,619
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 $ - 25,128 24,038,934 14,868,464 (1,909,690) (45,683) 36,977,153
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Eleven months ended June 30, 1997 and 1996 (unaudited) and years ended July 31, 1996 and 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Eleven months ended
June 30, Year ended July 31,
-------------------------------- ----------------------------------
1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income $ 219,675 188,296 225,996 982,155
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 351,159 376,815 404,019 407,599
Provision (benefit) for deferred income taxes (18,660) (65,595) (65,595) 90,263
Market adjustment for committed ESOP shares 61,562 - - -
Cost of ESOP shares released 100,510 - - -
Gain on sale of real estate held for sale and development - - - (556,880)
Gain on sale of investment securities available-for-sale 314 - - -
Gain on sale of real estate owned - (35,448) (35,448) -
Net amortization of deferred loan fees (61,027) (1,626) (1,705) (116,429)
Net amortization of discounts and premiums 225,263 201,356 228,490 195,038
Provision for loan losses - 137,558 137,558 -
(Increase) decrease in prepaid expenses and other assets 221,125 (89,469) (80,134) 411,417
(Increase) decrease in accrued interest receivable (87,069) (35,921) (20,697) 90,339
Increase (decrease) in accrued interest payable and other
liabilities 1,051,730 113,612 (627,759) (595,430)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,064,582 789,578 164,725 908,072
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net increase in loans receivable, net (14,419,237) (7,816,151) (8,296,671) (2,866,170)
Purchases of mortgage-backed securities held-to-maturity (10,207,310) - - (10,305,299)
Purchases of mortgage-backed securities available-for-sale (10,174,580) (10,081,249) (10,081,249) -
Purchases of investment in mutual funds (1,016,437) - - -
Principal repayments on mortgage-backed securities
held-to-maturity 6,752,845 9,597,079 10,482,665 10,817,987
Principal repayments on mortgage-backed securities
available-for-sale 8,680,594 6,283,355 7,174,307 -
Proceeds from sale of mortgage-backed securities
available-for-sale 1,018,602 - - -
Proceeds from sale of real estate owned - 203,250 203,250 -
Purchase of stock in Federal Home Loan Bank of Chicago (435,000) (100,000) (100,000) (34,300)
Proceeds from sale of stock in Federal Home Loan Bank of
Chicago - 319,300 319,300 -
Proceeds from sale of investment in real estate held for sale
and development - - - 1,213,570
Purchase of office properties and equipment, net (286,816) (211,844) (211,844) (467,537)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (20,087,339) (1,806,260) (510,242) (1,641,749)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in savings deposits (14,195,953) (10,656,214) (11,173,208) 6,520,009
Net increase (decrease) in borrowed money 9,700,000 8,600,000 7,600,000 (2,000,000)
Increase (decrease) in advance payments by borrowers for
taxes and insurance (190,378) (771,674) (516,799) 1,752
Net proceeds of common stock issued 21,992,300 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 17,305,969 (2,827,888) (4,090,007) 4,521,761
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (716,788) (3,844,570) (4,435,524) 3,788,084
Cash and cash equivalents at beginning of year 4,608,920 9,044,444 9,044,444 5,256,360
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,892,132 5,199,874 4,608,920 9,044,444
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,591,151 7,061,099 8,391,152 7,352,599
Income taxes 71,000 90,000 133,000 485,000
Noncash investing activities -
Transfer of loans to real estate owned - - - 167,802
Transfer of securities to available-for-sale - 56,446,621 56,446,621 -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997, July 31, 1996 and 1995
================================================================================
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Big Foot Financial Corp. 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 May 21, 1996, the Board of Directors of Fairfield Savings Bank,
F.S.B. (Savings Bank) adopted a plan of conversion (which was amended on
September 17, 1996), pursuant to which the Savings Bank converted from a
federally chartered mutual savings bank to a federally chartered stock
savings bank, with the concurrent formation of the Company. On December
19, 1996, the Company sold 2,512,750 shares of common stock at $10.00
per share during the subscription offering. Total net proceeds, after
reflecting conversion expenses of approximately $1,125,000 and including
the sale of common stock to the ESOP, were approximately $22,000,000,
and are reflected as common stock and additional paid-in capital on the
accompanying consolidated balance sheet. The Company utilized
$12,001,250 of the net proceeds to acquire all of the issued and
outstanding capital stock of the Savings Bank.
As part of the conversion, the Savings Bank established a liquidation
account as of the eligibility date for the benefit of eligible
depositors who continue to maintain deposits in the Savings Bank
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 Savings Bank, each
eligible depositor who has continued to maintain deposits in the Savings
Bank following the conversion will be entitled to receive a liquidation
distribution from the liquidation account, based on such depositor's
proportionate share of the then-total remaining qualifying deposits,
prior to any distribution to Big Foot Financial Corp. as the sole
stockholder of the Savings Bank. 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 those of an organizational nature. Accordingly, operating
activities prior to December 19, 1996 reflect the operations of the
Savings Bank only.
The Savings Bank changed its fiscal year end from July 31 to June 30.
The Company's and the Savings Bank's fiscal year 1997 ended on June 30,
1997.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Big Foot
Financial Corp. and its wholly-owned subsidiary, Fairfield Savings Bank,
F.S.B. 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.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" (Statement 123) establishes financial
accounting standards for stock-based employee compensation plans.
Statement 123 permits the Company to choose either the new fair value
based method, or the current
(Continued)
6
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
accounting prescribed by Accounting Principles Board (APB) Opinion 25,
using the intrinsic value based method of accounting for its
stock-based compensation arrangements. The Company accounts for its
stock-based compensation arrangements as prescribed in APB Opinion 25.
Statement 123 requires pro forma disclosures of net earnings and
earnings per share computed as if the fair value based method had been
applied in APB Opinion 25. The disclosure provisions of Statement 123
were adopted for the eleven months ended June 30, 1997, which require
disclosure of the pro forma net earnings and earnings per share as if
the fair value method of accounting for stock-based compensation had
been elected.
Statement 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," requires an entity to
recognize the financial and servicing assets it controls and the
liabilities it has incurred and to derecognize financial assets when
control has been surrendered in accordance with the criteria provided in
Statement 125. The Company applied the new rules prospectively to
transactions occurring after January 1, 1997. The adoption of this
Statement did not have a significant impact on the consolidated
financial statements.
Statement 127 "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125," delays until 1998 the effective date of certain
of the provisions of Statement 125 that deal with securities lending,
repurchase and dollar repurchase agreements, and for the recording of
collateral. The other provisions of Statement 125 are effective for
transfers occurring on or after January 1, 1997.
Statement 128, "Earnings Per Share," 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
presentation of primary EPS with a presentation of basic EPS, and
replaces fully diluted EPS with diluted EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures, and requires
a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. Statement 128 is effective for financial statements for
both interim and annual periods ending after December 15, 1997. Earlier
application is not permitted (although pro forma EPS disclosure in the
footnotes for periods prior to required adoption is permitted). After
adoption, all prior-period EPS data presented shall be restated to
conform with Statement 128. The Company does not expect adoption of
Statement 128 to have a significant impact on the consolidated financial
statements.
Statement 129, "Disclosure of Information about Capital Structure,"
provides required disclosures for the capital structure of both public
and nonpublic companies and is effective for financial statements for
periods ending after December 15, 1997. The required disclosures had
been included in a number of separate statements and opinions. As such,
the issuance of Statement 129 is not expected to require significant
revision of prior disclosures.
Statement 130, "Reporting Comprehensive Income," establishes standards
for reporting and the 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 Company.
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.
(Continued)
7
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities which the Company has the positive intent and
ability to hold to maturity are carried at amortized cost. All other
mortgage-backed securities are designated as available-for-sale, and are
carried at fair value. The difference between amortized cost and fair
value is reflected as a separate component of stockholders' equity, net
of related tax effects. Unearned premiums and discounts are amortized
over the estimated life of the security using the interest method. Gains
and losses on the sale of mortgage-backed securities are determined
using the specific identification method.
INVESTMENT IN MUTUAL FUNDS
Investment in mutual funds is designated as available-for-sale and is
carried at fair value.
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances less, deferred
loan fees, and allowance for loan losses. The Company defers all loan
origination fees and certain direct costs associated with loan
originations. Net deferred fees are amortized as yield adjustments over
the contractual life of the related loans using the interest method.
It is the policy of the Company to provide valuation allowances for
estimated losses on loans when any significant and permanent decline in
value is identified. Periodic reviews are made to identify potential
problems. In addition to specific allowances, the Company maintains a
general allowance for loan losses. Additions to the allowance for loan
losses are charged to operations. Also, various regulatory agencies, as
an integral part of their examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the
Company to recognize additions to the allowance based on their judgments
using information available to them at the time of their examination. In
the opinion of management, the allowance, when taken as a whole, is
adequate to absorb foreseeable losses.
The accrual of interest income is suspended and previously accrued
interest income is reversed when a loan is contractually delinquent for
90 days or more and where collection of interest is doubtful. Accrual is
resumed when the loan becomes less than 90 days contractually delinquent
and collection of interest is probable.
The Company adopted Statement 114, "Accounting By Creditors for
Impairment of a Loan," and No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition Disclosures," effective August
1, 1995. 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, 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 loans and
consumer loans, are excluded from the provisions of Statement 114.
DEPRECIATION AND AMORTIZATION
Depreciation of office properties and equipment and amortization of
leasehold improvements are recorded using the straight-line method over
the estimated useful lives of the related assets. Estimated useful lives
range between 3 and 40 years.
(Continued)
8
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
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.
EARNINGS PER SHARE
Earnings per share of common stock for the eleven-month period ended
June 30, 1997 has been determined by dividing net income from December
19, 1996 (the initial public offering), by 2,321,781 (the weighted
average number of primary shares of common stock from December 19, 1996)
and common stock equivalents outstanding. ESOP shares are only
considered outstanding for earnings per share calculations when they are
committed to be released. Earnings per share information for prior
periods cannot be computed because the Company did not issue stock until
December 19, 1996.
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 the 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.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or
less to be cash equivalents. Cash and cash equivalents also include cash
on hand and due from banks.
(Continued)
9
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(2) SECURITIES AND INVESTMENT IN MUTUAL FUNDS
The amortized cost and estimated fair value of securities and
investment in mutual funds are summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
June 30, 1997
----------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
Description cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
<S> <C> <C> <C> <C>
Federal National Mortgage Association $ 44,135,833 - 853,215 43,282,618
Federal Home Loan Mortgage
Corporation 3,240,489 11,284 - 3,251,773
- ---------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities
held-to-maturity $ 47,376,322 11,284 853,215 46,534,391
- ---------------------------------------------------------------------------------------------------------------------------
Available-for-sale:
Federal National Mortgage Association 41,172,451 132,442 152,677 41,152,216
Federal Home Loan Mortgage
Corporation 19,186,900 13,356 133,267 19,066,989
- ---------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities
available-for-sale 60,359,351 145,798 285,944 60,219,205
Investment in mutual funds 1,016,437 70,850 - 1,087,287
- ---------------------------------------------------------------------------------------------------------------------------
Total available-for-sale $ 61,375,788 216,648 285,944 61,306,492
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
July 31, 1996
----------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
Description cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held-to-maturity:
Federal National Mortgage Association $ 39,135,520 - 1,940,789 37,194,731
Federal Home Loan Mortgage
Corporation 4,997,559 48 37,641 4,959,966
- ---------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities
held-to-maturity $ 44,133,079 48 1,978,430 42,154,697
- ---------------------------------------------------------------------------------------------------------------------------
Available-for-sale:
Federal National Mortgage Association 37,454,501 7,504 865,986 36,596,019
Federal Home Loan Mortgage Corporation 22,443,506 2,788 764,427 21,681,867
- ---------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities
available-for-sale $ 59,898,007 10,292 1,630,413 58,277,886
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
10
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
Proceeds from the sale of securities available-for-sale during the
eleven months ended June 30, 1997 were $1,018,602. Gross gains of $314
were realized on those sales. There were no sales of securities during
the years ended July 31, 1996 and 1995.
In 1995, the Financial Accounting Standards Board (FASB) issued a
special report allowing the transfer of securities from the
held-to-maturity to the available-for-sale classification during the
period from November 15, 1995 to December 31, 1995, with no recognition
of any related unrealized gain or loss in current earnings. On December
31, 1995 mortgage-backed securities held-to-maturity with an amortized
cost of approximately $56,447,000 were transferred to the
available-for-sale classification. The gross unrealized gain related to
the transferred securities was approximately $609,000.
Mortgage-backed securities with an amortized cost of approximately
$315,000 and $423,000 have been pledged to secure certain savings
deposits of local municipal agencies as of June 30, 1997 and July 31,
1996, respectively.
(3) LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
June 30, July 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate loans:
One- to four-family residential $ 91,132,990 76,324,314
Multifamily 941,902 978,572
Commercial 383,724 410,951
Land, construction, and development loans 403,165 403,743
Home equity 1,258,587 1,421,470
- ---------------------------------------------------------------------------------------------------------------------------
Total real estate loans 94,120,368 79,539,050
Commercial credit lines - 150,356
Consumer loans 180,481 192,207
- ---------------------------------------------------------------------------------------------------------------------------
Gross loans receivable 94,300,849 79,881,613
Less:
Deferred loan fees (377,013) (438,041)
Allowance for loan losses (300,000) (300,000)
- ---------------------------------------------------------------------------------------------------------------------------
$ 93,623,836 79,143,572
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
11
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<CAPTION>
Activity in the allowance for loan losses is summarized as follows:
- ---------------------------------------------------------------------------------------------------------------------------
Eleven months ended Year ended
June 30, July 31
--------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 300,000 166,000 166,000
Provision for loan losses - 137,558 -
Charge-offs - (3,558) -
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 300,000 300,000 166,000
- ---------------------------------------------------------------------------------------------------------------------------
Loans receivable which are delinquent three months or more
are as follows:
- ---------------------------------------------------------------------------------------------------------------------------
Number Percentage
of of gross
loans Amount loans receivable
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
June 30, 1997 1 $ 199,112 .21%
July 31, 1996 2 118,303 .15
July 31, 1995 1 193,209 .27
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company discontinues recognizing interest on loans 90 days and
greater delinquent where collection of interest is doubtful. The
reduction in interest income associated with loans 90 days and greater
delinquent where collection of interest is doubtful was approximately
$10,000, $-0-, and $1,000 for the eleven months ended June 30, 1997, and
the years ended July 31, 1996 and 1995, respectively.
The Company adopted Statement 114 and Statement 118 on August 1, 1995.
These statements establish procedures for determining the appropriate
allowance required for loans deemed impaired. The calculation of
allowance levels is based upon the discounted present value of expected
future cash flows received from the debtor, or the fair value of the
collateral if the loan is collateral dependent. No loans were identified
as impaired by the Savings Bank at June 30, 1997 or July 31, 1996.
Additionally, no loans were considered impaired during the eleven months
ended June 30, 1997 or year ended July 31, 1996.
The Company serviced loans for others with principal balances
approximating $1,757,000, $2,021,000, and $2,556,000 at June 30, 1997,
and July 31, 1996 and 1995, respectively. As part of the loan sale
agreements to the Federal National Mortgage Association, the Company is
required to repurchase loans which become contractually delinquent. The
Company was not required to repurchase loans during the eleven months
ended June 30, 1997, or the years ended July 31, 1996 and 1995.
Real estate first mortgage loans, aggregating approximately $6,682,000,
$4,538,000, and $6,043,000 at June 30, 1997 and July 31, 1996 and 1995,
respectively, have interest rates which adjust based on the movement of
various economic indices.
(Continued)
12
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<CAPTION>
(4) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
- ---------------------------------------------------------------------------------------------------------------------------
June 30, July 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage-backed securities $ 590,596 555,626
Loans receivable 420,405 396,569
Federal Home Loan Bank of Chicago stock 39,577 11,628
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,050,578 963,823
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(5) OFFICE PROPERTIES AND EQUIPMENT
A comparative summary of office properties and equipment at cost, less
accumulated depreciation and amortization, is as follows:
- ---------------------------------------------------------------------------------------------------------------------------
June 30, July 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 906,359 888,394
Buildings 6,114,643 5,975,757
Furniture, fixtures, and equipment 4,477,164 4,369,816
- ---------------------------------------------------------------------------------------------------------------------------
11,498,166 11,233,967
Less accumulated depreciation and amortization 6,761,502 6,432,960
- ---------------------------------------------------------------------------------------------------------------------------
$ 4,736,664 4,801,007
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense was $351,159, $404,019, and
$407,599 for the eleven months ended June 30, 1997, and the years ended
July 31, 1996 and 1995, respectively.
(Continued)
13
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<CAPTION>
(6) SAVINGS DEPOSITS
Savings deposits are summarized as follows:
- ---------------------------------------------------------------------------------------------------------------------------
Stated or weighted
average interest rate June 30, July 31,
--------------------- 1997 1996
June 30, July 31, -------------------- ---------------------
1997 1996 Amount Percent Amount Percent
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
NOW accounts - % - % $ 4,581,809 3.7% $ 4,165,325 3.0%
NOW accounts 2.02 2.02 7,177,873 5.9 7,310,099 5.3
Money market demand
accounts 3.12 3.12 12,280,816 10.0 13,034,800 9.5
Passbook accounts 2.50 2.50 39,607,313 32.2 41,323,998 30.2
- ---------------------------------------------------------------------------------------------------------------------------
63,647,811 51.8 65,834,222 48.0
Certificate accounts 5.34 5.48 59,333,006 48.2 71,342,548 52.0
- ---------------------------------------------------------------------------------------------------------------------------
3.81% 4.01% $ 122,980,817 100.0% $ 137,176,770 100.0%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
June 30, July 31,
1997 1996
-------------------- ---------------------
Amount Percent Amount Percent
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contractual maturity of certificate accounts:
Under 12 months $ 45,140,069 76.1% $ 53,295,390 74.7%
12 to 36 months 13,264,789 22.3 17,110,166 24.0
Over 36 months 928,148 1.6 936,992 1.3
- ---------------------------------------------------------------------------------------------------------------------------
$ 59,333,006 100.0% $ 71,342,548 100.0%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate amount of certificate accounts with a balance of $100,000
or greater was approximately $5,505,000 and $6,143,000 at June 30, 1997
and July 31, 1996, respectively.
(Continued)
14
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
Interest expense on savings deposits is summarized as follows for the
periods indicated:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Eleven Year ended
months ended July 31,
June 30, ---------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NOW accounts $ 132,568 146,390 155,549
Money market demand accounts 365,685 437,098 467,172
Passbook accounts 922,897 1,054,003 1,129,942
Certificate accounts 3,157,629 4,286,583 3,311,325
- ---------------------------------------------------------------------------------------------------------------------------
$ 4,578,779 5,924,074 5,063,988
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(7) BORROWED MONEY
Borrowed money is summarized as follows :
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Interest rate at Amount
--------------------- ---------------------------
June 30, July 31, June 30, July 31,
Due date 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advances from the Federal
Home Loan Bank
of Chicago: - 6.74% 6.70% $ 16,900,000 12,600,000
8/20/96 - 7.05 - 1,300,000
10/25/96 - 6.79 - 4,300,000
11/20/96 - 5.65 - 4,000,000
2/20/97 - 7.15 - 7,000,000
7/26/97 5.38 5.38 1,000,000 1,000,000
2/20/98 7.30 7.30 7,700,000 7,700,000
6/26/98 5.85 - 15,000,000 -
7/26/98 5.63 5.63 1,000,000 1,000,000
7/19/99 6.64 6.64 1,000,000 1,000,000
2/21/00 6.08 - 7,000,000 -
- ---------------------------------------------------------------------------------------------------------------------------
$ 49,600,000 39,900,000
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average interest rate 6.41% 6.75%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The $16,900,000 and $12,600,000 at June 30, 1997 and July 31, 1996,
respectively, represent borrowings on an open line of credit which has a
floating rate of interest, and for which there is no stated due date.
The Company has a collateral pledge agreement whereby the Company has
agreed to keep on hand at all times, free of all other pledges, liens,
and encumbrances, home mortgages with unpaid principal balances
aggregating no less than 167% of the outstanding advances from the
Federal Home Loan Bank of Chicago. At June 30, 1997 and July 31, 1996,
all stock in the Federal Home Loan Bank of Chicago was also pledged as
collateral for advances from that bank.
(Continued)
15
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(8) INCOME TAXES
Income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Eleven Year ended
months ended July 31,
June 30, ---------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 110,746 182,595 393,137
State 20,314 - (45,000)
- ---------------------------------------------------------------------------------------------------------------------------
131,060 182,595 348,137
- ---------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (18,660) (65,595) 90,263
State - - -
- ---------------------------------------------------------------------------------------------------------------------------
(18,660) (65,595) 90,263
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense $ 112,400 117,000 438,400
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Income tax expense amounted to $112,400, $117,000, and $438,400 for the
eleven months ended June 30, 1997 and for the years ended July 31, 1996,
and 1995, respectively, with an effective tax rate of 33.8%, 34.1%, and
30.9%, respectively. The reasons for the difference between the
effective income tax rate and the corporate Federal income tax rate of
34% are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year ended
Eleven months ended July 31,
June 30, -------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate of 34% 34.0% 34.0 34.0
Other (0.2) 0.1 (3.1)
- ---------------------------------------------------------------------------------------------------------------------------
Effective income tax rate 33.8% 34.1 30.9
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
16
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June
30, 1997 and July 31, 1996 are presented below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
June 30, July 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Depreciation $ - 20,172
General loan loss allowance 123,540 138,159
Deferred loss on intercompany sales of real estate 135,826 143,822
Capitalized interest 19,174 19,174
Illinois net operating loss carryforwards 796,466 810,960
Unrealized loss on securities available-for-sale 23,613 550,819
Other 6,814 -
- ---------------------------------------------------------------------------------------------------------------------------
1,105,433 1,683,106
Less valuation allowance 748,027 747,228
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets, net of valuation allowance 357,406 935,878
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 13,411 -
Excess of tax bad debt reserve over base year amount 218,686 236,361
Federal Home Loan Bank stock dividends not currently taxable 115,227 115,227
Deferred loan fees 263,706 329,102
Other 5,769 6,035
- ---------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 616,799 686,725
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ (259,393) 249,153
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has Illinois net operating loss carryforwards in the amount
of $11,093,000, which will expire in varying amounts beginning July 31,
1997 through July 31, 2011.
The valuation allowance for deferred tax assets was $748,027 and
$747,228 as of June 30, 1997 and July 31, 1996, respectively, resulting
in an increase of $799 for the eleven months ended June 30, 1997. The
valuation allowance relates to state net operating loss carryforwards
and certain deductible temporary differences which may not generate
future state tax benefits.
Retained earnings at June 30, 1997 and July 31, 1996 include $6,149,000
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 Federal and state corporate income tax
rates.
(Continued)
17
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(9) OFFICER, DIRECTOR AND EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
In conjunction with the Savings Bank's conversion, the Company 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
$2,010,200 from the Company and purchased 201,020 common shares issued
in the conversion. The Savings Bank intends to make discretionary
contributions to the ESOP sufficient to service the requirements of the
loan over a period of ten years. During the eleven months ended June 30,
1997, 10,051 shares were allocated. ESOP expense recognized for the
eleven months ended June 30, 1997 was $162,072.
PENSION PLAN
The Savings Bank has a qualified noncontributory pension plan covering
substantially all of its full-time employees over 21 years of age,
including part-time employees working more than 1,000 hours per year.
The Savings Bank's policy is to fund pension costs accrued.
The following table sets forth the plan's funded status at June 30, 1997
and July 31, 1996:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
June 30, July 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations, including vested benefits of $566,749
at June 30, 1997 and $482,990 at July 31, 1996 $ 610,087 533,599
Plan assets at fair value 872,809 611,916
Less projected benefit obligation for services
rendered to date 740,070 644,879
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) projected benefit obligation 132,739 (32,963)
Unrecognized net transition asset at August 1, 1991
being recognized over 11.65 years (93,679) (109,340)
Unrecognized net (gain) loss (38,700) 80,972
- ---------------------------------------------------------------------------------------------------------------------------
Accrued pension obligation (prepaid asset) $ 360 (61,331)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
18
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
Net pension expense includes the following for the periods indicated:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Eleven Year ended
months ended ----------
June 30, July 31,
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 42,000 48,802 43,201
Interest cost on projected benefit obligation 44,996 41,757 34,046
Actuarial return on plan assets (176,695) (54,552) (67,827)
Net amortization and deferral 115,046 1,294 29,759
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic pension expense $ 25,347 37,301 39,179
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The rate of increase in future compensation levels used is determined by
the age of the participants. The discount rate used in determining the
actuarial present value of the projected benefit obligation was 7.50% at
June 30, 1997, July 31, 1996 and 1995. The expected long-term rate of
return was 8.00% at June 30, 1997, July 31, 1996 and 1995.
The Company also has a contributory profit-sharing plan covering
substantially all full-time employees. The Company makes annual
contributions to the plan equal to a percentage of each participant's
compensation for the plan year. For the eleven months ended June 30,
1997, the Company made a contribution of approximately 15% of
participants compensation through December 31, 1996. The contribution
was 15% for the years ended July 31, 1996 and 1995. Profit-sharing
expense was approximately $50,000, $110,000, and $114,000 for the eleven
months ended June 30, 1997 and the years ended July 31, 1996 and 1995,
respectively.
(10) MANAGEMENT BONUS PROGRAM
The Savings Bank has an annual management bonus program for Senior
Management Officers. The individual amounts to be awarded under the
annual bonus program are based on the Savings Bank attaining a minimum
return on average assets for that year. The expense for the bonus
program for the year ended July 31, 1995 was approximately $106,000. No
accrual was made for the annual bonus at June 30, 1997 or July 31, 1996
as the minimum benchmarks established were not achieved.
(11) STOCK OPTION PLAN
On June 24, 1997, the Company adopted 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
Savings Bank. The number of common shares authorized under the Plan is
251,275, equal to 10% of the total number of shares issued in the
initial stock offering and will vest at a rate of 20% per year beginning
on the first anniversary date of the grant. The exercise price is equal
to the fair value of the common stock at the date of grant. The option
term cannot exceed ten years from the commencement date of the Plan of
June 24, 1997.
(Continued)
19
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
As of June 30, 1997, the Company adopted the disclosure provisions of
Statement 123, "Accounting for Stock-Based Compensation." The per share
weighted-average fair value of stock options granted during 1997 was
$3.40 on the date of grant using the Black Scholes option pricing model
with the following weighted-average assumptions: an expected dividend
yield of 2.6%, expected volatility of 6.98%, risk-free interest rate of
6.63%, and an expected life of 8.8 years.
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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net income:
As reported $ 219,675
Pro forma 218,132
Earnings per share:
Primary:
As reported .27
Pro forma .27
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
A summary of the status of the Company's stock option transactions under
the Plan for the eleven months ended June 30, 1997 is presented below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Weighted-
average
exercise
Options Shares price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year - $ -
Granted 251,275 15.63
Exercised - -
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 251,275 15.63
- ---------------------------------------------------------------------------------------------------------------------------
Exercisable at year end - -
- ---------------------------------------------------------------------------------------------------------------------------
Weighted-average grant-date fair value of
options granted during the year $ 15.63
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
20
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(12) REGULATORY MATTERS
The Savings Bank is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift
Supervision. 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 Savings
Bank 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
Savings Bank'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 Savings Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier 1 capital (as defined
in the regulations) to risk-weighted assets, and of Tier 1 capital to
adjusted total assets and of tangible capital to adjusted total assets.
As of June 30, 1997, the Savings Bank met the capital ratios required to
be categorized as well-capitalized under the regulatory framework. There
are no conditions or events since year end that management believes
would affect the Savings Bank's category.
The following table summarizes the Company's and the Savings Bank's
actual capital and the Savings Bank's required capital at June 30, 1997
(dollars in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
To be well-
For capital capitalized
adequacy under prompt
Actual purposes corrective action
----------------- ---------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets):
Consolidated $ 37,323 48.43% N/A N/A N/A N/A
Fairfield Savings Bank, FSB 25,134 34.03 $ 5,908 8.00% $ 7,385 10.00%
- ---------------------------------------------------------------------------------------------------------------------------
Tier 1 capital (to risk-weighted assets):
Consolidated 37,023 48.03 N/A N/A N/A N/A
Fairfield Savings Bank, FSB 24,834 33.63 N/A N/A 4,431 6.00
- ---------------------------------------------------------------------------------------------------------------------------
Tier 1 capital (to adjusted total assets):
Consolidated 37,023 17.21 N/A N/A N/A N/A
Fairfield Savings Bank, FSB 24,834 12.13 5,900 3.00 9,983 5.00
- ---------------------------------------------------------------------------------------------------------------------------
Tangible capital:
Consolidated 37,023 17.21 N/A N/A N/A N/A
Fairfield Savings Bank, FSB 24,834 12.13 3,070 1.50 N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
21
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(13) CREDIT CONCENTRATION 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 are
commitments to originate loans and involve credit and interest rate risk
in excess of the amount recognized in the consolidated balance sheets.
The majority of the Company's loans are secured by residential real
estate in the Chicago metropolitan area. Management believes the Company
has a diversified loan portfolio and the concentration of lending
activities in these local communities does not result in an acute
dependency upon economic conditions of the lending region.
Commitments to originate fixed and variable rate mortgage loans at June
30, 1997 were $2,544,000 and $561,000, respectively, at rates ranging
between 7.375% and 9.000%. Commitments to fund available home equity
lines of credit of approximately $496,000 at June 30, 1997 represent
amounts which the Company has committed to fund if requested by the
borrower within the normal commitment period. Because the
creditworthiness of each customer is reviewed prior to extension of
credit, the Company adequately controls its credit risk on these
commitments as it does for loans recorded on the statements of financial
condition.
(14) COMMITMENTS AND CONTINGENCIES
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.
In connection with the development of the Trails of Olympia Fields (a
planned unit development of homesites and commercial land developed by
the Savings Bank and its subsidiary in prior years), the Company
initiated action against a municipality and certain parties involved in
the development, and for the year ended July 31, 1996 and 1995, the Bank
settled two of these claims and received $184,415 and $51,671,
respectively. The Bank recognized $21,145 in prejudgment interest income
during the eleven months ended June 30, 1997.
(15) DIVIDEND RESTRICTIONS
The Office of Thrift Supervision (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 1/2 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.
(Continued)
22
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(16) FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement 107, "Disclosure about Fair Value of Financial Instruments,"
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 Savings
Bank's financial instruments:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
June 30, 1997 July 31, 1996
------------------------------- -------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 2,191,000 2,191,000 2,568,612 2,568,612
Interest-earning deposits 1,701,132 1,701,132 2,040,308 2,040,308
Mortgage-backed securities 107,595,527 106,753,596 102,410,965 100,432,583
Investment in mutual funds 1,087,287 1,087,287 - -
Loans receivable, net 93,623,836 93,441,235 79,143,572 78,182,029
Accrued interest receivable 1,050,578 1,050,578 963,823 963,823
Federal Home Loan Bank
of Chicago stock 2,480,000 2,480,000 2,045,000 2,045,000
- ---------------------------------------------------------------------------------------------------------------------------
Total financial assets $ 209,729,360 208,704,828 189,172,280 186,232,355
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
June 30, 1997 July 31, 1996
------------------------------- -------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial liabilities:
Nonmaturing savings deposits $ 63,647,811 63,647,811 65,834,222 65,834,222
Savings deposits with
stated maturities 59,333,006 59,333,006 71,342,548 71,342,548
Borrowed money 49,600,000 49,600,000 39,900,000 40,065,320
Accrued interest payable 900,019 900,019 351,693 351,693
- ---------------------------------------------------------------------------------------------------------------------------
Total financial liabilities $ 173,480,836 173,480,836 177,428,463 177,593,783
- ---------------------------------------------------------------------------------------------------------------------------
</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.
MORTGAGE-BACKED SECURITIES AND INVESTMENT IN MUTUAL FUNDS
The fair value of mortgage-backed securities and investment in mutual
funds is estimated based on quoted market prices.
(Continued)
23
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
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 accounts,
money market accounts, and passbook accounts, is equal to the amount
payable on demand as of June 30, 1997 and July 31, 1996. The fair value
of certificates of deposit is based on the discounted value of
contractual cash flows. If the estimated fair value is less than the
amount payable on demand, the fair value disclosed is the amount payable
as per Statement 107. 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 MONEY
The fair value of advances from the Federal Home Loan Bank of Chicago is
calculated using a discounted cash flow methodology. If the estimated
fair value is less than the amount payable on demand, the fair value
disclosed is the amount payable as per Statement 107.
