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SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
Washington, D.C. 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required] for the fiscal year ended December 31, 1999
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission File Number 0-10967
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FIRST MIDWEST BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-3161078
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 Park Blvd., Suite 405, P.O. Box 459
Itasca, Illinois 60143-0459
(Address of principal executive offices) (zip code)
(630) 875-7450
(Registrant's telephone number, including area code)
Common Stock, $.01 Par Value
Preferred Share Purchase Rights
Securities Registered Pursuant to Section 12(g) of the Act
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of February 22, 2000, 41,123,656 shares of common stock of the Registrant
were outstanding. The aggregate market value of the shares of common stock held
by non-affiliates as of such date was approximately $877,457,243 based on the
NASDAQ Stock Market closing price.
Documents incorporated by reference:
Registrant's Proxy Statement for the 2000 Annual Shareholders' Meeting - Parts I
and III
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FORM 10-K
TABLE OF CONTENTS
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Page
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Part I
Item 1. Business....................................................... 3
Item 2. Properties..................................................... 9
Item 3. Legal Proceedings.............................................. 9
Item 4. Submission of Matters to a Vote of Security Holders............ 9
Part II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters............................................ 10
Item 6. Selected Financial Data........................................ 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 12
Item 7a. Qualitative and Quantitative Disclosures about Market Risk..... 36
Item 8. Financial Statements and Supplementary Data.................... 37
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 61
Part III
Item 10. Directors and Executive Officers of the Registrant............. 61
Item 11. Executive Compensation......................................... 61
Item 12. Security Ownership of Certain Beneficial Owners and
Management..................................................... 62
Item 13. Certain Relationships and Related Transactions................. 62
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K....................................................... 62
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PART 1
ITEM 1. BUSINESS
First Midwest Bancorp, Inc.
First Midwest Bancorp, Inc. ("First Midwest" or the "Company") is a Delaware
corporation that was incorporated in 1982 for the purpose of becoming a
multi-bank holding company registered under the Bank Holding Company Act of
1956. On February 28, 1983, the Company received approval from the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") to become
a bank holding company, and on March 31, 1983, the Company was formed through an
exchange of common stock. The Company is Illinois' 3rd largest publicly traded
banking company with assets of approximately $5.5 billion at year-end 1999 and
is headquartered in the Chicago suburb of Itasca, Illinois. The Company and its
Affiliates employed 1,701 full time equivalent employees at December 31, 1999.
The Company has responsibility for the overall conduct, direction and
performance of its subsidiaries (the "Affiliates") hereinafter described. The
Company provides specialized services to the Affiliates in various areas,
establishes Company policies and procedures and serves as a source of strength
in providing capital and other resources as needed. Responsibility for the
management of the Affiliates rests with their respective Boards of Directors and
Officers. There was no material change in the lines of business of the Company
or its Affiliates during 1999.
Banking Affiliate - First Midwest Bank, National Association
The Company's banking affiliate is First Midwest Bank, National Association (the
"Bank"). At December 31, 1999, the Bank had $5.4 billion in total assets and
$4.0 billion in total deposits and operated 73 banking offices.
The Bank is engaged in commercial and retail banking and offers a broad range of
lending, depository and related financial services including accepting deposits;
commercial and industrial, consumer and real estate lending; collections; safe
deposit box operations; and other banking services tailored for individual,
commercial and industrial, and governmental customers. The Bank has established
an internet website (http://www.firstmidwest.com) providing the public
additional information about its products and services. Structurally, the Bank
is comprised of two divisions, a sales division in five geographical regions and
a support division providing corporate administrative and support services
through various functional departments. At year-end 1999, the Bank had 1,522
full time equivalent employees operating in 73 banking offices, primarily in
suburban metropolitan Chicago, as further discussed below.
Approximately 85% of the Bank's assets are located in the suburban metropolitan
Chicago area. Within the Chicago metropolitan area, the Bank operates in three
of the fastest growing counties in Illinois; Lake and McHenry Counties, north
and northwest of the City of Chicago, and Will County, southwest of the City.
Lake County has both the highest average household income in the State of
Illinois and the highest employment rate, with employment estimated to increase
by 24% for the period 2000 through 2010. McHenry County, which is adjacent to
Lake County on the West, has the third highest average household income and the
second highest employment rate, with employment expected to increase by 18% for
the same forward period. Will County ranks fourth by each of the same measures,
and expects a 17% increase in employment for the same forward period. The Bank
has the largest share of bank deposits in the Will County market and the second
largest in the Lake and McHenry markets, with an estimated 11% of Lake County,
12% of McHenry County and 24% of Will County.
Another approximate 11% of the Bank's assets are located in the "Quad Cities"
area of Western Illinois and Eastern Iowa which includes the Illinois cities of
Moline and Rock Island and the Iowa cities of Davenport and Bettendorf. The Quad
Cities region has a population of approximately 375,000, employment in excess of
233,000 jobs, and annual retail sales of approximately $3.1 billion. Employment
in this market area is projected to increase approximately 15% for the period
2000 through 2010. The Bank has an approximate 6% market share, or the third
largest, in the Quad Cities.
The Bank maintains branch operations in downstate Illinois primarily in
Vermilion and Champaign Counties, that represent approximately 4% of the Bank's
total assets. Champaign, Illinois is the home of the University of Illinois. The
Bank has approximately 17% of the total deposits in the Vermilion County market.
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Trust, Investment Management, Mortgage Banking and Insurance Affiliates
In addition to the Bank, the Company also operates four Affiliates that offer
trust, investment advisory and mortgage banking-related services as well as
insurance products. These Affiliates operate in the same markets served by the
Bank.
First Midwest Trust Company, N.A. (the "Trust Company") provides trust and
investment management services to its clients, acting as executor,
administrator, trustee, agent, and in various other fiduciary capacities. As of
December 31, 1999, the Trust Company had approximately $2 billion in assets
under management and in nondiscretionary custody accounts, comprised of accounts
ranging from small personal investment portfolios to large corporate employee
benefit plans.
First Midwest Mortgage Corporation ("FMMC") began operations on January 1, 1994
and was formed as a separate company to consolidate the residential real estate
mortgage loan origination, sales and servicing operations conducted by the Bank.
Information with respect to the residential real estate mortgage loan operations
of FMMC can be found in the "Noninterest Income" section of "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
starting on page 20.
First Midwest Insurance Company operates as a reinsurer of credit life, accident
and health insurance sold through the Bank, primarily in conjunction with the
consumer lending operations.
Heritage Bank, National Association ("Heritage Bank") provides trust and
investment management services to its clients and during 1998 and 1999 operated
an insurance agency that offered a broad range of insurance products. Heritage
Bank was merged into the Bank on December 31, 1999.
Competition
Illinois, and more specifically the metropolitan Chicago area, is a highly
competitive market for banking and related financial services. Competition is
generally expressed in terms of interest rates charged on loans and paid on
deposits, the ability to garner new deposits, the scope and type of services
offered, extended banking hours, access to bank services through branches, and
the offering of additional services such as fiduciary and brokerage services.
The Bank competes with other banking institutions and savings and loan
associations, personal loan and finance companies, and credit unions within its
market areas. In addition, the Bank competes for deposits with money market
mutual funds and investment brokers. The Bank's market areas are experiencing
increased competition from the acquisition of local financial institutions by
out-of-state commercial banking institutions.
The Trust Company competes with retail and discount stock brokers, investment
advisors, mutual funds, insurance companies, and to a lesser extent, financial
institutions. Factors influencing the type of competition experienced by the
Trust Company generally involve the variety of products and services that can be
offered to clients. With the proliferation of investment management service
companies such as mutual funds and discount brokerage services over the last
several years, competition for the Trust Company includes not only financial
service providers within market areas served but also competitors outside of the
geographic areas in which the Trust Company maintains offices. Offering a broad
array of products and services at competitive prices is an important element in
competing for customers. However, the Company believes that by delivering
quality services through a systematic approach in which a customer's financial
needs are the object and measurement of sales activities is the most important
aspect in retaining and expanding its customer base, and differentiates First
Midwest from many of its competitors.
Supervision and Regulation
The Company and its Affiliates are subject to regulation and supervision by
various governmental regulatory authorities including, but not limited to, the
Federal Reserve Board, the Office of the Comptroller of the Currency (the
"OCC"), the Federal Deposit Insurance Corporation (the "FDIC"), the Illinois
Commissioner of Banks and Real Estate Companies (the "Commissioner of
Illinois"), the Arizona Department of Insurance, the Internal Revenue Service
and state taxing authorities. Financial institutions and their holding companies
are extensively regulated under federal and state law. The effect of such
statutes, regulations and policies can be significant, and cannot be predicted
with a high degree of certainty.
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Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and the Affiliates, regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, the nature and amount of collateral for loans,
the establishment of branches, mergers, consolidations and dividends. This
supervision and regulation is intended primarily for the protection of the
FDIC's bank (the "BIF") and savings association (the "SAIF") insurance funds and
the depositors, rather than the stockholders of a financial institution.
The following references to material statutes and regulations affecting the
Company and its Affiliates are brief summaries thereof and are qualified in
their entirety by reference to such statutes and regulations. Any change in
applicable law or regulations may have a material effect on the business of the
Company and its Affiliates.
Illinois Banking Law
Illinois bank holding companies are permitted to acquire banks and bank holding
companies, and be acquired by bank holding companies, located in any state which
authorizes such acquisitions under qualifications and conditions which are not
unduly restrictive, as determined by the Commissioner of Illinois, when compared
to those imposed under Illinois law.
Under interstate banking legislation, adequately capitalized and managed bank
holding companies are permitted to acquire control of a bank in any state.
States, however, may prohibit acquisitions of banks that have not been in
existence for at least five years. The Federal Reserve Board is prohibited from
approving an application if the applicant controls more than 10 percent of the
total amount of deposits of insured depository institutions nationwide. In
addition, interstate acquisitions may also be subject to statewide concentration
limits.
The Federal Reserve Board would be prohibited from approving an application if,
prior to consummation, the applicant controls any insured depository institution
or branch in the home state of the target bank, and the applicant, following
consummation, would control 30 percent or more of the total amount of deposits
of insured depository institutions in that state. This legislation also provides
that the provisions on concentration limits do not affect the authority of any
state to limit the percentage of the total amount of deposits in the state which
would be held or controlled by any bank or bank holding company to the extent
the application of this limitation does not discriminate against out-of-state
institutions. States may also waive the statewide concentration limit. The
legislation authorizes the Federal Reserve Board to approve an application
without regard to the 30 percent statewide concentration limit, if the state
allows a greater percentage of total deposits to be so controlled, or the
acquisition is approved by the state bank regulator and the standard on which
such approval is based does not have the effect of discriminating against
out-of-state institutions.
Interstate branching under the Interstate Banking and Branching Act (the
"Branching Act") permits banks to merge across state lines, thereby creating a
bank headquartered in one state with branches in other states. Approval of
interstate bank mergers will be subject to certain conditions including:
adequate capitalization; adequate management; Community Reinvestment Act
compliance; deposit concentration limits (as set forth above); and compliance
with federal and state antitrust laws. An interstate merger transaction may
involve the acquisition of a branch without the acquisition of the bank only if
the law of the state in which the branch is located permits out-of-state banks
to acquire a branch of a bank in that state without acquiring the bank.
Following the consummation of an interstate transaction, the resulting bank may
establish additional branches at any location where any bank involved in the
transaction could have established a branch under applicable federal or state
law, if such bank had not been a party to the merger transaction.
Interstate branches will be required to comply with host state community
reinvestment, consumer protection, fair lending, and intrastate branching laws,
as if the branch were chartered by the host state. An exception is provided for
national bank branches if federal law preempts the state requirements or if the
OCC determines that the state law has a discriminatory effect on out-of-state
banks. All other laws of the host state will apply to the branch to the same
extent as if the branch were a bank, the main office being located in the host
state.
The interstate branching by merger provisions became effective on June 1, 1997,
and allowed each state, prior to the effective date, the opportunity to "opt
out", thereby prohibiting interstate branching within that state. Of those
states in which First Midwest's banking subsidiaries are located (Illinois and
Iowa), neither has adopted legislation to "opt out" of the interstate branching
provisions. Furthermore, pursuant to the Branching Act, a bank is now able to
add new branches in a state in which it does not already have banking operations
if such state enacts a law permitting such de novo branching.
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The effects on the Company of the changes in interstate banking and branching
laws cannot be accurately predicted, but it is likely that there will be
increased competition from national and regional banking firms headquartered
outside of Illinois.
Bank Holding Company Act of 1956, As Amended
A bank holding company is subject to regulation under the Bank Holding Company
Act of 1956, as amended (the "Act"), and must register with Federal Reserve
Board under that Act. A bank holding company is required by the Act to file an
annual report of its operations and such additional information as the Federal
Reserve Board may require and is subject, along with its subsidiaries, to
examination by the Federal Reserve Board. The Federal Reserve Board has
jurisdiction to regulate the terms of certain debt issues of bank holding
companies including the authority to impose reserve requirements.
The Act currently prohibits a bank holding company, or any subsidiary thereof,
other than a bank, from acquiring all or substantially all the assets of any
bank located outside of Illinois or for a bank holding company or any subsidiary
from acquiring five percent (5%) or more of the voting shares of any bank
located outside of Illinois unless such acquisition is specifically authorized
by the laws of the state in which the bank is located and the acquiror receives
prior approval from the Federal Reserve Board. The acquisition of five percent
(5%) or more of the voting shares of any bank located in Illinois requires the
prior approval of the Federal Reserve Board and is subject to state law
limitations.
The Act also prohibits, with certain exceptions, a bank holding company from
acquiring direct or indirect ownership or control of more than five percent (5%)
of the voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks, or
furnishing services to banks and their subsidiaries, except that bank holding
companies may engage in, and may own shares of, companies engaged in certain
businesses found by the Federal Reserve Board to be "so closely related to
banking...as to be a proper incident thereto". Under current regulations of the
Federal Reserve Board, a bank holding company and its nonbank subsidiaries are
permitted, among other activities, to engage in such banking-related business
ventures as sales and consumer finance, equipment leasing, computer service
bureau and software operations, mortgage banking and brokerage, and sale and
leaseback and other forms of real estate banking. The Act does not place
territorial restrictions on the activities of a bank holding company or its
nonbank subsidiaries.
Federal law prohibits acquisition of "control" of a bank or bank holding company
without prior notice to certain federal bank regulators. "Control" is defined in
certain cases as the acquisition of as little as 10% of the outstanding shares.
Furthermore, under certain circumstances, a bank holding company may not be able
to purchase its own stock where the gross consideration will equal 10% or more
of the company's net worth without obtaining approval of the Federal Reserve
Board.
Financial Institutions Reform, Recovery and Enforcement Act of 1989
The passage of the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") resulted in significant changes in the enforcement powers of
federal banking agencies, and more significantly, the manner in which the thrift
industry is regulated. While FIRREA's primary purpose was to address public
concern over the financial crises of the thrift industry through the imposition
of strict reforms on that industry, FIRREA grants bank holding companies more
expansive rights of entry into "the savings institution" market through the
acquisition of both healthy and failed savings institutions. Under the
provisions of FIRREA, a bank holding company can expand its geographic market or
increase its concentration in an existing market by acquiring a savings
institution, but it cannot expand its product market by acquiring a savings
institution.
Federal Deposit Insurance Corporation Improvement Act of 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDIC
Improvement Act" or "FDICIA") introduced a comprehensive and fundamentally
changed approach to banking supervision, generally subjecting banking
institutions to significantly increased regulation and supervision. Some of the
provisions contained in the FDIC Improvement Act include the implementation of a
risk-related premium system for FDIC-insured deposits, revisions in the process
of supervision and examination for depository institutions, and federal deposit
insurance reforms. The FDIC Improvement Act has had, and is expected to continue
to have, a broad and significant impact on the structure and condition of the
banking industry.
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Graham-Leach-Bliley Act of 1999
The enactment of the Graham-Leach-Bliley Act of 1999 (the"GLB Act") repeals
sections 20 and 32 of the Banking Act of 1933, allowing new opportunities to be
available for banks, other depository institutions, insurance companies and
securities firms to enter into combinations that permit a single financial
services organization to offer customers a more complete array of financial
products and services. To further this goal, the GLB Act amends section 4 of the
Act providing a new regulatory framework for regulation through the financial
holding company ("FHC"), which will have as its umbrella regulator the Federal
Reserve Board. Functional regulation of the FHC's separately regulated
subsidiaries will be conducted by their primary functional regulator. Pursuant
to the GLB Act, bank holding companies, subsidiary depository institutions
thereof and foreign banks electing to qualify as a FHC must be "well managed",
"well capitalized" and at least rated satisfactory under the Community
Reinvestment Act in order for them to engage in new financial activities. The
GLB Act provides a federal right to privacy of non-public personal information
of individual customers. First Midwest and its Affiliates are also subject to
certain state laws that deal with the use and distribution of non-public
personal information.
