As filed with the Securities and Exchange Commission on _______, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
Registration Statement Under the Securities Act of 1933
MIDLAND CAPITAL HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 6120 36-2065326
- --------------------------------------------------------------------------------
(Primary Standard
(State or other jurisdiction of Industrial Classification (I.R.S. Employer
incorporation or organization) Code Number) Identification No.)
PAUL M. ZOGAS
8929 South Harlem Avenue Midland Capital Holdings Corporation
Bridgeview, Illinois 60455 8929 South Harlem Avenue
(708) 598-9400 Bridgeview, Illinois 60455
(708) 598-9400
(Address, including ZIP code, and (Address, including ZIP code, and
telephone number, including area telephone number, including area
code, of registrant's principal code, of agent for service)
executive offices)
COPIES TO:
KIP A. WEISSMAN, P.C.
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with formation of a holding company and there is compliance with
General Instruction G, check the following box. [X]
<PAGE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<TABLE>
<CAPTION>
Calculation of Registration Fee
Proposed maximum Proposed maximum
Title of each class of Amount to offering price aggregate offering Amount of
securities to be registered be registered(1) per share(2) price(2) registration fee
--------------------------- ---------------- ------------ -------- ----------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 363,975 shares $30.25 $11,010,243 $3,250
</TABLE>
(1) Based upon the estimated maximum number of shares of Midland Capital
Holdings Corporation's (the "Company") common stock, par value $.01 per
share ("Company Common Stock"), that may be issued upon consummation of
the merger of a wholly owned subsidiary of the Company with and into
Midland Federal Savings and Loan Association ("Midland") as described
herein, and upon exercise of securities exercisable for shares of Midland
common stock, par value $.01 per share ("Midland Common Stock").
(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(f)(1) and 457(c), and solely for purposes of
calculating the registration fee, the proposed maximum aggregate offering
price is $11,010,243, which equals (x) the average of the high and low
sale prices of the Midland Common Stock of $30.25 as reported on the
Nasdaq Small Cap Market on June 17, 1998, multiplied by (y) 363,975, the
total number of shares of Midland Common Stock (including shares issuable
pursuant to the exercise of outstanding options to purchase Midland
Common Stock) to be canceled in the Merger. The proposed maximum offering
price per share is equal to the proposed maximum aggregate offering price
determined in the manner described in the preceding sentence divided by
the maximum number of shares of Company Common Stock that could be issued
in the Merger.
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
Cross-Reference Sheet Pursuant to Item 501(b) of
Regulation S-K Between Items in Part I of Form S-4
and Prospectus/Proxy Statement
<TABLE>
<CAPTION>
Item
Number Caption in Form S-4 Caption in Prospectus
------ ------------------- ---------------------
<S> <C> <C>
1 Forepart of Registration Statement and Outside Facing Page of Registration Statement; Cross-
Front Cover Page of Prospectus..................... Reference Sheet; Available Information
2 Inside Front and Outside Back Cover Pages Cover Page; Table of Contents; Available
of Prospectus...................................... Information; Financial Statements
3 Risk Factors, Ratios of Earnings to Fixed Summary; The Company
Charges and Other Information......................
4 Terms of the Transaction........................... Summary; Proposal I -- The Holding Company
Merger and Reorganization, Appendix A
5 Pro Forma Financial Information.................... Financial Statements
6 Material Contracts With the Company Summary; Proposal I -- The Holding Company
Being Acquired..................................... Merger and Reorganization; Appendix A
7 Additional Information Required for Reoffering Not Applicable
by Persons and Parties Deemed to be
Underwriters.......................................
8 Interests of Named Experts and Counsel............. Legal Opinion
9 Disclosure of Commission Position on Indemni- Proposal I -- The Holding Company Merger and
fication for Securities Act Liabilities............ Reorganization - Comparison of Stockholder
Rights
10 Information With Respect to S-3 Registrants........ Not Applicable
11 Incorporation of Certain Information by Not Applicable
Reference..........................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item
Number Caption in Form S-4 Caption in Prospectus
------ ------------------- ---------------------
<S> <C> <C>
12 Information With Respect to S-2 or S-3 Not Applicable
Registrants........................................
13 Incorporation of Certain Information by Not Applicable
Reference..........................................
14 Information With Respect to Registrants Proposal I -- The Holding Company Merger and
Other Than S-3 or S-2 Registrants.................. Reorganization; Financial Statements; The
Company; Appendix D
15 Information With Respect to S-3 Companies.......... Not Applicable
16 Information With Respect to S-2 or S-3 Not Applicable
Companies..........................................
17 Information With Respect to Companies Other Not Applicable
Than S-3 or S-2 Companies..........................
18 Information if Proxies, Consents or Summary; General Information; Proposal I --The
Authorizations are to be Solicited................. Holding Company Merger and Reorganization
19 Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited or
in an Exchange Offer...............................
</TABLE>
<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
8929 South Harlem Avenue
Bridgeview, Illinois 60455
(708) 598-9400
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held on July 15, 1998
Notice is hereby given that a Special Meeting of Stockholders (the
"Meeting") of Midland Federal Savings and Loan Association (the "Association")
will be held at the main office of the Association, located at 8929 Harlem
Avenue, Bridgeview, Illinois on July 15, 1998 at 2:00 p.m.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. A proposal to adopt a holding company structure for the
Association with the result that the Association will become a
wholly-owned subsidiary of Midland Capital Holdings Corporation
as provided in the Merger Agreement and Plan of Reorganization
(the "Merger Agreement") attached as Appendix A to this Proxy
Statement;
2. A proposal to adjourn the Meeting in the event that a sufficient
number of votes necessary to approve the Merger Agreement is not
received; and
such other matters as may properly come before the Meeting, or any adjournments
thereof. The Board of Directors is not aware of any other business to come
before the Meeting.
Any action may be taken on the foregoing proposal at the Meeting on the
date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on June 15, 1998 are
the stockholders entitled to vote at the Meeting, and any adjournments thereof.
You are requested to fill in and sign the enclosed form of proxy which is
solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The proxy will not be used if you attend and vote at the
Meeting in person.
By Order of the Board of Directors
/s/Paul M. Zogas
----------------
Paul M. Zogas
Chairman of the Board, President and
Chief Executive Officer
Bridgeview, Illinois
June 22, 1998
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE ASSOCIATION THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
WITHIN THE UNITED STATES.
<PAGE>
PROXY STATEMENT OF
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
8929 South Harlem Avenue
Bridgeview, Illinois 60455
(708) 598-9400
-------------------------
PROSPECTUS OF MIDLAND CAPITAL HOLDINGS CORPORATION
8929 South Harlem Avenue
Bridgeview, Illinois 60455
(708) 598-9400
-------------------------
SPECIAL MEETING OF SHAREHOLDERS
OF MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
TO BE HELD JULY 15, 1998
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is
furnished in connection with the solicitation of proxies by the Board of
Directors of Midland Federal Savings and Loan Association (the "Association"),
for use at the Special Meeting of Shareholders of the Association (the
"Meeting") to be held on July 15, 1998, at 2:00 p.m., local time, at the
corporate offices of the Association at 8929 South Harlem Avenue, Bridgeview,
Illinois 60455, and at any and all adjournments thereof. At the Special Meeting,
shareholders of the Association will be asked to consider and vote upon a
proposal to reorganize the Association into a holding company form of
organization (the "Reorganization") in accordance with a Merger Agreement and
Plan of Reorganization (the "Merger Agreement"), a copy of which is attached
hereto as Exhibit A. As a result of the Reorganization, the Association will,
subject to necessary regulatory approvals, become a wholly owned subsidiary of a
newly formed Delaware corporation, Midland Capital Holdings Corporation (the
"Company"), and each outstanding share of common stock of the Association, $.01
par value per share (the "Association Common Stock") will become, by operation
of law, one share of common stock of the Company, $0.01 par value per share (the
"Company Common Stock").
The adoption of a holding company structure will offer the Association
broader investment opportunities as well as increased organizational
flexibility. The adoption of a holding company structure will also offer the
opportunity to repurchase shares without adverse tax consequences.
(continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION,
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED
HEREBY ARE NOT SAVING ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR
SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
-------------------------
The date of this Proxy Statement/Prospectus is June 22, 1998.
This Proxy Statement/Prospectus also constitutes the Prospectus of the
Company under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the issuance of up to 363,975 shares of Company Common Stock to
shareholders of the Association in exchange for an equal number of shares of
Association Common Stock upon consummation of the Reorganization.
The Proxy Statement/Prospectus does not cover any resales of Company
Common Stock received by the Association's shareholders upon completion of the
Reorganization. No person is authorized to make any use of this Proxy
Statement/Prospectus in connection with any such resale or in connection with
the offer or sale of any other securities.
<PAGE>
AVAILABLE INFORMATION
This Proxy Statement of the Association also serves as the prospectus
relating to the offer and sale by the Company of the Company Common Stock,
offered in exchange for the outstanding shares of the Association Common Stock,
in connection with the Reorganization pursuant to which the Company would become
the holding company for the Association, as more fully discussed under "Proposal
I -- The Holding Company Merger and Reorganization."
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-4 under the Securities Act of 1933, as
amended, with respect to the shares of Company Common Stock issuable upon
conversion of Association Common Stock in the Reorganization as described
herein. As permitted by the rules and regulations of the SEC, this Proxy
Statement omits certain information contained in the Registration Statement. For
further information pertaining to Company Common Stock offered hereby, reference
is made to the Registration Statement and to the exhibits thereto, which will be
available for inspection and copying at the Commission's public reference
facilities located at: Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549; 7 World Trade Center, 13th Floor, New York, New York
10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60621. Copies of such material may be obtained at prescribed rates by
writing to the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. If available, such information may also be accessed
through the Commission's electronic data gathering, analysis and retrieval
system via electronic means, including the Commission's web site on the Internet
(http://www.sec.gov).
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE TRANSACTIONS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY EITHER THE ASSOCIATION OR THE COMPANY OR THEIR MANAGEMENT. EXCEPT
AS OTHERWISE EXPRESSLY INDICATED, ALL INFORMATION IS GIVEN AS OF THE DATE OF
THIS PROXY STATEMENT/PROSPECTUS. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS AFTER SUCH DATE NOR ANY OFFER, SALE OR EXCHANGE OF ANY
SECURITY MADE HEREUNDER AFTER SUCH DATE SHALL UNDER ANY CIRCUMSTANCE CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH
HEREIN SINCE SUCH DATE.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY..................................................................... 1
Date, Time and Place of Meeting...................................... 1
Purpose of Meeting................................................... 1
Record Date.......................................................... 1
Vote Required for Approval of Proposals.............................. 1
The Holding Company Reorganization.................................... 1
Conditions and Regulatory Approvals.................................. 2
Federal Income Tax Consequences...................................... 2
Rights of Dissenting Stockholders.................................... 2
Regulation and Supervision........................................... 2
Differences Between Bank Common Stock
and Company Common Stock............................................ 2
Recommendation and Reasons............................................ 2
GENERAL INFORMATION.......................................................... 3
Introduction.......................................................... 3
Revocation of Proxies................................................. 3
Vote Required for Approval of Proposals............................... 3
Voting Securities and Principal Holders Thereof....................... 3
PROPOSAL I -- THE HOLDING COMPANY MERGER AND
REORGANIZATION............................................................ 5
Parties to the Merger Agreement....................................... 5
Reasons for the Reorganization........................................ 5
Description of the Transaction; Exchange Ratio........................ 6
Certain Relationships and Related Transactions........................ 6
Federal Income Tax Consequences....................................... 7
Rights of Dissenting Stockholders..................................... 8
Conditions to the Reorganization...................................... 9
Amendment or Termination............................................. 10
Effective Date of the Reorganization................................. 10
Exchange of Stock Certificates Not Required.......................... 10
Operations After the Reorganization.................................. 10
Accounting Treatment................................................. 11
Bank Incentive Plan and Stock Option Plan............................ 11
Comparison of Stockholder Rights..................................... 11
Other Restrictions on Acquisitions of Stock.......................... 16
i
<PAGE>
PROPOSAL II -- ADJOURNMENT OF
THE SPECIAL MEETING........................................................17
FINANCIAL STATEMENTS........................................................ 18
THE ASSOCIATION............................................................. 18
THE COMPANY................................................................. 19
General ............................................................. 19
Regulation........................................................... 19
Federal and State Taxation........................................... 20
Restrictions on Resale of Company Stock Received
by Certain Persons................................................. 20
Company Management................................................... 21
LEGAL OPINION............................................................... 21
STOCKHOLDER PROPOSALS....................................................... 21
OTHER MATTERS............................................................... 22
APPENDIX A -- MERGER AGREEMENT AND PLAN OF REORGANIZATION...................A-1
APPENDIX B -- HOLDING COMPANY CERTIFICATE OF INCORPORATION..................B-1
APPENDIX C -- RIGHTS OF DISSENTING STOCKHOLDERS ............................C-1
APPENDIX D -- ANNUAL REPORT TO STOCKHOLDERS FOR
THE FISCAL YEAR ENDED JUNE 30, 1997........................................D-1
APPENDIX E - QUARTERLY REPORT TO STOCKHOLDERS ON
FORM 10-QSB FOR THE QUARTER END MARCH 31, 1998............................. E-1
ii
<PAGE>
SUMMARY
The following is a summary of certain information contained in this
Proxy Statement/Prospectus. This summary is not complete and is qualified in its
entirety by the more detailed information appearing in this Proxy
Statement/Prospectus and appendices. Stockholders should review the entire Proxy
Statement/Prospectus and, in particular, the specific sections referred to in
this summary.
Date, Time and Place of Meeting
The Meeting will be held on July 15, 1998, at 2:00 p.m., Bridgeview,
Illinois time, at the main office of the Association, located at 8929 South
Harlem Avenue, Bridgeview, Illinois.
Purpose of Meeting
The primary purpose of the Meeting is to consider and vote upon a
proposal to adopt a holding company structure. If the proposal to adopt a
holding company structure is approved, the Association will conduct its
operations as a wholly-owned subsidiary of the Company, a Delaware corporation
formed for the purpose of serving as the holding company for the Association.
Stockholders are also being asked to vote on a proposal to adjourn the
Meeting if sufficient votes are not obtained to approve the holding company
structure.
Record Date
Only holders of record of shares of the Association Common Stock at the
close of business on June 15, 1998 are entitled to vote at the Meeting.
Vote Required for Approval of Proposals
The affirmative vote of the holders of at least 181,989 shares of
Association Common Stock, 50% of the total shares outstanding on the record date
plus one share, is required to approve the proposal to adopt a holding company
structure. The affirmative vote of a majority of the shares voted on such
proposal is required to approve the proposal to adjourn the Meeting. Directors,
officers and their affiliates (7 persons) beneficially own 212,813 shares, or
57.1% of the Association's outstanding Common Stock.
The Holding Company Reorganization
Under The Merger Agreement attached hereto as Appendix A, the
Association will be merged with an interim subsidiary of the Company. As a
result of the Reorganization each share of Association Common Stock will be
converted into one share of the Company Common Stock. See "Proposal I -- The
Holding Company Merger and Reorganization -- Description of the Transaction;
Exchange Ratio."
1
<PAGE>
Conditions and Regulatory Approvals
The consummation of the Reorganization is conditioned upon the
fulfillment of certain conditions set forth in the Merger Agreement, including
approval by the stockholders of the Association and by the OTS. See "Proposal I
- -- The Holding Company Merger and Reorganization -- Conditions to the
Reorganization."
Federal Income Tax Consequences
The Merger will qualify as a tax-free reorganization. No gain or loss
will be recognized by Association stockholders whose shares are converted into
Company Common Stock. See "Proposal I -- The Holding Company Merger and
Reorganization -- Federal Income Tax Consequences."
Rights of Dissenting Stockholders
Under federal regulations, dissenters' rights of appraisal are
available to Midland shareholders who follow certain prescribed procedures. In
the event that the holders of more than 10% of the Association's Common Stock
perfect their rights to appraisal, the Association may determine not to
consummate the Reorganization. See "Proposal I -- The Holding Company Merger and
Reorganization -- Rights of Dissenting Stockholders."
Regulation and Supervision
After the Reorganization, the Company will be a thrift institution
holding company regulated by the OTS. It will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file reports, proxy
statements and other information with the SEC. See "The Company -- Regulation."
The Association will continue to be regulated by the OTS.
Differences Between Association Common Stock and Company Common Stock
After the consummation of the Reorganization, the rights of the
stockholders of the Company will be governed by Delaware law and the Certificate
of Incorporation and Bylaws of the Company, whereas the rights of stockholders
of the Association are governed by its charter and bylaws and by federal
statutes and regulations. As a result, certain differences will exist between
the rights of stockholders of the Company and those of the Association. These
differences relate to such matters as the issuance of additional capital stock,
amendment of governing instruments, transactions with affiliates, limitations on
director liability, and indemnification of officers and directors. For a
description of these differences, see "Proposal I -- The Holding Company Merger
and Reorganization -- Comparison of Stockholder Rights."
Recommendation and Reasons
The Association's Board of Directors has unanimously approved the
Merger Agreement and unanimously recommends that the stockholders vote FOR
approval of the Reorganization. A holding company structure offers significant
advantages in comparison to the Association's present corporate structure. These
advantages include a broader range of permissible financial activities,
increased organizational flexibility and the ability to repurchase Company stock
without adverse tax consequences. The Board of Directors also recommend that
stockholders vote FOR the proposal to adjourn the Meeting.
2
<PAGE>
GENERAL INFORMATION
Introduction
This Proxy Statement/Prospectus is furnished in connection with the
solicitation on behalf of the Board of Directors of Midland of proxies, to be
used at the Meeting of the Association to be held at the main office of the
Association, located at 8929 South Harlem Avenue, Bridgeview, Illinois, on July
15, 1998 at 2:00 p.m., and at all adjournments of the Meeting. The accompanying
Notice of Special Meeting and this Proxy Statement are first being mailed to
stockholders on or about June 22, 1998.
Revocation of Proxies
Stockholders who execute proxies retain the right to revoke them at any
time. Unless so revoked, the shares represented by such proxies will be voted at
the Meeting and at all adjournments thereof. The presence of a stockholder at
the Meeting will not automatically revoke such stockholder's proxy. However, a
stockholder may revoke a proxy at any time prior to its exercise by filing a
written notice of revocation with, or delivering a duly executed proxy bearing a
later date to, Charles Zogas, Secretary of the Association, 8929 South Harlem
Avenue, Bridgeview, Illinois 60455, or by attending the Meeting and voting in
person. Proxies solicited on behalf of the Board of Directors of the Association
and not revoked will be voted in accordance with the directions given therein.
Where no instructions are indicated, proxies will be voted FOR the proposals set
forth in this Proxy Statement/Prospectus for consideration at the Meeting.
Proxies marked as abstaining will be treated as present for purposes of
determining a quorum at the Meeting, but will not be counted as voting on any
matter as to which abstention is indicated. Proxies returned by brokers as
"non-votes" on behalf of shares held in street name will not be treated as
present for purposes of determining a quorum for the Meeting unless they are
voted by the broker on at least one matter on the agenda. Such non-voted shares
will not be counted as voting on any matter as to which a non-vote is indicated
on the brokers' proxy.
Vote Required for Approval of Proposal
Approval of the proposal to adopt a holding company requires the
affirmative vote of the holders of a majority of the outstanding shares of the
Association Common Stock plus one share. Approval of the proposal to adjourn the
Meeting requires the affirmative vote of a majority of the shares voted on such
proposal.
Voting Securities and Principal Holders Thereof
Stockholders of record as of the close of business on June 15, 1998,
will be entitled to one vote for each share then held. As of that date, the
Association had 363,975 shares of Common Stock issued and outstanding. The
following table sets forth information regarding share ownership of: (i) those
persons or entities known by management to beneficially own more than five
percent of the Association's Common Stock, (ii) the Association's Chief
Executive Officer, and (iii) all directors and officers as a group.
3
<PAGE>
Beneficial Owner Shares Beneficially Owned Percent of Class
---------------- ------------------------- ----------------
Paul Zogas, Chairman of 168,298(1) 46.2%
the Board, President and Chief
Executive Officer
8929 South Harlem Avenue
Bridgeview, Illinois 60455
Charles Zogas, Director, 168,298(1) 46.2
Executive Vice President and
Secretary
8929 South Harlem Avenue
Bridgeview, Illinois 60455
Algerd A. Brazis, Director 21,725(2) 5.9
8929 South Harlem Avenue
Bridgeview, Illinois 60455
Jeffrey S. Halis 34,399(3) 9.5
500 Park Avenue
Fifth Floor
New York, New York 10022
Richard A. Horstman 20,000(4) 5.5
31 Boulder Wood Drive
Bernardsville, New Jersey 07924
Directors and executive officers
of the Association as a group 212,813(5) 57.1
(6 persons)
- ---------------
(1) The above information is reported in a Form 4 dated February 9, 1998,
by the above-referenced persons plus 2,500 shares owned by Mr. Bruce
Kannry, a business associate of Messrs. P. Zogas and C. Zogas. Each
person reported sole voting and investment power with respect to the
shares held by them and specifically disclaimed any ownership of the
shares held by the other persons.
(2) The above information is as reported in a Schedule 13D dated July 7,
1993, by the above-referenced person plus an aggregate of 1,725 shares
under options issued pursuant to the Stock Option Plan. Mr. Brazis
reported shared voting and investment power with his wife with respect
to the shares held by him and disclaimed any ownership of the shares
held by other persons.
(3) The above information is as reported in a Schedule 13D dated July 6,
1993.
(4) The above information is as reported in a Schedule 13D dated September
9, 1993.
(5) This amount includes shares held directly as well as shares held by
certain members of the named individuals' families with respect to
which shares the respective directors and officers may be deemed to
have sole or shared voting and investment power. It also includes the
stock owned by Mr. Kannry as well as an aggregate of 8,625 shares
granted under the Stock Option Plan.
4
<PAGE>
PROPOSAL I -- THE HOLDING COMPANY MERGER AND REORGANIZATION
The statements contained in this Proxy Statement/Prospectus with
respect to the terms and conditions of the Reorganization are subject to and
qualified in their entirety by the detailed provisions of the Merger Agreement
attached hereto as Appendix A.
Parties to the Merger Agreement
Midland is a federally-chartered capital stock savings and loan
association. The Company is a recently-formed business corporation chartered and
organized under the laws of the State of Delaware for the purpose of becoming a
holding company. See "The Company." New Bank ("New Bank") will be a
newly-chartered federal interim savings and loan association organized by
Midland and the Company solely for the purpose of implementing the proposed
Reorganization. New Bank has not conducted, and prior to the merger with Midland
will not conduct, any business operations except in connection with the
Reorganization. Paul Zogas, President, of the Association, at the direction of
the Board of Directors of the Association, acted as incorporator of the Company
and as such is a party to the Merger Agreement. In order to facilitate the
Reorganization, one share of Company Common Stock was issued to Mr. Zogas and
will be redeemed upon consummation of the Reorganization.
Reasons for the Reorganization
The Board of Directors of Midland has determined that the
Reorganization is in the best interests of its stockholders and, accordingly,
recommends that the stockholders vote FOR the Reorganization.
The Reorganization and the formation of the Company as a thrift
institution holding company offer Midland and the Company various potential
advantages, including broader investment opportunities than those available to a
savings association and increased organizational flexibility. Further, because
the Company will not be subject to certain regulatory capital requirements,
borrowing limitations and other restrictions applicable to Midland, the Company
may have greater access to capital markets for financing the growth of Midland
and possible future operating subsidiaries of the Company. A holding company
structure would permit the Association to repurchase shares of Company Common
Stock without adverse tax consequences, should the Board of Directors determine
a repurchase program to be in the best interests of stockholders.
Also, the Company could acquire other thrift institutions located in
Illinois (and in certain circumstances outside Illinois) and, as a multiple
thrift institution holding company, operate them as separate corporate entities.
For example, an acquired thrift institution could retain its own directors,
officers and corporate name as well as having representation on the Company's
Board of Directors. This ability to offer more autonomous operations could be
decisive in negotiations with acquisition candidates. However, while management
continuously studies potential acquisition opportunities, there are no specific
plans, understandings or agreements relating to the acquisition of any other
thrift institutions by the Company. There can be no assurance that such
acquisition opportunities will be available in the future or, if available, will
be on terms deemed advantageous to the Company.
The types of financial services and business activities currently
permitted to a multiple thrift institution holding company are not substantially
broader than those permitted to service corporations of federal thrift
institutions. If, after becoming a multiple thrift institution holding company
by acquiring and holding as
5
<PAGE>
separate entities more than one insured institution, the Company in the future
determines that a broader range of business activities is desirable, it could,
subject to tax, accounting and other considerations, merge its insured
institution subsidiaries into a single insured institution subsidiary and
thereby have authority to engage in virtually any legal business activity. This
ability to diversify on a limited basis while acquiring other institutions
through a multiple thrift institution holding company structure, or to have
complete authority to diversify as a unitary thrift institution holding company,
is believed by the Board of Directors of Midland to be a substantial operating
advantage of the holding company structure.
It is anticipated that (subject to the Company's financial condition)
the Company may purchase Association Common Stock to provide capital to Midland
when and if needed. If the Company were not formed, and Midland sought
additional capital through the issuance of shares of Association Common Stock,
stockholders desiring to avoid dilution of their percentage ownership of Midland
would have to purchase additional shares of Association Common Stock with their
personal funds. In contrast, such future infusions of capital may be made by the
Company, through funds available from borrowing or from the operations of other
subsidiaries which may be acquired by the Company in the future, without
affecting the percentage ownership of stockholders of the Company. See "The
Company -- Regulation."
In the opinion of management, a holding company will be in a better
position to respond competitively in a rapidly changing, financial environment.
Management and the Board of Directors believe that operating as a holding
company will serve the interests of the public and of Midland's stockholders,
depositors and borrowers by improving its capabilities for service in a highly
competitive environment.
Description of the Transaction; Exchange Ratio
The Company, Midland and New Bank have executed the Merger Agreement
pursuant to which the Reorganization will be implemented. In accordance with the
Merger Agreement, New Bank (which is being organized as a wholly-owned
subsidiary of the Company) will be merged with and into Midland, and all
outstanding shares of Midland Common Stock will be converted into an equal
number of shares of Company Common Stock. The existing stockholders of Midland
will, after the Reorganization, own all of the outstanding shares of Company
Common Stock in lieu of their present ownership of shares of Association Common
Stock.
All of the assets and liabilities of Midland and New Bank will become
assets and liabilities of the surviving entity, which will retain its present
home office and branch office locations and continue to carry on the business of
Midland as a federally-chartered savings bank.
Certain Relationships and Related Transactions
Directors and executive officers of the Association together with their
affiliates, beneficially owned a total of 212,813 shares of the Association
Common Stock (representing 57.1% of all outstanding shares of the Association
Common Stock) on the Record Date.
Certain members of the Association's management and the Association's
Board may be deemed to have certain interests in the Reorganization that are in
addition to their interest as a stockholder of the Association generally. The
Association Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby. Paul Zogas and Charles Zogas will vote for the Merger.
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Pursuant to the Reorganization, the Company will assume certain
contracts and benefit plans which are currently the obligation of the
Association.
1993 Stock Option and Incentive Plan. The Association established the
1993 Stock Option and Incentive Plan (the "Stock Option Plan") to promote the
long term interests of the Association and its stockholders by providing a means
for attracting and retaining directors, officers and employees of the
Association and its affiliates. The Stock Option Plan provides for awards of up
to 17,250 shares of Company Stock of which options exercisable into 8,625 shares
are currently outstanding. The Company will assume and continue the Stock Option
Plan. See "-- Bank Incentive Plan and Stock Option Plan."
Federal Income Tax Consequences
The Merger Agreement provides that it is a condition to the proposed
Reorganization that, prior to the effective date of the Reorganization, Midland
shall have received an opinion of its counsel, Silver, Freedman & Taff. L.L.P.,
(a limited liability partnership including professional corporations), 1100 New
York Avenue, N.W., Washington, D.C. 20005, to the effect that, for federal
income tax purposes:
(1) The Merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) and 368 (a)(2)(E) of the Internal
Revenue Code of 1986 (the "Code"). The reorganization will not be
disqualified by reason of the fact that Company Common Stock is issued
in the transaction (Section 368(a)(2)(E) of the Code). The Company, New
Bank and the Association will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code.
(2) No gain or loss will be recognized by the current Midland
stockholders upon the exchange of their Association Common Stock solely
in exchange for Company Common Stock.
(3) No gain or loss will be recognized to the Company on the
receipt of Association Common Stock.
(4) No gain or loss will be recognized to New Bank on the
transfer of substantially all of its assets to the Association.
(5) The basis of the Company Common Stock to be received by
each current Association stockholder will be the same as the basis of
Association Common Stock surrendered in the transaction.
(6) The holding period of the Company Common Stock to be
received by the current Midland stockholders will include the holding
period of the Association Common Stock surrendered in the transaction,
provided that the Association Common Stock was a capital asset in the
hands of the current Midland stockholders on the date of the exchange.
Any stockholder of the Association who dissents and perfects appraisal
rights as described under "Rights of Dissenting Stockholders" and is paid cash
for his shares of Association Common Stock may recognize gain or loss for
federal income tax purposes. Stockholders of the Association who dissent and
seek appraisal rights should consult their own advisors for answers to
individual questions regarding the taxation of cash received in lieu of shares.
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Rights of Dissenting Stockholders
If the reorganization is approved by the required vote at the Meeting
and is consummated, any record holder of the Association's Common stock may
require the Association to pay the fair or appraised value of his or her Common
Stock, determined as of the effective date of the Merger (the "Effective Date"),
by complying with Section 552.14 of the OTS Rules and Regulations. The
computation of fair or appraised value will exclude any element of value arising
from the accomplishment or expectation of the Reorganization.
To perfect the rights of a dissenting stockholder, a holder of Common
Stock must:
(1) deliver to Midland, before voting on the Reorganization, a
writing identifying himself or herself and stating his or her intention
thereby to demand appraisal of and payment for his or her shares (this
demand must be in addition to and separate from any proxy or vote
against the Reorganization by the stockholder); and
(2) not vote in favor of the proposed Reorganization.
Any holder of Common Stock of Midland who fails to comply with the
detailed procedures set forth in Section 552.14 may be bound by the terms of the
Reorganization. Neither a vote against the approval of the Reorganization nor
the giving of a proxy directing a negative vote will be sufficient to meet the
requirement described in clause (1) above. Further, because a proxy signed and
left blank will, unless revoked, be voted FOR approval of the Reorganization, a
stockholder electing to exercise rights as a dissenting stockholder who votes by
proxy must not leave his proxy blank, but must vote AGAINST approval of the
Reorganization or ABSTAIN from voting.
Within ten days after the effective date of the Reorganization, Midland
must mail to each stockholder who has complied with the provisions of Section
552.14 written notice of the Effective Date of the Reorganization and make an
offer to pay for his or her Common Stock at a price deemed by Midland to be the
fair value of such stock.
If within 60 days after the Effective Date of the Reorganization,
Midland and any such stockholder do not agree as to the fair value, the
stockholder may then file a petition with the OTS, with a copy sent by
registered or certified mail to Midland, demanding a determination of the fair
market value of the Common Stock held by such stockholder. A stockholder who
fails to file such petition within the 60-day period is deemed to have accepted
the terms offered in the Reorganization. However, if within 60 days of the
Effective Date the fair value is agreed upon between Midland and any dissenting
stockholder who has complied with the procedures set forth in Section 552.14,
payment therefor shall be made within 90 days of the Effective Date.
Within such 60-day period, each stockholder demanding appraisal and
payment for his Common Stock must submit to Midland his or her Common Stock
certificates for notation thereon that he or she is exercising his or her
appraisal rights. Any stockholder who fails to submit his or her certificates
for such notation will no longer be entitled to the appraisal rights and will be
deemed to have accepted the terms of the Reorganization.
The OTS will then, in the prescribed manner, appraise the Common Stock
to determine its fair market value as of the Effective Date of the
Reorganization, and will direct payment of the appraised fair market value.
Payment will then be made, with interest from the Effective Date, at a rate
deemed equitable by the OTS.
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The cost and expenses of any proceedings in respect of the exercise of
dissenter or appraisal rights may be apportioned and assessed by the OTS as it
may deem equitable against all or some of the parties. Any stockholder who has
demanded appraisal rights shall thereafter not be entitled to vote such stock
for any purpose nor be entitled to the payment of dividends or other
distributions on the stock, unless such stockholder withdraws his demand for
appraisal rights.
At any time within 60 days after the Effective Date, any stockholder
may withdraw his demand for appraisal and accept the terms of the Agreement.
The foregoing summary does not purport to be a complete statement of
the provisions of the federal regulation relating to rights of dissenting
stockholders, and is qualified in its entirety by reference to such regulation,
a copy of which is attached hereto as Appendix C. Failure by a stockholder to
follow the steps required by the federal regulation for perfecting rights as a
dissenting stockholder may result in a loss of such rights. Stockholders'
notices of intent to demand appraisal of all payment for their shares should be
sent to: Charles Zogas, Secretary of the Association, 8929 South Harlem Avenue,
Bridgeview, Illinois 60455.
In addition, if the Association should abandon its plans to consummate
the Reorganization, the right of a dissenting stockholder to be paid the fair
value of his shares shall cease. In the event that the holders of more than 10%
of the Association's Common Stock perfect their rights to appraisal, the
Association may determine not to consummate the Reorganization. See "--
Amendment or Termination."
Conditions to the Reorganization
The consummation of the Reorganization is conditioned upon, among other
things: (i) approval by the OTS and the stockholders of Midland; and (ii) the
receipt of a favorable opinion of counsel with respect to the matters summarized
above under the caption "-- Federal Income Tax Consequences." It is contemplated
that these conditions will be complied with before consummation of the
Reorganization. See "--Effective Date of the Reorganization," below. However,
the Merger Agreement provides that Midland, the Company and New Bank, without
approval of their stockholders, may waive any of the conditions (other than the
necessary approvals of stockholders and government authorities) to their
respective obligations to consummate the Reorganization.
Except with the specific approval of its stockholders, Midland will
not, subsequent to the approval of the Reorganization by Midland's stockholders,
waive any condition to the Reorganization set forth in the Merger Agreement if,
in the judgment of its Board of Directors, such waiver would be materially
adverse to Midland or its stockholders.
An application has been filed with the OTS for approval of the proposed
Reorganization, It is anticipated, although there can be no assurance, that
final approval by the OTS will be received before approval of the Reorganization
by Midland's stockholders. By approving the Reorganization, the stockholders
will be approving compliance by Midland and the Company with any condition which
may be imposed by the OTS in connection with its approval of the Reorganization
and which is not deemed by Midland to be materially adverse to Midland or its
stockholders.
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Amendment or Termination
Midland, the Company and New Bank, by mutual consent of their
respective Boards of Directors and to the extent permitted by law, may amend the
Merger Agreement pursuant to which the Reorganization will be implemented at any
time before or after approval of the Merger Agreement by their respective
stockholders, but no amendment which would have a materially adverse impact on
Midland or its stockholders may be implemented unless approval of the
stockholders is first obtained.
The Merger Agreement also provides that it may be terminated and the
Reorganization abandoned at any time prior to the effective date by: (i) mutual
consent of the parties to the Merger Agreement; (ii) specified parties to the
Merger Agreement if certain conditions to the consummation of Reorganization are
not satisfied or waived; or (iii) by the Association if holders of more than 10%
of the Association's outstanding stock perfect their appraisal rights in
connection with the Reorganization. The rights of the parties to the Merger
Agreement to terminate it are set forth in detail under Article X thereof. In
the event of such termination, Midland will pay the fees and expenses incurred
in connection with the Merger Agreement and the proposed Reorganization.
Effective Date of the Reorganization
The Effective Date shall be the day on which the Articles of
Combination (as required pursuant to the Rules and Regulations of the OTS) are
executed by the OTS. The Boards of Directors of Midland, New Bank and Holding
each specifically and expressly delegate to their respective chief executive
officers the authority to change, by mutual consent of such officers, the
Effective Date if necessary to properly and efficiently accomplish the Merger.
However, in no event shall the Merger become effective unless and until approved
by the OTS.
Exchange of Stock Certificates Not Required
The holders of Midland Common Stock will be notified of the
consummation of the Reorganization. After the Reorganization is consummated, the
former stockholders of the Association may forward to Registrar and Transfer
Company, 10 Commerce Drive, Cranford, New Jersey 07016, (which will be the
transfer agent and registrar for the shares of Company Common Stock) stock
certificates theretofore evidencing Association Common Stock for surrender and
exchange for certificates representing Company Common Stock. THERE IS NO
REQUIREMENT THAT SUCH SURRENDER AND EXCHANGE BE MADE AND, UNTIL SO SURRENDERED
TO THE TRANSFER AGENT AND REGISTRAR, CERTIFICATES FORMERLY REPRESENTING
ASSOCIATION COMMON STOCK WILL BE DEEMED FOR ALL CORPORATE PURPOSES TO EVIDENCE
THE NUMBER OF SHARES OF COMPANY COMMON STOCK WHICH THE HOLDER THEREOF WOULD BE
ENTITLED TO RECEIVE UPON SURRENDER.
Operations After the Reorganization
After the Reorganization is consummated, Midland will continue to
conduct its business substantially as it is now being conducted, except that the
Association will be a wholly-owned subsidiary of the Company. The Reorganization
will not result in a change in the Association's directors, officers or
personnel. For information with respect to the management of the Company, see
"The Company -- Company Management." After consummation of the Reorganization,
the Association will be subject to regulation and supervision by regulatory
authorities to the same extent as it is now. However, certain obligations
pursuant to the Exchange
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Act, which are not applicable to the Association will become applicable to the
Company after the Reorganization. See "-- Comparison of Stockholder Rights --
Reports to Stockholders." For information with respect to the supervision and
regulation of the Company, see "The Company -- Regulation."
Accounting Treatment
For accounting purposes, the assets, liabilities and stockholders'
equity of Midland immediately prior to the Reorganization will be carried
forward on the financial statements of Midland and the Company after the
Reorganization at the amounts carried on their respective books at the effective
date of the Reorganization.
Bank Incentive Plan and Stock Option Plan
The Company will assume and continue Midland's Stock Option Plan.
Holders of options granted or to be granted under the Stock Option Plan,
following the effectiveness of the Reorganization, will be entitled to purchase
a number of shares of Company Common Stock equal to the number of shares of
Association Common Stock such holder would have been entitled to purchase
immediately prior to the effective date of the Reorganization, upon the same
terms and conditions as under such Stock Option Plan and the option agreements
relating thereto in effect immediately prior to the Reorganization. The Company
will also have the right to grant options and restricted stock awards as and to
the extent provided by the Stock Option Plan. Similarly, following the
Reorganization, restricted stock granted under the Bank Incentive Plan will
relate to Company Common Stock rather than to Association Common Stock.
A vote in favor of the Reorganization will constitute a vote in favor
of the adoption and assumption of the Stock Option Plan by the Company.
Comparison of Stockholder Rights
Various features of the Certificate of Incorporation and Bylaws of the
Company differ from the Charter and Bylaws of the Association. The following
discussion does not purport to be a complete statement of such differences but
summarizes the differences that are deemed by the Association to be material.
For additional information, reference is made to "The Company" and other
information contained elsewhere in this Proxy Statement/Prospectus, to the
Certificate of Incorporation of the Company attached as Appendix B to this Proxy
Statement, and to the Bylaws of the Company and the Charter and Bylaws of the
Association which may be obtained by stockholders upon written request to the
Secretary, Midland Federal Savings and Loan Association, 892 South Harlem
Avenue, Bridgeview, Illinois 60455.
Choice of Delaware Law. For many years Delaware has followed a policy
of encouraging incorporation in that state. In furtherance of that policy, it
has adopted comprehensive, modern and flexible corporate laws which are
periodically updated and revised to meet changing business needs. As a result,
many major corporations, including a number of the largest and most successful
enterprises, choose Delaware for their domicile. Because of Delaware's
significance as the state of incorporation for many major domestic corporations,
the Delaware judiciary has become particularly familiar with matters of
corporate law and a substantial body of court decisions has developed construing
Delaware law. As a consequence, Delaware corporate law has been interpreted and
explained in a number of significant court decisions, which may provide greater
predictability with respect to the Company's corporate legal affairs.
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Issuance of Additional Capital Stock. The Association has 5,000,000
shares of authorized common stock, par value $.01 per share, of which 363,975
shares were issued and outstanding as of June 15, 1998 and 1,000,000 shares of
authorized preferred stock, par value $.01 per share, of which no shares are
issued and outstanding. Under the Association's Charter, no shares of capital
stock may be issued, unless their issuance or the plan under which they would be
issued receives stockholder approval, directly or indirectly to officers,
directors or controlling persons of the Association other than as part of a
general public offering or as qualifying shares to a director. Stockholder
approval under the Association's Charter would require the affirmative vote of a
majority of the total votes eligible to be cast.
The Company's Certificate of Incorporation authorizes 600,000 shares of
common stock, par value $.01 per share, and 50,000 shares of preferred stock,
par value $.01 per share, which may generally be issued by action of the Board
of Directors without stockholder approval.
Amendment of Governing Instruments. Amendments to the Association's
Charter must be preliminarily approved by the OTS, and the Association's Bylaw
amendments are required to be consistent with OTS regulations governing
permitted Bylaw provisions. Amendments to the Company's Certificate of
Incorporation and Bylaws are not subject to OTS approval.
Transactions With Affiliates. The Association, as a federally-insured
savings and loan association, is subject to certain restrictions, limitations,
conditions and prohibitions with respect to transactions with directors,
officers and affiliated persons. These include, but are not limited to,
limitations upon deposit relationships, loan services, loan procurements, and
restrictions on loans and investments. These requirements and restrictions will
continue to apply to the Association following the Reorganization.
Under Delaware law, no contract or transaction between a corporation
and one or more of its directors or between a corporation and another
organization in which one or more of its directors is a director or officer or
is financially interested shall be void or voidable solely for this reason,
provided that the material facts of the relationship of the party to the
transaction are disclosed and the contract or transaction is authorized by a
majority of the disinterested directors or by a majority of the stockholders
entitled to vote or, at the time of such authorization, the contract or
transaction was fair and reasonable to the corporation.
Additionally, the Company is subject to certain federal regulations
relating to transactions between insured thrift institutions and their holding
company. See "The Company -- Regulation."
Number of Directors. Midland's Charter sets a range of number of
directors at a minimum of five and a maximum of fifteen, while the Company's
Certificate of Incorporation provides that the number of directors shall be
fixed by the Board of Directors pursuant to a resolution adopted by a majority
of the whole board. Under Delaware law, the Company must have at least one
director, but no maximum number is specified.