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.
(Continued)
24
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
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.
(17) CONDENSED PARENT COMPANY ONLY FINANCIAL INFORMATION
The following condensed statement of financial condition as of June 30,
1997 and statements of earnings and cash flows for the period from
December 19, 1996 (date of commencement of operations) to June 30, 1997
for Big Foot Financial Corp. should be read in conjunction with the
consolidated financial statements and the notes thereto.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
STATEMENT OF FINANCIAL CONDITION June 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Cash and cash equivalents $ 297,659
Mortgage-backed securities available-for -sale 8,683,233
Investment in mutual funds 1,087,287
Equity investment in the Savings Bank 24,737,420
Accounts receivable from the Savings Bank 100,510
ESOP loan receivable from the Savings Bank 1,909,690
Accrued interest receivable 138,412
Other assets 262,259
- ---------------------------------------------------------------------------------------------------------------------------
$ 37,216,470
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Other liabilities 239,317
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock 25,128
Additional paid-in capital 24,038,934
Retained earnings 14,868,464
Common stock acquired by ESOP (1,909,690)
Unrealized loss on securities available-for-sale,
net of tax (45,683)
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 36,977,153
- ---------------------------------------------------------------------------------------------------------------------------
$ 37,216,470
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
25
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<CAPTION>
Period from
December 19,
1996 to
STATEMENT OF EARNINGS June 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Equity in undistributed earnings of the Savings Bank $ 32,364
Interest income 429,754
Interest expense (5,804)
Noninterest income 313
Noninterest expense (140,352)
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 316,275
Income tax expense 96,600
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 219,675
- ---------------------------------------------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------
Operating activities:
Net income $ 219,675
Equity in undistributed earnings of the Savings Bank (32,364)
Amortization of premiums 10,295
Increase in other assets (262,259)
Increase in accrued interest receivable (138,412)
Increase in other liabilities 213,011
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,946
- ---------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of capital stock of the Savings Bank (9,991,050)
Origination of ESOP loan receivable (2,010,200)
Purchase of mortgage-backed securities available for sale (10,174,580)
Principal repayments on mortgage-backed securities available for sale 469,078
Proceeds from sales of mortgage-backed securities available for sale 1,018,602
Purchase of investment in mutual funds (1,016,437)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (21,704,587)
- ---------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net proceeds of common stock issued 21,992,300
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 297,659
Cash and cash equivalents at beginning of period -
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 297,659
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
26
<PAGE>
BIG FOOT FINANCIAL CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(18) 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 periods indicated:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Eleven months ended June 30, 1997 Year ended July 31 1996
--------------------------------- -----------------------
1st qtr. 2nd qtr. 3rd qtr 2 months 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 $ 3,192 3,425 3,488 2,362 3,264 3,358 3,309 3,223
Interest expense 2,009 1,984 1,844 1,284 2,081 2,204 2,107 2,058
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income
before provision
for loan losses 1,183 1,441 1,644 1,078 1,183 1,154 1,202 1,165
- ----------------------------------------------------------------------------------------------------------------------------
Provision for loan losses - - - - - - 4 134
Net interest income after
provision for loan
losses 1,183 1,441 1,644 1,078 1,183 1,154 1,198 1,031
- ----------------------------------------------------------------------------------------------------------------------------
Noninterest income 110 59 74 38 108 79 58 240
Noninterest
expense (1) 2,087 1,157 1,157 894 1,162 1,200 1,145 1,201
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before
income tax expense
(benefit) (794) 343 561 222 129 33 111 70
Income tax expense
(benefit) (270) 117 190 75 44 12 37 24
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (524) 226 371 147 85 21 74 46
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (loss)
per share (2) $ N/A 0.05 0.16 0.06 N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Cash dividends
declared per share $ - - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) First quarter noninterest expense for 1997 includes a one-time special
assessment charge resulting from legislation passed on September 30, 1996,
regarding the Savings Association Insurance Fund. To cover the special
assessment called for by the legislation, the Company recorded a pre-tax
charge of $936,000.
(2) Earnings per share information for 1996 and the first quarter of fiscal
1997 cannot be computed because the Company did not issue stock until
December 19, 1996.
27
49
<PAGE>
ITEM 9. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
DIRECTORS
The following table sets forth the names of the Company's directors,
their ages and the year in which each became a director of the Company. There
are no arrangements or understandings between the Company and any director
pursuant to which such person was elected or nominated to be a director of the
Company.
<TABLE>
<CAPTION>
POSITIONS HELD WITH DIRECTOR TERM
NAME AGE(1) THE COMPANY SINCE(2) EXPIRES
- ---- ------ ----------------------------- ---------- -------
<S> <C> <C> <C> <C>
George M. Briody.................. 70 President, Director 1951 1997
F. Gregory Opelka................. 69 Executive Vice 1972 1997
President, Director
Maurice F. Leahy.................. 67 Director 1978 1999
Eugene W. Pilawski................ 74 Director 1990 1998
Joseph J. Nimrod.................. 68 Director 1978 1997
Walter E. Powers, M.D............. 69 Director 1977 1998
William B. O'Connell.............. 74 Director 1989 1999
</TABLE>
(1) At June 30, 1997.
(2) Includes terms as a director of Fairfield Savings Bank, F.S.B.
EXECUTIVE OFFICERS
The executive officers of the Company are Mr. Briody and Mr. Opelka,
who are directors of the Bank and the Company, and Mr. McCue, Mr. Cahill, Mr.
Jones and Mr. Maher, who are not directors of the Bank or the Company. Officers
are re-elected by the Board of Directors annually.
BIOGRAPHICAL INFORMATION
Positions held by a director or executive officer have been held for at
least the past five years unless stated otherwise.
DIRECTORS
GEORGE M. BRIODY serves as the President and a director of the Bank and
the Company. Mr. Briody has been involved in the financial institutions industry
for more than 40 years and has served as President of the Bank since 1966 and as
a director since 1951. He also has served as a director of the Chicago Area
Council, the Illinois Savings and Loan League, the FHLB of Chicago, the U.S.
League of Savings Institutions, Inc. and Electronic Funds Transfer Corporations
I and II. Mr. Briody is currently a member of the Central Savings and Loan
Group. He is also a member of the Illinois and Chicago Bar Associations. He is a
past president of the Central Savings and Loan Group and the Illinois Savings
and Loan League. Mr. Briody and Mr. Opelka are brothers-in-law.
F. GREGORY OPELKA serves as the Executive Vice President and a director
of the Bank and the Company. Mr. Opelka joined the Bank in 1954 and has served
as a director since 1972. He is a member of the Appraisal Institute and holds
Member, Senior Real Estate Analyst, and Senior Residential Appraiser
designations. He is currently a director of the Market Data Center and an
appraisal consultant authoring "Appraisal Report," a quarterly article for the
America's Community Banker's member magazine.
Mr. Opelka and Mr. Briody are brothers-in-law.
50
<PAGE>
MAURICE F. LEAHY serves as a director of the Bank and the Company and
has been a director of the Bank since 1978. Now retired, he was an account
executive for P.M.P. Sales, Inc., a meat and poultry broker. Previously he owned
and operated a meat and poultry retail business for more than 25 years.
EUGENE W. PILAWSKI joined the Bank in 1949 and serves as a director of
the Bank and the Company. Now retired, he had served as Senior Vice President of
the Bank from 1987 to 1992. Prior to this promotion, he served as Vice President
and Senior Loan Officer. He was elected to the Board of Directors in September,
1990. Mr. Pilawski is a member of the Chicago Bar Association. Mr. Pilawski and
Dr. Powers are brothers.
JOSEPH J. NIMROD serves as a director of the Bank and the Company and
has been a director of the Bank since 1978. Mr. Nimrod is the owner of Joseph
Nimrod Decorating Inc., a painting and paperhanging business. He also serves as
an officer and a director of the Painters and Decorators Contractors Association
and is Chairman of the Washburn Apprentice School of Painting.
WALTER E. POWERS, M.D. serves as a director of the Bank and the Company
and has served as a director of the Bank since 1977. Dr. Powers, now retired,
was a radiologist-flight surgeon for United Airlines, Inc. from 1973 to 1985. He
is a member of the American Medical Association, Illinois State Medical Society,
Chicago Medical Society, American College of Radiology, Radiology Society of
North America and Illinois Radiology Society. Dr. Powers and Mr. Pilawski are
brothers.
WILLIAM B. O'CONNELL serves as a director of the Bank and the Company
and has served as a director of the Bank since November, 1989. Immediately prior
thereto, Mr. O'Connell served as a Chairman of U.S. League Management Services,
Inc. (the "League"), a coordinating organization for the special service
projects of the U.S. League of Savings Institutions, Inc. He served as President
of the League from 1980 to 1988.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
TIMOTHY L. MCCUE, age 51, has served as the Bank's Vice President,
Chief Financial Officer since December 1984. He is a member of the American
Institute of Certified Public Accountants and the Illinois CPA Society. Mr.
McCue is the Regional District Director for Financial Managers Society.
ROBERT JONES, age 54, has served as the Bank's Vice President, Chief
Savings Officer since April 1987.
MICHAEL CAHILL, age 43, has served as Vice President, Controller of the
Bank since 1986.
JEROME A. MAHER, age 62, joined the Bank in June, 1996, and has served
as Vice President and Chief Lending Office since February, 1997. Mr. Maher
served as Vice President and director of Covenant Mortgage Corporation from
March 1994 to September 1996 and as a Senior Vice President of Hanover Capital
Mortgage Corporation from July 1993 to February 1994. Prior to that, Mr. Maher
was an Executive Vice President and director of Labe Federal Savings and Loan
Association.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE COMPANY AND THE BANK
The Board of Directors of the Bank meets on a monthly basis and may
have additional special meetings from time to time. During the fiscal year ended
June 30, 1997 (a short fiscal year consisting of 11 months), the Board of
Directors met 11 times. No current director attended fewer than 75% of the total
number of Board meetings and committee meetings of which such director was a
member.
The Company and the Bank have established the following committees of
each of their respective Boards of Directors:
51
<PAGE>
The MANAGEMENT SALARY COMPENSATION COMMITTEE of both the Company and
the Bank consists of Messrs. Powers, Leahy and Nimrod. Each such committee
reviews and makes recommendations to the Board regarding the compensation for
the Executive Officers.
The AUDIT COMMITTEE of both the Company and the Bank consists of
Messrs. Nimrod, Powers and O'Connell. The Audit Committee meets periodically
with its independent Certified Public Accountants to arrange the Company's
annual financial statement audit and to review and evaluate recommendations made
during the annual audit. The Audit Committee also reviews the regulatory reports
of examination.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and certain officers, and persons who own more than 10% of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities Exchange Commission (the "SEC").
Officers, directors and greater than 10% stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Other than the statement of changes in beneficial ownership of securities
on Form 4 for Mr. Nimrod, which was accurate in all respects but was filed on
June 16, 1997, based solely on a review of copies of such reports of ownership
furnished to the Company, or written representations that no forms were
necessary, the Company believes that, during the last fiscal year, all filing
requirements applicable to its officers, directors and greater than ten percent
stockholders were complied with.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTORS' COMPENSATION
FEE ARRANGEMENTS. Currently, each director of the Bank receives a
monthly fee of $900. The aggregate amount of fees paid to such directors by the
Bank for the year ended June 30, 1997 was approximately $69,300. No additional
fees are paid for attendance at board committee meetings. Directors of the
Company are not separately compensated for their services as such. Directors
have also been granted options under the Stock Option Plan. Effective on June
24, 1997, each person who is an Eligible Director on such date was granted a
NQSO to purchase 10,051 Shares. Such Options have an Exercise Price of $15.625
and an Exercise Period commencing on the date of grant and expiring on the
earliest of (i) the date such Eligible Director ceases to be an Eligible
Director due to a removal for cause (in accordance with the bylaws) of the Bank
or the Company, as applicable and (ii) the last day of the ten-year period
commencing on the date the Option was granted. On the first anniversary of the
date of grant and on each anniversary thereof until all 10,051 Shares subject to
the grant are exercisable, the Option will become exercisable as to 20% of the
Shares as to which such Eligible Director's outstanding Option has been granted.
In the event of the Option holder's termination of service due to death or
disability (as defined in the Option Plan), all optioned Shares not previously
exercisable will automatically become exercisable and remain exercisable for the
balance of the original ten year term.
EXECUTIVE COMPENSATION
COMPENSATION DECISIONS. Officers of the Company and the Bank are
compensated by the Bank and are not separately compensated by the Company.
Decisions regarding executive compensation are made by the Bank's Board of
Directors based on recommendations of the Management Salary Compensation
Committee, the membership of which excludes those directors employed by the
Bank. Under this structure, no interlocks exist between members of the
Management Salary Compensation Committee and employees of the Bank.
52
<PAGE>
CASH COMPENSATION. The following table sets forth the cash compensation
paid by the Bank for services rendered in all capacities during the fiscal year
ended June 30, 1997, to the Chief Executive Officer and all executive officers
of the Bank who received compensation in excess of $100,000 (the "Named
Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
NAME AND PRINCIPAL COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
POSITIONS YEAR SALARY($) BONUS($) ($)(3) ($)((4) (#) ($)(4) ($)(5)
- -------------------------------- ---- --------- -------- ------------- ------------ ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George M. Briody, President..... 1997 $147,840 $14,888 -- -- 55,280 -- $25,384
1996 $157,180 $14,550 -- -- -- -- 14,907
F. Gregory Opelka, Executive Vice 1997 $ 97,850 $ 9,485 -- -- 37,693 -- $16,153
President.................... 1996 $103,145 $ 9,240 -- -- -- -- 9,376
Timothy L McCue, Vice President 1997(2) $ 87,276 $ 8,351 -- -- 37,691 -- $14,136
and Chief Financial Officer.. 1996 $ 91,810 $ 8,130 -- -- -- -- 8,220
</TABLE>
(1) Under Annual Compensation, the column titled "Salary" includes base salary,
director's and management's fees and payroll deductions for health
insurance under the Bank's health insurance plan for the 11 months ended
June 30, 1997.
(2) Figures for the fiscal year ended June 30, 1997 represent amounts paid for
the period of 11 months coinciding with the short fiscal year. If the
annual salary and bonus reported for Mr. McCue reflected compensation for a
full 12-month period, the aggregate of Mr. McCue's annual salary and bonus
for fiscal 1997 would have exceeded $100,000.
(3) For 1997, there were no: (a) perquisites with an aggregate value for any
named individual in excess of the lesser of $50,000 or 10% of the total of
the individual's salary and bonus for the year; (b) payments of
above-market preferential earnings on deferred compensation; (c) payments
of earnings with respect to long-term incentive plans prior to settlement
or maturation; or (d) preferential discounts on stock.
(4) For the years reported, the Company did not maintain any restricted stock
or long-term incentive plan.
(5) Includes (a) employer contributions to the Profit Sharing and Savings Plan
for 1997 and 1996 as follows: Mr. Briody, $7,566 and $14,907; Mr. Opelka,
$4,817 and $9,376; and Mr. McCue, $4,219 and $8,220; and (b) allocations of
Common Stock under the Employee Stock Ownership Plan (valued using a price
per share of $16.125, the closing sales price for shares of Common Stock on
the NASDAQ Stock Market on June 30, 1997) for 1997 and 1996 as follows: Mr.
Briody, $17,818 and $0; Mr. Opelka, $11,336 and $0; and Mr. McCue, $9,917
and $0.
EMPLOYMENT AGREEMENTS
Effective December 19, 1996, the Company and the Bank entered into
Employment Agreements with each of Messrs. Briody, Opelka, McCue, Jones, and
Cahill (the "Senior Executives"). These Employment Agreements establish the
respective duties and compensation of the Senior Executives and are intended to
ensure that the Bank and the Company will be able to maintain a stable and
competent management base. The continued success of the Bank and the Company
depends to a significant degree on the skills and competence of the Senior
Executives.
The Employment Agreements provide for three-year terms. The Bank's
Employment Agreements provide that, commencing on the first anniversary date and
continuing each anniversary date thereafter, the Board of Directors may, with
the Senior Executive's concurrence, extend the Employment Agreements for an
additional year, so that the remaining terms shall be three years, after
conducting a performance evaluation of the Senior Executive. The Company's
Employment Agreements provide for automatic daily extensions such that the
remaining terms of the Employment Agreements shall be three years unless written
notice of non-renewal is given by the Board of Directors or the Senior
Executive. The Employment Agreements provide that the Senior Executive's base
salary will be reviewed annually. This review will be performed by the
Compensation Committee, and the Senior Executive's base salary may be increased
on the basis of such officer's job performance and the overall performance of
the Bank. The Employment Agreements also provide for, among other things,
entitlement to participation in stock, retirement and welfare benefit plans and
eligibility for fringe benefits applicable to executive personnel such as a
company car and fees for club and organization memberships deemed appropriate by
the Bank or Company and each Senior Executive. The
53
<PAGE>
Employment Agreements provide for termination by the Bank or the Company at any
time for cause as defined in the Employment Agreements.
In the event the Bank or the Company chooses to terminate the Senior
Executive's employment for reasons other than for cause, or in the event of the
Senior Executive's resignation from the Bank and the Company for the reasons
specified in the Employment Agreements, the Senior Executive would be entitled
to a lump sum cash payment in an amount equal to the present value of the
remaining cash compensation due to the Senior Executive and the additional
contributions or benefits that would have been earned under any employee benefit
plans of the Bank or the Company during the remaining terms of the Employment
Agreements and payments that would have been made under any incentive
compensation plan during the remaining terms of the Employment Agreements. The
Bank and the Company would also continue the Senior Executive's life, health and
any disability insurance or other benefit plan coverage for specified periods.
Reasons specified as grounds for resignation for purposes of the Employment
Agreements are: failure to elect or re-elect the Senior Executive to such
officer's offices; failure to vest in the Senior Executive the functions, duties
or authority associated with such offices; any material breach of contract by
the Bank or the Company which is not cured within 30 days after written notice
thereof; and, following a Change of Control (as defined in the Employment
Agreements), demotion, loss of title, office or significant authority or
responsibility, any reduction in any element of compensation or benefits, any
adverse change of location of the principal place of employment or working
conditions. In general, for purposes of the Employment Agreements and the plans
maintained by the Company or the Bank, a "change of control" will generally be
deemed to occur when a person or group of persons acting in concert acquires
beneficial ownership of 25% or more of any class of equity security of the
Company or the Bank, upon shareholder approval of a merger or consolidation or a
change of the majority of the Board of Directors of the Company or the Bank or
upon liquidation or sale of substantially all the assets of the Company or the
Bank.
Payments to the Senior Executives under the Bank's Employment
Agreements will be guaranteed by the Company in the event that payments or
benefits are not paid by the Bank. Payment under the Company's Employment
Agreements would be made by the Company. To the extent that payments under the
Company's Employment Agreements and the Bank's Employment Agreements are
duplicative, payments due under the Company's Employment Agreements would be
offset by amounts actually paid by the Bank. Senior Executives would be entitled
to reimbursement of certain costs incurred in interpreting or enforcing the
Employment Agreements.
Cash and benefits paid to a Senior Executive under the Employment
Agreements, together with payments under other benefit plans following a "change
of control" of the Bank or the Company, may constitute an "excess parachute"
payment under Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), resulting in the imposition of a 20% excise tax on the recipient and
the denial of the deduction for such excess amounts to the Company and the Bank.
The Company's Employment Agreements include a provision indemnifying each Senior
Executive on an after-tax basis for any "golden parachute" excise taxes.
BENEFITS
MANAGEMENT BONUS PROGRAM FOR THE SENIOR MANAGEMENT OFFICERS. In fiscal
year 1995, the Board of Directors of the Bank adopted an annual bonus program
applicable to senior management officers (the "SMO"). Amounts awarded as the
annual bonus under the SMO are determined at the discretion of the Compensation
Committee of the Board considering such factors as completion of specific goals
or projects, financial performance compared to a peer group, amount and type of
classified assets and a comparison of the officer's compensation to peer group
officers. The minimum guidelines for Bank financial performance necessary to
trigger an award is a return on assets in excess of a designated amount for each
applicable fiscal year. No annual awards were made for fiscal years 1996 or
1997.
54
<PAGE>
PENSION PLAN. The Bank maintains the Fairfield Savings Bank Retirement
Plan, a non-contributory, tax-qualified defined benefit pension plan (the
"Pension Plan") for eligible employees. All employees with more than 1,000 hours
of service per year, except leased employees, who have attained age 21 and
completed one year of service are eligible to participate in the Pension Plan.
The Pension Plan provides a benefit for each participant, including executive
officers named in the Summary Compensation Table above. The benefit is equal to
an amount (A) minus (B) where (A) is an amount equal to (i) 2% of the
participant's final average compensation multiplied by the participant's
projected benefit service, reduced by (ii) the participant's social security
offset allowance, and such result multiplied by (iii) a fraction, the numerator
of which equals the participant's benefit service and the denominator of which
is the participant's projected benefit service, and (B) is the amount to which
the participant is entitled under the Fairfield Savings and Loan Association
Pension Plan (the predecessor of the Pension Plan). A participant's social
security offset allowance shall equal 0.6% multiplied by the participant's years
of projected benefit service not in excess of 35 years, multiplied by the lesser
of the participant's (i) final average offset compensation or (ii) covered
compensation, divided by twelve.
Final average offset compensation is the monthly average of a
participant's compensation over sixty (60) consecutive months of employment out
of the participant's last 120 month period of employment during which the
participant's compensation is the highest. A participant is fully vested in his
or her pension after five years of service. The Pension Plan is funded by the
Bank on an actuarial basis, and all assets are held in trust by the Pension Plan
trustee. The following table illustrates the annual benefit payable upon normal
retirement at age 65 in the normal form of benefit under the Pension Plan (a
straight life annuity) at various levels of annual compensation (12 times final
average offset compensation) and years of service under the Pension Plan. The
amounts in the table are subject to a social security benefit offset allowance
and further reduction by the amount to which a participant is entitled under the
Fairfield Savings and Loan Association Pension Plan, a predecessor qualified
plan.
<TABLE>
<CAPTION>
YEARS OF SERVICE AT RETIREMENT
ANNUAL AVERAGE ---------------------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------------------- ---------------- ---------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $ 87,500
150,000(1) 45,000 60,000 75,000 90,000 105,000
175,000(1) 52,500 70,000 87,500 105,000 122,500(2)
200,000(1) 60,000 80,000 100,000 120,000(2) 140,000(2)
</TABLE>
- -----------------
(1) For the Pension Plan year ended June 30, 1997, the annual compensation for
calculating benefits may not exceed $150,000 (as adjusted for subsequent
years pursuant to Code provisions).
(2) For the Pension Plan year ended June 30, 1997, the maximum annual benefit
under the Pension Plan may not exceed $120,000. The maximum annual benefit
will be adjusted in subsequent years pursuant to Code provisions.
The following table sets forth the years of credited service and the
final average compensation (as defined above) determined as of June 30, 1997,
the end of the 1997 plan year, for each of the individuals named in the Summary
Compensation Table. The final average compensation includes the base salary
component of the figures shown in the salary column of the Summary Compensation
Table.
YEARS OF CREDITED SERVICE FINAL AVERAGE
YEARS MONTHS COMPENSATION
----- ------ ------------
Mr. Briody....... 47 0 $ 137,596
Mr. Opelka....... 42 7 88,891
Mr. McCue........ 12 6 78,259
55
<PAGE>
PROFIT SHARING AND SAVINGS PLAN. The Bank maintains a Profit Sharing
and Savings Plan, which permits salaried employees with at least one year of
service to make pre-tax salary deferrals under section 401(k) of the Code and
after-tax contributions under section 401(a) of the Code. Salary deferrals are
made by election and are limited to 15% of compensation up to $150,000 (for
1996), or to a limit imposed under the Code ($9,500 for 1996). The Bank makes
matching contributions equal to 25% of the amount of salary contributions, up to
6% of salary. The Profit Sharing and Savings Plan also provides for
discretionary contributions as the Bank may determine. For plan years beginning
prior to August 1, 1996, the Profit Sharing and Savings Plan required the Bank
to contribute annually an amount equal to 2% of the base annual salary of
participants. Employer contributions, other than matching contributions, were
discontinued on a prospective basis in connection with the implementation of the
ESOP described herein.
The Profit Sharing and Savings Plan permits the investment of Plan
assets in Common Stock of the Company. In addition, participating employees may
elect to invest all or any part of their account balances in the Company's
Common Stock. Common Stock held by the Profit Sharing and Savings Plan may be
newly issued or treasury shares acquired from the Company or outstanding shares
purchased in the open market or in privately negotiated transactions. All Common
Stock held by the Profit Sharing and Savings Plan is held by an independent
trustee and allocated to the accounts of individual participants. Participants
control the exercise of voting and tender rights relating to the Common Stock
held in their accounts.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Company has established,
and the Bank has adopted for the benefit of eligible employees, an ESOP and
related trust which became effective December 19, 1996. Substantially all
employees of the Bank or the Company who have attained age 21 and have completed
one year of service may be eligible to become participants in the ESOP. The ESOP
purchased eight percent (8%) of the Common Stock issued in the Conversion.
Although contributions to the ESOP are discretionary, the Company and the Bank
intend to make annual contributions to the ESOP in an aggregate amount at least
equal to the principal and interest requirement on the debt. This loan is for a
term of 10 years, with interest at the rate of 8% per annum and level annual
payments of principal plus accrued interest, designed to amortize the loan over
its term. The loan also permits optional prepayments. The Company and the Bank
may make additional annual contributions to the ESOP to the maximum extent
deductible for federal income tax purposes.
Shares purchased by the ESOP are initially pledged as collateral for
the loan and will be held in a suspense account until released for allocation
among participants in the ESOP as the loan is repaid. The pledged shares will be
released annually from the suspense account in an amount proportional to the
repayment of the ESOP loan for each plan year. The released shares will be
allocated among the accounts of participants on the basis of the participants'
total compensation (before deductions for pre-tax contributions to benefit
plans) for the year of allocation. Benefits generally become vested at the rate
of 20% per year beginning on completion of a participant's third year of service
with 100% vesting after seven years of service (including past service).
Participants also become immediately vested upon termination of employment due
to death, retirement at age 65 or older, permanent disability or upon the
occurrence of a change of control. Forfeitures of unvested amounts will be
reallocated among remaining participating employees in the same proportion as
contributions.
In connection with the establishment of the ESOP, a Plan Administrator
was appointed to administer the ESOP (the "Plan Administrator"). The Plan
Administrator may instruct the ESOP Trustee regarding investment of funds
contributed to the ESOP. The ESOP Trustee, subject to their fiduciary duty, must
vote all allocated shares held in the ESOP in accordance with the instructions
of the participating employees. Under the ESOP, unallocated shares will be voted
in a manner calculated to most accurately reflect the instructions received from
participants regarding the allocated stock as long as such vote is in accordance
with the provisions of ERISA.
The ESOP may purchase additional shares of Common Stock in the future,
in the open market or otherwise, and may do so either on a leveraged basis with
borrowed funds or with cash dividends, periodic
56
<PAGE>
employer contributions or other cash flow. Whether such purchases will be made
and the terms and conditions of any such purchases will be determined by the
ESOP's fiduciaries taking into account such factors as they consider relevant at
the time, including their judgment as to the attractiveness of the Common Stock
as an investment, the price at which Common Stock may be purchased and, in the
case of leveraged purchases, the terms and conditions on which borrowed funds
are available and the willingness of the Company or the Bank to offer purchase
money financing or guarantee purchase money financing offered by third parties.
STOCK OPTION PLAN. The Board of Directors of the Company has adopted
the Big Foot Financial Corp. 1997 Stock Option Plan. The Plan was approved by
the shareholders of the Company at a Special Meeting of the shareholders on June
24, 1997.
The following table summarizes the grants that were made to the Named Executive
Officers during fiscal 1997.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN FISCAL YEAR 1997
-------------------------------------
INDIVIDUAL GRANTS
---------------------------- POTENTIAL RELIZABLE
PERCENT OF VALUE OT ASSUMED ANNUAL
NUMBER OF TOTAL RATE OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS/SARS EMPLOYEES EXERCISE OR ----------------------
GRANTED FISCAL YEAR BASE PRICE EXPIRATION 5% 10%
NAME (#) (%) ($ PER SHARE) DATE ($) ($)
- ---------------------------- --------------- -------------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George M. Briody 55,280 27.50% 15.625 6/23/2007 543,208 1,376,595
F. Gregory Opelka 37,693 18.75 15.625 6/23/2007 370,389 938,640
Timothy L. McCue 37,691 18.75 15.625 6/23/2007 370,370 938,590
</TABLE>
- ------------------
(1) All options were granted on June 24, 1997, the date of shareholder
approval of the 1997 Stock Option Plan and vests at the rate of 20% per
year beginning on June 23, 1998, with accelerated vesting in the case
of death or disability while in the service of the Company or the Bank.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 1997, the Compensation Committee
consisted of Messrs. Powers, Leahy and Nimrod. During the 1997 fiscal year there
were no interlocks, as defined under the rules and regulations of the SEC,
between members of the Compensation Committee or executive officers of the
Company and corporations with respect to which such persons are affiliated, or
otherwise.
57
<PAGE>
The following table provides certain information with respect to the
number of shares of Common Stock acquired through the exercise of, or
represented by, outstanding stock options held by the Named Executive Officers
on June 30, 1997. Also reported is the value of any "in-the-money" options,
which represent the positive spread between the exercise price of any such
existing stock options and the fiscal year-end price of Common Stock, which was
$16.125 per share.
<TABLE>
<CAPTION>
FISCAL YEAR END OPTION/SAR VALUES
---------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
YEAR-END YEAR-END
(#) ($)
NAME(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
- ----------------------------------- ------------------------- -------------------------------
<S> <C> <C>
George M. Briody 0/55,280 0/$27,640
F. Gregory Opelka 0/37,693 0/$18,847
Timothy L. McCue 0/37,691 0/$18,846
</TABLE>
- ---------------------
(1) None of the Named Executive Officers exercised options during the fiscal
year ended June 30, 1997.
(2) Of the total outstanding stock options held by Mr. Briody, Mr. Opelka, and
Mr. McCue, all of the unexercisable options are "in-the-money" options.
The Company has reserved 251,275 shares of Company Common Stock for
issuance upon exercise of Options. Such Shares may be authorized and unissued
shares or shares previously issued and reacquired by the Company. Any Shares
subject to options under the Option Plan which expire or are terminated,
forfeited or cancelled without having been exercised or vested in full, shall
again be available to support additional grants under the Option Plan.
58
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
PRINCIPAL SHAREHOLDERS OF THE COMPANY
The following table sets forth, as of June 30, 1997, certain
information as to the Common Stock beneficially owned by persons owning in
excess of 5% of the outstanding shares of Common Stock. Management knows of no
person, except as listed below, who beneficially owned more than 5% of the
Company's outstanding shares of Common Stock as of June 30, 1997. Except as
otherwise indicated, the information provided in the following table was
obtained from filings with the Securities and Exchange Commission (the "SEC")
and with the Company pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Addresses provided are those listed in the filings as the
address of the person authorized to receive notices and communications. For
purposes of the table below and the table set forth under "Security Ownership of
Management," in accordance with Rule 13d-3 under the Exchange Act, a person is
deemed to be the beneficial owner, for purposes of the table, of any shares of
Common Stock (1) over which he has or shares, directly or indirectly, voting or
investment power, or (2) of which he has the right to acquire beneficial
ownership at any time within 60 days after May 1, 1997. As used herein, "voting
power" is the power to vote or direct the voting of shares and "investment
power" includes the power to dispose or direct the disposition of such shares.
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT
---------------- -------------------- -------
Big Foot Financial Corp. Employee Stock 201,020(1) 8.0%
Ownership Plan Trust
1190 RFD, Long Grove, IL 60047
- ---------------------
(1) The ESOP is administered by a Plan Administrator, who is an employee of the
Company appointed by the Board of Directors. The assets of the ESOP are
held in a trust (the "ESOP Trust") for which George M. Briody, Timothy L.
McCue and F. Gregory Opelka serve as interim trustees (the "Trustees"). The
Company is in the process of appointing an unrelated corporate trustee.
Under the terms of the ESOP, the Trustees vote the shares held by the ESOP
Trust based upon directions received from the participants in the ESOP. As
of June 30, 1997, 10,501 shares had been allocated to participants, and
190,519 shares were unallocated. Under the terms of the ESOP, each
participant may direct the voting of the shares allocated to such
participant. The remaining shares are voted in the same manner and
proportion as the shares allocated, so long as such vote is in accordance
with the provisions of the Employee Retirement Income Security Act of 1974,
as amended.