Regulation of Mortgage Banking Operations
FMMC's primary regulator is the Federal Reserve Board. FMMC is also subject to
the rules and regulations of various governmental regulatory authorities
including, but not limited to, the Federal Housing Authority ("FHA"), the
Department of Housing and Urban Development ("HUD"), Veterans Administration
("VA"), Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National
Mortgage Association ("FNMA") with respect to originating, processing, selling
and servicing mortgage loans. Those rules and regulations, among other things,
establish underwriting guidelines which include provisions for inspections and
appraisals, require credit reports on prospective borrowers, and fix maximum
loan amounts. Moreover, lenders such as FMMC are required annually to submit to
FNMA, FHA and FHLMC audited financial statements, and each regulatory entity has
its own financial requirements. FMMC's affairs are also subject to examination
by FNMA, FHA, FHLMC and VA at all times to assure compliance with the applicable
regulations, policies and procedures. Mortgage origination activities are
subject to, among others, the Equal Credit Opportunity Act, Federal
Truth-in-Lending Act, Fair Credit Reporting Act and the Real Estate Settlement
Procedures Act and the regulations promulgated thereunder which prohibit
discrimination and require the disclosure of certain basic information to
mortgagors concerning credit terms and settlement costs. Additionally, there are
various state and local laws and regulations affecting FMMC's operations as well
as requirements promulgated by various private investors such as life insurance
companies and others to whom loans have been sold.
Capital Guidelines
The Federal Reserve Board, the OCC and the FDIC have established risk-based
capital guidelines to provide a framework for assessing the adequacy of the
capital of national banks and their bank holding companies (collectively
"banking institutions"). These guidelines apply to all banking institutions
regardless of size and are used in the examination and supervisory process as
well as in the analysis of applications to be acted upon by the regulatory
authorities. These guidelines require banking institutions to maintain capital
based on the credit risk of their operations, both on and off-balance sheet.
The minimum capital ratios established by the guidelines are based on both tier
1 and total capital to total risk-based assets. Total risk-based assets are
calculated by assigning each on-balance sheet asset and off-balance sheet item
to one of four risk categories depending on the nature of each item. The amount
of the items in each category is then multiplied by the risk-weight assigned to
that category (0%, 20%, 50% or 100%). Total risk-based assets equals the sum of
the resulting amounts. At December 31, 1999, banking institutions were required
to maintain a minimum ratio of tier 1 capital to total risk-based assets of
4.0%, with "tier 1 capital" generally defined as stockholders' equity less
certain intangible assets. In addition, banking institutions are required to
maintain a minimum ratio of total capital to total risk-based assets of 8.0%,
with at least 50% of the risk-based capital requirement to be met with tier 1
capital. Total capital is generally defined to include tier 1 capital plus
limited levels of the reserve for loan losses.
In addition to the risk-based capital requirements, the Federal Reserve Board,
the OCC and the FDIC require banking institutions to maintain a minimum
leveraged-capital ratio to supplement the risk-based capital guidelines. The
leverage ratio is intended to ensure that adequate capital is maintained against
risks other than credit risk. The leverage standards required by the regulators
establish a minimum required ratio of tier 1 capital to total assets for a
banking institution based on the regulatory rating assigned to the institution
at on-site examinations conducted by its primary regulator. For banking
institutions receiving the highest rating available from its primary regulator,
a minimum ratio of 3% is required, assuming that the institution is not
experiencing, or anticipating to experience,
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significant growth. All other banking institutions will be expected to maintain
a ratio of tier 1 capital to total assets of at least 4% to 5%, depending upon
their particular circumstances and risk profiles, as determined by their primary
regulator.
The Company exceeds the minimum required capital guidelines for both risk-based
capital ratios and the leverage ratio at December 31, 1999. The Company's
capital structure and capital ratios relative to the regulatory guidelines are
further detailed in the "Capital Management and Dividends" section of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" located on page 24.
Dividends
In addition to capital guidelines, there are various national and state banking
regulations which limit the ability of the Affiliates to pay dividends to the
Company. Since the Company is a legal entity, separate and distinct from its
Affiliates, its dividends to stockholders are not subject to such bank
regulatory guidelines.
The Bank and the Trust Company are national banking associations and as such are
limited in the amount of dividends that they can pay to the Company under
Sections 56 and 60 of the National Bank Act. Section 56 restricts a national
bank from paying dividends if it would impair the institution's capital by
barring any payments in excess of net profits then on hand. Section 56 further
requires that a bank deduct losses and bad debts from "net profits then on
hand". It also specifies that a portion of a bank's capital surplus account may
be included as "net profits then on hand", to the extent that it represents
earnings from prior periods. Dividends on preferred stock are not subject to the
limitations set forth in Section 56. Section 60 requires OCC approval if the
total of all dividends declared on common stock in any calendar year will exceed
the institution's net profits of that year combined with its retained net
profits of the preceding two years, less any required transfers to surplus. In
calculating its net profits under Section 60, a national bank may not add back
provisions made to its reserve for loan losses nor deduct net charge-offs.
Unlike Section 56, dividends on preferred stock are subject to the limitations
set forth in Section 60.
Dividends from FMMC may be paid to the extent that such dividends do not reduce
the capital of FMMC below $1,000,000.
The appropriate Federal regulatory authority is authorized to determine, under
certain circumstances relating to the financial condition of a bank or bank
holding company, that the payment of dividends would be an unsafe or unsound
practice and to prohibit payment thereof.
FDIC Insurance Premiums
The Bank's deposits are predominantly insured through the BIF while certain
deposits held by the Bank are insured through the SAIF, both of which are
administered by the FDIC. As insurer, the FDIC imposes deposit insurance
premiums and is authorized to conduct examinations of, and to require reporting
by, FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious risk to the FDIC.
The FDIC's deposit insurance premiums are assessed through a risk-based system
under which all insured depository institutions are placed into one of nine
categories and assessed insurance premiums on deposits based upon their level of
capital and supervisory evaluation. For 2000, the Bank will pay premium
assessments on both its BIF and SAIF insured deposits in order to service the
interest on the Financing Corporation ("FICO") bond obligations which were used
to finance the cost of "thrift bailouts" in the 1980's. The FICO assessment
rates for the first semi-annual period of 2000 were set at $.0212 per $100 of
insured deposits each for BIF and SAIF assessable deposits. These rates may be
adjusted quarterly to reflect changes in assessment basis for the BIF and SAIF.
Monetary Policy and Economic Conditions
The earnings of the Company are affected by general economic conditions in
addition to the policies of various governmental regulatory authorities. In
particular, the actions and policies of the Federal Reserve Board exert a major
influence on interest rates charged on loans and paid on deposits, credit
conditions and the growth of loans and the price of assets such as securities.
Some of the methods used by the Federal Reserve Board to promote orderly
economic growth by influencing interest rates and the supply of money and credit
include open market operations in U.S. Government securities, changes in the
discount rate on member-bank borrowings, and changes in reserve
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requirements against member-bank deposits.
In addition to the actions of the Federal Reserve Board, the Company's earnings
are also affected by FDIC insurance premiums and the annual fees charged by the
OCC, which is responsible for the supervision of national banks. The effect of
the various measures used by the Federal Reserve Board and other regulatory
authorities on the future business and earnings of the Company cannot be
reasonably predicted.
ITEM 2. PROPERTIES
The Affiliates own substantially all of the properties in which their various
offices are located. The following table summarizes the Company's properties by
location:
<TABLE>
<CAPTION>
Affiliate Markets Served Property Type/Location Ownership
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<S> <C> <C> <C>
The Company Administrative office: Itasca, Illinois Leased
First Midwest Bank, Cook, Champaign, Administrative office: Itasca, Illinois Leased
National Association DuPage, Grundy, Seventy-three banking offices located in Fifty-three
Knox, Lake, LaSalle, markets served. owned/Twenty
Rock Island, Vermillion leased
and Will Countries,
Illinois; Scott Country,
Iowa
First Midwest Trust Same markets served by Main office: Joliet, Illinois Owned
Company, N.A. and Heritage the Bank Additional Trust offices located in
Bank, N.A. Danville, Deerfield, Lake Forest,
Moline, Morris, Tinley Park, Illinois;
Davenport, Iowa.
First Midwest Mortgage Same markets served by Main office: Joliet Illinois Owned
Corporation the Bank Additional offices located within each
banking office.
</TABLE>
In addition to the banking locations listed above, the Bank owns 101 automatic
teller machines, some of which are housed within a banking office and some of
which are independently located.
ITEM 3. LEGAL PROCEEDINGS
There are certain legal proceedings pending against First Midwest and its
Affiliates in the ordinary course of business at December 31, 1999. In assessing
these proceedings, including the advice of counsel, First Midwest believes that
liabilities arising from these proceedings, if any, would not have a material
adverse effect on the consolidated financial condition of First Midwest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no items submitted to a vote of security holders during the fourth
quarter of 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
First Midwest's common stock is traded on the NASDAQ Market System under the
symbol "FMBI". Stock price quotations can be found in The Wall Street Journal
and other major daily newspapers. As of December 31, 1999, there were 3,320
stockholders of record. The following table sets forth the common stock price,
dividends per share and book value per share during each quarter of 1999 and
1998. All common stock and per share data have been adjusted to reflect the
3-for-2 stock split effected in the form of a stock dividend which was paid in
December 1999.
<TABLE>
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1999 1998
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Fourth Third Second First Fourth Third Second First
---------- ---------- ---------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market price of common stock
High...................... $ 30.13 $ 27.92 $ 27.67 $ 26.50 $ 27.75 $ 32.00 $ 34.67 $ 30.00
Low....................... $ 24.38 $ 24.83 $ 24.33 $ 23.04 $ 23.33 $ 22.75 $ 28.33 $ 25.33
Quarter-end............... $ 26.50 $ 25.46 $ 26.50 $ 25.33 $ 25.38 $ 26.38 $ 29.31 $ 29.00
Cash dividends per share...... $ 0.18 $ 0.16 $ 0.16 $ 0.16 $ 0.16 $ 0.15 $ 0.15 $ 0.15
Dividend yield at quarter 2.49% 2.51% 2.42% 2.53% 2.40% 2.27% 2.05% 2.07%
-end/(1)/
Book value per share at
quarter-end................. $ 8.98 $ 9.10 $ 9.57 $ 10.14 $ 10.40 $ 10.40 $ 10.68 $ 10.54
Number of shares traded....... 5,210,606 4,141,575 5,352,570 4,829,280 3,839,592 5,528,124 2,750,738 3,103,818
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
/(1)/ Ratios are presented on an annualized basis.
A discussion regarding the regulatory restrictions applicable to the Affiliates'
ability to pay dividends to the Company is included in the "Dividends" section
under Item 1 located on page 8. A discussion of the Company's philosophy
regarding the payment of dividends is included in the "Capital Management and
Dividends" section of "Management's Discussion and Analysis of Financial
Condition and Results of Operations" located on page 24.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Consolidated financial information reflecting a summary of the operating results
and financial condition of First Midwest for the five years ended December 31,
1999 is presented in the table that follows. This summary should be read in
conjunction with the consolidated financial statements and accompanying notes
included elsewhere in this Form 10-K. All common stock and per share data have
been adjusted to reflect the 3-for-2 stock split effected in the form of a stock
dividend which was paid in December 1999. A more detailed discussion and
analysis of the Heritage acquisition and the factors affecting First Midwest's
financial condition and operating results is presented in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
starting on the following page.
<TABLE>
<CAPTION>
Years ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Results (Amounts in thousands)
Interest income.............................. $ 361,279 $ 364,597 $ 361,661 $ 352,617 $ 349,564
Interest expense............................. 168,615 177,016 168,518 168,975 175,656
Net interest income.......................... 192,664 187,581 193,143 183,642 173,908
Provision for loan losses/(1)/............... 5,760 5,542 9,365 8,189 11,654
Noninterest income........................... 58,334 55,462 47,372 42,554 41,106
Noninterest expense.......................... 149,809 142,654 140,671 135,763 132,664
Special charge, net of (credits)/(2)/........ -- 16,148 5,446 300 3,529
Income tax expense........................... 24,520 23,995 28,425 27,234 22,469
Net income/(3)/.............................. $ 70,909 $ 54,704 $ 56,608 $ 54,710 $ 44,698
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Basic earnings per share..................... $ 1.68 $ 1.24 $ 1.29 $ 1.24 $ 1.01
Diluted earnings per share/(3)/.............. 1.67 1.22 1.26 1.21 0.99
Cash dividends declared...................... 0.660 0.610 0.549 0.469 0.405
Book value at period end..................... 8.98 10.40 10.43 9.53 8.90
Market value at period end................... 26.50 25.38 29.17 21.75 15.42
- ------------------------------------------------------------------------------------------------------------------------------
Performance Ratios
Return on average equity/(3)/................ 17.39% 11.78% 13.16% 13.55% 12.21%
Return on average assets/(3)/................ 1.34% 1.07% 1.18% 1.15% 0.96%
Net interest margin - tax equivalent......... 4.24% 4.21% 4.52% 4.33% 4.16%
Dividend payout ratio........................ 39.52% 50.00% 43.57% 38.76% 40.91%
Average equity to average assets ratio....... 7.71% 9.12% 8.98% 8.51% 7.90%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Highlights (Amounts in thousands) As of December 31,
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- -------------- ------------- ------------- --------------
Total assets................................. $ 5,511,588 $ 5,192,887 $ 4,933,495 $ 4,804,020 $ 4,727,179
Loans........................................ 2,962,487 2,664,417 3,044,794 2,991,229 2,934,010
Deposits..................................... 4,001,183 4,050,451 3,935,607 3,690,242 3,572,243
Stockholders' equity......................... 369,261 452,898 459,719 418,130 393,843
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ 1998, 1997 and 1995 include $650, $1,293 and $548, respectively, in
provisions for loan losses incident to conforming the credit policies of
acquirees to those of First Midwest.
/(2)/ Special charges in 1998, 1997 and 1995 include merger-related costs and
expenses. 1996 includes a special assessment expense for SAIF of $1,640,
net of merger credits of $1,340.
/(3)/ Net income, diluted earnings per share, return on average equity and
return on average assets on a pro-forma basis excluding the after-tax
effect of the provisions for loan losses and special charges described in
(1) and (2) above are as follows:
Pro Forma Selected Financial Data
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------------
Pro Forma 1999 1998 1997 1996 1995
--------- ------------ ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income.................................... $ 70,909 $ 67,237 $ 61,690 $ 54,504 $ 47,874
Diluted earnings per share.................... $ 1.67 $ 1.50 $ 1.38 $ 1.20 $ 1.06
Return on average assets...................... 1.34% 1.32% 1.29% 1.15% 1.03%
Return on average equity...................... 17.39% 14.48% 14.34% 13.49% 13.08%
</TABLE>
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis is intended to address the significant
factors affecting First Midwest's consolidated income statements for the years
1997 through 1999 and statements of condition as of December 31, 1998 and 1999.
The discussion is designed to provide stockholders with a more comprehensive
review of the operating results and financial condition than could be obtained
from a review of the consolidated financial statements alone and should be read
in conjunction with the consolidated financial statements, accompanying notes
thereto and other financial information presented in this Form 10-K.
A condensed review of operations for the fourth quarter of 1999 is included
beginning on page 35. The review provides an analysis of the quarterly earnings
performance for the fourth quarter of 1999 as compared to the same period in
1998.
All common stock and per share data have been adjusted to reflect the 3-for-2
stock split effected in the form of a stock dividend which was paid in December
1999. All dollar amounts are presented in thousands, except per share data.
Unless otherwise stated, all earnings per share data included in this section
and through the remainder of this discussion are presented on a diluted basis.
MERGERS
Heritage Financial Services, Inc. ("Heritage")
On July 1, 1998, First Midwest consummated the merger with Heritage in a
transaction accounted for as a pooling-of- interests. Heritage, headquartered in
suburban Chicago, was a multi-bank holding company whose subsidiaries included a
17 branch commercial bank, a trust company and a subsidiary that offered trust
services and operated an insurance agency business. Heritage had total assets
and stockholders' equity of approximately $1.4 billion and $131 million,
respectively, as of July 1, 1998. Each outstanding share of Heritage Common
Stock, no par value, was converted into .7695 shares of First Midwest Common
Stock, $.01 par value, resulting in the issuance of approximately 9.6 million
shares of First Midwest Common Stock. First Midwest merged Heritage's commercial
bank and trust company, into First Midwest Bank, National Association and First
Midwest Trust Company, respectively, in the fourth quarter 1998. The remaining
subsidiary, Heritage Bank, National Association, continues to offer trust
services to customers of First Midwest; the insurance agency business formerly
operated by this subsidiary was transferred to First Midwest Bank, National
Association in connection with the commercial bank merger.