Appraisal Rights. Holders of the Association's Common Stock have
certain dissenter and appraisal rights for certain mergers, consolidations or
sales of assets, including the right to demand payment of the fair or appraised
value of their shares.
Holders of the Company Common Stock would have generally similar
dissenter and appraisal rights for any plan of corporate merger or
consolidation. However, under Delaware law these dissenter and appraisal rights
do not exist with respect to sale of assets transactions.
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Reports to Stockholders. Midland is required to transmit proxy material
and annual reports containing financial statements to its stockholders.
Following the Reorganization, these obligations will be assumed by the Company
and the Company will be required to comply with the Exchange Act, and will
transmit proxy materials and annual reports containing financial statements to
its stockholders and will file with the SEC periodic reports, which will be
available for public inspection, to provide current financial and other
information about the Company.
Liability and Indemnification of Directors, Officers and Employees.
Federal regulations require the indemnification of certain costs and expenses
and judgment liability for any action brought or threatened by reason of the
fact that a person is or was a director, officer or employee of the Association.
Such indemnification is authorized, subject to certain conditions and
limitations, including the requirement that such action results in either a
final judgment on the merits in favor of the indemnitee or a judgment not on the
merits or settlement as to which the majority of the Board of Directors
determines that such indemnitee was acting in good faith within what he or she
was reasonably entitled to believe, under the circumstances, was within the
scope of his or her employment or authority and was acting for a purpose that he
or she was reasonably entitled to believe, under the circumstances, was in the
best interests of the Association or its stockholders and after notice to, and
without objection by, the OTS. The Association has insurance to protect its
officers and directors from potential liability and other costs arising from
such claims. No such insurance, however, may be provided for losses incurred as
a consequence of willful or criminal conduct.
Delaware law provides corporations with broad indemnification powers.
Such powers include the ability to provide forms of indemnification in addition
to the type of indemnification set forth in the Delaware statute. The
Certificate of Incorporation of the Company authorizes rights of indemnification
that are broader than those applicable to the Association and do not require any
notice or right of objection to be afforded the OTS. The Company's Certificate
of Incorporation provides that a director, officer, employee or agent of the
Company or any person serving in such capacity at the request of the Company
shall be indemnified by the Company from and against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with a threatened, pending or completed suit or proceeding, including a
proceeding by or on behalf of the Company, in which such person is involved due
to such person's position with the Company, provided that a determination has
been made that such person acted in good faith and in a manner that such person
reasonably believed to be in, or not opposed to, the best interests of the
Company and in the case of a criminal proceeding, such person had no reason to
believe his or her conduct was unlawful. The determination that indemnification
is proper shall be made by a majority vote of a quorum of directors who were not
parties to such proceedings, or if a quorum cannot be obtained or such a quorum
so directs, by a written opinion of independent legal counsel or by
stockholders. Expenses incurred in defending or investigating a threatened or
pending suit or proceeding may be paid by the Company in advance of the final
disposition of such suit or proceeding upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be determined
that he or she is not entitled to indemnification by the Company.
The Company intends to purchase insurance (if available) to protect its
officers, directors and employees. If the Company does not, or is not able to,
purchase such insurance, or to the extent that such insurance is inadequate, the
Company will be required to fund any amount that may ultimately be paid under
the indemnification provision.
Notwithstanding the foregoing, indemnification for liability under the
federal securities laws may be considered void as against public policy. The
provisions in the Certificate of Incorporation regarding
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indemnification and limitation of liability may only be amended or repealed by
the affirmative vote of the holders of 66 2/3% of the votes eligible to be cast
at a legal meeting of stockholders.
Under Delaware law, each director owes certain fiduciary duties to the
corporation and to its stockholders. These duties include a duty of loyalty and
a duty of care. Applicable decisional law requires not only that a director
refrain from fraud, bad faith, self-dealing and transactions involving material
conflicts of interest (the duty of loyalty), but also that the director exercise
his or her business judgment on an informed basis (the duty of care). Delaware
law permits the inclusion in the certificate of incorporation of a Delaware
corporation of a provision limiting or eliminating the potential monetary
liability of directors to the corporation or its stockholders by reason of any
failure to perform their fiduciary duty as directors, subject to certain
important exceptions which are reflected in Article TENTH of the Company's
Certificate of Incorporation and discussed below. Subject to these exceptions,
this section would relieve directors (but not officers) from such personal
liability, including liability for any breach of the duty of care which involves
gross negligence in the performance of such duty in the various contexts in
which directors are called upon to act, including consideration of proposed
mergers or other business combinations.
As provided in the Delaware statute, the Company's Certificate of
Incorporation eliminates a director's personal liability to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. This provision
does not affect the availability of equitable remedies, such as an injunction or
rescission, for a breach of fiduciary duty.
The Association has not received notice of any suit or proceeding as to
which this provision could have the effect of reducing the likelihood of
derivative litigation against directors in the future. This proposition also may
discourage or deter stockholders from bringing a lawsuit against directors for
breach of their fiduciary duty or gross negligence even though such an action,
if successful, might result in a judgment in favor of the Company and its
stockholders.
Since these provisions limit the potential liability of directors and
provide for indemnification of directors, and the Certificate of Incorporation
requires a 66 2/3% vote of the total votes eligible to be cast by stockholders
to amend, alter or repeal these provisions, it should be noted that the Board of
Directors has an interest in and may benefit from these provisions. The Board is
nevertheless of the view that the advantages of these provisions in encouraging
qualified persons to serve and to exercise their best judgment without concern
for personal monetary liability significantly outweigh the potential
disadvantages.
Board of Directors Decision in Certain Transactions. Under Delaware law
and the Company's Certificate of Incorporation, when evaluating a tender or
exchange offer, merger or a sale of substantially all of the Company's assets,
the Board of Directors is permitted, in the exercise of its judgement in
determining what is in the best interest of the Company and its stockholders, to
give due consideration to all relevant factors, including, without limitation,
the social and economic effect of such proposed transaction on the Company's
present and future customers and employees, on the communities in which the
Company is located on the Company's ability to fulfill its objective as a
financial institution holding company and on the ability of its subsidiary to
fulfill its objectives as a federally insured financial institution under
applicable statutes and regulations.
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The Midland charter has no such provision.
Voting Rights. All voting rights are vested in the holders of
Association Common Stock, each share being entitled to one vote. Upon the
Reorganization, holders of Company Common Stock will have the same voting
rights. The Association's Charter currently does not permit cumulative voting
for the election of directors but will permit cumulative voting after June 30,
1998. The Company's Certificate of Incorporation does not permit cumulative
voting.
The Association may, in general, effect a merger or consolidation or
sale of all or substantially all of its assets, if approved by the holders of
two-thirds (or a majority in the case of certain transactions with an interim
institution) of the outstanding Association Common Stock. The Company's
Certificate of Incorporation provides that the holders of 662/3% of the voting
stock of the Company must approve a merger or consolidation or sale of all or
substantially all of the assets of the Company.
The Company Common Stock, like that of Midland, has no redemption,
sinking fund or conversion privileges, and will be fully paid and
non-assessable.
Legal Investments. Under the laws of some jurisdictions, shares of
Company Common Stock may not be legal investments for certain institutions and
fiduciaries, whereas shares of Association Common Stock are more likely to be.
For example, under the laws of some jurisdictions, certain pension funds may not
be permitted to invest in common stock or other securities of thrift institution
holding companies. Stockholders of the Association should consult their personal
advisors or plan administrators regarding the permissibility under state law of
investment in the Company Common Stock.
Continuation of Certain Provisions. The Company's Certificate of
Incorporation will continue certain provisions already contained in the
Association's Charter or Bylaws. Certain of these provisions, including those
(a) providing for a classified Board of Directors, or (b) restricting removal of
directors, could be deemed to have an anti-takeover effect and to render more
difficult the removal of management. As described elsewhere in this Proxy
Statement/Prospectus, the Association's BIP and SOP also provide for accelerated
benefits in certain events involving a change of control or takeover attempt.
Certain regulatory provisions may also have a takeover defensive
effect. OTS regulations generally require persons who intend to acquire control
of a federally-insured capital stock savings institution to give 60- days' prior
written notice to the OTS. OTS regulations also require prior OTS approval
before any company may acquire control of savings institution. See "The Company
- -- Regulation."
Limitations on Action by Stockholders. Under the Association's Charter
and Bylaws, special meetings relating to the changes in control of the
Association or amendments to the Association's Charter can be called for only by
the Association's Board of Directors. Under Delaware law, special meetings of
stockholders may be called only by the board of directors or by any other person
authorized to do so in the certificate of incorpora tion or bylaws. The
Certificate of Incorporation of the Company provides that a special meeting of
stockholders may be called only by a majority of the Board of Directors.
The stockholders of the Association may presently take action without a
meeting with the written consent of all the holders of the common stock entitled
to vote on such matters approving such action. The
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Certificate of Incorporation of the Company provides that its stockholders may
act only at an annual or special meeting.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by the Company's Board
of Directors and also by a majority of the outstanding shares of the Company's
voting stock, provided, however, that approval by at least 662/3% of the
outstanding voting stock is generally required for certain provisions (i.e.,
provisions relating to number, classification, election and removal of
directors; amendment of bylaws; call of special stockholder meetings; director
liability; power of indemnification; and amendments to provisions relating to
the foregoing in the certificate of incorporation).
The bylaws may be amended by a majority vote of the Board of Directors
or the affirmative vote of at least 662/3% of the total votes eligible to be
voted at a duly constituted meeting of stockholders.
Effects of the Company's Certificate of Incorporation and Bylaws. The
Board of Directors of the Association believes that the provisions described
above are prudent and will reduce the Company's vulnera bility to takeover
attempts and certain other transactions which have not been negotiated with and
approved by its Board of Directors. The Board of Directors believes these
provisions are in the best interest of the Association and of the Company and
its stockholders. In the judgment of the Board of Directors, the Com pany's
Board will be in the best position to determine the true value of the Company
and to negotiate more effectively for what may be in the best interests of its
stockholders. Accordingly, the Board of Directors believes that it is in the
best interests of the Company and its stockholders to encourage potential
acquirors to negotiate directly with the Board of Directors of the Company and
that these provisions will encourage such negotiations and discourage hostile
takeover attempts. It is also the view of the Board of Directors that these
provisions should not discourage persons from proposing a merger or other
transaction at prices reflective of the true value of the Company and which is
in the best interests of all stockholders.
Attempts to take over financial institutions and their holding
companies have become increasingly common. Takeover attempts which have not been
negotiated with and approved by the Board of Directors present to stockholders
the risk of a takeover on terms which may be less favorable than might otherwise
be available. A transaction which is negotiated and approved by the Board of
Directors, on the other hand, can be carefully planned and undertaken at an
opportune time in order to obtain maximum value for the Company and its
stockholders, with due consideration given to matters such as the management and
business of the acquiring corporation and maximum strategic development of the
Company's assets.
Other Restrictions on Acquisitions of Stock
Delaware Anti-Takeover Statute. The Delaware General Corporation Law
(the "DGCL") provides that buyers who acquire more than 15% of the outstanding
stock of a Delaware corporation, such as the Company, are prohibited from
completing a hostile takeover of such corporation for three years. However, the
takeover can be completed if (i) the buyer, while acquiring the 15% interest,
acquires at least 85% of the corporation's outstanding stock (the 85%
requirement excludes shares held by directors who are also officers and certain
shares held under employee stock plans), or (ii) the takeover is approved by the
target corporation's board of directors and two-thirds of the shares of
outstanding stock of the corporation (excluding shares held by the bidder).
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However, these provisions of the DGCL do not apply to Delaware
corporations with less than 2,000 stockholders or which do not have voting stock
listed on a national exchange or listed for quotation with a registered national
securities association. Therefore, at the completion of the Reorganization, it
is expected that the Company would not be subject to this provision.
Federal Regulation. Federal law provides that no company, "directly or
indirectly or acting in concert with one or more persons, or through one or more
subsidiaries, or through one or more transactions," may acquire "control" of a
savings association at any time except upon application and the prior approval
of the OTS. In addition, federal regulations require that, prior to obtaining
control of a savings association, a person, other than a company, must give 60
days' prior notice to the OTS and have received no OTS objection to such
acquisition of control. Any company that acquires such control becomes a
"savings and loan holding company" subject to registration, examination and
regulation as a savings and loan holding company. Under federal law (as well as
the regulations referred to below) the term "savings association" includes state
and federally chartered SAIF-insured institutions and federally chartered
savings banks whose accounts are insured by the FDIC's Bank Insurance Fund and
holding companies thereof.
Control, as defined under federal law, in general means ownership,
control of or holding irrevocable proxies representing more than 25% of any
class of voting stock, control in any manner of the election of a majority of
the savings association's directors, or a determination by the OTS that the
acquiror has the power to direct, or directly or indirectly to exercise a
controlling influence over, the management or policies of the institution.
Acquisition of more than 10% of any class of a savings association's voting
stock, if the acquiror also is subject to any one of eight "control factors,"
constitutes a rebuttable determination of control under the regulations. Such
control factors include the acquiror being one of the two largest stockholders.
The determination of control may be rebutted by submission to the OTS, prior to
the acquisition of stock or the occurrence of any other circumstances giving
rise to such determination, of a statement setting forth facts and circumstances
which would support a finding that no control relationship will exist and
containing certain undertakings. The regulations provide that persons or
companies which acquire beneficial ownership exceeding 10% or more of any class
of a savings association's stock must file with the OTS a certification that the
holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable. These federal regulations can make a change
in control more difficult, even if desired by the holders of the majority of the
shares of the stock. Paul Zogas, Chairman, President and Chief Executive Officer
of the Association and Charles Zogas, Director, Executive Vice President and
Secretary of the Association collectively control more than 25% of the
Association's Common Stock. See "General Information -- Voting Securities and
Principal Holders Thereof."
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF THE PROPOSED HOLDING COMPANY REORGANIZATION.
PROPOSAL II -- ADJOURNMENT OF THE SPECIAL MEETING
The Association is asking stockholders to consider and approve a
proposal at the Meeting which would allow the Association to adjourn the Meeting
in the event that sufficient votes are not received to approve the Merger
Agreement. If approved, this proposal will permit the Association to adjourn the
Meeting in order to further solicit proxies for approval of the Merger Agreement
in the event that such proposal does not receive
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sufficient votes for its adoption. Any such adjournment will be conducted in
accordance with regulations of the OTS regarding notice and other requirements.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF THE PROPOSAL TO ADJOURN THE MEETING.
FINANCIAL STATEMENTS
The audited financial statements of the Association as of June 30, 1997
and 1996 and for each of the two years in the period ended June 30, 1997,
prepared in conformity with generally accepted accounting principles, are
included in the Annual Report to Stockholders which was previously provided to
all of the Association's stockholders. A copy of the Association's Annual Report
to Stockholders for the fiscal year ended June 30, 1997 is attached hereto as
Appendix E. Any stockholder which would like to receive an additional copy of
the Association's Annual Report to Stockholders for the fiscal year ended June
30, 1997, may do so by making a written request to Charles Zogas, Secretary of
the Association, 8929 South Harlem Avenue, Bridgeview, Illinois 60455.
No financial statements of the Company are presented in this Proxy
Statement/Prospectus, as the Company currently has no significant assets or
liabilities. In addition, no pro forma consolidated financial statements of the
Company are included herein since such statements would reflect no material
differences from the consolidated financial statements of the Association.
THE ASSOCIATION
The Association began operations in 1914 as a state-chartered mutual
savings institution. In 1982 the Association became a federal mutual and savings
and loan association. In 1993 the Association completed a conversion to the
stock form of ownership. The Association's primary business is attracting
deposits from the general public and using such deposits to originate
residential mortgages and, to a lesser extent, consumer, multi-family and other
loans in its primary market area. The Association has also made substantial
investments in mortgage-backed securities, investment securities and liquid
assets. The Association's primary market area consists of Southwest Chicago and
the southwest suburban communities of Bridgeview, Oak Lawn, Palos Hills, Hickory
Hills, Burbank and Justice which it serves through its main office and two
branch offices.
The Association is from time to time, a party to certain legal
proceedings arising in the ordinary course of its business. The Association
believes that none of these proceedings would, if adversely determined, have a
material adverse effect on its financial condition.
For a further description of the operations of the Association, its
properties and market price information, see the Annual Report to Stockholders
for the fiscal year ended June 30, 1997, attached hereto as Appendix D.
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THE COMPANY
General
The Company was incorporated under the laws of Delaware in April 1998
at the direction of the Board of Directors of the Association for the purpose of
serving as a holding company for the Association. The Company will be the sole
stockholder of New Bank, an interim savings association subsidiary which is
being organized for the purpose of facilitating the proposed Reorganization.
Until the Effective Date, New Bank will not conduct any operations or business.
On the Effective Date, it will be merged into Midland and the resulting
institution will continue the operations and business of the Association without
interruption.
The Company's executive offices are located at 8929 South Harlem
Avenue, Bridgeview, Illinois 60455, and its telephone number is (708) 598-9400.
Regulation
The Company will become a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company will be
required to register and file reports with the OTS and is subject to regulation
and examination by the OTS. In addition, the OTS has enforcement authority over
the Company and its non-savings association subsidiaries which also permits the
OTS to restrict or prohibit activities that are determined to be a serious risk
to the subsidiary savings association.
As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than the Association or any other SAIF-insured savings
association) would become subject to such restrictions unless such other
associations each qualify as a Qualified Thrift Lender ("QTL") and were acquired
in a supervisory acquisition.
If the Association fails the QTL test, the Company must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure the Company must register as, and will become
subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company.
Should the Association fail to meet its minimum regulatory capital
requirements, the Company will be required to execute a limited capital
guarantee in connection with the filing of a capital restoration plan by the
Association. Such a guarantee would expire only after the OTS notifies the
Association that it has remained adequately capitalized for each of four
consecutive calendar quarters.
The Association is subject to Sections 23A and 23B of the Federal
Reserve Act which govern transactions between savings banks and their
affiliates, which includes the Company. Section 23A limits the extent to which a
savings and loan association or its subsidiaries may engage in covered
transactions with an affiliate to an amount equal to 10% of the savings bank's
capital and surplus for each transaction, with an aggregate limit on all such
transactions with affiliates of 20% of capital and surplus, and imposes certain
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collateral requirements with respect to such transactions. Section 23B requires
that all such transactions be on terms substantially the same or at least as
favorable to the savings and loan association as those that would be provided to
a non-affiliate. A "covered transaction" includes the making of loans, the
purchase and sale of assets, the issuance of guarantees and other similar
transactions.
The Company must obtain approval from the OTS before acquiring control
of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal and State Taxation
After the consummation of the Reorganization, the Company, the
Association and the Association's subsidiary intend to file consolidated federal
and state income tax returns which would have the effect of elim inating
intercompany distributions, including dividends, in the computation of the
consolidated taxable income. Any income of the Company would not be subject to
the special bad debt deduction allowed the Association, whether or not
consolidated tax returns are filed.
Restrictions on Resale of Company Stock Received by Certain Persons
The Association Common Stock is presently exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
while Company Common Stock is subject to such requirements. Accordingly, Company
Common Stock may be offered and sold only in compliance with such registration
requirements or pursuant to an applicable exemption from registration. The
Association, however, will continue to be subject to the registration
requirements of Part 563g of the OTS regulations which generally require that
Association Common Stock may be offered and sold only in compliance with such
registration requirements.
The offering of shares of Company Common Stock issuable in connection
with the Reorganization has been registered under the Securities Act, but this
registration does not cover the resale of such shares. Company Common Stock
received in the Reorganization by persons who are not "affiliates" of the
Company may be resold without registration. Shares received by affiliates of the
Company (primarily the directors, officers and any "controlling" stockholders of
the Company) will be subject to the resale restrictions of Rule 145 under the
Securities Act, which are substantially the same as the restrictions of Rule 144
discussed below. In general, the Rule 145 restrictions terminate with respect to
persons who are no longer affiliated with the Company after a two-year holding
period if the Company continues to comply with the reporting requirements of the
Exchange Act which will apply to it after the Reorganization (see "Proposal I --
The Holding Company Merger and Reorganization -- Comparison of Stockholder
Rights -- Reports to Stockholders"), or after a three-year period if the Company
does not meet such requirements. However, any person who becomes an affiliate of
the Company will continue to be subject to the restrictions of Rule 144.
Rule 144 generally requires that there be publicly available certain
information concerning the Company, and that sales thereunder be made in routine
brokerage transactions or through a market maker. Beginning 90 days after the
date of this Proxy Statement, if the conditions of Rule 144 are satisfied
(including those that in some cases require affiliates' sales to be aggregated
with sales by certain other persons), each affiliate is entitled to sell in the
public market, without registration, in any three-month period, a number of
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shares which does not exceed the greater of (i) one percent of the number of
outstanding shares of Company Common Stock or (ii) for so long as trading in the
stock is reported through the NASDAQ-NMS (or if the stock is admitted to trading
on a national securities exchange), the average weekly reported volume of
trading during the four weeks preceding the sale. Provision may be made in the
future by the Company to permit affiliates to have their shares registered for
sale under the Securities Act under certain circumstances.
Company Management
The initial Board of Directors of the Company consists of the current
directors of the Association. Such directors will serve for terms which will run
concurrently with their respective terms as directors of the Association.
The executive officers of the Company, each whom is currently an
executive officer of the Association, are identified below. The executive
officers of the Company are elected annually by the Company's Board of
Directors.
Name Position with the Company
---- -------------------------
Paul Zogas President and Chief Executive
Officer
Charles Zogas Executive Vice President,
Secretary and Treasurer
It is currently expected that, unless the Company becomes actively
involved in the operation or acquisition of additional savings institutions or
other businesses, no separate compensation will be paid to the directors and
employees of the Company. However, the Company may determine that separate
compensation is appropriate in the future. Upon completion of the
Reorganization, the Stock Option Plan of the Association will become the Stock
Option Plan of the Company, respectively, and directors and employees of the
Association will continue to be eligible to participate. Since the directors and
employees of the Association will not initially be compensated by the Company
but will continue to serve and be compensated by the Association, no additional
Company benefit plans are anticipated at this time. The Association will
continue to maintain its other benefit programs.
LEGAL OPINION
The legality of the Company Common Stock to be issued pursuant to the
Reorganization and certain other matters in connection with the Reorganization
will be passed upon by Silver, Freedman & Taff, L.L.P., a limited liability
partnership including professional corporations, 1100 New York Avenue, N.W.,
Washington, D.C. 20005.
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STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Association's proxy
materials for next year's Annual Meeting of Stockholders (or the Company's proxy
materials, if the Reorganization is then completed), any stockholder proposal to
take action at such meeting must be received at the main office of the
Association or the Company, 8929 South Harlem Avenue, Bridgeview, Illinois
60455, no later than June 1, 1998. Any such proposals shall be subject to the
requirements of the proxy rules adopted under the Exchange Act.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than the matter described above in this Proxy
Statement/Prospectus. However, if any other matters should properly come before
the Meeting, it is intended that holders of the proxies will act in accordance
with their best judgment.
The cost of solicitation of proxies will be borne by the Association.
The Association will reimburse brokerage firms and other custodians, nominees
and fiduciaries for reasonable expenses incurred by them in sending proxy
materials to the beneficial owners of Association Common Stock. In addition to
solicitation by mail, directors, officers and regular employees of the
Association may solicit proxies personally or by telegraph or telephone, without
additional compensation.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Charles Zogas
----------------
CHARLES ZOGAS
Secretary
Bridgeview, Illinois
June 22, 1998
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APPENDIX A
MERGER AGREEMENT AND PLAN OF REORGANIZATION
THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION ("Agreement"), is made
and entered into by and among MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
("Midland"), a federal savings and loan association, MIDLAND CAPITAL HOLDINGS
CORPORATION ("Holding"), a Delaware business corporation, and NEW BANK ("New
Bank"), an interim federally-chartered capital stock savings and loan
association subsidiary of Holding, effective as of the date executed by all of
the parties.
WITNESSETH:
WHEREAS, Midland is a federal savings and loan association duly
organized and validly existing under the laws of the United States, with
authorized capital stock consisting of 5,000,000 shares of common stock, par
value $.01 per share ("Midland Common Stock"), of which 363,975 shares are
issued and outstanding and 1,000,000 shares of preferred stock, $.01 par value,
none of which are outstanding;
WHEREAS, New Bank is a federally-chartered capital stock savings and
loan association and a subsidiary of Holding with authorized capital stock
consisting of 600,000 shares of common stock, par value $.01 per share ("New
Bank Common Stock");
WHEREAS, Holding is a capital stock corporation duly organized and
validly existing under the laws of Delaware, with authorized capital stock
consisting of 600,000 shares of common stock, par value $.01 per share ("Holding
Common Stock") and 50,000 shares of preferred stock, par value $.01 per share;
WHEREAS, Holding proposes to issue one share of its common stock to its
incorporator for a purchase price of $4,000.00 and to purchase one share of the
common stock of New Bank for $4,000.00;
WHEREAS, it is the desire of the parties to this Agreement to adopt a
plan of reorganization providing for the formation of a savings and loan holding
company; and
WHEREAS, a majority of the respective Boards of Directors of Midland,
New Bank, and Holding have approved and authorized the execution of this
Agreement pursuant to which the plan of reorganization, including the merger of
New Bank into Midland, will be implemented.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and in order to prescribe the plan of
reorganization and merger, including its terms and conditions, the mode of
carrying the same into effect, the manner and basis of stockholders of Midland
exchanging their Midland Common Stock for Holding Company Common Stock and such
other details and provisions as are deemed necessary or proper, the parties
hereby agree as follows:
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ARTICLE I
MERGER AND REORGANIZATION
1.1 Subject to the conditions hereinafter set forth, New Bank shall be
merged into Midland under the Charter of Midland at the Effective Date (as
defined in Article XI hereof) of the merger (the "Merger"). The Merger shall be
effected pursuant to the provisions of, and with the effect provided in, the
applicable provisions of the laws of the United States of America and the Rules
and Regulations of the Office of Thrift Supervision (the "OTS").
1.2 On the Effective Date, the resulting entity in the Merger shall be
Midland (hereinafter referred to as the "Surviving Institution" whenever
reference is made to it as of the Effective Date of the Merger or thereafter)
which will continue to operate under the name "Midland Federal Savings and Loan
Association." The Charter and Bylaws of Midland in effect on the Effective Date
shall be the Charter and Bylaws of the Surviving Institution. The established
offices and facilities of Midland immediately prior to the Merger as set forth
in Exhibit A attached hereto shall become the established offices and facilities
of the Surviving Institution.
1.3 On the Effective Date of the Merger, New Bank shall cease to exist
separately and shall be merged with and into Midland in accordance with the
provisions of this Agreement and in accordance with the provisions of applicable
laws, rules and regulations, and all of the assets and property of every kind
and character, real, personal and mixed, tangible and intangible, chooses in
action, rights and credits then owned by New Bank or which would inure to it,
shall immediately, by operation of law and without any conveyance or transfer
and without any further act or deed, be vested in and become the property of the
Surviving Institution, which shall have, hold and enjoy the same in its own
right as fully and to the same extent as the same were possessed, held and
enjoyed by New Bank prior to such Merger. The Surviving Institution shall be
deemed to be and shall be a continuation of the entity and identity of New Bank
and Midland and all of the rights and obligations of New Bank and Midland shall
remain unimpaired and the Surviving Institution, on the Effective Date of such
Merger, shall succeed to all such rights and obligations and the duties and
liabilities connected therewith on such Effective Date.
1.4 On the Effective Date of the Merger, there will be no holders of
deposit accounts, transaction accounts, savings accounts or certificates of
deposit issued by New Bank. Holders of deposit accounts, transaction accounts,
savings accounts or certificates of deposit of Midland as of the Effective Date
of the Merger shall continue to be holders of the same interest of the Surviving
Institution without change as to withdrawal value or other rights. No existing
deposit account, transaction account, savings account or certificate of deposit
holder shall have any of his rights impaired by virtue of the Merger
contemplated hereby.
1.5 The directors and officers of the Surviving Institution on the
Effective Date shall be those persons who are directors and officers,
respectively, of Midland immediately before the Effective Date. Information with
respect to the directors of the surviving Institution is set forth in Exhibit B
attached hereto. The committees of the Board of Directors of the Surviving
Institution on the Effective Date shall be the same as, and shall be composed of
the same persons who were serving on, committees appointed by the Board of
Directors of Midland as they exist immediately before the Effective Date. The
committees, if any, of officers of the Surviving Institution on the Effective
Date shall be the same as, and shall be composed of the same officers who were
serving on, the committees of officers of Midland as they exist immediately
before the Effective Date.
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1.6 Except as expressly prohibited by applicable laws, all corporate
acts, plans, policies, applications, agreements, orders, registrations,
licenses, approvals and authorizations of Midland and New Bank, their respective
stockholders, Boards of Directors, committees elected or appointed by their
Boards of Directors, and their respective officers and agents, which were valid
and effective immediately before the Effective Date, shall be taken for all
purposes at and after the Effective Date as the acts, plans and policies,
applications, agreements, orders, registrations, licenses, approvals and
authorizations of the Surviving Institution and shall be as effective and
binding thereon as the same were with respect to Midland and New Bank
immediately before the Effective Date.
1.7 On and after the Effective Date, the Midland Federal Savings and
Loan Association Stock Option Plan (the "Stock Option Plan"); shall be assumed
by Holding and shares awarded under the Stock Option Plan or the Bank Incentive
Plan and options for shares awarded under the Stock Option Plan shall be shares
of Holding Common Stock.
ARTICLE II
CONVERSION, EXCHANGE AND CANCELLATION OF SHARES
2.1 The manner and basis of converting and exchanging the issued and
outstanding shares of Midland Common Stock into shares of Holding Common Stock
and related transactions concerning New Bank, shall be as hereinafter provided
in this Article II.
2.2 On the Effective Date:
(a) Each share of Midland Common Stock outstanding on the
Effective Date shall, without any action on the part of the holder
thereof or Midland or Holding, be converted and exchangeable for one
share of Holding Common Stock;
(b) The outstanding shares of New Bank Common Stock issued to
Holding shall be cancelled and converted into an equal number of shares
of Midland Common Stock; and
(c) The share of Holding Common Stock previously issued to
Paul Zogas as incorporator and outstanding shall be cancelled for a
redemption price of $4,000.
2.3 On and after the Effective Date, each holder of a certificate or
certificates which prior thereto represented outstanding shares of Midland
Common Stock shall be entitled, upon surrender of such certificate or
certificates for cancellation to Holding, to receive as soon as practicable a
new certificate representing the number of shares of Holding Stock into which
such holder's shares of Midland Common Stock were converted as a result of the
Merger. Until so surrendered, each certificate theretofore evidencing Midland
Common Stock shall not be transferable on the books of the parties hereto, but
shall be deemed to evidence ownership of the number of shares of Holding Common
Stock into which such shares of Midland Common Stock have been converted by
virtue of the Merger.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HOLDING
Holding hereby represents and warrants as follows:
3.1 Holding is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. At the Effective Date,
Holding will have corporate power to carry on its business as then to be
conducted and will be qualified to do business in every jurisdiction in which
the character and location of the assets to be owned by it or the nature of the
business to be transacted by it require qualification.
3.2 Holding has no subsidiaries other than New Bank at the date of
this Agreement. Between the date hereof and the Effective Date, Holding will not
create or acquire any subsidiaries, other than New Bank, without the consent of
Midland.
3.3 The authorized capital stock of Holding consists on the date
hereof of 600,000 shares of common stock, par value $.01 per share, and 50,000
shares of preferred stock, par value $.01 per share. Except as set forth above
or as contemplated by this Agreement or necessary for the effectuation of the
Merger, as of the date hereof, Holding does not have any shares of its capital
stock issued or outstanding and does not have any outstanding subscriptions,
options or other agreements or commitments obligating it to issue shares of its
capital stock.
3.4 Compliance with the terms and provisions of this Agreement by
Holding will not conflict with or result in a breach of any of the terms,
conditions or provisions of any judgment, order, injunction, decree or ruling of
any court or governmental authority, domestic or foreign, or of any agreement or
instrument to which Holding is a party, or constitute a default thereunder.
3.5 The execution, delivery and performance of this Agreement have
been duly authorized by the Board of Directors of Holding and have been approved
by the incorporator as the sole stockholder of Holding.
3.6 Holding has complete and unrestricted power to enter into and to
consummate the transactions contemplated by this Agreement, subject to approval
of this Agreement by the incorporator as sole stockholder of Holding and the
provisions of Section 7.3 hereof.
3.7 On or prior to the Effective Date, Holding will make available for
issuance and delivery that number of shares of Holding Common Stock into which
the outstanding Midland Common Stock is to be converted and exchanged pursuant
to the Merger as provided herein. All such shares of Holding Common Stock, when
delivered in exchange for Midland Common Stock, will be duly authorized, validly
issued and outstanding, fully paid and non-assessable, and will be voting stock
of Holding.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MIDLAND
Midland hereby represents and warrants as follows:
4.1 Midland is a federal savings and loan association duly organized,
validly existing and in good standing under the laws of the United States, and
is duly authorized to carry on its business as it is now being conducted.
4.2 The authorized capital stock of Midland consists on the date
hereof of 5,000,000 shares of common stock, no par value, of which 363,975
shares are issued and outstanding, and 1,000,000 shares of preferred stock, par
value $.01 per share, none of which are issued and outstanding.
4.3 Compliance with the terms and provisions of this Agreement by
Midland will not conflict with, constitute a default under or result in a breach
of any of the terms, conditions or provisions of any judgment, order,
injunction, decree or ruling of any court or governmental authority, domestic or
foreign, or of any agreement or instrument to which Midland is a party.
4.4 The execution, delivery and performance of this Agreement have
been duly authorized by the Board of Directors of Midland.
4.5 Midland has complete and unrestricted power to enter into and to
consummate the transactions contemplated by this Agreement, subject to the
provisions of Sections 7.2 and 7.3 hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NEW BANK
New Bank hereby represents and warrants as follows:
5.1 New Bank, at the direction of Holding will apply to the OTS to be
chartered as an interim capital stock savings and loan association, and
immediately before the Effective Date will be duly organized, validly existing
and in good standing under the laws of the United States of America, and duly
authorized to carry on the business of an interim federally-chartered savings
and loan association.
5.2 The authorized capital stock of New Bank consists of 600,000
shares of common stock, par value $.01 per share. Except for the share of New
Bank stock issued to Holding for the effectuation of the Merger, prior to the
Merger, New Bank will not have any shares of its stock issued and outstanding.
There are no outstanding subscriptions, options or other arrangements or
commitments obligating New Bank to issue any shares of its capital stock.
5.3 Compliance with the terms and provisions of this Agreement by New
Bank will not conflict with, constitute a default under or result in a breach of
any of the terms, conditions or provisions of any judgment, order, injunction,
decree or ruling of any court or governmental authority, domestic or foreign, or
of any agreement or instrument to which New Bank is, or will be, a party.
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5.4 Prior to the Merger, the execution, delivery and performance of
this Agreement will be duly authorized by the Board of Directors of New Bank and
will be approved by Holding as the sole stockholder of New Bank
5.5 New Bank has complete and unrestricted power to enter into and to
consummate the transactions contemplated by this Agreement, subject to the
approval of this Agreement and the Merger by Holding as sole stockholder of New
Bank and the provisions of Section 7.3 hereof.
ARTICLE VI
OBLIGATIONS OF THE PARTIES PENDING THE EFFECTIVE DATE
6.1 Prior to the Effective Date, (i) New Bank shall complete its
organization and have directors who shall be duly elected and qualified, (ii)
Holding shall complete its organization and have directors who shall be duly
elected and qualified, and (iii) this Agreement shall be duly submitted to the
stockholders of Midland for the purpose of considering and acting upon this
Agreement in the manner required by law. Each party shall use its best efforts
to obtain the requisite approvals of this Agreement and the transactions
contemplated herein and, after obtaining such approval, the parties through
their respective officers and directors, shall execute and file with the
appropriate regulatory authorities all documents and papers, and the parties
shall take every reasonable action, necessary to comply with and to secure such
approval of this Agreement and the transactions contemplated herein as may be
required by all applicable statutes, rules and regulations.
ARTICLE VII
CONDITIONS PRECEDENT TO THE CONSUMMATION OF
THE MERGER AND REORGANIZATION
The obligations of the parties hereto to consummate the Merger and the
reorganization contemplated hereby shall be subject to the conditions that on or
before the Effective Date:
7.1 Each of the parties hereto shall have performed and complied with
all of its obligations hereunder which are to be complied with or performed on
or before the Effective Date.
7.2 This Agreement and related transactions contemplated hereby,
including any appropriate Charter and Bylaws amendments, shall have been duly
and validly authorized, approved and adopted at a meeting of stockholders duly
and properly called for such purpose by Midland by an affirmative vote of at
least 50 percent of the outstanding voting stock of Midland plus one affirmative
vote, all in accordance with the applicable Rules and Regulations of the OTS.
All shareholders are to be provided a proxy statement in conformity with the
Rules and Regulations of the OTS.
7.3 Orders, consents and approvals, in form and substance reasonably
satisfactory to all the parties hereto, shall have been entered by the OTS (or
there shall have been received satisfactory assurance that such orders, consents
or approvals are not required), granting the authority necessary for
consummation of the transactions contemplated by this Agreement pursuant to the
provisions of the requirements of the Rules and Regulations of the OTS, all
other requirements prescribed by law and the rules and regulations of any other
regulatory authority having jurisdiction over the transactions contemplated
herein shall have been satisfied.
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7.4 There shall have been received from Silver, Freedman & Taff,
L.L.P., Washington, D.C., special counsel to Midland, an opinion to the effect
that:
1. The Merger will constitute a reorganization within the
meaning of Section 368(a)(1(A) and 368(a)(2)E) of the Internal Revenue
Code of 1986 (the "Code"). The reorganization will not be disqualified by
reason of the fact that stock of Holding is used in the transaction
(Section 368(a)(2)(E) of the Code). It will also not be disqualified by
the substitution of Holding Common Stock options for Midland Common Stock
options as discussed above (Rev. Rul. 70-269, 1970-1 C.B. 81). Holding,
New Bank and Midland will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized to New Bank on the
transfer of substantially all of its assets to Midland (Section 361(a) of
the Code).
3. No gain or loss will be recognized to Midland on the
receipt by Midland of substantially all of the assets of New Bank
(Section 1032(a) of the Code).
4. Midland's basis in each New Bank asset received in the
transaction will be the same as the basis of those assets in the hands of
New Bank immediately prior to the transaction (Section 362(b) of the
Code).
5. Midland's holding period in each New Bank asset will
include the period during which New Bank held such asset (Section 1223(2)
of the Code).
6. No gain or loss will be recognized by Holding upon the
receipt of Midland Common Stock (Section 354(a)(1) of the Code).
7. No gain or loss will be recognized by the shareholders of
Midland on the exchange of their Midland Common Stock solely for shares
of Holding Common Stock (Section 354(a)(1) of the Code).
8. Each Midland shareholder's basis in the Holding Common
Stock received in the transaction will be the same as the basis in the
Midland Common Stock surrendered in the transaction (Section 358(a)(1) of
the Code).
9. The holding period of the Holding Common Stock to be
received by Midland shareholders includes the period during which the
Midland Common Stock surrendered in exchange therefor was held provided
that the Midland Common Stock was held as a capital asset in the hands of
Midland shareholders on the date of the exchange (Section 1223(1) of the
Code).
10. The net operating losses of Midland, if any, will not be
reduced or eliminated by reason of the proposed reorganization under
Section 382 of the Code.
7.5 No action, suit or proceeding shall have been instituted or shall
have been threatened before any court or other governmental body or by any
public authority to restrain, enjoin or prohibit the Merger and reorganization
contemplated herein, or which might restrict the operation of the business of
the Surviving Institution or the ownership of the capital stock of the Surviving
Institution or the exercise of any rights with respect thereto by Holding, or
subject any of the parties hereto or any of their directors or officers to any
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liability, fine, forfeiture, or penalty on the grounds that the transactions
contemplated hereby, the parties hereto or their directors or officers, have
breached or will breach any applicable law or regulation, or have otherwise
acted improperly in connection with the transactions contemplated hereby, and
with respect to which the parties hereto have been advised by counsel that, in
the opinion of such counsel, such action, suit or proceeding raises substantial
questions of law or fact which could reasonably be decided adversely to any
party hereto or its directors or officers.
ARTICLE VIII
ADDITIONAL CONDITIONS PRECEDENT
8.1 Each obligation of Holding and New Bank to be performed on or prior
to the Effective Date shall be subject to the satisfaction, on or before the
Effective Date, of the following additional conditions:
(a) The representations and warranties made by the Midland in
this Agreement shall be true as though such representations and
warranties had been made or given on and as of the Effective Date; and
(b) Holding shall have received an opinion of Silver, Freedman
& Taff, L.L.P. which shall be to the effect that:
(i) Midland is duly organized, validly existing and in
good standing under the laws of the United States of America
and the Rules and Regulations of the OTS;
(ii) the execution and delivery of this Agreement did
not, and the consummation of the Merger and reorganization
contemplated hereby will not, violate any provisions of the
Charter or Bylaws of Midland;
(iii) New Bank is a capital stock thrift institution,
duly organized, validly existing and in good standing under
the laws of the United States of America and Rules and
Regulations of the OTS;
(iv) the execution and delivery of this Agreement did
not, and the consummation of the Merger and reorganization
contemplated hereby will not, violate any provisions of the
Charter or Bylaws of New Bank; and
(v) the Boards of Directors and stockholders of Midland
and New Bank have taken all corporate action required by their
respective Charters and Bylaws and by the Rules and
Regulations of the OTS to authorize the execution and delivery
of this Agreement and to approve the Merger and reorganization
in accordance with the terms of this Agreement; Midland and
New Bank have obtained the requisite approvals from the OTS to
consummate the Merger and reorganization contemplated by this
Agreement; and this Agreement is a legal, valid and binding
agreement of Midland and New Bank in accordance with its
terms, except to the extent that enforceability may be limited
by bankruptcy laws, insolvency laws, or other laws affecting
the rights of creditors generally or the rights of creditors
of thrift institutions the accounts of which are insured by
the Federal Deposit Insurance Corporation or which are subject
to
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regulation by the OTS, including but not limited to laws
relating to the availability of equitable
remedies.