59
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the shares
of Common Stock beneficially owned by each Director of the Company, by each
Named Executive Officer of the Company identified in the Summary Compensation
Table included elsewhere herein and by all directors and executive officers of
the Company or the Company's wholly-owned subsidiary, the Bank, as a group as of
June 30, 1997. Except as otherwise indicated, each person and each group shown
in the table has sole voting and investment power with respect to the shares of
Common Stock indicated.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF COMMON
BENEFICIAL STOCK
NAME TITLE (1) OWNERSHIP(2) OUTSTANDING(3)
- ---- --------- ------------ ---------------
<S> <C> <C> <C>
George M. Briody(4)(5) President and Director 31,232 1.2%
F. Gregory Opelka(5)(6) Executive Vice President and 25,703 *
Director
Maurice F. Leahy(7) Director 5,000 *
Eugene W. Pilawski(8) Director 20,650 *
Joseph J. Nimrod(9) Director 30,700 1.2%
Walter E. Powers, M.D.(10) Director 10,063 *
William B. O'Connell(11) Director 15,000 *
Timothy L. McCue(5)(12) Vice President and Chief 16,151 *
Financial Officer
All directors and executive
officers as a group 362,712 14.4%
(11 persons)(5)(13)
</TABLE>
* Less than 1.0% of outstanding Common Stock.
(1) Titles are for both the Company and the Bank.
(2) See "Principal Shareholders of the Company" for a definition of "beneficial
ownership."
(3) Percentages with respect to each person or group of persons have been
calculated on the basis of 2,512,750 shares of Common Stock, the number of
shares of Common Stock outstanding as of June 30, 1997. No officer or
director has the right to acquire beneficial ownership of additional shares
of Common Stock within 60 days after June 30, 1997.
(4) Includes 8,872 shares over which Mr. Briody has shared voting and
investment power. Also includes 1,255 shares held in Mr. Briody's spouse's
individual retirement account as to which Mr. Briody has no voting and
investment power and as to which Mr. Briody disclaims beneficial ownership.
(5) The amount of shares for all executive officers and directors as a group
includes 190,519 shares held by the ESOP Trust that have not yet been
allocated to the individual accounts of the executive officers as of June
30, 1997. Messrs. Briody, Opelka and McCue, in their capacity as interim
trustees of the ESOP Trust, may be deemed to have shared voting power and
sole investment power except in limited circumstances. The individual
participants in the ESOP have shared voting power with the Trustees. Each
of the Trustees disclaims ownership of such shares, and, accordingly, such
shares are not attributed to the Trustees individually.
(6) Includes 6,000 shares held by Mr. Opelka's spouse and 4,000 shares held by
Mr. Opelka's children, in both cases as to which Mr. Opelka has no voting
or investment power and as to which Mr. Opelka disclaims beneficial
ownership.
(7) Includes 683 shares held by Mr. Leahy's spouse.
(8) Includes 15,000 shares as to which Mr. Pilawski has shared voting and
investment power and 5,000 shares held by Mr. Pilawski's spouse
and father-in-law. Also includes 650 shares held by Mr. Pilawski's spouse
and children, as to which Mr. Pilawski disclaims beneficial ownership.
(9) Includes 6,500 shares over which Mr. Nimrod has shared voting and
investment power. Also includes 3,750 shares held by Mr. Nimrod's spouse in
an individual retirement account as to which Mr. Nimrod has no voting and
investment power and as to which Mr. Nimrod disclaims beneficial ownership.
(10) Includes 700 shares over which Dr. Powers has shared voting and investment
power. Also includes 2,899 shares held by Dr. Powers' spouse in an
individual retirement account as to which Dr. Powers has no voting or
investment power and as to which Dr. Powers disclaims beneficial ownership.
(11) Includes 15,000 shares held jointly with Mr. O'Connell's wife as to which
Mr. O'Connell has shared voting power.
(12) Includes 536 shares held by Mr. McCue's spouse in an individual retirement
account as to which Mr. McCue has no voting and investment power and as to
which Mr. McCue disclaims beneficial ownership.
(13) Includes 190,969 shares over which the directors and executive officers
share voting and investment power.
60
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The FIRREA requires that all loans or extensions of credit to executive
officers and directors must be made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with the general public and must not involve more than the normal
risk of repayment or present other unfavorable features. The Bank has made loans
or extended credit to executive officers and directors and also to certain
persons related to executive officers and directors. All such loans were made by
the Bank in the ordinary course of business and were not made with more
favorable terms nor did they involve more than the normal risk of collectibility
or present unfavorable features. The outstanding principal balance of such loans
to directors, executive officers and their associates totaled $483,079 or 1.31%
of the Company's stockholders' equity at June 30, 1997.
The Company intends that all transactions in the future between the
Company and its executive officers, directors, holders of 10% or more of the
shares of any class of its common stock and affiliates thereof, will contain
terms no less favorable to the Company than could have been obtained by it in
arm's-length negotiations with unaffiliated persons and will be approved by a
majority of independent outside directors of the Company not having any interest
in the transaction.
61
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Listed
below are all financial statements and exhibits filed as part of this report:
a. Financial Statements, Schedules, and Exhibits
(1) The consolidated balance sheets of Big Foot Financial Corp. and
subsidiary as of June 30, 1997 and July 31, 1996 and the related
consolidated statements of operations, changes in stockholders'
equity and cash flows for the eleven months ended June 30, 1997
and each of the years in the two-year period ended July 31, 1996,
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
62
<PAGE>
EXHIBIT NO. DESCRIPTION
3.1 Article of Incorporation of Big Foot Financial Corp.*
3.2 Bylaws of Big Foot Financial Corp.*
4.3 Specimen of Stock Certificate of Big Foot Financial Corp.*
10.1(a) Employee Stock Ownership Plan of Big Foot Financial Corp.*
10.1(b) ESOP Trust Agreement dated as of December 19, 1996.
10.2 Loan Agreement by and between Big Foot Financial Corp. Employee
Stock Ownership Plan Trust and Big Foot Financial Corp. Made and
Entered Into as of December 19, 1996, as amended.
10.3 Executive Employment Agreement between Big Foot Financial Corp.
and George M. Briody.
10.4 Form of Executive Employment Agreement between Big Foot Financial
Corp. and Executive Officers.
10.5 Employment Agreement between Fairfield Savings Bank, F.S.B. and
George M. Briody.
10.6 Form of Employment Agreement between Fairfield Savings Bank,
F.S.B. and Executive Officers.
10.7 Form of Employee Retention Agreement between Fairfield Savings
Bank, F.S.B., Big Foot Financial Corp. and certain employees.
10.8 Lease Agreement of Fairfield Savings Bank, F.S.B. for Norridge
Branch Office, dated April 29, 1976.*
10.9 Amended and Restated Severance Pay Plan of Fairfield Savings Bank,
F.S.B. Adopted on September 17, 1996, Effective on December 19,
1996.
10.10(a) Fairfield Savings Bank Profit Sharing and Savings Plan (As amended
and restated effective August 1, 1989).*
10.10(b) Amendments No. 1 (dated September 21, 1993), No. 2 (dated July 19,
1994) and No. 3 (dated November 18, 1996) to the Fairfield Savings
Bank Profit Sharing and Savings Plan.
21.1 Subsidiaries of the Registrant.*
27.1 Financial Data Schedule (Submitted only with filing in electronic
format).
* Incorporated herein by reference to Registration Statement No. 333-12083 on
Form S-1 of Big Foot Financial Corp. filed with the Securities and Exchange
Commission on September 16, 1996, as amended.
b. Reports on Form 8-K - None
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on September 23, 1997.
Big Foot Financial Corp.
By: /s/ George M. Briody
----------------------
George M. Briody
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ George M. Briody President, Director September
- ------------------------------ (Principal Executive Officer)
George M. Briody
/s/ F. Gregory Opelka Executive Vice President, Director September 23, 1997
- ------------------------------
F. Gregory Opelka
/s/ Timothy L. McCue Vice President, Chief Financial Officer September 23, 1997
- ------------------------------
Timothy L. McCue
/s/ Michael J. Cahill Vice President, Controller September 23, 1997
- ------------------------------
Michael J. Cahill
/s/ Maurice F. Leahy Director September 23, 1997
- ------------------------------
Maurice F. Leahy
/s/ Eugene W. Pilawski Director September 23, 1997
- ------------------------------
Eugene W. Pilawski
/s/ Joseph J. Nimrod Director September 23, 1997
- ------------------------------
Joseph J. Nimrod
/s/ Walter E. Powers, M.D. Director September 23, 1997
- ------------------------------
Walter E. Powers, M.D.
/s/ William B. O'Connell Director September 23, 1997
- ------------------------------
William B. O'Connell
</TABLE>
64
TRUST AGREEMENT
BETWEEN
BIG FOOT FINANCIAL CORP.
AND
GEORGE M. BRIODY, TIMOTHY L. MCCUE AND F. GREGORY OPELKA
FOR THE
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN
----------------------------------
Entered into as of December 10, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
ARTICLE I
TRUST FUND
<S> <C> <C>
SECTION 1.1 TRUST FUND.................................................................................... 2
SECTION 1.2 COLLECTION OF CONTRIBUTIONS................................................................... 2
SECTION 1.3 NON-DIVERSION OF FUNDS........................................................................ 2
ARTICLE II
INVESTMENT AND ADMINISTRATION
SECTION 2.1 IN GENERAL.................................................................................... 3
SECTION 2.2 INVESTMENT FUNDS.............................................................................. 3
SECTION 2.3 APPOINTMENT OF INVESTMENT MANAGER............................................................. 3
SECTION 2.4 INVESTMENT DECISIONS.......................................................................... 4
SECTION 2.5 INVESTMENT IN COMMINGLED FUNDS................................................................ 5
SECTION 2.6 LIQUIDITY..................................................................................... 5
SECTION 2.7 INVESTMENT DIRECTIONS BY PARTICIPANTS......................................................... 6
SECTION 2.8 TRUSTEE'S ADMINISTRATIVE AUTHORITY............................................................ 6
SECTION 2.9 EXERCISE OF VOTING RIGHTS WITH RESPECT TO SHARES.............................................. 8
SECTION 2.10 RESPONSE TO TENDER OFFERS AND SIMILAR EVENTS.................................................. 8
SECTION 2.11 SHARE ACQUISITION LOANS....................................................................... 8
ARTICLE III
TRUSTEE, PLAN ADMINISTRATOR AND COMMITTEE
SECTION 3.1 COMMITTEE AND PLAN ADMINISTRATOR.............................................................. 9
SECTION 3.2 TRUSTEE'S RELIANCE............................................................................ 10
SECTION 3.3 LEGAL COUNSEL................................................................................. 10
SECTION 3.4 LIABILITY UNDER THE PLAN...................................................................... 10
ARTICLE IV
DISTRIBUTIONS FROM THE TRUST FUND
SECTION 4.1 IN GENERAL.................................................................................... 10
SECTION 4.2 DIRECTION BY THE PLAN ADMINISTRATOR........................................................... 11
SECTION 4.3 METHOD OF PAYMENT............................................................................. 11
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE V
RESPONSIBILITIES
<S> <C> <C>
SECTION 5.1 GENERAL STANDARD OF CARE...................................................................... 11
SECTION 5.2 NO LIABILITY FOR ACTS OF OTHERS............................................................... 12
SECTION 5.3 COMPLIANCE WITH ERISA......................................................................... 13
ARTICLE VI
TRUSTEE'S ACCOUNTS
SECTION 6.1 ACCOUNTS...................................................................................... 13
SECTION 6.2 VALUATION OF TRUST FUND....................................................................... 13
SECTION 6.3 REPORTS TO THE PLAN ADMINISTRATOR............................................................. 13
SECTION 6.4 RIGHT OF JUDICIAL SETTLEMENT.................................................................. 14
SECTION 6.5 ENFORCEMENT OF AGREEMENT...................................................................... 14
ARTICLE VII
TAXES; COMPENSATION OF TRUSTEE
SECTION 7.1 TAXES......................................................................................... 15
SECTION 7.2 COMPENSATION OF TRUSTEE; EXPENSES............................................................. 15
ARTICLE VIII
RESIGNATION AND REMOVAL OF TRUSTEE
SECTION 8.1 RESIGNATION OR REMOVAL OF TRUSTEE............................................................. 15
SECTION 8.2 APPOINTMENT OF SUCCESSOR...................................................................... 16
SECTION 8.3 SUCCESSION.................................................................................... 16
SECTION 8.4 SUCCESSOR BOUND BY AGREEMENT.................................................................. 16
ARTICLE IX
AMENDMENT AND TERMINATION
SECTION 9.1 AMENDMENT AND TERMINATION..................................................................... 16
ARTICLE X
MISCELLANEOUS
SECTION 10.1 BINDING EFFECT; ASSIGNABILITY................................................................. 17
SECTION 10.2 GOVERNING LAW................................................................................. 17
SECTION 10.3 NOTICES....................................................................................... 17
SECTION 10.4 SEVERABILITY.................................................................................. 18
SECTION 10.5 WAIVER........................................................................................ 18
SECTION 10.6 NON-ALIENATION................................................................................ 18
SECTION 10.7 QUALIFIED PLAN AND TRUST...................................................................... 19
SECTION 10.8 RETURN OF CONTRIBUTIONS....................................................................... 19
SECTION 10.9 COMPLIANCE WITH SECURITIES LAWS............................................................... 19
SECTION 10.10 HEADINGS...................................................................................... 20
SECTION 10.11 CONSTRUCTION OF LANGUAGE...................................................................... 20
SECTION 10.12 COUNTERPARTS.................................................................................. 20
</TABLE>
(ii)
<PAGE>
TRUST AGREEMENT
FOR THE
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN
This AGREEMENT ("Agreement") is made as of December 10, 1996,
by and between BIG FOOT FINANCIAL CORP., a corporation organized under the laws
of the State of Illinois and having its executive offices at 1190 RFD,
Fairfield, Illinois 60047-7304 ("Company"), and GEORGE M. BRIODY, TIMOTHY L.
MCCUE AND F. GREGORY OPELKA, three individuals in their capacity as trustee and
having an office at c/o Big Foot Financial Corp., 1190 RFD, Fairfield, Illinois
60047-7304 ("Trustee").
W I T N E S S E T H :
WHEREAS, the Company has, by action of its Board of Directors,
adopted an Employee Stock Ownership Plan ("Plan") to be qualified under section
401(a) of the Internal Revenue Code of 1986, as amended ("Code"), for the
exclusive benefit of its eligible employees ("Participants") and their
beneficiaries; and
WHEREAS, the Company has, in accordance with the terms of the
Plan, appointed a Plan Administrator ("Plan Administrator") and a Committee
("Committee") to administer the Plan; and
WHEREAS, the Plan contemplates the establishment and
continuance of a trust so long as it remains in effect to be and to remain
qualified for tax exempt status under section 501(a) of the Code, to which
contributions will be made from time to time, to be accepted, invested and
maintained in accordance with this Agreement; and
WHEREAS, the Plan provides for the assets of such trust to be
invested primarily in shares of common stock of the Company ("Shares") and for
the assumption of debt for the purpose of purchasing Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the Company and the Trustee hereby agree as
follows:
<PAGE>
-2-
ARTICLE I
TRUST FUND
SECTION 1.1 TRUST FUND.
The Company hereby establishes with the Trustee a trust,
pursuant to the Plan, in which shall be deposited such Shares and such sums of
money as shall from time to time be paid or delivered to or deposited with the
Trustee by or with the approval of the Company in accordance with terms of the
Plan. All such Shares and all such sums of money, all investments and
reinvestments thereof and all earnings, appreciation and additions allocable
thereto, less losses, depreciation and expenses allocable thereto and any
payments made therefrom as authorized under the Plan or this Agreement shall
constitute the "Trust Fund". The Trust Fund shall be held, managed and
administered by the Trustee, IN TRUST, and dealt with in accordance with the
provisions of this Agreement and in accordance with any funding policy or
guidelines established under the Plan that are communicated in writing to the
Trustee.
SECTION 1.2 COLLECTION OF CONTRIBUTIONS.
The Trustee shall have no authority over and shall have no
responsibility for the administration of the Plan or for the collection of any
contributions to the Trust Fund required under the Plan, nor shall it have any
authority to bring any action or proceeding to enforce the collection of any
such amount or to make inquiry as to whether any such contributions received by
it were properly collected or computed in accordance with the terms of the Plan.
SECTION 1.3 NON-DIVERSION OF FUNDS.
Notwithstanding anything to the contrary contained in this
Agreement or any amendment hereto, no part of the Trust Fund other than such
expenses and taxes properly charged to the Trust Fund under the Plan or this
Agreement shall be used for or diverted to purposes other than for the exclusive
benefit of Plan Participants and their beneficiaries (including alternate payees
entitled to benefits under the Plan pursuant to a qualified domestic relations
order described in section 414(p) of the Code).
<PAGE>
-3-
ARTICLE II
INVESTMENT AND ADMINISTRATION
SECTION 2.1 IN GENERAL.
The Trust Fund shall be held by the Trustee and shall be
invested and reinvested as hereinafter provided in this Article II, without
distinction between principal and income and without regard to the restrictions
of the laws of any jurisdiction relating to the investment of trust funds.
Subject to section 2.7, the Trust Fund shall be invested at all times, pursuant
to directions given in accordance with section 2.4, primarily in Shares.
SECTION 2.2 INVESTMENT FUNDS.
(a) The Trustee shall establish and maintain, for the
investment of the Trust Fund, such separate investment funds (individually, an
"Investment Fund") as the Company may request by written notice to the Trustee.
In the absence of such notice, the Trust Fund shall consist of a single
Investment Fund.
(b) To the extent directed to do so pursuant to section 2.4,
the Trustee shall hold and invest amounts paid over to it pursuant to this
Agreement in such Investment Funds as shall have been established in accordance
with section 2.2(a), and shall allocate amounts paid over to it among the
Investment Funds in the manner and in the proportion designated by the Plan
Administrator pursuant to the terms of the Plan. The Trustee shall also credit
to each such Investment Fund all earnings and appreciation allocable thereto and
shall charge against each such fund any depreciation, losses, expenses, payments
and distributions allocable thereto.
(c) The Trustee shall invest and reinvest amounts allocated to
each Investment Fund in accordance with such written investment criteria as
shall be established by the Committee and communicated in writing to the
Trustee. Notwithstanding any such investment criteria, the Trustee is authorized
to retain in an Investment Fund, for as long as it is deemed advisable by the
person responsible for directing the investment of the particular Investment
Fund, (i) any securities or other property received by means of a dividend,
distribution, exchange, conversion, liquidation or otherwise than by initial
purchase; and (ii) any investments which were authorized hereunder when made by
the Trustee.
SECTION 2.3 APPOINTMENT OF INVESTMENT MANAGER.
(a) The Committee may, in its discretion, appoint an
investment manager ("Investment Manager") to direct the investment and
reinvestment of an Investment Fund. Any such Investment Manager shall either (i)
be registered as an investment adviser under the Investment Advisers Act of
1940, as amended ("Investment Advisers Act"); (ii) be a bank, as defined in the
Investment Advisers Act; or (iii) be an insurance company qualified to perform
investment services under the laws of more than one state.
<PAGE>
-4-
(b) The Plan Administrator shall give written notice to the
Trustee of the appointment of an Investment Manager pursuant to section 2.3(a).
Such notice shall include: (i) a specification of the portion of the Trust Fund
to which the appointment applies; (ii) a certification by the Plan Administrator
that the Investment Manager satisfies the requirements of section 2.3(a)(i),
(ii) or (iii); (iii) a copy of the instruments appointing the Investment Manager
and evidencing the Investment Manager's acceptance of the appointment; (iv)
directions as to the manner in which the Investment Manager is authorized to
give instructions to the Trustee, including the persons authorized to give
instructions and the number of signatures required for any written instruction;
(v) an acknowledgement by the Investment Manager that it is a fiduciary of the
Plan; and (vi) if applicable, a certificate evidencing the Investment Manager's
current registration under the Investment Advisers Act. For purposes of this
Agree ment, the appointment of an Investment Manager pursuant to this section
2.3 shall become effective as of the effective date specified in such notice,
or, if later, as of the date on which the Trustee receives proper notice of such
appointment.
(c) The Plan Administrator shall give written notice to the
Trustee of the resignation or removal of an Investment Manager previously
appointed pursuant to this section 2.3. From and after the date on which the
Trustee receives such notice, or, if later, the effective date of the
resignation or removal specified in such notice, the Committee shall be
responsible, in accordance with this section 2.3, for the investment and
reinvestment of the portion of the Trust Fund theretofore managed by such
Investment Manager, until such time as a successor Investment Manager has been
duly appointed pursuant to this section 2.3.
SECTION 2.4 INVESTMENT DECISIONS.
(a) The Trustee shall invest and reinvest the Trust Fund as
follows:
(i) in accordance with the directions of the Committee; or
(ii) to the extent that an Investment Manager is appointed to
direct the investment of any Investment Fund, in accordance with the
directions of such Investment Manager.
The Trustee shall be under no duty or obligation to review any investment to be
acquired, held or disposed of pursuant to directions of the Committee or any
Investment Manager nor to make any recommendation with respect to the
disposition or continued retention of any such investment. To the extent that
the Trustee is subject to direction by the Committee or an Investment Manager,
the Trustee shall have no liability or responsibility for its actions or
inaction pursuant to the direction of, or its failure to act in the absence of
directions from, the Committee or an Investment Manager, except to the extent
provided in section 5.2. To the extent that the Trustee is subject to direction
by the Committee or an Investment Manager, the Company hereby agrees to
indemnify the Trustee and hold it harmless from and defend it against any claim
or liability which may be asserted against the Trustee by reason of any action
or inaction by it pursuant to a direction by the Committee or by an Investment
Manager or failing to act in the absence of any such direction.
<PAGE>
-5-
(b) An Investment Manager appointed pursuant to section 2.3
shall, from time to time, issue orders for the purchase or sale of securities
directly to a broker. Written notification of the issuance of each such order
shall be given promptly to the Trustee by the Committee or the Investment
Manager, and the execution of each such order shall be confirmed by written
advice to the Trustee by the broker. Such notification shall be authority for
the Trustee to pay for securities purchased against receipt thereof and to
deliver securities sold against payment therefor, as the case may be.
(c) To the extent that neither the Committee nor an Investment
Manager furnishes directions as to the investment of any portion of the Trust
Fund that is subject to its direction, the Trustee shall invest and reinvest the
Trust Fund (i) in Shares and (ii) to the extent that it is not practicable to
invest and reinvest the Trust Fund in Shares, in any savings account, time or
other interest bearing deposit or in any other interest bearing obligation of
any one or more savings banks, savings and loan associations, banks and other
financial institutions, or any of them, including the Trustee or any subsidiary
of the Company, or, subject to section 2.5, in any commingled, common or group
trust fund at least 75% of the assets of which are invested in such savings
accounts, time or other interest bearing deposits or other interest bearing
obligations.
SECTION 2.5 INVESTMENT IN COMMINGLED FUNDS.
The Trustee may, if directed to do so by the Committee or an
Investment Manager or if authorized to do so pursuant to section 2.4, invest any
amounts, other than Shares, held by it under this Agreement in any commingled or
group trust fund described in section 401(a) of the Code and exempt under
section 501(a) of the Code or in any common trust fund exempt under section 584
of the Code, provided that such trust fund satisfies the requirements of this
Agreement applicable to such amounts and that the Trustee serves as trustee of
such commingled, group or common trust fund. To the extent that the Trust Fund
is at any time invested in any commingled, group or common trust fund, the
declaration of trust or other instrument pertaining to such fund and any
amendments thereto are hereby adopted as part of this Agreement and deemed to
form a part of the Plan. If there is any conflict between the provisions of this
Agreement and such declaration of trust or other instrument, then the terms of
the declaration of trust or other instrument of the commingled, group or common
trust fund shall govern.
SECTION 2.6 LIQUIDITY.
Notwithstanding any provisions of this Article II to the
contrary, the Trustee, in its sole discretion or as the Plan Administrator shall
request, may retain uninvested cash or cash balances, and sell, to provide cash
or cash balances, such investments in whatever portion of the Trust Fund that it
may deem advisable, without being required to pay interest thereon. Pending
investment, the Trustee, in its sole discretion, may temporarily invest any
funds held or received by it for investment in an investment fund established
hereunder in commercial paper or in obligations of, or guaranteed by, the United
States government or any of its agencies.
<PAGE>
-6-
SECTION 2.7 INVESTMENT DIRECTIONS BY PARTICIPANTS.
Each Participant entitled thereto under the terms of the Plan
("Qualified Participant") shall have the right to direct the allocation to the
various Investment Funds established hereunder to be made by the Trustee for a
portion of such Qualified Participant's account under the Plan. The Plan
Administrator shall by written notice furnish the Trustee with the investment
directions for each Qualified Participant's account in the Plan. The Trustee
shall act in accordance with the most recent directions it has received from the
Plan Administrator for each account and shall have no discretion over or
responsibility or liability for its actions taken in accordance with such
directions. The Company hereby agrees to indemnify and defend the Trustee and
hold it harmless from and against any claim asserted against or liability
imposed on the Trustee by reason of its having acted on any direction given by a
Qualified Participant with respect to his own account.
SECTION 2.8 TRUSTEE'S ADMINISTRATIVE AUTHORITY.
(a) In addition to and not by way of limitation of any other
powers conferred upon the Trustee by law or by other provisions of this
Agreement, but subject to the provisions of section 1.3 and this Article II, the
Trustee is authorized and empowered:
(i) subject to section 2.10, to sell, exchange, convey,
transfer or dispose of and also to grant options with respect to any
property, whether real or personal, at any time held by it, and any
sale may be made by private contract or by public auction, and for cash
or upon credit, or partly for cash and partly upon credit, and no
person dealing with the Trustee shall be bound to see to the
application of the purchase money or to inquire into the validity,
expediency or propriety of any such sale or other disposition;
(ii) to retain, manage, operate, repair and rehabilitate and
to mortgage or lease for any period any real estate held by it and, in
its discretion, cause to be formed any corporation or trust to hold
title to any such real property;
(iii) unless otherwise agreed to and subject to sections 2.9
and 2.10, to vote in person or by proxy on any stocks, bonds, or other
securities held by it, to exercise any options appurtenant to any
stocks, bonds or other securities for the conversion thereof into other
stocks, bonds or securities, or to exercise any rights to subscribe for
additional stocks, bonds or other securities and to make any and all
necessary payment therefor and to enter into any voting trust;
(iv) with respect to any investment, to join in, dissent from,
or oppose any action or inaction of any corporation, or of the
directors, officers or stock holders of any corporation, including,
without limitation, any reorganization, recapitalization,
consolidation, liquidation, sale or merger;
(v) to settle, adjust, compromise, or submit to arbitration
any claims, debts or damages due or owing to or from the Trust Fund;
and
<PAGE>
-7-
(vi) to deposit any property with any protective,
reorganization or similar committee, to delegate power thereto and to
pay and agree to pay part of its expenses and compensation and any
assessments levied with respect to any property so deposited.
In exercising such powers with respect to any portion of the Trust Fund that is
invested in the discretion of the Trustee or pursuant to section 2.4(c), the
Trustee shall act in its discretion. In exercising such powers with respect to
any portion of the Trust Fund that is invested pursuant to directions of the
Committee or of an Investment Manager, the Trustee shall act in accordance with
directions provided by the Committee or Investment Manager. The Trustee shall be
under no duty or obligation to review any action to be taken, nor to recommend
any action, pursuant to this section 2.8(a) with respect to any portion of the
Trust Fund that is under the direction of the Committee or an Investment
Manager. The Trustee shall have no liability or responsibility for its actions
or inaction pursuant to the direction of, or its failure to act in the absence
of directions from, the Committee or an Investment Manager, except to the extent
provided in section 5.2.
(b) In addition to and not by way of limitation of any other
powers conferred upon the Trustee by law or other provisions of this Agreement,
but subject to section 1.3 and this Article II, the Trustee is authorized and
empowered, in its discretion:
(i) to commence or defend suits or legal proceedings, and to
represent the Trust Fund in all suits or legal proceedings in any court
or before any other body or tribunal;
(ii) to register securities in its name or in the name of any
nominee or nominees with or without indication of the capacity in which
the securities shall be held, or to hold securities in bearer form, but
the books and records of the Trustee shall at all times show that such
investments are part of the Trust Fund;
(iii) subject to section 2.11, to borrow or raise moneys for
the purposes of the Trust Fund from any lender, except the Trustee in
its individual capacity, and for any sum so borrowed to issue its
promissory note as Trustee and to secure the repayment thereof by
pledging all or any part of the Trust Fund, and no person lending money
to the Trustee shall be bound to see the application of the money
loaned or to inquire into the validity, expediency or propriety of any
such borrowing;
(iv) to make distributions in cash or in Shares upon the
direction of the Committee and to make transfers of funds into and out
of the Investment Funds for value or upon the direction of the Plan
Administrator;
(v) to employ such agents, counsel and accountants as the
Trustee shall deem advisable and to pay their reasonable expenses and
compensation;
(vi) to make, execute, acknowledge, and deliver any and all
deeds, leases, assignments and instruments; and
<PAGE>
-8-
(vii) generally to do all acts which the Trustee may deem
necessary or desirable for the administration and protection of the
Trust Fund.
SECTION 2.9 EXERCISE OF VOTING RIGHTS WITH RESPECT TO SHARES.
The Committee shall direct the Trustee as to the manner of
exercise of voting rights appurtenant to Shares held in the Trust Fund. The
Trustee shall act in accordance with the directions that it receives from the
Committee for each matter as to which voting rights are to be exercised and
shall refrain from exercising the voting rights appurtenant to Shares held in
the Trust Fund in the absence of such directions. The Trustee shall have no
discretion over or responsibility or liability for its actions taken in
accordance with such directions, or for its failure to exercise such voting
rights in the absence of such directions. The Company hereby agrees to indemnify
the Trustee and hold it harmless from and defend it against any claim asserted
against or liability imposed on the Trustee by reason of its having acted on any
direction given by the Committee in accordance with this section 2.9 or failing
to act in the absence of any such direction.
SECTION 2.10 RESPONSE TO TENDER OFFERS AND SIMILAR EVENTS.
The Committee shall direct the Trustee as to the manner of
exercise of any rights to tender Shares held in the Trust Fund or otherwise act
in response to any tender offer with respect to Shares or any other offer to
purchase, exchange, redeem or otherwise transfer such Shares. The Trustee shall
act in accordance with the directions that it receives from the Committee for
each matter as to which such rights are to be exercised and shall refrain from
taking any action in response to such an offer in the absence of such
directions. The Trustee shall have no discretion over or responsibility or
liability for its actions taken in accordance with such directions, or for its
failure to exercise such rights in the absence of such directions. The Company
hereby agrees to indemnify the Trustee and hold it harmless from and defend it
against any claim asserted against or liability imposed on the Trustee by reason
of its having acted on any direction given by the Committee in accordance with
this section 2.10 or failing to act in the absence of any such direction.
SECTION 2.11 SHARE ACQUISITION LOANS.
(a) The Trustee shall, if directed to do so by the Committee,
obtain a loan ("Share Acquisition Loan") on behalf of the Plan and shall apply
the proceeds of such Share Acquisition Loan in the proportions directed by the
Committee:
(i) to purchase Shares; or
(ii) to make payments of principal or interest, or a
combination of principal and interest, with respect to such Share
Acquisition Loan; or
<PAGE>
-9-
(iii) to make payments of principal and interest, or a
combination of principal and interest, with respect to a previously
obtained Share Acquisition Loan that is then outstanding.
Any such Share Acquisition Loan shall be on such terms and conditions as the
Committee may determine, and the Trustee shall have no duty or obligation to
inquire as to the expediency or propriety of any such Share Acquisition Loan or
any of the terms and conditions thereof.
(b) If directed to do so by the Committee, the Trustee shall
execute a promissory note, in its capacity as Trustee, evidencing the obligation
of the Plan to repay a Share Acquisition Loan and shall pledge, in such
proportions as the Committee may direct, the following assets of the Plan as
collateral for such Share Acquisition Loan:
(i) any Shares purchased with the proceeds of such Share
Acquisition Loan; and
(ii) any Shares purchased with the proceeds of a previous
Share Acquisition Loan, provided that such previous Share Acquisition
Loan is repaid with the proceeds of the Share Acquisition Loan for
which such Shares are pledged.
Any Share Acquisition Loan shall be without recourse against the Plan or the
Trustee, and, except as specifically provided in this section 2.11, no assets of
the Plan shall be pledged as collateral for a Share Acquisition Loan.