In connection with the merger, First Midwest recognized, in the third quarter of
1998, a pretax merger-related charge totalling $16,798 consisting of $16,148 in
customary acquisition related costs and expenses and $650 in provision for loan
losses incident to conforming the commercial bank's credit policies to First
Midwest's. Further information regarding the transaction is included under Item
1 of this Form 10-K starting on page 3 and in Note 2 to "Notes to Consolidated
Financial Statements" located on page 44.
SparBank, Incorporated ("SparBank")
On October 1, 1997, First Midwest consummated the merger with SparBank, the
holding company of McHenry State Bank ("MSB"), a $499 million commercial bank,
located in McHenry, Illinois. The transaction was accounted for as a
pooling-of-interests with an exchange of common stock resulting in the issuance
of approximately 3.2 million shares of First Midwest Common Stock to SparBank
shareholders. In connection with the merger, First Midwest recorded a
merger-related charge in the amount $5,082 or $.12 per share relating to the
acquisition consisting of $4,292 in acquisition related costs and expenses and
$790 in provision for loan losses incident to conforming MSB's credit policies
to First Midwest's. On February 23, 1998, MSB was merged into First Midwest
Bank, National Association. Further information regarding the transaction is
included in Note 2 to "Notes to Consolidated Financial Statements" located on
page 44.
12
<PAGE>
SUMMARY OF RESULTS FROM OPERATIONS
Net Income
Net income for 1999 totaled $70,909 or $1.67 per share as compared to $54,704 or
$1.22 per share in 1998 and $56,608 or $1.26 per share in 1997 and included
certain special items detailed on Table 1 that follows. First Midwest's pro
forma net income before special items for 1999 totaled $70,909 or $1.67 per
share as compared to $67,237 or $1.50 per share in 1998 and $61,690 or $1.38 per
share in 1997.
Table 1 reconciles the reported net income to pro forma net income before
special items on an after-tax basis for 1999, 1998 and 1997:
Table 1
Analysis of Reported Net Income
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Diluted
Net Earnings
Income Per Share
----------- ----------
<S> <C> <C>
Reported Net Income - 1999 (no merger related charges) $ 70,909 $ 1.67
=========== ==========
Reported Net Income - 1998 $ 54,704 $ 1.22
Merger related (net of tax):
Expenses........................................................................ 12,143 0.27
Provisions for loan losses...................................................... 390 0.01
----------- ----------
Pro Forma Net Income before special items - 1998..................................... $ 67,237 $ 1.50
=========== ==========
Reported Net Income - 1997 $ 56,608 $ 1.26
Merger related (net of tax):
Expenses........................................................................ 4,292 0.10
Provisions for loan losses...................................................... 790 0.02
----------- ----------
Pro Forma Net Income before special items - 1997..................................... $ 61,690 $ 1.38
=========== ==========
</TABLE>
- --------------------------------
Pro forma net income per share increased by 11.3% from 1998 to 1999 and followed
an increase of 8.7% in 1998 from 1997. The improvement in 1999 from 1998
resulted primarily from increased net interest income and noninterest income in
fee based services, while the increase in 1998 from 1997 resulted primarily from
a similar increase in noninterest income, a decrease in the provision for loan
losses, and lower levels of non interest expense resulting from cost savings
achieved as a result of the SparBank and Heritage mergers.
Performance Ratios
Return on average stockholders' equity for 1999 was 17.39% as compared to 11.78%
in 1998 and 13.16% in 1997. Return on average assets for 1999 was 1.34% as
compared to 1.07% in 1998 and 1.18% in 1997.
Excluding the special items discussed above both return on average stockholders'
equity and assets has shown year-to-year improvement over the last three years.
Pro forma return on average stockholders' equity was 17.39% in 1999, 14.48% in
1998 and 14.34% in 1997 while pro forma return on average assets was 1.34% in
1999, 1.32% in 1998 and 1.29% in 1997.
Credit Quality
Nonperforming loans totaled $20,278 or .68% of total loans at December 31, 1999,
as compared to $20,638 or .77% of total loans at December 31, 1998. Foreclosed
real estate increased 14% to $1,157 at December 31, 1999 as compared to $1,015
at December 31, 1998. Nonperforming assets totaled $21,435 or .72% of loans plus
foreclosed real estate at December 31, 1999 as compared to $21,653 or .81% at
the prior year-end.
The improvement in both nonperforming loans and nonperforming assets is
attributable to the tightened underwirting standards and nonperforming loan
outplacement policy that were implemented by First Midwest in 1998. Although
these
13
<PAGE>
credit controls were partially responsible for the decrease in loans outstanding
from year-end 1997 to 1998, they have contributed to the improved credit quality
that First Midwest has achieved while resuming growth in loans at an 11.2% rate
in 1999.
Capital and Dividends
First Midwest's capital structure continued to be strong at December 31, 1999,
with Tier 1 and Total Capital to risk-based assets of 10.21% and 11.32%,
respectively. The capital levels of First Midwest are in excess of those
designated as "well-capitalized" by the FDIC Improvement Act with such levels
having been maintained consistently as of each quarter end since inception of
the capital ratios required by the FDIC Improvement Act beginning in 1989.
The Company's capital position and earnings have allowed it to increase its
dividend in 1999, for the seventh straight year, to an indicated annual rate of
$.72 per share, from $.64 in 1998 and $.60 in 1997. Additionally, the strong
capital structure has supported First Midwest's ability to repurchase 2,669
shares of its stock during 1999.
MANAGEMENT OF NET INTEREST MARGIN
Net Interest Income
Net interest income represents the difference between interest income and fees
earned on loans, securities and other earning assets and interest expense paid
for the funding sources used to finance those assets. Changes in net interest
income generally occur due to fluctuations in the volume of earning assets and
paying liabilities and the rates earned and paid, respectively, on those assets
and liabilities. Net interest margin represents net interest income as a
percentage of total interest earning assets. For purposes of this discussion,
both net interest income and margin have been adjusted to a fully tax equivalent
basis for certain tax-exempt loans and securities.
Table 2 summarizes First Midwest's average earning assets and funding sources
over the last three years. Additionally, the table shows interest income and
expense related to each category of assets and funding sources and the yields
earned and the rates paid on each.
14
<PAGE>
Table 2
Net Interest Income and Margin Analysis
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ---------------------------- -----------------------------
Yield/ Yield/ Yield/
Average Rate Average Rate Average Rate
Balance Interest (%) Balance Interest (%) Balance Interest (%)
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest bearing deposits with banks....... $ 1,217 $ 85 6.98 $ 1,431 $ 195 13.63 $ 3,697 $ 236 6.38
Securities:
Available for sale - taxable.......... 1,522,684 97,061 6.37 1,307,950 78,986 6.04 1,170,613 77,274 6.60
Available for sale - nontaxable/(1)/ 485,840 36,535 7.52 262,809 18,421 7.01 131,197 12,885 9.82
Held to maturity - taxable............ 27,141 1,418 5.22 27,291 1,451 5.32 13,013 865 6.65
Held to maturity - nontaxable/(1)/.... 25,369 2,012 7.93 87,933 10,231 11.63 121,918 9,704 7.96
---------- -------- ----- ---------- -------- ----- ---------- -------- -----
Total securities................... 2,061,034 137,026 6.65 1,685,983 109,089 6.47 1,436,741 100,728 7.01
Federal funds sold and securities
purchased under agreements to resell.. 16,901 847 5.01 48,314 2,649 5.48 30,773 1,659 5.39
Mortgages held for sale.................... 41,700 3,034 7.28 43,950 3,377 7.68 13,131 1,026 7.81
Loans, net of unearned discount/(1)(2)(3)/. 2,763,200 234,669 8.49 2,945,126 260,389 8.84 2,998,890 267,543 8.92
---------- -------- ----- ---------- -------- ----- ---------- -------- -----
Total interest earning assets/(1)(2)/. 4,884,052 375,661 7.69 4,724,804 375,699 7.95 4,483,232 371,192 8.28
-------- ----- -------- ----- -------- -----
Cash and due from banks.................... 158,431 157,992 159,421
Reserve for loan losses.................... (42,876) (45,715) (45,460)
Other assets............................... 288,029 256,048 194,016
---------- ---------- ----------
Total assets............................... $5,287,636 $5,093,129 $4,791,209
========== ========== ==========
Liabilities and Stockholders'
Equity:
Savings deposits........................... 514,976 9,969 1.94 533,078 13,696 2.57 555,268 14,865 2.68
NOW accounts............................... 453,383 8,234 1.82 430,272 9,798 2.28 411,128 9,568 2.33
Money market deposits...................... 477,701 16,482 3.45 493,700 19,241 3.90 422,851 16,103 3.81
Time deposits.............................. 1,895,488 94,492 4.99 1,882,182 103,477 5.50 1,798,172 100,129 5.57
Borrowed funds............................. 794,272 39,438 4.97 597,630 30,804 5.15 523,829 27,853 5.32
---------- -------- ----- ---------- -------- ----- ---------- -------- -----
Total interest bearing liabilities.... 4,135,820 168,615 4.08 3,936,862 177,016 4.50 3,711,248 168,518 4.54
-------- ----- -------- ----- -------- -----
Demand deposits............................ 677,298 642,201 594,100
Other liabilities.......................... 66,708 49,584 55,598
Stockholders' equity....................... 407,810 464,482 430,263
---------- ---------- ----------
Total liabilities
and stockholders' equity......... $5,287,636 $5,093,129 $4,791,209
========== ========== =========
Net interest income/margin/(1)/............ $207,046 4.24 $ 198,683 4.21 $202,674 4.52
======== ===== ========= ===== ======== =====
</TABLE>
- ----------------
/(1)/ Interest income and yields are presented on a tax equivalent basis,
assuming a federal tax rate of 35%.
/(2)/ Loans on a nonaccrual basis for the recognition of interest income
totaling $20,278, $20,638 and $11,699, as of December 31, 1999, 1998 and
1997, respectively, and are included in loans, net of unearned discount,
for purposes of this analysis.
/(3)/ The amount of loan fees is not material to total interest and fees on
loans in any of the years presented.
15
<PAGE>
Table 3 analyzes the changes in interest income, interest expense and net
interest income that result from changes in volumes of earning assets and
funding sources, as well as fluctuations in interest rates.
Table 3
Changes in Net Interest Income Applicable to Volumes and Interest Rates
<TABLE>
<CAPTION>
1999 as Compared to 1998 Interest Income/Expense Increase/(Decrease) due to:/(1)/
- ------------------------ ------------------------------------------- ------------------------------------
Increase
1999 1998 (Decease) Volume Rate Total
------------- ------------- -------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits with banks........ $ 85 $ 195 (110) $ (26) $ (84) $ (110)
Securities:
Available for sale - taxable............... 97,061 78,986 18,075 13,506 4,569 18,075
Available for sale - nontaxable/(2)/....... 36,535 18,421 18,114 16,682 1,432 18,114
Held to maturity - taxable................. 1,418 1,451 (33) (8) (25) (33)
Held to maturity - nontaxable/(2)/......... 2,012 10,231 (8,219) (5,678) (2,541) (8,219)
Federal funds sold and securities
purchased under agreements to resell/(2)/.. 847 2,649 (1,802) (1,591) (211) (1,802)
Mortgages held for sale..................... 3,034 3,377 (343) (169) (174) (343)
Loans, net of unearned discount/(2)/........ 234,669 260,389 (25,720) (15,697) (10,023) (25,720)
------------- ------------- -------------- ----------- ---------- -----------
Total interest income/(2)/.................. 375,661 375,699 (38) 7,019 (7,057) (38)
------------- ------------- -------------- ----------- ---------- -----------
Savings deposits............................ 9,969 13,696 (3,727) (451) (3,276) (3,727)
NOW accounts................................ 8,234 9,798 (1,564) 564 (2,128) (1,564)
Money market deposits....................... 16,482 19,241 (2,759) (608) (2,151) (2,759)
Time deposits............................... 94,492 103,477 (8,985) 738 (9,723) (8,985)
Borrowed funds.............................. 39,438 30,804 8,634 9,717 (1,083) 8,634
------------- ------------- -------------- ----------- ---------- -----------
Total interest expense..................... 168,615 177,016 (8,401) 9,960 (18,361) (8,401)
------------- ------------- -------------- ----------- ---------- -----------
Net interest income/(2)/................. $ 207,046 $ 198,683 $ 8,363 $ (2,941) $ 11,304 $ 8,363
============= ============= ============== =========== ========== ===========
1998 as Compared to 1997 Interest Income/Expense Increase/(Decrease) due to:/(1)/
- ------------------------ ------------------------------------------- ------------------------------------
Increase
1998 1997 (Decrease) Volume Rate Total
------------- ------------- -------------- ----------- ---------- -----------
Interest bearing deposits with banks........ $ 195 $ 236 (41) $ 48 $ (89) $ (41)
Securities:
Available for sale - taxable............... 78,986 77,274 1,712 6,248 (4,536) 1,712
Available for sale - nontaxable/(2)/....... 18,421 12,885 5,536 7,747 (2,211) 5,536
Held to maturity - taxable................. 1,451 865 586 717 (131) 586
Held to maturity - nontaxable/(2)/.......... 10,231 9,704 527 (803) 1,330 527
Federal funds sold and securities
purchased under agreements to resell/(2)/.. 2,649 1,659 990 962 28 990
Mortgages held for sale..................... 3,377 1,026 2,351 2,368 (17) 2,351
Loans, net of unearned discount/(2)/........ 260,389 267,543 (7,154) (4,768) (2,386) (7,154)
------------- ------------- -------------- ----------- ---------- -----------
Total interest income/(2)/.................. 375,699 371,192 4,507 12,519 (8,012) 4,507
------------- ------------- -------------- ----------- ---------- -----------
Savings deposits............................ 13,696 14,865 (1,169) (582) (587) (1,169)
NOW accounts................................ 9,798 9,568 230 427 (197) 230
Money market deposits....................... 19,241 16,103 3,138 2,753 385 3,138
Time deposits............................... 103,477 100,129 3,348 4,597 (1,249) 3,348
Borrowed funds.............................. 30,804 27,853 2,951 3,771 (820) 2,951
------------- ------------- -------------- ----------- ---------- -----------
Total interest expense..................... 177,016 168,518 8,498 10,966 (2,468) 8,498
------------- ------------- -------------- ----------- ---------- -----------
Net interest income/(2)/................. $ 198,683 $ 202,674 $ (3,991) $ 1,553 $ (5,544) $ (3,991)
============= ============= ============== =========== ========== ===========
</TABLE>
__________________________
/(1)/ For purposes of this table, changes which are not due solely to
volume changes or rate changes are allocated to such categories on
the basis of the percentage relationship of each to the sum of the
two.
/(2)/ Interest income is presented on a tax equivalent basis.
16
<PAGE>
Net interest income on a tax equivalent basis increased in 1999 by $8,363, or
4.2%, from 1998 and reversed a decrease in 1998 of $3,991, or 2.0%, from 1997.
Net interest margin on a tax equivalent basis in 1999 was 4.24% as compared to
4.21% in 1998 and 4.52% in 1997.
The improvement in both net interest income and net interest margin in 1999 is
due primarily to a reduction in interest expense on interest bearing deposits.
In response to a general drop in interest rates in the markets it serves, First
Midwest decreased deposit rates during the fourth quarter of 1998 and again
during the mid-first quarter of 1999. The result was a decrease of 42 basis
points on interest paid on total interest bearing liabilities from 4.50% in 1998
to 4.08% in 1999. Although the general drop in interest rates likewise reduced
the interest earned on interest earning assets, that decrease of 26 basis points
from 7.95% in 1998 to 7.69% in 1999 was offset by an increase in the volume of
average earning assets. The resulting improvement in net interest income and net
interest margin reversed a decline experienced in 1998 as compared to 1997 that
was primarily due to a lower level of high yielding loans and a reduction in the
overall yield of the securities available for sale portfolio relating primarily
to collateralized mortgage obligations.
Contributing to the increase in earning assets in 1999 was the investment by
First Midwest in a leveraged arbitraged transaction. During the third and fourth
quarters of 1999, First Midwest purchased approximately $250 million in U.S.