8.2 Each obligation of Midland to performed on or prior to the Effective
Date shall be subject to the satisfaction, on or before the Effective Date, of
the following additional conditions:
(a) The representations and warranties made by Holding and by
New Bank contained in this Agreement shall be true as though such
representations and warranties had been made or given on and as of the
Effective Date;
(b) This Agreement and the transactions contemplated hereby
shall have been duly and validly authorized, approved and adopted by
Holding and by New Bank; and
(c) Midland shall have received an opinion of Silver, Freedman
& Taff, L.L.P. which shall be to the effect that:
(i) Holding is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware;
(ii) Holding has corporate power to execute and deliver
this Agreement; the Board of Directors and Paul Zogas as the
sole stockholder of Holding have taken all action required to
authorize such execution and delivery, to approve the Merger
and reorganization contemplated hereby and to authorize the
issuance of the shares of Holding Common Stock necessary to
consummate the Merger and reorganization; and this Agreement
is the legal, valid and binding agreement of the Holding in
accordance with its terms, except to the extent that
enforceability may be limited by bankruptcy laws, insolvency
laws, or other laws affecting the rights of the creditors
generally, including but not limited to laws relating to the
availability of equitable remedies;
(iii) The shares of Holding Common Stock to be issued
pursuant to this Agreement have been duly authorized and, when
issued and delivered as contemplated by this Agreement, will
have been legally and validly issued and will be fully paid
and non-assessable, and no stockholder of Holding will have
any preemptive right of subscription or purchase in respect
thereof;
(iv) New Bank is a capital stock savings and loan
association duly organized, validly existing and in good
standing under the laws of the United States of America and
the Rules and Regulations of the OTS;
(v) New Bank has corporate power to execute, deliver
and perform this Agreement; the Board of Directors and the
stockholder of New Bank have taken all action required by its
Charter and Bylaws and by the Rules and Regulations of the OTS
to authorize such execution, delivery and performance and to
approve the Merger; and this Agreement is the legal, valid and
binding agreement of New Bank in accordance with its terms,
except to the extent that enforceability may be limited by
bankruptcy laws, insolvency laws, or other laws affecting the
rights of creditors generally or the rights of creditors of
thrift institutions the accounts of which
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are insured by the Federal Deposit Insurance Corporation or
which are subject to regulation by the OTS, including but not
limited to laws relating to the availability of equitable
remedies; and
(vi) Holding and New Bank have obtained or will obtain
the requisite approvals from the OTS to consummate the Merger
and reorganization contemplated by this Agreement.
In rendering opinions provided for in this Agreement, counsel may rely
upon opinions of other counsel and, as to matters of fact, upon certificates of
public officials and of any officer or officers of Midland, New Bank and
Holding.
ARTICLE IX
AMENDMENTS
Midland, Holding and New Bank, by mutual consent of their respective
Boards of Directors or incorporators, as the case may be, to the extent
permitted by law, may amend, modify, supplement and interpret this Agreement in
such manner as may be mutually agreed upon by them in writing at any time before
or after the approval and adoption thereof by the stockholders of Midland,
provided, however, that no such amendment, modification, supplement or
interpretation shall have a materially adverse impact on Midland or its
stockholders except with the approval of the stockholders of Midland.
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the Merger and
reorganization abandoned at any time (whether before or after the approval and
adoption thereof by the stockholders of Midland) prior to the Effective Date:
(a) By mutual consent of the parties hereto;
(b) By Holding or New Bank, if any condition set forth in
Sections 7.1 through 7.5 of Article VII or Section 8.1 of Article VIII
has not been met or has not been validly waived or if; or
(c) By Midland, if any condition set forth in Sections 7.1
through 7.5 of Article VII or Section 8.2 of Article VIII has not been
met or has not been validly waived or if the holders of more than ten
percent of the outstanding voting stock of Midland deliver properly to
New Bank a demand for appraisal and payment for shares pursuant to 12
C.F.R. ss. 552.14.
10.2 An election by a party hereto to terminate this Agreement and
abandon the Merger and plan of reorganization as provided in Section 10.1 shall
be exercised on behalf of such corporation by its Board of Directors or
incorporators, as may be the case.
10.3 In the event of the termination of this Agreement pursuant to the
provisions of Section 10.1 hereof, this Agreement shall become void and have no
effect and create no liability on the part of any of the parties hereto or their
respective incorporators, directors, officers or stockholders in respect to this
Agreement.
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10.4 Any of the terms or conditions of this Agreement (other than the
necessary approvals of stockholders and government authorities) may be waived at
any time by the party which is entitled to the benefit thereof, by action taken
by its Board of Directors; provided, however, that such action shall be taken
only if, in the judgment of the Board of Directors taking the action, such
waiver will not have a materially adverse effect on the benefits intended under
this Agreement to be afforded to the stockholders of Midland.
ARTICLE XI
EFFECTIVE DATE
The effective date of the Merger ("Effective Date") shall be the last day
of the calendar month during which the last to occur of the following events
takes place: (i) the Merger is approved by the OTS and the Articles of
Combination are executed by the OTS, (ii) all other required regulatory
approvals have been obtained, and (iii) all other conditions to the Merger
herein set forth have been met. The Boards of Directors of Midland, New Bank and
Holding each specifically and expressly delegate to their respective chief
executive officers the authority to change, by mutual consent of such officers,
the Effective Date of the Merger if necessary to properly and efficiently
accomplish the Merger. However, in no event shall the Merger become effective
unless and until approved by the OTS.
ARTICLE XII
TERMINATION OF REPRESENTATIONS AND
WARRANTIES AND CERTAIN AGREEMENTS
The respective representations, warranties, covenants and agreements of
the parties hereto in Articles III, IV and V hereof shall expire with, and be
terminated and extinguished by, the Merger and reorganization pursuant to this
Agreement at the time of the consummation thereof on the Effective Date. None of
the parties shall be under any liability whatsoever with respect to any such
representation, warranty, covenant or agreement which does not survive the
Merger and reorganization, it being intended that the sole remedy of the parties
for a breach of any such representation, warranty, covenant or agreement shall
be to elect not to proceed with the Merger and reorganization if such breach has
resulted in the failure to satisfy a condition precedent to such party's
obligation to consummate the transactions contemplated hereby.
ARTICLE XIII
MISCELLANEOUS
13.1 This Agreement embodies the entire agreement among the parties and
there have been and are no agreements, representations or warranties among the
parties other than those set forth or provided for herein.
13.2 Any number of counterparts hereof may be executed and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one instrument.
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13.3 Any notice or waiver to be given to any party shall be in writing
and shall be deemed to have been duly given if delivered, mailed, or sent by
prepaid telegram, addressed to such party at 8929 South Harlem Avenue,
Bridgeview, Illinois 60455.
13.4 The captions contained in this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation of any
paragraph hereof.
13.5 Midland will pay all fees and expenses incurred in connection with
the transactions contemplated by this Agreement.
IN WITNESS WHEREOF, Midland, New Bank and Holding, each under the
authority of its Board of Directors, have caused this Agreement to be executed
with the intent to be legally bound hereby.
MIDLAND FEDERAL SAVINGS AND
LOAN ASSOCIATION
ATTEST:
By: /s/ Charles Zogas By: /s/ Paul Zogas
----------------- --------------
Charles Zogas Paul Zogas
Director, Executive Vice President Chairman, President and Chief
and Secretary Executive Officer
Date: March 19, 1998 Date: March 19, 1998
NEW BANK
ATTEST:
By: /s/ Charles Zogas By: /s/ Paul Zogas
----------------- --------------
Charles Zogas Paul Zogas
Director, Executive Vice President Chairman, President and Chief
and Secretary Executive Officer
Date: March 19, 1998 Date: March 19, 1998
ATTEST: HOLDING CORPORATION
By: /s/ Charles Zogas By: /s/ Paul Zogas
----------------- --------------
Charles Zogas Paul Zogas
Director, Executive Vice President Chairman, President and Chief
and Secretary Executive Officer
Date: March 19, 1998 Date: March 19, 1998
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EXHIBIT A
Offices of Surviving Institution
Main Office 8929 South Harlem Avenue
Bridgeview, Illinois
Branch Offices 4040 South Archer Avenue
Chicago, Illinois
2657 West 69th Street
Chicago, Illinois
<PAGE>
EXHIBIT B
Directors of Surviving Institution
Term
Name Address Expires
---- ------- -------
Paul Zogas 1998
Jonas Vaznelis 1998
Richard Taylor 1999
Michael J. Kukanza 1999
Charles Zogas 2000
Algerd Brazis 2000
Successor or substitute directors may be named, subject to compliance
with the requirements of applicable law and the Charter and Bylaws of the
Surviving Institution.
<PAGE>
APPENDIX B
CERTIFICATE OF INCORPORATION
OF
MIDLAND CAPITAL HOLDINGS CORPORATION
FIRST: The name of the Corporation is Midland Capital Holdings
Corporation (hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which
the Corporation shall have the authority to issue is 650,000 consisting of:
1. 50,000 shares of preferred stock, par value one cent
($.01) per share (the "Preferred Stock"); and
2. Six hundred thousand (600,000) shares of common
stock, par value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is hereby expressly authorized,
subject to any limitations prescribed by law, to provide for the issuance of the
shares of Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware (such certificate being hereinafter
referred to as a "Preferred Stock Designation"), to establish from time to time
the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof. The number of
authorized shares of the Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the Common Stock, without a vote of the holders of
the Preferred Stock, or of any series thereof, unless a vote of any such holders
is required pursuant to the terms of any Preferred Stock Designation.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon them by Statute or
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by this Certificate of Incorporation or the By-laws of the Corporation, the
directors are hereby empowered to exercise all such powers and do all such acts
and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by
written ballot unless the By-laws so provide.
C. Subject to the rights of holders of any class or series of
Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
D. Subject to the rights of holders of any class or series of
Preferred Stock, special meetings of stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors which the Corporation would have if
there were no vacancies on the Board of Directors (the "Whole Board").
E. Stockholders shall not be permitted to cumulate their votes
for the election of directors.
SIXTH:
A. The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The directors, other than those who may be elected
by the holders of any class or series of Preferred Stock, shall be divided into
three classes, as nearly equal in number as reasonably possible, with the term
of office of the first class to expire at the conclusion of the first annual
meeting of stockholders, the term of office of the second class to expire at the
conclusion of the annual meeting of stockholders one year thereafter and the
term of office of the third class to expire at the conclusion of the annual
meeting of stockholders two years thereafter, with each director to hold office
until his or her successor shall have been duly elected and qualified. At each
annual meeting of stockholders following such initial classification and
election, directors elected to succeed those directors whose terms expire shall
be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election, with each director to hold office until
his or her successor shall have been duly elected and qualified.
B. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires,
and until such director's successor shall have been duly elected and qualified.
No decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
C. Advance notice of stockholder nominations for the election
of directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
By-laws of the Corporation.
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D. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least 66 2/3% of the voting power
of all of the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors voting together as a
single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal the By-laws of the Corporation. Any adoption, amendment or repeal of the
By-laws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the By-laws of the Corporation. In addition to any vote
of the holders of any class or series of stock of this Corporation required by
law or by this Certificate of Incorporation, the affirmative vote of the holders
of at least 66 2/3% of the voting power of all of the then-outstanding shares of
the capital stock of the Corporation entitled to vote generally in the election
of directors voting together as a single class, shall be required to adopt,
amend or repeal any provisions of the By-laws of the Corporation.
EIGHTH:
A. The Board of Directors of the Corporation, when evaluating
any offer of another Person (as defined below) to (A) make a tender or exchange
offer for any equity security of the Corporation, (B) merge or consolidate the
Corporation with another corporation or entity or (C) purchase or otherwise
acquire all or substantially all of the properties and assets of the Corporation
(such actions collectively referred to as a "Reorganization Transaction"), may,
in connection with the exercise of its judgment in determining what is in the
best interest of the Corporation and its stockholders, give due consideration to
all relevant factors, including, without limitation, the social and economic
effect of acceptance of such offer on the Corporation's present and future
customers and employees and those of its Subsidiaries (as defined below); on the
communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objectives
as a financial institution holding company and on the ability of its subsidiary
financial institution to fulfill the objectives of a federally insured financial
institution under applicable statutes and regulations.
B. A. Reorganization Transaction must be approved by the
affirmative vote of the holders of at least 66 2/3% of all of the
then-outstanding shares of the capital stock of the Corporation entitled to
vote.
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a group
acting in concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of securities.
2. "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the Corporation.
NINTH:
A. Each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative
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(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or an officer of the Corporation or is or was serving at the request of
the Corporation as a director or officer of another corporation, including,
without limitation, any Subsidiary (as defined in Article EIGHTH herein),
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that, except as provided in Section C hereof with
respect to proceedings to enforce rights to indemnification, the Corporation
shall indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication"),
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections A and B of this Article shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
director or officer and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
C. If a claim under Section A or B of this Article is not paid
in full by the Corporation within 60 days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any such suit,
or in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall also be entitled
to be paid the expense of prosecuting or defending such suit. In (1) any suit
brought by the indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (2) in any suit by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption
B-4
<PAGE>
that the indemnitee has not met the applicable standard of conduct or, in the
case of such a suit brought by the indemnitee, be a defense to such suit. In any
suit brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article or otherwise shall be on the
Corporation.
D. The rights to indemnification and to the advancement of
expenses conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, By-laws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to
time by a majority vote of the disinterested directors, grant rights to
indemnification and to the advancement of expenses to any employee or agent of
the Corporation to the fullest extent of the provisions of this Article with
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.
TENTH: A director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (A) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (B) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (C) under Section 174 of the Delaware General Corporation Law,
or (D) for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is hereafter amended to further
eliminate or limit the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
ELEVENTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 66 2/3% of the voting power of all
of the then-outstanding shares of the capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to amend or repeal this Article ELEVENTH, Section B of
Article FOURTH, Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH
or Article NINTH.
B-5
<PAGE>
TWELFTH: The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
---- ---------------
Paul Zogas 8929 South Harlem Avenue
Bridgeview, Illinois 60455
B-6
<PAGE>
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and, accordingly, have hereto set my hand this 28th day of April 1998.
/s/ Paul Zogas
--------------
Paul Zogas, Sole Incorporator
B-7
<PAGE>
APPENDIX C
RIGHTS OF DISSENTING STOCKHOLDERS
SECTION 552.14 OF THE OFFICE OF THRIFT SUPERVISION
RULES AND REGULATIONS
ss. 552.14 Dissenter and appraisal rights.
(a) Right to demand payment of fair or appraised value. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with ss.552.13 of this part shall have the
right to demand payment of the fair or appraised value of his stock: Provided,
That such stockholder has not voted in favor of the combination and complies
with the provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to ss. 552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ or any combination of such
shares of stock and cash.
(c) Procedure.
(1) NOTICE. Each constituent Federal stock association shall notify all
stockholders entitled to rights under this section, not less than twenty days
prior to the meeting at which the combination agreement is to be submitted for
stockholder approval, of the right to demand payment of appraised value of
shares, and shall include in such notice a copy of this section. Such written
notice shall be mailed to stockholders of record and may be part of the
management's proxy solicitation for such meeting.
(2) DEMAND FOR APPRAISAL AND PAYMENT. Each stockholder electing to make a
demand under this section shall deliver to the Federal Stock association, before
voting on the combination, a writing identifying himself or herself and stating
his or her intention thereby to demand appraisal of and payment for his or her
shares. Such demand must be in addition to and separate from any proxy or vote
against the combination by the stockholder.
(3) NOTIFICATION OF EFFECTIVE TIME AND WRITTEN OFFER. Within ten days
after the effective date of the combination, the resulting association shall;
(i) Give written notice by mail to stockholders of constituent Federal
Stock associations who have complied with the provisions of paragraph (c)(2) of
this section and have not voted in favor of the combination, of the effective
date of the combination;
(ii) Make a written offer to each stockholder to pay for dissenting
shares at a specified price deemed by the resulting association to be the fair
value thereof; and
C-1
<PAGE>
(iii) Inform them that, within sixty days of such date, the respective
requirements of paragraphs (c)(5) and (6) of this section (set out in the
notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and statement of
income of the association the shares of which the dissenting stockholder holds,
for a fiscal year ending not more than sixteen months before the date of notice
and offer, together with the latest available interim financial statements.
(4) ACCEPTANCE OF OFFER. If within sixty days of the effective date of
the combination the fair value is agreed upon between the resulting association
and any stockholder who has complied with the provisions of paragraph (c)(2) of
this section, payment therefor shall be made within ninety days of the effective
date of the combination.
(5) PETITION TO BE FILED IF OFFER NOT ACCEPTED. If within sixty days of
the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file a
petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market value of the
stock of all such stockholders. A stockholder entitled to file a petition under
this section who fails to file such petition within sixty days of the effective
date of the combination shall be deemed to have accepted the terms offered under
the combination.
(6) STOCK CERTIFICATES TO BE NOTED. Within sixty days of the effective
date of the combination, each stockholder demanding appraisal and payment under
this section shall submit to the transfer agent his certificates of stock for
notation thereon that an appraisal and payment have been demanded with respect
to such stock and that appraisal proceedings are pending. Any stockholder who
fails to submit his stock certificates for such notation shall no longer be
entitled to appraisal rights under this section and shall be deemed to have
accepted the terms offered under the combination.
(7) WITHDRAWAL OF DEMAND. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any stockholder
shall have the right to withdraw his or her demand for appraisal and to accept
the terms offered upon the combination.
(8) VALUATION AND PAYMENT. The Director shall, as he or she may elect,
either appoint one or more independent persons or direct appropriate Staff of
the Office to appraise the shares to determine their fair market value, as of
the effective date of the combination, exclusive of any element of value arising
from the accomplishment or expectation of the combination. Appropriate staff of
the Office shall review and provide an opinion on appraisals prepared by
independent persons as to the suitability of the appraisal methodology and the
adequacy of the analysis and supportive data. The Director after consideration
of the appraisal report and the advice of the appropriate staff shall, if he or
she concurs in the valuation of the shares, direct payment by the resulting
association of the appraised fair market value of the shares, upon surrender of
the certificates representing such stock. Payment shall be made, together with
interest from the effective date of the combination, at a rate deemed equitable
by the Director.
(9) COSTS AND EXPENSES. The costs and expenses of any proceeding under
this section may be apportioned and assessed by the Director as he or she may
deem equitable against all or some of the parties. In making this determination
the Director shall consider whether any party has acted arbitrarily,
vexatiously, or not in good faith in respect to the rights provided by this
section.
C-2
<PAGE>
(10) VOTING AND DISTRIBUTION. Any stockholder who has demanded appraisal
rights as provided in subparagraph (c)(2) of this section shall thereafter
neither be entitled to vote such stock for any purpose nor be entitled to the
payment of dividends or other distributions on the stock (except dividends or
other distribution payable to, or a vote to be taken by stockholders of record
at a date which is on or prior to, the effective date of the combination):
Provided, That if any stockholder becomes unentitled to appraisal and payment of
appraised value with respect to such stock and accepts or is deemed to have
accepted the terms offered upon the combination, such stockholder shall
thereupon be entitled to vote and receive the distributions described above.
(11) STATUS. Shares of the resulting association into which shares of the
stockholders demanding appraisal rights would have been converted or exchanged,
had they assented to the combination, shall have the status of authorized and
unissued shares of the resulting association.
C-3
<PAGE>
<PAGE>
Appendix D
- --------------------------------------------------------------------------------
[GRAPHIC-LOGO] Midland Federal
Savings and Loan Association
1997
ANNUAL REPORT
<PAGE>
Corporate Profile
Midland Federal Savings and Loan Association is headquartered in Bridgeview,
Illinois. Midland Federal Savings and Loan Association was founded in 1914 with
the goal of providing savings and home loan financial services to communities on
the Southwest side of the city of Chicago. It continues to fulfill that role
today with three full service offices including offices located in the Brighton
Park and Marquette Park neighborhoods of Chicago. Midland Federal Savings also
operates a wholly owned subsidiary, Midland Service Corporation. Common stock in
Midland Federal Savings and Loan Association was first issued to the public on
June 30, 1993 and is traded on the "pink sheets" published by the National
Quotation Bureau, Inc..
Table of Contents
Financial Highlights......................... 1
Letter to Shareholders ...................... 2
Selected Consolidated Financial
Information................................ 3
Management's Discussion and Analysis......... 5
Independent Auditor's Report................. 21
Consolidated Statements of
Financial Condition........................ 22
Consolidated Statements of Income............ 23
Consolidated Statements of Changes in
Stockholders' Equity....................... 24
Consolidated Statements of Cash Flows........ 25
Notes to Consolidated Financial
Statements................................. 26
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Year Ended June 30,
1997 1996 1995 1994 1993
--------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total assets.................... $111,678 116,460 113,364 117,128 120,163
Loans receivable, net........... 33,392 32,776 31,036 33,424 35,368
Mortgage-backed securities...... 21,936 27,410 28,736 33,842 44,328
Cash and cash equivalents....... 30,903 30,918 28,022 21,805 16,138
Investment securities .......... 21,058 21,033 21,078 23,477 18,611
Deposits........................ 102,973 107,914 105,090 109,416 112,943
Stockholders' equity............ 7,971 7,740 7,412 6,747 6,210
For the Period:
Net interest income........... $ 3,124 3,186 3,272 3,179 3,082
Net income ................... 296 575 692 615 634
Per Common Share:
Book value per share
outstanding................. $ 22.99 22.32 21.48 19.56 18.00
Earnings per share
outstanding - primary....... $ .83 1.64 2.00 1.78 1.84
Financial Ratios:
Stockholders' equity to
total assets................ 7.14% 6.65% 6.54 5.76 5.17
Non-performing assets to
total assets................ .86% 1.90% 2.24 3.06 3.23
Net charge-offs to total loans .13% .21% .32 -- (.05)
Net interest margin........... 2.96% 2.96% 3.07 2.90 2.84
Operating expenses to
average assets (1).......... 2.72% 2.69% 2.56 2.53 2.53
Return on average assets (2).. .66% .50% .61 .52 .54
Return on average
stockholders' equity (2).... 9.21% 7.62% 9.89 9.46 22.50
</TABLE>
(1) Exclusive of real estate owned expenses and losses and FDIC special
assessment.
(2) Exclusive of FDIC special assessment.
-1-
<PAGE>
To Our Shareholders,
The fiscal year ended June 30, 1997 was an important year for Midland
Federal Savings and for the Nation's thrift industry as well. Legislation was
enacted during the year to recapitalize the Savings Association Insurance Fund
("SAIF"). The recapitalization of SAIF was accomplished by an industry wide,
one-time special assessment levied against all SAIF insured deposits. Midland
Federal's special assessment amounted to $674,000 and resulted in an after tax
charge to earnings of $445,000, or $1.26 per primary share. I am pleased to
report that despite this one-time charge to earnings, Midland Federal Savings
concluded fiscal 1997 with earnings totalling $296,000, or $0.83 per primary
share, and stockholders' equity of $8.0 million, or $22.99 per share.
The recapitalization of the SAIF resulted in a substantial reduction in
Midland Federal Savings' quarterly FDIC deposit insurance premiums. Effective
January 1, 1997, deposit insurance premium rates for highly rated institutions,
including Midland Federal Savings, were reduced to zero. All SAIF member
institutions, including Midland Federal, will continue to be charged a debt
service assessment by the FDIC to fund repayment of the Financing Corporation's
debt obligations, however, as a result of the legislation to recapitalize the
SAIF, Midland Federal realized a reduction of $97,000 in its quarterly FDIC
assessments in fiscal 1997.
Midland Federal Savings continued to build its capital base during
fiscal 1997 and at fiscal year end its ratio of stockholders' equity to total
assets had risen to 7.14%. Midland Federal also continued to meet all of the
regulatory criteria for a 'well capitalized' designation throughout fiscal 1997
and at fiscal year end each of Midland Federal's regulatory capital ratios
significantly exceeded all of its fully phased in capital requirements.
Asset quality saw dramatic improvements in fiscal 1997 for the sixth
consecutive year. By fiscal year end, net non-performing assets were reduced to
0.86% of total assets and net non-performing loans were reduced by $1.3 million,
or 93%, to $103,000. Midland Federal also continued to maintain substantial
reserves against potential loan losses. At fiscal year end Midland Federal's
ratio of general allowances for loan losses to net non-performing loans had
increased to 274.39%.
Finally, as part of our commitment to promote affordable home ownership
among first time home buyers within our communities, in fiscal 1997 Midland
Federal originated $1.1 million in single family mortgage loans in conjunction
with the Illinois Housing Development Authority's ("IHDA") first time home
buyers program. Also, during fiscal 1997 our loan brokerage and origination
operations realized a 43% increase in fee income and service charges from loans
over the prior fiscal year. In fiscal 1998 we plan to continue to participate
with the IHDA in promoting affordable housing for first time home buyers and we
will continue to market our loan products to the local real estate community in
order to build upon our success in this important area.
Sincerely,
/s/Paul Zogas
-------------
Paul Zogas
Chairman and President
-2-
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
SELECTED FINANCIAL CONDITION DATA:
At June 30,
1997 1996 1995 1994 1993
--------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total assets.................... $111,678 116,460 113,364 117,128 120,163
Loans receivable, net........... 33,392 32,776 31,036 33,424 35,368
Mortgage-backed securities...... 21,936 27,410 28,736 33,842 44,328
Cash and cash equivalents....... 30,903 30,918 28,022 21,805 16,138
Investment securities .......... 21,058 21,033 21,078 23,477 18,611
Deposits........................ 102,973 107,914 105,090 109,416 112,943
Stockholders' equity............ $ 7,971 7,740 7,412 6,747 6,210
<CAPTION>
SELECTED OPERATIONS DATA:
Year Ended June 30,
1997 1996 1995 1994 1993
--------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total interest income........... $ 7,034 7,228 6,700 6,380 6,835
Total interest expense.......... 3,910 4,042 3,428 3,201 3,753
-------- ----- ----- ----- -----
Net interest income............. 3,124 3,186 3,272 3,179 3,082
Provision for loan losses
(recoveries).................. -- -- (80) (65) (105)
-------- ----- ----- ----- -----
Net interest income after
provision for loan losses... 3,124 3,186 3,352 3,244 3,187
Non-interest income:
Loan related fees and charges... 146 102 32 46 61
Gain (loss) on sale of assets... 16 (7) 1 (111) 78
Deposit related fees .......... 613 597 624 708 609
Other income.................... 350 204 181 221 239
-------- ----- ----- ----- -----
Total non-interest income..... 1,125 896 838 864 987
-------- ----- ----- ----- -----
Non-interest expense:
Staffing costs.................. 1,670 1,546 1,393 1,350 1,279
Federal deposit insurance
premiums...................... 142 239 263 314 279
FDIC special assessment......... 674 -- -- -- --
Real estate owned expenses...... 98 129 222 125 299
Other expense................... 1,268 1,282 1,270 1,339 1,402
-------- ----- ----- ----- -----
Total non-interest expense.... 3,852 3,196 3,148 3,128 3,259
-------- ----- ----- ----- -----
Income before income taxes...... 397 886 1,042 980 915
Provision for income taxes...... 101 311 350 365 281
-------- ----- ----- ----- -----
Net income ..................... $ 296 575 692 615 634
======== === === === ===
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
SELECTED FINANCIAL RATIOS:
At or For the Year Ended June 30,
1997 1996 1995 1994 1993
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (1).... .66% .50 .61 .52 .54
Return on average stockholders'
equity (1).................... 9.21% 7.62 9.89 9.46 22.50
Interest rate spread during
period (2).................... 2.91% 2.90 3.05 2.93 3.00
Net interest margin (3)......... 2.96% 2.96 3.07 2.90 2.84
Ratio of operating expenses to
average total assets (4)...... 2.72% 2.69 2.56 2.53 2.53
Ratio of average interest-
earning assets to average
interest-bearing liabilities.. 108.76% 108.34 107.33 105.99 101.44
Asset Quality Ratios:
Non-performing assets to
total assets.................. .86% 1.90 2.24 3.06 3.23
Allowance for loan losses to
nonperforming loans (5)....... 274.39% 22.00 18.84 19.45 22.19
Allowance for loan losses to
total loans................... 1.62% 1.78 2.10 2.43 2.47
Capital Ratios:
Stockholders' equity to
total assets.................. 7.14% 6.65 6.54 5.76 5.17
Average stockholders' equity to
average assets................ 6.81% 6.61 6.13 5.47 2.36
</TABLE>
(1) Exclusive of FDIC special assessment.
(2) Interest rate spread for the period shown includes the impact of
non-interest bearing demand deposits.
(3) Net interest income divided by average interest-earning assets.
(4) Exclusive of real estate owned expenses and losses and FDIC special
assessment.
(5) General valuation allowances to non-performing loans (net of specific
allowances).
-4-
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Midland Federal Savings and Loan Association (the "Association") converted from
a federal mutual savings and loan association to a federal stock savings and
loan association on June 30, 1993 (the "Conversion"). In the Conversion, 345,000
shares of common stock, par value of $.01 per share, of the Association were
sold in an initial public offering for an aggregate consideration of $3.45
million.
The Association's results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on its loan,
mortgage-backed securities, and investment portfolios and its cost of funds,
consisting of the interest paid on its deposits and borrowings. In addition, to
a lesser extent, the Association's operating results are affected by
non-interest income and non-interest expense. Non-interest expense includes
operating expenses consisting primarily of employee salaries and benefits,
office occupancy expenses, equipment costs, federal deposit insurance premiums,
and other general and administrative expenses. Operational results are also
affected by general economic conditions (particularly changes in interest
rates), competition, government policies and actions of regulatory agencies.
Midland Federal's operating philosophy is to provide, in a safe and profitable
manner, financial services to families and local businesses in the communities
served by its offices. The Association's immediate market area consists of
Southwest Chicago and the Southwest suburban communities of Bridgeview, Oak
Lawn, Palos Hills, Hickory Hills, Burbank, Chicago Ridge and Justice. Consistent
with its operating philosophy, the Association focuses upon attracting deposits
from the general public and using such deposits to originate residential
mortgage, and to a lesser extent, consumer, multi-family and other loans in its
primary market area. The Association also makes substantial investments in
mortgage backed securities, investment securities consisting primarily of U.S.
Government obligations and liquid assets in an effort to control interest rate
risk.
MANAGEMENT OF INTEREST RATE RISK
An evaluation of the interest rate risk position of a financial institution
typically entails an examination of the sensitivity of the institution's balance
sheet to changes in interest rates and the capacity of the institution to absorb
losses resulting from movements in interest rates. The sensitivity of an
institution's balance sheet depends upon the composition of the institution's
assets and liabilities. The Association manages interest rate risk by analyzing
the extent to which its assets and liabilities are interest rate sensitive and
then developing strategies to reduce the vulnerability of its operations to
changes in interest rates.
-5-
<PAGE>
Management uses analytical tools provided by the Office of Thrift Supervision
("OTS") to measure and predict the Association's level of interest rate risk
under a variety of market scenarios. In evaluating an institution's interest
rate risk profile, the OTS focuses on Net Portfolio Value ("NPV"), which is a
proxy for the economic value, or net present value, of an institution's worth.
NPV is defined as the present value of assets, less the present value of
liabilities, plus the net present value of off balance sheet contracts. OTS
measures an institution's vulnerability to interest rate risk by examining the
"Pre-Shock NPV Capital Ratio", the "Post-Shock NPV Capital Ratio" and the
"Sensitivity Measure". The Pre-Shock NPV Capital Ratio is the leverage ratio of
equity-to-assets expressed in present value terms and is calculated by dividing
an institution's base-case NPV by the present value of its assets. The
Post-Shock NPV Capital Ratio, also referred to as the "Exposure Measure", is an
estimate of what an institution's NPV capital ratio would be after a
hypothetical adverse 200 basis point shock in interest rates. The Sensitivity
Measure gauges the magnitude of loss that an institution would suffer from a 200
basis point movement in interest rates. The Sensitivity Measure is calculated as
the difference between the Post Shock NPV Capital Ratio and the Pre-Shock NPV
Capital Ratio, expressed in basis points. The OTS Interest Rate Risk Exposure
Model measures an institution's interest rate risk by approximating its NPV
under various market interest rate scenarios which range from a 400 basis point
increase to a 400 basis point decrease in market interest rates. The OTS has
incorporated an interest rate risk component into its regulatory capital rule.
Under that rule, an institution's "normal" level of interest rate risk is a
decrease in the institution's NPV (calculated under a hypothetical 200 basis
point change in interest rates) which does not exceed an amount equal to 2% of
the present value of its assets. An institution whose measured interest rate
risk exceeds its normal level of interest rate risk must deduct an interest rate
risk component in calculating its total capital for purpose of meeting its
risk-based capital requirement. The amount of that deduction is equal to
one-half of the difference between the institution's measured decline in net
portfolio value (assuming a 200 basis point change in interest rates) and an
amount equal to 2% of the present value of its assets. A savings institution
with assets of less than $300 million and with a risk-based capital ratio in
excess of 12% is not subject to the interest rate risk component, unless the OTS
determines otherwise. The OTS has postponed the date that the interest rate risk
component will first be deducted from an institution's total capital to provide
it with an opportunity to review the interest rate risk proposals recently
issued by the other federal banking agencies. The Association's measured
interest rate risk is below the threshold at which it could be required to hold
additional risk-based capital under OTS regulations.
Certain shortcomings are inherent in the methodology described in the above
interest rate risk measurements. Measuring changes in NPV requires certain
assumptions that may tend to oversimplify the manner in which actual yields and
costs respond to changes in market interest rates. For example, the model
assumes that the actual composition of the Association's interest sensitive
assets and liabilities remain constant over the period being measured. Also, the
model assumes that a particular change in interest rates is reflected uniformly
across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. Finally, the model does not take into account
the impact of the Association's business or strategic plans on the structure of
interest-earning assets and interest-bearing liabilities.
-6-
<PAGE>
Accordingly, although the NPV measurement provides an indication of the
Association's interest rate risk exposure at a particular point in time, such
measurement is not intended to, and does not provide, a precise forecast of the
effect of the changes in market interest rates on the Association's net interest
income and will differ from actual results. The results of the OTS's NPV model
are monitored by management and presented to the Board of Directors quarterly.
The interest rate risk policy of the Association provides that the maximum
permissible impact to the Association, assuming a 400 basis point increase or
decrease in market interest rates, is an 80% decrease in net portfolio value.
The Association uses a variety of tools to limit interest rate risk. First, the
Association has focused a portion of its residential lending on adjustable-rate
mortgages ("ARMs"), which generally reprice within one year, although the
Association continues to make long term fixed-rate mortgages in recognition of
market demand and the potential for fee income. Second, the Association
maintains a high level of liquidity and has focused its recent investment
activities in adjustable rate mortgage-backed securities and other short term
investments. Third, the Association has maintained a large percentage of its
deposit liabilities in passbook and transaction accounts, which are considered
to be relatively resistant to changes in interest rates.
The following table shows the NPV and projected change in the NPV of the
Association at June 30, 1997 assuming an instantaneous and sustained change in
market interest rates of 100, 200, 300 and 400 basis points.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV)
Net Portfolio Value NPV as % of Assets
------------------------------- --------------------
Change in Rates $ Amount $ Change % Change NPV Ratio Change
- --------------- -------- --------- -------- ---------- --------
(Basis Points) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+400 bp $12,336 $( 290) ( 2)% 10.68% -15 bp
+300 bp 12,640 14 0 10.90 + 7 bp
+200 bp 12,832 206 2 11.03 +20 bp
+100 bp 12,853 227 2 11.02 +19 bp
0 bp 12,626 -- - 10.83 --
-100 bp 12,060 ( 566) ( 4) 10.38 -45 bp
-200 bp 11,480 (1,146) ( 9) 9.91 -92 bp
-300 bp 11,722 ( 904) ( 7) 10.08 -75 bp
-400 bp 12,227 ( 399) ( 3) 10.44 -39 bp
</TABLE>
-7-
<PAGE>
FINANCIAL CONDITION AT JUNE 30, 1997
During the year ended June 30, 1997, total assets of the Association decreased
by $4.8 million to $111.7 million from $116.5 million at June 30, 1996. The
decrease in assets in fiscal 1997 is primarily attributable to an decrease in
deposits of $4.9 million during the year. The decrease in deposits was funded by
a $5.5 million decrease in mortgage backed securities during the year.
During the year ended June 30, 1997, net loans receivable increased by $616,000
to $33.4 million. Loan disbursements totalled $7.7 million compared to $8.2
million during the year ended June 30, 1996. Principal payments to loans during
the year ended June 30, 1996 totalled $6.2 million compared to $6.5 million
during the year ended June 30, 1996. In fiscal 1997 the Association originated
$1.1 million in single family mortgage loans in conjunction with the Illinois
Housing Development Authority's ("IHDA") first time home buyers program. As
required by the program, the Association had completed the sale of $832,000 of
these loans to the IHDA by June 30, 1997 and will continue to service these
loans for the IHDA and these customers. In fiscal 1998 the Association plans to
continue to participate in the IHDA first time home buyers program and to market
its loan products to local real estate brokers through Association loan
origination personnel.
During the year ended June 30, 1997, the Federal Reserve Board adopted a
slightly more restrictive monetary policy which it implemented with a single one
quarter point increase in short term interest rates in March 1997. The Federal
Reserve Board took this action despite a continued benign inflation environment
as "insurance" against any developing inflation trend caused by increased
consumer spending and generally strong economic growth in the fourth quarter of
calender 1996 and the first quarter of calender 1997. These factors caused an
upward shift in interest rates across all maturities. This upward shift in
interest rates dissipated, however, through the end of fiscal 1997 as
expectations for a slow down in both consumer spending and economic growth set
in and any further increases in short term interest rates were priced out of the
financial markets resulting in a flatter and lower yield curve at the end of
fiscal 1997. Continued low unemployment rates and a resumption in consumer
spending in the second half of calender 1997 is likely to cause the Federal
Reserve Board to retain a bias toward a tighter monetary policy and may result
in higher short and intermediate term market interest rates in the final quarter
of calender 1997 and into calender 1998. As a result, the Association has
continued to maintain a relatively high level of short term interest bearing
deposits in its investment portfolio. At June 30, 1997 short term interest
bearing deposits totalled $28.1 million compared to $27.4 million at June 30,
1996.
Investment securities remained stable at $21.1 million at June 30, 1997.
Management has categorized a $1.0 million par value fixed rate investment
security with a maturity in excess of twenty years as available for sale. All
other investment securities are categorized as held to maturity at June 30,
1997. The weighted average remaining maturity of the Association's investment
securities portfolio at June 30, 1997 was 1.9 years.
Deposits decreased $4.9 million to $103.0 million at June 30, 1997 from $107.9
million at June 30, 1996 as a net deposit outflow of $8.6 million offset
-8-
<PAGE>
interest credited in the amount of $3.7 million during the year. The net loss of
savings deposits is attributed to a $2.4 million decrease in passbook deposit
accounts, a $2.0 million decrease in certificates of deposit and a $1.0 million
decrease in money market accounts which was offset by a $544,000 increase in NOW
and non-interest bearing demand deposit accounts. The net loss in savings
deposits is attributed to competition from higher yielding investment
alternatives which are available to the investing public as well as to
conservative pricing of deposit products.
Stockholders' equity increased $231,000 to $8.0 million at June 30, 1997 from
$7.7 million at June 30, 1996. The increase in stockholders' equity is the
result of earnings in the amount of $296,000, a $26,000 reduction in the
unamortized cost of the Bank Incentive Plan established in fiscal 1996 and a
positive market adjustment in the amount of $12,000, net of income taxes, from
securities available for sale. These increases in stockholders' equity were
offset by dividends paid on common stock in the amount of $104,000.
Non-performing assets declined to $958,000 at June 30, 1997 from $2.2 million at
June 30, 1996. Non-performing assets at June 30, 1997 consist of $103,000 in
non-accruing loans and real estate owned properties in the amount of $855,000,
both stated net of specific reserves. At June 30, 1997 non-accruing loans
consisted of $58,000 in one single family residential mortgage loan, $42,000 in
one multi-family residential mortgage loan and $3,000 in consumer loans. At June
30, 1997 real estate owned consisted of three single family residential
properties with book values of $485,000, $285,000 and 85,000, respectively.
The following table presents, for the periods indicated, the total dollar
amounts of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. No tax equivalent adjustments
were made. All average balances are monthly average balances and include
non-accruing loans.
-9-
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ----------------------
Average Interest Yield Average Interest Yield Average Interest Yield
Balance Earned/ and Balance Earned/ and Balance Earned/ and
Paid Rates Paid Rates Paid Rates
-------- ------- ----- -------- ------- ----- -------- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning
Assets:
Loans Receivable (1) $ 32,868 $2,699 8.21% $ 31,578 $2,631 8.33% $ 31,702 $2,658 8.39%
Mortgage-backed
securities........ 24,518 1,604 6.54 27,307 1,781 6.52 30,579 1,715 5.61
Investment and other
securities........ 21,049 1,277 6.07 21,081 1,281 6.08 21,189 1,100 5.19
Interest-bearing
deposits.......... 26,549 1,416 5.33 26,889 1,490 5.54 22,262 1,183 5.32
FHLB stock.......... 554 38 6.81 656 45 6.86 699 44 6.31
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total interest-
earning assets $105,538 $7,034 6.67% $107,511 $7,228 6.72% $106,431 $6,700 6.30%
-------- ------ ---- -------- ------ ---- -------- ------ ----
Interest-Bearing
Liabilities:
Certificates of
deposit........... $ 43,264 $2,311 5.34% $ 43,479 $2,375 5.46% $ 38,774 $1,726 4.45%
Passbook accounts... 41,564 1,228 2.95 42,861 1,272 2.97% 46,047 1,285 2.79
Money market and
NOW accounts...... 12,214 371 3.04 12,898 395 3.06% 14,345 417 2.91
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total interest-
bearing lia-
bilities...... $ 97,042 $3,910 4.03% $ 99,238 $4,042 4.07% $ 99,166 $3,428 3.46%
======== ====== ==== ======== ====== ==== ======== ====== ====
Net earning assets.. $ 8,496 $ 8,273 $ 7,265
======== ======== ========
Net-interest income. $3,124 $3,186 $3,272
Net interest rate
spread (2)........ 2.64% 2.65% 2.84%
==== ==== ====
Net interest margin. 2.96% 2.96% 3.07%
==== ==== ====
Average interest-
earning assets to
average interest-
bearing liabilities 108.76% 108.34% 107.33%
====== ====== ======
</TABLE>
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves.
(2) Net interest rate spread would be increased to 2.91%, 2.90% and 3.05% for
the periods shown if the positive impact of average non-interest bearing demand
deposits ($6,990, $6,618 and $6,572 for the periods shown) is considered.