(c) The Trustee shall apply the Company's contributions to the
Trust Fund, the earnings on such contributions, and the earnings with respect to
Shares that shall have been pledged as collateral for a Share Acquisition Loan,
in such proportions as the Committee may direct, to the payment of principal and
interest with respect to such Share Acquisition Loan.
ARTICLE III
TRUSTEE, PLAN ADMINISTRATOR AND COMMITTEE
SECTION 3.1 COMMITTEE AND PLAN ADMINISTRATOR.
The Company shall certify to the Trustee the names and
specimen signatures of the Plan Administrator and of the members of the
Committee appointed by the Company to administer the Plan and give directions to
the Trustee. Such certification shall include directions as to the number of
signatures required for any communication or direction to the Trustee. The
Company shall promptly give notice to the Trustee of changes in the identity of
the Plan Administrator or in the membership of the Committee. The Plan
Administrator or the Committee may also certify to the Trustee the name of any
person, together with a specimen signature of any such person, authorized to act
for it in relation to the Trustee. The Plan
<PAGE>
-10-
Administrator or the Committee shall promptly give notice to the Trustee of any
change in any person authorized to act on behalf of it. For all purposes under
this Agreement, until any such notice is received by the Trustee, the Trustee
shall be fully protected in assuming that the identity of the Plan
Administrator, the membership of the Committee and the authority of any person
certified to act in its behalf remain unchanged.
SECTION 3.2 TRUSTEE'S RELIANCE.
The Trustee may rely and act upon any certificate, notice or
direction of the Plan Administrator or the Committee, or of a person authorized
to act on its behalf, or of the Company or of an Investment Manager which the
Trustee believes to be genuine and to have been signed by the person or persons
duly authorized to sign such certificate, notice, or direction.
SECTION 3.3 LEGAL COUNSEL.
The Trustee may consult with legal counsel (who may, but need
not, be counsel to the Company) concerning any question which may arise under
this Agreement, and the opinions of such counsel shall be full and complete
protection with respect to any action taken, or omitted, by the Trustee
hereunder in good faith in accordance with the opinion of such counsel.
SECTION 3.4 LIABILITY UNDER THE PLAN.
The duties and obligations of the Trustee shall be limited to
those expressly set forth in this Agreement, notwithstanding any reference
herein to the Plan. The Trustee shall not be obliged to take or defend any
action or participate in or proceed with any suit or legal or administrative
proceeding which might subject it to substantial cost or expense or liability
unless first indemnified by the Company in an amount and by security
satisfactory to it against all losses, costs, damages and expenses which may
result therefrom or be occasioned thereby.
ARTICLE IV
DISTRIBUTIONS FROM THE TRUST FUND
SECTION 4.1 IN GENERAL.
The Trustee shall make payments from the Trust Fund in such
amounts, at such times, and to such persons as the Plan Administrator may, from
time to time, direct.
<PAGE>
-11-
SECTION 4.2 DIRECTION BY THE PLAN ADMINISTRATOR.
(a) A direction by the Plan Administrator to make a
distribution from the Trust Fund shall:
(i) be made in writing;
(ii) specify the amount of the payment or the number of Shares
to be distributed, the date such payment is to be made, the person to
whom payment is to be made, and the address to which the payment is to
be sent; and
(iii) be deemed to certify to the Trustee that such direction
and any payment pursuant thereto are authorized under the terms of the
Plan.
(b) The Trustee shall be entitled to rely conclusively on the
Plan Administrator's certification of its authority to direct a payment without
independent investigation. The Trustee shall have no liability to any person
with respect to payments made in accordance with the provisions of this Article
IV.
SECTION 4.3 METHOD OF PAYMENT.
Payments of money by the Trustee may be made by its check
payable to the order of the payee designated by the Plan Administrator and
mailed to the payee's address last furnished to the Trustee by the Plan
Administrator, or, if no such address has been so furnished, to the payee in
care of the Company. Distributions of Shares shall be made by causing the
Company, or its transfer agent, to issue to the distributee a stock certificate
evidencing ownership of the designated number of Shares. To the extent that any
distribution of Shares to any person requires the registration of such Shares
under the securities or blue sky laws of the United States or any state, or
otherwise requires any governmental approvals, the Company shall undertake to
complete such registration or obtain such approvals at its sole expense.
ARTICLE V
RESPONSIBILITIES
SECTION 5.1 GENERAL STANDARD OF CARE.
The Trustee, the Plan Administrator, the members of the
Committee and any Investment Manager shall at all times discharge their duties
with respect to the Trust Fund solely in the interest of the Plan Participants
and their beneficiaries (including alternate payees entitled to benefits under
the Plan pursuant to a qualified domestic relations order described in section
414(p) of the Code) and with the care, skill, prudence, and diligence that,
under the
<PAGE>
-12-
circumstances prevailing, a prudent man acting in a like capacity and familiar
with such matters would use in the conduct of an enterprise of a like character
and with like aims.
SECTION 5.2 NO LIABILITY FOR ACTS OF OTHERS.
(a) Subject to section 5.2(b), no "fiduciary" (as such term is
defined in section 3(21) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) under this Agreement shall be liable for an act or
omission of another person in carrying out any fiduciary responsibility where
such fiduciary responsibility is allocated to such other person by this
Agreement or pursuant to a procedure established in this Agreement except to the
extent that:
(i) such fiduciary participated knowingly in, or knowingly
undertook to conceal, an act or omission of such other person, knowing
such act or omission to be a breach of fiduciary responsibility;
(ii) such fiduciary, by his failure to comply with section
404(a)(1) of ERISA in the administration of his specific
responsibilities which give rise to his status as a fiduciary, has
enabled such other person to commit a breach of fiduciary
responsibility;
(iii) such fiduciary has knowledge of a breach of fiduciary
responsibility by such other person, unless he makes reasonable efforts
under the circumstances to remedy the breach; or
(iv) such fiduciary is a "named fiduciary" (as such term is
defined in section 402(a)(2) of ERISA) and has violated his duties
under section 404(a)(1) of ERISA:
(A) with respect to the allocation of fiduciary
responsibilities among named fiduciaries or the designation of
persons other than named fiduciaries to carry out fiduciary
responsibilities under this Agreement;
(B) with respect to the establishment or
implementation of procedures for allocating fiduciary
responsibilities among named fiduciaries or for designating
persons other than named fiduciaries to carry out fiduciary
responsibilities under this Agreement; or
(C) in continuing the allocation of fiduciary
responsibilities among named fiduciaries or the designation of
persons other than named fiduciaries to carry out fiduciary
responsibilities under this Agreement.
(b) Notwithstanding anything in this Agreement to the
contrary, the Trustee shall have no liability or responsibility for an act or
omission of an Investment Manager appointed pursuant to section 2.3 in carrying
out its fiduciary responsibilities with respect to the Plan, unless the Trustee
(i) by its failure to comply with section 404(a)(1) of ERISA in the
<PAGE>
-13-
administration of its specific responsibilities which give rise to its status as
a fiduciary, has enabled such Investment Manager to commit a breach of fiduciary
responsibility, or (ii) participated knowingly in, or knowingly undertook to
conceal, an act or omission of such Investment Manager, knowing such act or
omission to be a breach of fiduciary responsibility.
SECTION 5.3 COMPLIANCE WITH ERISA.
Notwithstanding anything in this Agreement, as amended from
time to time, to the contrary, no provision of this Agreement shall be construed
so as to violate the requirements of ERISA.
ARTICLE VI
TRUSTEE'S ACCOUNTS
SECTION 6.1 ACCOUNTS.
The Trustee shall keep accurate and detailed accounts of all
investments, reinvestments, receipts and disbursements, and other transactions
hereunder, and all such accounts and the books and records relating thereto
shall be open to inspection at all reasonable times by the Company or the Plan
Administrator or persons designated by them.
SECTION 6.2 VALUATION OF TRUST FUND.
The Trustee shall value or cause to be valued the Trust Fund
and any Investment Fund that has been established hereunder as of the last
business day of each calendar quarter ("Valuation Date"), and shall report to
the Plan Administrator the value of the Trust Fund and each Investment Fund as
of such date, within a reasonable time after the first day of the month next
succeeding each Valuation Date.
SECTION 6.3 REPORTS TO THE PLAN ADMINISTRATOR.
(a) Within seventy-five (75) days following the last day of
each fiscal year of the trust, and within seventy-five (75) days following the
effective date of the resignation or removal of the Trustee as provided in
section 8.1, the Trustee shall render to the Plan Administrator a written
account setting forth all investments, receipts, disbursements and other
transactions affecting the Trust Fund or any Investment Fund, which account
shall be signed by the Trustee and mailed to the Plan Administrator.
(b) The Plan Administrator shall notify the Trustee in writing
of any objection or exception to an account so rendered not later than sixty
(60) days following the date on which
<PAGE>
-14-
the Account was mailed to the Plan Administrator, whereupon the Plan
Administrator and the Trustee shall cooperate in resolving such objection or
exception.
(c) If the Plan Administrator has not communicated in writing
to the Trustee within sixty (60) days following the mailing of the account to
the Plan Administrator any exception or objection to the account, the account
shall become an account stated at the end of such sixty (60) day period. If the
Plan Administrator does communicate such an exception or objection, as to which
it later becomes satisfied, the Plan Administrator shall thereupon indicate in
writing its approval of the account, or of the account as amended, and the
account shall thereupon become an account stated.
(d) Whenever an account shall have become an account stated as
aforesaid, such account shall be deemed to be finally settled and shall be
conclusive upon the Trustee, the Company and all persons having or claiming to
have any interest in the Trust Fund or under the Plan, and the Trustee shall be
fully and completely discharged and released to the same extent as if the
account had been settled and allowed by a judgment or decree of a court of
competent jurisdiction in an action or proceeding in which the Trustee, the
Company, and all persons having or claiming to have any interest in the Trust
Fund or under the Plan were parties.
SECTION 6.4 RIGHT OF JUDICIAL SETTLEMENT.
Notwithstanding the provisions of section 6.3, the Trustee,
the Plan Administrator, and the Company, or any of them, shall have the right to
apply at any time to a court of competent jurisdiction for the judicial
settlement of the Trustee's account. In any such case, it shall be necessary to
join as parties thereto only the Trustee, the Plan Administrator and the
Company; and any judgment or decree which may be entered therein shall be
conclusive upon all persons having or claiming to have any interest in the Trust
Fund or under the Plan.
SECTION 6.5 ENFORCEMENT OF AGREEMENT.
To protect the Trust Fund from expenses which might otherwise
be incurred, the Company and the Plan Administrator shall have authority, either
jointly or severally, to enforce this Agreement on behalf of all persons
claiming any interest in the Trust Fund or under the Plan, and no other person
may institute or maintain any action or proceeding against the Trustee or the
Trust Fund in the absence of written authority from the Plan Administrator or a
judgment of a court of competent jurisdiction that in refusing authority the
Plan Administrator acted fraudulently or in bad faith.
<PAGE>
-15-
ARTICLE VII
TAXES; COMPENSATION OF TRUSTEE
SECTION 7.1 TAXES.
Any taxes that may be imposed upon the Trust Fund or the
income therefrom shall be deducted from and charged against the Trust Fund or to
the particular Investment Funds to which such taxes are applicable.
SECTION 7.2 COMPENSATION OF TRUSTEE; EXPENSES.
The Trustee shall receive for its services hereunder such
compensation as may be agreed upon in writing from time to time by the Company
and the Trustee and shall be reimbursed for its reasonable expenses, including
counsel fees, incurred in the performance of its duties hereunder. The Trustee
shall deduct from and charge against the Trust Fund such compensation and all
such expenses unless previously paid by the Company, except that all commissions
paid in connection with the acquisition or sale of Shares shall be paid by the
Company. Expenses of the Trust Fund, as well as compensation of the Trustee,
that are not paid by the Company and that are general in nature and not directly
related to a particular Investment Fund shall be charged to the Trust Fund and
allocated to each of the Investment Funds in the same proportion that the value
of each such Investment Fund bears to the value of the Trust Fund on the
Valuation Date next preceding the date of such payments. Any expenses directly
related to a particular Investment Fund that are not paid by the Company shall
be charged to such Investment Fund.
ARTICLE VIII
RESIGNATION AND REMOVAL OF TRUSTEE
SECTION 8.1 RESIGNATION OR REMOVAL OF TRUSTEE.
The Trustee may resign as trustee hereunder at any time by
giving sixty (60) days prior written notice to the Company. The Company may
remove the Trustee as trustee hereunder at any time by giving the Trustee prior
written notice of such removal, which shall include notice of the appointment of
a successor trustee. Such removal shall take effect not earlier than sixty (60)
days following receipt of such notice by the Trustee unless otherwise agreed
upon by the Trustee and the Company. If one or more individuals shall be serving
as trustee, the death or incapacity of any such individual shall be deemed a
resignation effective as of such death or disability.
<PAGE>
-16-
SECTION 8.2 APPOINTMENT OF SUCCESSOR.
In the event of the resignation or removal of the Trustee, a
successor trustee shall be appointed by the Company. Except as is otherwise
provided in section 8.1, such appointment shall take effect upon delivery to the
Trustee of an instrument so appointing the successor and an instrument of
acceptance executed by such successor, both of which instruments shall be duly
acknowledged before a notary public. If within sixty (60) days after notice of
resignation shall have been given by the Trustee a successor shall not have been
appointed as aforesaid, the Trustee may apply to any court of competent
jurisdiction for the appointment of such successor.
SECTION 8.3 SUCCESSION.
(a) Upon the appointment of a successor, the Trustee shall
transfer and deliver the Trust Fund to such successor; provided, however, that
the Trustee may reserve such sum of money as it shall in its sole discretion
deem advisable for payment of its fees and all expenses in connection with the
settlement of its account, and any balance of such reserve remaining after the
payment of such charges shall be paid over to the successor trustee. If such
reserve shall be insufficient to pay such charges, the Trustee shall be entitled
to recover the amount of any deficiency from the Company, from the successor
trustee, or from both.
(b) Upon the completion of the succession and the rendering of
its final accounts, the Trustee shall have no further responsibilities
whatsoever under this Agreement.
SECTION 8.4 SUCCESSOR BOUND BY AGREEMENT.
All the provisions of this Agreement shall apply to any
successor trustee with the same force and effect as if such successor had been
originally named herein as the trustee hereunder.
ARTICLE IX
AMENDMENT AND TERMINATION
SECTION 9.1 AMENDMENT AND TERMINATION.
(a) The Company may, at any time and from time to time, by
instrument in writing executed pursuant to authorization of its Board of
Directors, (i) amend in whole or in part any or all of the provisions of this
Agreement, or (ii) terminate this Agreement and the trust created hereby;
provided, however, that no amendment which affects the rights, duties or
responsibilities of the Trustee may be made without the Trustee's consent; and
provided further that no such amendment shall divert any part of the Trust Fund
to purposes other than for the exclusive benefit of the Plan Participants or
their beneficiaries (including alternate payees entitled
<PAGE>
-17-
to benefits under the Plan pursuant to a qualified domestic relations order
described in section 414(p) of the Code) at any time prior to the satisfaction
of all liabilities with respect to such Participants and their beneficiaries
under the Plan and this Agreement.
(b) Any such amendment shall become effective upon receipt by
the Trustee of the instrument of amendment and endorsement thereon by the
Trustee of its consent thereto, if such consent is required. Any such
termination shall become effective upon the receipt by the Trustee of the
instrument of termination; thereafter the Trustee, upon the direction of the
Plan Administrator, shall liquidate the Trust Fund to the extent required for
distribution and, after the final account of the Trustee has been approved or
settled, shall distribute the balance of the Trust Fund remaining in its hands
as directed by the Plan Administrator, or in the absence of such direction, as
may be directed by a judgment or decree of a court of competent jurisdiction.
Following any such termination, the powers of the Trustee hereunder shall
continue as long as any of the Trust Fund remains in its hands.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 BINDING EFFECT; ASSIGNABILITY.
This Agreement shall be binding upon, and the powers granted
to the Company and the Trustee, respectively, shall be exercisable by the
respective successors and assigns of the Company and the Trustee. Any
corporation which shall, by merger, consolidation, purchase, or otherwise,
succeed to substantially all the trust business of the Trustee shall, upon such
succession and without any appointment or other action by the Company, be and
become successor trustee hereunder.
SECTION 10.2 GOVERNING LAW.
Except to the extent that the federal law of the United States
of America is applicable, this Agreement and the trust created and the Trust
Fund held hereunder shall be interpreted, construed and administered in
accordance with the law of the State of Illinois applicable to contracts to be
performed entirely within the State of Illinois and between parties all of whom
are citizens and residents of such state. All contributions to the Trust Fund
shall be deemed to take place in the State of Illinois.
SECTION 10.3 NOTICES.
Any communication requested or permitted to be given under
this Agreement, including any notice, direction, designation, certification,
order, instruction, or objection shall be in writing and signed by the person
authorized under the Plan to give the communication.
<PAGE>
-18-
The person receiving such a communication shall be fully protected in acting in
accordance therewith. Any notice required or permitted to be given to a party
hereunder shall be deemed given if in writing and hand delivered or mailed,
postage prepaid, certified mail, return receipt requested, to such party at the
following address or at such other address as such party may by notice specify:
If to the Company:
Big Foot Financial Corp.
1190 RFD
Fairfield, Illinois 60047-7304
Attention: Chief Executive Officer
If to the Trustee:
Big Foot Financial Corp.
Employee Stock Ownership Plan Trust
c/o Big Foot Financial Corp.
1190 RFD
Fairfield, Illinois 60047-7304
Attention: Messrs. George M. Briody, Timothy L.
McCue and F. Gregory Opelka, a Trustee
SECTION 10.4 SEVERABILITY.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the remaining
provisions.
SECTION 10.5 WAIVER.
Failure of any party to insist at any time or times upon
strict compliance with any provision of this Agreement shall not be a waiver of
such provision at such time or any later time unless in a writing designated as
a waiver and signed by or on behalf of the party against whom enforcement of the
waiver is sought.
SECTION 10.6 NON-ALIENATION.
No interest, right or claim in or to any part of the Trust
Fund or any payment therefrom shall be assignable, transferable or subject to
sale, mortgage, pledge, hypothecation, commutation, anticipation, garnishment,
attachment, execution, or levy of any kind, and the Trustee and the Plan
Administrator shall not recognize any attempt to assign, transfer, sell,
<PAGE>
-19-
mortgage, pledge, hypothecate, commute, or anticipate the same, except to the
extent required by law.
SECTION 10.7 QUALIFIED PLAN AND TRUST.
This Agreement and the trust hereby created are part of an
employee benefit plan which the Company intends shall be qualified under section
401(a) of the Code and until advised to the contrary, the Trustee may assume
that the Plan so qualifies and that the trust is exempt from tax under section
501(a) of the Code. However, any taxes that may be assessed on or in respect of
the Trust Fund shall be a charge against the Trust Fund. All contributions made
prior to the receipt by the Company of a determination from the Internal Revenue
Service to the effect that the trust forming part of the Plan is a qualified
trust under section 401(a) of the Code and that the trust is exempt from federal
income tax under section 501(a) of the Code shall be made on the express
condition that such a determination is received, and in the event that the
Internal Revenue Service determines that the trust and Plan are not so
qualified, all contributions made prior to the date of the receipt of such
determination, after giving effect to any income, gain or loss, less any
compensation and expenses properly chargeable thereto, shall be returned to the
Company.
SECTION 10.8 RETURN OF CONTRIBUTIONS.
(a) In the event that any contribution to the Trust Fund by
the Company shall be the result of a mistake of fact, such contribution (after
giving effect to any income gain or loss, less any compensation or expenses
properly chargeable thereto) shall be returned to the Company promptly upon
discovery of the mistake of fact; PROVIDED, HOWEVER, that no such return shall
be made after the first anniversary of the date of the contribution.
(b) In the event that a contribution to the Trust Fund by the
Company shall be conditioned upon its deductibility under the Code, the amount
of such contribution which shall have been disallowed as a deduction shall be
returned to the Company within one (1) year after the date on which it is
disallowed.
SECTION 10.9 COMPLIANCE WITH SECURITIES LAWS.
In the event that the Plan or any portion thereof, or any
interest therein, by virtue of investments made in Shares, shall be deemed to be
a "security" for purposes of the Securities Act of 1933, the Securities Exchange
Act of 1934 or any other federal or state law, for which there is no exemption
from the registration, reporting, blue sky or other requirements applicable to
securities under such laws, the Company shall, at its sole cost and expense,
take all such actions as are necessary or appropriate to comply with the
requirements of such laws. The Company hereby agrees to indemnify the Trustee
and hold it harmless from and against any claim or liability which may be
asserted against the Trustee by reason of any determination that the Plan or any
portion thereof, or any interest therein, constitutes such a security.
<PAGE>
-20-
SECTION 10.10 HEADINGS.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Agreement, the text shall control.
SECTION 10.11 CONSTRUCTION OF LANGUAGE.
Whenever appropriate in this Agreement, words used in the
singular may be read in the plural; words used in the plural may be read in the
singular; and words importing the masculine gender shall be deemed equally to
refer to the female gender or the neuter. Any reference to a section number
shall refer to a section of this Agreement, unless otherwise indicated.
SECTION 10.12 COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
<PAGE>
-21-
IN WITNESS WHEREOF, the Company and the Trustee, respectively,
have caused this Agreement to be executed in their corporate names and their
corporate seals to be hereunto affixed and duly attested, on the dates indicated
below their respective signatures.
BIG FOOT FINANCIAL CORP.
By: /s/ George M. Briody
-----------------------------------
George M. Briody
Title: President
--------------------------------
Date: December 10, 1996
--------------------------------
ATTEST:
/s/ Barbara J. Urban
- ---------------------------------
Barbara J. Urban
Secretary
[Seal]
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
BY: GEORGE M. BRIODY,
TIMOTHY L. MCCUE AND
F. GREGORY OPELKA, AS TRUSTEE
AND NOT IN ANY OTHER CAPACITY
By: /s/ George M. Briody
-----------------------------------
George M. Briody
Date: December 10, 1996
By: /s/ Timothy L. McCue
-----------------------------------
Timothy L. McCue
Date: December 10, 1996
By: /s/ F. Gregory Opelka
-----------------------------------
F. Gregory Opelka
Date: December 10, 1996
LOAN AGREEMENT
BY AND BETWEEN
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
AND
BIG FOOT FINANCIAL CORP.
MADE AND ENTERED INTO AS OF
DECEMBER 19, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
SECTION 1.1 BUSINESS DAY ......................................... 1
SECTION 1.2 CODE ................................................. 1
SECTION 1.3 DEFAULT .............................................. 2
SECTION 1.4 ERISA ................................................ 2
SECTION 1.5 EVENT OF DEFAULT ..................................... 2
SECTION 1.6 FISCAL YEAR .......................................... 2
SECTION 1.7 INDEPENDENT COUNSEL .................................. 2
SECTION 1.8 LOAN ................................................. 2
SECTION 1.9 LOAN DOCUMENTS ....................................... 2
SECTION 1.10 PLEDGE AGREEMENT ..................................... 2
SECTION 1.11 PRINCIPAL AMOUNT ..................................... 2
SECTION 1.12 PROMISSORY NOTE ...................................... 2
SECTION 1.13 REGISTER ............................................. 2
ARTICLE II
THE LOAN; PRINCIPAL AMOUNT;
INTEREST; SECURITY; INDEMNIFICATION
SECTION 2.1 THE LOAN; PRINCIPAL AMOUNT. .......................... 2
SECTION 2.2 INTEREST. ........................................... 3
SECTION 2.3 PROMISSORY NOTE....................................... 4
SECTION 2.4 PAYMENT OF TRUST LOAN................................. 4
SECTION 2.5 PREPAYMENT. .......................................... 5
SECTION 2.6 METHOD OF PAYMENTS. .................................. 5
SECTION 2.7 USE OF PROCEEDS OF LOAN............................... 6
SECTION 2.9 REGISTRATION OF THE PROMISSORY NOTE................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
SECTION 3.1 POWER, AUTHORITY, CONSENTS. .......................... 7
SECTION 3.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY. ............. 7
SECTION 3.3 PROPERTIES, PRIORITY OF LIENS......................... 7
SECTION 3.4 NO DEFAULTS, COMPLIANCE WITH LAWS..................... 7
(i)
<PAGE>
Page
----
SECTION 3.5 PURCHASES OF COMMON STOCK............................. 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LENDER
SECTION 4.1 POWER, AUTHORITY, CONSENTS............................ 8
SECTION 4.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY............... 8
SECTION 4.3 ESOP; CONTRIBUTIONS................................... 9
SECTION 4.4 TRUSTEE; COMMITTEE. .................................. 9
SECTION 4.5 COMPLIANCE WITH LAWS; ACTIONS......................... 9
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.1 EVENTS OF DEFAULT UNDER LOAN AGREEMENT. .............. 9
SECTION 5.2 LENDER'S RIGHTS UPON EVENT OF DEFAULT................. 10
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 PAYMENTS DUE TO THE LENDER............................ 10
SECTION 6.2 PAYMENTS.............................................. 10
SECTION 6.3 SURVIVAL.............................................. 11
SECTION 6.4 MODIFICATIONS, CONSENTS AND WAIVERS; ENTIRE AGREEMENT. 11
SECTION 6.5 REMEDIES CUMULATIVE................................... 11
SECTION 6.6 FURTHER ASSURANCES; COMPLIANCE WITH COVENANTS. ....... 11
SECTION 6.7 NOTICES............................................... 12
SECTION 6.8 COUNTERPARTS.......................................... 13
SECTION 6.9 CONSTRUCTION; GOVERNING LAW........................... 13
SECTION 6.10 SEVERABILITY.......................................... 13
SECTION 6.11 BINDING EFFECT; NO ASSIGNMENT OR DELEGATION........... 13
EXHIBIT A FORM OF PROMISSORY NOTE .................................... A-1
EXHIBIT B FORM OF PLEDGE AGREEMENT ................................... B-1
EXHIBIT C FORM OF ASSIGNMENT ......................................... C-1
EXHIBIT D FORM OF IRREVOCABLE PROXY .................................. D-1
(ii)
<PAGE>
-1-
LOAN AGREEMENT
This LOAN AGREEMENT ("Loan Agreement") is made and entered
into as of the 19th day of December, 1996, by and between the BIG FOOT FINANCIAL
CORP. EMPLOYEE STOCK OWNERSHIP PLAN TRUST ("Borrower"), a trust forming part of
the Big Foot Financial Corp. Employee Stock Ownership Plan ("ESOP"), acting
through and by its trustees, GEORGE M. BRIODY, TIMOTHY L. MCCUE AND F. GREGORY
OPELKA (collectively, "Trustee"), three individuals acting in the capacity of
trustee and having an office at Big Foot Financial Corp., 1190 RFD, Long Grove,
Illinois 60047-7304; and BIG FOOT FINANCIAL CORP. ("Lender"), a corporation
organized and existing under the laws of the state of Illinois, having an office
at 1190 RFD, Long Grove, Illinois 60047-7304.
W I T N E S S E T H :
WHEREAS, the Lender has authorized the Borrower to purchase
shares of common stock of Big Foot Financial Corp. ("Common Stock"), either
directly from Big Foot Financial Corp. or in open market purchases, in an amount
not to exceed 201,020 shares of Common Stock or, if less, shares of Common Stock
having an aggregate purchase price of Two Million Ten Thousand Two Hundred
Dollars ($2,010,200.00); and
WHEREAS, the Lender has further authorized the Borrower to
borrow funds from the Lender for the purpose of financing authorized purchases
of Common Stock; and
WHEREAS, the Lender is willing to make a loan to the Borrower
for such purpose;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following definitions shall apply for purposes of this
Loan Agreement, except to the extent that a different meaning is plainly
indicated by the context:
SECTION 1.1 BUSINESS DAY means any day other than a Saturday,
Sunday or other day on which banks are authorized or required to close under
federal law or the laws of the State of Illinois.
SECTION 1.2 CODE means the Internal Revenue Code of 1986
(including the cor responding provisions of any succeeding law).
<PAGE>
-2-
SECTION 1.3 DEFAULT means an event or condition which would
constitute an Event of Default. The determination as to whether an event or
condition would constitute an Event of Default shall be determined without
regard to any applicable requirement of notice or lapse of time.
SECTION 1.4 ERISA means the Employee Retirement Income
Security Act of 1974, as amended (including the corresponding provisions of any
succeeding law).
SECTION 1.5 EVENT OF DEFAULT means an event or condition
described in Article 5.
SECTION 1.6 FISCAL YEAR means the fiscal year of Big Foot
Financial Corp.
SECTION 1.7 INDEPENDENT COUNSEL means Thacher Proffitt & Wood
or other counsel mutually satisfactory to both the Lender and the Borrower.
SECTION 1.8 LOAN means the loan described in section 2.1.
SECTION 1.9 LOAN DOCUMENTS means, collectively, this Loan
Agreement, the Promissory Note and the Pledge Agreement and all other documents
now or hereafter executed and delivered in connection with such documents,
including all amendments, modifications and supplements of or to all such
documents.
SECTION 1.10 PLEDGE AGREEMENT means the agreement described in
section 2.8(a).
SECTION 1.11 PRINCIPAL AMOUNT means the face amount of the
Promissory Note, determined as set forth in section 2.1(c).
SECTION 1.12 PROMISSORY NOTE means the promissory note
described in section 2.3.
SECTION 1.13 REGISTER means the register described in section
2.9.
ARTICLE II
THE LOAN; PRINCIPAL AMOUNT;
INTEREST; SECURITY; INDEMNIFICATION
SECTION 2.1 THE LOAN; PRINCIPAL AMOUNT.
(a) The Lender hereby agrees to lend to the Borrower such
amounts, and at such times, as shall be determined under this section 2.1;
PROVIDED, HOWEVER, that in no event shall the aggregate amount lent under this
Loan Agreement from time to time exceed the lesser of (i) Two Million Ten
Thousand Two Hundred Dollars ($2,010,200.00) or (ii) the aggregate amount paid
<PAGE>
-3-
by the Borrower, exclusive of commissions, fees and other charges, to purchase
201,020 shares of Common Stock.
(b) Subject to the limitations of section 2.1(a), the Borrower
shall determine the amounts borrowed under this Agreement, and the times at
which such borrowings are effected. Each such determination shall be evidenced
in a writing which shall set forth the amount to be borrowed and the date on
which the Lender shall disburse such amount, and such writing shall be furnished
to the Lender by notice from the Borrower. The Lender shall disburse to the
Borrower the amount specified in each such notice on the date specified therein
or, if later, as promptly as practicable following the Lender's receipt of such
notice; PROVIDED, HOWEVER, that the Lender shall have no obligation to disburse
funds pursuant to this Agreement following the occurrence of a Default or an
Event of Default until such time as such Default or Event of Default shall have
been cured.
(c) For all purposes of this Loan Agreement, the Principal
Amount on any date shall be equal to the excess, if any, of:
(i) the aggregate amount disbursed by the Lender pursuant to
section 2.1(b) on or before such date; over
(ii) the aggregate amount of any repayments of such amounts
made before such date.
The Lender shall maintain on the Register a record of, and shall record on the
Promissory Note, the Principal Amount, any changes in the Principal Amount and
the effective date of any changes in the Principal Amount.
SECTION 2.2 INTEREST.
(a) The Borrower shall pay to the Lender interest on the
Principal Amount, for the period commencing on the date of this Loan Agreement
and continuing until the Principal Amount shall be paid in full, the rate of
eight percent (8%) per annum. Interest payable under this Agreement shall be
computed on the basis of a year of 365 days and actual days elapsed (including
the first day but excluding the last) occurring in the period to which the
computation relates.
(b) Except as otherwise provided in this section 2.2(b),
accrued interest on the Principal Amount shall be payable by the Borrower
annually in arrears commencing on the last Business Day of the first calendar
year to end following the date of this Agreement and continuing on the last
Business Day of each calendar year thereafter and upon the payment or prepayment
of such Loan. All interest on the Principal Amount shall be paid by the Borrower
in immediately available funds. The Lender shall remit to the Borrower, at least
three (3) Business Days before the end of each calendar year, a statement of the
interest payment due under section 2.2(a) for such year; PROVIDED, HOWEVER, that
a delay or failure by the Lender in providing the Borrower with such statement
shall not alter the Borrower's obligation to make such payment.
<PAGE>
-4-
(c) Anything in this Loan Agreement or the Promissory Note to
the contrary notwithstanding, the obligation of the Borrower to make payments of
interest shall be subject to the limitation that payments of interest shall not
be required to be made to the Lender to the extent that the Lender's receipt
thereof would not be permissible under the law or laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender. Any
such payment referred to in the preceding sentence shall be made by the Borrower
to the Lender on the earliest interest payment date or dates on which the
receipt thereof would be permissible under the laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender. Such
deferred interest shall not bear interest.