Agency securities and financed such purchases with repurchase agreements. As
part of the overall transaction, First Midwest also entered into interest rate
swaps to fix the financing costs, resulting in a one year matched arbitrage with
a locked interest rate spread of approximately 75 basis points. The leveraged
arbitrage transaction accounts for most of the increase in the securities
available for sale and short term borrowings average balances and the relating
increases in interest income and interest expense, respectively, thereon.
Additionally, since this transaction resulted in a higher level of interest
earning assets at the narrow interest rate spread discussed above, it negatively
impacted net interest margin for 1999 by approximately 18 basis points. First
Midwest had no leveraged arbitrage transactions of this type in place during
1998 or 1997.
The following sections entitled "Rate Sensitivity Management" and "Funding and
Liquidity Management" describe the techniques used by First Midwest in managing
the volatility and other factors affecting net interest income and net interest
margin.
Rate Sensitivity Management
First Midwest's earning assets and funding sources do not respond uniformly to
changing market interest rates because of the differing interest rate, repricing
and maturity characteristics of the various balance sheet categories of assets
and liabilities. Interest rate risk is the degree to which these market interest
rate fluctuations can affect net interest income. While there are several ways
in which to analyze interest rate risk, the traditional method is called "gap"
analysis. Gap analysis is a static management tool used to identify mismatches
or gaps in the repricing of assets and liabilities within specified periods of
time.
First Midwest's gap analysis as of December 31, 1999 is presented in Table 4.
Earning assets and interest bearing liabilities are presented within selected
time intervals over a one-year forward period based upon their repricing and
maturity characteristics. In a perfectly matched gap analysis, an equal amount
of rate-sensitive assets and liabilities would be reflected as repricing within
each given time interval. A positive interest rate sensitivity gap indicates
more assets than liabilities will reprice in that time period, while a negative
gap indicates more liabilities will reprice.
Table 4
Analysis of Rate Sensitive Assets and Liabilities
<TABLE>
<CAPTION>
At December 31, 1999 1-31 Days 31-90 Days 91-180 Days 181-365 Days
- -------------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Rate Sensitive Assets (RSA).............................. $ 1,102,451 $ 215,278 $ 159,429 $ 346,731
Rate Sensitive Liabilities (RSL)......................... $ 1,293,731 $ 756,624 $ 681,965 $ 640,640
Interest Sensitivity Gap (GAP)
(RSA less RSL):
Incremental............................................ $ (191,280) $ (541,346) $ (522,536) $ (293,909)
Cumulative............................................. $ (191,280) $ (732,626) $ (1,255,162) $ (1,549,071)
Cumulative, excluding savings, money markets, and
NOW accounts........................................... $ (181,659) $ (703,764) $ (1,197,438) $ (1,433,624)
RSA/RSL (Ratio).......................................... 85.2% 28.5% 23.4% 54.1%
GAP/Total Assets (Cumulative)............................ (3.5)% (13.3)% (22.8)% (28.1)%
GAP/Total Assets (Cumulative, excluding savings, money
markets and NOW accounts).............................. (3.3)% (12.8)% (21.7)% (26.0)%
============== ============= ============= ============
</TABLE>
17
<PAGE>
The preceding table reflects a cumulative liability-sensitive balance sheet over
a one year time frame which likely will more positively affect net interest
income if interest rates fall than if they rise. However, while the gap analysis
is widely used in the industry, it is unable to capture other factors affecting
the sensitivity of the balance sheet, such as the time lags required for certain
assets and liabilities to reprice because of their varying sensitivity to
changes in market interest rates. For these reasons, a static gap analysis has
limitations in its usefulness and its ability to effectively present the rate
sensitivity of a balance sheet. Accordingly, First Midwest uses a more dynamic
approach to measuring interest rate risk by conducting simulations that
demonstrate the changes that would occur in net interest income under different
interest rate scenarios and balance sheet structures. This form of modeling is
conducted monthly, involves adjustments to balance sheet volumes over a 12 month
forward period, incorporates a repricing analysis of earning assets and funding
sources and considers certain other off-balance sheet hedging vehicles such as
interest rate exchange agreements (swaps), as further described below.
Furthermore, First Midwest has generally followed a policy of maintaining a
balanced mix of rate-sensitive assets and liabilities, making each side of the
balance sheet approximately equally flexible in reacting to changes in market
interest rates so that net interest income will not be adversely affected by
more than 5%, regardless of whether interest rates rise or fall rapidly. The
simulations described above, coupled with policy guidelines intended to limit
the sensitivity of net interest income to changes in interest rates, provide
guidance to First Midwest in adjusting its strategies based on projections of
the future interest rate environment to ensure maximization of net interest
income.
The net interest income simulation model used by First Midwest to assess the
direction and magnitude of changes in net interest income resulting from changes
in interest rates over a 12 month horizon utilizes multiple rate scenarios.
These scenarios include a flat rate environment, a most likely forecast (which
First Midwest believes is the most probable outlook), a gradual increase and
decrease of at least 150 basis points, and an immediate increase and decrease of
100 basis points. Key assumptions in the model include prepayment speeds on
mortgage-related assets, cash flows and maturities of derivative and other
financial instruments, changes in loan and deposit volumes and pricing, deposit
interest rate sensitivity and First Midwest's capital plans. The assumptions are
inherently uncertain and, as a result, the model cannot precisely estimate net
interest income or precisely predict the impact of higher or lower rates on net
interest income. Actual results will differ from simulated results due to
timing, magnitude and frequency of interest rate changes and changes in interest
rate market conditions and strategies, among other factors. Furthermore, First
Midwest also believes that immediate and sustained changes in interest rates
will not necessarily impact all interest bearing liabilities in the same
fashion. As discussed above, an immediate increase or decrease in First
Midwest's base lending rate may not result in an immediate, identical increase
in rates paid on non-maturing, non-indexed interest bearing liabilities such as
savings accounts, money markets and NOW accounts. Accordingly, First Midwest
analyzes the impact of immediate and sustained parallel changes in interest
rates both including and excluding non-maturing, non-indexed deposits. Based on
the results of its simulation model and the assumptions included therein, as of
December 31, 1999, exclusive of the effect of the rate increase on non-maturing,
non-indexed deposits, First Midwest would expect a decrease in net interest
income of 5.1% and an increase in net interest income of 4.3% if interest rates
experienced an immediate increase or decrease, respectively, by 100 basis points
over a 12 month period. As of December 31, 1998, First Midwest had expected a
decrease in net interest income of 3.0% and an increase in net interest income
of 2.3% for these same scenarios. If non-maturing, non-indexed deposits were
included in this analysis and were immediately affected by such increase or
decrease in interest rates, the reduction in net interest income from a rise in
rates of 100 basis points would be 10.0% while an improvement in net interest
income of 9.2% would result from a reduction in interest rates of 100 basis
points at December 31, 1999. At December 31, 1998, the reduction in net interest
income from a rise in rates of 100 basis points would have been 9.1%, while an
improvement in net interest income of 5.6% would have resulted from a reduction
in interest rates of 100 basis points. First Midwest believes that its interest
rate sensitivity position is appropriate given the current economic and interest
rate environment.
As a part of its approach to controlling the interest rate risk within its
balance sheet, First Midwest has entered into interest rate swaps with third
parties in order to limit variations in net interest income. The advantages of
using interest rate swaps include the ability to maintain or increase liquidity,
lower capital requirements as compared to cash instruments, enhance net interest
margin and to customize the interest rate swap agreement to meet desired risk
parameters. Interest rate swap transactions involve exchanges of fixed and
floating rate interest payments without the exchange of the underlying notional
(i.e., principal) amount on which the interest payments are calculated. The net
cash flow paid or received by First Midwest on these transactions is treated as
an adjustment to the interest income and expense on the underlying earning asset
or funding source to which the swap relates.
The primary risk associated with interest rate swap transactions is credit risk,
or the ability of the swap counterparty to perform its interest payment
obligation under the terms of the agreement. Credit risk on the interest rate
swap transactions consists of the aggregate net interest payable to First
Midwest by the counterparty in addition to the aggregate unrealized gain on the
swap position. First Midwest controls this credit risk by maintaining a policy
limiting credit exposure to any one counterparty to not
18
<PAGE>
more than 2.5% of consolidated stockholders' equity. In addition, First
Midwest's interest rate swap transactions generally require the establishment of
a mutual mark-to-market arrangement whereby cash collateral may be required to
be on deposit with First Midwest and/or the counterparty.
As of December 31, 1999, First Midwest had total interest rate swaps with an
aggregate notional amount of $357,900 in place, hedging various balance sheet
categories. The specific terms of these swaps as well as the fair value are
detailed in Note 18 to "Notes to Consolidated Financial Statements" beginning on
page 56. First Midwest does not act as an intermediary in arranging interest
rate swaps for customers.
Funding and Liquidity Management
Liquidity management is the ability to provide funding sources at a minimum cost
to meet fluctuating deposit, withdrawal and loan demand needs. First Midwest's
liquidity policy establishes parameters as to how liquidity should be managed to
maintain flexibility in responding to changes in liquidity needs over a 12-month
forward period, including the requirement to formulate a quarterly liquidity
compliance plan for review by the Board of Directors.
While asset liquidity provides funds through the maturity and sale of loans,
securities, and other interest earning assets, another source of liquidity is
liability liquidity, consisting primarily of interest bearing and noninterest
bearing deposits as well as repurchase agreements. Other liability funding
sources potentially include funds purchased facilities available thorough
certain correspondent banks and funding through the discount window borrowing
facilities of the Federal Reserve System.
Table 5 provides a year-to-year comparison of the sources of First Midwest's
liability funding based upon average balances over the last three years.
Average, rather than period-end, balances are more meaningful in analyzing First
Midwest's funding sources because of the inherent fluctuations that occur on a
monthly basis within most deposit categories.
Table 5
Funding Sources - Average Balances
<TABLE>
<CAPTION>
% of % of % of
1999 total 1998 total 1997 total
------------ --------- ------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits.................................. $ 677,298 14.07 $ 642,201 14.03 $ 594,100 13.80
Savings deposits................................. 514,976 10.70 533,078 11.64 555,268 12.90
NOW accounts..................................... 453,383 9.42 430,272 9.40 411,128 9.60
Money market accounts............................ 477,701 9.92 493,700 10.78 422,851 9.80
Time deposits in denominations of $100 or less... 1,292,135 26.85 1,363,762 29.78 1,396,571 32.40
------------ --------- ------------- -------- ------------ --------
Core deposits................................. 3,415,493 70.96 3,463,013 75.63 3,379,918 78.50
Time deposits in denominations of $100 or more... 603,353 12.54 518,420 11.32 401,601 9.30
Repurchase agreements............................ 605,527 12.58 451,620 9.86 480,992 11.20
Funds purchased and other borrowed funds......... 188,745 3.92 146,010 3.19 42,837 1.00
------------ --------- ------------- -------- ------------ --------
Total funding sources......................... $ 4,813,118 100.00 $ 4,579,063 100.00 $ 4,305,348 100.00
============ ========= ============= ======== ============ ========
</TABLE>
The increase in average core deposits in 1998 as compared to 1997 resulted from
a combination of product introductions coupled with a new advertising campaign
and the use of multi-media advertising, primarily in the Chicago suburban
markets. The drop in core deposits in 1999 resulted, in part, from the decrease
in interest rates paid as discussed in the "Net Interest Income" section located
on page 14. Of the $282 million increase in non core funding sources in 1999,
approximately $105 is attributable to the short-term leveraged arbitrage
transaction discussed in the "Net Interest Income" section.
Tables 6 and 7 that follow provide additional information regarding First
Midwest's wholesale deposit and short-term funding activities:
Table 6
Maturities of Time Deposits of $100 or More
<TABLE>
<CAPTION>
As of
December 31, 1999
-------------------
<S> <C>
Maturing within 3 months............................................................ $ 318,027
After 3 but within 6 months......................................................... 172,158
After 6 but within 12 months........................................................ 109,165
After 12 months..................................................................... 39,844
-------------------
Total.......................................................................... $ 639,194
===================
</TABLE>
19
<PAGE>
Table 7
Borrowed Funds
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
1999 1998 1997
----------------------- ------------------------ ----------------------
Amount Rate Amount Rate Amount Rate
------------ --------- ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
At year end:
Securities sold under agreements to repurchase... $ 788,432 5.61% $ 457,103 4.56% $ 423,601 5.05%
Federal funds purchased.......................... 133,000 5.44 40,000 4.53 -- --
Federal Home Loan Bank advances.................. 150,000 5.46 100,000 5.14 60,000 4.56
Other borrowed funds............................. 6,300 6.96 26,796 5.65 -- --
------------ --------- ------------ ---------- ----------- ---------
Total borrowed funds........................... $ 1,077,732 5.58% $ 623,899 4.70% $ 483,601 4.99%
============ ========= ============ ========== =========== =========
Average for the year:
Securities sold under agreements to repurchase... $ 605,527 4.89% $ 451,620 5.09% $ 480,992 5.16%
Federal funds purchased.......................... 38,348 5.23 27,974 5.39 15,668 10.17
Federal Home Loan Bank advances.................. 142,603 5.15 108,384 5.28 22,849 5.72
Other borrowed funds............................. 7,794 5.93 9,652 6.19 4,320 3.13
------------ --------- ------------ ---------- ----------- ---------
Total borrowed funds........................... $ 794,272 4.97% $ 597,630 5.15% $ 523,829 5.32%
============ ========= ============ ========== =========== =========
Maximum month-end balance:
Securities sold under agreements to repurchase... $ 844,534 $ 555,778 $ 535,302
Federal funds purchased.......................... 133,000 92,000 95,000
Federal Home Loan Bank advances.................. 170,000 160,000 60,000
Other borrowed funds............................. 16,801 29,906 5,000
</TABLE>
Historically, First Midwest has made extensive use of repurchase agreements as a
deposit surrogate because this funding source is not subject to the reserve
requirements applicable to interest bearing deposits and has also realized
direct cost savings in prior years because FDIC insurance premiums were not
assessed on these funding sources. During 1997, First Midwest reduced its
reliance on repurchase agreements as a funding source because the cost of these
funds became more expensive relative to both core deposit funding and other
short-term borrowing sources. As a result, First Midwest placed a greater
reliance on funds purchased and FHLB advances. As interest rates dropped in 1998
and early 1999, First Midwest once again emphasized the use of repurchase
agreements as a funding source. Additionally, repurchase agreements were also
used in 1999 to fund the short-term leveraged arbitrage transaction previously
discussed.
The liquidity needs of First Midwest (parent company) consist primarily of
operating expenses and dividend payments to First Midwest's stockholders. The
primary source of liquidity for the parent company is dividends from Affiliates.
However, this source can also be supplemented by fees assessed to Affiliates, a
practice which has not been utilized in recent years. The parent company has
short term credit facilities which require no compensating balances available to
fund cash flow needs totaling $70,000 at December 31, 1999. The parent company
also has the ability to enhance its liquidity position by raising capital or
incurring debt. The parent company had $6,300 of debt outstanding under its
short-term credit facilities as of year-end 1999.
ANALYSIS OF NONINTEREST INCOME AND EXPENSE
Noninterest Income
Noninterest income, exclusive of net security gains, increased by 8.2% and 16.7%
in 1999 and 1998, respectively, reflecting improvements in all categories except
mortgage banking revenues. The following table analyzes the components of
noninterest income, excluding net security gains, for the years 1997 through
1999:
20
<PAGE>
Table 8
Analysis of Noninterest Income /(1)/
<TABLE>
<CAPTION>
% Change
------------------------------------------ ----------------------------
1999 1998 1997 1999-1998 1998-1997
------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 18,720 $ 17,100 $ 16,735 9.5 2.2
Trust and investment management fees 10,135 9,134 8,411 11.0 8.6
Other service charges, commissions and fees 11,825 10,197 9,428 16.0 8.2
Mortgage banking revenues 5,646 8,535 6,161 (33.8) 38.5
Corporate owned life insurance 5,209 3,135 -- 66.2 N/M
Other income 6,702 5,704 5,354 17.5 6.5
------------ ----------- ----------- ------------ -------------
Total noninterest income $ 58,237 $ 53,805 $ 46,089 8.2 16.7
============ =========== =========== ============ =============
</TABLE>
/(1)/ For a discussion of Security Gains, refer to the "Investment Management"
section located on page 26. N/M - Not a meaningful ratio.