-10-
<PAGE>
The following table presents, for the period indicated, the dollar amount of
changes in interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities. It distinguishes
between the increase related to higher outstanding balances and that due to the
unprecedented levels and volatility of interest rates. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (changes in average
volume multiplied by old rate), (ii) changes in rate (changes in rate multiplied
by old average volume) and (iii) changes in rate-volume (changes in rate
multiplied by the change in average volume).
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
------------------------------ ------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------ ------ ------ ------ ------ ------ ------ ------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ------ ------ ------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning
Assets:
Loans Receivable.... $ 107 $( 38) $( 1) $ 68 $( 10) $( 17) $ -- $( 27)
Mortgage-backed
securities........ (182) 5 -- (177) (183) 278 ( 29) 66
Investment and other
securities........ ( 2) ( 2) __ ( 4) ( 6) 188 ( 1) 181
Interest-bearing
deposits.......... ( 19) ( 56) 1 ( 74) 247 49 11 307
FHLB stock.......... ( 7) -- -- ( 7) ( 3) 4 -- 1
----- -- -- -- - ----- -- -- -- -- --- -- --
Total interest-
earning assets $(103) $( 91) $ -- $(194) $ 45 $ 502 $( 19) $ 528
----- -- -- -- - ----- -- -- -- -- --- -- --
Interest-Bearing
Liabilities:
Certificates of
deposit........... $( 12) $( 52) $ -- $( 64) $ 209 $ 392 $ 48 $ 649
Passbook accounts... ( 38) ( 6) -- ( 44) ( 89) 82 ( 6) ( 13)
Money market and
NOW accounts...... ( 21) ( 3) -- ( 24) ( 42) 21 ( 1) ( 22)
----- -- -- -- - ----- -- -- -- -- --- -- --
Total interest-
bearing liab-
ilities....... $( 71) $( 61) $ -- $(132) $ 78 $ 495 $ 41 $ 614
----- -- -- -- - ----- -- -- -- -- --- -- --
Net change in net
interest income... $( 32) $( 30) $ -- $( 62) $( 33) $ 7 $( 60) $( 86)
===== ====== ===== ===== ===== ===== ===== =====
</TABLE>
-11-
<PAGE>
COMPARISON OF OPERATING RESULTS
FOR THE FISCAL YEARS ENDED
JUNE 30, 1997 AND JUNE 30, 1996
The Association's operating results depend primarily on the level of its net
interest income and non-interest income as well as the level of its operating
expenses. Net interest income depends upon the volume of interest-earning assets
and interest-costing liabilities and the interest rate earned or paid on them.
The Association receives non-interest income in the form of fees charged for
services related to transaction and other deposit accounts. Fee income is also
generated by the Association's loan origination and loan brokerage operations
well as its loan servicing operations in the form of late payment and loan
servicing fees. Personnel costs, office occupancy and equipment expenses and
deposit insurance premiums comprise the largest components of the Association's
non-interest expense.
GENERAL
Midland Federal had net income of $296,000 in fiscal 1997 compared to net income
of $575,000 for fiscal 1996. Net income for the fiscal year ended June 30, 1997
included an after tax charge in the amount of $445,000, or $1.26 per primary
share, for a special assessment levied by the Federal Deposit Insurance
Corporation ("FDIC") to recapitalize the Savings Association Insurance Fund.
Net income decreased from the prior fiscal year as a result of decreases in the
Association's net interest income to $3.1 million in fiscal 1997 from $3.2
million in fiscal 1996. Net interest income declined $62,000 in fiscal 1997
compared to the prior fiscal year as the result of a $2.0 million reduction in
the average balance of interest earning assets as interest earning assets were
reduced in order to fund a $1.8 million decline in average deposit balances
which occurred during the year. The reduction in the average balance of interest
earning assets offset the positive impact of a slight increase in interest rate
spread in fiscal 1997. Interest rate spread increased a single basis point to
2.91% for the fiscal year ended June 30, 1997 from 2.90% in the prior fiscal
year. Net interest margin remained stable at 2.96% during fiscal 1997.
Net income was increased in fiscal 1997 as a result of a $229,000 increase in
non-interest income. The increase in non-interest income in the current fiscal
year is primarily attributed to a one time recovery of a prior period loss on
the sale of real estate owned properties in the amount of $143,000 as well as a
$44,000 increase in loan fees and service charges.
Net income was decreased in fiscal 1997 as a result of a $656,000 increase in
non-interest expense, which increase is largely attributable to a non-recurring
$674,000 special assessment levied by the FDIC to recapitalize the Savings
Association Insurance Fund ("SAIF"). Staffing costs also increased $124,000. The
increase in staffing costs is partially attributed to the costs associated with
operating the Association's enhanced loan brokerage and loan origination
operations for the entire fiscal year as well as the addition of one full time
commissioned loan originator.
-12-
<PAGE>
INTEREST INCOME
Interest income decreased $194,000, or 2.7%, to $7.0 million in fiscal 1997 from
$7.2 million in fiscal 1996. This decrease in interest income resulted from a
$2.0 million decrease in the average balance of interest earning assets to
$105.5 million in fiscal 1997 from $107.5 million in fiscal 1996 as well as a
decrease in the average yield earned on interest earning assets to 6.67% in
fiscal 1997 from 6.72% in fiscal 1996.
Interest on loans receivable increased $68,000, or 2.6%, in fiscal 1997 compared
with fiscal 1996. The increase in interest income was attributed to an increase
in the average outstanding balance of net loans receivable to $32.9 million in
fiscal 1997 from $31.6 million in fiscal 1996 which more than offset a decrease
in the average yield earned on loans receivable to 8.21% in fiscal 1997 from
8.33% in fiscal 1996.
Interest on mortgage backed securities decreased $177,000, or 9.9%, to $1.6
million in fiscal 1997 from $1.8 million in fiscal 1996. The decrease in
interest income is attributed to a $2.8 million reduction in the average
outstanding balance of mortgage backed securities to $24.5 million in fiscal
1997 from $27.3 million in fiscal 1996. The lower average outstanding balance of
mortgage backed securities was partially offset by a slight increase in the
average yield earned on mortgage backed securities to 6.54% in fiscal 1997 from
6.52% in fiscal 1996.
Interest earned on investment securities remained relatively stable in fiscal
1997 at $1.3 million, decreasing only $4,000, or 0.3% from fiscal 1996. The
average yield on investment securities was 6.07% in fiscal 1997 compared to
6.08% in fiscal 1996 while the average outstanding balance of investment
securities declined $32,000 to $21.0 million in fiscal 1997 from $21.1 million
in fiscal 1996.
Interest earned on interest bearing deposits decreased $73,000, or 4.9%, to $1.4
million in fiscal 1997 from $1.5 million in fiscal 1996. The decrease in
interest income on interest bearing deposits is attributed to a decrease in the
average yield earned on interest bearing deposits to 5.33% in fiscal 1997 from
5.54% in fiscal 1996 as well as a $340,000 decrease in the average outstanding
balance of interest bearing deposits to $26.6 million in fiscal 1997 from $26.9
million in fiscal 1996. As discussed above, the Association maintained its
investments in interest bearing deposits in response to the likelihood that the
Federal Reserve Board will retain a bias toward a tighter monetary policy which
may result in higher short and intermediate term market interest rates in the
final quarter of calender 1997 and into calender 1998.
INTEREST EXPENSE
Interest expense decreased $132,000, or 3.3%, to $3.9 million in fiscal 1997
from $4.0 million in fiscal 1996. The decrease in interest expense in fiscal
1997 was primarily the result of a $2.2 million decrease in the average
outstanding balance of interest costing deposits to $97.0 million in fiscal 1997
from $99.2 million in fiscal 1996 as well as to a decrease in the average yield
paid on interest costing deposits to 4.03% in fiscal 1997 compared to 4.07% in
fiscal 1996.
-13-
<PAGE>
PROVISIONS FOR LOSSES ON LOANS
The Association maintains an allowance for loan losses based upon management's
periodic evaluation of known and inherent risks in the loan portfolio, the
Association's past loss experience, adverse situations that may affect
borrowers' ability to repay loans, estimated value of the underlying collateral
and current and expected market conditions. The Association made no provision
for loan losses in fiscal 1997 due to the continued improvement in the level of
net non-performing loans. In fiscal 1997 net non-performing loans declined by
$1.3 million, or 92.9%, to $103,000 at June 30, 1997. At June 30, 1997 general
loan loss reserves amounted to $282,000 or 274.39% of net non-performing loans.
Net charge offs during fiscal 1997 were $44,000, or .13% of average net loans
outstanding during the year. At June 30, 1997, the Association was aware of no
regulatory directives or suggestions that the Association make additional
provisions for losses on loans. Although the Association believes its allowance
for loan losses is at a level which it considers to be adequate to provide for
potential losses, there can be no assurance that such losses will not exceed the
estimated amounts.
NON-INTEREST INCOME
Non-interest income increased $229,000 to $1.1 million in fiscal 1997 from
$896,000 in fiscal 1996. The increase was primarily due to a non-recurring
recovery of a prior period loss on the sale of real estate owned properties in
the amount of $143,000, a $44,000 increase in loan fees and service charges, a
$16,000 gain on the sale of assets compared to a $7,000 loss on the sale of
assets in the prior fiscal year and a $16,000 increase in deposit related fees.
The increase in loan fees and service charges was the result of increased loan
brokerage revenues in fiscal 1997 compared to fiscal 1996.
NON-INTEREST EXPENSE
Non-interest expense increased $656,000 during fiscal 1997 to $3.9 million from
$3.2 million in the prior fiscal year. The increase in non-interest expense was
primarily the result of a $674,000 special assessment levied by the FDIC to
recapitalize SAIF, a $124,000 increase in staffing costs, as discussed above,
and a $23,000 increase in advertising. These increases in non-interest expense
were partially offset by a $97,000 reduction in quarterly deposit insurance
premiums, a $43,000 decrease in legal, audit and examination services and the
elimination of a $25,000 provision for loss on real estate owned properties
which had been recorded in the prior fiscal year. The $97,000 reduction in
quarterly deposit insurance premiums is due to a reduction in the Association's
FDIC insurance premium rate effective January 1, 1997. As of such date, deposit
insurance premium rates for highly rated institutions, such as the Association,
were reduced to zero due to the recapitalization of the Savings Association
Insurance Fund, discussed above. However, all savings associations, including
the Association, continue to be charged a debt service assessment by the FDIC to
fund repayment of certain debt obligations of the Financing Corporation which
were undertaken pursuant to the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 to fund the FSLIC Resolution Fund.
INCOME TAXES
Provisions for income taxes decreased by $210,000 to $101,000 in fiscal 1997
from $311,000 in fiscal 1996. The decreased income tax provision for fiscal 1997
was due primarily to the decrease in operating income from fiscal 1996.
-14-
<PAGE>
COMPARISON OF OPERATING RESULTS
FOR THE FISCAL YEARS ENDED
JUNE 30, 1996 AND JUNE 30, 1995
GENERAL
Midland Federal had net income of $575,000 in fiscal 1996 compared to net income
of $692,000 for fiscal 1995. Net income decreased from the prior fiscal year as
a result of decreases in the Association's net interest income to $3.2 million
in fiscal 1996 from $3.3 million in fiscal 1995. The decrease in net interest
income was the result of decreases in both net interest margin and interest rate
spread during fiscal 1996. During fiscal 1996 the Association's net interest
margin and interest rate spread decreased to 2.96% and 2.90%, respectively, from
3.07% and 3.05%, respectively, during fiscal 1995.
Net income also decreased in fiscal 1996 as a result of a non-recurring recovery
of general loan loss reserves in the amount of $80,000 which occurred during the
prior fiscal year as well as a $48,000 increase in non-interest expense. The
decreases in net income which occurred in fiscal 1996 were partially offset by a
$59,000 increase in non-interest income and a $39,000 reduction in the provision
for income taxes to $311,000 in fiscal 1996 from $350,000 in fiscal 1995.
INTEREST INCOME
Interest income increased $528,000, or 7.9%, to $7.2 million in fiscal 1996 from
$6.7 million in fiscal 1995. This increase in interest income resulted from an
increase in the average yield earned on interest earning assets to 6.72% in
fiscal 1996 from 6.30% in fiscal 1995 as well as a $1.1 million increase in the
average balance of interest earning assets to $107.5 million in fiscal 1996 from
$106.4 million in fiscal 1995.
Interest on loans receivable decreased $27,000, or 1.0%, in fiscal 1996 compared
with fiscal 1995. The decrease in interest income was attributed to a decrease
in the average yield earned on loans receivable to 8.33% in fiscal 1996 from
8.39% in fiscal 1995 as well as to a decrease in the average outstanding balance
of net loans receivable to $31.6 million in fiscal 1996 from $31.7 million in
fiscal 1995.
Interest on mortgage backed securities increased $66,000, or 3.9%, to $1.8
million in fiscal 1996 from $1.7 million in fiscal 1995. The increase in
interest income is attributed to an increase in the average yield earned on
mortgage backed securities to 6.5% in fiscal 1996 from 5.6% in fiscal 1995. The
higher average yield earned on mortgage backed securities in fiscal 1996
compared with the prior fiscal year was caused by upward adjustments on the
Association's yield on its adjustable rate mortgage backed securities. The
Associations' yield on its adjustable rate mortgage backed securities increased
in fiscal 1996 compared with fiscal 1995 because average short term market
interest rates were higher in fiscal 1996 than in either fiscal 1995 or fiscal
1994. The higher average yield earned on mortgage backed securities in fiscal
1996 was partially offset by a $3.3 million reduction in the average outstanding
balance of mortgage backed securities to $27.3 million in fiscal 1996 from $30.6
million in fiscal 1995.
-15-
<PAGE>
Interest earned on investment securities increased $182,000, or 16.6%, to $1.3
million in fiscal 1996 from $1.1 million in fiscal 1995. The increase in
interest income is attributed to an increase in the average yield on investment
securities to 6.1% in fiscal 1996 from 5.2% in fiscal 1995. The increase in the
average yield earned on investment securities is the result of intermediate term
market interest rates that were greater than the yield being earned on maturing
investment securities which allowed the Association to reinvest maturing
investment securities at higher yields without extending the original term to
maturity of such investment securities.
Interest earned on interest bearing deposits increased $306,000, or 25.8%, to
$1.5 million in fiscal 1996 from $1.2 million in fiscal 1995. The increase in
interest income on interest bearing deposits is attributed to a $4.6 million
increase the average outstanding balance of interest bearing deposits to $26.9
million in fiscal 1996 from $22.3 million in fiscal 1995 as well as to an
increase in the average yield earned on interest bearing deposits to 5.5% in
fiscal 1996 compared to 5.3% in fiscal 1995. As discussed above, the Association
increased its investments in interest bearing deposits in response to the
likelihood of a resumption of tighter monetary policies by the Federal Reserve
Board and the prospects for higher short and intermediate term market interest
rates in the second half of calender 1996 should the growth rate of the economy
be stronger than expected.
INTEREST EXPENSE
Interest expense increased $614,000, or 17.9%, to $4.0 million in fiscal 1996
from $3.4 million in fiscal 1995. The increase in interest expense in fiscal
1996 was primarily the result of an increase in the average yield paid on
interest costing deposits to 4.1% in fiscal 1996 compared to 3.5% in fiscal
1995. The increase in average yield paid on interest costing deposits was the
result of the higher interest rate paid on passbook deposits throughout fiscal
1996 compared with fiscal 1995, as discussed above, as well as higher average
interest rates paid on certificates of deposit as they rolled over at maturity
during fiscal 1996.
PROVISIONS FOR LOSSES ON LOANS
The Association maintains an allowance for loan losses based upon management's
periodic evaluation of known and inherent risks in the loan portfolio, the
Association's past loss experience, adverse situations that may affect
borrowers' ability to repay loans, estimated value of the underlying collateral
and current and expected market conditions. The Association made no provision
for loan losses in fiscal 1996 due to the continued improvement in the level of
net non-performing loans. In fiscal 1996 net non-performing loans declined by
$156,000, or 9.7%, to $1.4 million at June 30, 1996. In fiscal 1995, net income
was increased by an $80,000 recovery of general loan loss reserves based upon an
analysis of the improving trend and level of non-performing loans. At June 30,
1996 general loan loss reserves amounted to $318,000. Net charge offs during
fiscal 1996 were $70,000, or .21% of average net loans outstanding during the
year. At June 30, 1996, the Association was aware of no regulatory directives or
suggestions that the Association make additional provisions for losses on loans.
Although the Association believes its allowance for loan losses is at a level
which it considers to be adequate to provide for potential losses, there can be
no assurance that such losses will not exceed the estimated amounts.
-16-
<PAGE>
NON-INTEREST INCOME
Non-interest income increased $59,000 to $897,000 in fiscal 1996 from $838,000
in fiscal 1995. The increase was primarily due to a $70,000 increase in loan
fees and service charges as well as an $18,000 increase in commission income.
The $70,000 increase in loan fees and service charges was the result of loan
brokerage revenues and increased loan volumes in fiscal 1996 compared to fiscal
1995. The $18,000 increase in commission income was the result of increased
sales of annuity products by the Association's wholly owned subsidiary.
Non-interest income in fiscal 1996 was decreased by a $27,000 reduction in
deposit related fees to $597,000 from $624,000 in fiscal 1995.
NON-INTEREST EXPENSE
Non-interest expense increased $48,000, or 1.5%, during fiscal 1996. The
increase was primarily due to a $153,000 increase in staffing costs as well as a
$50,000 increase in legal, audit and examination services and a $21,000 increase
in advertising. The $153,000 increase in staffing costs was primarily attributed
to the addition of a commissioned loan originator and loan personnel to staff
the Association's enhanced loan origination and loan brokerage operations as
well as an increase in benefits costs. Non-interest expense in fiscal 1996 was
decreased by a $96,000 reduction in provision for loss on real estate owned, a
$33,000 reduction in occupancy and equipment expenses and a $24,000 reduction in
federal deposit insurance premiums. The $24,000 decrease in the deposit
insurance premiums in fiscal 1996 was primarily the result of an 6.1% decrease
in Midland Federal's annual premium rate for deposit insurance for fiscal 1996
compared with fiscal 1995. The decrease in Midland Federal's annual premium rate
for deposit insurance was the result of an upgrade in its Supervisory subgroup
assignment during fiscal 1995.
INCOME TAXES
Provisions for income taxes decreased by $39,000 to $311,000 in fiscal 1996 from
$350,000 in fiscal 1995. The decreased income tax provision for fiscal 1996 was
due primarily to the decrease in operating income from fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Association's principal sources of funds are deposits, loan and mortgage
backed securities repayments, proceeds from the maturities of investment
securities and other funds provided by operations. In addition, the Association
may borrow funds from the Federal Home Loan Bank of Chicago.
The Association maintains investments in liquid assets based upon management's
assessment of (i) the Association's need for funds, (ii) expected deposit flows,
(iii) the yields available on short-term liquid assets and (iv) the objectives
of the Association's asset/liability management program. The OTS requires
members of the FHLB system to maintain minimum levels of liquid assets. OTS
regulations currently require the Association to maintain an average daily
balance of liquid assets equal to at least 5% of the sum of its average daily
balance of net withdrawable deposit accounts and borrowings payable in one year
or less. At June 30, 1997, the Association's regulatory liquidity ratio was
51.5%. At such date, the Association had commitments to originate $255,000 in
single family mortgage loans, commitments to sell $230,000 in single family
mortgage loans and no commitments to purchase loans.
-17-
<PAGE>
The Association considers its liquidity and capital reserves sufficient to meet
its outstanding short and long-term needs. The Association expects to be able to
fund or refinance, on a timely basis, its material commitments and long-term
liabilities. The Association's liquidity, represented by cash and cash
equivalents, is a combination of its operating, investing and financing
activities. These activities are summarized in the following table for the years
ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
For the Year
Ended June 30,
----------------------
1997 1996
-------- --------
(Dollars in thousands)
<S> <C> <C>
Net income............................. $ 296 $ 575
Adjustments to reconcile net income
to net cash provided by
operating activities................. 161 234
Net cash provided by
operating activities................. 457 809
Net cash provided by (for)
investing activities................. 4,557 (323)
Net cash provided by (for)
financing activities................. (5,029) 2,410
Net change in cash and
cash equivalents..................... (15) 2,896
Cash and cash equivalents at
beginning of period.................. 30,918 28,022
Cash and cash equivalents at
end of period........................ $30,903 $30,918
</TABLE>
At June 30, 1997 Midland Federal had tangible and core capital of $7.9 million,
or 7.07% of adjusted total assets, which was approximately $6.2 million and $4.6
million above the minimum requirements in effect on that date of 1.5% and 3.0%,
respectively, of adjusted total assets.
At June 30, 1997 Midland Federal had total capital of $8.2 million and
risk-weighted assets of $33.8 million, or total capital of 24.21% of
risk-weighted assets. This amount was approximately $5.5 million above the 8.0%
requirement in effect on that date.
IMPACT OF NEW ACCOUNTING STANDARDS
The following does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Association keeps its
books and records and performs its financial accounting responsibilities. It is
intended only as a summary of some of the recent pronouncements made by the
Financial Accounting Standards Board ("FASB") which are of particular interest
to financial institutions.
-18-
<PAGE>
In June 1996, the FASB issued Statement of Financial Accounting Standards No.
125 ("SFAS 125"), entitled "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." This Statement, among other things,
applies a "financial-components approach" that focuses on control, whereby an
entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes assets when control has been
surrendered, and derecognizes liabilities when extinguished. SFAS 125 provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. SFAS 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. The Association has adopted SFAS 125
effective January 1, 1997, resulting in no material impact on its consolidated
financial condition or results of operations.
In December 1996, the FASB issued Statement of Financial Accounting Standards
No. 127 ("SFAS 127"), entitled "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125". The statement delays for one year the
implementation of SFAS 125, as it relates to (1) secured borrowings and
collateral, and (2) the transfers of financial assets that are part of
repurchase agreements, dollar-rolls, securities lending and similar
transactions. The Association has adopted portions of SFAS 125 (those not
deferred by SFAS 127) effective January 1, 1997. Adoption of these portions did
not have a significant effect on the Association's financial condition or
results of operations. Based on its review of SFAS 125, management does not
believe that adoption of the portions of SFAS 125 which have been deferred by
SFAS 127 will have a material effect on the Association.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128 ("SFAS 128"), entitled "Earnings Per Share." This statement is intended
to simplify the computation of earnings per share ("EPS") by replacing the
presentation of primary EPS with a presentation of basic EPS. Basic EPS does not
include potential dilution and is computed by dividing income available to
common stockholders by the average number of common shares outstanding. Diluted
EPS reflects the potential dilution of securities that could share in the
earnings of a company, similar to the fully diluted EPS currently used. The
statement requires dual presentation of basic and diluted EPS by companies with
complex capital structures. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, and will require restatement
of all prior-period EPS data presented. The Association does not anticipate that
this statement will have a material impact on its diluted earnings per share.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 129 ("SFAS 129"), entitled "Disclosure of Information about Capital
Structure." This statement establishes standards for disclosing information
about an entity's capital structure. It supersedes specific disclosure
requirements of APB Opinion No. 10, "Omnibus Opinion-1966," and No. 15,
"Earnings Per Share," and SFAS No. 47, "Disclosure of Long-Term Obligations,"
and consolidates them in this statement for ease of retrieval and for greater
visibility to nonpublic entities. SFAS 129 is effective for financial statements
for periods ending after December 15, 1997. It contains no changes in disclosure
requirements for entities that were previously subject to the requirements of
Opinions No. 10 and No. 15 and SFAS No. 47, and therefore, is
-19-
<PAGE>
not expected to have a significant impact on the consolidated financial
condition or results of operations of the Association.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 ("SFAS 130"), entitled "Reporting Comprehensive Income." This statement
establishes standards for the reporting and display of comprehensive income and
its components (revenues, expenses, gains, losses) in a full set of
general-purpose financial statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented herein have
been prepared in accordance with Generally Accepted Accounting Principles, which
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 Association's operations. Unlike most industrial
companies, nearly all of the assets and liabilities of the Association are
monetary in nature. As a result, interest rates have a greater impact on the
Association'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.
-20-
<PAGE>
[letterhead]
COBITZ, VANDENBERG & FENNESSY
CERTIFIED PUBLIC ACCOUNTANTS
7800 WEST 95TH STREET - SUITE 301
HICKORY HILLS, ILLINOIS 60457
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Midland Federal Savings and Loan Association
Bridgeview, Illinois
We have audited the consolidated statements of financial condition of
Midland Federal Savings and Loan Association and subsidiaries as of June 30,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ending June 30, 1997. These consolidated financial statements are the
responsibility of the Association'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 consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 Midland
Federal Savings and Loan Association and subsidiaries at June 30, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ending June 30, 1997, in conformity with generally accepted
accounting principles.
/s/Cobitz, Vandenberg & Fennessy
--------------------------------
Cobitz, Vandenberg & Fennessy
August 4, 1997
Hickory Hills, Illinois
-21-
<PAGE>
<TABLE>
<CAPTION>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30,
-------------------------
1997 1996
----------- -----------
Assets
<S> <C> <C>
Cash and amounts due from depository institutions $ 2,836,806 3,469,473
Interest-bearing deposits 28,065,769 27,448,245
----------- -----------
Total cash and cash equivalents 30,902,575 30,917,718
Investment securities (fair value:
1997 - $19,989,063; 1996 - $19,982,031) (note 2) 19,989,524 19,984,084
Investment securities available for sale,
at fair value (note 3) 1,068,125 1,049,062
Mortgage-backed securities (fair value:
1997 - $22,148,459; 1996 - $27,451,931) (note 4) 21,935,716 27,409,579
Loans receivable (net of allowance
for loan losses: 1997 - $551,509;
1996 - $595,601) (note 5) 33,161,513 32,775,725
Loans receivable held for sale (note 6) 230,400 -
Real estate owned, net 855,500 770,000
Stock in Federal Home Loan Bank of Chicago 554,000 554,000
Office properties and equipment - net (note 7) 1,588,024 1,513,972
Accrued interest receivable (note 8) 638,296 687,319
Prepaid expenses and other assets (note 9) 753,907 798,167
----------- -----------
Total assets 111,677,580 116,459,626
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 10) 102,972,924 107,913,715
Advance payments by borrowers for taxes
and insurance 355,765 332,803
Other liabilities (note 11) 378,225 473,396
----------- -----------
Total liabilities 103,706,914 108,719,914
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Stockholders' Equity:
Preferred stock, $.01 par value: authorized
1,000,000 shares; none outstanding - -
Common stock, $.01 par value: authorized
5,000,000 shares; issued and outstanding
346,725 shares at June 30, 1997 and 1996 3,467 3,467
Additional paid-in capital 3,073,664 3,072,818
Retained earnings - substantially restricted 4,942,077 4,750,276
Unrealized gain on securities available for sale,
net of income taxes 61,375 49,426
Common stock awarded by Bank Incentive Plan (109,917) (136,275)
----------- -----------
Total stockholders' equity (notes 15 and 16) 7,970,666 7,739,712
----------- -----------
Commitments and contingencies (notes 17 and 18)
Total liabilities and stockholders' equity $ 111,677,580 116,459,626
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-22-
<PAGE>
<TABLE>
<CAPTION>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended June 30,
-------------------------------------
1997 1996 1995
--------- --------- ---------
Interest income:
<S> <C> <C> <C>
Interest on loans $ 2,699,211 2,631,159 2,658,375
Interest on mortgage-backed securities 1,603,709 1,780,840 1,714,602
Interest on investment securities 1,277,457 1,281,383 1,099,440
Interest on interest-bearing deposits 1,416,267 1,489,182 1,183,386
Dividends on FHLB stock 37,717 44,994 44,135
--------- --------- ---------
Total interest income 7,034,361 7,227,558 6,699,938
--------- --------- ---------
Interest expense:
Interest on deposits (note 10) 3,910,529 4,041,748 3,427,578
--------- --------- ---------
Total interest expense 3,910,529 4,041,748 3,427,578
--------- --------- ---------
Net interest income before provision
for loan losses 3,123,832 3,185,810 3,272,360
Provision for loan losses (recoveries) (note 5) - - (80,000)
--------- --------- ---------
Net interest income after provision
for loan losses 3,123,832 3,185,810 3,352,360
--------- --------- ---------
Non-interest income:
Loan fees and service charges 145,586 101,600 32,007
Commission income 68,525 81,003 63,137
Profit on sale of loans (note 6) 10,802 - -
Profit (loss) on sale of real estate owned - (6,585) 650
Recovery from litigation settlement (note 19) 143,000 - -
Deposit related fees 612,567 596,919 623,848
Other income 144,820 123,637 117,964
--------- --------- ---------
Total non-interest income 1,125,300 896,574 837,606
--------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Non-interest expense:
Staffing costs (notes 12 and 13) 1,670,423 1,546,124 1,393,316
Advertising 86,063 63,087 41,878
Occupancy and equipment expenses (note 7) 451,507 448,893 481,991
Data processing 136,634 136,714 138,610
Federal deposit insurance premiums 142,377 239,259 262,624
FDIC special assessment (note 20) 674,061 - -
Legal, audit and examination services 143,974 186,890 136,678
Real estate owned expense 97,602 104,014 100,253
Provision for loss on real estate owned - 25,000 121,300
Other 449,862 446,341 471,246
--------- --------- ---------
Total non-interest expense 3,852,503 3,196,322 3,147,896
--------- --------- ---------
Income before income taxes 396,629 886,062 1,042,070
Provision for income taxes (note 14) 100,811 310,886 349,689
--------- --------- ---------
Net income $ 295,818 575,176 692,381
========= ========= =========
Earnings per share - primary $ .83 1.64 2.00
========= ========= =========
Earnings per share - fully diluted $ .83 1.63 1.98
========= ========= =========
Dividends declared per share $ .30 .30 .30
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-23-
<PAGE>
<TABLE>
<CAPTION>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Unrealized
Gain on Common
Additional Securities stock
Common Paid-In Retained Available awarded
Stock Capital Earnings For Sale by BIP Total
------ --------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 $ 3,450 3,053,385 3,689,849 - - 6,746,684
Net income 692,381 692,381
Adjustment of securities
available for sale to fair
value, net of tax effect 76,665 76,665
Dividends declared on
common stock ($.30
per share) (103,500) (103,500)
------ --------- --------- ------ ------- ---------
Balance at June 30, 1995 3,450 3,053,385 4,278,730 76,665 - 7,412,230
Net income 575,176 575,176
Adjustment of securities
available for sale to fair
value, net of tax effect (27,239) (27,239)
Common stock issued in
connection with stock
options exercised 17 17,233 17,250
Tax benefit related to
stock options exercised 2,200 2,200
Contribution to BIP
trustee for purchase
of BIP shares (155,250) (155,250)
Amortization of award
of BIP stock 18,975 18,975
Dividends declared on
common stock ($.30
per share) (103,630) (103,630)
------ --------- --------- ------ ------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 3,467 3,072,818 4,750,276 49,426 (136,275) 7,739,712
Net income 295,818 295,818
Adjustment of securities
available for sale to fair
value, net of tax effect 11,949 11,949
Tax benefit related to
employee stock plan 846 846
Contribution to BIP
trustee for purchase
of BIP shares (6,922) (6,922)
Amortization of award
of BIP stock 33,280 33,280
Dividends declared on
common stock ($.30
per share) (104,017) (104,017)
------ --------- --------- ------ ------- ---------
Balance at June 30, 1997 $ 3,467 3,073,664 4,942,077 61,375 (109,917) 7,970,666
====== ========= ========= ====== ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-24-
<PAGE>
<TABLE>
<CAPTION>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended June 30,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 295,818 575,176 692,381
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 117,169 134,225 170,447
Amortization of premiums and discounts on securities 46,143 88,767 167,654
Amortization of cost of stock benefit plan 33,280 18,975 -
(Profit) loss on sale of real estate owned - 6,585 (650)
Provision for loss on real estate owned - 25,000 121,300
Provision for loan losses (recoveries) - - (80,000)
Profit on sale of loans (10,802) - -
(Increase) decrease in accrued interest receivable 49,023 (24,075) 2,501
Increase (decrease) in accrued interest payable (2,157) 3,197 193
Decrease in deferred income on loans (28,405) (76,649) (10,414)
Federal Home Loan Bank stock dividend - - (10,700)
(Increase) decrease in other assets 49,753 (55,781) 9,875
Increase (decrease) in other liabilities (93,014) 113,258 (24,763)
----------- ----------- -----------
Net cash provided by operating activities 456,808 808,678 1,037,824
----------- ----------- -----------
Cash flows from investing activities:
Purchase of mortgage-backed securities - (4,575,313) -
Proceeds from repayments of mortgage-backed securities 5,413,446 5,799,821 4,927,671
Purchase of investment securities (9,992,125) (9,983,375) (9,989,000)
Proceeds from maturities of investment securities 10,000,000 10,000,000 12,500,000
Proceeds from redemption of Federal Home Loan Bank stock - 153,200 -
Loan disbursements (7,698,897) (8,166,185) (4,760,880)
Loan repayments 6,194,014 6,503,514 6,905,433
Proceeds from sale of loans 831,600 - -
Proceeds from sale of real estate owned - 147,250 169,750
Property and equipment expenditures (191,221) (202,157) (81,948)
----------- ----------- -----------
Net cash provided by (for) investing activities 4,556,817 (323,245) 9,671,026
----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from exercise of stock options - 17,250 -
Deposit receipts 332,832,845 328,187,728 325,922,745
Deposit withdrawals (341,490,636) (329,190,908) (333,522,031)
Interest credited to deposit accounts 3,717,000 3,827,000 3,273,000
Payment of dividends (104,017) (103,630) (103,500)
Purchase of BIP stock (6,922) (155,250) -
Increase (decrease) in advance payments
by borrowers for taxes and insurance 22,962 (171,962) (61,930)
----------- ----------- -----------
Net cash provided by (for) financing activities (5,028,768) 2,410,228 (4,491,716)
----------- ----------- -----------
Net change in cash and cash equivalents (15,143) 2,895,661 6,217,134
Cash and cash equivalents at beginning of year 30,917,718 28,022,057 21,804,923
----------- ----------- -----------
Cash and cash equivalents at end of year $ 30,902,575 30,917,718 28,022,057
=========== =========== ===========
Cash paid during the year for:
Interest $ 3,912,686 4,038,551 3,427,385
Income taxes 77,226 291,190 399,479
Non-cash investing activities:
Transfer of loans to foreclosed real estate $ 85,500 - 316,350
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
25-
<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1) Summary of Significant Accounting Policies
The accounting and reporting policies of Midland Federal Savings and
Loan Association (the "Association") and its subsidiaries conform to
generally accepted accounting principles and to general practice within
the thrift industry. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a
description of the more significant policies which the Association
follows in preparing and presenting its consolidated financial
statements.
Principles of Consolidation
The consolidated financial statements include the accounts of Midland
Federal Savings and Loan Association and its wholly-owned subsidiaries,
Midland Service Corporation, MS Insurance Agency and Bridgeview
Development Company. Significant intercompany transactions and balances
have been eliminated in consolidation.
Investment Securities, Available for Sale
Investment securities available for sale are recorded in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities".
SFAS 115 requires the use of fair value accounting for securities
available for sale or trading and retains the use of the amortized cost
method for securities the Association has the positive ability and
intent to hold to maturity.
SFAS 115 requires the classification of debt and equity securities into
one of three categories: held to maturity, available for sale, or
trading. Held to maturity securities are measured at amortized cost.
Unrealized gains and losses for trading securities are included in
income. Unrealized holding gains and losses on available for sale
securities are excluded from income and reported net of taxes as a
separate component of stockholders' equity.
The Association has designated certain investments in U.S. Government
securities as available for sale, and has recorded these investments at
their current fair value. Premiums and discounts are amortized and
accreted into income over the remaining life of the security using the
level yield method. Unrealized gains and losses are recorded in a
valuation account which is included, net of income taxes, as a separate
component of stockholders' equity. Gains and losses on the sale of
these securities are determined using the specific identification
method and are reflected in earnings when realized.
Investment Securities and Mortgage-Backed Securities, Held to Maturity
These securities are carried at cost, adjusted for amortization of
premiums and accretion of discounts over the term of the security using
the level yield method. These securities are not carried at fair value
because the Association has both the ability and the intent to hold
them to maturity.
-26-
<PAGE>
1) Summary of Significant Accounting Policies (continued)
Loans Receivable and Related Fees
Loans are stated at the principal amount outstanding, net of loans in
process, deferred fees and the allowance for losses. Interest on loans
is credited to income as earned and accrued only if deemed collectible.
Loans are placed on nonaccrual status when, in the opinion of
management, the full timely collection of principal or interest is in
doubt. As a general rule, the accrual of interest is discontinued when
principal or interest payments become 90 days past due or earlier if
conditions warrant. When a loan is placed on nonaccrual status,
previously accrued but unpaid interest is charged against current
income.
Loan origination fees are being deferred in accordance with SFAS No. 91
"Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases".
This statement requires that loan origination fees and direct loan
origination costs for a completed loan be netted and then deferred and
amortized into interest income as an adjustment of yield.
The Association has adopted the provisions of SFAS No. 114 "Accounting
by Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures". These statements apply to all loans that are identified
for evaluation except for large groups of smaller-balance homogeneous
loans that are collectively evaluated for impairment. These loans
include, but are not limited to, credit card, residential mortgage and
consumer installment loans. Substantially all of the Association's
lending is excluded from the provisions of SFAS 114 and SFAS 118.
Under these statements, of the remaining loans which are evaluated for
impairment (a loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable
to collect all amounts due according to the contractual terms of the
loan agreement), there were no material amounts of loans which met the
definition of an impaired loan during the year ended June 30, 1997 and
no loans to be evaluated for impairment at June 30, 1997.
Loans Receivable Held for Sale
That portion of loans receivable designated as held for sale are
recorded at the lower of cost or fair value in accordance with SFAS No.
65 "Accounting for Certain Mortgage Banking Activities". Unrealized
declines in fair value are reflected as a charge to current earnings.
Mortgage Servicing Rights
The Association has adopted the provisions of SFAS 122, "Accounting for
Mortgage Servicing Rights". This statement amends SFAS 65, "Accounting
for Certain Mortgage Banking Activities" to require that a mortgage
banking enterprise recognize as separate assets rights to service
mortgage loans for others, however those servicing rights are acquired.
SFAS 122 requires that a mortgage banking enterprise assess its
capitalized mortgage servicing rights for impairment based on the fair
value of those rights. The mortgage servicing rights are to be
amortized over the life of the asset in proportion to the estimated net
servicing income.
The Association initially accounts for mortgage servicing rights using
the discounted present value of estimated expected future cash flows.
This amount is initially capitalized in other assets and subsequently
amortized over the estimated life of the loan servicing income stream.
The carrying value of the Association's mortgage serving rights, in
relation to estimated servicing values, and the related amortization is
reviewed by management on a quarterly basis. See note 6 for a
discussion of the current year impact on financial position and results
of operations.
-27-
<PAGE>
1) Summary of Significant Accounting Policies (continued)
Allowance for Loan Losses
The determination of the allowance for loan losses involves material
estimates that are susceptible to significant change in the near term.
The allowance for loan losses is maintained at a level adequate to
provide for losses through charges to operating expense. The allowance
is based upon past loss experience and other factors which, in
management's judgement, deserve current recognition in estimating
losses. Such factors considered by management include growth and
composition of the loan portfolio, the relationship of the allowance
for losses to outstanding loans and economic conditions.
Management believes that the allowance is adequate. While management
uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Association's allowance for loan losses. Such agencies may require the
Association to recognize additions to the allowance based on their
judgements about information available to them at the time of their
examination.
Real Estate Owned
Real estate acquired through foreclosure or deed in lieu of foreclosure
is carried at the lower of fair value minus estimated costs to sell or
the related loan balance at the date of foreclosure. Valuations are
periodically performed by management and an allowance for loss is
established by a charge to operations if the carrying value of a
property exceeds its fair value minus estimated costs to sell.
Depreciation
Depreciation of office properties and equipment is accumulated on the
straight line basis over estimated lives of the various assets.
Income Taxes
The Association files a consolidated federal income tax return with its
subsidiaries. The provision for federal and state taxes on income is
based on earnings reported in the financial statements. Deferred income
taxes arise from the recognition of certain items of income and expense
for tax purposes in years different from those in which they are
recognized in the consolidated financial statements. Deferred tax
assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial
statement carrying amount of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using tax rates in effect for the year 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.
Consolidated Statements of Cash Flows
For the purposes of reporting cash flows, the Association has defined
cash and cash equivalents to include cash on hand, amounts due from
depository institutions, interest-bearing deposits in other financial
institutions and federal funds sold.
Earnings Per Share
Earnings per share for the year ended June 30, 1997 was determined by
dividing net income for the year by 355,087 and 356,217, the weighted
average number of primary and fully diluted shares of common stock and
common stock equivalents outstanding. Stock options are regarded as
common stock equivalents and are therefore considered in both primary
and fully diluted earnings per share calculations. Common stock
equivalents are computed using the treasury stock method.
-28-
<PAGE>
2) Investment Securities
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------- ------- ----------
<S> <C> <C> <C> <C>
June 30, 1997
-------------
United States Treasury notes $ 19,989,524 24,881 25,342 19,989,063
========== ======= ======= ==========
Weighted average interest rate 5.80%
====
June 30, 1996
-------------
United States Treasury notes $ 19,984,084 52,716 54,769 19,982,031
========== ======= ======= ==========
Weighted average interest rate 6.13%
</TABLE>
The contractual maturity of investment securities are summarized as
follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
----------------------- ----------------------
Amortized Fair Amortized Fair
Term to Maturity Cost Value Cost Value
---------------- ---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 9,995,802 9,992,969 9,996,594 10,046,094
Due after one year through
two years 9,993,722 9,996,094 9,987,490 9,935,937
---------- ---------- ---------- ----------
$ 19,989,524 19,989,063 19,984,084 19,982,031
========== ========== ========== ==========
</TABLE>
<PAGE>
3) Investment Securities, Available for Sale
Investment securities available for sale are recorded at fair value in
accordance with SFAS 115. This portfolio is summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ -------- ------- ---------
<S> <C> <C> <C>
June 30, 1997
-------------
United States Treasury bond $ 975,133 92,992 - 1,068,125
========= ======= ======= =========
Weighted average interest rate 7.71%
====
June 30, 1996
United States Treasury bond $ 974,174 74,888 - 1,049,062
========= ======= ======= =========
Weighted average interest rate 7.71%
====
</TABLE>
The contractual maturity of the above security is in the year 2016.
There were no sales of investment securities available for sale during
any of the periods presented.