SECTION 2.3 PROMISSORY NOTE.
The Loan shall be evidenced by a Promissory Note of the
Borrower in substantially the form of Exhibit A attached hereto, dated the date
hereof, payable to the order of the Lender in the Principal Amount and otherwise
duly completed.
SECTION 2.4 PAYMENT OF TRUST LOAN.
(a) The Principal Amount of the Loan shall be repaid in annual
installments payable on the last Business Day of each Fiscal Year ending after
the date of this Agreement. The amount of each such annual installment shall be
equal to a fraction of the Principal Amount on the due date of such installment,
determined in accordance with the following schedule:
INSTALLMENT DUE ON FRACTION OF OUTSTANDING
LAST BUSINESS DAY OF PRINCIPAL AMOUNT
FISCAL YEAR ENDING
IN
1997 7/120
1998 1/10
1999 1/10
2000 1/10
2001 1/10
2002 1/10
2003 1/10
2004 1/10
2005 1/10
2006 1/10
10th anniversary entire outstanding
loan Principal Amount
; PROVIDED, HOWEVER, that the Borrower shall not be required to make any payment
of principal due to be made in any Fiscal Year to the extent that such payment
would not be deductible for federal income tax purposes for such Fiscal Year
under section 404 of the Code.
<PAGE>
-5-
(b) Any payment not required to made pursuant to section 2.4(a) shall
be deferred to and be payable on the last day of the first Fiscal Year in which
such payment may be made on a tax deductible basis.
SECTION 2.5 PREPAYMENT.
The Borrower shall be entitled to prepay the Loan in whole or
in part, at any time and from time to time; PROVIDED, HOWEVER, that the Borrower
shall give notice to the Lender of any such prepayment; and PROVIDED, FURTHER,
that any partial prepayment of the Loan shall be in an amount not less than TEN
THOUSAND DOLLARS ($10,000.00). Any such prepayment shall be: (a) permanent and
irrevocable: (b) accompanied by all accrued interest through the date of such
prepayment; (c) made without premium or penalty; and (d) applied in the inverse
order of the maturity of the installments thereof unless the Lender and the
Borrower agree to apply such prepayments in some other order.
SECTION 2.6 METHOD OF PAYMENTS.
(a) All payments of principal, interest, other charges
(including indemnities) and other amounts payable by the Borrower hereunder
shall be made in lawful money of the United States, in immediately available
funds, to the Lender at the address specified in or pursuant to this Loan
Agreement for notices to the Lender, not later than 3:00 P.M., Chicago time, on
the date on which such payment shall become due. Any such payment made on such
date but after such time shall, if the amount paid bears interest, and except as
expressly provided to the contrary herein, be deemed to have been made on, and
interest shall continue to accrue and be payable thereon until, the next
succeeding Business Day. If any payment of principal or interest becomes due on
a day other than a Business Day, such payment may be made on the next succeeding
Business Day, and when paid, such payment shall include interest to the day on
which such payment is in fact made.
(b) Notwithstanding anything to the contrary contained in this
Loan Agreement or the Promissory Note, neither the Borrower nor the Trustee
shall be obligated to make any payment, repayment or prepayment on the
Promissory Note or take or refrain from taking any other action hereunder or
under the Promissory Note if doing so would cause the ESOP to cease to be an
employee stock ownership plan within the meaning of section 4975(e)(7) of the
Code or qualified under section 401(a) of the Code or cause the Borrower to
cease to be a tax exempt trust under section 501(a) of the Code or if such act
or failure to act would cause the Borrower or the Trustee to engage in any
"prohibited transaction" as such term is defined in section 4975(c) of the Code
and the regulations promulgated thereunder which is not exempted by section
4975(c)(2) or (d) of the Code and the regulations promulgated thereunder or in
section 406 of ERISA and the regulations promulgated thereunder which is not
exempted by section 408(b) of ERISA and the regulations promulgated thereunder;
PROVIDED, HOWEVER, that in each case, the Borrower or the Trustee or both, as
the case may be, may act or refrain from acting pursuant to this section 2.6(b)
on the basis of an opinion of Independent Counsel. The Borrower and the Trustee
may consult with Independent Counsel, and any opinion of such Independent
Counsel shall be full and complete authorization and protection in respect of
any action taken or suffered or omitted by it hereunder
<PAGE>
-6-
in good faith and in accordance with such opinion of Independent Counsel.
Nothing contained in this section 2.6(b) shall be construed as imposing a duty
on either the Borrower or the Trustee to consult with Independent Counsel. Any
obligation of the Borrower or the Trustee to make any payment, repayment or
prepayment on the Promissory Note or to take or refrain from taking any other
act hereunder or under the Promissory Note which is excused pursuant to this
section 2.6(b) shall be considered a binding obligation of the Borrower or the
Trustee, or both, as the case may be, for the purposes of determining whether a
Default or Event of Default has occurred hereunder or under the Promissory Note
and nothing in this section 2.6(b) shall be construed as providing a defense to
any remedies otherwise available upon a Default or an Event of Default hereunder
(other than the remedy of specific performance).
SECTION 2.7 USE OF PROCEEDS OF LOAN.
The entire proceeds of the Loan shall be used solely for
acquiring shares of Common Stock, and for no other purpose whatsoever.
SECTION 2.8 SECURITY.
(a) In order to secure the due payment and performance by the
Borrower of all of its obligations under this Loan Agreement, simultaneously
with the execution and delivery of this Loan Agreement by the Borrower, the
Borrower shall:
(i) pledge to the Lender as Collateral (as defined in the
Pledge Agreement), and grant to the Lender a first priority lien on and
security interest in, the Common Stock purchased with the Principal
Amount, by the execution and delivery to the Lender of a Pledge
Agreement in the form attached hereto as Exhibit B; and
(ii) execute and deliver, or cause to be executed and
delivered, such other agreements, instruments and documents as the
Lender may reasonably require in order to effect the purposes of the
Pledge Agreement and this Loan Agreement.
(b) The Lender shall release from encumbrance under the Pledge
Agreement and transfer to the Borrower, as of the date on which any payment or
prepayment of the Principal Amount is made, a number of shares of Common Stock
held as Collateral pursuant to section 6.4 of the ESOP.
SECTION 2.9 REGISTRATION OF THE PROMISSORY NOTE.
(a) The Lender shall maintain a Register providing for the
registration of the Principal Amount and any stated interest and of transfer and
exchange of the Promissory Note. Transfer of the Promissory Note may be effected
only by the surrender of the old instrument and either the reissuance by the
Borrower of the old instrument to the new holder or the issuance by the Borrower
of a new instrument to the new holder. The old Promissory Note so surrendered
shall be cancelled by the Lender and returned to the Borrower after such
cancellation.
<PAGE>
-7-
(b) Any new Promissory Note issued pursuant to section 2.9(a)
shall carry the same rights to interest (unpaid and to accrue) carried by the
Promissory Note so transferred or ex changed so that there will not be any loss
or gain of interest on the note surrendered. Such new Promissory Note shall be
subject to all of the provisions and entitled to all of the benefits of this
Agreement. Prior to due presentment for registration or transfer, the Borrower
may deem and treat the registered holder of any Promissory Note as the holder
thereof for purposes of payment and all other purposes. A notation shall be made
on each new Promissory Note of the amount of all payments of principal and
interest theretofore paid.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower hereby represents and warrants to the Lender as
follows:
SECTION 3.1 POWER, AUTHORITY, CONSENTS.
The Borrower has the power to execute, deliver and perform
this Loan Agreement, the Promissory Note and the Pledge Agreement, all of which
have been duly authorized by all necessary and proper corporate or other action.
SECTION 3.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY.
Each of the Loan Documents, including, without limitation,
this Loan Agreement, the Promissory Note and the Pledge Agreement, have been
duly executed and delivered by the Borrower; and each constitutes the valid and
legally binding obligation of the Borrower, enforceable in accordance with its
terms.
SECTION 3.3 PROPERTIES, PRIORITY OF LIENS.
The liens which have been created and granted by the Pledge
Agreement constitute valid, first liens on the properties and assets covered by
the Pledge Agreement, subject to no prior or equal lien.
SECTION 3.4 NO DEFAULTS, COMPLIANCE WITH LAWS.
The Borrower is not in default in any material respect under
any agreement, ordinance, resolution, decree, bond, note, indenture, order or
judgment to which it is a party or by which it is bound, or any other agreement
or other instrument by which any of the properties or assets owned by it is
materially affected.
<PAGE>
-8-
SECTION 3.5 PURCHASES OF COMMON STOCK.
Upon consummation of any purchase of Common Stock by the
Borrower with the proceeds of the Loan, the Borrower shall acquire valid, legal
and marketable title to all of the Common Stock so purchased, free and clear of
any liens, other than a pledge to the Lender of the Common Stock so purchased
pursuant to the Pledge Agreement. Neither the execution and delivery of the Loan
Documents nor the performance of any obligation thereunder violates any
provision of law or conflicts with or results in a breach of or creates (with or
without the giving of notice or lapse of time, or both) a default under any
agreement to which the Borrower is a party or by which it is bound or any of its
properties is affected. No consent of any federal, state or local governmental
authority, agency or other regulatory body, the absence of which could have a
materially adverse effect on the Borrower or the Trustee, is or was required to
be obtained in connection with the execution, delivery or performance of the
Loan Documents and the transactions contemplated therein or in connection
therewith, including, without limitation, with respect to the transfer of the
shares of Common Stock purchased with the proceeds of the Loan pursuant thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender hereby represents and warrants to the Borrower as
follows:
SECTION 4.1 POWER, AUTHORITY, CONSENTS.
The Lender has the power to execute, deliver and perform this
Loan Agreement, the Pledge Agreement and all documents executed by the Lender in
connection with the Loan, all of which have been duly authorized by all
necessary and proper corporate or other action. No consent, authorization or
approval or other action by any governmental authority or regulatory body, and
no notice by the Lender to, or filing by the Lender with, any governmental
authority or regulatory body is required for the due execution, delivery and
performance of this Loan Agreement.
SECTION 4.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY.
This Loan Agreement and the Pledge Agreement have been duly
executed and delivered by the Lender; and each constitutes a valid and legally
binding obligation of the Lender, enforceable in accordance with its terms.
<PAGE>
-9-
SECTION 4.3 ESOP; CONTRIBUTIONS.
The ESOP and the Borrower have been duly created, organized
and maintained by the Lender in compliance with all applicable laws, regulations
and rulings. The ESOP qualifies as an "employee stock ownership plan" as defined
in section 4975(e) (7) the Code. The ESOP provides that the Lender may make
contributions to the ESOP in an amount necessary to enable the Trustee to
amortize the Loan in accordance with the terms of the Promissory Note and this
Loan Agreement, and the Lender will make such contributions; PROVIDED, HOWEVER,
that no such contributions shall be required if they would adversely affect the
qualification of the ESOP under section 401(a) of the Code.
SECTION 4.4 TRUSTEE; COMMITTEE.
The Lender has taken such action as is required to be taken by
it to duly appoint the Trustee and the members of the Board of Directors of the
Lender ("Board"). The Lender expressly acknowledges and agrees that this Loan
Agreement, the Promissory Note and the Pledge Agreement are being executed by
the Trustee not in its individual capacity but solely as trustee of and on
behalf of the Borrower.
SECTION 4.5 COMPLIANCE WITH LAWS; ACTIONS.
Neither the execution and delivery by the Lender of this Loan
Agreement or any instruments required thereby, nor compliance with the terms and
provisions of any such documents by the Lender, constitutes a violation of any
provision of any law or any regulation, order, writ, injunction or decree or any
court or governmental instrumentality, or an event of default under any
agreement, to which the Lender is a party or by which the Lender is bound or to
which the Lender is subject, which violation or event of default would have a
material adverse effect on the Lender. There is no action or proceeding pending
or threatened against either of the ESOP or the Borrower before any court or
administrative agency.
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.1 EVENTS OF DEFAULT UNDER LOAN AGREEMENT.
Each of the following events shall constitute an "Event of
Default" hereunder:
(a) Failure to make any payment or mandatory prepayment of
principal of the Promissory Note when due, or failure to make any payment of
interest on the Promissory Note not later than five (5) Business Days after the
date when due.
<PAGE>
-10-
(b) Failure by the Borrower to perform or observe any term,
condition or covenant of this Loan Agreement or of any of the other Loan
Documents, including, without limitation, the Promissory Note and the Pledge
Agreement.
(c) Any representation or warranty made in writing to the
Lender in any of the Loan Documents or any certificate, statement or report made
or delivered in compliance with this Loan Agreement, shall have been false or
misleading in any material respect when made or delivered.
SECTION 5.2 LENDER'S RIGHTS UPON EVENT OF DEFAULT.
If an Event of Default under this Loan Agreement shall occur
and be continuing, the Lender shall have no rights to assets of the Borrower
other than: (a) contributions (other than contributions of Common Stock) that
are made by the Lender to enable the Borrower to meet its obligations pursuant
to this Loan Agreement and earnings attributable to the investment of such
contributions and (b) "Eligible Collateral" (as defined in the Pledge
Agreement); PROVIDED, HOWEVER, that: (i) the value of the Borrower's assets
transferred to the Lender following an Event of Default in satisfaction of the
due and unpaid amount of the Loan shall not exceed the amount in default
(without regard to amounts owing solely as a result of any acceleration of the
Loan); (ii) the Borrower's assets shall be transferred to the Lender following
an Event of Default only to the extent of the failure of the Borrower to meet
the payment schedule of the Loan; and (iii) all rights of the Lender to the
Common Stock purchased with the proceeds of the Loan covered by the Pledge
Agreement following an Event of Default shall be governed by the terms of the
Pledge Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 PAYMENTS DUE TO THE LENDER.
If any amount is payable by the Borrower to the Lender
pursuant to any indemnity obligation contained herein, then the Borrower shall
pay, at the time or times provided therefor, any such amount and shall indemnify
the Lender against and hold it harmless from any loss or damage resulting from
or arising out of the nonpayment or delay in payment of any such amount. If any
amounts as to which the Borrower has so indemnified the Lender hereunder shall
be assessed or levied against the Lender, the Lender may notify the Borrower and
make immediate payment thereof, together with interest or penalties in
connection therewith, and shall thereupon be entitled to and shall receive
immediate reimbursement therefor from the Borrower, together with interest on
each such amount as provided in section 2.2(c). Notwithstanding any other
provision contained in this Loan Agreement, the covenants and agreements of the
Borrower
<PAGE>
-11-
contained in this section 6.1 shall survive: (a) payment of the Promissory Note
and (b) termination of this Loan Agreement.
SECTION 6.2 PAYMENTS.
All payments hereunder and under the Promissory Note shall be
made without set-off or counterclaim and in such amounts as may be necessary in
order that all such payments shall not be less than the amounts otherwise
specified to be paid under this Loan Agreement and the Promissory Note, subject
to any applicable tax withholding requirements. Upon payment in full of the
Promissory Note, the Lender shall mark such Promissory Note "Paid" and return it
to the Borrower.
SECTION 6.3 SURVIVAL.
All agreements, representations and warranties made herein
shall survive the delivery of this Loan Agreement and the Promissory Note.
SECTION 6.4 MODIFICATIONS, CONSENTS AND WAIVERS; ENTIRE
AGREEMENT.
No modification, amendment or waiver of or with respect to any
provision of this Loan Agreement, the Promissory Note, the Pledge Agreement, or
any of the other Loan Documents, nor consent to any departure from any of the
terms or conditions thereof, shall in any event be effective unless it shall be
in writing and signed by the party against whom enforcement thereof is sought.
Any such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. No consent to or demand on a party in any case
shall, of itself, entitle it to any other or further notice or demand in similar
or other circumstances. This Loan Agreement embodies the entire agreement and
understanding between the Lender and the Borrower and supersedes all prior
agreements and understandings relating to the subject matter hereof.
SECTION 6.5 REMEDIES CUMULATIVE.
Each and every right granted to the Lender hereunder or under
any other document delivered hereunder or in connection herewith, or allowed it
by law or equity, shall be cumulative and may be exercised from time to time. No
failure on the part of the Lender or the holder of the Promissory Note to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof, nor shall any single or partial exercise of any right preclude any
other or future exercise thereof or the exercise of any other right. The due
payment and performance of the obligations under the Loan Documents shall be
without regard to any counterclaim, right of offset or any other claim
whatsoever which the Borrower may have against the Lender and without regard to
any other obligation of any nature whatsoever which the Lender may have to the
Borrower, and no such counterclaim or offset shall be asserted by the Borrower
in any action, suit or proceeding instituted by the Lender for payment or
performance of such obligations.
<PAGE>
-12-
SECTION 6.6 FURTHER ASSURANCES; COMPLIANCE WITH COVENANTS.
At any time and from time to time, upon the request of the
Lender, the Borrower shall execute, deliver and acknowledge or cause to be
executed, delivered and acknowledged, such further documents and instruments and
do such other acts and things as the Lender may reasonably request in order to
fully effect the terms of this Loan Agreement, the Promissory Note, the Pledge
Agreement, the other Loan Documents and any other agreements, instruments and
documents delivered pursuant hereto or in connection with the Loan.
SECTION 6.7 NOTICES.
Except as otherwise specifically provided for herein, all
notices, requests, reports and other communications pursuant to this Loan
Agreement shall be in writing, either by letter (delivered by hand or commercial
messenger service or sent by registered or certified mail, return receipt
requested, except for routine reports delivered in compliance with Article VI
hereof which may be sent by ordinary first-class mail) or telex or facsimile,
addressed as follows:
(a) If to the Borrower:
Big Foot Financial Corp.
Employee Stock Ownership Plan Trust
c/o Big Foot Financial Corp.
1190 RFD
Long Grove, Illinois 60047-7304
Attention: Messrs. George M. Briody, Timothy L.
McCue And F. Gregory Opelka, as Trustee
with copies to:
Thacher Proffitt & Wood
Two World Trade Center, 39th Floor
New York New York 10048
Attention: W. Edward Bright, Esq.
(b) If to the Lender:
Big Foot Financial Corp.
1190 RFD
Long Grove, Illinois 60047-7304
Attention: Mr. George M. Briody
Chief Executive Officer
<PAGE>
-13-
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center, 39th Floor
New York New York 10048
Attention: W. Edward Bright, Esq.
Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is delivered by hand or by commercial messenger
service, or sent by telex or facsimile, to such party at its address specified
above, or, if sent by mail, on the third Business Day after the day deposited in
the mail, postage prepaid, addressed as aforesaid. Any party may change the
person or address to whom or which notices are to be given hereunder, by notice
duly given hereunder; PROVIDED, HOWEVER, that any such notice shall be deemed to
have been given only when actually received by the party to whom it is
addressed.
SECTION 0.1 COUNTERPARTS.
This Loan Agreement may be signed in any number of
counterparts which, when taken together, shall constitute one and the same
document.
SECTION 0.2 CONSTRUCTION; GOVERNING LAW.
The headings used in the table of contents and in this Loan
Agreement are for convenience only and shall not be deemed to constitute a part
hereof. All uses herein of any gender or of singular or plural terms shall be
deemed to include uses of the other genders or plural or singular terms, as the
context may require. All references in this Loan Agreement to an Article or
section shall be to an Article or section of this Loan Agreement, unless
otherwise specified. This Loan Agreement, the Promissory Note, the Pledge
Agreement and the other Loan Documents shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Illinois.
SECTION 0.3 SEVERABILITY.
Wherever possible, each provision of this Loan Agreement shall
be interpreted in such manner as to be effective and valid under applicable law;
however, the provisions of this Loan Agreement are severable, and if any clause
or provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision in this Loan Agreement in any jurisdiction. Each of
the covenants, agreements and conditions contained in this Loan Agreement is
independent, and compliance by a party with any of them shall not excuse
non-compliance by such party with any other. The Borrower shall not take any
action the effect of which shall constitute a breach or violation of any
provision of this Loan Agreement.
<PAGE>
-14-
SECTION 0.4 BINDING EFFECT; NO ASSIGNMENT OR DELEGATION.
This Loan Agreement shall be binding upon and inure to the
benefit of the Borrower and its successors and the Lender and its successors and
assigns. The rights and obligations of the Borrower under this Agreement shall
not be assigned or delegated without the prior written consent of the Lender,
and any purported assignment or delegation without such consent shall be void.
<PAGE>
-15-
IN WITNESS WHEREOF, the parties hereto have caused this Loan
Agreement to be duly executed as of the date first above written.
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
BY: GEORGE M. BRIODY,
TIMOTHY L. MCCUE AND
F. GREGORY OPELKA, AS TRUSTEE
AND NOT IN ANY OTHER CAPACITY
By:
-----------------------------------
By:
-----------------------------------
By:
-----------------------------------
BIG FOOT FINANCIAL CORP.
By:
-----------------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT A
TO LOAN AGREEMENT
BY AND BETWEEN
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
AND
BIG FOOT FINANCIAL CORP.
FORM OF PROMISSORY NOTE
$2,010,200 Long Grove, Illinois
PRINCIPAL AMOUNT December 19, 1996
FOR VALUE RECEIVED, the undersigned, Big Foot Financial Corp.
Employee Stock Ownership Plan Trust ("Borrower"), acting by and through its
Trustees, George M. Briody, Timothy L. McCue and F. Gregory Opelka, in their
capacity as trustee ("Trustee"), hereby promises to pay to the order of Big Foot
Financial Corp. ("Lender") TWO MILLION TEN THOUSAND TWO HUNDRED DOLLARS
($2,010,200.00) payable in accordance with the Loan Agreement made and entered
into between the Borrower and the Lender as of December 19, 1996 ("Loan
Agreement") pursuant to which this Promissory Note is issued, in one annual
installment of ONE HUNDRED SEVENTEEN THOUSAND TWO HUNDRED and SIXTY-TWO DOLLARS
($117,262.00), payable on July 31, 1997 and nine annual installments of TWO
HUNDRED ONE THOUSAND TWENTY DOLLARS ($201,020.00), commencing on the last
Business Day of December, 1997 and continuing on the last Business Day of
December of each calendar year until the last Business Day of July, 2006, and
one annual installment payable on July 31, 2007, at which time the entire
Principal Amount then outstanding and all accrued interest shall become due and
payable; PROVIDED, HOWEVER, that the Borrower shall not be required to make any
payment of principal due to be made in any Fiscal Year to the extent that such
payment would not be deductible for federal income tax purposes for such Fiscal
Year under section 404 of the Code. Any payment not required to made pursuant to
the above proviso shall be deferred to and be payable on the last day of the
first Fiscal Year in which such payment may be made on a tax deductible basis.
This Promissory Note shall bear interest at the rate per annum
set forth or established under the Loan Agreement, such interest to be payable
annually in arrears, commencing on December 31, 1996 and thereafter on the last
Business Day of each calendar year and upon payment or prepayment of this
Promissory Note.
Anything herein to the contrary notwithstanding, the
obligation of the Borrower to make payments of interest shall be subject to the
limitation that payments of interest shall not be required to be made to the
Lender to the extent that the Lender's receipt thereof would not be permissible
under the law or laws applicable to the Lender limiting rates of interest which
may be charged or collected by the Lender. Any such payments of interest which
are not made as a result of the limitation referred to in the preceding sentence
shall be made by the Borrower to the Lender on the earliest interest payment
date or dates on which the receipt thereof would be permissible
-1-
<PAGE>
under the laws applicable to the Lender limiting rates of interest which may be
charged or collected by the Lender. Such deferred interest shall not bear
interest.
Payments of both principal and interest on this Promissory
Note are to be made at the principal office of the Lender at 1190 RFD, Long
Grove, Illinois 60047-7304, or such other place as the holder hereof shall
designate to the Borrower in writing, in lawful money of the United States of
America in immediately available funds.
Failure to make any payment of principal on this Promissory
Note when due, or failure to make any payment of interest on this Promissory
Note not later than five (5) Business Days after the date when due, shall
constitute a default hereunder, whereupon the principal amount of and accrued
interest on this Promissory Note shall immediately become due and payable in
accordance with the terms of the Loan Agreement.
This Promissory Note is secured by a Pledge Agreement between
the Borrower and the Lender of even date herewith and is entitled to the
benefits thereof.
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
BY: GEORGE M. BRIODY,
TIMOTHY L. MCCUE AND
F. GREGORY OPELKA, AS TRUSTEE
AND NOT IN ANY OTHER CAPACITY
By:
-----------------------------------
By:
-----------------------------------
By:
-----------------------------------
-2-
<PAGE>
EXHIBIT B
TO LOAN AGREEMENT
BY AND BETWEEN
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
AND
BIG FOOT FINANCIAL CORP.
FORM OF PLEDGE AGREEMENT
This PLEDGE AGREEMENT ("Pledge Agreement") is made as of the
___th day of December, 1996, by and between the BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST, acting by and through its trustees, GEORGE
M. BRIODY, TIMOTHY L. MCCUE AND F. GREGORY OPELKA, three individuals acting in
the capacity of trustee and having an office at c/o Big Foot Financial Corp.,
1190 RFD, Long Grove, Illinois 60047-7304 ("Pledgor"); and BIG FOOT FINANCIAL
CORP. ("Lender"), a corporation organized and existing under the laws of the
state of Illinois, having an office at 1190 RFD, Long Grove, Illinois 60047-7304
("Pledgee").
W I T N E S S E T H:
WHEREAS, this Pledge Agreement is being executed and delivered
to the Pledgee pursuant to the terms of a Loan Agreement of even date herewith
("Loan Agreement"), by and between the Pledgor and the Pledgee;
NOW, THEREFORE, in consideration of the mutual agreements
contained herein and in the Loan Agreement, the parties hereto do hereby
covenant and agree as follows:
SECTION 1. DEFINITIONS. The following definitions shall apply
for purposes of this Pledge Agreement, except to the extent that a different
meaning is plainly indicated by the context; all capitalized terms used but not
defined herein shall have the respective meanings assigned to them in the Loan
Agreement:
(a) COLLATERAL shall mean the Pledged Shares and, subject to
section 5 hereof, and to the extent permitted by applicable law, all rights with
respect thereto, and all proceeds of such Pledged Shares and rights.
(b) EVENT OF DEFAULT shall mean an event so defined in the
Loan Agreement.
(c) LIABILITIES shall mean all the obligations of the Pledgor
to the Pledgee, howsoever created, arising or evidenced, whether direct or
indirect, absolute or contingent, now or hereafter existing, or due or to become
due, under the Loan Agreement and the Promissory Note.
<PAGE>
(d) PLEDGED SHARES shall mean all the shares of Common Stock
of Big Foot Financial Corp. purchased by the Pledgor with the proceeds of the
loan made by the Pledgee to the Pledgor pursuant to the Loan Agreement, but
excluding any such shares previously released pursuant to section 4.
SECTION 2. PLEDGE. To secure the payment of and performance
of all the Liabilities, the Pledgor hereby pledges to the Pledgee, and grants to
the Pledgee a security interest in and lien upon, the Collateral.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PLEDGOR. The
Pledgor represents, warrants, and covenants to the Pledgee as follows:
(a) the execution, delivery and performance of this Pledge
Agreement and the pledging of the Collateral hereunder do not and will not
conflict with, result in a violation of, or constitute a default under any
agreement binding upon the Pledgor;
(b) the Pledged Shares are and will continue to be owned by
the Pledgor free and clear of any liens or rights of any other person except the
lien hereunder and under the Loan Agreement in favor of the Pledgee, and the
security interest of the Pledgee in the Pledged Shares and the proceeds thereof
is and will continue to be prior to and senior to the rights of all others;
(c) this Pledge Agreement is the legal, valid, binding and
enforceable obligation of the Pledgor in accordance with its terms;
(d) the Pledgor shall, from time to time, upon request of the
Pledgee, promptly deliver to the Pledgee such stock powers, proxies, and similar
documents, satisfactory in form and substance to the Pledgee, with respect to
the Collateral as the Pledgee may reasonably request; and
(e) subject to the first sentence of section 4(b), the Pledgor
shall not, so long as any Liabilities are outstanding, sell, assign, exchange,
pledge or otherwise transfer or encumber any of its rights in and to any of the
Collateral.
SECTION 4. ELIGIBLE COLLATERAL.
(a) As used herein the term "Eligible Collateral" shall mean
that amount of Collateral which has an aggregate fair market value equal to the
amount by which the Pledgor is in default (without regard to any amounts owing
solely as the result of an acceleration of the Loan Agreement) or such lesser
amount of Collateral as may be required pursuant to section 13 of this Pledge
Agreement.
(b) The Pledged Shares shall be released from this Pledge
Agreement in a manner conforming to the requirements of Treasury Regulations
Section 54.4975-7(b)(8), as the same may be from time to time amended or
supplemented, and section 6.4(b) of the ESOP. Subject to such Regulations, the
Pledgee may from time to time, after any Default or Event of
-2-
<PAGE>
Default, and without prior notice to the Pledgor, transfer all or any part of
the Eligible Collateral into the name of the Pledgee or its nominee, with or
without disclosing that such Eligible Collateral is subject to any rights of the
Pledgor and may from time to time, whether before or after any of the
Liabilities shall become due and payable, without notice to the Pledgor, take
all or any of the following actions: (i) notify the parties obligated on any of
the Eligible Collateral to make payment to the Pledgee of any amounts due or to
become due thereunder, (ii) release or exchange all or any part of the Eligible
Collateral, or compromise or extend or renew for any period (whether or not
longer than the original period) any obligations of any nature of any party with
respect thereto, and (iii) take control of any proceeds of the Eligible
Collateral.
SECTION 5. DELIVERY.
(a) The Pledgor shall deliver to the Pledgee upon execution of
this Pledge Agreement (i) an assignment by the Pledgor of all the Pledgor's
rights to and interest in the Pledged Shares and (ii) an irrevocable proxy, in
form and substance satisfactory to the Pledgee, signed by the Pledgor with
respect to the Pledged Shares.
(b) So long as no Default or Event of Default shall have
occurred and be continu ing, (i) the Pledgor shall be entitled to exercise any
and all voting and other rights pertaining to the Collateral or any part thereof
for any purpose not inconsistent with the terms of this Pledge Agreement, and
(ii) the Pledgor shall be entitled to receive any and all cash dividends or
other distributions paid in respect of the Collateral.
SECTION 6. EVENTS OF DEFAULT.
(a) If a Default or an Event of Default shall be existing, in
addition to the rights it may have under the Loan Agreement, the Promissory
Note, and this Pledge Agreement, or by virtue of any other instrument, (i) the
Pledgee may exercise, with respect to the Eligible Collateral, from time to time
any rights and remedies available to it under the Uniform Commercial Code as in
effect from time to time in the State of Illinois or otherwise available to it
and (ii) the Pledgee shall have the right, for and in the name, place and stead
of the Pledgor, to execute endorsements, assignments, stock powers and other
instruments of conveyance or transfer with respect to all or any of the Eligible
Collateral. Written notification of intended disposition of any of the Eligible
Collateral shall be given by the Pledgee to the Pledgor at least three (3)
Business Days before such disposition. Subject to section 13 below, any proceeds
of any disposition of Eligible Collateral may be applied by the Pledgee to the
payment of expenses in connection with the Eligible Collateral, including,
without limitation, reasonable attorneys' fees and legal expenses, and any
balance of such proceeds may be applied by the Pledgee toward the payment of
such of the Liabilities as are in Default, and in such order of application, as
the Pledgee may from time to time elect. No action of the Pledgee permitted
hereunder shall impair or affect its rights in and to the Eligible Collateral.
All rights and remedies of the Pledgee expressed hereunder are in addition to
all other rights and remedies possessed by it, including, without limitation,
those contained in the documents referred to in the definition of Liabilities in
section 1 hereof.
-3-
<PAGE>
(b) In any sale of any of the Eligible Collateral after a
Default or an Event of Default shall have occurred, the Pledgee is hereby
authorized to comply with any limitation or restriction in connection with such
sale as it may be advised by counsel is necessary in order to avoid any
violation of applicable law (including, without limitation, compliance with such
procedures as may restrict the number of prospective bidders and purchasers or
further restrict such prospective bidders or purchasers to persons who will
represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or resale of such Eligible
Collateral), or in order to obtain such required approval of the sale or of the
purchase by any governmental regulatory authority or official, and the Pledgor
further agrees that such compliance shall not result in such sale's being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall the Pledgee be liable or accountable to the Pledgor for any discount
allowed by reason of the fact that such Eligible Collateral is sold in
compliance with any such limitation or restriction.
SECTION 7. PAYMENT IN FULL. Upon the payment in full of all
outstanding Liabili ties, this Pledge Agreement shall terminate and the Pledgee
shall forthwith assign, transfer and deliver to the Pledgor, against receipt and
without recourse to the Pledgee, all Collateral then held by the Pledgee
pursuant to this Pledge Agreement.