Service charges on deposit accounts, the largest component of noninterest
income, consists of fees on both interest bearing and noninterest bearing
deposit accounts as well as charges for items such as nonsufficient funds ("NSF
fees"), overdrafts and stop payment requests. Service charges on deposit
accounts include both hard dollar charges and charges assessed through account
analysis, the latter being reduced by earnings credits indexed to a short-term
U.S. Treasury yield and generally applicable to business deposit accounts. The
increase of $1,620, or 9.5%, in 1999 and $365, or 2.2%, in 1998 were due to
higher volumes of business checking accounts and the resulting higher service
charges, as well as increased NSF fees. Also contributing to the increase in
1999 was a comprehensive review of NSF fee waiver practices which resulted in
higher collection rates in this fee category.
The Trust Company provides trust and investment management services to its
customers, acting as executor, administrator, trustee, agent, and in various
other fiduciary capacities for client accounts. Trust and investment management
fees generally follow the amount of total assets under management as well as
conditions in the equity and credit markets because fees are often assessed on
the market value of managed funds. Assets under management totaled $2 billion at
December 31, 1999. This category of noninterest income increased by 11.0% in
1999 and 8.6% in 1998. The increase in 1999 was broad-based and effected all
types of trust accounts with the largest portions of the increase being realized
in the personal trust and employee benefit categories.
The increase in other service charges, commissions and fees, which totaled 16.0%
in 1999 and 8.2% in 1998, primarily relates to debit card fee income, check
printing fees and commissions earned on official check outsourcing for both
years.
In 1998, First Midwest purchased certain life insurance policies with seven
national insurance carriers all of whom were rated in the top ranking levels by
the insurance carrier rating agencies. The policies, on which First Midwest is
the beneficiary, insure the lives of certain key First Midwest executives and
were purchased with the proceeds of securities sales from the available for sale
portfolio. Corporate owned life insurance income represents the cash buildup
from the life insurance policies. The cash buildup is afforded tax favored
treatment and serves as a proxy for tax exempt income. The tax equivalent yield
on the corporate owned life insurance policies, which totaled $105,343 at
December 31, 1999 and $100,135 at December 31, 1998, was 8.5% and 8.7%,
respectively.
Other income increased by 17.5% in 1999 over 1998, following a 6.5% increase in
1998 over 1997. The increase in both years was primarily attributable to both
higher volumes of automatic teller machine ("ATM") activity as well as a general
increase in fee schedules for ATM's.
First Midwest conducts its residential real estate mortgage loan origination,
sales and servicing operations through FMMC. Mortgage banking revenues from
these operations include commissions and fees from third party loan servicing,
realized gains on the sale of loans into the secondary market and origination
and other fees received at closing.
The following Tables 9 through 11 summarize mortgage loan origination, sales and
servicing activities for the years 1997 through 1999 as well as the mortgage
banking revenues that have resulted from these activities:
21
<PAGE>
Table 9
Residential Real Estate Originations and Sales
<TABLE>
<CAPTION>
-------------------------------------------------------
1999 1998 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
Residential real estate mortgage loans:
Originated.................................................... $ 445,178 $ 552,081 $ 208,056
Sold to third parties......................................... $ 404,687 $ 470,284 $ 152,812
============== ============== ===============
</TABLE>
Table 10
Mortgage Loan Servicing Portfolio
<TABLE>
<CAPTION>
-------------------------------------------------------
1999 1998 1997
-------------- -------------- ---------------
<S>............................................................. <C> <C> <C>
Residential real estate mortgage loans:
Serviced for third parties.................................... $ 1,543,094 $ 1,474,206 $ 1,051,598
Serviced for First Midwest's portfolio........................ 264,019 276,134 258,617
-------------- -------------- ---------------
Total loans serviced........................................ $ 1,807,113 $ 1,750,340 $ 1,310,215
============== ============== ===============
</TABLE>
Table 11
Mortgage Banking Revenues
<TABLE>
<CAPTION>
-------------------------------------------------------
1999 1998 1997
-------------- -------------- ---------------
<S>............................................................. <C> <C> <C>
Loan production income.......................................... $ 2,705 $ 3,276 $ 1,357
Servicing fee income............................................ 4,603 4,084 3,609
Less: Amortization of mortgage servicing rights............... (3,748) (4,047) (1,240)
Gains on sales of mortgage loans................................ 2,086 5,222 2,288
Gains on sales of mortgage servicing rights..................... -- -- 147
-------------- -------------- ---------------
Total mortgage banking revenues............................... $ 5,646 $ 8,535 $ 6,161
============== ============== ===============
</TABLE>
The decrease in mortgage banking revenues in 1999 as compared to 1998 resulted
primarily from the effect of general market interest rates on mortgage
refinancings in both years. As interest rates fell in 1998 through early 1999,
the refinancing market was exceptionally strong as indicated by the real estate
mortgage loans originated in Table 9 above. As market interest rates began to
trend higher in latter 1999, the volume of loans originated declined, likewise
reducing loan production income. Furthermore, the turn in market rates in 1999
was accompanied by a higher than normal degree of rate volatility, negatively
impacting gains on the sale of mortgage loans.
As mortgages are refinanced, the mortgage servicing rights related to such
mortgages likewise must be written down in full. It has been First Midwest's
policy to use financial derivatives to hedge interest rate risk associated with
mortgage servicing rights to minimize the impairment of such servicing rights
resulting from a drop in interest rates and the attendant increase in mortgage
refinancings. Note 18 to "Notes to Consolidated Financial Statements" located on
page describes First Midwest's hedging policy and the financial derivatives
involved.
During late fourth quarter 1999, First Midwest commenced a strategic review of
the manner in which it delivers mortgage products to its customers. The primary
purposes of the strategic review are to ensure satisfaction of customer needs
through the appropriate delivery of this product, while enhancing revenue
predictability from this product line that is effected by the volatility in
market interest rates. First Midwest expects to conclude its review and
implement any changes in mortgage banking operations during the first quarter of
2000.
Noninterest Expense
Noninterest expense totaled $149,809 in 1999 as compared to $158,802 in 1998 and
$146,117 in 1997. Noninterest expense in 1998 and 1997 included certain special
items relating to merger expenses. The following table analyses the major
components of noninterest expense for the years 1997 through 1999 and provides
further detail related to the special items:
22
<PAGE>
Table 12
Analysis of Noninterest Expense
<TABLE>
<CAPTION>
% Change
--------------------------------------------- ----------------------------
1999 1998 1997 1999-1998 1998-1997
------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Compensation expense................... $ 79,015 $ 77,294 $ 75,061 2.2 3.0
Occupancy expense...................... 13,366 12,039 11,891 11.0 1.2
Equipment expense...................... 8,479 8,354 8,442 1.5 (1.1)
Computer processing expense............ 10,113 9,846 9,129 2.7 7.9
Professional services.................. 8,527 7,849 7,546 8.6 4.0
Advertising and promotions............. 3,822 4,576 3,959 (16.5) 15.6
Other expenses......................... 26,487 22,696 24,643 16.7 (7.9)
------------ ------------- ------------- ------------ -------------
Subtotal............................. 149,809 142,655 140,671 5.0 1.4
------------ ------------- ------------- ------------ -------------
Special items:
Merger expense......................... -- 16,148 5,446 N/M N/M
------------ ------------- ------------- ------------ -------------
Total noninterest expense............ $ 149,809 $ 158,802 $ 146,117 (5.7) 8.7
============ ============= ============= ============ =============
Efficiency ratio /(1)/............. 55.7% 56.1% 56.2%
============ ============= =============
</TABLE>
/(1)/ Excludes special charges in 1998 and 1997.
N/M - Not a meaningful ratio.
Compensation expense, the largest component of noninterest expense, includes
employee salaries and wages, retirement and other employee benefits and expense
relating to temporary personnel costs. Table 13 analyzes the components of
compensation expense for the years 1997 through 1999:
Table 13
Analysis of Compensation Expense
<TABLE>
<CAPTION>
% Change
-------------------------------------- ----------------------------
1999 1998 1997 1999-1998 1998-1997
---------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Salaries and wages................................... $ 63,697 $ 61,872 $ 59,151 2.9 4.6
Retirement and other employee benefits............... 13,587 14,026 15,063 (3.1) (6.9)
Temporary personnel expense.......................... 1,731 1,396 847 24.0 64.8
---------- ---------- ---------- ------------- ------------
Total compensation expense......................... $ 79,015 $ 77,294 $ 75,061 2.2 3.0
========== ========== ========== ============= ============
Average full-time equivalent (FTE) employees 1,709 1,746 1,815 (2.6) (3.8)
========== ========== ========== ============= ============
</TABLE>
The modest increases in compensation expense over the period 1997 through 1999
are primarily attributable to two factors; (i) staff reductions due to
merger-related efficiencies applicable to both the SparBank acquisition in
October 1997 and the Heritage acquisition in July 1998; and (ii) the
restructuring of First Midwest's retirement benefits effective January 1, 1998
that saw a restructuring of retirement benefits which had been found to be in
excess of market levels. The merger efficiencies realized in connection with the
SparBank and Heritage acquisitions have resulted in a reduction of average full
time equivalent employees each year since 1997. First Midwest has been able to
maintain staffing efficiency by utilizing temporary personal to staff
post-merger integration activities and short-term projects such as Y2K
compliance, thereby containing growth in its FTE compliment. The restructuring
of retirement benefits has contributed to the reduction in retirement and other
employee benefits as a percentage of salary and wages for both 1998 and 1999. A
discussion of First Midwest's retirement benefits and the expenses related
thereto is included in Note 14 to "Notes to Consolidated Financial Statements"
located on page 51.
Occupancy expense increased by 11.0% in 1999 over 1998 following a 1.2% increase
in 1998 over 1997. The 1999 increase is primarily attributable to the initiation
of a program to outsource facilities management which began in 1999. This
program resulted in increased occupancy costs through payments to a third party
vendor but also reduced permanent FTE levels. In addition, First Midwest
operated 3 overlapping Heritage branches in 1998 and 1999 that were closed in
the fourth quarter of 1999.
Computer processing expense increased by 2.7% in 1999 over 1998 and followed a
7.9% increase in 1998 over 1997. The increase in 1998 over 1997 is attributable
to the costs associated with duplicate systems being operated through the
completion
23
<PAGE>
of the SparBank operational merger in February 1998 and the Heritage operational
merger in October of that year. 1999 saw computer processing costs returning to
more normalized levels, as the benefits of the aforementioned operational
mergers began to be realized.
The increase in professional services in 1998 over 1997 related to legal costs
associated with the sale of certain 1-4 residential mortgage loans in 1998, with
such sales resulting from the merger of the SparBank and Heritage loan
portfolios. The increase in this category during 1999 was largely due to
loan-related costs associated with a third quarter 1999 home equity loan
promotion, in addition to consultancy fees applicable to outsourcing participant
recordkeeping services by the Trust Company.
Advertising and promotions expense decreased by 16.5% in 1999 following an
increase of 15.6% in 1998. The 1998 expense level was primarily a result of a
new multi-media advertising campaign targeting suburban metropolitan Chicago.
Additionally, in both 1998 and 1997, additional advertising costs were incurred
related to the SparBank and Heritage mergers to ensure maximum customer
retention. Advertising and promotional costs in 1999 returned to more normal
levels.
Other expenses increased by 16.7% in 1999 as compared to 1998 after decreasing
7.9% in 1998 as compared to 1997. Other expenses include various categories such
as freight courier costs, merchant credit card expense, supplies and printing,
and miscellaneous losses and expenses. The increase in 1999 is attributable to
higher freight and express costs resulting from additional courier routes
amongst the branches and operation centers, higher merchant credit card expense
as well as costs applicable to review of certain branch operations that resulted
in the closing of redundant Heritage branches previously discussed.
Additionally, 1998 included certain expense reimbursements credited to this
category that were not duplicted in 1999.
Merger expenses related to both the SparBank and Heritage mergers were recorded
in 1997 and 1998, respectively, and included customary investment banking and
professional fees and anticipated severance and related benefits due to staff
reductions. A discussion of the mergers, including the special charges incurred,
is included under the "Mergers" section of "Managements Discussion and Analysis
of Financial Condition and Results of Operations" located on page and in Note 2
to "Notes to Consolidated Financial Statements" located on page 44.
INCOME TAXES
First Midwest annually develops an income tax plan for the current year and
updates its long term plan which addresses a three-year tax planning horizon.
First Midwest's goal in tax planning is the maximization of long term, after-tax
profitability on a consolidated basis and not necessarily a reduction in the
absolute income tax expense recorded in the consolidated financial statements.
First Midwest's provision for income taxes includes both federal and state
income tax expense. An analysis of the provision for income taxes and the
effective income tax rates for the periods 1997 through 1999 are detailed in
Table 14.
Table 14
Analysis of Income Tax Expense
<TABLE>
<CAPTION>
1999 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
Income before income tax expense..................... $ 95,429 $ 78,699 $ 85,033
Income tax expense................................... $ 24,520 $ 23,995 $ 28,425
Effective income tax rate............................ 25.7% 30.5% 33.4%
========= ========== ==========
</TABLE>
Certain of the acquisition-related expenses recorded during 1998 and 1997 were
not deductible for income tax purposes and affected the effective tax rates for
both years. Factoring out the acquisition related charges for 1998 and 1997, the
effective tax in each period would have been 29.5% and 32.7%, respectively. The
decrease in the effective tax rate for both 1999 and 1998 as compared to the
prior years is due primarily to the addition of corporate owned life insurance
income, planned increases in state tax exempt income and purchases of
small-issue qualified tax exempt municipal securities.
CAPITAL MANAGEMENT AND DIVIDENDS
A strong capital structure is crucial in maintaining investor confidence,
accessing capital markets and enabling First Midwest to take advantage of future
profitable growth opportunities. First Midwest has developed a policy to manage
its capital structure and that of its Affiliates in accordance with regulatory
guidelines and to ensure the appropriate use of this resource.
24
<PAGE>
First Midwest's Capital Policy requires that each Affiliate maintain a capital
ratio in excess of the minimum regulatory guidelines and also acts as an
internal discipline in analyzing business risks and internal growth
opportunities, in addition to setting targeted levels of return on equity. Under
regulatory capital adequacy guidelines, First Midwest and its banking
subsidiaries are subject to various capital requirements administered by the
federal banking agencies. Capital adequacy guidelines require that First Midwest
and its banking subsidiaries meet specific guidelines that involve quantitative
measures of assets, liabilities and certain off-balance sheet items calculated
under regulatory accounting practices. The capital amounts and classifications
are also subject to qualitative judgments by the regulators about components of
capital and assets, risk weightings and other factors. Quantative measures
established by regulation to ensure capital adequacy require First Midwest and
its banking subsidiaries to maintain minimum amounts and ratios of Total and
Tier 1 capital (as defined in the regulations) to risk-weighted assets (as
defined) and of Tier 1 capital to average assets (as defined). First Midwest
believes that, as of December 31, 1999, First Midwest and First Midwest Bank,
National Association meet all capital adequacy requirements to which they are
subject.
As of December 31, 1999, the most recent notification from the Office of the
Comptroller of the Currency categorized First Midwest Bank, National Association
as "well capitalized" under the regulatory framework for the FDICIA. To be
categorized as "well capitalized." a bank must maintain minimum Total and Tier 1
capital to risk-weighted assets and Tier 1 capital to average assets ratios as
set forth in the table below.
The following table summarizes the actual capital amounts and ratios for First
Midwest and compares them to the capital levels and ratios necessary to be
categorized as adequately capitalized and well capitalized:
Table 15
Capital Measurements
<TABLE>
<CAPTION>
First Midwest For Capital Well Capitalized for
Actual Adequacy Purposes FDICIA
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Ratio Capital Ratio Capital Ratio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk-Weighted Assets)
First Midwest Bancorp, Inc.................... $ 437,951 11.32% $ 309,604 8.00% $ 387,005 10.00%
First Midwest Bank, N.A....................... 392,071 10.26 305,053 8.00 381,316 10.00
Tier 1 Capital (to Risk-Weighted Assets):
First Midwest Bancorp, Inc.................... 395,306 10.21 154,802 4.00 232,203 6.00
First Midwest Bank, N.A....................... 349,426 9.16 152,526 4.00 228,790 6.00
Tier 1 Leverage Ratio:
First Midwest Bancorp, Inc.................... 395,306 7.19 164,876 3.00 274,793 5.00
First Midwest Bank, N.A....................... 349,426 6.45 162,502 3.00 270,836 5.00
- -----------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1998:
Total Capital (to Risk-Weighted Assets)
First Midwest Bancorp, Inc.................... $ 480,611 13.29% $ 277,310 8.00% $ 346,637 10.00%
First Midwest Bank, N.A....................... 379,210 11.27 269,237 8.00 336,546 10.00
Tier 1 Capital (to Risk-Weighted Assets):
First Midwest Bancorp, Inc.................... 417,321 12.04 138,655 4.00 207,982 6.00
First Midwest Bank, N.A....................... 337,138 10.02 134,619 4.00 201,928 6.00
Tier 1 Leverage Ratio:
First Midwest Bancorp, Inc.................... 417,321 8.04 154,993 3.00 258,322 5.00
First Midwest Bank, N.A....................... 337,138 6.64 152,340 3.00 253,900 5.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
First Midwest believes that it has a responsibility to reward its stockholders
with a meaningful current return on their investment and, as part of the
Company's dividend policy, the Board of Directors reviews its dividend payout
ratio periodically to ensure that it is consistent with internal capital
guidelines and industry standards. As a result of improved performance from
operations as well as First Midwest's perceived future prospects, the Board of
Directors has increased the quarterly dividend every year since 1993.