-29-
<PAGE>
4) Mortgage-Backed Securities
Mortgage-backed securities are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------- ------ ----------
June 30, 1997
-------------
<S> <C> <C> <C> <C>
Participation certificates:
FHLMC - Adjustable rate $ 13,360,001 206,406 91,034 13,475,373
FNMA - Adjustable rate 4,791,249 37,817 - 4,829,066
FHLMC - Fixed rate 911,497 - 16,521 894,976
FNMA - Fixed rate 2,317,416 79,101 - 2,396,517
GNMA - Fixed rate 520,049 1,408 4,434 517,023
Investment in collateralized
mortgage obligations:
FHLMC 35,504 - - 35,504
------------ ------- ------ ----------
$ 21,935,716 324,732 111,989 22,148,459
============ ======= ======= ==========
Weighted average interest rate 6.82%
====
<CAPTION>
June 30, 1996
-------------
<S> <C> <C> <C> <C>
Participation certificates:
FHLMC - Adjustable rate $ 17,366,708 124,629 72,262 17,419,075
FNMA - Adjustable rate 5,365,923 90 33,146 5,332,867
FHLMC - Fixed rate 1,233,140 - 26,589 1,206,551
FNMA - Fixed rate 2,754,563 66,145 - 2,820,708
GNMA - Fixed rate 649,975 157 16,672 633,460
Investment in collateralized
mortgage obligations:
FHLMC 39,270 - - 39,270
------------ ------- ------ ----------
$ 27,409,579 191,021 148,669 27,451,931
============ ======= ======= ==========
Weighted average interest rate 6.53%
====
</TABLE>
-30-
<PAGE>
5) Loans Receivable
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
June 30,
--------------------------
1997 1996
---------- -------
<S> <C> <C>
Mortgage loans:
One-to-Four family $ 28,788,335 28,398,084
Multi-family 2,200,801 2,268,222
Non-residential 263,949 282,397
Construction 300,000 -
---------- -------
Total mortgage loans 31,553,085 30,948,703
---------- ----------
Other loans:
Loans on deposit accounts 425,224 435,043
Auto loans 455,367 400,466
Education loans 1,542,205 1,788,924
Mobile home loans 20,920 56,310
Other 138,079 119,210
---------- ----------
Total other loans 2,581,795 2,799,953
---------- ----------
Commercial business loans 74,196 20,979
---------- ----------
Total loans receivable 34,209,076 33,769,635
---------- ----------
Less:
Loans in process 137,470 11,320
Deferred loan fees and discounts 96,780 125,140
Allowance for uncollected interest 261,804 261,849
Allowance for loan losses 551,509 595,601
---------- ----------
Loans receivable, net $ 33,161,513 32,775,725
========== ==========
Weighted average interest rate 8.19% 8.19%
==== ====
</TABLE>
<PAGE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year $ 595,601 666,043 845,191
Provision for loan losses (recoveries) - - (80,000)
Recoveries previously charged-off 1,629 103,771 19,839
Charge-offs (45,721) (174,213) (118,987)
------- ------- -------
Balance, end of year $ 551,509 595,601 666,043
======= ======= =======
</TABLE>
Delinquent loans (loans having payments past due ninety days or more)
at June 30, 1997 amounted to $317,198 or .9% of total loans in force.
Comparable figures for 1996 were $1,661,626 or 4.9% of total loans.
Loans to directors and executive officers aggregated $454,085 at June
30, 1997 and $462,583 at June 30, 1996. Such loans are made on
substantially the same terms as those for other loan customers.
-31-
<PAGE>
6) Loans Receivable Held for Sale
During the year ended June 30, 1997, the Association sold loans to the
Illinois Housing Development Authority under various programs. As such,
the Association has designated a portion of the loan portfolio to be
classified as held for sale. During the year ended June 30, 1997, the
Association sold first mortgage loans totaling $831,600 to the Illinois
Housing Development Authority. The Association retained the servicing
on these loans. Proceeds from the sale of these loans during the year
ended June 30, 1997 were $831,600 with no gain or loss realized on
those sales. In addition, the Association recorded a gain of $10,802 on
loan sales from the establishment of a mortgage servicing right asset
in accordance with SFAS No. 122. During the year ended June 30, 1997,
the Association amortized $292 of this amount against current servicing
fee income.
As of June 30, 1997, $230,400 of newly originated fixed-rate thirty
year original term loans qualifying for sale into the secondary market
were classified in this portfolio. Loans held for sale are valued at
the lower of cost or fair value in accordance with generally accepted
accounting principles. There were no recognized, but unrealized, losses
at June 30, 1997.
At June 30, 1997, 1996 and 1995, loans serviced for others amounted to
$1,045,553, $251,184 and $335,891, respectively.
7) Office Properties and Equipment
Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
June 30,
-------------------------
1997 1996
----------- ---------
<S> <C> <C>
Land $ 236,095 236,095
Buildings 1,655,841 1,646,102
Easement for parking lot and driveway 223,050 223,050
Furniture, fixtures, and equipment 1,623,590 1,446,108
Automobiles 17,993 13,993
----------- ---------
3,756,569 3,565,348
Less accumulated depreciation 2,168,545 2,051,376
----------- ---------
$ 1,588,024 1,513,972
=========== =========
</TABLE>
Depreciation of office properties and equipment for the years ended
June 30, 1997, 1996 and 1995 amounted to $117,169, $134,225 and
$170,447 respectively.
<PAGE>
8) Accrued Interest Receivable
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
June 30,
------------------------
1997 1996
<S> <C> <C>
Investment securities $ 250,087 263,021
Mortgage-backed securities 206,573 251,270
Loans receivable 172,313 163,705
Other investments 9,323 9,323
--------- -------
$ 638,296 687,319
========= =======
</TABLE>
-32-
<PAGE>
9) Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------
1997 1996
-------- -------
<S> <C> <C>
Prepaid federal insurance premiums $ 16,091 61,230
Prepaid insurance 60,861 32,076
Other prepaid expenses 59,768 73,036
Deferred premium on sale of loans 4,327 4,752
Overpayment of federal income tax 79,404 13,594
Deferred federal income tax benefit - net (a) 432,130 526,834
Insurance premiums due from customers 8,100 15,115
Accounts receivable and other assets 93,226 71,530
--------- -------
$ 753,907 798,167
========= =======
</TABLE>
(a) The approximate tax effect of temporary differences that give
rise to the Association's net deferred tax asset at June 30,
1997 and 1996, under SFAS 109 is as follows:
<TABLE>
<CAPTION>
Assets Liabilities Net
-------- ----------- --------
June 30, 1997
-------------
<S> <C> <C>
Loan fees deferred for financial
reporting purposes $ 14,100 -- 14,100
Accelerated depreciation for tax
purposes -- (63,900) (63,900)
Tax basis of office building in
excess of book basis 534,290 -- 534,290
Bad debt reserves established for
financial reporting purposes 95,965 -- 95,965
Increases to tax bad debt reserves
since January 1, 1988 -- (105,300) (105,300)
Nondeductible incentive plan expense 6,451 -- 6,451
Unrealized gain on securities
available for sale -- (31,617) (31,617)
Other -- (17,859) (17,859)
-------- -------- --------
Total $650,806 (218,676) 432,130
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30, 1996
-------------
<S> <C> <C>
Loan fees deferred for financial
reporting purposes $ 37,700 -- 37,700
Accelerated depreciation for tax
purposes -- (48,900) (48,900)
Tax basis of office building in
excess of book basis 554,120 -- 554,120
Bad debt reserves established for
financial reporting purposes 108,225 -- 108,225
Increases to tax bad debt reserves
since January 1, 1988 -- (105,300) (105,300)
Nondeductible incentive plan expense 6,451 -- 6,451
Unrealized gain on securities
available for sale -- (25,462) (25,462)
-------- -------- --------
Total $706,496 (179,662) 526,834
======== ======== ========
</TABLE>
-33-
<PAGE>
10) Deposits
Deposit accounts are summarized as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Passbook accounts $ 40,983,575 43,419,645
NOW accounts 8,468,143 7,985,971
Money market accounts 3,768,922 4,767,546
Non-interest bearing demand deposit accounts 7,327,508 7,266,246
------------ ------------
60,548,148 63,439,408
Certificates of deposit:
7-91 days 1,544,158 1,349,958
6-11 months 20,768,703 22,122,386
12-29 months 10,662,363 10,813,115
30 months and over 6,588,724 7,095,844
Jumbo 2,860,828 3,093,004
------------ ------------
$102,972,924 107,913,715
============ ============
</TABLE>
The weighted average rate on deposit accounts at June 30, 1997 and 1996
was 3.77% and 3.73% respectively.
A summary of certificates of deposit by maturity is as follows:
<TABLE>
<CAPTION>
June 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Within 12 months $37,094,050 39,208,327
12 months to 24 months 4,091,070 3,996,590
24 months to 36 months 1,239,656 1,269,390
----------- -----------
Total $42,424,776 44,474,307
=========== ===========
</TABLE>
<PAGE>
Interest expense on deposits consists of the following:
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Passbook accounts $1,228,031 1,272,295 1,284,661
Certificate accounts 2,311,239 2,374,281 1,725,746
NOW accounts 223,683 218,486 239,094
Money market accounts 147,576 176,686 178,077
---------- ---------- ----------
Total $3,910,529 4,041,748 3,427,578
========== ========== ==========
</TABLE>
The aggregate amount of deposit accounts with a balance of $100,000 or
greater was approximately $9,340,000 and $10,440,000 at June 30, 1997
and 1996 respectively. Deposits in excess of $100,000 are not insured
by the Federal Deposit Insurance Corporation.
-34-
<PAGE>
11) Other Liabilities
Other liabilities consist of the following:
<TABLE>
<CAPTION>
June 30,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Accrued interest on deposits $ 20,117 22,274
Accrued real estate taxes 140,922 128,436
Other accrued expenses 76,994 78,034
Insurance premiums payable 6,509 10,638
Outstanding bank drafts 74,361 105,820
Other accounts payable 59,322 128,194
-------- --------
$378,225 473,396
======== ========
</TABLE>
12) Retirement Plans and Other Employee Benefits
The Association participates in the Financial Institution's Retirement
Fund, a tax-qualified pension trust, which covers all eligible
employees. The Plan is considered a multi-employer plan and as such,
does not make separate actuarial valuations with respect to each
employer, nor does it segregate plan assets. The procedures followed by
the Retirement Fund meet the requirements of Financial Accounting
Standards Board Statement No. 87, "Employers' Accounting for Pensions".
The practice with respect to multiemployer plans has been to accept
employer's contributions that are paid as its expense for accounting
purposes. There have been no contributions paid to the Plan for the
years ended June 30, 1997, 1996 and 1995 as the amount necessary to
fund the Plan was eliminated by previous years' overfunding of the
Plan.
In addition, the Association established a qualified defined
contribution plan (401(k) Plan) which covers all full-time employees
having a minimum of twelve months of service and who are at least
twenty-one years of age. Eligible employees may contribute from 2% to
12% of their monthly salaries. The Association will contribute an
amount equal to 50%, 75% or 100% of the monthly contribution up to 3%
of salary, depending upon years of employment. Employer contributions
to the Plan amounted to $30,678, $27,864 and $26,323 for the years
ended June 30, 1997, 1996 and 1995, respectively.
-35-
<PAGE>
13) Officer and Director Plans
Stock Option and Incentive Plan
In conjunction with the Conversion, the Association adopted the 1993
Stock Option and Incentive Plan (the "Stock Option Plan") for the
benefit of the senior officers and directors of the Association. The
number of shares of common stock authorized under the Stock Option Plan
is 34,500, equal to 10% of the total number of shares issued in the
Conversion. For the year ended June 30, 1993, 8,625 options were
granted at $10.00 per share. The term of these options expire ten years
from the date of grant. In addition, 17,250 options were granted to
individuals who, at the time such incentive stock options were granted,
owned stock possessing more than 10% of the total combined voting power
of all classes of stock of the Association. These options were granted
at a price of at least 110% of the fair value per share at the date of
grant. The term of these options expire five years from the date of
grant. All options granted under the Stock Option Plan became
exercisable immediately. During the year ended June 30, 1997, stock
options to purchase 1,725 shares were granted at a price of $16.25 per
share and are exercisable immediately. The term of these options expire
ten years from the date of grant which was October 23, 1996. As of June
30, 1997, stock options to purchase 25,875 shares remain outstanding in
the plan, while options for 6,900 shares were available for grant under
the plan.
The Association has elected to follow Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" (APB 25) and
related Interpretations in accounting for its employee stock options.
Under APB 25, because the exercise price of the Association's employee
stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
The Association implemented SFAS No. 123 "Accounting for Stock-Based
Compensation" during the year ended June 30, 1997. The Association will
retain its current accounting method for its stock-based compensation
plans. This statement will only result in additional disclosures for
the Association, and as such, its adoption did not, nor is it expected
to have, a material impact on the Association's financial condition or
its results of operations.
The following summarizes the pro forma net income as if the fair value
method of accounting for stock-based compensation plans had been
utilized for the year ended June 30, 1997:
Net income (as reported) $ 295,818
Pro forma net income 293,041
Earnings per share - fully diluted (as reported) .83
Pro forma earnings per share .82
The pro forma results presented above may not be representative of the
effects reported in pro forma net income for future years.
The fair value of the option grants for the year ended June 30, 1997
was estimated using the Black Scholes Method, using the following
assumptions: dividend yield of approximately 2.00%, expected volatility
of 20%, risk free interest rate of 6.25% and an expected life of
approximately 10 years.
Bank Incentive Plan
In conjunction with the Conversion, the Association formed a Bank
Incentive Plan ("BIP"), which was authorized to acquire 3% of the total
number of shares of common stock issued in the Conversion. The 10,350
shares were purchased for $162,172 with funds contributed to the BIP
from the Association. As of June 30, 1997, 8,281 shares were
outstanding to be awarded, with such awards to be earned by employees
in key management positions in equal installments over a five year
period from date of grant.
The $162,172 contributed to the BIP is being amortized to compensation
expense as the plan participants become vested in those shares. As of
June 30, 1997, $52,255 of deferred compensation expense has been
recognized since inception. The unamortized cost, which is comparable
to deferred compensation, is reflected as a reduction of stockholders'
equity.
-36-
<PAGE>
14) Income Taxes
The Association has adopted Statement of Financial Accounting Standards
No. 109 (SFAS 109) which requires a change from the deferred method to
the liability method of accounting for income taxes. Under the
liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and tax bases of existing assets and
liabilities.
Among the provisions of SFAS 109 which impact the Association is the
tax treatment of bad debt reserves. SFAS 109 provides that a deferred
tax asset is to be recognized for the bad debt reserve established for
financial reporting purposes and requires a deferred tax liability to
be recorded for increases in the tax bad debt reserve since January 1,
1988, the effective date of certain changes made by The Tax Reform Act
of 1986 to the calculation of savings institutions' bad debt deduction.
Accordingly, retained earnings at June 30, 1997 includes approximately
$1,100,000 for which no deferred federal income tax liability has been
recognized. The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current $ 12,262 298,563 309,190
Deferred 88,549 12,323 40,499
-------- -------- --------
$100,811 310,886 349,689
======== ======== ========
</TABLE>
A reconciliation of the statutory federal income tax rate to effective
income tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Loss on sale of
real estate owned -- 1.2 --
Recovery of loss on previous
disposition of real estate owned (10.3) -- --
Other 1.7 (.1) (.4)
------ ---- ----
Effective income tax rate 25.4% 35.1% 33.6%
====== ==== ====
</TABLE>
<PAGE>
Deferred federal income tax expense consists of the following tax
effects of timing differences:
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Loan fees $ 23,600 5,547 7,901
Excess service fees (145) (1,838) (60)
Depreciation 34,830 20,630 (33,000)
Incentive plan -- (6,451) --
Statutory bad debt deduction in
excess of (less than) book provision 12,260 (5,565) 62,540
Other 18,004 -- 3,118
-------- -------- --------
$ 88,549 12,323 40,499
======== ======== ========
</TABLE>
-37-
<PAGE>
15) Regulatory Capital Requirements
The Association is subject to requirements and restrictions imposed by
various regulators. These requirements, among other things, establish
levels of capital and require that minimum cash reserve balances be
maintained. Capital regulations require the Association to have a
minimum regulatory tangible capital ratio equal to 1.5% of total
adjusted assets, a minimum 3.0% core capital ratio, and an 8.0%
risk-based capital ratio.
For purposes of the regulation, the core and tangible capital of
Midland Federal Savings and Loan Association is defined as
stockholders' equity, adjusted for unrealized gains on debt securities
available for sale, net of taxes. Adjusted total assets are the
Association's total assets as determined under generally accepted
accounting principles, adjusted for unrealized gains on debt securities
available for sale, net of taxes.
In determining compliance with the risk-based capital requirement, the
Association is allowed to use both core capital and supplementary
capital. Supplementary capital of Midland Federal Savings and Loan
Association is defined to include all of the Association's general loss
allowances. The risk-based capital requirement is measured against
risk-weighted assets which equals the sum of each asset and the
credit-equivalent amount of each off-balance sheet item after being
multiplied by an assigned risk weight.
At June 30, 1997 and 1996, the Association's regulatory equity capital
was as follows:
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
--------- --------- ---------
June 30, 1997
-------------
<S> <C> <C> <C>
Stockholders' equity $ 7,970,666 7,970,666 7,970,666
Unrealized gain on debt securities
available for sale, net of taxes (61,375) (61,375) (61,375)
General loss allowances - - 282,258
--------- --------- ---------
Regulatory capital computed 7,909,291 7,909,291 8,191,549
Minimum capital requirement 1,678,550 3,357,100 2,706,821
--------- --------- ---------
Regulatory capital excess $ 6,230,741 4,552,191 5,484,728
========= ========= =========
Computed capital ratio 7.07% 7.07% 24.21%
Minimum capital ratio 1.50 3.00 8.00
---- ---- -----
Regulatory capital excess 5.57% 4.07% 16.21%
==== ==== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30, 1996
-------------
<S> <C> <C> <C>
Stockholders' equity $ 7,739,712 7,739,712 7,739,712
Unrealized gain on debt securities
available for sale, net of taxes (49,426) (49,426) (49,426)
General loss allowances - - 318,311
--------- --------- ---------
Regulatory capital computed 7,690,286 7,690,286 8,008,597
Minimum capital requirement 1,750,860 3,501,720 2,817,935
--------- --------- ---------
Regulatory capital excess $ 5,939,426 4,188,566 5,190,662
========= ========= =========
Computed capital ratio 6.59% 6.59% 22.74%
Minimum capital ratio 1.50 3.00 8.00
---- ---- -----
Regulatory capital excess 5.09% 3.59% 14.74%
==== ==== =====
</TABLE>
-38-
<PAGE>
16) Stockholders' Equity
As part of the Conversion, the Association established a liquidation
account for the benefit of all eligible depositors who continue to
maintain their deposit accounts in the Association after conversion. In
the unlikely event of a complete liquidation of the Association, each
eligible depositor will be entitled to receive a liquidation
distribution from the liquidation account, in the proportionate amount
of the then current adjusted balance for deposit accounts held, before
distribution may be made with respect to the Association's capital
stock. The Association may not declare or pay a cash dividend on, or
repurchase any of, its capital stock if the effect thereof would cause
the retained earnings of the Association to be reduced below the amount
required for the liquidation account. Except for such restrictions, the
existence of the liquidation account does not restrict the use or
application of retained earnings.
The Association's capital exceeds all of the fully phased-in capital
requirements imposed by the Financial Institution Reform, Recovery, and
Enforcement Act. OTS regulations generally provide that an institution
that exceeds all fully phased-in capital requirements before and after
a proposed capital distribution could, after prior notice but without
the approval by the OTS, make capital distributions during the fiscal
year of up to 100% of its net income to date during the fiscal year
plus the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the fiscal year. Any additional
capital distributions would require prior regulatory approval.
17) Financial Instruments with Off-Balance Sheet Risk
The Association is a party to various transactions with off-balance
sheet risk in the normal course of business. These transactions are
primarily commitments to originate loans and to extend credit on
previously approved unused lines of credit. These financial instruments
carry varying degrees of credit and interest-rate risk in excess of
amounts recorded in the consolidated financial statements.
Commitments to originate mortgage loans of $254,900 at June 30, 1997
represents an amount which the Association plans to fund within the
normal commitment period of 60 to 90 days. Of this amount, $230,000 are
in fixed rate commitments with rates of 8.00% and $24,900 is an
adjustable rate commitment. Because the credit worthiness of each
customer is reviewed prior to extension of the commitment, the
Association adequately controls their credit risk on these commitments,
as it does for loans recorded on the balance sheet. The Association
conducts all of its lending activities in the Chicagoland area in which
it serves. Management believes the Association 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.
The Association has approved, but unused, equity lines of credit of
approximately $484,000 at June 30, 1997. In addition, the Association
has approved, but unused, credit card lines of credit amounting to
approximately $218,000. The Association has also issued outstanding
letters of credit totaling $127,000.
18) Contingencies
The Association is, from time to time, a party to certain lawsuits
arising in the ordinary course of its business, wherein it enforces its
security interest. Management, based upon discussions with legal
counsel, believes that the Association is not engaged in any legal
proceedings of a material nature at the present time.
-39-
<PAGE>
19) Litigation Settlement
During the current year, the Association settled a lawsuit that it had
filed against a local real estate appraisal firm, arising out of the
appraisers' alleged negligent appraisals of two single family
residences which the Association had relied upon in its origination of
mortgage loans secured by the two properties. The loans subsequently
went into default. The Association obtained title to both properties by
foreclosure and during a prior period disposed of both properties by
sale at a substantial loss to the Association. The agreed upon
settlement between the parties amounted to payment of $143,000 to the
Association which resulted in the Association recovering its entire
previously recorded loss on these two properties.
20) FDIC Special Assessment and its Impact on SAIF Insurance Premiums
The deposits of savings associations, such as Midland Federal Savings
and Loan Association, are presently insured by the Savings Association
Insurance Fund ("SAIF"), which together with the Bank Insurance Fund
("BIF"), are the two insurance funds administered by the Federal
Deposit Insurance Corporation ("FDIC"). Financial institutions which
are members of the BIF are experiencing substantially lower deposit
insurance premiums because the BIF has achieved its required level of
reserves while the SAIF has not yet achieved its required reserves. In
order to help eliminate this disparity and any competitive disadvantage
due to disparate deposit insurance premium schedules, legislation to
recapitalize the SAIF was enacted in September 1996.
The legislation requires a special one-time assessment of approximately
65.7 cents per $100 of SAIF insured deposits held by the Association at
March 31, 1995. The one-time special assessment has resulted in a
charge to earnings of approximately $674,000 during the year ended June
30, 1997. The after-tax effect of this one-time charge to earnings
totaled $445,000. The legislation is intended to fully recapitalize the
SAIF fund so that commercial bank and thrift deposits are charged the
same FDIC premiums beginning January 1, 1997. As of such date, deposit
insurance premiums for highly rated institutions, such as the
Association, will be substantially reduced.
The Association, however, will continue to be subject to an assessment
to fund repayment of the Financing Corporation's ("FICO") obligations.
The FICO assessment for SAIF insured institutions will be 6.48 cents
per $100 of deposits while BIF insured institutions will pay 1.30 cents
per $100 of deposits until the year 2000 when the assessment will be
imposed at the same rate on all FDIC insured institutions. Accordingly,
as a result of the reduction of the SAIF assessment and the resulting
FICO assessment, the annual after-tax decrease in assessment costs is
expected to be approximately $108,000 based upon a June 30, 1997
assessment base.
-40-
<PAGE>
21) Disclosures About the Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and cash equivalents: For cash and interest-bearing deposits, the
carrying amount is a reasonable estimate of fair value.
Investment securities: Fair values for securities are based on quoted
market prices as published in financial publications or on quotes from
third-party brokers.
Securities available for sale: Fair values for securities available for
sale are based on quoted market prices as published in financial
publications or broker quotes.
Mortgage-backed securities: Fair values for mortgage-backed securities
are based on the lower of quotes received from various third-party
brokers.
Loans receivable: The fair value for fixed and adjustable rate mortgage
loans are estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms and
collateral to borrowers of similar credit quality.
Deposit liabilities: The fair value of demand deposits, savings
accounts and money market deposits is the amount payable on demand at
the reporting date. The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using the
rates currently offered for deposits of similar original maturities.
The estimated fair value of the Association's financial instruments as
of June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
June 30, 1997
--------------------------
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 30,902,575 30,902,575
Investment securities 19,989,524 19,989,063
Investment securities, available for sale 1,068,125 1,068,125
Mortgage-backed securities 21,935,716 22,148,459
Loans receivable, gross 34,209,076 34,597,000
Financial liabilities:
Deposits 102,972,924 102,908,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30, 1996
--------------------------
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 30,917,718 30,917,718
Investment securities 19,984,084 19,982,031
Investment securities, available for sale 1,049,062 1,049,062
Mortgage-backed securities 27,409,579 27,451,931
Loans receivable, gross 33,769,635 33,731,000
Financial liabilities:
Deposits 107,913,715 107,935,000
</TABLE>
22) Subsequent Event
At the July, 1997 Board of Directors' meeting, the Association declared
a quarterly dividend of $.075 per share, totaling $26,004, payable
August 15, 1997 to shareholders of record as of August 5, 1997.
-41-
<PAGE>
Officers and Directors
Officers Directors
Paul Zogas Paul Zogas
President, President
Chief Executive Officer Chairman of the Board
and Chief Financial Officer
Charles Zogas Charles Zogas
Executive Vice President, Executive Vice President
Chief Operating Officer, Director
Secretary and Treasurer
Richard Taylor Richard Taylor
Vice President, Vice President
Trust Officer Director
and Assistant Secretary
Janice Cecott Algerd Brazis
Controller Director
Muriel Kowalski Michael J. Kukanza
Assistant Vice President Director
Donna Chmiel Jonas Vaznelis
Internal Auditor Director
-42-
<PAGE>
Corporate Information
Investor Information
Shareholders, investors and analysts interested in additional information may
contact at the Corporate Office: Paul Zogas, President, 8929 S. Harlem Avenue,
Bridgeview, Illinois 60455
Annual Report on Form 10-KSB
A copy of Midland Federal Savings and Loan Association's annual report on Form
10-KSB, on file with the Office of Thrift Supervision, is available without
charge by writing our Corporate Office, Attn: Charles Zogas, Executive Vice
President, 8929 S. Harlem Avenue, Bridgeview, Illinois 60455.
Annual Meeting of Shareholders
The Annual meeting of the Shareholders of Midland Federal Savings and Loan
Association will be held at 2:00 p.m., October 22, 1997, at the Corporate Office
of the Association, 8929 S. Harlem Avenue, Bridgeview, Illinois. All
shareholders are cordially invited to attend.
Stock Transfer Agent
Midland Federal Savings and Loan Association's transfer agent, Registrar and
Transfer Company, maintains all stockholder records and can assist with stock
transfer and registration, lost certificates or address change, changes or
corrections in social security or tax identification number, and 1099 tax
reporting questions. If you have questions, please contact the stock transfer
agent in writing at the address below:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
Attn: Corporate Relations
Corporate Counsel/Washington, D.C.
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005-3934
Corporate Counsel/Chicago, Illinois
Kamm, Shapiro & Blumenthal, Ltd.
230 West Monroe Street - Suite 1100
Chicago, Illinois 60606
Independent Auditors
Cobitz, VandenBerg & Fennessy
7800 West 95th Street - Suite 301
Hickory Hills, Illinois 60457
-43-
<PAGE>
Appendix E
OFFICE OF THRIFT SUPERVISION
WASHINGTON, D.C. 20552
----------------------------
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
OTS Docket Number: 04475
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
(Exact name of registrant as specified in its charter)
United States 36-2065326
------------- ----------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
8929 S. Harlem Avenue, Bridgeview, Illinois 60455
------------------------------------------- -----
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 598-9400
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.
(1) Yes (X) No ( )
As of May 11, 1998 the Registrant had
363,975 shares of Common stock issued and outstanding.
<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
Part I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
March 31, 1998 (unaudited) and June 30, 1997................ 1
Consolidated Statements of Earnings -
Three months ended March 31, 1998 and 1997
and nine months ended March 31, 1998 and 1997 (unaudited)... 2
Consolidated Statement of Changes in Stockholders' Equity -
Nine months ended March 31, 1998 (unaudited)................ 3
Consolidated Statements of Cash Flows -
Nine months ended March 31, 1998 and 1997 (unaudited)....... 4
Notes to Consolidated Financial Statements.................. 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 7-13
Part II. OTHER INFORMATION............................................... 14
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
Assets March 31, June 30,
1998 1997
------------ -----------
(Unaudited)
<S> <C> <C>
Cash and amounts due from depository institutions $ 3,176,740 2,836,806
Interest-bearing deposits 25,099,456 28,065,769
------------ -----------
Total cash and cash equivalents 28,276,196 30,902,575
Investment securities, held to maturity (fair value -
March 31, 1998: $20,038,281; June 30, 1997: $19,989,063) 19,987,840 19,989,524
Investment securities available for sale, at fair value 1,160,625 1,068,125
Mortgage-backed securities, held to maturity (fair value -
March 31, 1998: $22,664,577; June 30, 1997: $22,148,459) 22,345,571 21,935,716
Loans receivable, net 34,684,846 33,161,513
Loans receivable, held for sale 425,850 230,400
Real estate owned, net 913,522 855,500
Stock in Federal Home Loan Bank of Chicago 554,000 554,000
Office properties and equipment, net 1,573,714 1,588,024
Accrued interest receivable 641,348 638,296
Prepaid expenses and other assets 704,690 753,907
------------ -----------
Total assets $111,268,202 111,677,580
============ ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits $102,013,755 102,972,924
Advance payments by borrowers for taxes and insurance 187,428 355,765
Other liabilities 400,243 378,225
------------ -----------
Total liabilities 102,601,426 103,706,914
------------ -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.01 par value:
authorized 1,000,000 shares; none outstanding - -
Common stock, $.01 par value: authorized 5,000,000 shares;
363,975 shares issued and outstanding at March 31, 1998
and 346,725 issued and outstanding at June 30, 1997 3,640 3,467
Additional paid-in capital 3,266,315 3,073,664
Retained earnings - substantially restricted 5,360,461 4,942,077
Unrealized gain on securities available for sale,
net of income taxes 121,951 61,375
Common stock awarded by Bank Incentive Plan (85,591) (109,917)
------------ -----------
Total stockholders' equity 8,666,776 7,970,666
------------ -----------
Total liabilities and stockholders' equity $111,268,202 111,677,580
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
<TABLE>
<CAPTION>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 691,050 668,068 2,063,906 2,015,758
Interest on mortgage-backed securities 384,903 390,006 1,193,458 1,227,745
Interest on investment securities 312,171 314,257 934,426 967,382
Interest on interest-bearing deposits 337,061 338,665 1,008,909 1,039,125
Dividends on FHLB stock 9,050 9,274 28,250 28,395
---------- ------- --------- ---------
Total interest income 1,734,235 1,720,270 5,228,949 5,278,405
---------- ------- --------- ---------
Interest expense:
Interest on deposits 939,208 959,818 2,868,232 2,938,932
---------- ------- --------- ---------
Total interest expense 939,208 959,818 2,868,232 2,938,932
---------- ------- --------- ---------
Net interest income 795,027 760,452 2,360,717 2,339,473
---------- ------- --------- ---------
Non-interest income:
Loan fees and service charges 54,721 23,601 150,364 86,878
Commission income 16,010 18,026 78,695 53,008
Profit on sale of loans 3,294 639 16,065 4,406
Deposit related fees 144,085 151,217 458,441 452,753
Other income 44,370 42,781 113,455 248,845
---------- ------- --------- ---------
Total non-interest income 262,480 236,264 817,020 845,890
---------- ------- --------- ---------
Non-interest expense:
Staffing costs 439,381 402,678 1,305,653 1,225,050
Advertising 25,428 20,945 66,656 59,048
Occupancy and equipment expenses 124,279 115,488 354,076 336,053
Data processing 41,039 35,452 115,990 100,842
Federal deposit insurance premiums 15,609 16,618 47,751 125,764
SAIF special assessment 0 0 0 674,061
Other 188,656 174,064 533,488 530,902
---------- ------- --------- ---------
Total non-interest expense 834,392 765,245 2,423,614 3,051,720
---------- ------- --------- ---------
Income before income taxes 223,115 231,471 754,123 133,643
Income tax provision 75,869 78,741 256,432 8,969
---------- ------- --------- ---------
Net income $ 147,246 152,730 497,691 124,674
========== ======= ======= =======
Earnings per share (basic) $ 0.41 0.44 1.41 .36
========== ==== ==== ===
Earnings per share (diluted) $ 0.40 0.43 1.40 .35
========== ==== ==== ===
Dividends declared per common share $ 0.075 0.075 0.225 0.225
=========== ===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
Unrealized
Gain on Common
Additional Securities Stock
Common Paid-In Retained Available awarded
Stock Capital Earnings For Sale by BIP Total
------ --------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 $3,467 3,073,664 4,942,077 61,375 (109,917) 7,970,666
Net income 497,691 497,691
Adjustment of securities
available for sale to
fair value, net of tax
effect 60,576 60,576
Common stock issued in
connection with stock
options exercised 173 189,577 189,750
Tax benefit related to
employee stock plan 3,074 3,074
Amortization of award of
BIP stock 24,326 24,326
Dividends declared on
common stock ($0.225
per share) (79,307) (79,307)
------ --------- --------- ------- ------- ---------
Balance at March 31, 1998 $3,640 3,266,315 5,360,461 121,951 (85,591) 8,666,776
====== ========= ========= ======= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended
March 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 497,691 124,674
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 109,117 86,738
Amortization of premiums and discounts on securities 20,622 38,240
Amortization of cost of stock benefit plan 24,326 25,171
Profit on sale of loans (16,065) (4,406)
Profit from sale of loans held for sale 1,404,400 335,850
Origination of loans held for sale (1,599,850) (335,850)
(Increase) decrease in accrued interest receivable (3,052) 37,311
Increase (decrease) in accrued interest payable 2,913 (754)
Decrease in deferred income on loans (47,329) (24,347)
(Increase) decrease in other assets 34,076 (64,035)
Increase (decrease) in other liabilities 23,850 (99,108)
------------- -------------
Net cash provided by operating activities 450,699 119,484
------------- -------------
Cash flows from investing activities:
Purchase of mortgage backed securities (4,610,445) 0
Proceeds from repayments of mortgage backed securities 4,169,984 4,033,902
Purchase of investment securities (7,489,050) (7,495,725)
Proceeds from maturities of investment securities 7,500,000 7,500,000
Loan disbursements (7,773,613) (4,396,602)
Loan repayments 6,237,916 4,259,727
Property and equipment expenditures (94,807) (86,284)
------------- -------------
Net cash provided (for) by investing activities (2,060,015) 3,815,018
------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from financing activities:
Proceeds from exercise of stock options 189,750 0
Dividends paid on common stock (79,307) (78,013)
Deposit account receipts 262,733,930 256,398,462
Deposit account withdrawals (266,404,533) (263,333,834)
Interest credited to deposit accounts 2,711,434 2,796,515
Decrease in advance payments by borrowers
for taxes and insurance (168,337) (205,401)
Purchase of BIP stock 0 (6,921)
------------- -------------
Net cash provided for financing activities (1,017,063) (4,429,192)
------------- -------------
Decrease in cash and cash equivalents (2,626,379) (494,690)
Cash and cash equivalents at beginning of period 30,902,575 30,917,718
------------- -------------
Cash and cash equivalents at end of period $ 28,276,196 30,423,028
============= =============
Cash paid during period for:
Interest $ 2,865,319 2,939,686
Income taxes 164,000 76,226
Non-cash investing activities:
Transfer of loans to real estate owned $ 58,022 85,500
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with instructions to Form 10-QSB and therefore, do not include
information or footnotes necessary for fair presentation of financial condition,
results of operations and changes in financial position in conformity with
generally accepted accounting principles. However, in the opinion of management,
all adjustments (which are normal and recurring in nature) necessary for a fair
presentation have been included. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The results of operations for the three months and nine months ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
entire year.
Note B - Principles of Consolidation
The accompanying unaudited consolidated financial statements include the
accounts of Midland Federal Savings and Loan Association and its wholly-owned
subsidiaries, Midland Service Corporation, MS Insurance Agency, Inc. and
Bridgeview Development Company. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Note C - Stock Conversion
In January 1993, the Association's Board of Directors approved a plan to
voluntarily convert the Association from a federal mutual savings and loan
association to a federal stock savings and loan association. The stock offering
of Midland Federal Savings and Loan Association was closed on June 30, 1993 with
the sale of 345,000 shares of $.01 par value common stock at $10.00 per share.
Note D - Earnings Per Share
Earnings per share for the three and nine month periods ended March 31, 1998 and
1997 was determined by dividing net income for the period by the weighted
average number of both basic and diluted shares of common stock and common stock
equivalents outstanding (See exhibit 11 attached). Stock options are regarded as
common stock equivalents and are considered in diluted earnings per share
calculations. Earnings per share data for the three and nine month periods ended
March 31, 1997 have been restated for comparative purposes to reflect the
implementation of Statement of Financial Accounting Standards No. 128.
Note E - Impact of New Accounting Standards
In December 1996, the FASB issued Statement of Financial Accounting Standards
No. 127 ("SFAS 127"), entitled "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125". The statement delays for one year the
implementation of SFAS 125, as it relates to (1) secured borrowings and
collateral, and (2) the transfers of financial assets that are part of
repurchase agreements, dollar-rolls, securities lending and similar
transactions. The Association has adopted portions of SFAS 125 (those not
deferred by SFAS 127) effective January 1, 1997. Adoption of these portions did
not have a significant effect on the Association's financial condition or
results of operations. Based on its review of SFAS 125, management does not
believe that adoption of the portions of SFAS 125 which have been deferred by
SFAS 127 will have a material effect on the Association.
-5-
<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note E - Impact of New Accounting Standards (continued)
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 ("SFAS 130"), entitled "Reporting Comprehensive Income." This statement
establishes standards for the reporting and display of comprehensive income and
its components (revenues, expenses, gains, losses) in a full set of
general-purpose financial statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. The Association has not yet determined the
impact of adopting this statement.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 ("SFAS 131"), entitled "Disclosures about Segments of an Enterprise and
Related Information". SFAS 131 becomes effective for fiscal years beginning
after December 15, 1997 and establishes standards for the way that public
business enterprises report information about operating segments and requires
enterprises to report selected information about operating segments in interim
financial reports. The Association has not yet determined the impact of adopting
this statement.
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132 ("SFAS 132"), entitled "Employers' Disclosure about Pensions and Other
Post-retirement Benefits". SFAS 132 alters current disclosure requirements
regarding pensions and other post-retirement benefits in the financial
statements of employers who sponsor such benefit plans. The revised disclosure
requirements are designed to provide additional information to assist readers in
evaluating future costs related to such plans. Additionally, the revised
disclosures are designed to provide changes in the components of pension and
benefit costs in addition to the year end components of those factors in the
resulting asset or liability related to such plans. The statement is effective
for fiscal years beginning after December 15, 1997 with earlier application
available. The Association has not yet determined the impact of adopting this
statement.
The foregoing does not constitute a comprehensive summary of all material
changes or development affecting the manner in which the Association keeps its
books and records and performs its financial accounting responsibilities. It is
untended only as a summary of some of the recent pronouncements made by the FASB
which are of particular interest to financial institutions.
-6-
<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
During the nine months ended March 31, 1998, total assets of the Association
decreased by $410,000 to $111.3 million from $111.7 million at June 30, 1997.
This decrease was primarily the result of a decrease in deposits in the amount
of $959,000 to $102.0 million at March 31, 1998. Net loans receivable and loans
available for sale increased $1.7 million to $35.1 million as loan disbursements
of $9.4 million were offset by loan repayments of $6.3 million and loan sales of
$1.4 million. The balance of mortgage-backed securities also increased by
$410,000 to $22.3 million due to purchases of mortgage-backed securities in the
amount of $4.6 million, which were offset by repayments of mortgage-backed
securities in the amount of $4.2 million during the nine month period.
The $1.7 million increase in net loans receivable and the $410,000 increase in
mortgage-backed securities, discussed above, were funded by a $2.6 million
decrease in cash and cash equivalents to $28.3 million at March 31, 1998 from
$30.9 million at June 30, 1997. The balance of investment securities remained
stable at $21.1 million at March 31, 1998. The weighted average remaining
maturity of the Association's investment securities portfolio at March 31, 1998
was 1.9 years.
As discussed above, deposits for the nine month period decreased $959,000 as
withdrawal activity of $266.4 million exceeded deposit activity of $262.7
million and interest credited to deposit accounts in the amount of $2.7 million.
The decline in deposits is the result of a $1.0 million decrease in passbook
accounts and a $543,000 reduction in transaction deposits including money market
accounts offset by a $607,000 increase in certificate of deposit accounts. The
net decrease in savings deposits is attributed to competition from higher
yielding investment alternatives that are available to the investing public.
Stockholders' equity increased $696,000 to $8.7 million at March 31, 1998. The
increase in stockholders' equity during the nine month period ended March 31,
1998 was primarily the result of earnings in the amount of $498,000, proceeds
from the exercise of stock options in the amount of $190,000, a $24,000
reduction in the unamortized cost of the Bank Incentive Plan established in
fiscal 1996 and a positive market adjustment in the amount of $61,000, net of
income taxes, from securities available for sale. These increases in
stockholders' equity were offset by dividends paid on common stock in the amount
of $79,000.
RESULTS OF OPERATIONS
Midland Federal had net income of $147,000 for the quarter ended March 31, 1998
compared to net income of $153,000 for the quarter ended March 31, 1997. For the
nine months ended March 31, 1998 Midland Federal had net income of $498,000
compared to net income of $125,000 for the nine months ended March 31, 1997. Net
income for the nine months ended March 31, 1997 included an after tax charge in
the amount of $445,000 for a special assessment levied by the Federal Deposit
Insurance Corporation ("FDIC") to recapitalize the Savings Association Insurance
Fund ("SAIF"). Net income for the nine months ended March 31, 1997 also included
a one-time recovery of a prior period loss on the sale of real estate owned
properties in the amount of $131,000, net of income taxes. Absent both the one
time special insurance assessment in the amount of $445,000 and the after tax
recovery in the amount of $131,000, discussed above, net income for the nine
months ended March 31, 1997 would have been $439,000.