SECTION 8. NO WAIVER. No failure or delay on the part of the
Pledgee in exercising any right or remedy hereunder or under any other document
which confers or grants any rights in the Pledgee in respect of the Liabilities
shall operate as a waiver thereof nor shall any single or partial exercise of
any such right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy of the Pledgee.
SECTION 9. BINDING EFFECT; NO ASSIGNMENT OR DELEGATION. This
Pledge Agreement shall be binding upon and inure to the benefit of the Pledgor,
the Pledgee and their respective successors and assigns, except that the Pledgor
may not assign or transfer its rights hereunder without the prior written
consent of the Pledgee (which consent shall not unreasonably be withheld). Each
duty or obligation of the Pledgor to the Pledgee pursuant to the provisions of
this Pledge Agreement shall be performed in favor of any person or entity
designated by the Pledgee, and any duty or obligation of the Pledgee to the
Pledgor may be performed by any other person or entity designated by the
Pledgee.
SECTION 10. GOVERNING LAW. This Pledge Agreement shall be
governed by and construed in accordance with the laws of the State of Illinois
applicable to agreements to be performed wholly within the State of Illinois.
SECTION 11. NOTICES. All notices, requests, instructions or
documents hereunder shall be in writing and delivered personally or sent by
United States mail, registered or certified, return receipt requested, with
proper postage prepaid, as follows:
-4-
<PAGE>
(a) If to the Pledgee:
Big Foot Financial Corp.
1190 RFD
Long Grove, Illinois 60047-7304
Attention: Mr. George M. Briody
Chief Executive Officer
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center, 39th Floor
New York, New York 10048
Attention: W. Edward Bright, Esq.
(b) If to the Pledgor:
Big Foot Financial Corp.
Employee Stock Ownership Plan Trust
% Big Foot Financial Corp.
1190 RFD
Long Grove, Illinois 60047-7304
Attention: Messrs. George M. Briody, Timothy L.
McCue and F. Gregory Opelka, as Trustee
with copies to:
Thacher Proffitt & Wood
Two World Trade Center, 39th Floor
New York, New York 10048
Attention: W. Edward Bright. Esq.
or at such other address as either of the parties may designate by written
notice to the other party. If delivered personally, the date on which a notice,
request, instruction or document is delivered shall be the date on which such
delivery is made, and, if delivered by mail, the date on which such notice,
request, instruction or document is deposited in the mail shall be the date of
delivery. Each notice, request, instruction or document shall bear the date on
which it is delivered.
SECTION 12. INTERPRETATION. Wherever possible each provision
of this Pledge Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision hereof shall be prohibited
by or invalid under such law, such provisions shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions hereof.
-5-
<PAGE>
SECTION 13. CONSTRUCTION. All provisions hereof shall be
construed so as to maintain (a) the ESOP as a qualified leveraged employee stock
ownership plan under section 401(a) and 4975(e)(7) of the Internal Revenue Code
of 1986 (the "Code"), (b) the Trust as exempt from taxation under section 501(a)
of the Code and (c) the Trust Loan as an exempt loan under section 54.4975-7(b)
of the Treasury Regulations and as described in Department of Labor Regulation
section 2550.408b-3.
IN WITNESS WHEREOF, this Pledge Agreement has been duly
executed by the parties hereto as of the day and year first above written.
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
BY: GEORGE M. BRIODY,
TIMOTHY L. MCCUE AND
F. GREGORY OPELKA, AS TRUSTEE
AND NOT IN ANY OTHER CAPACITY
By:
-----------------------------------
By:
-----------------------------------
By:
-----------------------------------
BIG FOOT FINANCIAL CORP.
By:
-----------------------------------
Title:
--------------------------------
-6-
<PAGE>
EXHIBIT C
TO LOAN AGREEMENT
BY AND BETWEEN
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
AND
BIG FOOT FINANCIAL CORP.
FORM OF ASSIGNMENT
In consideration of the loan made by Big Foot Financial Corp.
("Lender") to the Big Foot Financial Corp. Employee Stock Ownership Plan Trust
("Borrower") pursuant to the Loan Agreement of even date herewith between the
Lender and the Borrower ("Loan Agreement") and pursuant to the Pledge Agreement
between the Lender and the Borrower of even date herewith pertaining thereto,
the undersigned Borrower hereby transfers, assigns and conveys to Lender all its
right, title and interest in and to those certain shares of common stock of the
Lender which it shall purchase with the proceeds of the loan made pursuant to
the Loan Agreement, and agrees to transfer and endorse to Lender the
certificates representing such shares as and when required pursuant to the Loan
Agreement or Pledge Agreement.
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
BY: GEORGE M. BRIODY,
TIMOTHY L. MCCUE AND
F. GREGORY OPELKA, AS TRUSTEE
AND NOT IN ANY OTHER CAPACITY
By:
-----------------------------------
By:
-----------------------------------
By:
-----------------------------------
December 19, 1996
<PAGE>
EXHIBIT D
TO LOAN AGREEMENT
BY AND BETWEEN
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
AND
BIG FOOT FINANCIAL CORP.
FORM OF IRREVOCABLE PROXY
In consideration of the loan made by Big Foot Financial Corp.
("Lender") to the Big Foot Financial Corp. Employee Stock Ownership Plan Trust
("Borrower") pursuant to the Loan Agreement of even date herewith between the
Lender and the Borrower ("Loan Agreement") and the Pledge Agreement between the
Lender and the Borrower of even date herewith pertaining thereto, the
undersigned Borrower hereby appoints the Lender as its proxy, with power of
substitution, to represent and to vote those certain shares of common stock of
the Lender which it shall purchase with the proceeds of the loan made pursuant
to the Loan Agreement. This proxy, when properly executed, shall be irrevocable
and shall give the Lender full power and authority to vote on any and all
matters for which other holders of shares of common stock of the Lender are
entitled to vote.
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
BY: GEORGE M. BRIODY,
TIMOTHY L. MCCUE AND
F. GREGORY OPELKA, AS TRUSTEE
AND NOT IN ANY OTHER CAPACITY
By:
-----------------------------------
By:
-----------------------------------
By:
-----------------------------------
December 19, 1996
<PAGE>
AMENDMENT NO. 1 TO LOAN AGREEMENT
This AMENDMENT NO. 1 TO LOAN AGREEMENT ("Amendment No. 1") is
made and entered into as of the 19th day of December, 1996, by and between the
BIG FOOT FINANCIAL CORP. EMPLOYEE STOCK OWNERSHIP PLAN TRUST ("Borrower"), a
trust forming part of the Big Foot Financial Corp. Employee Stock Ownership Plan
("ESOP"), acting through and by its trustees, GEORGE M. BRIODY, TIMOTHY L. MCCUE
AND F. GREGORY OPELKA (collectively, "Trustee"), three individuals acting in the
capacity of trustee and having an office at c/o Big Foot Financial Corp., 1190
RFD, Long Grove, Illinois 60047-7304; and BIG FOOT FINANCIAL CORP. ("Lender"), a
corporation organized and existing under the laws of the state of Illinois,
having an office at 1190 RFD, Long Grove, Illinois 60047-7304.
W I T N E S S E T H :
WHEREAS, the Borrower and the Lender are parties to a Loan
Agreement made and entered into as of December 19, 1996 (the "Loan Agreement");
and
WHEREAS, the Loan Agreement contemplates a payment schedule
that corresponds to the fiscal year of Big Foot Financial Corp; and
WHEREAS, Big Foot Financial Corp. has changed its fiscal year
end from July 31st to June 30th; and
WHEREAS, it is desirable to conform the Loan Agreement and
related documents to reflect the change in fiscal year;
NOW, THEREFORE, pursuant to section 6.4 of the Loan Agreement,
the Borrower and Lender hereby agree as follows:
1. Section 2.2(b) of the Loan Agreement shall be amended
effective as of December 19, 1996 to read in its entirety as follows:
(b) Except as otherwise provided in this section 2.2(b),
accrued interest on the Principal Amount shall be payable by the Borrower
annually in arrears commencing on the last Business Day of the first Fiscal Year
to end following the date of this Agreement and continuing on the last Business
Day of each Fiscal Year thereafter and upon the payment or prepayment of such
Loan. All interest on the Principal Amount shall be paid by the Borrower in
immediately available funds. The Lender shall remit to the Borrower, at least
three (3) Business Days before the end of each Fiscal Year, a statement of the
interest payment due under section 2.2(a) for such year; PROVIDED, HOWEVER, that
a delay or failure by the Lender in providing the Borrower with such statement
shall not alter the Borrower's obligation to make such payment.
Page 1 of 3
<PAGE>
2. Section 2.4(a) of this Loan Agreement shall be amended
effective as of December 19, 1996 to read in its entirety as follows:
(a) The Principal Amount of the Loan shall be repaid in annual
installments payable on the last Business Day of each Fiscal Year ending after
the date of this Agreement. The amount of each such annual installment shall be
equal to a fraction of the Principal Amount on the due date of such installment,
determined in accordance with the following schedule:
INSTALLMENT DUE ON FRACTION OF OUTSTANDING
LAST BUSINESS DAY OF PRINCIPAL AMOUNT
FISCAL YEAR ENDING
IN
1997 1/20
1998 1/10
1999 1/10
2000 1/10
2001 1/10
2002 1/10
2003 1/10
2004 1/10
2005 1/10
2006 1/10
10th anniversary entire outstanding
loan Principal Amount
; PROVIDED, HOWEVER, that the Borrower shall not be required to make
any payment of principal due to be made in any Fiscal Year to the
extent that such payment would not be deductible for federal income tax
purposes for such Fiscal Year under section 404 of the Code.
3. Exhibit A to the Loan Agreement shall be amended and restated
effective as of December 19, 1996 to read in its entirety as shown on the
attached Appendix 1.
4. Except as specifically provided in this Amendment No. 1 to the
contrary, this Loan Agreement shall continue in full force and effect.
Page 2 of 3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 1 to be duly executed as of the date first above written.
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
BY: GEORGE M. BRIODY,
TIMOTHY L. MCCUE AND
F. GREGORY OPELKA, AS TRUSTEE
AND NOT IN ANY OTHER CAPACITY
By:
-----------------------------------
By:
-----------------------------------
By:
-----------------------------------
BIG FOOT FINANCIAL CORP.
By:
-----------------------------------
Title:
--------------------------------
Page 3 of 3
<PAGE>
APPENDIX 1
TO AMENDMENT NO. 1
EXHIBIT A
TO LOAN AGREEMENT
BY AND BETWEEN
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
AND
BIG FOOT FINANCIAL CORP.
FORM OF AMENDED AND RESTATED PROMISSORY NOTE
$2,010,200 Long Grove, Illinois
PRINCIPAL AMOUNT December 19, 1996
FOR VALUE RECEIVED, the undersigned, Big Foot Financial Corp.
Employee Stock Ownership Plan Trust ("Borrower"), acting by and through its
Trustees, George M. Briody, Timothy L. McCue and F. Gregory Opelka, in their
capacity as trustee ("Trustee"), hereby promises to pay to the order of Big Foot
Financial Corp. ("Lender") TWO MILLION TEN THOUSAND TWO HUNDRED DOLLARS
($2,010,200.00) payable in accordance with the Loan Agreement made and entered
into between the Borrower and the Lender as of December 19, 1996 ("Loan
Agreement") pursuant to which this Promissory Note is issued, in one installment
of ONE HUNDRED THOUSAND FIVE HUNDRED and TEN DOLLARS ($100,510.00), payable on
June 30, 1997 and nine annual installments of TWO HUNDRED ONE THOUSAND TWENTY
DOLLARS ($201,020.00), commencing on the last Business Day of June, 1998 and
continuing on the last Business Day of June of each Fiscal Year until the last
Business Day of June, 2006, and one annual installment payable on December 19,
2006, at which time the entire Principal Amount then outstanding and all accrued
interest shall become due and payable; PROVIDED, HOWEVER, that the Borrower
shall not be required to make any payment of principal due to be made in any
Fiscal Year to the extent that such payment would not be deductible for federal
income tax purposes for such Fiscal Year under section 404 of the Code. Any
payment not required to made pursuant to the above proviso shall be deferred to
and be payable on the last day of the first Fiscal Year in which such payment
may be made on a tax deductible basis.
This Promissory Note shall bear interest at the rate per annum
set forth or established under the Loan Agreement, such interest to be payable
annually in arrears, commencing on June 30, 1997 and thereafter on the last
Business Day of each Fiscal Year and upon payment or prepayment of this
Promissory Note.
Anything herein to the contrary notwithstanding, the
obligation of the Borrower to make payments of interest shall be subject to the
limitation that payments of interest shall not be required to be made to the
Lender to the extent that the Lender's receipt thereof would not be permissible
under the law or laws applicable to the Lender limiting rates of interest which
may be
<PAGE>
charged or collected by the Lender. Any such payments of interest which are not
made as a result of the limitation referred to in the preceding sentence shall
be made by the Borrower to the Lender on the earliest interest payment date or
dates on which the receipt thereof would be permissible under the laws
applicable to the Lender limiting rates of interest which may be charged or
collected by the Lender. Such deferred interest shall not bear interest.
Payments of both principal and interest on this Promissory
Note are to be made at the principal office of the Lender at 1190 RFD, Long
Grove, Illinois 60047-7304, or such other place as the holder hereof shall
designate to the Borrower in writing, in lawful money of the United States of
America in immediately available funds.
Failure to make any payment of principal on this Promissory
Note when due, or failure to make any payment of interest on this Promissory
Note not later than five (5) Business Days after the date when due, shall
constitute a default hereunder, whereupon the principal amount of and accrued
interest on this Promissory Note shall immediately become due and payable in
accordance with the terms of the Loan Agreement.
This Promissory Note is secured by a Pledge Agreement between
the Borrower and the Lender of even date herewith and is entitled to the
benefits thereof.
BIG FOOT FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
BY: GEORGE M. BRIODY,
TIMOTHY L. MCCUE AND
F. GREGORY OPELKA, AS TRUSTEE
AND NOT IN ANY OTHER CAPACITY
By:
-----------------------------------
By:
-----------------------------------
By:
-----------------------------------
BIG FOOT FINANCIAL CORP.
EXECUTIVE EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of December 19, 1996 by and between BIG FOOT FINANCIAL CORP., a
publicly-held business corporation organized and operating under the laws of the
State of Illinois and having an office at 1190 RFD, Long Grove, Illinois
60047-7034 ("Holding Company") and GEORGE M. BRIODY, an individual residing at
9407 Loch Glen Court, Crystal Lake, Illinois 60014 ("Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves the Holding Company in
the capacity of President; and
WHEREAS, effective as of the date of this Agreement, Fairfield
Savings Bank, F.S.B. ("Bank") has converted from a federal savings bank to a
federal stock savings bank 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 "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).
Page 1 of 18
<PAGE>
(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 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 the
Executive hereunder, the Holding Company shall pay to him a salary at an initial
annual rate of ONE HUNDRED FIFTY THOUSAND FOUR HUNDRED EIGHTY DOLLARS
($150,480.00), payable in approximately equal installments in accordance with
the Holding 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.
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 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, professional financial planning
services and tax preparation programs 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 Bank on such terms and conditions as the Holding
Company and the Bank 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 result in a material breach of this Agreement. If the
Executive is discharged or suspended, or is subject
Page 3 of 18
<PAGE>
to any regulatory prohibition or restriction with respect to participation in
the affairs of the Bank, 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 Bank in a manner
inconsistent with the terms of such discharge or suspension or any applicable
regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
The 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 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 Holding Company and necessary or appropriate in
connection with the performance of his assigned duties under this Agreement and
shall furnish to the Executive for his business use outside the office a
personal computer, fax machine and other equipment appropriate to permit the
Executive to carry on his assigned duties while away from the office. The
Holding Company shall provide to the 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 the 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 the Executive and the Holding Company 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 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) the 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
Page 4 of 18
<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 Organization Certificate or
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 the 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, 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 the Executive's employment with the Holding Company for
any other reason not described in section 9(a);
then, the Holding Company shall provide the benefits and pay to the 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 the 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 programs 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
Page 5 of 18
<PAGE>
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
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 if, upon the expiration of
such coverage, the Executive has received or is eligible to receive
pension benefits under a pension plan of the Holding Company or the
Bank, a further continuation of such health (including
hospitalization, medical and major medical) coverage for the remaining
lifetimes of the Executive and his spouse;
(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 the 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 the 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 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
(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;
Page 6 of 18
<PAGE>
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 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, 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 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 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 the 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 holds as an
officer, director or committee member with respect to the Holding Company, the
Bank or any subsidiary or affiliate of either of them.
Page 7 of 18
<PAGE>
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
(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;
Page 8 of 18
<PAGE>
(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)(i)(A) or (B), 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)(i) 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 the Executive and the
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)(i) 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 Holding Company, 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)
Page 9 of 18
<PAGE>
at least 51% of the outstanding equity ownership interests in
the Holding Company; 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% 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 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 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-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
such board to serve as a member of the board of
directors of such board, 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
Page 10 of 18
<PAGE>
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 "Bank" 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
Bank, or a subsidiary of either of them, by the Holding Company, the Bank, 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 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 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 Bank or "in the ownership of a substantial portion
of the assets" of the Holding Company or the Bank within the meaning of section
280G of the Code. If this Section 12 applies, then, if for any taxable year, the
Executive
Page 11 of 18
<PAGE>
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 Bank or any direct or indirect subsidiary or affiliate of the
Holding Company or the Bank to (or for the benefit of) the Executive, the
Holding Company shall pay to the 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
the Executive under the Code for the taxable year in
question;
SLI = the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable
state and local laws for the taxable year in
question; and
M = the highest marginal rate of Medicare tax
applicable to the 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 Bank or any
direct or indirect subsidiary or affiliate of the Holding Company or the Bank 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 the Executive's liability for the excise tax under
section 4999 of the Code for a taxable year is subsequently 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 the 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 the 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 the Executive under this section 12, the Executive shall
furnish to the Holding Company a copy of each tax return which reflects a
liability
Page 12 of 18
<PAGE>
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 his 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
the 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.
SECTION 14. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Holding
Company, the Executive 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 the 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.
The 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:
Page 13 of 18
<PAGE>
(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 Bank or any affiliate, as of the date of this
Agreement, of either of them, to terminate his or her 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 Bank 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 Bank, 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 Bank, 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 Holding Company, the
Bank, 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 the 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 (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 Holding Company from time to time.
Page 14 of 18
<PAGE>
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:
If to the Executive:
George M. Briody
9407 Loch Glen Court
Crystal Lake, Illinois 60014
If to the Holding Company:
Big Foot Financial Corp.
1190 RFD
Long Grove, Illinois 60047-7034
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
Page 15 of 18
<PAGE>
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 the 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.
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.
Page 16 of 18
<PAGE>
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 representations 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 Bank of any benefits and compensation to which the Executive is or may be
entitled to under the terms and conditions of the employment agreement dated as
of December 19, 1996 between the Bank and the Executive, a copy of which is
attached hereto as Exhibit A ("Bank Agreement").
SECTION 27. NON-DUPLICATION.
In the event that the Executive shall perform services for the
Bank or any other direct or indirect subsidiary of the Holding Company, any
compensation or benefits provided to the 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 the 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 the 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 the Executive has hereunto set his hand, all as of
the day and year first above written.
------------------------------------
GEORGE M. BRIODY
ATTEST: BIG FOOT FINANCIAL CORP.
By
--------------------------
Secretary By
----------------------------------
NAME:
TITLE:
[Seal]
Page 17 of 18
<PAGE>
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this ________ day of ____________________, 1997, before me
personally came GEORGE M. BRIODY, 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.
----------------------------------
Notary Public
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this ________ day of ____________________, 1997, before me
personally came ___________, to me known, who, being by me duly sworn, did
depose and say that he resides at
______________________________________________, that he is a member of the Board
of Directors of BIG FOOT FINANCIAL CORP., the Illinois 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.
----------------------------------
Notary Public
Page 18 of 18
BIG FOOT FINANCIAL CORP.
FORM OF EXECUTIVE EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of December 19, 1996 by and between BIG FOOT FINANCIAL CORP., a
publicly-held business corporation organized and operating under the laws of the
State of Illinois and having an office at 1190 RFD, Long Grove, Illinois
60047-7034 ("Holding Company") and __________________, an individual residing
at _______________________________________________ ("Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves the Holding Company in
the capacity of _____________________________; and
WHEREAS, effective as of the date of this Agreement, Fairfield
Savings Bank, F.S.B. ("Bank") has converted from a federal savings bank to a
federal stock savings bank 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 "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).
Page 1 of 18
<PAGE>
(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 ________________________ 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 the
Executive hereunder, the Holding Company shall pay to him a salary at an initial
annual rate of __________________________ ($_____________), payable in
approximately equal installments in accordance with the Holding 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.
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
Page 2 of 18
<PAGE>
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,
professional financial planning services and tax preparation programs 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 Bank on such terms and conditions as the Holding
Company and the Bank 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 result in a material breach of this Agreement. If the
Executive is discharged or suspended, or is subject to any regulatory
prohibition or restriction with respect to participation in the affairs of the
Bank, 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 Bank in
Page 3 of 18
<PAGE>
a manner inconsistent with the terms of such discharge or suspension or any
applicable regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
The 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 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 Holding Company and necessary or appropriate in
connection with the performance of his assigned duties under this Agreement and
shall furnish to the Executive for his business use outside the office a
personal computer, fax machine and other equipment appropriate to permit the
Executive to carry on his assigned duties while away from the office. The
Holding Company shall provide to the 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 the 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 the Executive and the Holding Company shall mutually agree are
necessary and appropriate for business purposes, and his travel and
entertainment expenses in curred 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) the 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 the nominating committee
thereof) to nominate the Executive for such election or
re-election;
Page 4 of 18
<PAGE>
(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 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 the 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, 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 the Executive's employment with the Holding Company for
any other reason not described in section 9(a);
then, the Holding Company shall provide the benefits and pay to the 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 the 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;
(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
Page 5 of 18
<PAGE>
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
the Executive's termination of employment with the Holding Company and
if, upon the expiration of such coverage, the Executive has received or
is eligible to receive pension benefits under a pension plan of the
Holding Company or the Bank, a further continuation of such health
(including hospitalization, medical and major medical) coverage for the
remaining lifetimes of the Executive and his spouse;
(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 the 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 the 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 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
(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
Page 6 of 18
<PAGE>
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 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, 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 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 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 the 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 holds as an
officer, director or committee member with respect to the Holding Company, the
Bank 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:
Page 7 of 18
<PAGE>
(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
(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
Page 8 of 18
<PAGE>
(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)(i)(A) or (B), 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)(i) 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 the Executive and the
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)(i) 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 Holding Company, 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 Holding Company; 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
Page 9 of 18
<PAGE>
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% 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 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 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-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
such board to serve as a member of the board of
directors of such board, 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
Page 10 of 18
<PAGE>
(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Bank" 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
Bank, or a subsidiary of either of them, by the Holding Company, the Bank, 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 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 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 Bank or "in the ownership of a substantial portion
of the assets" of the Holding Company or the Bank 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 Bank or any direct or indirect subsidiary or affiliate of
the Holding Company or the Bank to (or for the benefit of) the
Page 11 of 18
<PAGE>
Executive, the Holding Company shall pay to the 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
the Executive under the Code for the taxable year in
question;
SLI = the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable
state and local laws for the taxable year in
question; and
M = the highest marginal rate of Medicare tax
applicable to the 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 Bank or any
direct or indirect subsidiary or affiliate of the Holding Company or the Bank 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 the Executive's liability for the excise tax under
section 4999 of the Code for a taxable year is subsequently 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 ex cise 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 the 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 the 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 the Executive under this section 12, the 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.
Page 12 of 18
<PAGE>
SECTION 13. COVENANT NOT TO COMPETE.
In the event of his 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 ter mination 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
the 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.
SECTION 14. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Holding
Company, the Executive 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 the 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.
The 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 Bank or any affiliate, as of the date of this
Agreement, of either of them, to terminate his or her
Page 13 of 18
<PAGE>
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
Bank 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 Bank, 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 Bank, 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 Holding Company, the
Bank, 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 the 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 in surance 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
Page 14 of 18
<PAGE>
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:
If to the Executive:
------------------------------
------------------------------
------------------------------
If to the Holding Company:
Big Foot Financial Corp.
1190 RFD
Long Grove, Illinois 60047-7034
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
Page 15 of 18
<PAGE>
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 the 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.
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-
Page 16 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 26. GUARANTEE.
The Holding Company hereby agrees to guarantee the payment by
the Bank of any benefits and compensation to which the Executive is or may be
entitled to under the terms and conditions of the employment agreement dated as
of December 19, 1996 between the Bank and the Executive, a copy of which is
attached hereto as Exhibit A ("Bank Agreement").
SECTION 27. NON-DUPLICATION.
In the event that the Executive shall perform services for the
Bank or any other direct or indirect subsidiary of the Holding Company, any
compensation or benefits provided to the 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 the 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 the 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 the Executive has hereunto set his hand, all as of
the day and year first above written.
------------------------------------
ATTEST: BIG FOOT FINANCIAL CORP.
By
- ---------------------------------------
Secretary By
---------------------------------
NAME: GEORGE M. BRIODY
TITLE: PRESIDENT
[Seal]
Page 16 of 18
<PAGE>
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this ________ day of ____________________, 1997, before me
personally came ____________________, 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.
------------------------------------
Notary Public
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this ________ day of ____________________, 1997, before me
personally came GEORGE M. BRIODY, to me known, who, being by me duly sworn, did
depose and say that he resides at 9407 Loch Glen Court, Crystal Lake, Illinois
60014, that he is President of BIG FOOT FINANCIAL CORP., the Illinois
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.
------------------------------------
Notary Public
Page 18 of 18
FAIRFIELD SAVINGS BANK, F.S.B.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of December 19, 1996 by and between FAIRFIELD SAVINGS BANK, F.S.B., a
savings bank organized and operating under the federal laws of the United States
and having an office at 1190 RFD, Long Grove, Illinois 60047-7304 ("Bank") and
GEORGE M. BRIODY, an individual residing at 9407 Loch Glen Court, Crystal Lake,
Illinois 60014 ("Executive").
W I T N E S S E T H :
WHEREAS, Executive currently serves the Bank in the capacity
of President; and
WHEREAS, effective as of the date of this Agreement, the Bank
has converted from a federal savings bank to a federal stock savings bank and
has become the wholly-owned subsidiary of Big Foot Financial Corp., a
publicly-held Illinois corporation ("Holding Company"); and
WHEREAS, the Bank 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
Bank 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 Bank and the
Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Bank 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 years beginning on the date of this Agreement. Prior to the first
anniversary of the date of this Agreement and on each anniversary date
thereafter (each, an "Anniversary Date"), the Board of Directors of the Bank
("Board") shall review the terms of this Agreement and the Executive's
performance of services hereunder and
Page 1 of 18
<PAGE>
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 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
Bank 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 Bank 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 of the Bank, having
such power, authority and responsibility and performing such duties as are
prescribed by or under the By-Laws of the Bank and as are customarily associated
with such position, including, without limitation, the general direction of all
of the business and affairs of the Bank, the hiring and supervision of all
senior management personnel, and long-term strategic planning for the Bank,
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 leave of absence) to the business
and affairs of the Bank and shall use his best efforts to advance the interests
of the Bank.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the
Executive hereunder, the Bank shall pay to him a salary at an initial annual
rate of ONE HUNDRED FIFTY THOUSAND FOUR HUNDRED EIGHTY DOLLARS ($150,480.00),
payable in approximately equal installments in accordance with the Bank'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, the Executive may receive
other cash compensation from the Bank 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 Bank 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
Page 2 of 18
<PAGE>
life, health (including hospitalization, medical and major medical), dental,
accident and long-term disability insurance plans, professional financial
planning services and tax preparation programs 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 Bank, in accordance with the terms and conditions of such
employee benefit plans and programs and compensation plans and programs and
consistent with the Bank's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six (6)
years thereafter, the Bank 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 Bank or service in
other capacities at the request of the Bank. 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 Bank.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Bank 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 Bank or any subsidiary or affiliate thereof. This
section 6(b) shall not be applicable where section 18 is applicable.
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 Bank and generally applicable to
all similarly situated executives. The Executive may also serve as an officer or
director of the Holding Company on terms and conditions as the Bank 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.
SECTION 8. WORKING FACILITIES AND EXPENSES.
Page 3 of 18
<PAGE>
The Executive's principal place of employment shall be at the
Bank's executive offices at the address first above written, or at such other
location within a 25-mile radius thereof at which the Bank shall maintain its
principal executive offices, or at such other location as the Bank and the
Executive may mutually agree upon. The Bank 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 Bank and
necessary or appropriate in connection with the performance of his assigned
duties under this Agreement and shall furnish to the Executive for his business
use outside the office a personal computer, fax machine and other equipment
appropriate to permit the Executive to carry on his assigned duties while away
from the office. The Bank shall provide to the Executive for his exclusive use
an automobile owned or leased by the Bank and appropriate to his position, to be
used in the performance of his duties hereunder, including commuting to and from
his personal residence. The Bank shall reimburse the 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 the Executive and the Bank 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 Bank of
an itemized account of such expenses in such form as the Bank 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 Bank terminates
during the Employment Period under any of the following circumstances:
(i) The Executive's voluntary resignation from employment with
the Bank 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
Bank;
(B) if the Executive is a member of the Board as of
the date of this agreement, the failure of the stockholders of
the Bank to elect or re-elect the Executive 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 Bank of its material failure, whether by amendment of
the Bank's Organization Certificate or By-laws, action of the
Board or the Bank'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 Bank fully cures such failure;
Page 4 of 18
<PAGE>
(D) the expiration of a thirty (30) day period
following the date on which the Executive gives written notice
to the Bank of its material breach of any term, condition or
covenant contained in this Agreement (including, without
limitation, any reduction of the 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 Bank fully cures such failure; or
(ii) the termination of the Executive's employment with the
Bank for any other reason not described in section 10(a);
then, subject to section 25, the Bank shall provide the benefits and pay to the
Executive the amounts described in section 9(b).
(b) Upon the termination of the Executive's employment with
the Bank under circumstances described in section 9(a) of this Agreement, the
Bank 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
Bank, 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 programs maintained for the benefit of the Bank'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 Bank 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 Bank and if, upon the
expiration of such coverage, the Executive has received or is eligible
to receive pension benefits under a pension plan of the Holding Company
or the Bank, a further continuation of such coverage for the remaining
lifetimes of the Executive and his spouse;
Page 5 of 18
<PAGE>
(iv) within thirty (30) days following his termination of
employment with the Bank, a lump sum payment, in an amount equal to the
present value of the salary that the Executive would have earned if he
had continued working for the Bank 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 the Executive's
termination of employment with the Bank, 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 Bank'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 Bank, 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 Bank, if he were 100% vested
thereunder and had continued working for the Bank 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 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 Benefits 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 Bank, 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
Page 6 of 18
<PAGE>
of, the Bank, if he were 100% vested thereunder and had continued
working for the Bank 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 Bank, 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 Executive
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Bank if
he had continued working for the Bank during the Remaining Unexpired
Employment Period and had earned in each calendar year that ends during
the Remaining Unexpired Employment 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 three-year period ending on the date of
termination of employment.
The Bank 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 the Executive's efforts, if any, to
mitigate damages. The Bank and the Executive further agree that the Bank 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 holds as an officer, director or committee member with
respect to the Bank, the Holding Company or any subsidiary or affiliate of
either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY.
In the event that the Executive's employment with the Bank
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:
Page 7 of 18
<PAGE>
(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
(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 Bank 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 Bank's long-term disability
insurance program or, if there is no such program, under the federal
Social Security Act;
then the Bank 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
Page 8 of 18
<PAGE>
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 Bank.
(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 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 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 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 the Executive and the
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 Bank ("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 Bank of a transaction
that would result in the reorganization, merger or consolidation of the
Bank, 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 Bank; 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% of the securities entitled to vote
generally in the election of directors of the Bank;
(ii) the acquisition of all or substantially all of the assets
of the Bank or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of
Page 9 of 18
<PAGE>
25% or more of the outstanding securities of the Bank 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 Bank of any
transaction which would result in such an acquisition; or
(iii) a complete liquidation or dissolution of the Bank, or
approval by the stockholders of the Bank 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 Bank do not belong to any of the following groups:
(A) individuals who were members of the board of
directors of the Bank on the date of this Agreement; or
(B) individuals who first became members of the board
of directors of the Bank after the date of this Agreement
either:
(I) upon election to serve as a member of
the Board of directors of the Bank 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 Board to serve as a member of the board of
directors of the Bank, but only if nominated for
election by affirmative vote of three-quarters (3/4)
of the members of the board of directors of the Bank,
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 Bank;
(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 "Bank" 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
Bank, or a subsidiary of either of them, by the Holding Company, the Bank, 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 Bank
Page 10 of 18
<PAGE>
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 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 Bank 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 Bank which is at least as favorable
to him.