Additionally, at its November 1999 meeting, the Board also declared a 3-for-2
stock split effected in the form of a stock dividend which was paid in December
1999. The following table summarizes the dividend increases declared since 1993:
Table 16
Dividend Increases Declared
Quarterly Rate
Date Per Share Increase
------------- -------------- --------
November 1999 $ 0.18 13%
November 1998 $ 0.16 7%
November 1997 $ 0.15 13%
November 1996 $ 0.133 19%
February 1996 $ 0.113 12%
February 1995 $ 0.10 15%
February 1994 $ 0.087 13%
INVESTMENT MANAGEMENT
The investment portfolio is managed to maximize the return on invested funds
within acceptable risk guidelines, to meet pledging requirements and to adjust
balance sheet rate sensitivity to insulate net interest income against the
impact of changes in interest rate movements.
The following table sets forth the year-end carrying value of securities for the
last three years:
Table 17
Composition of Securities
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
1999 1998 1997
------------------------- -------------------------- -------------------------
% of % of % of
Amount Total Amount Total Amount Total
------------- --------- -------------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
By Type:
U.S. Treasury securities............... $ 3,252 0.2 $ 20,627 1.0 $ 130,049 8.6
U.S. Agency securities................. 637,319 30.7 284,262 14.0 62,270 4.1
Mortgage-backed securities............. 904,522 43.5 1,258,336 62.0 946,541 62.5
State and Municipal securities......... 478,886 23.1 434,944 21.4 324,549 21.4
Other securities....................... 52,811 2.5 29,910 1.6 52,019 3.4
------------- --------- -------------- --------- ------------ ----------
Total................................ $ 2,076,790 100.0 $ 2,028,079 100.0 $ 1,515,428 100.0
============= ========= ============== ========= ============ ==========
By Classification:
Available for sale..................... $ 2,033,247 97.9 $ 1,979,115 97.6 $ 1,377,134 90.9
Held to maturity....................... 43,543 2.1 48,964 2.4 138,294 9.1
------------- --------- -------------- --------- ------------ ----------
Total.................................. $ 2,076,790 100.0 $ 2,028,079 100.0 $ 1,515,428 100.0
============= ========= ============== ========= ============ ==========
</TABLE>
The following sections describe First Midwest's securities portfolios:
Securities Available for Sale - Securities which First Midwest believes could be
sold prior to maturity in order to manage interest rate, prepayment or liquidity
risk are classified as securities available for sale and are carried at fair
market value. Unrealized gains and losses on this portfolio segment are reported
on an after-tax basis as a separate component of stockholders' equity in
Accumulated Other Comprehensive Income.
At December 31, 1999, after-tax unrealized net loss on the securities available
for sale portfolio totaled $49,072. This
26
<PAGE>
compares to an after-tax net unrealized gain on such portfolio of $9,875 as of
the prior year end. The unrealized net depreciation on this portfolio represents
the difference, net of taxes, between the aggregate cost and market value of the
portfolio. This balance sheet component will fluctuate as current market
interest rates and conditions change, thereby affecting the aggregate market
value of the portfolio.
In July, 1998, First Midwest reclassified $85,519 in securities from the held to
maturity portfolio (described below) to the available for sale portfolio as a
result of the Heritage merger, conforming the securities acquired to First
Midwest's interest rate and credit risk policies.
The maturity distribution and average yields, on a tax equivalent basis, of the
securities available for sale portfolio at December 31, 1999 are presented in
Table 18.
Table 18
Securities Available for Sale
Maturity Distribution and Portfolio Yields
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------------------------------------------
U.S. U.S. Mortgage- State and
Treasury Agency Backed Municipal Other
Securities Securities Securities Securities /(1)/ Securities Total
------------ ----------- ---------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C> C>
One year or less:
Market Value................... $ 1,534 $ 124,606 $ 56,492 $ 7,574 $ 7,261 197,467
Amortized Cost................. 1,533 125,158 58,643 9,317 7,261 201,912
Yield (%)...................... 5.89 5.34 7.40 5.54 1.71 5.81
One year to five years:
Market Value................... 598 433,936 270,162 11,148 -- 715,844
Amortized Cost................. 603 440,748 282,234 14,438 -- 738,023
Yield (%)...................... 5.89 5.84 7.00 5.28 -- 6.27
Five years to ten years:
Market Value................... -- 56,871 262,290 9,055 24,147 352,363
Amortized Cost................. -- 56,975 274,258 145,850 27,403 504,486
Yield (%)...................... -- 6.43 6.98 4.79 7.18 6.85
After ten years:
Market Value................... -- 21,505 315,578 430,490 -- 767,573
Amortized Cost................. -- 21,270 328,814 319,188 -- 669,272
Yield (%)...................... -- 6.88 7.06 4.91 -- 5.85
------------ ----------- ---------- -------------- ---------- -----------
Total:
Market Value................... $ 2,132 $ 636,918 $ 904,522 $ 458,267 $ 31,408 2,033,247
Amortized Cost................. $ 2,136 $ 644,151 $ 943,949 $ 488,793 $ 34,664 2,113,693
Yield (%)...................... 5.89% 5.83% 7.04% 4.93% 5.92% 6.17%
============ =========== ========== ============== ========== ===========
</TABLE>
/(1)/ Yields on state and municipal securities are reflected on a tax equivalent
basis, assuming a federal tax rate of 35%.
The maturity distributions of mortgaged-backed securities in Table 18 are based
upon the contractual maturities of such securities. Actual maturities of the
securities in Table 18 may differ from that reflected in the table due to
securities with call features which are assumed to be held to contractual
maturity for maturity distribution purposes.
In 1997, First Midwest restructured its mortgaged-backed securities portfolio
through the purchase of a mixture of short-term average life, high coupon
collateralized mortgage obligations ("CMO's"). During 1998, as a result of the
general decline in market interest rates and the corresponding historically high
mortgage prepayments that occurred as mortgage holders refinanced their debt,
the CMO portfolio underperformed initial expectations causing the overall yield
on the taxable available for sale portfolio to drop from 6.60% (on a tax
equivalent basis) in 1997 to 6.04% in 1998. In order to limit the future
potential negative impact on interest income as a result of the performance of
the CMO portfolio, First Midwest sold the poorest performing portion of the CMO
portfolio and reinvested the proceeds in more stable, longer-term cashflow
mortgage-backed securities, U.S. Agency securities and municipal securities.
During 1999, First Midwest continued to restructure its mortgage-backed
securities portfolio by continuing to liquidate its position in the high coupon
CMO's and reinvesting the proceeds in U.S. Agency and municipal securities. This
portfolio restructuring, as well as the purchase of $250 million in U.S.
Agencies in connection with the leveraged arbitrage transaction previously
discussed in the "Net Interest Income" section located on page 14, resulted in
the redistribution
27
<PAGE>
of the securities available for sale portfolio between year-end 1998 and 1999.
As shown in Table 18, as of December 31, 1999 the pre-tax unrealized loss in the
securities available for sale portfolio (representing the difference between the
total portfolio amortized cost and market value at December 31, 1999) was
$80,446 as compared to an unrealized pre-tax gain of $16,195 at year-end 1998.
During the period between year-end 1998 and 1999, the interest rates on the 10
and 30 year U.S. Treasury Bond rose approximately 180 and 140 basis points,
respectively. The decrease in the market value of the mortgaged-backed
securities portfolio results primarily from the general increase in mortgage
rates during 1999, partially offset by a reduction in mortgage loan prepayments.
The duration of the mortgage-backed securities portfolio at year-end 1999 was
approximately 4.5 years with a tax equivalent yield to maturity of 6.8%.
Similarly, the rise in interest rates also negatively affected the state and
municipal securities portfolio which consists of longer term tax exempt
securities. At December 31, 1999 the duration of the state and municipal
securities portfolio was approximately 7.0 years with a tax equivalent yield to
maturity of 7.1%.
As of December 31, 1999 the aggregate securities available for sale portfolio,
totalling $2,033,247, had a duration of 4.1 years and a tax equivalent yield to
maturity of 6.17%.
Excluding securities issued by the U.S. Government and its agencies and
corporations, there were no investments in securities from one issuer that
exceeded 10% of consolidated stockholders' equity on December 31, 1999 or 1998.
Securities Held to Maturity - Securities which First Midwest has the ability and
intent to hold until maturity are classified as securities held to maturity and
are accounted for using historical cost, adjusted for amortization of premium
and accretion of discount. First Midwest has no trading account securities.
The maturity distribution and average yields, on a tax equivalent basis, of the
securities held to maturity portfolio as of December 31, 1999 are presented on
Table 19.
Table 19
Securities Held to Maturity
Maturity Distribution and Portfolio Yields
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------------------------------------
Market
Value as a %
State and of
U.S. Treasury U.S. Agency Municipal Other Amortized
Securities Securities Securities /(1)/ Securities Total Cost
-------------- ------------ -------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
One year or less:
Market Value..................... $ 500 $ 326 $ 2,149 $ 50 $ 3,025 100.27
============
Amortized Cost.................... 500 326 2,141 50 3,017
Yield (%)........................ 5.77 5.66 5.47 6.32 5.55
One year to five years:
Market Value..................... 620 75 6,430 -- 7,125 101.92
============
Amortized Cost.................... 620 75 6,296 -- 6,991
Yield (%)........................ 5.71 5.08 5.60 -- 5.60
Five years to ten years:
Market Value..................... -- -- 6,110 -- 6,110 106.02
============
Amortized Cost................... -- -- 5,763 -- 5,763
Yield (%)........................ -- -- 6.33 -- 6.33
After ten years:
Market Value..................... -- -- 6,631 21,353 27,984 100.76
============
Amortized Cost................... -- -- 6,419 21,353 27,772
Yield (%)........................ -- -- 6.18 7.07 6.86
-------------- ------------ -------------- ------------ ----------
Total:
Market Value..................... $ 1,120 $ 401 $ 21,320 $ 21,403 $ 44,244 101.61
============
Amortized Cost................... $ 1,120 $ 401 $ 20,619 $ 21,403 $ 43,543
Yield (%)........................ 5.74% 5.55% 5.97% 7.06% 6.50%
============== ============ ============== ============ ==========
</TABLE>
(1) Yields on state and municipal securities are reflected on a tax equivalent
basis, assuming a federal tax rate of 35%.
28
<PAGE>
Securities Gains, Net - Net gains decreased in 1999 to $97 as compared to $1,657
in 1998 and $1,283 in 1997.
LOAN PORTFOLIO AND CREDIT QUALITY
Portfolio Composition
Loans represent the principal source of revenue to First Midwest because, as a
category, they are both the largest component and the highest yielding asset on
the statement of condition. The corollary to generating higher yields, however,
is the assumption of credit risk associated with the loan portfolio. Among the
ways in which credit risk is controlled is through diversification of the loan
portfolio and the limitation of the amount of loans extended to any one industry
or group of borrowers.
Over the past several years, First Midwest has migrated toward a loan portfolio
that it has attempted to distribute approximately evenly among the categories of
commercial and industrial (including agricultural), consumer (including real
estate 1 - 4 family) and real estate (both commercial and construction). This
type of diversification spreads the risk and reduces the exposure to economic
downturns that may occur in different segments of the economy or in different
industries.
It is First Midwest's policy to concentrate its lending activities in the
geographic market areas it serves, generally lending to consumers and small to
mid-sized businesses from whom deposits are gathered in the same market areas.
As a result, First Midwest had no consequential out-of-market loans at December
31, 1999. First Midwest does not engage in lending to foreign countries or
foreign entities.
The following table summarizes the total loans outstanding, and their percent of
the loan portfolio, for the periods 1995 through 1999:
Table 20
Loan Portfolio
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------------------------------------------------------
% of % of % of % of % of
1999 Total 1998 Total 1997 Total 1996 Total 1995 Total
----------- ------- ---------- ------- ---------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
industrial............. $ 714,305 24.1 $ 721,599 27.1 $ 723,425 23.8 $ 721,989 24.1 $ 717,755 24.4
Agricultural........... 56,852 1.9 49,397 1.9 39,014 1.3 48,461 1.6 34,297 1.2
Consumer............... 847,997 28.6 688,774 25.8 754,727 24.8 765,256 25.6 674,111 23.0
Real estate - 1-4
family................. 253,268 8.6 257,307 9.7 506,077 16.6 537,785 18.0 641,151 21.9
Real estate -
commercial............. 834,852 28.2 769,514 28.8 858,627 28.2 755,584 25.3 734,112 25.0
Real estate -
construction........... 189,018 6.4 148,469 5.6 129,290 4.2 136,019 4.5 105,383 3.6
Other.................. 66,195 2.2 29,357 1.1 33,634 1.1 26,135 0.9 27,201 0.9
----------- ------- ----------- ------- ----------- ------- ----------- ------- ----------- -------
Total................ $ 2,962,487 100.0 $ 2,664,417 100.0 $ 3,044,794 100.0 $ 2,991,229 100.0 $ 2,934,010 100.0
=========== ======= =========== ======= =========== ======= =========== ======= =========== =======
</TABLE>
After decreasing in 1998 by 12.5% from year-end 1997, total loans increased by
11.2% in 1999. The decrease in loans during 1998 was attributable to four
factors; (i) the securitization of $245 million in 1 - 4 family fixed rate
mortgages acquired as part of the SparBank and Heritage loan portfolios: (ii)
lower levels of nonmortgage loan originations as a result of more stringent
underwriting and administration standards adopted in 1998; (iii) the
outplacement from various loan categories of approximately $50 million in loans
that no longer met heightened credit standards; and (iv) pricing and
underwriting competitive circumstances that become more acute in 1998. With the
1998 operational mergers of SparBank and Heritage behind it, and with all
changes in underwriting and administration standards in place during 1999, First
Midwest was able to focus on loan growth without distractions. As a result, loan
growth was experienced across virtually all categories of the portfolio.
Commercial and industrial loans are diversified from an industry standpoint and
include loans to manufacturing, retailing and other service businesses.
Consistent with First Midwest's emphasis on relationship banking, most of these
credits represent core, multi-relationship customers who also maintain deposit
relationships and utilize other First Midwest banking services such as cash
management. This category of lending was most acutely affected by the pricing
and underwriting competitive conditions in 1999 and showed a nominal decrease in
loans outstanding from year-end 1998 levels. Notwithstanding the competitive
circumstances, however, agricultural loans, which have the same general
characteristics as commercial and industrial, grew by 15.1% as a result of
improvement in the agricultural markets in which First Midwest operates.
Consumer loans consist of loans made directly to individuals for various
personal purposes, as well as indirect installment loans
29
<PAGE>
represented mainly by automobile financings acquired from dealerships in First
Midwest's primary markets. This category also includes direct home equity loans
and other direct installment loans. The 23.1% increase in this loan category in
1999 was experienced across all types of consumer loans, especially the home
equity component, as First Midwest conducted a very successful home equity
promotional campaign.
Real estate 1 - 4 family loans are comprised predominately of owner occupied
residential properties. This loan category decreased by 1.6% in 1999 primarily
as a result of the general increase in market interest rates which resulted in
an industry- wide reduction in refinancings.
Real estate commercial loans represent multi-unit residential mortgages and
commercial real estate mortgages, many housing the operations of the borrower's
business. During the first three quarters of 1998, many First Midwest commercial
real estate borrowers were being attracted by long-term low rate loans being
offered through the secondary markets. First Midwest felt that loans on such
terms were not appropriate for its portfolio and elected not to compete on those
terms. With the volatility in the bond and credit markets experienced during the
early fourth quarter of 1998 this trend began to reverse and continued into
1999, resulting in an 8.5% increase in this loan category over year-end 1998
levels.
Real estate construction loans consist primarily of single family and
multi-family residential projects located in the primary markets of First
Midwest's banking offices. Real estate construction loans are a profitable line
of lending for First Midwest due to the higher level of interest rates and fees
earned on such loans as compared to other loan categories and the favorable loss
experience on these loans. Real estate construction loans grew by 27.3% in 1999
resulting from a heightened level of construction projects in the Chicago
suburban markets within which First Midwest operates.