-7-
<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Net interest income during both the three and nine month periods ended March 31,
1998 increased as a result of increases in the Association's net interest margin
and interest rate spread which occurred during both periods. During the three
months ended March 31, 1998 the Association's net interest margin and interest
rate spread increased to 3.07% and 2.99%, respectively, from 2.90% and 2.85%,
respectively, for the three months ended March 31, 1997. For the nine month
period ended March 31, 1997 the net interest margin and interest rate spread
increased to 3.04% and 2.97%, respectively, from 2.95% and 2.89%, respectively,
for the nine months ended March 31, 1997. The Association's ratio of average
interest earning assets to average interest bearing liabilities also increased
to 110.50% from 108.72% during the quarter ended March 31, 1997. For the nine
months ended March 31, 1998 the ratio of average interest earning assets to
average interest bearing liabilities also increased to 110.12% from 108.72% in
the prior year period.
Net income was increased in both the three and nine month periods ended March
31, 1998 as a result of increases in net interest income. For the three months
ended March 31, 1998 net interest income increased $35,000 to $795,000 from
$760,000 for the three months ended March 31, 1997 and for the nine months ended
March 31, 1998 net interest income increased $22,000 to $2.4 million.
Net income, in the quarter ended March 31, 1998, was also increased as a result
of a $26,000 increase in non-interest income to $262,000 from $236,000 for the
quarter ended March 31, 1997. Excluding the one-time recovery of a loss on the
sale of real estate owned properties in the amount of $143,000 as discussed
above, non-interest income increased during the current nine month period by
$114,000 to $817,000.
Non-interest expense increased by $69,000 to $834,000 for the quarter ended
March 31, 1998 compared to $765,000 for the prior year quarter. For the nine
months ended March 31, 1998, exclusive of the one-time special insurance
assessment in the prior year period in the amount of $674,000, discussed above,
non-interest expense increased $46,000 to $2.4 million.
Interest Income
Interest income increased $14,000 or 0.81% for the quarter ended March 31, 1998
from the comparable prior year period. This increase in interest income resulted
from an increase in the average yield earned on interest earning assets to 6.70%
for the three months ended March 31, 1998 from 6.56% for the three months ended
March 31, 1997. The increase in the average yield earned on interest earning
assets was offset by a $1.3 million decrease in the average outstanding balance
of interest earning assets to $103.6 million for the three months ended March
31, 1998 from $104.9 million for the three months ended March 31, 1997.
The $1.3 million decline in the average balance of interest earning assets was
primarily the result of a $2.1 million decline in the average balance of deposit
liabilities to $101.2 million from $103.3 million in the prior year period.
-8-
<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Interest Income (continued)
For the nine months ended March 31, 1998 interest income decreased $49,000 from
the comparable prior year period as the result of a $2.3 million decline in the
average outstanding balance of interest earning assets to $103.4 million from
the prior year period. The decline in the average outstanding balance of
interest earning assets was offset by an increase in the average yield earned on
interest earning assets to 6.74% from 6.65% in the prior year period. The $2.3
million decline in the average balance of interest earning assets was primarily
the result of a $2.9 million decline in the average balance of deposit
liabilities to $101.3 million from $104.2 million in the prior year period.
Interest on loans receivable increased $23,000 for the three months ended March
31, 1998 from the comparable prior year period. The increase in interest income
is attributed to a $1.1 million increase in the average outstanding balance of
net loans receivable to $34.1 million for the three months ended March 31, 1998
from $33.0 million for the three months ended March 31, 1998. The average yield
earned on net loans receivable remained stable at 8.10% for both the three
months ended March 31, 1998 and March 31, 1997. The $1.1 million increase in the
average outstanding balance of net loans receivable was primarily the result of
increased loan volumes generated by the Association's loan origination staff.
The increased loan volumes are attributed to direct marketing of the
Association's mortgage loan products to the local realtor community as well as
more aggressive pricing of loan products.
Interest on mortgage backed securities decreased $5,000 for the three months
ended March 31, 1998 from the comparable prior year period. The decrease in
interest income is attributed to a $1.2 million reduction in the average
outstanding balance of mortgage backed securities outstanding to $22.7 million
for the three months ended March 31, 1998 from $23.9 million for the three
months ended March 31, 1997. The decline in the average outstanding balance of
mortgage backed securities more than offset an increase in the average yield
earned on mortgage backed securities to 6.78% for the three months ended March
31, 1998 from 6.54% for the three months ended March 31, 1997.
Interest earned on investment securities decreased $2,000 for the three months
ended March 31, 1998 from the comparable prior year period. The decrease in
interest income is attributed to a decrease in the average yield on investment
securities to 5.90% for the three months ended March 31, 1998 from 5.97% for the
three months ended March 31, 1997. The average balance of investment securities
increased $117,000 to $21.2 million for the three months ended March 31, 1998
primarily as a result of an increase in the market value of securities available
for sale.
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<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Interest Income (continued)
Interest earned on interest bearing deposits decreased $2,000 or 0.47% for the
three months ended March 31, 1998 from the comparable prior year period. The
decrease in interest income is attributed to a $1.4 million decline in the
average outstanding balance of interest bearing deposits to $25.0 million for
the three months ended March 31, 1998 from $26.4 million for the three months
ended March 31, 1997. The decline in the average outstanding balance of interest
bearing deposits more than offset an increase in the average yield earned on
interest bearing deposits to 5.39% for the three months ended March 31, 1998
from 5.12% for the three months ended March 31, 1997. The increase in the
average yield on interest bearing deposits reflected the increase in short-term
market interest rates that occurred between the two periods. The Association
decreased its investments in interest bearing deposits to fund the increase in
net loans receivable and mortgage backed securities, discussed above.
For the nine months ended March 31, 1998 interest on loans receivable increased
$48,000 from the comparable prior year period. The increase in interest on net
loans receivable was due to a $961,000 increase in the average outstanding
balance of loans receivable to $33.7 million from $32.7 million for the nine
months ended March 31, 1997. The $961,000 increase in the average outstanding
balance of loans receivable offset a decrease in the average yield earned on
loans receivable to 8.16% for the nine months ended March 31, 1998 from 8.21%
for the nine months ended March 31, 1997.
For the nine months ended March 31, 1998 interest earned on mortgage backed
securities decreased $34,000 to $1.2 million. The primary factor for the
decrease in interest on mortgage backed securities was a $1.6 million decrease
in the average outstanding balance of mortgage backed securities to $23.6
million for the nine months ended March 31, 1998 from $25.2 million for the nine
months ended March 31, 1997. The $1.6 million decline in the average outstanding
balance of mortgage backed securities more than offset an increase in the
average yield earned on mortgage backed securities to 6.73% for the nine months
ended March 31, 1998 from 6.49% for the nine months ended March 31, 1997. The
decrease in the average balance of mortgage backed securities was the result of
regular principal repayments on existing mortgage backed securities.
For the nine months ended March 31, 1998 interest earned on investment
securities decreased $33,000 to $934,000 from $967,000 for the nine months ended
March 31, 1998. The primary factor for the decrease in interest earned on
investment securities was a decrease in the average yield earned on investment
securities to 5.90% for the nine months ended March 31, 1998 from 6.13% for the
nine months ended March 31, 1997. The decrease in the average yield on the
Association's investment securities was the result of lower reinvestment yields
on maturing investment securities despite the same original terms to maturity.
The average balance of investment securities increased $84,000 to $21.1 million
for the nine months ended March 31, 1998 primarily as a result of a increase in
the market value of securities available for sale.
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<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Interest Income (continued)
For the nine months ended March 31, 1998 interest earned on interest bearing
deposits decreased $30,000 to $1.0 million. The decrease in interest income is
primarily attributed to a $1.8 million decrease in the average outstanding
balance of interest bearing deposits to $24.4 million for the nine months ended
March 31, 1998 from $26.2 million for the nine months ended March 31, 1997. The
decline in the average outstanding balance of interest bearing deposits more
than offset an increase in the average yield earned on interest bearing deposits
to 5.52% for the nine months ended March 31, 1998 from 5.29% in the year earlier
period. The increase in the average yield on interest bearing deposits reflected
the increase in short-term market interest rates that occurred between the two
periods.
Interest Expense
Interest expense decreased $21,000 to $939,000 for the quarter ended March 31,
1998 from $960,000 for the quarter ended March 31, 1998. The $21,000 decrease in
interest expense was the result of a $2.7 million decrease in the average
outstanding balance of interest costing deposits to $93.8 million during the
quarter ended March 31, 1998 from $96.5 million in the comparable prior year
period. The decline in the average outstanding balance of interest costing
deposits more than offset a slight increase in the average yield paid on
interest costing deposits to 4.01% for the quarter ended March 31, 1998 from
3.98% for the quarter ended March 31, 1997. The increase in the average yield
paid on interest costing deposits was the result of an increase in market
interest rates that occurred between the two periods.
For the nine months ended March 31, 1998 interest expense decreased $71,000 from
the prior year period. This decrease in interest expense in the current nine
month period was the result of a $3.4 million decline in the average outstanding
balance of interest costing deposits to $93.9 million for the nine months ended
March 31, 1998 from $97.3 million for the nine months ended March 31, 1997. The
decline in the average outstanding balance of interest costing deposits more
than offset an increase in the average yield paid on interest costing deposits
to 4.07% for the nine months ended March 31, 1998 from 4.03% for the prior year
period.
Provision for Losses on Loans
Midland Federal made no provisions for loan losses out of income in either the
three or nine month periods ended March 31, 1998 and 1997. This decision was
made based upon the absence of any specific asset quality problems, the current
level of general loan loss reserves and management's assessment of the inherent
risk in the loan portfolio. Non-performing assets increased to $1.0 million at
March 31, 1998 from $958,000 at June 30, 1997. Non-performing assets at March
31, 1998 consist of $126,000 in non-accruing loans and real estate owned
properties in the amount of $914,000, both stated net of specific reserves. At
March 31, 1998 non-accruing loans consisted of $79,000 in one single-family
residential mortgage loan, $39,000 in one multi-family residential mortgage loan
and $8,000 in consumer loans. At March 31, 1998 general loan loss reserves
totaled $302,000. Although the Association believes its allowance for loan
losses is at a level that it considers to be adequate to provide for potential
losses, there can be no assurance that such losses will not exceed the estimated
amounts.
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<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Non-Interest Income
Non-interest income increased $26,000 to $262,000 for the quarter ended March
31, 1998 from $236,000 in the quarter ended March 31, 1997. Non-interest income
was increased in the quarter ended March 31, 1998 compared with the prior year
period as a result of an $31,000 increase in loan fees and service charges which
was offset by a $7,000 decrease in deposit related fees. The increase in loan
fees and service charges in the current quarter is primarily attributed to the
generation of loan brokerage revenues.
For the nine months ended March 31, 1998 non-interest income decreased $29,000
to $817,000 from $846,000 in the year earlier period. The decline in
non-interest income in the current nine month period is attributed to the
elimination of a $143,000 recovery of a loss on the sale of real estate owned
properties that occurred in the prior year period, as discussed above.
Non-interest income was increased in the nine month period ended March 31, 1998
by a $63,000 increase in loan fees and service charges, a $26,000 increase in
commission income, a $12,000 increase in profit on sale of loans and a $5,000
increase in deposit related fees, compared with the prior year period.
Non-Interest Expense
Non-interest expense increased $69,000 to $834,000 in the quarter ended March
31, 1998 compared to $765,000 in the quarter ended March 31, 1997. The increase
in non-interest expense is primarily attributed to a $36,000 increase in
staffing costs, a $9,000 increase in occupancy and equipment expenses, a $6,000
increase in data processing costs and a $4,000 increase in advertising expenses.
For the nine months ended March 31, 1998 non-interest expense decreased $628,000
to $2.4 million from $3.1 million in the prior year period. The primary factors
for the decrease in non-interest expense in the current nine month period were
the elimination of the special assessment levied by the FDIC in the prior year
period in the amount of $674,000, a $78,000 decrease in regular deposit
insurance premiums and a $9,000 decrease in real estate owned expenses. These
decreases in non-interest expense were offset by an $81,000 increase in staffing
costs, an $18,000 increase in occupancy and equipment expenses, a $15,000
increase in data processing costs and an $8,000 increase in advertising
expenses.
Income Taxes
Income taxes decreased to $76,000 in the quarter ended March 31, 1998 from
$79,000 in the quarter ended March 31, 1997 due to a decrease in earnings before
income taxes. For the nine months ended March 31, 1998 income taxes increased to
$256,000 from $9,000 in the prior year period.
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<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
The Association's principal sources of funds are deposits, loan and mortgage
backed securities repayments, proceeds from the maturities of investment
securities and other funds provided by operations. In addition, the Association
may borrow funds from the FHLB of Chicago. The Association maintains investments
in liquid assets based upon management's assessment of (i) the Association's
need for funds, (ii) expected deposit flows, (iii) the yields available on
short-term liquid assets and (iv) the objectives of the Association's
asset/liability management program. The OTS requires members of the FHLB system
to maintain minimum levels of liquid assets. OTS regulations currently require
the Association to maintain an average daily balance of liquid assets equal to
at least 4% of the sum of its balance of net withdrawable deposit accounts and
borrowings payable in one year or less as of the prior quarter end. At March 31,
1998, the Association's regulatory liquidity ratio was 54.8%. At such date, the
Association had commitments to originate $2.1 million in fixed rate mortgage
loans, commitments to sell $426,000 in fixed rate loans and no commitments to
purchase loans.
The Association uses its capital resources principally to meet its ongoing
commitments to fund maturing certificate of deposits and deposit withdrawals,
fund existing and continuing loan commitments, maintain its liquidity and meet
operating expenses. The Association considers its liquidity and capital reserves
sufficient to meet its outstanding short and long-term needs. The Association
expects to be able to fund or refinance, on a timely basis, its material
commitments and long-term liabilities.
At March 31, 1998 Midland Federal had tangible and core capital of $8.5 million,
or 7.7% of adjusted total assets, which was approximately $6.9 million and $5.2
million above the minimum requirements in effect on that date of 1.5% and 3.0%,
respectively, of adjusted total assets.
At March 31, 1998 Midland Federal had risk-based capital of $8.8 million and
risk-weighted assets of $35.1 million, or total capital of 25.2% of
risk-weighted assets. This amount was $6.0 million above the 8.0% requirement in
effect on that date.
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<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, the Association is a party to legal proceedings wherein it
enforces its security interest or is a defendant to certain lawsuits arising out
of the ordinary course of its business. The Association is not a party to any
legal proceedings, which if adversely determined, would have a material adverse
effect on its financial condition.
Item 2. CHANGES IN SECURITIES
On January 8, 1998 Paul Zogas, President and Chief Executive Officer of the
Association, exercised an option to purchase 8,625 shares of common stock in
Midland Federal Savings and Loan Association at the exercise price of $11.00 per
share. Consequently, 8,625 shares of common stock, $.01 par value, were issued
out of previously authorized shares as a result of such transaction.
On January 8, 1998 Charles Zogas, Executive Vice President and Chief Operating
Officer of the Association, exercised an option to purchase 8,625 shares of
common stock in Midland Federal Savings and Loan Association at the exercise
price of $11.00 per share. Consequently, 8,625 shares of common stock, $.01 par
value, were issued out of previously authorized shares as a result of such
transaction.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
On April 30, 1998 Midland Federal Savings and Loan Association ("the
Association") filed a Holding Company Application on Form H-(e)1-S with the
Office of Thrift Supervision. The Association filed this application as part of
a merger agreement and plan of reorganization adopted by the Association's Board
of Directors, pursuant to which the Association will become a wholly owned
subsidiary of a holding company. The reorganization will be facilitated through
a merger with a non-resulting interim federal stock savings bank and will be
submitted to a vote by the Association's shareholders as soon as practicable
following approval of the transaction in accordance with applicable rules and
regulations.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Computations of earnings per share (Exhibit 11 filed herewith). (b) No
reports on Form 8-K were filed this three months.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
Registrant
DATE: May 11, 1998 BY: /s/ Paul Zogas
--------------
Paul Zogas
President, Chief Executive Officer and
Chief Financial Officer
DATE: May 11, 1998 BY: /s/ Charles Zogas
-----------------
Charles Zogas
Executive Vice President and
Chief Operating Officer
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents of Charter
One may be insured or indemnified against liability which they may incur in
their capacities as such:
ss.145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE. (a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification
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<PAGE>
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in subsections
(a) and (b) of this section. Such determination shall be made (1) by a majority
vote of the directors who are not parties to such action, suit or proceeding,
even though less than a quorum, or (2) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion, or
(3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as they would have with respect to such constituent corporation if
its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
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<PAGE>
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
Article NINTH of Charter One's certificate of incorporation further
provides as follows:
NINTH:
A. Each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director or an
officer of the Corporation or is or was serving at the request of the
Corporation as a director or officer of another corporation, including, without
limitation, any Subsidiary (as defined in Article EIGHTH herein), partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director or officer or
in any other capacity while serving as a director or officer, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that, except as provided in Section C hereof with
respect to proceedings to enforce rights to indemnification, the Corporation
shall indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication"),
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections A and B of this Article shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
director or officer and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
C. If a claim under Section A or B of this Article is not paid
in full by the Corporation within 60 days after a written claim has been
received by the Corporation, except in the case of a claim for an
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advancement of expenses, in which case the applicable period shall be 20 days,
the indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall also be
entitled to be paid the expense of prosecuting or defending such suit. In (1)
any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (2) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of
expenses conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, By-laws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to
time by a majority vote of the disinterested directors, grant rights to
indemnification and to the advancement of expenses to any employee or agent of
the Corporation to the fullest extent of the provisions of this Article with
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.
The Company intends to purchase director and officer liability insurance
that insures directors and officers against certain liabilities in connection
with the performance of their duties as directors and officers, and that
provides for payment to the Company of costs incurred by it in indemnifying its
directors and officers.
Item 21. Exhibits and Financial Statement Schedules.
2 Agreement and Plan of Merger (attached as Appendix A to the
Prospectus/Proxy Statement filed as part of this Registration
Statement and hereby incorporated by reference).
II-4
<PAGE>
3.1 Certificate of Incorporation of Midland Capital Holdings
Corporation (attached as Appendix B to the Prospectus/Proxy
Statement filed as part of this Registration Statement and
hereby incorporated by reference).
3.2 Bylaws of Midland Capital Holdings Corporation.
4 Form of Common Stock Certificate.
5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to the
legality of the Common Stock.
8 Tax Opinion of Cobitz, Vadenberg & Fennessy LLP
10.1 Midland Federal Savings and Loan Association's Bank Incentive
Plan
10.2 Midland Federal Savings and Loan Association's 1993 Stock
Option Plan
10.3 Employment Contract for Paul Zogas
10.4 Employment Contract for Charles Zogas
13 1997 Annual Report to Stockholders of Midland Federal Savings
and Loan Association (Attached as Appendix D to the
Prospectus/Proxy Statement filed as part of this Registration
Statement and hereby incorporated by reference).
21 Subsidiaries of the Registrant.
23.1 Consent of Silver, Freedman & Taff, L.L.P.
23.2 Consent of Cobitz, Vadenberg & Fennessy LLP
24 Power of Attorney (included in Part II of the Registration
Statement).
99 Form of Proxy to be mailed to stockholders of Midland Federal
Savings and Loan Association
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) (ss. 230.424(b) of this chapter) if,
in the aggregate, the
II-5
<PAGE>
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is apart of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for the applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(d) The undersigned Registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph (c) immediately preceding, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suite or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification
II-6
<PAGE>
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Bridgeview, State of
Illinois, on June 18, 1998.
MIDLAND CAPITAL HOLDINGS CORPORATION
By: /s/ Paul M. Zogas
-----------------
Paul M. Zogas
(Duly Authorized Representative)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul M. Zogas his or her true and lawful
attorney-in-fact and agents, with full power of substitution and
re-substitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitutes or substitute may lawfully do
or cause to be done by virtue hereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Bridgeview,
State of Illinois, on June 18, 1998.
MIDLAND CAPITAL HOLDINGS CORPORATION
By: /s/ Paul M. Zogas
-----------------
Paul M. Zogas
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature
/s/ Paul M. Zogas Date: June 18, 1998
- -----------------
Paul M. Zogas
Chairman of the Board, President and
Chief Financial Officer
(Principal Executive and Financial Officer)
/s/ Charles A. Zogas Date: June 18, 1998
- --------------------
Charles A. Zogas
Director, Executive Vice President
and Secretary
/s/ Richard Taylor Date: June 18, 1998
- ------------------
Richard Taylor
Director and Vice President
/s/ Algerd A. Brazis Date: June 18, 1998
- --------------------
Algerd A. Brazis
Director
/s/ Jonas Vaznelis Date: June 18, 1998
- ------------------
Jonas Vaznelis
Director
/s/ Michael J. Kukanza Date: June 18, 1998
- ----------------------
Michael J. Kukanza
Director
II-9
<PAGE>
As filed with the Securities and Exchange Commission on ______ __, 1998
Registration No. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
EXHIBITS
TO
FORM S-4
UNDER
THE SECURITIES ACT OF 1933
-------------------
MIDLAND CAPITAL HOLDINGS CORPORATION
8929 South Harlem Avenue
Bridgeview, Illinois 60455
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Reference to
Exhibit Number
Exhibit Attached
Number Description Hereto
------ ----------- ---------
<S> <C>
2 Merger Agreement and Plan of Reorganization by and between, N/A
the Company, New Bank and Midland, included as Annex A to
the accompanying Joint Proxy Statement/Prospectus filed
herewith.
3.1 Registrant's Certificate of Incorporation, as currently in effect, N/A
included as Exhibit B to the accompanying Proxy
Statement/Prospectus filed herewith.
3.2 Registrant's Bylaws, as currently in effect. 3.2
4 Form of Certificate of Common Stock. 4
5 Opinion and Consent of Silver, Freedman & Taff, L.L.P. 5
8 Opinion of Cobitz, VandenBerg & Fennesy LLP 8
10.1 Midland Federal Savings and Loan Association's Bank Incentive
Plan. 10.1
10.2 Midland Federal Savings and Loan Association's 1993 Stock
Option Plan. 10.2
10.3 Employment Contract for Paul Zogas 10.3
10.4 Employment Contract for Charles Zogas 10.4
13 1997 Annual Report to Stockholders of Midland Federal Savings N/A
and Loan Association, included at Exhibit D to the
accompanying Proxy Statement/Prospectus filed herewith.
21 Subsidiaries of the Registrant 21
23.1 Consent of Cobitz, VandenBerg & Fennessy LLP 23.1
23.2 Consent of Silver, Freedman & Taff, L.L.P. (included in Exhibit
5). N/A
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Referemce to
Exhibit Number
Exhibit Attached
Number Description Hereto
------ ----------- ---------
<S> <C>
24 Power of Attorney (included in Part II of the Registration
Statement) N/A
99 Form of Proxy Card to be mailed to Stockholders of Midland
Federal Savings and Loan Association 99
</TABLE>
II-3
EXHIBIT 3.2
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten nor more than 60 days before the
date on which the meeting is to be held, to each stockholder entitled to vote at
such meeting, except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the Delaware General
Corporation Law or the Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than 30
days after the date for which the meeting was originally noticed, or if a new
record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of at least one-third of
all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes, unless or except
to the extent that the presence of a larger number may be required by law. Where
a separate vote by a class or classes is required, a majority of the shares of
such class or classes, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date
or time.
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<PAGE>
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the President of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the secretary of the meeting shall be such
person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
or her in order.
(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (i) by
or at the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered or mailed to and received
at the principal executive offices of the Corporation not less than 60 days
prior to the anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 20 days, or delayed by more than 60 days from such anniversary date,
notice by the stockholder to be timely must be so delivered not later than the
close of business on the later of the 60th day prior to such annual meeting or
the tenth day following the day on which notice of the date of the annual
meeting was mailed or public announcement of the date of such meeting is first
made. A stockholder's notice to the Secretary shall set forth as to each matter
such stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the Corporation's books, of the stockholder who
proposed such business, (iii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such stockholder and
(iv) any material interest of such stockholder in such business. Notwithstanding
anything in these By-laws to the contrary, no business shall be brought before
or conducted at an annual meeting except in accordance with the provisions of
this Section 6(b). The officer of the Corporation or other person presiding over
the annual meeting shall, if the facts so warrant, determine and declare to the
meeting that business was not properly brought before the meeting in accordance
with the provisions of this Section 6(b) and, if he or she should so determine,
he or she shall so declare to the meeting and any such business so determined to
be not properly brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting by or at the
direction of the Board of Directors.
(c) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders at which directors are to
be elected only (i) by or at the direction of the Board of Directors or (ii) by
any stockholder of the Corporation entitled to vote for
2
<PAGE>
the election of directors at the meeting who complies with the notice procedures
set forth in this Section 6(c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made by timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered or mailed to and received at the principal executive
offices of the Corporation not less than 70 days prior to the date of the
meeting; provided, however, that in the event that less than 80 days' notice of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed or public announcement of the date of the meeting is
made. Such stockholder's notice shall set forth (x) as to each person whom such
stockholder proposes to nominate for election or re-election as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (y) as to
the stockholder giving the notice: (A) the name and address, as they appear on
the Corporation's books, of such stockholder and (B) the class and number of
shares of the Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the provisions of this Section 6(c). The officer of the Corporation or
other person presiding at the meeting shall, if the facts so warrant, determine
that a nomination was not made in accordance with such provisions and, if he or
she should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing (or as
otherwise permitted under applicable law) by the stockholder or his duly
authorized attorney-in-fact filed in accordance with the procedure established
for the meeting. Proxies solicited on behalf of the management shall be voted as
directed by the stockholder or in the absence of such direction, as determined
by a majority of the Board of Directors. No proxy shall be valid after eleven
months from the date of its execution except for a proxy coupled with an
interest.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his or her name on the record date for the meeting,
except as otherwise provided herein or in the Certificate of Incorporation of
the Corporation or as required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballot, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballot shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or as provided in the Certificate of
Incorporation, all other matters shall be determined by a majority of the votes
cast.
Section 8. Stock List.
3
<PAGE>
The officer who has charge of the stock transfer books of the Corporation
shall prepare and make, in the time and manner required by applicable law, a
list of stockholders entitled to vote and shall make such list available for
such purposes, at such places, at such times and to such persons as required by
applicable law. The stock transfer books shall be the only evidence as to the
identity of the stockholders entitled to examine the stock transfer books or to
vote in person or by proxy at any meeting of stockholders.
Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
Section 10. Inspectors of Election
The Board of Directors shall, in advance of any meeting of stockholders,
appoint one or more persons as inspectors of election, to act at the meeting or
any adjournment thereof and make a written report thereof, in accordance with
applicable law.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. The number of directors shall be as
provided for in the Certificate of Incorporation. The Board of Directors shall
annually elect a Chairman of the Board and a President from among its members
and shall designate, when present, either the Chairman of the Board or the
President to preside at its meetings.
The directors, other than those who may be elected by the holders of any
class or series of preferred stock, shall be divided into three classes, as
nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of the annual meeting of
stockholders two years thereafter, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders, commencing with the first annual meeting, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election, with each director to hold office until his or her
successor shall have been duly elected and qualified.
4
<PAGE>
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of preferred
stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires, and until
such director's successor shall have been duly elected and qualified. No
decrease in the number of authorized directors constituting the Board shall
shorten the term of any incumbent director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the directors then in office (rounded up to the nearest whole number)
or by the President and shall be held at such place, on such date, and at such
time as they or he or she shall fix. Notice of the place, date, and time of each
such special meeting shall be given to each director by whom it is not waived by
mailing written notice not less than five days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
24 hours before the meeting. Unless otherwise indicated in the notice thereof,
any and all business may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the authorized
number of directors then constituting the Board shall constitute a quorum for
all purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
5
<PAGE>
Section 8. Powers.
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(i) To declare dividends from time to time in accordance with
law;
(ii) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(iii) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(iv) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any officer
upon any other person for the time being;
(v) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(vi) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors, officers, employees
and agents of the Corporation and its subsidiaries as it may determine;
(vii) To adopt from time to time such insurance, retirement,
and other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and,
(viii) To adopt from time to time regulations, not
inconsistent with these By-laws, for the management of the Corporation's
business and affairs.
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for those committees and any others provided
for herein, elect a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designated the committee or a
supplemental resolution of the
6
<PAGE>
Board of Directors shall so provide. In the absence or disqualification of any
member of any committee and any alternate member in his or her place, the member
or members of the committee present at the meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
Section 3. Nominating Committee.
The Board of Directors may appoint a Nominating Committee of the Board,
consisting of not less than three members, one of which shall be the President
if, and only so long as, the President remains in office as a member of the
Board of Directors. The Nominating Committee shall have authority (i) to review
any nominations for election to the Board of Directors made by a stockholder of
the Corporation pursuant to Section 6(c)(ii) of Article I of these By-laws in
order to determine compliance with such By-law and (ii) to recommend to the
Whole Board nominees for election to the Board of Directors to replace those
directors whose terms expire at the annual meeting of stockholders next ensuing.
ARTICLE IV
OFFICERS
Section 1. Generally.
(a) The Board of Directors as soon as may be practicable after
the annual meeting of stockholders shall choose a President, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The President shall be chosen from among the directors. Any number of
offices may be held by the same person.
(b) The term of office of all officers shall be until the next
annual election of officers and until their respective successors are chosen,
but any officer may be removed from office at any time by the affirmative vote
of a majority of the authorized number of directors then constituting the Board
of Directors.
(c) All officers chosen by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors or by any committee thereof.
Section 2. President.
7
<PAGE>
The President shall be the chief executive officer and, subject to the
control of the Board of Directors, shall have general power over the management
and oversight of the administration and operation of the Corporation's business
and general supervisory power and authority over its policies and affairs. The
President shall see that all orders and resolutions of the Board of Directors
and of any committee thereof are carried into effect.
Each meeting of the stockholders and of the Board of Directors shall be
presided over by such officer as has been designated by the Board of Directors
or, in his or her absence, by such officer or other person as is chosen at the
meeting. The Secretary or, in his or her absence, the General Counsel of the
Corporation or such officer as has been designated by the Board of Directors or,
in his or her absence, such officer or other person as is chosen by the person
presiding, shall act as secretary of each such meeting.
Section 3. Vice Presidents.
The Executive Vice President, if any, or in his absence, the Vice
President or Vice Presidents, if any, shall perform the duties of the President
in the President's absence or during his or her disability to act. In addition,
the Executive Vice Presidents and Vice Presidents, if any, shall perform the
duties and exercise the powers usually incident to their respective offices
and/or such other duties and powers as may be properly assigned to them from
time to time by the Board of Directors, the Chairman of the Board or the
President.
Section 4. Secretary.
The Secretary or an Assistant Secretary shall issue notices of meetings,
shall keep their minutes, shall have charge of the seal and the corporate books,
shall perform such other duties and exercise such other powers as are usually
incident to such offices and/or such other duties and powers as are properly
assigned thereto by the Board of Directors, the Chairman of the Board or the
President.
Section 5. Treasurer.
The Treasurer shall have charge of all monies and securities of the
Corporation, other than monies and securities of any division of the Corporation
which has a treasurer or financial officer appointed by the Board of Directors,
and shall keep regular books of account. The funds of the Corporation shall be
deposited in the name of the Corporation by the Treasurer with such banks or
trust companies or other entities as the Board of Directors from time to time
shall designate. The Treasurer shall sign or countersign such instruments as
require his or her signature, shall perform all such duties and have all such
powers as are usually incident to such office and/or such other duties and
powers as are properly assigned to him or her by the Board of Directors, the
Chairman of the Board or the President, and may be required to give bond,
payable by the Corporation, for the faithful performance of his duties in such
sum and with such surety as may be required by the Board of Directors.
Section 6. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more assistant secretaries and
one or more assistants to the Treasurer, or one appointee to both such
positions, which officers shall have such powers and shall perform such duties
as are provided in these By-laws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
8
<PAGE>
Section 7. Action with Respect to Securities of Other Corporations
Unless otherwise directed by the Board of Directors, the President, or
any officer of the Corporation authorized by the President, shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other Corporation.
ARTICLE V
STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
By-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefore.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
60 nor less than ten days before the date of any meeting of stockholders, nor
more than 60 days prior to the time for such other action as hereinbefore
described; provided, however, that if no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held, and, for determining stockholders entitled to receive payment of any
dividend or other distribution or allotment of rights or to exercise any rights
of change, conversion or exchange of stock or for any other purpose, the record
date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
9
<PAGE>
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI
NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, by sending such notice by prepaid telegram or mailgram or by
sending such notice by facsimile machine or other electronic transmission. Any
such notice shall be addressed to such stockholder, director, officer, employee
or agent at his or her last known address as the same appears on the books of
the Corporation. The time when such notice is received, if hand delivered or
dispatched, if delivered through the mail, by telegram or mailgram or by
facsimile machine or other electronic transmission, shall be the time of the
giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
10
<PAGE>
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these By-laws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded
and the day of the event shall be included.
ARTICLE VIII
AMENDMENTS
The By-laws of the Corporation may be adopted, amended or repealed as
provided in Article SEVENTH of the Certificate of Incorporation of the
Corporation.
11
EXHIBIT 4
<PAGE>
NUMBER COMMON STOCK
MIDLAND CAPITAL HOLDINGS CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE
$.01 PER SHARE OF
MIDLAND CAPITAL HOLDINGS CORPORATION (the "Corporation"), a Delaware
corporation. The shares represented by this certificate are transferable only on
the stock transfer books of the Corporation by the holder of record hereof, or
by his duly authorized attorney or legal representative, upon the surrender of
this certificate properly endorsed. THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT
AND IS NOT FEDERALLY INSURED OR GUARANTEED.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by its duly authorized officers and has caused its corporate seal to be
hereunto affixed.
DATED ___________________
___________________________ ____________________________________________________
Charles A. Zogas, Secretary Paul M. Zogas, President and Chief Executive Officer
[Seal]
<PAGE>
MIDLAND CAPITAL HOLDINGS CORPORATION
The shares represented by this certificate are issued subject to all the
provisions of the certificate of incorporation and bylaws of MIDLAND CAPITAL
HOLDINGS CORPORATION (the "Corporation") as from time to time amended (copies of
which are on file at the principal executive offices of the Corporation).
The Corporation will furnish to any stockholder upon request and without
charge a full statement of the powers, designations, preferences and relative
participating, optional or other special rights of each authorized class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights, to the extent that the same have been fixed, and
of the authority of the board of directors to designate the same with respect to
other series. Such request may be made to the Corporation or to its transfer
agent and registrar.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
to Minors Act -________________________
(State)
TEN COM - as tenants in common
Transfers to Minor Act -
TEN ENT - as tenants by the entireties
(State)
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT ________ Custodian _______ Under Uniform Gift
(Cust) (Minor)
UNIF TRANS MIN ACT________ Custodian _______ Under Uniform
(Cust) (Minor)
Additional abbreviations may also be used though not in the above list.
<PAGE>
For Value Received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------
- ------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________ Shares
of Common Stock represented by the within certificate, and do hereby irrevocably
constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________
_________________________ ________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER
EXHIBIT 5
<PAGE>
EXHIBIT 5
[LETTERHEAD OF SILVER, FREEDMAN & TAFF, L.L.P.]
June 18, 1998
Midland Capital Holdings Corporation
8929 South Harlem Avenue
Bridgeview, Illinois 60455
Members of the Board of Directors:
We have examined (i) the Registration Statement on Form S-4 (the
"Registration Statement") filed by Midland Capital Holdings Corporation (the
"Company") with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), and the public
offering prospectus (the "Prospectus"), relating to the issuance by the Company
of up to 363,975 shares of common stock, par value $.01 per share (the "Common
Stock"), in the manner set forth in the Registration Statement and the
Prospectus, (ii) the Company's Certificate of Incorporation and Bylaws and (iii)
records of the Company's corporate proceedings relative to its organization and
to the issuance of the Common Stock.
We have examined originals, or copies identified to our satisfaction, of
such corporate records of the Company and have made such examinations of law as
we have deemed relevant. In our examination, we have assumed and have not
verified (i) the genuineness of all signatures, (ii) the authenticity of all
documents submitted to us as originals, (iii) the conformity with the originals
of all documents supplied to us as copies, and (iv) the accuracy and
completeness of all corporate records and documents and all certificates and
statements of fact, in each case given or made available to us by the Company.
We have relied upon certificates and other written documents from public
officials and government agencies and departments and we have assumed the
accuracy and authenticity of such certificates and documents.
Based upon the foregoing, and having a regard for such legal
considerations as we deem relevant, we are of the opinion that the Common Stock
will be, upon issuance, against payment therefore as contemplated in the
Registration Statement and the Prospectus, legally issued, fully paid and
non-assessable.
<PAGE>
We consent to the use of this opinion, to the incorporation by reference
of such opinion as an exhibit to the Registration Statement and to the reference
to our firm and our opinion under the heading "Legal Matters" in the
Registration Statement filed by the Company, and all amendments thereto. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Silver, Freedman & Taff, L.L.P.
-----------------------------------
Silver, Freedman & Taff, L.L.P.
2
EXHIBIT 8
<PAGE>
COBITZ, VANDENBERG & FENNESSY
CETIFIED PUBLIC ACCOUNTANTS
9944 South Roberts Road, Suite 202
Palos Hills, Illinois 60465
(708) 430-4306 - Fax (708) 430-4499
Board of Directors
Midland Federal Savings and
Loan Association
Midland Capital Holdings Corporation
New Bank
Bridgeview, Illinois
and
Office of Thrift Supervision
Washington, D.C.
We have been engaged by Midland Federal Savings and Loan Association,
Bridgeview, Illinois ("Midland") to report on the appropriate application of
generally accepted accounting principles to the specific transaction described
below. Our engagement has been conducted in accordance with standards
established by the American Institute of Certified Public Accountants.
We have reviewed the Merger Agreement and Plan of Reorganization
between Midland, Midland Capital Holdings Corporation (the "Corporation") and
New Bank ("New Bank"). The proposed transaction will involve the formation of
Midland Capital Holdings Corporation which will in turn acquire one share of New
Bank common stock and thus become the parent holding company for New Bank. New
Bank will then merge with and into Midland with Midland becoming the surviving
entity. The share of New Bank common stock will be converted into one share of
Midland common stock and the new Bank common stock will be canceled and cease to
be outstanding. Upon the effective date of the merger, each share of Midland
common stock outstanding, with the exception of one share held by the
Corporation, shall be converted and exchanged into one share of Corporation
common stock.
Based on our review of the proposed transaction, the appropriate
accounting for this transaction is at historical cost in a manner similar to
that utilized in a pooling-of-interests, which in our opinion is in accordance
with generally accepted accounting principles.
The ultimate responsibility for the decision on the appropriate
application of generally accepted accounting principles rests with the preparers
of the financial statements. Our judgement on the appropriate application of
generally accepted accounting principles for the described transaction is based
solely on the facts provided to us as described above; should these facts and
circumstances differ, our conclusion may change.
/s/ Cobitz, VandenBerg & Fennessy
-----------------------------
Cobitz, VandenBerg & Fennessy
April 30, 1998
Palos Hills, Illinois
EXHIBIT 10.1
<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
BANK INCENTIVE PLAN AND TRUST
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Midland Federal Savings and Loan Association (the "Association")
hereby adopts the Bank Incentive Plan (the "Plan") and Trust (the "Trust") as of
____________________, 1995 (the "Effective Date") upon the terms and conditions
hereinafter stated in this Plan and its accompanying Trust Agreement.
ARTICLE II
PURPOSE OF THE PLAN
2.01. The purpose of the Plan is to retain personnel of experience and
ability in key positions by providing board members, advisory directors,
directors emeritus and key employees with a proprietary interest in the
Association as compensation for their contributions to the Association and its
Affiliates and as an incentive to make such contributions in the future. The
total funding of this plan may not exceed an amount of shares equal to 3% of the
shares issued in the Association's conversion from mutual to stock form.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01. "Affiliate" means those subsidiaries or affiliates of the
Association which, with the consent of the Board, agree to participate in this
Plan.
3.02. "Beneficiary" means the person or persons designated by a
Participant to receive any benefits payable under the Plan in the event of such
Participant's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if
any, or, if none, his estate.
3.03. "Board" means the Board of Directors of the Association.
3.04. "Committee" means the Committee referred to in Section 4 hereof.
3.05. "Common Stock" means shares of the common stock, $.01 par value per
share, of the Association.
3.06. "Continuous Service" means the absence of any interruption or
termination of service as a Director, advisory director, director emeritus or
Employee. With respect to any director emeritus, Continuous Service shall mean
availability to perform such functions as may be required of the Association's
directors emeritis. Service shall not be considered interrupted in the case of
sick leave, military leave or any other leave of absence approved by the
Association or in the case of transfers between payroll locations of the
Association or between the Association and an Affiliate or successor.
<PAGE>
3.07. "Date of Grant" means the date on which the Committee grants a Plan
Share Award.
3.08. "Director" means a member of the Board who is not an Employee.
3.09. "Disability" means any physical or mental impairment which
qualifies an Employee or Director for disability benefits under any applicable
long-term disability plan maintained by the Association or an Affiliate, or, if
no such plan applies, which would render such Employee or Director, in the
judgment of the Board, unable to perform his or her customary duties and
responsibilities.
3.10. "Employee" means any person who is currently employed by the
Association or an Affiliate.
3.11. "Participant" means a Director, advisory director, director
emeritus or Employee who receives a Plan Share Award under the Plan.
3.12. "Plan Shares" means shares of Common Stock held in the Trust and
issued or issuable to a Participant pursuant to the Plan.
3.13. "Plan Share Award" or "Award" means a right granted under this Plan
to earn Plan Shares.
3.14. "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.03 and 5.04.
3.15. "Plan Year" means the fiscal year of the Association.
3.16. "Trustee" means the person(s) or entity approved by the Board
pursuant to Section 4.02 to hold legal title to the Plan assets for the purposes
set forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01. Role of the Committee. The Plan shall be administered by a
committee (the "Committee") consisting of two or more members of the Board each
of whom, within the prior year, has not been and is not being, granted any
Awards related to the Shares under this Plan or any other plan of the
Association or any of its affiliates except for Awards which (i) are calculated
in accordance with a formula as contemplated in paragraph (c)(2)(ii) of Rule
16b-3 under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"); (ii)
result from participation in an ongoing securities acquisition plan meeting the
conditions of paragraph (d)(2) of Rule 16b-3; or (iii) arise from election by a
Director to receive all or part of his board fees in securities. The members of
the Committee shall be appointed by the Board and shall serve as the pleasure of
the Board.
Except as limited by the express provisions of the Plan and applicable
regulations, the Committee shall have sole and complete authority and discretion
to (i) select Participants and grant Awards; (ii) determine the number of shares
to be subject to types of Awards generally, as well as to individual Awards
granted under the Plan; (iii) determine the terms and conditions upon which
Awards shall be granted under the Plan; (iv) prescribe the form and terms of
instruments evidencing such grants; and (v) establish from time to time
regulations for the administration of the Plan, interpret the Plan, and make all
determinations deemed necessary or advisable for the administration of the Plan.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
<PAGE>
The Committee shall report its actions and decisions, and the actions
taken by the Trustee, with respect to the Plan to the Board at appropriate
times, but in no event less than one time per calendar year.