SECTION 12. COVENANT NOT TO COMPETE.
In the event of his termination of employment with the Bank
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 Bank (or, if less,
for the Remaining Unexpired Employment Period), the Executive shall not, without
the written consent of the Bank, 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 Bank 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 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 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 Bank on substantially the
same terms and conditions proposed by the competitor and (b) the Bank declines
to accept such offer within ten (10) days after such notice is given.
Page 11 of 18
<PAGE>
SECTION 13. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Bank, the
Executive shall keep confidential and shall refrain from using for the benefit
of himself, or any person or entity other than the Bank or any entity which is a
subsidiary of the Bank or of which the Bank is a subsidiary, any material
document or information obtained from the Bank, 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 Bank'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.
The Executive hereby covenants and agrees that, for a period
of one (1) year following his termination of employment with the Bank, he shall
not, without the written consent of the Bank, 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 Bank, 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 Bank, 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 institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Bank, 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 Bank, 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
Page 12 of 18
<PAGE>
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
Bank, 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 Bank to terminate an existing business or commercial
relationship with the Bank.
SECTION 15. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term
of this Agreement or thereafter, whether by the Bank or by the Executive, shall
have no effect on the rights and obligations of the parties hereto under the
Bank'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 Bank from time to time.
SECTION 16. 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 Bank and its successors and assigns, 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 Bank may be
sold or otherwise transferred. Failure of the Bank to obtain from any successor
its express written assumption of the Bank'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 the Executive to the Bank.
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:
Page 13 of 18
<PAGE>
If to the Executive:
George M. Briody
9407 Loch Glen Court
Crystal Lake, Illinois 60014
If to the Bank:
Fairfield Savings Bank, F.S.B.
1190 RFD
Long Grove, Illinois 60047-7304
Attention: BOARD OF DIRECTOR - 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 Bank 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 Bank's
obligations hereunder shall be conclusive evidence of the 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 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.
Page 14 of 18
<PAGE>
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 representations 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 Bank:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to the
Executive under
Page 15 of 18
<PAGE>
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 Bank (or for
his entire period of employment with the Bank 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 Bank's books and records.
(b) Notwithstanding anything herein contained to the contrary,
any payments to the Executive by the Bank, 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 Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Bank 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 Bank'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 Bank, in its discretion, may (i) pay to the
Executive all or part of the compensation withheld while the Bank'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 Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1), all prospective obligations of the Bank under
this Agreement shall terminate as of the effective date of the order,
but vested rights and obligations of the Bank and the Executive shall
not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Bank 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
Bank under this Agreement shall terminate as of the date of default,
but vested rights and obligations of the Bank and the Executive shall
not be affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Bank hereunder shall be terminated,
except to the extent that a continuation of this Agreement is necessary
for the continued operation of the Bank: (i) by the Director of the
Office of Thrift Supervision ("OTS") or his designee or the Federal
Deposit Insurance Corporation ("FDIC"),
Page 16 of 18
<PAGE>
at the time the FDIC enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in section
13(c) of the 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 Bank or when the Bank 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 Bank has caused this Agreement to be
executed and the Executive has hereunto set his hand, all as of the day and year
first above written.
------------------------------------
GEORGE M. BRIODY
ATTEST: FAIRFIELD SAVINGS BANK, F.S.B.
By
--------------------------
Secretary By
----------------------------------
NAME:
TITLE:
[Seal]
Page 17 of 18
<PAGE>
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this ________ day of ____________________, 1997, before me
personally came George M. Briody, 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.
----------------------------------
Notary Public
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this ________ day of ____________________, 1997, before me
personally came ___________, to me known, who, being by me duly sworn, did
depose and say that he resides at
______________________________________________, that he is a member of the Board
of Directors of FAIRFIELD SAVINGS BANK, F.S.B., the savings bank described in
and which executed the foregoing instrument; that he knows the seal of said
savings bank; 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 bank; and that he
signed his name thereto by like order.
----------------------------------
Notary Public
FAIRFIELD SAVINGS BANK, F.S.B.
FORM OF EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of December 19, 1996 by and between FAIRFIELD SAVINGS BANK, F.S.B., a
savings bank organized and operating under the federal laws of the United States
and having an office at 1190 RFD, Long Grove, Illinois 60047-7304 ("Bank") and
________________, an individual residing at ________________
____________________________________ ("Executive").
W I T N E S S E T H :
WHEREAS, Executive currently serves the Bank in the capacity
of ___________________________________________; and
WHEREAS, effective as of the date of this Agreement, the Bank
has converted from a federal savings bank to a federal stock savings bank and
has become the wholly-owned subsidiary of Big Foot Financial Corp., a
publicly-held Illinois corporation ("Holding Company"); and
WHEREAS, the Bank 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
Bank 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 Bank and the
Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Bank 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 years beginning on the date of this Agreement. Prior to the first
anniversary of the date of this Agreement and on each anniversary date
thereafter (each, an "Anniversary Date"), the Board of Directors of the Bank
("Board") shall
Page 1 of 18
<PAGE>
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 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
Bank 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 Bank and the Executive in the event
of any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as_________________________________
of the Bank, having such power, authority and responsibility and performing such
duties as are prescribed by or under the By-Laws of the Bank and as are
customarily associated with such position, including, without limitation, the
general direction of the Bank's corporate finance activities, compliance with
regulatory capital requirements, liquidity management, and supervision of the
preparation of the Bank's financial statements and reports to bank examiners and
other regulators. The Executive shall devote his full business time and
attention (other than during holidays, approved vacation periods, and periods of
illness or approved leave of absence) to the business and affairs of the Bank
and shall use his best efforts to advance the interests of the Bank.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the
Executive hereunder, the Bank shall pay to him a salary at an initial annual
rate of ____________________________________________ ($_________), payable in
approximately equal installments in accordance with the Bank'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, the Executive may receive other cash
compensation from the Bank 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 Bank 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, professional financial planning services
and tax preparation programs and any other employee benefit and compensation
plans (including, but not limited to, any incen tive 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 Bank, in
ac cordance with the terms and conditions of such employee benefit plans and
programs and compensation plans and programs and consistent with the Bank's
customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six (6)
years thereafter, the Bank 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 Bank or service in
other capacities at the request of the Bank. 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 Bank.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Bank 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 Bank or any subsidiary or affiliate thereof. This
section 6(b) shall not be applicable where section 18 is applicable.
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 Bank and generally applicable to
all similarly situated executives. The Executive may also serve as an officer or
director of the Holding Company on terms and conditions as the Bank 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.
The Executive's principal place of employment shall be at the
Bank's executive offices at the address first above written, or at such other
location within a 25-mile radius thereof at which the Bank shall maintain its
principal executive offices, or at such other location as the Bank and the
Executive may mutually agree upon. The Bank 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 Bank and
necessary or appropriate in connection with the performance of his assigned
duties under this Agreement and shall furnish to the Executive for his business
use outside the office a personal computer, fax machine and other equipment
appropriate to permit the Executive to carry on his assigned duties while away
from the office. The Bank shall provide to the Executive for his exclusive use
an automobile owned or leased by the Bank and appropriate to his position, to be
used in the performance of his duties hereunder, including commuting to and from
his personal residence. The Bank shall reimburse the 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 the Executive and the Bank shall
mutually agree are necessary and appropriate for business purposes, and his
travel and entertainment expenses incurred in connec tion with the performance
of his duties under this Agreement, in each case upon presentation to the Bank
of an itemized account of such expenses in such form as the Bank 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 Bank terminates
during the Employment Period under any of the following circumstances:
(i) The Executive's voluntary resignation from employment with
the Bank 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
Bank;
(B) if the Executive is a member of the Board as of
the date of this agreement, the failure of the stockholders of
the Bank to elect or re-elect the Executive 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 Bank of its material failure, whether by amendment of
the Bank's Organization Certificate or By-laws, action of the
Board or the Bank's stockholders or otherwise, to vest in the
Executive the functions,
Page 4 of 18
<PAGE>
duties, or responsibilities prescribed in section 3 of this
Agreement, unless, during such thirty (30) day period, the
Bank 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 Bank of its material breach of any term, condition or
covenant contained in this Agreement (including, without
limitation, any reduction of the 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 Bank fully cures such failure; or
(ii) the termination of the Executive's employment with the
Bank for any other reason not described in section 10(a);
then, subject to section 25, the Bank shall provide the benefits and pay to the
Executive the amounts described in section 9(b).
(b) Upon the termination of the Executive's employment
with the Bank under circumstances described in section 9(a) of this Agreement,
the Bank 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
Bank, 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 Bank'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 Bank 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 Bank and if, upon the
expiration of such coverage, the Executive has received or is eligible
to
Page 5 of 18
<PAGE>
receive pension benefits under a pension plan of the Holding Company or
the Bank, a further continuation of such coverage for the remaining
lifetimes of the Executive and his spouse;
(iv) within thirty (30) days following his termination of
employment with the Bank, a lump sum payment, in an amount equal to the
present value of the salary that the Executive would have earned if he
had continued working for the Bank 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 the Executive's
termination of employment with the Bank, 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 Bank'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 fol lowing
any such termination;
(v) within thirty (30) days following his termination of
employment with the Bank, 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 Bank, if he were 100% vested
thereunder and had continued working for the Bank 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 the
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within thirty (30) days following his termination of
employment with the Bank, 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
Page 6 of 18
<PAGE>
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 Bank,
if he were 100% vested thereunder and had continued working for the
Bank 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 Bank, 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 Executive
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Bank if
he had continued working for the Bank during the Remaining Unexpired
Employment Period and had earned in each calendar year that ends during
the Remaining Unexpired Employment 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 three-year period ending on the date of
termination of employment.
The Bank 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 the Executive's efforts, if any, to
mitigate damages. The Bank and the Executive further agree that the Bank 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 holds as an officer, director or committee member with
respect to the Bank, the Holding Company or any subsidiary or affiliate of
either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY.
In the event that the Executive's employment with the Bank
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
Page 7 of 18
<PAGE>
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
(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 Bank 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 Bank's long-term disability
insurance program or, if there is no such program, under the federal
Social Security Act;
Page 8 of 18
<PAGE>
then the Bank 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
Bank.
(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 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 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 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 the Executive and the
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 Bank ("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 Bank of a transaction
that would result in the reorganization, merger or consolidation of the
Bank, 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 Bank; 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% of the securities entitled to vote
generally in the election of directors of the Bank;
Page 9 of 18
<PAGE>
(ii) the acquisition of all or substantially all of the assets
of the Bank 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 Bank 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 Bank of any transaction which would
result in such an acquisition; or
(iii) a complete liquidation or dissolution of the Bank, or
approval by the stockholders of the Bank 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 Bank do not belong to any of the following groups:
(A) individuals who were members of the board of
directors of the Bank on the date of this Agreement; or
(B) individuals who first became members of the board
of directors of the Bank after the date of this Agreement
either:
(I) upon election to serve as a member of
the Board of directors of the Bank 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 Board to serve as a member of the board of
directors of the Bank, but only if nominated for
election by affirmative vote of three-quarters (3/4)
of the members of the board of directors of the Bank,
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 Bank;
(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 "Bank" 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
Bank, or a subsidiary of either of them, by the Holding Company, the Bank, 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.
Page 10 of 18
<PAGE>
(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 Bank 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 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 Bank 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 Bank which is at least as favorable
to him.
SECTION 12. COVENANT NOT TO COMPETE.
In the event of his termination of employment with the Bank
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 Bank (or, if less,
for the Remaining Unexpired Employment Period), the Executive shall not, without
the written consent of the Bank, 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 Bank 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 com pany, 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 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 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 Bank on substantially the
same terms and conditions proposed by the competitor and (b) the Bank declines
to accept such offer within ten (10) days after such notice is given.
Page 11 of 18
<PAGE>
SECTION 13. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Bank, the
Executive shall keep confidential and shall refrain from using for the benefit
of himself, or any person or entity other than the Bank or any entity which is a
subsidiary of the Bank or of which the Bank is a subsidiary, any material
document or information obtained from the Bank, 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);
pro vided, however, that nothing in this section 13 shall prevent the Executive,
with or without the Bank'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.
The Executive hereby covenants and agrees that, for a period
of one (1) year following his termination of employment with the Bank, he shall
not, without the written consent of the Bank, 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 Bank, 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 Bank, 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 institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Bank, 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 Bank, 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
Page 12 of 18
<PAGE>
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 Bank, 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 Bank to terminate an existing business or commercial
relationship with the Bank.
SECTION 15. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term
of this Agreement or thereafter, whether by the Bank or by the Executive, shall
have no effect on the rights and obligations of the parties hereto under the
Bank'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 Bank from time to time.
SECTION 16. 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 Bank 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 Bank may be
sold or otherwise transferred. Failure of the Bank to obtain from any successor
its express written assumption of the Bank'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 the Executive to the Bank.
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:
Page 13 of 18
<PAGE>
If to the Executive:
------------------------------
------------------------------
------------------------------
If to the Bank:
Fairfield Savings Bank, F.S.B.
1190 RFD
Long Grove, Illinois 60047-7304
Attention: Board of Director - 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 Bank shall indemnify, hold harmless and defend the
Executive against rea sonable 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 Bank's
obligations hereunder shall be conclusive evidence of the 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 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.
Page 14 of 18
<PAGE>
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 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 Bank:
(a) Notwithstanding anything herein contained to the
contrary, in no event shall the aggregate amount of compensation
payable to the Executive under
Page 15 of 18
<PAGE>
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 Bank (or for his entire
period of employment with the Bank 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 Bank's books and records.
(b) Notwithstanding anything herein contained to the contrary,
any payments to the Executive by the Bank, 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 Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Bank 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 Bank'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 Bank, in its discretion, may (i) pay to the
Executive all or part of the compensation withheld while the Bank'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 Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1), all prospective obligations of the Bank under
this Agreement shall terminate as of the effective date of the order,
but vested rights and obligations of the Bank and the Executive shall
not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Bank 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
Bank under this Agreement shall terminate as of the date of default,
but vested rights and obligations of the Bank and the Executive shall
not be affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Bank hereunder shall be terminated,
except to the extent that a continuation of this Agreement is necessary
for the continued operation of the Bank: (i) by the Director of the
Office of Thrift Supervision ("OTS") or his designee or the Federal
Deposit Insurance Corporation ("FDIC"),
Page 16 of 18
<PAGE>
at the time the FDIC enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in section 13(c)
of the 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
Bank or when the Bank 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 Bank has caused this Agreement to be
executed and the Executive has hereunto set his hand, all as of the day and year
first above written.
------------------------------------
----------------
ATTEST: FAIRFIELD SAVINGS BANK, F.S.B.
By
------------------------------------
Secretary By
-------------------------------
NAME: GEORGE M. BRIODY
TITLE: PRESIDENT
[Seal]
Page 17 of 18
<PAGE>
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this ________ day of ____________________, 1997, before me
personally came ________________, 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.
------------------------------------
Notary Public
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
COUNTY OF )
On this ________ day of ____________________, 1997, before me
personally came George M. Briody, to me known, who, being by me duly sworn, did
depose and say that he resides at 9407 Loch Glen Circle, Crystal Lake, Illinois
60014, that he is President of FAIRFIELD SAVINGS BANK, F.S.B., the savings bank
described in and which executed the foregoing instrument; that he knows the seal
of said savings bank; 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 bank;
and that he signed his name thereto by like order.
------------------------------------
Notary Public
EMPLOYEE RETENTION AGREEMENT
This EMPLOYEE RETENTION AGREEMENT ("Agreement") is made and
entered into as of the 19th day of December, 1996, by and among FAIRFIELD
SAVINGS BANK, F.S.B., a savings bank organized and operating under the federal
laws of the United States and having its executive offices at 1190 RFD, Long
Grove, Illinois 60047-7034 ("Bank"); BIG FOOT FINANCIAL CORP., a business
corporation organized and existing under the laws of the State of Illinois and
also having its executive offices at 1190 RFD, Long Grove, Illinois 60047-7034
("Holding Company"); and BARBARA J. URBAN, an individual residing at 6045 North
Kostner Avenue, Chicago Illinois 60646 ("Employee").
W I T N E S S E T H :
WHEREAS, effective as of the date of this Agreement, the Bank
has converted from a federal mutual savings bank to a federal stock savings bank
and has become a wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Bank desires to secure for itself the continued
availability of the Employee's services; and
WHEREAS, the Bank recognizes that a third party may at some
time in the future pursue a Change of Control of the Bank or the Holding Company
and that this possibility may result in the departure or distraction of the
Bank's employees; and
WHEREAS, the Bank has determined that appropriate steps should
be taken to encourage the continued attention and dedication of the Bank's
employees, including the Employee, to their duties for the Bank without the
distraction that may arise from the possibility of a Change of Control of the
Bank or the Holding Company; and
WHEREAS, the Bank believes that, by assuring certain
employees, including the Employee, of reasonable financial security in the event
of a Change of Control of the Bank 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 Bank and its shareholders; and
WHEREAS, for purposes of securing the Employee's services for
the Bank, the Board of Directors of the Bank ("Board") has authorized the proper
officers of the Bank 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 Bank's obligations under such an
employee retention agreement; and
Page 1 of 17
<PAGE>
WHEREAS, the Employee is willing to make the Employee's
services available to the Bank 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 Bank, 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 Bank; 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 Bank 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 Bank 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 Bank 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 Bank'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 2 of 17
<PAGE>
(b) Upon termination of the Employee's employment with the
Bank, 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 her full business time and
attention (other than during holidays, vacation periods, and periods of illness,
disability or approved leave of absence) to the business and affairs of the Bank
and use her best efforts to advance the Bank's interests; (b) serve in the
position to which the Employee is appointed by the Bank, 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 Bank to which she may
subsequently be appointed; and (c) subject to the direction of the Board and the
By-laws of the Bank, 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 Bank 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 Bank's customary payroll practices.
Nothing in this section 4 shall be deemed to prevent the Employee from receiving
additional compensation other than salary for her services to the Bank, or
additional compensation for her 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.
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 Bank and be
eligible to participate in and re-
Page 3 of 17
<PAGE>
ceive 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 Bank, in accordance with
the terms and conditions of such employee benefit plans and programs and
compensation plans and programs and with the Bank'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 she may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld), and she may engage in personal business and investment activities for
her own account; PROVIDED, HOWEVER, that such service and personal business and
investment activities shall not materially interfere with the performance of her
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 Bank's executive offices at the address first above
written, or at such other location within a 25-mile radius thereof at which the
Bank shall maintain its principal executive offices, or at such other location
as the Bank and the Employee may mutually agree upon. The Bank shall provide the
Employee, at her principal place of employment, with support services and
facilities suitable to her position with the Bank and necessary or appropriate
in connection with the per formance of her assigned duties under this Agreement.
The Bank shall reimburse the Employee for her 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 Bank of an itemized account of
such expenses in such form as the Bank may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH SEVERANCE BENEFITS.
(a) In the event that the Employee's employment with the Bank
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:
(i) The Employee's voluntary resignation from employment with
the Bank within ninety (90) days following:
(A) the failure of the Bank to appoint or
re-appoint or elect or re- elect the Employee to serve in the
same position in which the Employee was
Page 4 of 17
<PAGE>
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 Bank of its material failure, whether by amendment of
the Bank'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 Bank fully cures such failure;
(C) the failure of the Bank to cure a material breach
of this Agreement by the Bank, 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 Bank's program of employee benefits,
compared with the compensation 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 her principal place
of employment immediately prior to the Change of Control that
would require a relocation of her 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 Bank for any
reason other than for "cause" as provided in section 9(a);
then, subject to section 21, the Bank 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
service of the Bank (upon the terms and conditions in effect at the time of her
actual termination of service) and had not terminated employment with the Bank
until the date on which the Employee's Assurance Period would have commenced.
Page 5 of 17
<PAGE>
(b) Upon the termination of the Employee's employment with the
Bank under circumstances described in section 8(a) of this Agreement, the Bank
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 Bank, 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
Bank'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 her termination of
employment, or, if her 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 continued working for the Bank during
the remaining unexpired Assurance Period at the highest annual rate of
compensation achieved during the Employee's period of actual employment
with the Bank, 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 Bank, 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 Bank during
the remaining unexpired Assurance Period at the highest annual rate of
salary achieved during the Employee's period of employment with the
Bank beginning three years before the date of the Change of Control and
ending on the date of termination of 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 Bank'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;
Page 6 of 17
<PAGE>
(v) within thirty (30) days following the Employee's
termination of employment with the Bank, 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 Bank if the
Employee were 100% vested thereunder and had continued working
for the Bank 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);
(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 her 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").
(vi) within thirty (30) days following her termination of
employment with the Bank, 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 her through debt
service, based on the fair market value of such assets at termination
of employment) to which she would have been entitled under any and all
qualified and non-qualified defined contribution plans maintained by,
or covering employees of, the Bank, as if she were 100% vested
thereunder and had continued working for the Bank 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 Bank, 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
Page 7 of 17
<PAGE>
(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 Bank, if
she had continued working for the Bank 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 her 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 Bank 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 BANK LIABILITY.
In the event that the Employee's employment with the Bank
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 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 her
Page 9 of 17
<PAGE>
own behalf, or through a representative, who may be her 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 Bank 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 Bank's long-term disability
insurance program or, if there is no such program, under the federal
Social Security Act;
then the Bank shall have no further obligations under this Agreement, other than
the payment to the Employee (or, in the event of her death, to her estate) of
her earned but unpaid salary as of the date of the termination of her
employment, and the provision of such other benefits, if any, to which the
Employee is entitled as a former employee under the employee benefit plans and
pro grams and compensation plans and programs maintained by, or covering
employees of, the Bank.
(e) For purposes of section 9(a), no act or failure to act, on
the part of Employee, shall be considered "willful" unless it is done,
or omitted to be done, by Employee in bad faith or without reasonable
belief that Employee's action or omission was in the best interests of
the Bank. 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 Bank shall be conclusively presumed
to be done, or omitted to be done, by Employee in good faith and in the
best interests of the Bank. The cessation of employment of 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
Page 9 of 17
<PAGE>
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 Bank ("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 Bank of a transaction
that would result in the reorganization, merger or consolidation of the
Bank, 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 Bank; 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% of the securities entitled to vote
generally in the election of directors of the Bank;
(ii) the acquisition of substantially all of the assets of the
Bank 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 Bank 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 Bank of any transaction which would
result in an acquisition; or
(iii) a complete liquidation or dissolution of the Bank, or
approval by the stockholders of the Bank 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 Bank do not belong to any of the following groups:
Page 9 of 17
<PAGE>
(A) individuals who were members of the board of
directors of the Bank on the date of this Agreement; or
(B) individuals who first became members of the board
of directors of the Bank after the date of this Agreement
either:
(I) upon election to serve as a member of
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 Bank 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 Bank;
(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 "Bank" therein.
(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 Bank or any subsidiary of either of them, by the Holding
Company, the Bank 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 Bank or by the Employee, shall
have no effect on the rights and obligations of the parties hereto under the
Bank'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
Bank from time to time; PROVIDED, HOWEVER, that nothing in this Agreement shall
be deemed to duplicate any compensation or benefits provided
Page 10 of 17
<PAGE>
under any agreement, plan or program covering the Employee to which the Bank 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, her legal representatives and testate or intestate
distributees, and the Bank 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 Bank 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:
If to the Employee:
Barbara J. Urban
6045 North Kostner Avenue
Chicago, Illinois 60646
If to the Bank:
Fairfield Savings Bank, F.S.B.
1190 RFD
Long Grove, Illinois 60047-7034
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 12 of 17
<PAGE>
If to the Holding Company:
Big Foot Financial Corp.
1190 RFD
Long Grove, Illinois 60047-7304
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.
SECTION 14. INDEMNIFICATION AND ATTORNEYS' FEES.
The Bank shall indemnify, hold harmless and defend the
Employee against rea sonable 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 Bank'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
Page 13 of 17
<PAGE>
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.
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 Bank:
(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 her termination of employment with the
Bank (or for her entire period of employment with the Bank 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 Bank's
books and records.
Page 14 of 17
<PAGE>
(b) Notwithstanding anything herein contained to the contrary,
any payments to the Employee by the Bank, 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
Bank 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 Bank'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 Bank, in its discretion,
may (i) pay to the Employee all or part of the compensation withheld
while the Bank'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 Bank'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 Bank under
this Agreement shall terminate as of the effective date of the order,
but vested rights and obligations of the Bank and the Employee shall
not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Bank 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
Bank under this Agreement shall terminate as of the date of default,
but vested rights and obligations of the Bank and the Employee shall
not be affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Bank hereunder shall be terminated,
except to the extent that a continuation of this Agreement is necessary
for the continued operation of the Bank: (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 Bank 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 Bank or when the Bank 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.
Page 15 of 17
<PAGE>
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 Bank 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.
IN WITNESS WHEREOF, the Bank and the Holding Company have
caused this Agreement to be executed and the Employee has hereunto set her hand,
all as of the day and year first above written.
---------------------------------
ATTEST:
By
Secretary By
---------------------------------
NAME: GEORGE M. BRIOSY
[Seal] TITLE: PRESIDENT
ATTEST: BIG FOOT FINANCIAL CORP.
By____________________
Secretary By
---------------------------------
NAME: GEORGE M. BRIODY
[Seal] TITLE: PRESIDENT
Page 16 of 17
<PAGE>
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this day of , 19__, before me personally came ____________
_______________________________________________________________ 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 she resides at the address set
forth in said instrument, and that she signed her name to the foregoing
instrument.
------------------------------------
Notary Public
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this day of , 19__, before me personally came GEORGE M.
BRIODY, to me known, who, being by me duly sworn, did depose and say that he
resides at 9407 Loch Glen Court, Crystal Lake, Illinois 60014, that he is
President of Fairfield Savings Bank, F.S.B., the savings bank described in and
which executed the foregoing instrument; that he knows the seal of said savings
bank; 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 bank; and that he
signed his name thereto by like authority.
------------------------------------
Notary Public
STATE OF ILLINOIS )
: ss.:
COUNTY OF )
On this day of , 19__, before me personally came GEORGE M.
BRIODY, to me known, who, being by me duly sworn, did depose and say that he
resides at 9407 Loch Glen Court, Crystal Lake, Illinois 60014, that he is
President of Big Foot Financial Corp., 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.
------------------------------------
Notary Public
Page 17 of 17
AMENDED AND RESTATED SEVERANCE PAY PLAN
OF
FAIRFIELD SAVINGS BANK, F.S.B.
ADOPTED ON SEPTEMBER 17, 1996
EFFECTIVE ON DECEMBER 19, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
PURPOSE
SECTION 1 STATEMENT OF PURPOSE............................. 1
ARTICLE II
DEFINITIONS
SECTION 2.1 BANK............................................. 1
SECTION 2.2 BOARD............................................ 1
SECTION 2.3 CAUSE............................................ 1
SECTION 2.4 CHANGE OF CONTROL................................ 2
SECTION 2.5 EMPLOYEE......................................... 3
SECTION 2.6 FDI ACT.......................................... 3
SECTION 2.7 INVOLUNTARY SEVERANCE............................ 3
SECTION 2.8 OTS.............................................. 4
SECTION 2.9 PLAN............................................. 4
SECTION 2.10 PLAN ADMINISTRATOR............................... 4
SECTION 2.11 PLAN YEAR........................................ 4
SECTION 2.12 SALARY........................................... 4
SECTION 2.13 SERVICE.......................................... 4
ARTICLE III
BENEFITS
SECTION 3.1 SEVERANCE BENEFITS FOR EMPLOYEES................. 4
SECTION 3.2 VESTING.......................................... 6
SECTION 3.3 INDEMNIFICATION.................................. 6
ARTICLE IV
ADMINISTRATION
SECTION 4.1 NAMED FIDUCIARIES................................ 6
(i)
<PAGE>
Page
----
SECTION 4.2 PLAN ADMINISTRATOR............................... 7
SECTION 4.3 CLAIMS PROCEDURE................................. 8
SECTION 4.4 CLAIMS REVIEW PROCEDURE.......................... 8
SECTION 4.5 ALLOCATION OF FIDUCIARY RESPONSIBILITIES
AND EMPLOYMENT OF ADVISORS....................... 9
SECTION 4.6 OTHER ADMINISTRATIVE PROVISIONS................... 9
ARTICLE V
MISCELLANEOUS
SECTION 5.1 RIGHTS OF EMPLOYEES............................... 10
SECTION 5.2 NON-ALIENATION OF BENEFITS........................ 10
SECTION 5.3 NON-DUPLICATION OF BENEFITS....................... 10
SECTION 5.4 CONSTRUCTION...................................... 10
SECTION 5.5 HEADINGS.......................................... 10
SECTION 5.6 GOVERNING LAW..................................... 10
SECTION 5.7 SEVERABILITY...................................... 11
SECTION 5.8 TERMINATION OR AMENDMENT.......................... 11
SECTION 5.9 REQUIRED REGULATORY PROVISIONS.................... 11
SECTION 5.10 WITHHOLDING....................................... 12
SECTION 5.11 STATUS AS WELFARE BENEFIT PLAN UNDER ERISA........ 13
(ii)
<PAGE>
SEVERANCE PAY PLAN OF FAIRFIELD SAVINGS BANK, F.S.B.
ARTICLE I
PURPOSE
SECTION 1 STATEMENT OF PURPOSE.
Fairfield Savings Bank, F.S.B. adopts this Severance Pay Plan
for the benefit of its eligible Employees. The Bank recognizes that, as a public
company, it will be subject to the possibility of a negotiated or unsolicited
change of control which may result in a loss of employment for some of its
Employees. The purpose of the Plan is to encourage the Bank's Employees to
continue working for their employer with their full time and attention devoted
to their employer's affairs by providing prescribed income security and job
placement assistance in the event of an Involuntary Severance following a Change
of Control.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms shall have the
meanings assigned to them below, unless a different meaning is plainly indicated
by the context:
SECTION 2.1 BANK means Fairfield Savings Bank, F.S.B. (or its
successors or assigns, whether by merger, consolidation, sale of assets,
statutory receivership, operation of law or otherwise) and any affiliate of
Fairfield Savings Bank, F.S.B. which, with the approval of the Board of
Directors of Fairfield Savings Bank, F.S.B., and subject to such conditions as
may be imposed by such Board, adopts this Plan.
SECTION 2.2 BOARD means the Board of Directors of Fairfield
Savings Bank, F.S.B..
SECTION 2.3 CAUSE means, with respect to the conduct of an
Employee in connection with his employment with the Bank, 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 in each case as measured against standards
generally prevailing at the relevant time in the savings and community banking
industry; PROVIDED, HOWEVER, that following a Change of Control of the Bank or a
company which directly or indirectly owns 100% of the outstanding common stock
of the Bank, an Employee shall not be deemed to have been discharged for Cause
unless and until he shall have received a written notice of termination from the
Board, accompanied by a resolution duly adopted by affirmative vote of a
majority of the entire Board at a meeting called and held for such purpose
(after reasonable notice to the Employee
<PAGE>
-2-
and a reasonable opportunity for the Employee 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 for the
proposed determination) finding that in the good faith opinion of the Board
grounds exist for discharging the Employee for "Cause".
SECTION 2.4 CHANGE OF CONTROL means the happening of any of
the following events:
(i) approval by the stockholders of the Bank of a transaction
that would result in the reorganization, merger or consolidation of the
Bank, 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 Bank; 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% of the securities entitled to vote
generally in the election of directors of the Bank;
(ii) the acquisition of substantially all of the assets of the
Bank 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 Bank 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 Bank of any transaction which would
result in an acquisition; or
(iii) a complete liquidation or dissolution of the Bank, or
approval by the stockholders of the Bank 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 Bank do not belong to any of the following groups:
(A) individuals who were members of the board of
directors of the Bank on the date of this Agreement; or
<PAGE>
-3-
(B) individuals who first became members of the board
of directors of the Bank after the date of this Agreement
either:
(I) upon election to serve as a member of
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
such board to serve as a member of the 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 directors
of the Bank;
(v) any event which would be described in section 2.4(i),
(ii), (iii) or (iv) if the term "Big Foot Financial Corp." (the
"Holding Company") were substituted for the term "Bank" therein.