Maturity and Interest Rate Sensitivity of Loans
Table 21 summarizes the maturity distribution of First Midwest's commercial,
agricultural, commercial real estate and real estate construction loan
portfolios as of December 31, 1999 as well as the interest rate sensitivity of
loans in these categories that have maturities in excess of one year.
Table 21
Maturities and Sensitivities of Loans to Changes in Interest Rates
<TABLE>
<CAPTION>
Due in Due after 1
1 year year through Due after
or less 5 years 5 years Total
----------- ------------ --------- -------------
<S> <C> <C> <C> <C>
Commercial, industrial and agricultural............. $ 464,100 $ 284,038 $ 23,019 $ 771,157
Real estate - commercial............................ 189,692 530,089 115,071 834,852
Real estate - construction.......................... 133,489 55,385 144 189,018
----------- ------------ --------- -------------
$ 787,281 $ 869,512 $ 138,234 $ 1,795,027
=========== ============ ========= =============
</TABLE>
Interest Rate Sensitivity of Loans
Maturing in Over 1 Year
<TABLE>
<CAPTION>
Fixed Rate Floating Rate
---------- -------------
<S> <C> <C>
Commercial, industrial and agricultural............................................... $ 247,939 $ 59,118
Real estate - commercial.............................................................. 545,242 99,918
Real estate - construction............................................................ 22,434 33,095
---------- -------------
Total............................................................................. $ 815,615 $ 192,131
========== =============
</TABLE>
Credit Quality Management and the Reserve for Loan Losses
The minimization of credit risk involves the establishment and monitoring of
formal credit policies and procedures as well as continuing surveillance and
evaluation of the quality, trends and collectability of the loan portfolio.
First Midwest has implemented a comprehensive credit administration policy and
procedures which are monitored by an internal loan review staff. This policy and
procedures are reviewed and modified on an ongoing basis in order to remain
suitable for the management of risk as conditions change and new credit products
are offered. First Midwest's credit administration policies include a loan
rating system and an analysis by the internal loan review staff of all loans and
commitments over a fixed limit, as well as statistical sampling of loans under
such dollar limit. Furthermore, each account officer is vested with the
responsibility of monitoring their respective loan customer relationships and
acts as the first line of
30
<PAGE>
defense in determining changes in the loan ratings on credits for which
they are responsible. First Midwest believes that any significant change in the
overall quality of the loan portfolio will first manifest itself in the
migration of loan ratings within the monitoring system.
First Midwest maintains a reserve for loan losses to absorb inherent losses in
the loan portfolio. The appropriate level of the reserve for loan losses is
determined by systematically performing a review of the loan portfolio quality
as required by the credit administration policy and procedures described
above. The reserve for loan losses consists of three elements; (i) reserves
established for specific loans developed through detailed credit reviews; (ii)
reserves based on historical loan loss experience; and, (iii) reserves based on
general economic conditions as well as specific economic factors in the markets
in which First Midwest operates.
The specific reserves are based on the detailed analysis of loans over a
specified dollar limit, as discussed above, as well as loans where the internal
credit rating is below a predetermined classification. Specific reserves for
commercial loans are based on an ongoing review of individual loans outstanding
and binding commitments to lend, whereas consumer and retail loan reserve
allocations are based upon the evaluation of pools or groups of such loans. The
portion of the reserve based on historical loan loss experience is determined
statistically using a loss migration analysis that examines loss experience and
the related internal rating of loans charged off. The loss migration analysis is
performed quarterly and loss factors are periodically updated based on actual
experience. The portion of the reserve based on general economic conditions and
other factors is considered the unallocated portion of the reserve. This portion
considers general economic conditions and involves a higher degree of
subjectivity in its determination. This segment of the reserve considers risk
factors that may not have not manifested themselves in First Midwest's
historical loss experience used to determine the allocated component of the
reserve.
Table 22 shows the allocation of the reserve for loan losses by loan category as
well as charge-off and recovery information for the last 5 years. In 1998, First
Midwest refined its allocation methodology to more closely align the projected
losses in each category of the loan portfolio with the migration analysis and
historical loan loss experience methodology discussed above. Accordingly, First
Midwest has allocated a larger portion of its reserve for loan losses in 1998
and 1999 than in prior years.
The provision for loan losses charged to operating expense in any given year is
dependent on factors including loan growth and changes in the composition of the
loan portfolio, net charge-off levels and Management's assessment of the reserve
for loan losses based upon the credit administration policies and procedures
discussed above. The 1999 provision for loan losses totalled $5,760. The 1998
provision for loan losses of $5,542 includes $650 representing a one-time
provision to conform Heritage's credit policies to First Midwest's. The 1997
provision for loan losses of $9,365 includes $1,296 representing a one-time
provision likewise conforming SparBank's credit policies.
31
<PAGE>
Table 22
Analysis of the Reserve for Loan Losses and
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year................................ $ 43,290 $ 46,965 $ 41,609 $ 39,729 $ 36,059
Loans charged-off......................................... (9,141) (12,955) (12,060) (10,576) (11,158)
Recoveries on loans previously charged-off................ 2,736 3,738 8,051 3,088 3,174
---------- ----------- ---------- ---------- ------------
Net charge-offs........................................... (6,405) (9,217) (4,009) (7,488) (7,984)
Provisions charged to operating expense................... 5,760 5,542 9,365 8,189 11,654
Reserve of acquired bank.................................. -- -- -- 1,179 --
---------- ----------- ---------- ---------- ------------
Balance at end of year...................................... $ 42,645 $ 43,290 $ 46,965 $ 41,609 $ 39,729
========== =========== ========== ========== ============
Allocation of the reserve for loan losses by loan category:
Commercial and industrial................................. $ 7,683 $ 6,214 $ 4,409 $ 4,671 $ 5,263
Agricultural.............................................. 2,351 2,634 113 115 121
Consumer.................................................. 8,542 8,407 6,057 4,347 5,269
Real estate - 1 - 4 family................................ 1,151 1,205 2,859 3,257 2,833
Real estate - commercial.................................. 5,332 3,130 3,640 3,155 3,311
Real estate - construction................................ 841 1,004 218 290 508
Other..................................................... 950 686 309 300 192
Unallocated............................................... 15,795 20,010 29,360 25,474 22,232
---------- ----------- ---------- ---------- ------------
Total.................................................... $ 42,645 $ 43,290 $ 46,965 $ 41,609 $ 39,729
========== =========== ========== ========== ============
Reserve as a % of loans at year-end 1.44% 1.62% 1.54% 1.39% 1.35%
========== =========== ========== ========== ============
Commercial and industrial loans:
Charge-offs............................................... $ (1,552) $ (4,551) $ (2,454) $ (3,033) $ (4,710)
Recoveries................................................ 477 945 4,733 799 1,258
---------- ----------- ---------- ---------- ------------
Net charge-offs........................................... $ (1,075) $ (3,606) $ 2,279 $ (2,234) $ (3,452)
---------- ----------- ---------- ---------- ------------
Agricultural loans:
Charge-offs............................................... $ (54) $ (35) $ (5) $ (1) $ --
Recoveries................................................ 14 -- -- -- 38
---------- ----------- --------- ---------- ------------
Net charge-offs........................................... $ (40) $ (35) $ (5) $ (1) $ 38
---------- ----------- --------- ---------- ------------
Consumer loans:
Charge-offs............................................... $ (6,358) $ (7,458) $ (8,437) $ (6,197) $ (4,903)
Recoveries................................................ 2,137 2,625 3,049 2,033 1,672
---------- ----------- --------- ---------- ------------
Net charge-offs........................................... $ (4,221) $ (4,833) $ (5,388) $ (4,164) $ (3,231)
---------- ----------- --------- ---------- ------------
Real estate - 1 - 4 family:
Charge-offs............................................... $ (69) $ (56) $ (169) $ (167) $ (61)
Recoveries................................................ 1 -- 28 52 111
---------- ----------- --------- ---------- ------------
Net charge-offs........................................... $ (68) $ (56) $ (141) $ (115) $ 50
---------- ----------- --------- ---------- ------------
Real estate - commercial:
Charge-offs............................................... $ (513) $ (215) $ (710) $ (732) $ (1,356)
Recoveries................................................ 16 150 220 157 36
---------- ----------- --------- ---------- ------------
Net charge-offs........................................... $ (497) $ (65) $ (490) $ (575) $ (1,320)
---------- ----------- --------- ---------- ------------
Real estate - construction loans:
Charge-offs............................................... -- $ (12) $ (52) -- --
Recoveries................................................ -- -- -- -- 47
---------- ----------- --------- ---------- ------------
Net charge-offs........................................... -- $ (12) $ (52) -- $ 47
---------- ----------- --------- ---------- ------------
Other loans:
Charge-offs............................................... $ (595) $ (628) $ (233) $ (446) $ (128)
Recoveries................................................ 91 18 21 47 12
---------- ----------- --------- ---------- ------------
Net charge-offs........................................... $ (504) $ (610) $ (212) $ (399) $ (116)
---------- ----------- --------- ---------- ------------
Total loans:
Charge-offs............................................... $ (9,141) $ (12,955) $ (12,060) $ (10,576) $ (11,158)
Recoveries................................................ 2,736 3,738 8,051 3,088 3,174
---------- ----------- --------- ---------- ------------
Net charge-offs........................................... $ (6,405) $ (9,217) $ (4,009) $ (7,488) $ (7,984)
---------- ----------- --------- ---------- ------------
Ratio of net charge-offs to average loans
outstanding for the period.................................. 0.23% 0.31% 0.13% 0.26% 0.28%
========== =========== ========= ========== ============
</TABLE>
32
<PAGE>
Nonperforming Loans and Assets
Nonperforming assets consist of nonaccrual loans, restructured loans and
foreclosed real estate. Past due loans are loans which are delinquent 90 days or
more and are still accruing interest. It is First Midwest's policy to
discontinue the accrual of interest income on any loan when there is reasonable
doubt as to the timely collectability of interest or principal. Nonaccrual loans
are returned to accrual status when the financial position of the borrower and
other relevant factors indicate there is no longer doubt as to such
collectability.
The following table summarizes nonperforming assets and past due loans for the
past five years as well as certain information relating to interest income on
nonaccrual and restructured loans outstanding during 1999:
Table 23
Analysis of Nonperforming Assets and Past Due Loans
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans................................... $ 20,278 $ 20,638 $ 11,699 $ 16,974 $ 15,138
Restructured loans................................. -- -- 139 -- 7,917
----------- ----------- ---------- -------- ---------
Total nonperforming loans..................... 20,278 20,638 11,838 16,974 23,055
Foreclosed real estate............................. 1,157 1,015 5,119 6,589 6,459
----------- ----------- ---------- -------- ---------
Total nonperforming assets.................... $ 21,435 $ 21,653 $ 16,957 $ 23,563 $ 29,514
=========== =========== ========== ======== =========
90 days past due loans............................. $ 5,286 $ 5,342 $ 5,736 $ 5,498 $ 5,507
=========== =========== ========== ======== =========
Nonperforming loans to total loans................. 0.68% 0.77% 0.39% 0.57% 0.79%
Nonperforming assets to total loans
plus foreclosed real estate..................... 0.72% 0.81% 0.56% 0.79% 1.00%
Nonperforming assets to total assets............... 0.39% 0.42% 0.34% 0.49% 0.62%
Reserve for loan losses as a % of:
Total loans at year end......................... 1.44% 1.62% 1.54% 1.39% 1.35%
Nonperforming loans............................. 210% 210% 397% 245% 172%
The effect of nonaccrual and restructured loans on interest income for 1999 is presented below:
1999
---------
Interest which would have been included at the original contract rates............................. $ 2,409
Interest included in income during the year........................................................ (675)
---------
Interest income not recognized..................................................................... $ 1,734
=========
</TABLE>
As shown in Table 23, nonperforming loans totaled $20,278 at year-end 1999 as
compared to $20,638 at year-end 1998, decreasing as a percentage of total loans
to .68% in 1999 from .77% in 1998. The increase in nonaccrual loans in 1998 was
primarily attributable to two commercial loan customers, each comprising
approximately one half of the increase. During 1999, nonperforming loans and
nonperforming assets were comparable to 1998 levels but improved on a percentage
basis. First Midwest's disclosure with respect to impaired loans is contained in
Note 6 to "Notes to the Consolidated Financial Statements" located on page.
In addition to the loans summarized in Table 23, the Securities and Exchange
Commission Industry Guide for Bank Holding Companies requires that certain other
loans which First Midwest is monitoring, but where current conditions do not
warrant classification as nonaccrual or restructured, be disclosed. These loans,
which totaled $26,725 at December 31, 1999, as compared to $27,026 at year-end
1998, continue to accrue interest and are specifically considered in the
evaluation of the adequacy of the reserve for loan losses.
33
<PAGE>
YEAR 2000
Since April 1997, First Midwest has been engaged in the process of addressing a
potential problem that confronted all users of automated information systems,
including personal computers, generally referred to as the Year 2000 Issue. The
issue is the result of computer systems processing transactions based upon 2
digits representing the year of the transaction rather than 4 full digits (i.e.
99 for 1999).
During 1999, First Midwest completed all renovations, testing and the
development of detailed contingency plans to address potential risks in the
event of Year 2000 failures. To date, First Midwest experienced no significant
problems relating to the century turn transition.
Although considered unlikely, unanticipated problems in First Midwest's core
business processes, including problems associated with non-compliant third
parties and disruptions to the economy in general, could still occur despite
efforts to date to remediate affected systems and develop contingency plans.
Management will continue to monitor all business processes, including
interaction with the Company's customers, vendors and other third parties,
throughout 2000 to address any issues and ensure all processes continue to
function properly.
All costs incurred to address the Year 2000 issue have had no material impact on
the Company's financial condition, results of operations or liquidity. There are
no anticipated material expenditures expected to be incurred in the future
related to the Year 2000 issue.
34
<PAGE>
QUARTERLY REVIEW
Table 24 summarizes First Midwest's quarterly earnings performance for 1999 and
1998:
Table 24
Quarterly Earnings Performance /(1)/
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------- ----------------------------------------------
Fourth Third Second First Fourth Third Second First
---------- --------- ---------- --------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income................ $ 94,853 $ 91,795 $ 87,202 $ 87,429 $ 89,380 $ 92,720 $ 90,641 $ 91,856
Interest expense............... 47,063 43,335 38,550 39,667 43,949 45,778 44,442 42,847
Net interest income............ 47,790 48,460 48,652 47,762 45,431 46,942 46,199 49,009
Provision for loan losses /(2)/ 1,484 1,784 1,205 1,287 1,003 2,404 867 1,268
Noninterest income............. 15,240 14,340 14,503 14,251 15,219 14,003 13,697 12,543
Special charges /(3)/.......... -- -- -- -- -- 16,148 -- --
Noninterest expense............ 37,343 37,209 37,781 37,476 35,247 35,269 35,529 36,609
Income tax expense............. 6,072 5,805 6,284 6,359 7,077 2,470 6,965 7,483
Net income..................... 18,131 18,002 17,885 16,891 17,323 4,654 16,535 16,192
Pro forma net income
before special items /(4)/.. $ 18,131 $ 18,002 $ 17,885 $ 16,891 $ 17,323 $ 17,187 $ 16,535 $ 16,192
- --------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share /(5)/. $ 0.44 $ 0.43 $ 0.42 $ 0.39 $ 0.40 $ 0.10 $ 0.37 $ 0.37
Diluted earnings per share /(5)/ $ 0.44 $ 0.43 $ 0.42 $ 0.39 $ 0.39 $ 0.10 $ 0.37 $ 0.36
Pro forma diluted earnings per
share before special
items. /(4)/................ $ 0.44 $ 0.43 $ 0.42 $ 0.39 $ 0.39 $ 0.38 $ 0.37 $ 0.36
- --------------------------------------------------------------------------------------------------------------------------------
Return on average equity....... 19.49% 18.33% 16.85% 15.30% 15.18% 3.88% 14.16% 14.26%
Pro forma return on
average equity before
special items (4)........... 19.49% 18.33% 16.85% 15.30% 15.18% 14.34% 14.16% 14.26%
- --------------------------------------------------------------------------------------------------------------------------------
Return on average assets....... 1.31% 1.33% 1.40% 1.34% 1.32% 0.36% 1.31% 1.33%
Pro forma return on
average assets before
special items /(4)/......... 1.31% 1.33% 1.40% 1.34% 1.32% 1.32% 1.31% 1.33%
- --------------------------------------------------------------------------------------------------------------------------------
Net interest margin - tax
equivalent.................. 4.06% 4.21% 4.42% 4.23% 4.02% 4.17% 4.17% 4.48%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
/(1)/ All ratios are presented on an annualized basis.