4.02. Role of the Board. The Board shall appoint one or more independent
persons or independent entities to act as Trustee(s) in accordance with the
provisions of the Plan and Trust.
4.03. Limitation on Liability. The members of the Board and the Committee
and the Trustee(s) shall not be liable for any determination made in good faith
with respect to the Plan or any Plan Shares or Plan Share Awards granted under
it. If a member of the Board or the Committee or any Trustee is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of anything done or not done by him or her in such capacity under or with
respect to the Plan, the Association shall, subject to applicable OTS
regulations, indemnify such member or Trustee against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the Association and its Affiliates and,
with respect to any criminal action or proceeding, if he or she had no
reasonable cause to believe his or her conduct was unlawful.
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01. Amount and Timing of Contributions. The Board shall determine the
amounts (or the method of computing the amounts) to be contributed by the
Association and its Affiliates to the Trust established under this Plan. Such
amounts shall be paid to the Trustee(s) at the time of contribution. No
contributions by Employees, Directors or directors emeriti shall be permitted.
5.02. Investment of Contributions. Any amounts contributed to the Trust
shall be invested by the Trustee in such interest-bearing account or accounts at
the Association as the Trustee shall determine to be appropriate.
5.03. Investment of Trust Assets In Common Stock. The Trustee shall
invest substantially all of the Trust's assets exclusively in Common Stock. The
Trust may hold cash in interest bearing accounts pending investments in Common
Stock. Common Stock purchased by the Trustee shall be held in the trust (the
"Plan Share Reserve") until distributed pursuant to a Plan Share Award. Any
earnings received with respect to Common Stock held in the Plan Share Reserve
shall be held in an interest bearing account and allocated on the same basis as
the shares held in the Plan Share Reserve and shall be distributed when the
underlying Plan Shares are distributed.
5.04. Effect of Allocations, Returns and Forfeitures Upon Plan Share
Reserves. Upon the allocation of Plan Share Awards under Section 6.02, the Plan
Share Reserve shall be reduced by the number of Plan Shares so allocated and the
amount of earnings distributed to the Participants. Any shares subject to an
Award which may not be earned because of a forfeiture by the Participant
pursuant to Section 7.01 shall be returned to the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01. Eligibility. Employees, Directors, advisory directors and directors
emeriti are eligible to receive Plan Share Awards.
<PAGE>
6.02. Allocations to Employees. The Committee may determine which
Employees will be granted Plan Share Awards and the number of Plan Shares
covered by each Award; provided, however, that the number of Plan Shares covered
by such Awards may not exceed the number of Plan Shares in the Plan Share
Reserve immediately prior to the grant of such Awards, and provided further that
in no event shall any Awards be made which will violate the Charter or Bylaws of
the Association or any applicable Federal or State law or regulation. In the
event Plan Shares are forfeited for any reason, the Committee may, from time to
time, determine which Employees, Directors, advisory directors or directors
emeriti, if any, will be granted Plan Share Awards or additional Plan Share
Awards from forfeited Plan Shares. In selecting those Employees, Directors or
directors emeriti to whom Plan Share Awards will be granted and the number of
Plan Shares covered by such Awards, the Committee shall consider the positions
and responsibilities of the individuals, the value of their services to the
Association and its Affiliates, and any other factors the Committee may deem
relevant, and the Committee may request the recommendation of the Chief
Executive Officer and other senior executive officers of the Association and its
Affiliates.
6.03. Form of Allocation. As promptly as practicable after a
determination is made pursuant to Section 6.02 that a Plan Share Award is to be
issued, the Committee shall notify the Participant in writing of the grant of
the Award. The Committee shall also give the Participant a Payment Schedule, as
described in Section 2 of the Trust Agreement accompanying the Plan, which
Payment Schedule shall set forth, among other things, the number of Plan Shares
covered by the Award and the terms upon which the Plan Shares subject to the
Award may be earned. The Committee shall maintain records as to all grants of
Plan Share Awards under the Plan.
6.04. Allocations Not Required. Notwithstanding anything to the contrary
in Sections 6.01 and 6.02, no Employee, Director or director emeritus shall have
any right or entitlement to receive a Plan Share Award hereunder, such Awards
being at the total discretion of the Committee, nor shall the Employees,
Directors or directors emeriti as a group have such a right.
ARTICLE VII
VESTING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01. Vesting of Plan Shares; Forfeitures.
(a) General Rules. Plan Shares subject to an Award shall vest in five
equal annual installments during the five years beginning one year after the
Date of Grant (the "Restricted Period"), as long as the Participant maintains
Continuous Service after the Date of Grant of his or her Plan Share Award. If
the Continuous Service of a Participant is not maintained for any reason prior
to the date all of the Plan Shares subject to a Plan Share Award are vested,
(except as specifically provided in subsections (b) and (c) below), the
Participant shall forfeit any Plan Shares subject to the Award which have not
theretofore vested.
In determining the number of Plan Shares which vest, fractional shares
shall be rounded down to the nearest whole number, provided that such fractional
shares shall be aggregated and, to the extent that the aggregate represents
whole shares, shall vest on the date on which the last installment of Plan
Shares vests.
(b) Exception for Terminations Due to Death or Disability.
Notwithstanding the general rule contained in Section 7.01(a), all Plan Shares
subject to a Plan Share Award held by a Participant whose Continuous Service
terminates due to death or Disability shall vest as of the Participant's last
day of service with the Association or an Affiliate.
(c) Revocation for Misconduct. Notwithstanding anything herein to the
contrary, the Committee may by resolution immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously
<PAGE>
awarded under this Plan, to the extent Plan Shares have not been delivered
thereunder to the Participant, whether or not yet vested, in the case of a
Participant who is discharged from the employ or from membership on the Board of
the Association or an Affiliate or from service as a director emeritus for cause
(as hereinafter defined), or who is discovered after termination of employment
or termination of Board service to have engaged in conduct that would have
justified termination for cause. "Cause" is defined as personal dishonesty,
willful misconduct, any breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, or the willful violation of any
law, rule, regulation (other than traffic violations or similar offenses) or a
final cease and desist order.
7.02. Accrual of Dividends, Interest and Other Earnings. Whenever
dividends, interest or other earnings are paid with respect to Plan assets
allocated to a Participant, such dividends, interest or other earnings shall be
held in trust and shall be distributed when the Plan Shares or other assets with
respect to which they are declared and paid, or otherwise earned or allocated to
the Participant, are distributed.
7.03. Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Except as provided in
subsection (b) below, Plan Shares shall be distributed to the Participant or his
Beneficiary, as the case may be, as soon as practicable after they have vested.
(b) Timing: Exception for 10% Stockholders. Notwithstanding subsection
(a) above, no Plan Shares will be distributed to the extent that, after such
distribution, a Participant or Beneficiary would own 10% or more of the
outstanding Common Stock if the Trustee believes in his discretion that such
person is or would be in violation of any applicable charter provision or
regulatory restriction regarding the change in control of a thrift institution.
(c) Form of Distribution. All Plan Shares shall be distributed in the
form of Common Stock. One share of Common Stock shall be given for each Plan
Share earned and payable with fractional shares paid out in accordance with
paragraph 7.01(a). Payments representing accumulated cash dividends, interest or
other earnings shall be made in cash.
(d) Withholding. The Trustee shall, if necessary, withhold from any
payment or distribution made under this Plan sufficient shares of Common Stock
to cover any applicable withholding and employment taxes, and if the amount of
such withholding is insufficient, the Trustee may require the Participant or
Beneficiary to pay to the Trustee the amount required to be withheld as a
condition of delivering the Plan Shares. The Trustee shall pay over to the
Association or the Affiliate which employs or employed such Participant, or
which such Participants served as a Director or director emeritus, any such
shares or amount withheld from or paid by the Participant or Beneficiary.
7.04. Voting of Plan Shares. All shares of Common Stock held by the Trust
which are not yet distributed to a Participant shall be voted by the Trustee.
ARTICLE VIII
TRUST
8.01. Trust. The Trust Agreement by and between the Association and
Midwest Trust Services, Inc., together with any and all amendments or
supplements thereto, is intended to be and hereby is incorporated by reference
into the Plan and for all purposes shall be deemed a part of the Plan. The
Trustee shall receive, hold, administer, invest and make distributions and
disbursements from the Trust in accordance with the provisions
<PAGE>
of the Plan and Trust and the applicable directions, rules, regulations,
procedures and policies established pursuant to the Plan.
ARTICLE IX
MISCELLANEOUS
9.01. Adjustments for Capital Changes. The aggregate number of Plan
Shares available for issuance pursuant to the Plan Share Awards and the number
of shares to which any Plan Share Award relates shall be proportionately
adjusted for any increase or decrease in the total number of outstanding shares
of Common Stock resulting from any split, subdivision or consolidation of shares
or other capital adjustment, or other increase or decrease in such shares
effected without receipt or payment of consideration by the Association.
(a) Adjustments Upon Changes in Capitalization. In the event of any
change in the outstanding shares of Common Stock subsequent to the Effective
Date of the Plan by reason of any reorganization, recapitalization, stock split,
stock dividend, combination or exchange of shares, merger, consolidation or any
change in the corporate structure or Common Stock of the Association, the
maximum aggregate number and class of Common Stock which may be granted under
the Plan and the number and class of Common Stock with respect to which
theretofore have been granted under the Plan shall be appropriately adjusted by
the Committee, whose determination shall be conclusive.
(b) Effect of Change in Control. Each of the events specified in the
following clauses (i) through (iii) of this Section 10.01(b) shall be deemed a
"change of control": (i) any third person, other than Paul Zogas, Charles Zogas,
Bruce Kannry and Theodore Stux including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, shall become the beneficial
owner of shares of the Association with respect to which 25% or more of the
total number of votes which may be cast for the election of the Board of
Directors of the Association, (ii) as a result of, or in connection with, any
cash tender offer, merger or other business combination, sale of assets or
contested election, or combination of the foregoing, the persons who were
directors of the Association shall cease to constitute a majority of the Board
of Directors of the Association, or (iii) the shareholders of the Association
shall approve an agreement providing either for a transaction in which the
Association will cease to be an independent publicly owned entity or for a sale
or other disposition of all or substantially all the assets of the Association.
If the Continuous Service of any Participant of the Association is involuntarily
terminated for whatever reason, at any time within twelve months after a change
in control, unless the Committee shall have otherwise provided, all Common Stock
awarded shall become fully vested in the Participant to whom such Common Stock
were awarded.
9.02. Amendment and Termination of Plan. The Board may, by resolution,
at any time amend or terminate the Plan, provided that the Plan may not be
amended more than once in any six-month period. with respect to Awards
calculated in accordance with a formula as contemplated by paragraph (c)(2)(ii)
of Rule 16b- 3, other than to comport with changes in the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code") or the Employee Retirement
Income Security Act ("ERISA"). The power to amend or terminate shall include the
power to direct the Trustee to return to the Association all or any part of the
assets of the Trust, including shares of Common Stock held in the Plan Share
Reserve, subject, however, to Sections 4 and 12 of the Trust. Furthermore, the
termination of the Plan shall not affect a Participant's right to the
distribution of Common Stock relating to Plan Share Awards previously granted,
whether or not yet earned, including dividends, interest and earnings thereon,
in accordance with the terms of this Plan and the grant by the Committee or
Board.
9.03. Nontransferable. Plan Share Awards and rights to Plan Shares
shall not be transferable or assignable by a Participant, other than by will or
by the laws of descent and distribution or pursuant to a
<PAGE>
qualified domestic relations order as defined by the Internal Revenue Code or
ERISA or the rules thereunder. No Participant or Beneficiary shall have any
right in or claim to any assets of the Plan or Trust, nor shall the Association
or any Affiliate be subject to any claim for benefits hereunder.
9.04. Employment and Board Membership Rights. Neither the Plan nor any
grant of a Plan Share Award or Plan Shares hereunder nor any action taken by the
Trustee, the Committee or the Board in connection with the Plan shall create any
right on the part of any Participant to continue in the employ or on the Board
of the Association or any Affiliate thereof, or to continue service as a
director emeritus.
9.05. Voting and Dividend Rights. No Participant shall have any voting
or dividend rights or other rights of a stockholder in respect of any Plan
Shares covered by a Plan Share Award prior to the time said Plan Shares are
actually distributed to him.
9.06. Term of Plan. This Plan shall remain in effect until the earlier
of: (i) 21 years from the Effective Date, (ii) termination by the Board, or
(iii) the distribution of all assets of the Trust. Termination of the Plan shall
not affect any Plan Share Awards previously granted, and such Awards shall
remain valid and in effect until they have been earned and paid, or by their
terms expire or are forfeited.
IN WITNESS WHEREOF, the Association has caused this Plan to be executed
by its duly authorized officers and duly attested, as of the ____ day of
___________, 19__.
ATTEST: By: /s/Paul Zogas
-------------
Paul Zogas, President and Chairman
of the Board
/s/Charles A. Zogas
- -------------------
Charles A. Zogas, Executive Vice
President, Treasurer and Secretary
<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
BANK INCENTIVE PLAN AND TRUST
VESTING SCHEDULE
Name of Participant: Paul Zogas
Number of Plan Shares Awarded: 4,312.50
Date of Grant: November 20, 1995 4,312.50
----------------- ------------------
Date No. Shares to Vest
Vesting Schedule:
November 20, 1996 862.50 shares
November 20, 1997 862.50 shares
November 20, 1998 862.50 shares
November 20, 1999 862.50 shares
November 20, 2000 862.50 shares
Vested Plan Shares shall be distributed on the date on which they become vested
or, if such date is a holiday, on the first date thereafter. The dividends,
interest and other earnings paid with respect to such vested Plan Shares shall
be distributed concurrently with such vested Plan Shares. The distribution of
vested Plan Shares and any dividends, interest and other earnings shall be
subject to withholding pursuant to Section 7.03(d) of the Plan.
<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
BANK INCENTIVE PLAN AND TRUST
VESTING SCHEDULE
Name of Participant: Charles Zogas
Number of Plan Shares Awarded: 4,312.50
Date of Grant: November 20, 1995 4,312.50
----------------- ------------------
Date No. Shares to Vest
Vesting Schedule:
November 20, 1996 862.50 shares
November 20, 1997 862.50 shares
November 20, 1998 862.50 shares
November 20, 1999 862.50 shares
November 20, 2000 862.50 shares
Vested Plan Shares shall be distributed on the date on which they become vested
or, if such date is a holiday, on the first date thereafter. The dividends,
interest and other earnings paid with respect to such vested Plan Shares shall
be distributed concurrently with such vested Plan Shares. The distribution of
vested Plan Shares and any dividends, interest and other earnings shall be
subject to withholding pursuant to Section 7.03(d) of the Plan.
<PAGE>
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
BANK INCENTIVE PLAN AND TRUST
VESTING SCHEDULE
Name of Participant: Richard Taylor
Number of Plan Shares Awarded: 1,725
Date of Grant: November 20, 1995 1,725
------------------- -----------------
Date No. Shares to Vest
Vesting Schedule:
November 20, 1996 345 shares
November 20, 1997 345 shares
November 20, 1998 345 shares
November 20, 1999 345 shares
November 20, 2000 345 shares
Vested Plan Shares shall be distributed on the date on which they become vested
or, if such date is a holiday, on the first date thereafter. The dividends,
interest and other earnings paid with respect to such vested Plan Shares shall
be distributed concurrently with such vested Plan Shares. The distribution of
vested Plan Shares and any dividends, interest and other earnings shall be
subject to withholding pursuant to Section 7.03(d) of the Plan.
EXHIBIT 10.2
<PAGE>
Midland Federal Savings and Loan Association
1993 Stock Option and Incentive Plan
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Association and its stockholders by providing a means for
attracting and retaining directors, officers and employees of the Association
and its Affiliates. It is intended that designated Options granted pursuant to
the provisions of this Plan to persons employed by the Association or any of its
subsidiaries will qualify as Incentive Stock Options. Options granted to persons
who are not employees will be Non-Qualified Stock Options.
2. Definitions. The following definitions are applicable to the Plan:
"Affiliate" - means any "parent corporation" or "subsidiary
corporation" of the Association, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
"Award" - means the grant of an Incentive Stock Option, a
Non-Qualified Stock Option, a Stock Appreciation Right, a Limited Stock
Appreciation Right or any combination thereof, as provided in the Plan.
"Association" - means Midland Federal Savings and Loan
Association, and its predecessors and successors.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee referred to in Section 3
hereof.
"Continuous Service" - means the absence of any interruption
or termination of service as a director, director emeritus, advisory director,
officer or employee of the Association or an Affiliate, except that when used
with respect to options which at the time of exercise are intended to be
Incentive Stock Options, continuous service means the absence of any
interruption or termination of service as an employee of the Association or an
Affiliate. With respect to any director emeritus or advisory director,
continuous service shall mean availability to perform such functions as may be
required of the Association's directors emeritus or advisory directors, as the
case may be. Service shall not be considered interrupted in the case of sick
leave, military leave or any other leave of absence approved by the Association
or in the case of transfers between payroll locations of the Association or
between the Association, its parent, its subsidiaries or its successor.
<PAGE>
"Disinterested Person" - means any member of the Board of
Directors of the Association who within the prior year has not been, and is not
being, granted any awards related to the Shares under this Plan or any other
plan of the Association or any of its Affiliates except for awards which (i) are
calculated in accordance with a formula as contemplated in paragraph (c)(ii) of
Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of 1934; (ii) result
from participation in an ongoing securities acquisition plan meeting the
conditions of paragraph (d)(2) of Rule 16b-3; or, (iii) arise from an election
by a director to receive all or part of his board fees in securities. No
recipient of a stock award granted pursuant to Section 20 hereof shall be deemed
not to be a Disinterested Person solely by reason of such grant.
"Employee" - means any person, including an officer or
director, who is employed by the Association or any Affiliate.
"ERISA" - means the Employee Retirement Income Security Act of
1974, as amended.
"Exercise Price" - means (i) in the case of an Option, the
price per Share at which the Shares subject to such Option may be purchased upon
exercise of such Option and (ii) in the case of a Right, the price per Share
(other than the Market Value per Share on the date of exercise and the Offer
Price per Share as defined in Section 10 hereof) which, upon grant, the
Committee determines shall be utilized in calculating the aggregate value which
a Participant shall be entitled to receive pursuant to Sections 9, 10 or 12
hereof upon exercise of such Right.
"Incentive Stock Option" - means an option to purchase Shares
granted by the Committee pursuant to Section 6 hereof which is subject to the
limitations and restrictions of Section 8 hereof and is intended to qualify
under Section 422 of the Code.
"Limited Stock Appreciation Right" - means a stock
appreciation right with respect to Shares granted by the Committee pursuant to
Sections 6 and 10 hereof.
"Market Value" - means the average of the high and low quoted
sales price on the date in question (or, if there is no reported sale on such
date, on the last preceding date on which any reported sale occurred) of a Share
on the Composite Tape for the New York Stock Exchange-Listed Stocks, or, if on
such date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and low asked quotations with
respect to a Share on such date on the National Association of Securities
Dealers, Inc., Automated Quotations System, or any similar system then in use,
or, if no such quotations are available, the fair market value on such date of a
Share as the Committee shall determine.
"Non-Qualified Stock Option" - means an option to purchase
Shares granted by the Committee pursuant to Section 6 hereof, which option is
not intended to qualify under Section 422 of the Code.
"Option" - means an Incentive Stock Option or a NonQualified
Stock Option.
"Participant" - means any officer or employee of the
Association or any Affiliate who is selected by the Committee to receive an
Award and any director, director emeritus or advisory director of the
Association who is granted an Award pursuant to Section 20 hereof.
"Plan" - means the 1993 Stock Option and Incentive Plan of the
Association.
2
<PAGE>
"Related" - means (i) in the case of a Right, a Right which is
granted in connection with, and to the extent exercisable, in whole or in part,
in lieu of, an Option or another Right and (ii) in the case of an Option, an
Option with respect to which and to the extent a Right is exercisable, in whole
or in part, in lieu thereof has been granted.
"Right" - means a Limited Stock Appreciation Right or a Stock
Appreciation Right.
"Shares" - means the shares of common stock of the
Association.
"Senior Officer" - means the Association's president,
principal financial officer, or principal accounting officer, any vice president
of the Association in charge of a principal business unit, division or function
(such as lending, savings, administration or finance), any other officer who
performs a policy-making function, or any other person who performs similar
policy-making functions for the Association. Officers of the Association's
Affiliates shall be deemed senior officers of the Association if they perform
such policy-making functions for the Association.
"Stock Appreciation Right" - means a stock appreciation right
with respect to Shares granted by the Committee pursuant to Sections 6 and 9
hereof.
"Ten Percent Beneficial Owner" - means the beneficial owner of
more than ten percent of any class of the Association's equity securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934.
3. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Disinterested Person.
The members of the Committee shall be appointed by the Board of Directors of the
Association. Except as limited by the express provisions of the Plan, the
Committee shall have sole and complete authority and discretion to (i) select
Participants and grant Awards; (ii) determine the number of Shares to be subject
to types of Awards generally, as well as to individual Awards granted under the
Plan; (iii) determine the terms and conditions upon which Awards shall be
granted under the Plan; (iv) prescribe the form and terms of instruments
evidencing such grants; and (v) establish from time to time regulations for the
administration of the Plan, interpret the Plan, and make all determinations
deemed necessary or advisable for the administration of the Plan. The Committee
may maintain, and update from time to time as appropriate, a list designating
selected directors as Disinterested Persons. The purpose of such list shall be
to evidence the status of such individuals as Disinterested Persons, and the
Board of Directors may appoint to the Committee any individual actually
qualifying as a Disinterested Person, regardless of whether identified as such
on said list.
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be acts of the Committee.
4. Participation in Committee Awards. The Committee may select from
time to time Participants in the Plan from those directors, officers and
employees (other than Disinterested Persons), of the Association or its
Affiliates who, in the opinion of the Committee, have the capacity for
contributing to the successful per formance of the Association or its
Affiliates.
5. Shares Subject to Plan. Subject to adjustment by the operation of
Section 11 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 10% of the total Shares issued in the Association's
conversion to the capital stock form. The Shares with respect to which Awards
may be made under the Plan may be either authorized and unissued shares or
issued shares heretofore
3
<PAGE>
or hereafter reacquired and held as treasury shares. Shares which are subject to
Related Rights and Related Options shall be counted only once in determining
whether the maximum number of Shares with respect to which Awards may be granted
under the Plan has been exceeded. An Award shall not be considered to have been
made under the Plan with respect to any Option or Right which terminates and new
Awards may be granted under the Plan with respect to the number of Shares as to
which such termination or forfeiture has occurred.
6. General Terms and Conditions of Options and Rights. The Committee
shall have full and complete authority and discretion, except as expressly
limited by the Plan, to grant Options and/or Rights and to provide the terms and
conditions (which need not be identical among Participants) thereof. In
particular, the Committee shall prescribe the following terms and conditions:
(i) the Exercise Price of any Option or Right, which shall not be less than the
Market Value per Share at the date of grant of such Option or Right, except as
set forth in Section 20 hereof, (ii) the number of Shares subject to, and the
expiration date of, any Option or Right, which expiration date shall not exceed
ten years from the date of grant, (iii) the manner, time and rate (cumulative or
otherwise) of exercise of such Option or Right, and (iv) the restrictions, if
any, to be placed upon such Option or Right or upon Shares which may be issued
upon exercise of such Option or Right. The Committee may, as a condition of
granting any Option or Right, require that a Participant agree not to thereafter
exercise one or more Options or Rights previously granted to such Participant.
No Employee may be granted an Option by the Committee which, in the aggregate,
exceeds 25% of the Options allocated by the Plan.
7. Exercise of Options or Rights.
(a) An Option or Right granted under the Plan shall be
exercisable during the lifetime of the Participant to whom such Option or Right
was granted only by such Participant and, except as provided in paragraphs (c)
and (d) of this Section 7, no such Option or Right may be exercised unless at
the time such Participant exercises such Option or Right, such Participant has
maintained Continuous Service since the date of grant of such Option or Right.
Cash settlements of Rights may be made only in accordance with any applicable
restrictions pursuant to Rule 16b-3(e) under the Securities Exchange Act of 1934
or any similar or successor provision.
(b) To exercise an Option or Right under the Plan, the
Participant to whom such Option or Right was granted shall give written notice
to the Association in form satisfactory to the Committee (and, if partial
exercises have been permitted by the Committee, by specifying the number of
Shares with respect to which such Participant elects to exercise such Option or
Right) together with full payment of the Exercise Price, if any and to the
extent required. The date of exercise shall be the date on which such notice is
received by the Association. Payment, if any is required, shall be made either
(i) in cash (including check, bank draft or money order) or (ii) if permitted by
the Committee, by delivering (A) Shares already owned by the Participant and
having a fair market value equal to the applicable exercise price, such fair
market value to be determined in such appropriate manner as may be provided by
the Committee or as may be required in order to comply with or to conform to
requirements of any applicable laws or regulations, or (B) a combination of cash
and such Shares.
(c) If a Participant to whom an Option or Right was granted
shall cease to maintain Continuous Service for any reason (including total or
partial disability and normal or early retirement, but excluding death and
termination of employment by the Association or any Affiliate for cause), such
Participant may, but only within the period of three months immediately
succeeding such cessation of Continuous Service and in no event after the
expiration date of such Option or Right, exercise such Option or Right to the
extent that such Participant was entitled to exercise such Option or Right at
the date of such cessation, provided, however, that such right of exercise after
cessation of Continuous Service shall not be available to a Participant if the
Committee otherwise determines and so provides in the applicable instrument or
instruments evidencing the
4
<PAGE>
grant of such Option or Right. Notwithstanding the foregoing, if a Participant
to whom an Option or Right was granted shall cease to maintain Continuous
Service due to normal retirement, and such Participant has served the
Association for at least ten years, such Option or Right granted to such
Participant shall become immediately exercisable, and the Participant may
exercise such Option or Right, but only during the shortest of the following
periods (i) the one year period immediately succeeding such cessation of
Continuous Service, (ii) the period remaining until the expiration of such
Option or Right or (iii), if the Participant does not assume a position with a
competitor of the Association's, the period, not to exceed three years, after
the Participant ceases to maintain continuous service during which he remains
available for at least one day per month to consult and advise with the
Association for an appropriate fee. If the Continuous Service of a Participant
to whom an Option or Right was granted by the Association is terminated for
cause, all rights under any Option or Right of such Participant shall expire
immediately upon the giving to the Participant of notice of such termination.
(d) In the event of the death of a Participant while in the
Continuous Service of the Association or an Affiliate or within the three month
and one year periods referred to in paragraph (c) of this Section 7, the person
to whom any Option or Right held by the Participant at the time of his death is
transferred by will or the laws of descent and distribution may, but only to the
extent such Participant was entitled to exercise such Option or Right
immediately prior to his death, exercise such Option or Right at any time within
a period of one year succeeding the date of death of such Participant, but in no
event later than ten years from the date of grant of such Option or Right.
Following the death of any Participant to whom an Option was granted under the
Plan, irrespective of whether any Related Right shall have theretofore been
granted to the Participant or whether the person entitled to exercise such
Related Right desires to do so, the Committee may, as an alterna tive means of
settlement of such Option, elect to pay to the person to whom such Option is
transferred by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code or Title I of the
ERISA or the rules thereunder, the amount by which the Market Value per Share on
the date of exercise of such Option shall exceed the Exercise Price of such
Option, multiplied by the number of Shares with respect to which such Option is
properly exercised. Any such settlement of an Option shall be considered an
exercise of such Option for all purposes of the Plan.
8. Incentive Stock Options. Incentive Stock Options may be granted only
to Participants who are Employees. Any provision of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the
Association and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (ii) the Exercise
Price of any Incentive Stock Option shall not be less than the Market Value per
Share on the date such Incentive Stock Option is granted, (iii) any Incentive
Stock Option shall not be transferable by the Participant to whom such Incentive
Stock Option is granted other than by will or the laws of descent and
distribution and shall be exercisable during such Participant's lifetime only by
such Participant, (iv) no Incentive Stock Option shall be granted to any
individual who, at the time such Incentive Stock Option is granted, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Association or any Affiliate unless the Exercise Price
of such Incentive Stock Option is at least 110 percent of the Market Value per
Share at the date of grant and such Incentive Stock Option is not exercisable
after the expiration of five years from the date such Incentive Stock Option is
granted, and (v) the aggregate Market Value (determined as of the time any
Incentive Stock Option is granted) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by a Participant in any
calendar year shall not exceed $100,000.
9. Stock Appreciation Rights. A Stock Appreciation Right shall, upon
its exercise, entitle the Participant to whom such Stock Appreciation Right was
granted to receive a number of Shares or cash or combination thereof, as the
Committee in its discretion shall determine, the aggregate value of which (i.e.,
the sum of the amount of cash and/or Market Value of such Shares on date of
exercise) shall equal (as nearly as
9
<PAGE>
possible, it being understood that the Association shall not issue any
fractional shares) the amount by which the Market Value per Share on the date of
such exercise shall exceed the Exercise Price of such Stock Appreciation Right,
multiplied by the number of Shares with respect to which such Stock Appreciation
Right shall have been exercised. A Stock Appreciation Right may be Related to an
Option or may be granted independently of any Option as the Committee shall from
time to time in each case determine. At the time of grant of an Option the
Committee shall determine whether and to what extent a Related Stock
Appreciation Right shall be granted with respect thereto; provided, however, and
notwithstanding any other provision of the Plan, that if the Related Option is
an Incentive Stock Option, the Related Stock Appreciation Right shall satisfy
all the restrictions and limitations of Section 8 hereof as if such Related
Stock Appreciation Right were an Incentive Stock Option and as if other rights
which are Related to Incentive Stock Options were Incentive Stock Options. In
the case of a Related Option, such Related Option shall cease to be exercisable
to the extent of the Shares with respect to which the Related Stock Appreciation
Right was exercised. Upon the exercise or termination of a Related Option, any
Related Stock Appreciation Right shall terminate to the extent of the Shares
with respect to which the Related Option was exercised or terminated.
Notwithstanding the foregoing, no Stock Appreciation Right shall be exercisable
by a Ten Percent Beneficial Owner, director or Senior Officer of the Association
within six months of the date of its grant.
10. Limited Stock Appreciation Rights. At the time of grant of an
Option or Stock Appreciation Right to any Participant, the Committee shall have
full and complete authority and discretion to also grant to such Participant a
Limited Stock Appreciation Right which is Related to such Option or Stock
Appreciation Right; provided, however and notwithstanding any other provision of
the Plan, that if the Related Option is an Incentive Stock Option, the Related
Limited Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Limited Stock Appreciation
Right were an Incentive Stock Option and as if all other Rights which are
Related to Incentive Stock Options were Incentive Stock Options. Notwithstanding
any other provision of the Plan, a Limited Stock Appreciation Right shall be
exercisable only during the period beginning on the first day following the date
of expiration of any "offer" (as such term is hereinafter defined) and ending on
the forty-fifth day following such date, provided, however, that no Limited
Stock Appreciation Right shall be exercisable by a Ten Percent Beneficial Owner,
director or Senior Officer of the Association within six months of the date of
its grant.
A Limited Stock Appreciation Right shall, upon its exercise, entitle
the Participant to whom such Limited Stock Appreciation Right was granted to
receive an amount of cash equal to the amount by which the "Offer Price per
Share" (as such term is hereinafter defined) or the Market Value on the date of
such exercise, as shall have been provided by the Committee in its discretion at
the time of grant, shall exceed the Exercise Price of such Limited Stock
Appreciation Right, multiplied by the number of Shares with respect to which
such Limited Stock Appreciation Right shall have been exercised. Upon the
exercise of a Limited Stock Appreciation Right, any Related Option and/or
Related Stock Appreciation Right shall cease to be exercisable to the extent of
the Shares with respect to which such Limited Stock Appreciation Right was
exercised. Upon the exercise or termination of a Related Option or Related Stock
Appreciation Right, any Related Limited Stock Appreciation Right shall terminate
to the extent of the Shares with respect to which such Related Option or Related
Stock Appreciation Right was exercised or terminated.
For the purposes of this Section 10, the term "Offer" shall mean any
tender offer or exchange offer for Shares other than one made by the
Association, provided that the corporation, person or other entity making the
offer acquires pursuant to such offer either (i) 25% of the Shares outstanding
immediately prior to the commencement of such offer or (ii) a number of Shares
which, together with all other Shares acquired in any tender offer or exchange
offer (other than one made by the Association) which expired within sixty days
of the expiration date of the offer in question, equals 25% of the Shares
outstanding immediately prior to the commencement of the offer in question. The
term "Offer Price per Share" as used in this Section 10 shall mean the highest
price per Share paid in any Offer which Offer is in effect any time during the
period beginning on
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the sixtieth day prior to the date on which a Limited Stock Appreciation Right
is exercised and ending on the date on which such Limited Stock Appreciation
Right is exercised. Any securities or property which are part or all of the
consideration paid for Shares in the Offer shall be valued in determining the
Offer Price per Share at the higher of (A) the valuation placed on such
securities or property by the corporation, person or other entity making such
Offer or (B) the valuation placed on such securities or property by the
Committee.
11. Adjustments Upon Changes in Capitalization. In the event of any
change in the outstanding Shares subsequent to the effective date of the Plan by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Association, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number and class of shares with respect to which Awards theretofore have been
granted under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive.
12. Effect of Merger on Options or Rights. In the event of any merger
or consolidation of the Association (other than a merger or consolidation in
which the Association is the continuing entity and which does not result in the
outstanding Shares being converted into or exchanged for different securities,
cash or other property, or any combination thereof) pursuant to a plan or
agreement the terms of which are binding upon all stockholders of the
Association (except to the extent that dissenting stockholders may be entitled,
under statutory provisions or provisions contained in the charter, to receive
the appraised or fair value of their holdings), any Participant to whom an
Option or Right has been granted at least 6 months prior to such event shall
have the right (subject to the provisions of the Plan and any limitation
applicable to such Option or Right), thereafter and during the term of each such
Option or Right, to receive upon exercise of any such Option or Right an amount
equal to the excess of the fair market value on the date of such exercise of the
securities, cash or other property, or combination thereof, receivable upon such
merger, consolidation or combination in respect of a Share over the Exercise
Price of such Right or Option, multiplied by the number of Shares with respect
to which such Option or Right shall have been exercised. Such amount may be
payable fully in cash, fully in one or more of the kind or kinds of property
payable in such merger, consolidation or combination, or partly in cash and
partly in one or more of such kind or kinds of property, all in the discretion
of the Committee.
13. Effect of Change in Control. Each of the events specified in the
following clauses (i) through (iii) of this Section 13 shall be deemed a "change
of control": (i) any third person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, shall become the beneficial
owner of shares of the Association with respect to which 25% or more of the
total number of votes for the election of the Board of Directors of the
Association may be cast, (ii) as a result of, or in connection with, any cash
merger or other business combination, sale of assets or contested election, or
combination of the foregoing, the persons who were directors of the Association
immediately prior thereto shall cease to constitute a majority of the Board of
Directors of the Association or (iii) the shareholders of the Association shall
approve an agreement providing either for a transaction in which the Association
will cease to be an independent publicly owned entity or for a sale or other
disposition of all or substantially all the assets of the Association; provided,
however, that the occurrence of any such events shall not be deemed a "change in
control" if, prior to such occurrence, a res olution specifically approving such
occurrence shall have been adopted by at least a majority of the Board of
Directors of the Association. If a tender offer or exchange offer for Shares
(other than such an offer by the Association) is commenced and an appropriate
filing is made with the Office of Thrift Supervision and the Association has
received an indication that such filing will be approved, or if the event
specified in clause (iii) above shall occur, unless the Committee shall have
otherwise provided in the instrument evidencing the grant of an Option or Stock
Appreciation Right, all Options and Stock Appreciation Rights theretofore
granted and not fully exercisable shall become exercisable in full upon the
happening of such event and shall remain so exercisable for a period of sixty
days following such date, after which they shall revert to being exercisable in
accordance with their terms; provided, however, that no Option or Stock
Appreciation Right shall be ex
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ercisable by a Ten Percent Beneficial Owner, director or Senior Officer of the
Association within six months of the date of grant of such Option or Stock
Appreciation Right and no Option or Stock Appreciation Right which has
previously been exercised or otherwise terminated shall become exercisable.
14. Assignments and Transfers. No Award nor any right or interest of a
Participant under the Plan in any instrument evidencing any Award under the Plan
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution or in the case of
an Award other than an Incentive Stock Option, pursuant to a qualified domestic
relations order as defined in the Code or Title I of the ERISA or the rules
thereunder.
15. Employee Rights Under the Plan. No director, officer or employee
shall have a right to be selected as a Participant nor, having been so selected,
to be selected again as a Participant and no director, officer, employee or
other person shall have any claim or right to be granted an Award under the Plan
or under any other incentive or similar plan of the Association or any
Affiliate. Neither the Plan nor any action taken thereunder shall be construed
as giving any employee any right to be retained in the employ of the Association
or any Affiliate.
16. Delivery and Registration of Stock. The Association's obligation to
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provisions of the Securities Act of 1933 or any other Federal, state or local
securities legislation or regulation. It may be provided that any representation
requirement shall become inoperative upon a registration of the Shares or other
action eliminating the necessity of such representation under such Securities
Act or other securities legislation. The Association shall not be required to
deliver any Shares under the Plan prior to (i) the admission of such shares to
listing on any stock exchange on which Shares may then be listed, and (ii) the
completion of such registration or other qualification of such Shares under any
state or Federal law, rule or regulation, as the Committee shall determine to be
necessary or advisable.
This Plan is intended to comply with Rule 16b-3 under the Securities
Exchange Act of 1934. Any provision of the Plan which is inconsistent with said
Rule shall, to the extent of such inconsistency, be inoperative and shall not
affect the validity of the remaining provisions of the Plan.
17. Withholding Tax. The Association shall have the right to deduct
from all amounts paid in cash with respect to the exercise of a Right under the
Plan any taxes required by law to be withheld with respect to such cash
payments. Where a Participant or other person is entitled to receive Shares
pursuant to the exercise of an Option or Right pursuant to the Plan, the
Association shall have the right to require the Participant or such other person
to pay the Association the amount of any taxes which the Association is required
to withhold with respect to such Shares, or, in lieu thereof, to retain, or sell
without notice, a number of such Shares sufficient to cover the amount required
to be withheld.
18. Amendment or Termination. The Board of Directors of the Association
may amend, suspend or terminate the Plan or any portion thereof at any time, but
(except as provided in Section 11 hereof) no amendment shall be made without
approval of the stockholders of the Association which shall (i) materially
increase the aggregate number of Shares with respect to which Awards may be made
under the Plan, (ii) materially increase the aggregate number of Shares which
may be subject to Awards to Participants who are not Employees or (iii) change
the class of persons eligible to participate in the Plan; provided, however,
that no such amendment, suspension or termination shall impair the rights of any
Participant, without his consent, in any Award theretofore made pursuant to the
Plan.
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Notwithstanding anything in this Plan to the contrary, to the extent
that the Plan provides for formula awards, as defined in Rule 16b-3(c)(2)(ii)
under the Securities Exchange Act of 1934, such provisions may not be amended
more than once every six months, other than to comport with changes in the Code,
ERISA or the rules thereunder.
19. Effective Date and Term of Plan. The Plan shall become effective
upon its adoption by the Board of Directors of the Association, subject to the
Association converting to a stock institution and approval of the Plan by vote
of the Association's shareholders. It shall continue in effect for a term of ten
years unless sooner terminated under Section 18 hereof.
20. Director Grants. By, and simultaneously with the adoption of this
Plan, each member of the Board of Directors of the Association at the time of
the Association's conversion to stock form who is not a Employee, is hereby
granted Options to purchase an amount of shares equal to 1/2% of the shares
issued in the mutual to stock conversion of the Association. In addition, each
non-employee director of the Association elected after the completion of the
Association's conversion to stock form is hereby granted (as of the date he or
she is elected and qualified) options on an equal number of shares at the then
applicable market price, subject to availability. Each such Option shall be
evidenced by a Non-Qualified Stock Option Agreement in a form approved by the
Board of Directors and shall be subject in all respects to the terms and
conditions of this Plan, which are controlling. All Options granted pursuant to
this Section 20 shall be rounded down to the nearest whole share to the extent
necessary to ensure that no Options to purchase representing fractional shares
are issued.
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EXHIBIT 10.3
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this 30th day of June, 1993, by and between MIDLAND FEDERAL SAVINGS AND LOAN
ASSOCIATION, a federally chartered savings and loan association (which, together
with any successor thereto which executes and delivers the assumption agreement
provided for in Section 11(a) hereof or which otherwise becomes bound by the
terms and provisions of this Agreement by operation of law, is hereinafter
referred to as the "Association"), and Paul Zogas (the "Employee") whose
residence address is 22 South Quincy Street, Hinsdale, Illinois 60521.
WHEREAS, the Employee is currently serving as a Director, and the
President and Chief Executive Officer of the Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert to capital stock form; and
WHEREAS, the Board of Directors of the Association recognizes that, as
is the case with publicly held corporations generally, the possibility of a
change in control of the Association may exist and that such possibility, and
the uncertainty and questions which it may raise among management, may result in
the departure or distraction of key management personnel to the detriment of the
Association and its stockholders; and
WHEREAS, the Board of Directors of the Association believes it is in
the best interests of the Association to enter into this Agreement with the
Employee in order to assure continuity of management of the Association and to
reinforce and encourage the continued attention and dedication of the Employee
to his assigned duties without distraction in the face of potentially
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disruptive circumstances arising from the possibility of a change in control of
the Association, although no such change is now contemplated; and
WHEREAS, the Board of Directors of the Association has approved and
authorized the execution of this Agreement with the Employee to take effect as
stated in Section 4 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, it is AGREED as
follows:
1. Employment. The Employee is employed as the President and Chief
Executive Officer of the Association with supervision and control of, under the
direction of the Board of Directors of the Association, and with such other
powers and duties as may from time to time be prescribed by the Board, provided
that such duties are consistent with the Employee's position as President and
Chief Executive Officer. The Employee shall continue to devote his best efforts
to the business and affairs of the Association and its subsidiaries and
affiliated companies.