(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 Bank or any subsidiary of either of them, by the Holding
Company, the Bank or any subsidiary of either of them, or by any employee
benefit plan maintained by any of them. For purposes of this section 2.4, the
term "person" shall have the meaning assigned to it under sections 13(d)(3) or
14(d)(2) of the Exchange Act.
SECTION 2.5 EMPLOYEE means any person, including an officer,
who is employed by the Bank, other than: (a) a person whose regular work
schedule is for less than 1,000 hours per year; (b) an Employee receiving
long-term disability benefits; or (c) a person who has an employment contract,
change of control agreement or other agreement with the Bank or who is covered
by other programs which provide severance benefits or by their terms exclude
such person from participation in this Plan.
SECTION 2.6 FDI ACT means the Federal Deposit Insurance Act,
as the same may be amended from time to time, and the corresponding provisions
of any successor statute.
SECTION 2.7 INVOLUNTARY SEVERANCE means (a) the discharge or
dismissal of an Employee by the Bank other than for Cause, or the resignation by
the Employee from his position with the Bank, which resignation the Employee is
asked or compelled by the Bank to tender other than for Cause; or (b)
termination of employment at an Employee's election within sixty (60) days
<PAGE>
-4-
after any action following a Change of Control which, either alone or together
with other actions, results in: (i) the reduction in the Employee's Salary by
more than 20%; (ii) the assignment of the Employee to a principal place of
employment outside of a 25-mile radius of the location of his principal place of
employment immediately prior to the Change of Control that would require
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; (iii) the assignment of the Employee to duties or to an office or
working space which involves a material adverse change in working conditions; or
(iv) a material adverse change in the Employee's title, position or
responsibilities at the Bank.
SECTION 2.8 OTS means the Office of Thrift Supervision of the
United States Department of the Treasury, and its successors.
SECTION 2.9 PLAN means this Severance Pay Plan of Fairfield
Savings Bank, F.S.B., as the same may be amended from time to time.
SECTION 2.10 PLAN ADMINISTRATOR means the committee consisting
of all non-employee directors of the Board of Directors of Fairfield Savings
Bank, F.S.B. who perform functions normally associated with a compensation
committee.
SECTION 2.11 PLAN YEAR means the calendar year.
SECTION 2.12 SALARY means the highest basic annual rate of
salary of the Employee for his services to the Bank (excluding overtime, bonuses
and other forms of additional compensation) attained by the Employee during his
employment with the Bank. If the Employee is paid on an hourly-rate basis,
Salary shall mean the weekly amount of base wages paid for the number of hours
of work contemplated by such person's normal weekly work schedule.
SECTION 2.13 SERVICE means service rendered by an Employee
that is recognized under the Fairfield Savings Bank, F.S.B. Profit Sharing and
Savings Plan for vesting purposes as of the date of the Employee's Involuntary
Severance, including service prior to the dates on which the Plan is adopted or
made effective.
ARTICLE III
BENEFITS
SECTION 3.1 SEVERANCE BENEFITS FOR EMPLOYEES.
(a) An Employee with at least one (1) year of Service whose
employment with the Bank is terminated under circumstances constituting an
Involuntary Severance, other than for Cause, as a result of, within twelve
months following or within three (3) months prior to, a
<PAGE>
-5-
Change of Control with respect to the Bank or any company which directly or
indirectly owns 100% of the outstanding common stock of the Bank shall be
entitled to the following benefits:
(i) if the Employee is or has, at any time after the date of
the conversion of the Bank from a mutual savings institution to a stock
form savings institution, been an officer of the Bank, he shall be
entitled, as severance pay, to a weekly payment in an amount equal to
one week's Salary, commencing with the first week following the date of
the Employee's Involuntary Severance and continuing for three times the
number of weeks as the Employee has whole years of Service, subject to
a maximum continuation of fifty-two (52) weeks.
(ii) if the Employee is not an Employee described in section
3.1(a)(i), he shall be entitled, as severance pay, to a weekly payment
in an amount equal to one week's Salary, commencing with the first week
following the date of the Employee's Involuntary Severance and
continuing for the following number of weeks:
WHOLE YEARS OF SERVICE WEEKS OF SALARY CONTINUATION
4 or fewer 4 weeks
at least 5 but less than 10 5 weeks plus 2 weeks for each Year of
Service over 5
at least 10 15 weeks plus three weeks for each Year of
Service over 10
subject to a maximum continuation of fifty-two (52) weeks.
PROVIDED, HOWEVER, that in no event shall any Employee described in section
3.1(a)(i) or (ii) receive, as severance pay under this Plan, less than four
weeks' Salary.
(b) Each Employee who is entitled to payments under section
3.1(a)(i) or (ii) shall, for the duration of such payments, continue to be
eligible for all of the benefits provided under the Bank's employee benefit
plans and programs (excluding tax-qualified plans and other plans which by law
must restrict participation to active employees) as if he were still an Employee
and working at the Bank, except that he shall cease to accrue vacation and shall
be paid a lump sum payment at the date of his Involuntary Severance in lieu of
any unused accrued vacation.
(c) Each Employee who is entitled to benefits under section
3.1(a)(i) or (ii) shall also be entitled to outplacement services as follows:
(i) an Employee described in section 3.1(a)(i) shall be
entitled to utilize the services of an outplacement counseling firm at
the Bank's expense for assistance in preparing a resume, developing
interviewing skills, identifying career opportunities and evaluating
job offers and for access to office and secretarial
<PAGE>
-6-
facilities, provided that the fee for such services shall not exceed
12% of the Employee's Salary; and
(ii) if the Employee is not an Employee described in section
3.1(a)(i), he shall be entitled to utilize the services of an
outplacement counseling firm at the Bank's expense, for assistance in
preparing a resume, developing interviewing skills, identifying career
opportunities and evaluating job offers, provided that the fee for such
services shall not exceed 6% of the Employee's Salary or $1,000,
whichever is higher.
The outplacement firm utilized by any Employee or group of Employees shall be
selected by the Plan Administrator or, if permitted by the Plan Administrator,
selected by the Employee or
Employees subject to the Plan Administrator's approval.
SECTION 3.2 VESTING.
The benefits to be provided under this Article III of the Plan
to an Employee shall be completely vested and nonforfeitable upon the occurrence
of a Change of Control with respect to the Bank or any company which directly or
indirectly owns 100% of the outstanding common stock of the Bank.
SECTION 3.3 INDEMNIFICATION.
The Bank shall indemnify, hold harmless and defend each
Employee against costs or expenses, including reasonable attorneys' fees,
incurred by him 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 his
rights under this Plan; 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 Bank'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.
ARTICLE IV
ADMINISTRATION
SECTION 4.1 NAMED FIDUCIARIES.
<PAGE>
-7-
The term "Named Fiduciary" shall mean (but only to the extent
of the responsi bilities of each of them) the Plan Administrator and the Board.
This Article IV is intended to allocate to each Named Fiduciary the
responsibility for the prudent execution of the functions as signed to him or
it, and none of such responsibilities or any other responsibility shall be
shared by two or more of such Named Fiduciaries. Whenever one Named Fiduciary is
required by the Plan to follow the directions of another Named Fiduciary, the
two Named Fiduciaries shall not be deemed to have been assigned a shared
responsibility, but the responsibility of the Named Fidu ciary giving the
directions shall be deemed his sole responsibility, and the responsibility of
the Named Fiduciary receiving those directions shall be to follow them insofar
as such instructions are on their face proper under applicable law.
SECTION 4.2 PLAN ADMINISTRATOR.
The Plan Administrator shall subject to the responsibilities
of the Board, have the responsibility for the day-to-day control, management,
operation and administration of the Plan. The Plan Administrator shall have the
following responsibilities:
(a) To maintain records necessary or appropriate for the
administration of the Plan;
(b) To give and receive such instructions, notices,
information, materials, reports and certifications as may be necessary
or appropriate in the administration of the Plan;
(c) To prescribe forms and make rules and regulations
consistent with the terms of the Plan and with the interpretations and
other actions of the Board;
(d) To require such proof or evidence of any matter from any
person as may be necessary or appropriate in the administration of the
Plan;
(e) To prepare and file, distribute or furnish all reports,
plan descrip tions, and other information concerning the Plan,
including, without limitation, filings with the Secretary of Labor and
employee communications as shall be required of the Plan Administrator
under ERISA;
(f) To determine any question arising in connection with the
Plan, including any question of Plan interpretation, and the Plan
Administrator's decision or action in respect thereof shall be final
and conclusive and binding upon all persons having an interest under
the Plan;
(g) To review and dispose of claims under the Plan filed
pursuant to section 4.3 and appeals of claims decisions pursuant to
section 4.4;
(h) If the Plan Administrator shall determine that by reason
of illness, senility, insanity, or for any other reason, it is
undesirable to make any payment to the person entitled thereto, to
direct the application of any amount so payable to
<PAGE>
-8-
the use or benefit of such person in any manner that the Plan
Administrator may deem advisable or to direct in the Plan
Administrator's discretion the withholding of any payment under the
Plan due to any person under legal disability until a representative
competent to receive such payment in his behalf shall be appointed
pursuant to law;
(i) To discharge such other responsibilities or follow such
directions as may be assigned or given by the Board; and
(j) To perform any duty or take any action which is allocated
to the Plan Administrator under the Plan.
The Plan Administrator shall have the power and authority necessary or
appropriate to carry out his responsibilities.
SECTION 4.3 CLAIMS PROCEDURE.
Any claim relating to benefits under the Plan shall be filed
with the Plan Administrator on a form prescribed by it. If a claim is denied in
whole or in part, the Plan Administrator shall give the claimant written notice
of such denial, which notice shall specifically set forth:
(a) The reasons for the denial;
(b) The pertinent Plan provisions on which the denial was
based;
(c) Any additional material or information necessary for the
claimant to perfect his claim and an explanation of why such material
or information is needed; and
(d) An explanation of the Plan's procedure for review of the
denial of the claim.
In the event that the claim is not granted and notice of denial of a claim is
not furnished by the 30th day after such claim was filed, the claim shall be
deemed to have been denied on that day for the purpose of permitting the
claimant to request review of the claim.
SECTION 4.4 CLAIMS REVIEW PROCEDURE.
Any person whose claim filed pursuant to section 4.3 has been
denied in whole or in part by the Plan Administrator may request review of the
claim by the Plan Administrator, upon a form prescribed by the Plan
Administrator. The claimant shall file such form (including a statement of his
position) with the Plan Administrator no later than 60 days after the mailing or
delivery of the written notice of denial provided for in section 4.3, or, if
such notice is not
<PAGE>
-9-
provided, within 60 days after such claim is deemed denied pursuant to section
4.3. The claimant shall be permitted to review pertinent documents. A decision
shall be rendered by the Plan Administrator and communicated to the claimant not
later than 30 days after receipt of the claimant's written request for review.
However, if the Plan Administrator finds it necessary, due to special
circumstances (for example, the need to hold a hearing), to extend this period
and so notifies the claimant in writing, the decision shall be rendered as soon
as practicable, but in no event later than 120 days after the claimant's request
for review. The Plan Administrator's decision shall be in writing and shall
specifically set forth:
(a) The reasons for the decision; and
(b) The pertinent Plan provisions on which the decision is
based.
Any such decision of the Plan Administrator shall be binding upon the claimant
and the Bank, and the Plan Administrator shall take appropriate action to carry
out such decision.
SECTION 4.5 ALLOCATION OF FIDUCIARY RESPONSIBILITIES AND
EMPLOYMENT OF ADVISORS.
Any Named Fiduciary may:
(a) Allocate any of his or its responsibilities (other than
trustee responsibilities) under the Plan to such other person or
persons as he or it may designate, provided that such allocati n and
designation shall be in writing and filed with the Plan Administrator;
(b) Employ one or more persons to render advice to him or it
with regard to any of his or its responsibilities under the Plan; and
(c) Consult with counsel, who may be counsel to the Bank.
SECTION 4.6 OTHER ADMINISTRATIVE PROVISIONS.
(a) Any person whose claim has been denied in whole or in part
must exhaust the administrative review procedures provided in section 4.4 prior
to initiating any claim for judicial review.
(b) No bond or other security shall be required of the Plan
Administrator, or any officer or Employee of the Bank to whom fiduciary
responsibilities are allocated by a Named Fiduciary, except as may be required
by ERISA.
(c) Subject to any limitation on the application of this
section 4.6(c) pursuant to ERISA, neither the Plan Administrator, nor any
officer or Employee of the Bank to whom fiduciary responsibilities are allocated
by a Named Fiduciary, shall be liable for any act of omis-
<PAGE>
-10-
sion or commission by himself or by another person, except for his own
individual willful and intentional malfeasance.
(d) The Plan Administrator may, except with respect to actions
under section 4.4, shorten, extend or waive the time (but not beyond 60 days)
required by the Plan for filing any notice or other form with the Plan
Administrator, or taking any other action under the Plan.
(e) Any person, group of persons, committee, corporation or
organization may serve in more than one fiduciary capacity with respect to the
Plan.
(f) Any action taken or omitted by any fiduciary with respect
to the Plan, including any decision, interpretation, claim denial or review on
appeal, shall be conclusive and binding on the Bank and all interested parties
and shall be subject to judicial modification or reversal only to the extent it
is determined by a court of competent jurisdiction that such action or omission
was arbitrary and capricious and contrary to the terms of the Plan.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 RIGHTS OF EMPLOYEES.
No Employee shall have any right or claim to any benefit under
the Plan except in accordance with the provisions of the Plan. The establishment
of the Plan shall not be construed as conferring upon any Employee or other
person any legal right to a continuation of employment or to any terms or
conditions of employment, nor as limiting or qualifying the right of the Bank to
discharge any Employee.
SECTION 5.2 NON-ALIENATION OF BENEFITS.
The right to receive a benefit under the Plan shall not be
subject in any manner to anticipation, alienation, or assignment, nor shall such
right be liable for or subject to debts, contracts, liabilities, or torts.
SECTION 5.3 NON-DUPLICATION OF BENEFITS.
No provisions in this Plan shall be deemed to duplicate any
compensation or benefits provided under any agreement, plan or program covering
the Employee to which the Bank 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.
<PAGE>
-11-
SECTION 5.4 CONSTRUCTION.
Whenever appropriate in the Plan, words used in the singular
may be read in the plural; words used in the plural may be read in the singular;
and the masculine gender shall be deemed equally to refer to the feminine gender
or the neuter. Any reference to a section number shall refer to a section of
this Plan, unless otherwise stated.
SECTION 5.5 HEADINGS.
The headings of sections are included solely for convenience
of reference, and if there is any conflict between such headings and the text of
the Plan, the text shall control.
SECTION 5.6 GOVERNING LAW.
Except to the extent preempted by federal law, the Plan shall
be construed, administered and enforced according to the laws of the State of
Illinois applicable to contracts between citizens and residents of the State of
Illinois entered into and to be performed entirely within such jurisdiction.
SECTION 5.7 SEVERABILITY.
The invalidity or unenforceability, in whole or in part, of
any provision of this Plan shall in no way affect the validity or enforceability
of the remainder of such provision or of any other provision of this Plan, and
any provision, or part thereof, deemed to be invalid or unenforceable shall be
reformed as necessary to render it valid and enforceable to the maximum possible
extent.
SECTION 5.8 TERMINATION OR AMENDMENT.
The Bank intends to keep this Plan in effect, but, subject to
the provisions of section 4 hereunder, the Bank expressly reserves the right to
terminate or amend the Plan, in whole or in part, at any time by action of the
Board; PROVIDED, HOWEVER, that no such amendment or termination which adversely
affects the current or prospective rights of any Employee shall be effective
earlier than six (6) months after written notice thereof is given to such
Employee.
SECTION 5.9 REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the Bank:
<PAGE>
-12-
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to any
person under Article III of this Plan (together with any termination
pay payable by the Bank to such person from any other plans, programs
or arrangements) exceed the lesser of (i) three times such person's
average annual total compensation for the last five consecutive
calendar years to end prior to his termination of employment with the
Bank (or for his entire period of employment with the Bank and its
predecessors, 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 Internal Revenue Code
of 1986 or any successor provision), the applicability of such
provision to any 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 Bank's books and records.
(b) Notwithstanding anything herein contained to the contrary,
any payments to the Employee by the Bank, whether pursuant to this Plan
or otherwise, are subject to and conditioned upon their compliance with
section 18(k) of the FDI Act 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 Bank pursuant
to a notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, the
Bank's obligations under this Plan 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 Bank, in its discretion,
may (i) pay to the Employee all or part of the compensation withheld
while the Bank'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 Bank's affairs by an order issued
under section 8(e)(4) or 8(g)(1) of the FDI Act, all prospective
obligations of the Bank under this Plan shall terminate as of the
effective date of the order, but vested rights and obligations of the
Bank and the Employee shall not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Bank is in default (within the meaning of section 3(x)(1) of the
FDI Act, all prospective obligations of the Bank under this Plan shall
terminate as of the date of default, but vested rights and obligations
of the Bank and the Employee shall not be affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Bank hereunder shall be terminated,
except to the extent that a continuation of this Plan is necessary for
the continued operation of the Bank: (i) by the Director of the OTS or
his designee, at the time the FDIC
<PAGE>
-12-
enters into an agreement to provide assistance to or on behalf of the
Bank under the authority contained in section 13(c) of the FDI Act;
(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 Bank or when the Bank 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 by applicable law, rule or regulation, the same shall become
inoperative automatically as though eliminated by formal amendment of the Plan.
SECTION 5.10 WITHHOLDING.
Payments from this Plan shall be subject to all applicable
federal, state and local income withholding taxes.
SECTION 5.11 STATUS AS WELFARE BENEFIT PLAN UNDER ERISA.
This Plan is an "employee welfare benefit plan" within the
meaning of section 3(1) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and shall be construed, administered and enforced according
to the provisions of ERISA.
FIRST AMENDMENT
---------------
TO THE
------
FAIRFIELD SAVINGS BANK
----------------------
PROFIT SHARING AND SAVINGS PLAN
-------------------------------
WHEREAS, Fairfield Savings Bank (the "Bank") maintains the
Fairfield Savings Bank Profit Sharing and Savings Plan (the "plan"); and
WHEREAS, amendment of the plan is now considered desirable to
add the direct rollover language that is now required by law.
NOW, THEREFORE, by virtue and in exercise of the power
reserved to the Bank under the plan, and pursuant to the authority delegated to
the undersigned by the Board of Directors of the Bank, the plan be and
hereby is amended effective as of January 1, 1993 by adding the following
section 7.11 to the plan.
"7.11 DIRECT ROLLOVER OF ELIGIBLE ROLLOVER DISTRIBUTIONS. This
Section applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the plan to the
contrary that would otherwise limit a distributee's election
under this Section, a distributee may elect, at the time and
in the manner prescribed by the plan administrator, to have
any portion of an eligible rollover distribution paid directly
to an eligible retirement plan specified by the distributee in
a direct rollover.
An 'eligible rollover distribution' is any distribution of all
or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution
does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually ) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies )
of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more;
any distribution to the extent such distribution is required
under section 401(a)(9) of the Code; and the portion of any
distribution that is not includable in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
An 'eligible retirement plan' is an individual retirement
account described in section 408(a) of the Code, an individual
retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a
qualified trust
<PAGE>
described in section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
A 'distributee' includes an employee or former employee. In
addition, the employee's or former employee's surviving spouse
and the employee's or former employee's spouse or former
spouse who is the alternate payee under a qualified domestic
relations order, as defined in section 414(p) of the Code, are
distributees with regard to the interest of the spouse or
former spouse.
A 'direct rollover' is a payment by the plan to the eligible
retirement plan specified by the distributee."
IN WITNESS WHEREOF, Fairfield Savings Bank has caused this amendment to
be executed on its behalf by its duly authorized officer this 21st day of
September 1993.
FAIRFIELD SAVINGS BANK
By /s/ George M. Briody
-----------------------------
Its President
-----------------------------
ATTEST:
By /s/ Barbara J. Urban
-----------------------
Its Secretary
----------------------
2
<PAGE>
SECOND AMENDMENT OF
FAIRFIELD SAVINGS BANK
PROFIT SHARING AND SAVINGS PLAN
(AS AMENDED AND RESTATED EFFECTIVE AUGUST 1, 1989)
--------------------------------------------------
WHEREAS, Fairfield Savings Bank (the "company") maintains the
Fairfield Savings Bank Profit Sharing and Savings Plan (the "plan"); and
WHEREAS, effective August 1, 1994, amendment to the plan is
now considered desirable to allow participants who have attained age 55 to elect
to direct investment under paragraph 5.6 in increments of 25% of the value of
the participants account; and
WHEREAS, effective January 1, 1994, amendment to the plan is
now considered desirable to reflect recent changes in compensation limitations
now required by law; and
WHEREAS, amendment to the plan is now considered desirable to
clarify that commissions are included in the meaning of earnings under the plan;
NOW, THEREFORE, by virtue and in exercise of the power
reserved to the company by Section 13.1 of the plan and pursuant to the
authority delegated to the undersigned officer of the company by its Board of
Directors, the plan be and hereby is amended in the following particulars:
1
<PAGE>
1. By replacing the first sentence of Section 5.6 with the
following, effective as of August 1, 1994:
"5.6 DIRECTED INVESTMENT ELECTION AT AGE 55. Any participant
who has attained age 55 may elect to have all or a portion,
specified in multiples of 25 percent, of his accounts
converted to cash based upon the fair market value of his
accounts as determined by the trustee and to have such cash
amount invested in one or more of the following directed
investments:"
2. By substituting "$150,000" for "$200,000" where it appears
in Section 3.5(e) and Section 6.5, effective as of January 1, l994.
3. By adding the phrase ", including commissions," after the
word compensation in the first sentence of Section 3.5.
IN WITNESS WHEREOF, Fairfield Savings Bank has caused this
amendment to be executed on its behalf by its duly authorized officer this 19th
day of July, 1994.
FAIRFIELD SAVINGS BANK
By /s/ George M. Briody
------------------------------
George M. Briody
Its President
------------------------------
2
<PAGE>
AMENDMENT NUMBER THREE
TO
THE FAIRFIELD SAVINGS BANK PROFIT SHARING AND SAVINGS PLAN
Pursuant to Section 13.1 of The Fairfield Savings Bank Profit Sharing and
Savings Plan ("Plan"), the Plan is amended as follows, effective as of
November 18, 1996:
1. ARTICLE 4 - Section 4.1 of the Plan shall be amended in its entirety to
read as follows:
4.1 EMPLOYERS' CONTRIBUTIONS. (a) SALARY DEFERRAL
CONTRIBUTIONS. As soon as practicable after each payroll period, but in
any event within the time prescribed by law or regulation, each
employer shall deliver to the trustee 100 percent of the salary
deferral contributions (as defined in section 3.1 including the
participant's basic salary deferral contribution) elected by the
participant for that payroll period.
(b) Each plan year beginning on or after the
effective date and subject to the conditions and limitations of this
Article 4 and Article 10, each employer will make a contribution under
the plan for each active participant employed by it during that plan
year in an amount equal to the sum of the following:
(i) EMPLOYER MATCHING CONTRIBUTIONS. With respect to
each participant who elects to make basic salary deferral
contributions or voluntary contributions, or both, to the
plan, the employers shall make a matching contribution, on
behalf of each such participant equal to 25 percent of the
amount of basic salary deferral contributions and voluntary
contribution which such participant has made up a maximum
matching contribution of 1.50 percent of a participant's
compensation (i.e., aggregate contributions not in excess of
six percent of the participant's earnings). The employer
matching contribution shall first be applied to the basic
salary deferral contribution and then to the voluntary
contribution to the extent such basic salary deferral
contribution does not exceed six percent of the participant's
earning for such plan year.
(ii) BASIC PROFIT SHARING CONTRIBUTIon. For Plan
Years beginning before August 1, 1996, an amount equal to two
percent of each participant's earnings for that plan year; for
the Plan Year beginning August 1, 1996, an amount equal to 2%
of each participant's earnings for the period beginning August
1, 1996 and ending December 31, 1996; and for the period
beginning January 1, 1997 and ending July 31, 1997 and for
Plan Years beginning after August 1, 1996, none.
1
<PAGE>
(iii) DISCRETIONARY PROFIT SHARING CONTRIBUTION. An
amount as the Bank shall determine, if any.
2. ARTICLE 5 - Section 5.3 of the Plan shall be amended in its entirety to
read as follows:
5.3 INVESTMENT FUNDS.(a) From time to time the Bank
may cause the trustee or an investment manager to establish one or more
investment funds for the investment and reinvestment of plan assets.
The continued availability of any investment fund is necessarily
conditioned upon the terms and conditions of investment management
agreements and other investment arrangements. While the Bank may
arrange with the trustee and investment managers for the establishment
of investment funds, the continued availability of these funds cannot
be assured, nor is it possible to assure that the arrangements or the
investment funds managed by a particular investment manager or by the
trustee will continue to be available on the same or similar terms .
The Bank may, in its discretion, direct the establishment of additional
investment funds or may terminate any investment fund as it deems
appropriate and in the best interest of plan participants. Participant
loans shall constitute aggregated investments on behalf of the
participant to whom such loans are made and shall not be reflected in
any investment fund. Except as provided in this section and sections
5.4, 5.5 and 5.6 participants' accounts shall be invested in any one or
more investment funds as determined by the trustee.
(b) SHARE INVESTMENT ACCOUNT. Effective as of
November 18, 1996, the Bank shall make available for investment of plan
assets an Employer Stock Fund, which shall be an investment fund
comprised primarily of Shares and fractional Shares. "Shares" for all
purposes of the Plan means shares and any fraction thereof of common
stock of Big Foot Financial Corp.
3. ARTICLE 5- Article 5 shall be amended by adding new Sections 5.13,
5.14, 5.15, 5.16 and 5.17 to read as follows:
5.13 INVESTMENT OF MATCHING CONTRIBUTIONS
Notwithstanding anything in this Plan to the contrary,
commencing November 18, 1996, the Bank may, in its discretion, make all
or part of the Employer Matching Contributions in the form of Shares
provided such determination is made by resolution of its Board of
Directors in advance of the period to which the contribution relates.
In the event that all or a portion of the Employer Matching
Contributions is made in the form of Shares, such Shares shall be
invested in the Employer Stock Fund. Each employer may, in its sole and
absolute discretion by resolution of its board of directors, direct
that the portion of the Employer Matching Contribution made in the form
of cash be one hundred percent (100%) invested in the Employer Stock
Fund applied to purchase Shares.
2
<PAGE>
5.14 VOTING RIGHTS
Each person with an interest in the Employer Stock Fund on the
applicable record date shall have the right to participate in the
decision as to how to exercise the voting rights appurtenant to the
Shares held in the Employer Stock Fund by completing and filing a
written direction with an independent third party ("Tabulator") on a
timely basis. The Tabulator shall direct the trustee to cast
affirmative votes equal to the product of (a) the total number of
Shares held in the Employer Stock Fund multiplied by (b) a fraction,
the numerator of which is the aggregate value of the interests in the
Employer Stock Fund of all persons directing that an affirmative vote
be cast, and the denominator of which is the aggregate value of the
interests in the Employer Stock Fund of all persons directing that an
affirmative vote or a negative vote be cast. Negative votes shall be
cast with respect to the remaining Shares held in the Employer Stock
Fund.
5.15 TENDER RIGHTS
Each person with an interest in the Employer Stock Fund on the
applicable record date shall have the right to participate in the
decision as to how to respond to a tender offer for Shares by
completing and filing a written direction with the Tabulator on a
timely basis. The Tabulator shall direct the trustee to tender a number
of Shares equal to the product of (a) the total number of Shares held
in the Employer Stock Fund multiplied by (b) a fraction, the numerator
of which is the aggregate value of the interests in the Employer Stock
Fund of all persons directing that such Shares be delivered in response
to such tender offer, and the denominator of which is the aggregate
value of the interests in the Employer Stock Fund of all persons
directing that such Shares be delivered or that the delivery of such
Shares be withheld. Delivery of the remaining Shares held in the
Employer Stock Fund shall be withheld.
5.16 DISSENTER'S RIGHTS
Each person with an interest in the Employer Stock Fund on the
applicable record date shall have the right to participate in the
decision as to whether to exercise the dissenters' rights appurtenant
to Shares held in the Employer Stock Fund by completing and filing a
written direction with the Tabulator on a timely basis. The Tabulator
shall direct the trustee to exercise dissenters' rights with respect to
a number of Shares equal to the product of (a) the total number of
Shares held in the Employer Stock Fund multiplied by (b) a fraction,
the numerator of which is the aggregate value of the interests in the
Employer Stock Fund of all persons directing that the dissenters'
rights appurtenant to which Shares be exercised, and the denominator of
which is the aggregate value of all of the interests in the Employer
Sock Fund. Dissenters' rights shall not be exercised with respect to
the remaining Shares held in the Employer Stock Fund.
3
<PAGE>
5.17 DIVIDEND REINVESTMENT
Dividends paid with respect to Shares held in the Employer
Stock Fund shall be reinvested in the Employer Stock Fund.
4. ARTICLE 7 - Article 7 shall be amended by adding a new Section 7.11 to
read in its entirety as follows:
7.11 MANNER OF PAYMENT OF WITHDRAWALS AND DISTRIBUTIONS FROM THE
EMPLOYER STOCK FUND
Withdrawals from the Employer Stock Fund shall be made to
Participants in cash.
Distributions from the Employer Stock Fund shall be made to
participants and beneficiaries in cash, unless the participant or
beneficiary elects that such distributions may be made wholly or
partially in Shares. If the participant of beneficiary elects that such
distributions may be made wholly or partially in Shares, subject to
such terms and conditions as may be established from time to time, the
number of Shares to be distributed shall be equal to the maximum number
of whole Shares that may be acquired with the amount to be distributed
in Shares, based upon the fair market value of a Share determined as of
the date of payment. An amount of money equal to any remaining amount
of the payment that is less than the fair market value of a whole Share
shall be distributed in cash. For purposes of this Section 7.11, the
fair market value of a Share shall be determined on a uniform and
nondiscriminatory basis in such manner as the Committee may, in its
discretion, prescribe.
5. ARTICLE 10 - Section 10.2 shall be amended by adding the following new
language at the end thereof:
A participant's "annual addition" also includes any employer
contributions for such limitation year to a qualified employee stock
ownership plan maintained by the employer and allocated to the
participant's individual account under such plan, plus such
participant's allocable portion of any employer contribution for such
limitation year to a qualified employee stock ownership plan maintained
by the employer and applied to the payment of principal and interest on
a securities acquisition loan obtained by such plan. Notwithstanding
the foregoing, if, for any limitation year, the aggregate amount of
employer contributions to such an employee stock ownership plan
allocable to individuals who are highly compensated employees for such
limitation year does not exceed one-third of the total of all employer
contributions to such plan for such limitation year, then that portion,
if any, of any employer contributions that is applied to the payment of
interest on a securities acquisition loan shall not be included as an
annual addition. In determining whether more than one-third of the
employee contributions for a
4
<PAGE>
limitation year would be allocable to the highly compensated employees,
any amount allocable to a family member within the meaning Section
414(q)(6)(B) of the Code) of a highly compensated employee who is
either a five percent owner or one of the ten highly compensated
employees with the highest total compensation, shall be treated as an
allocation to such highly compensated employee. In no event shall the
value of any securities purchased under a qualified employee stock
ownership plan with a securities acquisition loan, any dividends or
other earnings thereon, any proceeds from the sale thereof or any
portion of the value of the foregoing be included as an annual
addition.
5
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and the statements of income of Big Foot Financial
Corp. and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,191,000
<INT-BEARING-DEPOSITS> 1,701,132
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,219,205
<INVESTMENTS-CARRYING> 47,376,322
<INVESTMENTS-MARKET> 46,534,391
<LOANS> 93,623,836
<ALLOWANCE> 300,000
<TOTAL-ASSETS> 214,896,049
<DEPOSITS> 122,980,817
<SHORT-TERM> 40,600,000
<LIABILITIES-OTHER> 3,728,241
<LONG-TERM> 9,000,000
0
0
<COMMON> 25,128
<OTHER-SE> 36,952,025
<TOTAL-LIABILITIES-AND-EQUITY> 214,896,049
<INTEREST-LOAN> 5,954,201
<INTEREST-INVEST> 6,512,520
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 12,466,721
<INTEREST-DEPOSIT> 4,578,779
<INTEREST-EXPENSE> 7,120,571
<INTEREST-INCOME-NET> 5,346,150
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 314
<EXPENSE-OTHER> 5,295,684
<INCOME-PRETAX> 332,075
<INCOME-PRE-EXTRAORDINARY> 219,675
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 219,675
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
<YIELD-ACTUAL> 6.94
<LOANS-NON> 199,112
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 300,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 300,000
<ALLOWANCE-DOMESTIC> 300,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