2. Compensation.
(a) Salary. The Association agrees to pay the Employee during
the term of this Agreement a salary established by the Board of Directors. The
salary hereunder as of the Commencement Date (as defined in Section 4 hereof)
shall be equal to the Employee's salary as in effect immediately prior to such
date. The Employee's salary shall be payable not less frequently than bi-weekly
and not later than the seventh day following the expiration of the bi-weekly
payment period in question. The amount of the Employee's salary shall be
reviewed by the Board of Directors not less often than annually, beginning not
later than the date one year after the Commencement Date (as defined in Section
4 hereof). Any adjustments in salary or other compensation shall in no way limit
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or reduce any other obligation of the Association hereunder. The Employee's
salary in effect hereunder from time to time shall not thereafter be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the
Association in discretionary bonuses as authorized and declared by the Board of
Directors of the Association to its executive employees. No other compensation
provided for in this Agreement shall be deemed a substitute for the Employee's
right to participate in such bonuses when and as declared by the Board of
Directors.
(c) Expenses. During the term of his employment hereunder, the
Employee shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by him (in accordance with policies and procedures at least as
favorable to the Employee as those presently applicable to the senior executive
officers of the Association) in performing services hereunder, provided that the
Employee properly accounts therefor in accordance with Association policy.
3. Benefits.
(a) Participation in Retirement and Employee Benefit Plans.
The Employee shall be entitled while employed hereunder to participate in, and
receive benefits under, all plans relating to pension, thrift, profit-sharing,
group life insurance, medical coverage, education, cash bonuses, and other
retirement or employee benefits or combinations thereof, that are maintained for
the benefit of the Association's executive employees or for its employees
generally which benefits, taken as a whole, must be at least as favorable as
those in effect at the time of conversion (including those adopted in
conversion). In addition, the Employee shall be entitled to be considered for
benefits under all of the stock and stock option related plans adopted for the
benefit of the Association's executive or other employees.
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(b) Fringe Benefits. The Employee shall be eligible while
employed hereunder to participate in, and receive benefits under, any other
fringe benefits which are or may become applicable to the Association's
executive employees or to its employees generally.
4. Term. The term of employment under this Agreement shall be a period
of one year commencing on the date of completion of the Conversion (the
"Commencement Date"), subject to earlier termination as provided herein.
Beginning on the first anniversary of the Commencement Date, and on each
anniversary thereafter, the term of employment under this Agreement shall be
extended for a period of one year in addition to the then-remaining term of
employment under this Agreement, unless either the Association or the Employee
gives contrary written notice to the other not less than 120 days in advance of
the date on which the term of employment under this Agreement would otherwise be
extended.
Notwithstanding any other statement or provision in this Agreement to
the contrary, this Agreement will not be automatically extended unless, prior
thereto, the Board of Directors of the Association reviews a formal performance
evaluation (which evaluation shall take place at least 120 days prior to each
anniversary date of the contract) of the Employee performed by the disinterested
members of the Board of Directors of the Association and reflected in the
minutes of the Board of Directors. Reference herein to the term of employment
under this Agreement shall refer to both such initial term and such extended
terms.
5. Vacations; Sick Leave. The Employee shall be entitled, without loss
of pay, to absent himself voluntarily from the performance of his employment
under this Agreement, all such voluntary absences to count as vacation time or
sick leave, as appropriate, provided that:
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(a) During the term of employment under this Agreement, the
Employee shall be entitled to paid vacation and sick leave in accordance with
the plans, policies, programs or practices of the Association and its affiliated
companies as in effect for the Employee at any time during the six-month period
immediately preceding the Commencement Date or, if such plans, policies,
programs or practices are modified in the future so as to be more favorable to
the Employee, as in effect at such future time with respect to other senior
executives of the Association and its affiliated companies; and
(b) The timing of vacations shall be scheduled in a reasonable
manner by the Employee.
6. Termination of Employment; Death.
(a) The Association's Board of Directors may terminate the
Employee's employment at any time, but any termination by the Association's
Board of Directors other than termination for cause, shall not prejudice the
Employee's right to compensation or other benefits under this Agreement. If the
employment of the Employee is involuntarily terminated, other than for "cause"
as provided in this Section 6(a) or by reason of death or disability as provided
in Sections 6(c) or 7, the Association shall pay the Employee his salary and
provide to the Employee the same insurance benefits as he was receiving before
the date of termination through the remaining term of this Agreement plus
accrued vacation time.
The terms "termination" or "involuntarily terminated" in this Agreement
shall refer to the termination of the employment of Employee without his express
written consent.
In case of termination of the Employee's employment for cause, the
Association shall pay the Employee his salary through the date of termination,
and the Association shall have no further
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obligation to the Employee under this Agreement. For purposes of this Agreement,
termination for "cause" shall include termination for personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of this
Agreement. Notwithstanding the foregoing, the Employee shall not be deemed to
have been terminated for cause unless and until there shall have been delivered
to the Employee a copy of a resolution, duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors of
the Association at a meeting of the Board called and held for such purpose
(after reasonable notice to the Employee and an opportunity for the Employee,
together with the Employee's counsel, to be heard before the Board), stating
that in the good faith opinion of the Board the Employee was guilty of conduct
constituting "cause" as set forth above and specifying the particulars thereof
in detail.
(b) The Employee's employment may be voluntarily terminated by
the Employee at any time upon 90 days written notice to the Association or upon
such shorter period as may be agreed upon between the Employee and the Board of
Directors of the Association. In the event of such voluntary termination, except
as provided in Section 8 below, the Association shall be obligated to continue
to pay the Employee his salary and benefits only through the date of termination
plus accrued vacation time, at the time such payments are due, and the
Association shall have no further obligation to the Employee under this
Agreement.
(c) In the event of the death of the Employee during the term
of employment under this Agreement and prior to any termination hereunder, the
Employee's estate, or such person
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as the Employee may have previously designated in writing, shall be entitled to
receive from the Association the salary of the Employee for a 30 day period
after the date of death.
(d) If the Employee is suspended and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act
("FDIA"), 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Association's obligations
under this Agreement shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(e) If the Employee is removed and/or permanently prohibited
from participating in the conduct of the Association's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) or
(g)(1), all obligations of the Association under this Agreement shall terminate,
as of the effective date of the order, but vested rights of the contracting
parties shall not be affected.
(f) If the Association is in default (as defined in Section
3(x)(1) of the FDIA, all obligations under this Agreement shall terminate as of
the date of default, but this provision shall not affect any vested rights of
the contracting parties.
(g) All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of this Agreement is necessary
for the continued operation of the Association: (i) by the Director of the
Office of Thrift Supervision (the "Director") or his or her designee, at the
time the Federal Deposit Insurance Corporation ("FDIC") or the Resolution Trust
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Corporation ("RTC") enters into an agreement to provide assistance to or on
behalf of the Association under the authority contained in Section 13(c) of the
FDIA; or (ii) by the Director or his or her designee, at the time the Director
or his or her designee approves a supervisory merger to resolve problems related
to operation of the Association or when the Association is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties that
have already vested, however, shall not be affected by any such action.
(h) In the event the Association purports to terminate the
Employee for cause, but it is determined by a court of competent jurisdiction or
by an arbitrator pursuant to Section 18 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Association has failed to make timely payment of any amounts owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred in
challenging such termination or collecting such amounts. Such reimbursement
shall be in addition to all rights to which the Employee is otherwise entitled
under this Agreement.
7. Disability. If the Employee shall become disabled as defined in the
Association's then current disability plan or if the Employee shall be otherwise
physically unable to serve as President and Chief Executive Officer, the
Employee shall be entitled to receive group and other disability income benefits
of the type then provided by the Association for other executive employees,
including without limitation supplementary disability income benefits relating
to the difference in monthly benefits provided under its disability plan and the
Employee's salary at the time of such disability. In the event of such
disability, this Agreement shall not be suspended. However, the Association
shall be obligated to pay the Employee compensation pursuant to Sections 2(a)
and (b) hereof only to the
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extent the Employee's salary would exceed the disability income benefits
received pursuant to this paragraph. In addition, the Association shall have the
right, upon resolution of its Board, to discontinue paying cash compensation
pursuant to Sections 2(a) and (b) beginning six months following a determination
that Employee qualifies for the foregoing disability income benefits.
8. Change in Control.
(a) Termination. If the Employee's employment is involuntarily
terminated (other than for cause or pursuant to any of Sections 6(c)
through 6(g) or Section 7 of this Agreement) in connection with or
within 12 months after a change in control which occurs at any time
during the term of employment under this Agreement, the Employee shall
be entitled to the benefits provided below: (i) The Association shall
pay the Employee his salary in accordance with Section 2 for the
remaining term of employment under this Agreement; plus
(ii) The Association shall pay to the Employee in a lump sum
in cash within 25 business days after the Date of Termination (as
hereinafter defined) of employment an amount equal to 100 percent of
the Employee's "base amount" of compensation, as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended ("Code");
plus
(iii) The Association shall continue to provide the Employee
with health benefits in accordance with Section 6 for the remaining
term of employment under this Agreement. Notwithstanding any other
provision or statement herein to the contrary, the amounts payable to
the Employee pursuant to subsections (i) and (ii) above, shall be
limited, if necessary, such that these amounts will not exceed three
times the Employee's annual compensation or be nondeductible by the
Association for Federal income tax purposes pursuant to Section 280G of
the Code.
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(b) Definitions. For purposes of Section 8, 9 and 12 of this
Agreement, "Date of Termination" means the earlier of (i) the date upon which
the Association gives notice to the Employee of the termination of his
employment with the Association or (ii) the date upon which the Employee ceases
to serve as an Employee of the Association, and "change in control" is defined
as any acquisition of control (other than pursuant to the Conversion or by a
trustee or other fiduciary holding securities under an employee benefit plan of
the Association or a subsidiary of the Association or any company created by the
Association to be its holding company), as defined in 12 C.F.R. ss. 574.4, or
any successor regulation, of the Association or which would require the filing
of an application for acquisition of control or notice of change in control in a
manner as set forth in 12 C.F.R. ss. 574.3, or any successor regulation.
(c) Medical, Health, Disability and Life Insurance Benefits.
Notwithstanding any other provision in this agreement, in the event that the
employment of the Employee is terminated after a change in control (unless the
Employee is terminated for cause), beginning as of the last day on which the
Employee is afforded medical, dental, health, disability and life insurance
benefits under Section 3 and/or 8 of this agreement, the Employee shall be
entitled to purchase from the Association, on a monthly basis for a period of up
to five years, medical, health and/or life insurance benefits of the same type
then available to the Association's executive employees at an annualized price
equal to the product of (i) a fraction of the numerator of which is one and the
denominator of which is the number of the Association's employees at the end of
the year and (ii) the Association's total annual cost for all employees for such
benefits.
9. Certain Reduction of Payments by the Association. (a) Anything in
this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the
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Association to or for the benefit of the Employee (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise) (a "Payment") would be nondeductible (in whole or part) by the
Association for Federal income tax purposes because of Section 280G of the Code,
then the aggregate present value of amounts payable or distributable to or for
the benefit of the Employee pursuant to this Agreement (such amounts payable or
distributable pursuant to this Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced to the Reduced Amount. The "Reduced
Amount" shall be an amount, not less than zero, expressed in present value which
maximizes the aggregate present value of Agreement Payments without causing any
Payment to be nondeductible by the Association because of Section 280G of the
Code. For purposes of this Section 9, present value shall be determined in
accordance with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section
9 shall be made by the Association's independent auditors, or at the election of
such auditors by such other firm or individuals of recognized expertise as such
auditors may select (such auditors or, if applicable, such other firm or
individual, are hereinafter referred to as the "Advisory Firm"). The Advisory
Firm shall within ten business days of the Date of Termination, or at such
earlier time as is requested by the Association, provide to both the Association
and the Employee an opinion (and detailed supporting calculations) that the
Association has substantial authority to deduct for federal income tax purposes
the full amount of the Agreement Payments and that the Employee has substantial
authority not to report on his federal income tax return any excise tax imposed
by Section 4999 of the Code with respect to the Agreement Payments. Any such
determination and opinion by the Advisory Firm shall be binding upon the
Association and the Employee. The Employee shall determine which and how
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much, if any, of the Agreement Payments shall be eliminated or reduced
consistent with the requirements of this Section 9, provided that, if the
Employee does not make such determination within ten business days of the
receipt of the calculations made by the Advisory Firm, the Association shall
elect which and how much, if any, of the Agreement Payments shall be eliminated
or reduced consistent with the requirements of this Section 9 and shall notify
the Employee promptly of such election. Within five business days of the earlier
of (i) the Association's receipt of the Employee's determination pursuant to the
immediately preceding sentence of this Agreement or (ii) the Association's
election in lieu of such determination, the Association shall pay to or
distribute to or for the benefit of the Employee such amounts as are then due
the Employee under this Agreement. The Association and the Employee shall
cooperate fully with the Advisory Firm, including without limitation providing
to the Advisory Firm all information and materials reasonably requested by it,
in connection with the making of the determinations required under this Section
9.
(c) As a result of uncertainty in application of Section 280G
of the Code at the time of the initial determination by the Advisory Firm
hereunder, it is possible that Agreement Payments will have been made by the
Association which should not have been made ("Overpayment") or that additional
Agreement Payments will not have been made by the Association which should have
been made ("Underpayment"), in each case, consistent with the calculations
required to be made hereunder. In the event that the Advisory Firm, based upon
the assertion by the Internal Revenue Service against the Employee of a
deficiency which the Advisory Firm believes has a high probability of success
determines that an Overpayment has been made, any such Overpayment paid or
distributed by the Association to or for the benefit of Employee shall be
treated for all purposes as a loan ab initio which the Employee shall repay to
the Association together with interest at the applicable federal rate
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provided for in Section 7872(f)(2) of the Code; provided, however, that no such
loan shall be deemed to have been made and no amount shall be payable by the
Employee to the Association if and to the extent such deemed loan and payment
would not either reduce the amount on which the Employee is subject to tax under
Section 1 and Section 4999 of the Code or generate a refund of such taxes. In
the event that the Advisory Firm, based upon controlling precedent or other
substantial authority, determines that an Underpayment has occurred, any such
Underpayment shall be promptly paid by the Association to or for the benefit of
the Employee together with interest at the applicable federal rate provided for
in Section 7872(f)(2) of the Code.
10. Confidential Information; Loyalty; Noncompetition
(a) During the term of the Employee's employment hereunder and
thereafter, the Employee shall not, except as may be required to perform his
duties hereunder or as required by law, disclose to others or use, whether
directly or indirectly, any Confidential Information. "Confidential Information"
means information about the Association and the Association's clients and
customers which is not available to the general public and was or shall be
learned by the Employee in the course of his employment by the Association,
including without limitation any data, formulae, information, proprietary
knowledge, trade secrets, credit reports and analyses owned, developed and used
in the course of the business of the Association, including client and customer
lists and information related thereto; and all papers, records and other
documents (and all copies thereof) containing such Confidential Information. The
Employee acknowledges that such Confidential Information is specialized, unique
in nature and of great value to the Association. The Employee agrees that upon
the expiration of the Employee's term of employment hereunder or in the event
the Employee's employment hereunder is terminated prior thereto for any reason
whatsoever, the Employee will
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promptly deliver to the Association all documents (and all copies thereof)
containing any Confidential Information.
(b) The Employee shall use his best efforts in the performance
of his employment under this Agreement; provided, however, that the Employee may
serve, without compensation, as a director of charitable, community and industry
organizations and, with compensation, as a director of the business corporations
to the extent such directorships do not inhibit the performance of his duties
thereunder or conflict with the business of the Association. During the term of
the Employee's employment hereunder, the Employee shall not engage in any
business or activity contrary to the business affairs or interests of the
Association.
(c) Upon the expiration of the term of the Employee's
employment hereunder or in the event the Employee's employment hereunder
terminates prior thereto for any reason whatsoever, the Employee shall not, for
a period of one year after the occurrence of such event, for himself, or as the
agent of, on behalf of, or in conjunction with, any person or entity, solicit or
attempt to solicit, whether directly or indirectly: (i) any employee of the
Association to terminate such employee's employment relationship with the
Association; or (ii) any savings and loan, banking or similar business from any
person or entity that is or was a client, employee, or customer of the
Association and had dealt with the Employee or any other employee of the
Association under the supervision of the Employee.
(d) In the event Employee voluntarily resigns pursuant to
Section 6(b) of this Agreement, the Employee shall not for a period of one year
from the effective date of such resignation, or in the event the Employee's
employment hereunder is terminated, the Employee shall not, for a period equal
to the lesser of one year from the date of termination or the period during
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which the Association is obligated to continue to pay the Employee his salary,
directly or indirectly, own, manage, operate or control, or participate in the
ownership, management, operation or control of, or be employed by or connected
in any manner with, any financial institution having an office located within
three miles of any office of the Association as of the date of termination.
(e) The provisions of this Section 10 shall not prevent the
Employee from purchasing, solely for investment, not more than 5 percent of any
financial institution's stock or other securities which are traded on any
national or regional securities.
(f) The provisions of this Section shall survive the
termination of the Employee's employment hereunder whether by expiration of the
term thereof or otherwise.
11. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise; provided however, that the
amount of salary payments made to the Employee pursuant to Section 2(a) of this
contract shall be reduced by the salary payments paid to the Employee during the
term of this contract from any other full time employer.
12. No Assignments. (a) This Agreement is personal to each of the
parties hereto, and neither party may assign or delegate any of its rights
or obligations hereunder without first
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obtaining the written consent of the other party; provided, however, that the
Association will require any successor or assign (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Association, by an assumption agreement in form
and substance satisfactory to the Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Association would be required to perform it if no such succession or assignment
had taken place. Failure of the Association to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation
from the Association in the same amount and on the same terms as the
compensation pursuant to Section 8(a) hereof. For purposes of implementing the
provisions of this Section 11(a), the date on which any such succession becomes
effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to the Employee hereunder if the Employee had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Employee's devisee,
legatee or other designee or if there is no such designee, to the Employee's
estate.
13. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement (provided that all
notices to
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the Association shall be directed to the attention of the Board of Directors of
the Association with a copy to the Secretary of the Association), or to such
other address as either party may have furnished to the other in writing in
accordance herewith.
14. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
15. Paragraph Headings. The paragraph headings used in this Agreement
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
17. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Illinois.
18. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
MIDLAND FEDERAL SAVINGS AND LOAN
ASSOCIATION
By: __________________
EMPLOYEE
/s/PAUL ZOGAS
-------------
Paul Zogas
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EXHIBIT 10.4
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this 30th day of June, 1993, by and between MIDLAND FEDERAL SAVINGS AND LOAN
ASSOCIATION, a federally chartered savings and loan association (which, together
with any successor thereto which executes and delivers the assumption agreement
provided for in Section 11(a) hereof or which otherwise becomes bound by the
terms and provisions of this Agreement by operation of law, is hereinafter
referred to as the "Association"), and Charles Zogas (the "Employee") whose
residence address is 14 Pembroke Lane, Oak Brook, Illinois 60521.
WHEREAS, the Employee is currently serving as a Director, and the Chief
Operations Officer of the Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert to capital stock form; and
WHEREAS, the Board of Directors of the Association recognizes that, as
is the case with publicly held corporations generally, the possibility of a
change in control of the Association may exist and that such possibility, and
the uncertainty and questions which it may raise among management, may result in
the departure or distraction of key management personnel to the detriment of the
Association and its stockholders; and
WHEREAS, the Board of Directors of the Association believes it is in
the best interests of the Association to enter into this Agreement with the
Employee in order to assure continuity of management of the Association and to
reinforce and encourage the
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continued attention and dedication of the Employee to his assigned duties
without distraction in the face of potentially disruptive circumstances arising
from the possibility of a change in control of the Association, although no such
change is now contemplated; and
WHEREAS, the Board of Directors of the Association has approved and
authorized the execution of this Agreement with the Employee to take effect as
stated in Section 4 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, it is AGREED as
follows:
1. Employment. The Employee is employed as the Chief Operations
Officer, of the Association with supervision and control of, under the direction
of the Chief Executive Officer of the Association, and with such other powers
and duties as may from time to time be prescribed by the Board, provided that
such duties are consistent with the Employee's position as Chief Operations
Officer. The Employee shall continue to devote his best efforts to the business
and affairs of the Association and its subsidiaries and affiliated companies.
2. Compensation.
(a) Salary. The Association agrees to pay the Employee during
the term of this Agreement a salary established by the Board of Directors. The
salary hereunder as of the Commencement Date (as defined in Section 4 hereof)
shall be equal to the Employee's
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<PAGE>
salary as in effect immediately prior to such date. The Employee's salary shall
be payable not less frequently than bi-weekly and not later than the seventh day
following the expiration of the bi- weekly payment period in question. The
amount of the Employee's salary shall be reviewed by the Board of Directors not
less often than annually, beginning not later than the date one year after the
Commencement Date (as defined in Section 4 hereof). Any adjustments in salary or
other compensation shall in no way limit or reduce any other obligation of the
Association hereunder. The Employee's salary in effect hereunder from time to
time shall not thereafter be reduced.
(b) Discretionary Bonuses. The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the
Association in discretionary bonuses as authorized and declared by the Board of
Directors of the Association to its executive employees. No other compensation
provided for in this Agreement shall be deemed a substitute for the Employee's
right to participate in such bonuses when and as declared by the Board of
Directors.
(c) Expenses. During the term of his employment hereunder, the
Employee shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by him (in accordance with policies and procedures at least as
favorable to the Employee as those presently applicable to the senior executive
officers of the Association) in performing services hereunder,
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<PAGE>
provided that the Employee properly accounts therefor in accordance with
Association policy.
3. Benefits.
(a) Participation in Retirement and Employee Benefit Plans.
The Employee shall be entitled while employed hereunder to participate in, and
receive benefits under, all plans relating to pension, thrift, profit-sharing,
group life insurance, medical coverage, education, cash bonuses, and other
retirement or employee benefits or combinations thereof, that are maintained for
the benefit of the Association's executive employees or for its employees
generally which benefits, taken as a whole, must be at least as favorable as
those in effect at the time of conversion (including those adopted in
conversion). In addition, the Employee shall be entitled to be considered for
benefits under all of the stock and stock option related plans adopted for the
benefit of the Association's executive or other employees.
(b) Fringe Benefits. The Employee shall be eligible while
employed hereunder to participate in, and receive benefits under, any other
fringe benefits which are or may become applicable to the Association's
executive employees or to its employees generally.
4. Term. The term of employment under this Agreement shall be a period
of one year commencing on the date of completion of the Conversion (the
"Commencement Date"), subject to earlier termination as provided herein.
Beginning on the first anniversary of the Commencement Date, and on each
anniversary thereafter, the
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<PAGE>
term of employment under this Agreement shall be extended for a period of one
year in addition to the then-remaining term of employment under this Agreement,
unless either the Association or the Employee gives contrary written notice to
the other not less than 120 days in advance of the date on which the term of
employment under this Agreement would otherwise be extended.
Notwithstanding any other statement or provision in this Agreement to
the contrary, this Agreement will not be automatically extended unless, prior
thereto, the Board of Directors of the Association reviews a formal performance
evaluation (which evaluation shall take place at least 120 days prior to each
anniversary date of the contract) of the Employee performed by the disinterested
members of the Board of Directors of the Association and reflected in the
minutes of the Board of Directors. Reference herein to the term of employment
under this Agreement shall refer to both such initial term and such extended
terms.
5. Vacations; Sick Leave. The Employee shall be entitled, without loss
of pay, to absent himself voluntarily from the performance of his employment
under this Agreement, all such voluntary absences to count as vacation time or
sick leave, as appropriate, provided that:
(a) During the term of employment under this Agreement, the
Employee shall be entitled to paid vacation and sick leave in accordance with
the plans, policies, programs or practices of the Association and its affiliated
companies as in effect for the Employee at any time during the six-month period
immediately
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<PAGE>
preceding the Commencement Date or, if such plans, policies, programs or
practices are modified in the future so as to be more favorable to the Employee,
as in effect at such future time with respect to other senior executives of the
Association and its affiliated companies; and
(b) The timing of vacations shall be scheduled in a reasonable
manner by the Employee.
6. Termination of Employment; Death.
(a) The Association's Board of Directors may terminate the
Employee's employment at any time, but any termination by the Association's
Board of Directors other than termination for cause, shall not prejudice the
Employee's right to compensation or other benefits under this Agreement. If the
employment of the Employee is involuntarily terminated, other than for "cause"
as provided in this Section 6(a) or by reason of death or disability as provided
in Sections 6(c) or 7, the Association shall pay the Employee his salary and
provide to the Employee the same insurance benefits as he was receiving before
the date of termination through the remaining term of this Agreement plus
accrued vacation time.
The terms "termination" or "involuntarily terminated" in this Agreement
shall refer to the termination of the employment of Employee without his express
written consent.
In case of termination of the Employee's employment for cause, the
Association shall pay the Employee his salary through the date of termination,
and the Association shall have no further obligation to the Employee under this
Agreement. For purposes of
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<PAGE>
this Agreement, termination for "cause" shall include termination for personal
dishonesty, incompetence, willful misconduct, breach of a fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. Notwithstanding the foregoing, the Employee shall
not be deemed to have been terminated for cause unless and until there shall
have been delivered to the Employee a copy of a resolution, duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board of Directors of the Association at a meeting of the Board called and held
for such purpose (after reasonable notice to the Employee and an opportunity for
the Employee, together with the Employee's counsel, to be heard before the
Board), stating that in the good faith opinion of the Board the Employee was
guilty of conduct constituting "cause" as set forth above and specifying the
particulars thereof in detail.
(b) The Employee's employment may be voluntarily terminated by
the Employee at any time upon 90 days written notice to the Association or upon
such shorter period as may be agreed upon between the Employee and the Board of
Directors of the Association. In the event of such voluntary termination, except
as provided in Section 8 below, the Association shall be obligated to continue
to pay the Employee his salary and benefits only through the date of termination
plus accrued vacation time, at the time
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<PAGE>
such payments are due, and the Association shall have no further obligation to
the Employee under this Agreement.
(c) In the event of the death of the Employee during the term
of employment under this Agreement and prior to any termination hereunder, the
Employee's estate, or such person as the Employee may have previously designated
in writing, shall be entitled to receive from the Association the salary of the
Employee for a 30 day period after the date of death.
(d) If the Employee is suspended and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act
("FDIA"), 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Association's obligations
under this Agreement shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(e) If the Employee is removed and/or permanently prohibited
from participating in the conduct of the Association's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) or
(g)(1), all obligations of the Association under this Agreement shall terminate,
as of the effective date of the order, but vested rights of the contracting
parties shall not be affected.
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<PAGE>
(f) If the Association is in default (as defined in Section
3(x)(1) of the FDIA, all obligations under this Agreement shall terminate as of
the date of default, but this provision shall not affect any vested rights of
the contracting parties.
(g) All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of this Agreement is necessary
for the continued operation of the Association: (i) by the Director of the
Office of Thrift Supervision (the "Director") or his or her designee, at the
time the Federal Deposit Insurance Corporation ("FDIC") or the Resolution Trust
Corporation ("RTC") enters into an agreement to provide assistance to or on
behalf of the Association under the authority contained in Section 13(c) of the
FDIA; or (ii) by the Director or his or her designee, at the time the Director
or his or her designee approves a supervisory merger to resolve problems related
to operation of the Association or when the Association is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties that
have already vested, however, shall not be affected by any such action.
(h) In the event the Association purports to terminate the
Employee for cause, but it is determined by a court of competent jurisdiction or
by an arbitrator pursuant to Section 18 that cause did not exist for such
termination, or if in any event it is determined by any such court or arbitrator
that the Association has failed to make timely payment of any amounts owed
to the Employee under this Agreement, the Employee shall be
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<PAGE>
entitled to reimbursement for all reasonable costs, including attorneys' fees,
incurred in challenging such termination or collecting such amounts. Such
reimbursement shall be in addition to all rights to which the Employee is
otherwise entitled under this Agreement.
7. Disability. If the Employee shall become disabled as defined in the
Association's then current disability plan or if the Employee shall be otherwise
physically unable to serve as Chief Operations Officer, the Employee shall be
entitled to receive group and other disability income benefits of the type then
provided by the Association for other executive employees, including without
limitation supplementary disability income benefits relating to the difference
in monthly benefits provided under its disability plan and the Employee's salary
at the time of such disability. In the event of such disability, this Agreement
shall not be suspended. However, the Association shall be obligated to pay the
Employee compensation pursuant to Sections 2(a) and (b) hereof only to the
extent the Employee's salary would exceed the disability income benefits
received pursuant to this paragraph. In addition, the Association shall have the
right, upon resolution of its Board, to discontinue paying cash compensation
pursuant to Sections 2(a) and (b) beginning six months following a determination
that Employee qualifies for the foregoing disability income benefits.
8. Change in Control.
(a) Termination. If the Employee's employment is involuntarily
terminated (other than for cause or pursuant to any
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of Sections 6(c) through 6(g) or Section 7 of this Agreement) in connection with
or within 12 months after a change in control which occurs at any time during
the term of employment under this Agreement, the Employee shall be entitled to
the benefits provided below:
(i) The Association shall pay the Employee his salary in
accordance with Section 2 for the remaining term of employment under
this Agreement; plus
(ii) The Association shall pay to the Employee in a lump sum
in cash within 25 business days after the Date of Termination (as
hereinafter defined) of employment an amount equal to 100 percent of
the Employee's "base amount" of compensation, as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended ("Code");
plus
(iii) The Association shall continue to provide the Employee
with health benefits in accordance with Section 6 for the remaining
term of employment under this Agreement.
Notwithstanding any other provision or statement herein to the contrary, the
amounts payable to the Employee pursuant to subsec tions (i) and (ii) above,
shall be limited, if necessary, such that these amounts will not exceed three
times the Employee's annual compensation or be nondeductible by the Association
for Federal income tax purposes pursuant to Section 280G of the Code.
(b) Definitions. For purposes of Section 8, 9 and 12 of this
Agreement, "Date of Termination" means the earlier of (i) the date upon which
the Association gives notice to the Employee of the
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termination of his employment with the Association or (ii) the date upon which
the Employee ceases to serve as an Employee of the Association, and "change in
control" is defined as any acquisition of control (other than pursuant to the
Conversion or by a trustee or other fiduciary holding securities under an
employee benefit plan of the Association or a subsidiary of the Association or
any company created by the Association to be its holding company), as defined in
12 C.F.R. ss. 574.4, or any successor regulation, of the Association or which
would require the filing of an application for acquisition of control or notice
of change in control in a manner as set forth in 12 C.F.R. ss. 574.3, or any
successor regulation.
(c) Medical, Health, Disability and Life Insurance Benefits.
Notwithstanding any other provision in this agreement, in the event that the
employment of the Employee is terminated after a change in control (unless the
Employee is terminated for cause), beginning as of the last day on which the
Employee is afforded medical, dental, health, disability and life insurance
benefits under Section 3 and/or 8 of this agreement, the Employee shall be
entitled to purchase from the Association, on a monthly basis for a period of up
to five years, medical, health and/or life insurance benefits of the same type
then available to the Association's executive employees at an annualized price
equal to the product of (i) a fraction of the numerator of which is one and the
denominator of which is the number of the Association's employees at the end of
the year and (ii) the Association's total annual cost for all employees for such
benefits.
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9. Certain Reduction of Payments by the Association. (a) Anything in
this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Association to or for the
benefit of the Employee (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise) (a "Payment") would be
nondeductible (in whole or part) by the Association for Federal income tax
purposes because of Section 280G of the Code, then the aggregate present value
of amounts payable or distributable to or for the benefit of the Employee
pursuant to this Agreement (such amounts payable or distributable pursuant to
this Agreement are hereinafter referred to as "Agreement Payments") shall be
reduced to the Reduced Amount. The "Reduced Amount" shall be an amount, not less
than zero, expressed in present value which maximizes the aggregate present
value of Agreement Payments without causing any Payment to be nondeductible by
the Association because of Section 280G of the Code. For purposes of this
Section 9, present value shall be determined in accordance with Section
280G(d)(4) of the Code.
(b) All determinations required to be made under this Section
9 shall be made by the Association's independent auditors, or at the election of
such auditors by such other firm or individuals of recognized expertise as such
auditors may select (such auditors or, if applicable, such other firm or
individual, are hereinafter referred to as the "Advisory Firm"). The Advisory
Firm shall within ten business days of the Date of Termination, or at such
earlier time as is requested by the Association, provide to
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both the Association and the Employee an opinion (and detailed supporting
calculations) that the Association has substantial authority to deduct for
federal income tax purposes the full amount of the Agreement Payments and that
the Employee has substantial authority not to report on his federal income tax
return any excise tax imposed by Section 4999 of the Code with respect to the
Agreement Payments. Any such determination and opinion by the Advisory Firm
shall be binding upon the Association and the Employee. The Employee shall
determine which and how much, if any, of the Agreement Payments shall be
eliminated or reduced consistent with the requirements of this Section 9,
provided that, if the Employee does not make such determination within ten
business days of the receipt of the calculations made by the Advisory Firm, the
Association shall elect which and how much, if any, of the Agreement Payments
shall be eliminated or reduced consistent with the requirements of this Section
9 and shall notify the Employee promptly of such election. Within five business
days of the earlier of (i) the Association's receipt of the Employee's
determination pursuant to the immediately preceding sentence of this Agreement
or (ii) the Association's election in lieu of such determination, the
Association shall pay to or distribute to or for the benefit of the Employee
such amounts as are then due the Employee under this Agreement. The Association
and the Employee shall cooperate fully with the Advisory Firm, including without
limitation providing to the Advisory Firm all information and
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materials reasonably requested by it, in connection with the making of the
determinations required under this Section 9.
(c) As a result of uncertainty in application of Section 280G
of the Code at the time of the initial determination by the Advisory Firm
hereunder, it is possible that Agreement Payments will have been made by the
Association which should not have been made ("Overpayment") or that additional
Agreement Payments will not have been made by the Association which should have
been made ("Underpayment"), in each case, consistent with the calculations
required to be made hereunder. In the event that the Advisory Firm, based upon
the assertion by the Internal Revenue Service against the Employee of a
deficiency which the Advisory Firm believes has a high probability of success
determines that an Overpayment has been made, any such Overpayment paid or
distributed by the Association to or for the benefit of Employee shall be
treated for all purposes as a loan ab initio which the Employee shall repay to
the Association together with interest at the applicable federal rate provided
for in Section 7872(f)(2) of the Code; provided, however, that no such loan
shall be deemed to have been made and no amount shall be payable by the Employee
to the Association if and to the extent such deemed loan and payment would not
either reduce the amount on which the Employee is subject to tax under Section 1
and Section 4999 of the Code or generate a refund of such taxes. In the event
that the Advisory Firm, based upon controlling precedent or other substantial
authority, determines that an Underpayment has occurred, any such Underpayment
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<PAGE>
shall be promptly paid by the Association to or for the benefit of the Employee
together with interest at the applicable federal rate provided for in Section
7872(f)(2) of the Code.
10. Confidential Information; Loyalty; Noncompetition (a) During the
term of the Employee's employment hereunder and thereafter, the Employee shall
not, except as may be required to perform his duties hereunder or as required by
law, disclose to others or use, whether directly or indirectly, any Confidential
Information. "Confidential Information" means information about the Association
and the Association's clients and customers which is not available to the
general public and was or shall be learned by the Employee in the course of his
employment by the Association, including without limitation any data, formulae,
information, proprietary knowledge, trade secrets, credit reports and analyses
owned, developed and used in the course of the business of the Association,
including client and customer lists and information related thereto; and all
papers, records and other documents (and all copies thereof) containing such
Confidential Information. The Employee acknowledges that such Confidential
Information is specialized, unique in nature and of great value to the
Association. The Employee agrees that upon the expiration of the Employee's term
of employment hereunder or in the event the Employee's employment hereunder is
terminated prior thereto for any reason whatsoever, the Employee will promptly
deliver to the Association all documents (and all copies thereof) containing any
Confidential Information.
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<PAGE>
(b) The Employee shall use his best efforts in the performance
of his employment under this Agreement; provided, however, that the Employee may
serve, without compensation, as a director of charitable, community and industry
organizations and, with compensation, as a director of the business corporations
to the extent such directorships do not inhibit the performance of his duties
thereunder or conflict with the business of the Association. During the term of
the Employee's employment hereunder, the Employee shall not engage in any
business or activity contrary to the business affairs or interests of the
Association.
(c) Upon the expiration of the term of the Employee's
employment hereunder or in the event the Employee's employment hereunder
terminates prior thereto for any reason whatsoever, the Employee shall not, for
a period of one year after the occurrence of such event, for himself, or as the
agent of, on behalf of, or in conjunction with, any person or entity, solicit or
attempt to solicit, whether directly or indirectly: (i) any employee of the
Association to terminate such employee's employment relationship with the
Association; or (ii) any savings and loan, banking or similar business from any
person or entity that is or was a client, employee, or customer of the
Association and had dealt with the Employee or any other employee of the
Association under the supervision of the Employee.
(d) In the event Employee voluntarily resigns pursuant to
Section 6(b) of this Agreement, the Employee shall not for a period of one year
from the effective date of such resignation, or
17
<PAGE>
in the event the Employee's employment hereunder is terminated, the Employee
shall not, for a period equal to the lesser of one year from the date of
termination or the period during which the Association is obligated to continue
to pay the Employee his salary, directly or indirectly, own, manage, operate or
control, or participate in the ownership, management, operation or control of,
or be employed by or connected in any manner with, any financial institution
having an office located within three miles of any office of the Association as
of the date of termination.
(e) The provisions of this Section 10 shall not prevent the
Employee from purchasing, solely for investment, not more than 5 percent of any
financial institution's stock or other securities which are traded on any
national or regional securities.
(f) The provisions of this Section shall survive the
termination of the Employee's employment hereunder whether by expiration of the
term thereof or otherwise.
11. No Mitigation. The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise; provided however, that the
amount of salary payments made to the Employee pursuant to Section 2(a) of this
contract shall be reduced
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<PAGE>
by the salary payments paid to the Employee during the term of this contract
from any other full time employer.
12. No Assignments. (a) This Agreement is personal to each of the
parties hereto, and neither party may assign or delegate any of its rights or
obligations hereunder without first obtaining the written consent of the other
party; provided, however, that the Association will require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Association, by an assumption agreement in form and substance satisfactory to
the Employee, to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Association would be required to
perform it if no such succession or assignment had taken place. Failure of the
Association to obtain such an assumption agreement prior to the effectiveness of
any such succession or assignment shall be a breach of this Agreement and shall
entitle the Employee to compensation from the Association in the same amount and
on the same terms as the compensation pursuant to Section 8(a) hereof. For
purposes of implementing the provisions of this Section 11(a), the date on which
any such succession becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and
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<PAGE>
legatees. If the Employee should die while any amounts would still be payable to
the Employee hereunder if the Employee had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Employee's devisee, legatee or other designee or if there
is no such designee, to the Employee's estate.
13. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement (provided that all
notices to the Association shall be directed to the attention of the Board of
Directors of the Association with a copy to the Secretary of the Association),
or to such other address as either party may have furnished to the other in
writing in accordance herewith.
14. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
15. Paragraph Headings. The paragraph headings used in this Agreement
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any
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<PAGE>
provision shall not affect the validity or enforceability of the other
provisions hereof.
17. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Illinois.
18. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
MIDLAND FEDERAL SAVINGS AND LOAN
ASSOCIATION
By: ________________
EMPLOYEE
/s/Charles Zogas
----------------
CHARLES ZOGAS
EXHIBIT 21
<PAGE>
<TABLE>
<CAPTION>
SUBSIDIARIES OF THE REGISTRANT(1)
Parent Subsidiary Ownership Organization
------ ---------- --------- ------------
<S> <C> <C> <C>
Midland Capital Holdings Midland Federal Savings and Loan 100% Federal
Corporation Association
</TABLE>
(1) Upon consummation of the Reorganization.
The financial statements of the Registrant will be consolidated with
those of its subsidiaries upon completion of the Reorganization.
EXHIBIT 23.1
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Midland Capital Holdings
We consent to the incorporation by reference in this Registration Statement of
Midland Capital Holdings Corporation on Form S-4 of our report dated August 4,
1997, appearing in the Annual Report on Form 10-KSB of Midland Federal Savings
and Loan Association for the year ended June 30, 1997 relating to the
consolidated statements of condition of Midland Federal Savings and Loan
Association and subsidiaries as of June 30, 1997 and 1996 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended June 30, 1997. We
also consent to the reference to us under the heading "Experts" in the Proxy
Statement/Prospectus, which is part of this Registration Statement.
/s/ COBITZ, VANDENBERG & FENNESSY
---------------------------------
COBITZ, VANDENBERG & FENNESSY
Hickory Hills, Illinois
June 15, 1998
EXHIBIT 99
<PAGE>
REVOCABLE PROXY
MIDLAND FEDERAL SAVINGS AND LOAN ASSOCIATION
SPECIAL MEETING OF STOCKHOLDERS
July 15, 1998
The undersigned hereby appoints the Board of Directors of Midland
Federal Savings and Loan Association (the "Association"), and its survivor, with
full powers of substitution, to act as attorney and proxy for the undersigned to
vote all shares of Common Stock of the Association which the undersigned is
entitled to vote at the Special Meeting of Stockholders, to be held on July 15,
1998, at 2:00 p.m., and at any and all adjournments thereof, as follows:
I. Approval of a proposal to adopt a FOR AGAINST ABSTAIN
holding company structure for the ___ ___ ___
Association with the result that the |___| |___| |___|
Association will become a wholly
owned subsidiary of Midland Capital
Holding Corporation as provided in
the Agreement and Plan of Merger.
II. Approval of a proposal to adjourn FOR AGAINST ABSTAIN
the Special Meeting in the event that a ___ ___ ___
sufficient number of votes necessary |___| |___| |___|
to approve the Agreement and Plan of
Merger is not received.
In their discretion, upon such other matters as may properly come before
the Special Meeting or any adjournment thereof.
The Board of Directors recommends a vote "FOR" the listed propositions.
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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH SPECIAL MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN
THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE SPECIAL MEETING.
- --------------------------------------------------------------------------------
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Special
Meeting or at any adjournment thereof, and after notification to the Secretary
of the Association at the Special Meeting of the stockholder's decision to
terminate this Proxy, then the power of such attorney and proxy shall be deemed
terminated and of no further force and effect.
The undersigned acknowledges receipt from the Association, prior to the
execution of this Proxy, of Notice of the Special Meeting and a Proxy
Statement/Prospectus.
Dated: ____________, 1998
_________________________ _________________________
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
________________________ ________________________
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears above on this card. When signing
as attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
- --------------------------------------------------------------------------------
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE
- --------------------------------------------------------------------------------