/(2)/ Third quarter 1998 provision for loan losses includes $650 in provisions
for loan losses incident to conforming acquiree credit policies to First
Midwest's.
/(3)/ Third quarter 1998 special charges include acquisition expenses in
connection with the Heritage merger.
/(4)/ Represents net income, diluted earnings per share, return on average
equity and return on average assets on a pro-forma basis excluding the
after-tax effect of the provisions for loan losses and special charges
described in (2) and (3) above.
/(5)/ The sum of the 1999 quarterly earnings per share amounts do not equal the
full year earnings per share by $.01 due to a change in weighted shares
outstanding resulting from the 1999 share repurchase program and the
3-for-2 stock split paid in December 1999.
FOURTH QUARTER 1999 vs. 1998
Net income for the fourth quarter of 1999 increased to $18.1 million or $0.44
per diluted share, as compared to 1998 fourth quarter net income of $17.3
million or $0.39 per diluted share, representing an increase on a per diluted
shared basis of 12.8%.
The primary contributor to the improvement in earnings per share in the fourth
quarter of 1999 as compared to 1998 was net interest income. Also contributing
to per share performance was the effect of the common stock repurchase program
which reduced shares outstanding during 1999. Although noninterest income in the
fourth quarter of 1999 remained essentially unchanged from the 1998 quarter,
improvement was realized in the 1999 quarter in all categories of noninterest
income except mortgage banking revenues, which decreased from $3,002 in the 1998
quarter to $976 in the 1999 quarter. The increase in noninterest expense in the
1999 quarter over 1998 was distributed evenly among the major categories of
expense.
35
<PAGE>
- --------------------------------------------------------------------------------
FORWARD LOOKING STATEMENTS
The preceding "Business", "Legal Proceeding" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" sections of this Form
10-K contain various "forward looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which represents First Midwest's expectations
and beliefs concerning future events including, without limitation, the
following: the Company's efforts in retaining and expanding its customer base
and differentiating it from its competition; the FDIC insurance premium
assessments for 2000; the impact from liabilities arising from legal proceedings
on its financial condition; the impact of certain securities sales, and interest
rates in general, on the volatility of its net interest income; the impact of
policy guidelines and strategies on net interest income based on future interest
rate projections; the ability to provide funding sources for both the Bank and
the Parent Company; the impact of portfolio diversification and the outplacement
of high risk loans on future levels of loan losses; the reversal in the trend of
competition for real estate-commercial loans and the effect of loan growth
generally on the improvement in net interest income; the assessment of its
provision and reserve for loan loss levels based upon future changes in the
composition of its loan portfolio, loan losses, collateral value and economic
conditions; and Management's assessment of the impact of the Year 2000 issue on
the future expenditures of the Company.
The Company cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those set
forth in the forward looking statements due to market, economic and other
business-related risks and uncertainties effecting the realization of such
statements. Certain of these risks and uncertainties included in such forward
looking statements include, without limitations, the following: dynamics of the
markets served in terms of competition from traditional and nontraditional
financial service providers can effect both the funding capabilities of the
Company in terms of deposit garnering as well as the ability to compete for
loans and generate the higher yielding assets necessary to improve net interest
income; future legislation and actions by the Federal Reserve Board may result
in the imposition of costs and constraints on the Company through higher FDIC
insurance premiums, significant fluctuations in market interest rates and
operational limitations; significant fluctuations in market interest rates may
affect the ability to reinvest proceeds from the maturities and prepayments on
certain categories of securities and affect the overall yield of the portfolio;
business expansion activities and other efforts to retain customers may increase
the need for staffing and the resulting personnel expense in future periods;
deviations from the assumptions used to evaluate the appropriate level of the
reserve for loan losses as well as future purchases and sales of loans may
affect the appropriate level of the reserve for loan losses and thereby affect
the future levels of provisioning; the steps necessary to address the residual
effects, if any, of the Year 2000 issue.
Accordingly, results actually achieved may differ materially from expected
results in these statements. First Midwest does not undertake, and specifically
disclaims, any obligation to update any forward looking statements to reflect
events or circumstances occurring after the date of such statements.
ITEM 7A. QUALITATIVE AND QUANTITATIVE
DISCLOSURES ABOUT MARKET RISK
Discussions regarding qualitative and quantitative disclosures about market risk
is located starting on page 17 of this report.
36
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(Amounts in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Assets
Cash and due from banks.................................................... $ 155,407 $ 156,524
Funds sold and other short-term investments................................ 1,566 12
Mortgages held for sale.................................................... 12,215 75,235
Securities available for sale, at market value............................. 2,033,247 1,979,115
Securities held to maturity, at amortized cost (market value of
$44,244 and $50,794 at December 31, 1999 and 1998, respectively......... 43,543 48,964
Loans, net of unearned discount............................................ 2,962,487 2,664,417
Reserve for loan losses.................................................... (42,645) (43,290)
------------- --------------
Net loans............................................................. 2,919,842 2,621,127
Premises, furniture and equipment.......................................... 80,408 78,168
Accrued interest receivable................................................ 43,181 36,362
Investment in corporate owned life insurance............................... 105,343 100,135
Other assets............................................................... 116,836 97,245
------------- --------------
Total assets.......................................................... $ 5,511,588 $ 5,192,887
============= ==============
Liabilities and Stockholders' Equity
Liabilities:
Demand deposits.......................................................... $ 663,306 $ 695,484
Savings deposits......................................................... 479,618 529,322
NOW accounts............................................................. 451,269 452,028
Money Market deposits.................................................... 465,354 516,512
Time deposits............................................................ 1,941,636 1,857,105
------------- --------------
Total deposits........................................................ 4,001,183 4,050,451
Borrowed funds........................................................... 1,077,732 623,899
Accrued interest payable................................................. 21,722 17,245
Other liabilities........................................................ 41,690 48,394
------------- --------------
Total liabilities..................................................... 5,142,327 4,739,989
------------- --------------
Stockholders' equity:
Preferred stock, no par value: 1,000 shares authorized, none issued..... -- --
Common stock, $.01 par value; 60,000 shares authorized:
1999 - 45,548 shares issued; 41,113 shares outstanding
1998 - 45,547 shares issued; 43,549 shares outstanding................ 455 455
Additional paid-in capital.............................................. 81,845 85,889
Retained earnings....................................................... 442,711 399,446
Accumulated other comprehensive income, net of tax...................... (49,072) 9,875
Treasury stock, at cost; 1999 - 4,435 shares and 1998 - 1,998 shares.... (106,678) (42,767)
------------- --------------
Total stockholders' equity............................................ 369,261 452,898
------------- --------------
Total liabilities and stockholders' equity............................ $ 5,511,588 $ 5,192,887
============= ==============
</TABLE>
____________________________
See Notes to Consolidated Financial Statements.
37
<PAGE>
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1999 1998 1997
-------------- ----------- -------------
<S> <C> <C> <C>
Interest Income
Loans................................................................. $ 233,744 $ 259,495 $ 266,775
Securities:
Available for sale - taxable........................................ 97,061 78,986 77,274
Available for sale - nontaxable..................................... 23,626 9,918 7,498
Held to maturity - taxable.......................................... 1,418 1,451 865
Held to maturity - nontaxable....................................... 1,464 8,526 6,328
-------------- ----------- -------------
Total interest on securities..................................... 123,569 98,881 91,965
-------------- ----------- -------------
Funds sold and other short-term investments........................... 3,966 6,221 2,921
-------------- ----------- -------------
Total interest income............................................ 361,279 364,597 361,661
-------------- ----------- -------------
Interest Expense
Savings deposits...................................................... 9,969 13,696 14,865
NOW accounts.......................................................... 8,234 9,798 9,568
Money market deposits................................................. 16,482 19,241 16,103
Time deposits......................................................... 94,492 103,477 100,129
Borrowed funds........................................................ 39,438 30,804 27,853
-------------- ----------- -------------
Total interest expense........................................... 168,615 177,016 168,518
-------------- ----------- -------------
Net interest income................................................ 192,664 187,581 193,143
Provision for Loan Losses............................................. 5,760 5,542 9,365
-------------- ----------- -------------
Net interest income after provision for loan losses.............. 186,904 182,039 183,778
-------------- ----------- -------------
Noninterest Income
Service charges on deposit accounts................................... 18,720 17,100 16,735
Trust and investment management fees.................................. 10,135 9,134 8,411
Other service charges, commissions and fees........................... 11,825 10,197 9,428
Mortgage banking revenues............................................. 5,646 8,535 6,161
Security gains, net................................................... 97 1,657 1,283
Corporate owned life insurance income................................. 5,209 3,135 --
Other income.......................................................... 6,702 5,704 5,354
-------------- ----------- -------------
Total noninterest income......................................... 58,334 55,462 47,372
-------------- ----------- -------------
Noninterest Expense
Salaries and wages.................................................... 63,697 63,268 59,998
Retirement and other employment benefits.............................. 15,318 14,026 15,063
Occupancy expense of premises......................................... 13,366 12,039 11,891
Equipment expense..................................................... 8,479 8,354 8,442
Computer processing expense........................................... 10,113 9,846 9,129
Professional services................................................. 8,527 7,849 7,546
Advertising and promotions............................................ 3,822 4,576 3,959
Acquisition charges................................................... -- 16,148 5,446
Other expenses........................................................ 26,487 22,696 24,643
-------------- ----------- -------------
Total noninterest expense........................................ 149,809 158,802 146,117
-------------- ----------- -------------
Income before income tax expense...................................... 95,429 78,699 85,033
Income tax expense.................................................... 24,520 23,995 28,425
-------------- ----------- -------------
Net Income.......................................................... $ 70,909 $ 54,704 $ 56,608
============== =========== =============
Per Share Data
Basic earnings per share............................................ $ 1.68 $ 1.24 $ 1.29
Diluted earnings per share.......................................... $ 1.67 $ 1.22 $ 1.26
Weighted average shares outstanding................................. 42,135 43,996 43,980
Weighted average diluted shares outstanding......................... 42,457 44,705 44,855
</TABLE>
_________________________
See Notes to Consolidated Financial Statements.
38
<PAGE>
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Treasury Comprehensive
Stock Capital Earnings Stock Income Total
--------- ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.................. $ 455 $ 85,922 $ 343,154 $ (13,920) $ 2,519 $ 418,130
Comprehensive Income:
Net income................................. -- -- 56,608 -- -- 56,608
Other comprehensive income, net of tax:
Unrealized gains on securities, net
of reclassification adjustment........... -- -- -- -- 9,492 9,492
----------
Total comprehensive income.................. -- -- 66,100
Dividends ($.55 per share).................... -- -- (14,594) -- -- (14,594)
Cash dividends paid by acquiree prior to
combination................................. -- -- (7,062) -- -- (7,062)
Purchase of treasury stock.................... -- (120) -- (13,463) -- (13,583)
Issuance of treasury stock to benefit plans... -- 70 -- 896 -- 966
Sale of treasury stock........................ -- 180 -- 4,620 -- 4,800
Exercise of stock options..................... -- 924 (2,989) 7,027 -- 4,962
--------- ---------- ----------- ---------- ------------ ----------
Balance at December 31, 1997.................. 455 86,976 375,117 (14,840) 12,011 459,719
Comprehensive Income:
Net income.................................. -- -- 54,704 -- -- 54,704
Other comprehensive income, net of tax:
Unrealized (losses) on securities, net
of reclassification adjustment........... -- -- -- -- (2,136) (2,136)
----------
Total comprehensive income.................. -- -- -- -- -- 52,568
Dividends ($.61 per share).................... -- -- (24,829) -- -- (24,829)
Cash dividends paid by acquiree prior to
combination................................. -- -- (2,715) -- -- (2,715)
Purchase of treasury stock.................... -- (1,081) 9 (34,362) -- (35,434)
Issuance of treasury stock to benefit plans... -- 88 -- 1,409 -- 1,497
Exercise of stock options..................... -- (123) (2,840) 5,103 -- 2,140
Fair market value adjustment to treasury
stock held in Grantor Trust................. -- 29 -- (77) -- (48)
--------- ---------- ----------- ---------- ------------ ----------
Balance at December 31, 1998.................. 455 85,889 399,446 (42,767) 9,875 452,898
Comprehensive Income:
Net income.................................. -- -- 70,909 -- -- 70,909
Other comprehensive income, net of tax:
Unrealized (losses) on securities, net
of reclassification adjustment........... -- -- -- -- (58,947) (58,947)
----------
Total comprehensive income.................. 11,962
Dividends ($.66 per share).................... -- -- (27,644) -- -- (27,644)
Purchase of treasury stock.................... -- -- -- (70,043) -- (70,043)
Issuance of treasury stock to benefit plans... -- (14) -- 413 -- 399
Exercise of stock options..................... -- (4,050) -- 5,770 -- 1,720
Fair market value adjustment to treasury
stock held in Grantor Trust................. -- 20 -- (51) -- (31)
--------- ---------- ----------- ---------- ------------ ----------
Balance at December 31, 1999.................. $ 455 $ 81,845 $ 442,711 $ (106,678) $ (49,072) $ 369,261
========= ========== =========== ========== ============ ==========
___________________________________________________________________________________________________________________________________
</TABLE>
See Notes to Consolidated Financial Statements.
39
<PAGE>
FIRST MIDWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
Operating Activities 1999 1998 1997
-------------- -------------- -------------
<S> <C> <C> <C>
Net income................................................................ $ 70,909 $ 54,704 $ 56,608
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Provision for loan losses................................................ 5,760 5,542 9,365
Depreciation and amortization on premises, furniture and equipment....... 8,988 8,875 8,924
Net amortization of premium on securities................................ 74 12,078 3,927
Net (gains) on sales of securities....................................... (97) (1,657) (1,283)
Net (gains) on sales of other real estate owned.......................... (618) (561) (113)
Net (gains) on sales of premises, furniture and equipment................ (615) (454) (694)
Net pension cost......................................................... 1,922 1,613 629
Net decrease (increase) in deferred income taxes......................... 3,296 (1,448) (2,694)
Net amortization of goodwill and other intangibles....................... 3,034 3,759 5,165
Changes in operating assets and liabilities:
Originations and purchases of mortgage loans held for sale............... (445,179) (552,081) (175,181)
Proceeds from sales of mortgage loans held for sale...................... 508,199 503,703 161,816
Net (increase) in accrued interest receivables........................... (6,819) (1,472) (764)
Net decrease (increase) in other assets.................................. 5,491 (19,826) (14,260)
Purchases of corporate owned life insurance.............................. (5,208) (100,135) --
Net increase (decrease) in accrued interest payable...................... 4,477 (1,690) 2,052
Net (decrease) increase in other liabilities............................. (2,662) 2,117 (67,066)
------------- -------------- -------------
Net cash provided (used) by operating activities...................... 150,952 86,933 (13,569)
------------- -------------- -------------
Investing Activities
Securities available for sale:
Proceeds from maturities, repayments and calls........................... 433,469 1,668,965 579,847
Proceeds from sales...................................................... 380,216 823,029 366,898
Purchases................................................................ (964,329) (2,770,758) (988,719)
Securities held to maturity:
Proceeds from maturities, repayments and calls........................... 11,229 15,529 16,290
Purchases................................................................ (5,921) (11,293) (10,648)
Loans made to customers, net of principal collected....................... (309,691) 124,706 (56,443)
Proceeds from sales of other real estate owned............................ 5,692 5,177 4,401
Proceeds from sales of premises........................................... 1,239 363 2,552
Purchases of premises, furniture and equipment............................ (11,852) (10,787) (12,484)
------------- -------------- -------------
Net cash (used) by investing activities............................... (459,948) (155,069) (98,306)
------------- -------------- -------------
Financing Activities
Net (decrease) increase in deposit accounts............................... (49,268) 115,033 245,440
Net increase (decrease) in borrowed funds................................. 453,833 140,298 (95,345)
Purchase of treasury stock................................................ (70,043) (35,434) (14,388)
Issuance of treasury stock to benefit plans............................... 399 1,497 966
Sale of treasury stock.................................................... -- -- 4,800
Cash dividends paid....................................................... (27,208) (25,103) (20,521)
Exercise of stock options................................................. 1,720 2,140 4,962
------------- -------------- -------------
Net cash provided by financing activities............................ 309,433 198,431 125,914
------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents................. 437 (43,571) 14,039
Cash and cash equivalents at beginning of the period................. 156,536 200,107 186,068
------------- -------------- -------------
Cash and cash equivalents at end of the period....................... $ 156,973 $ 156,536 $ 200,107
============= ============== =============
_______________________________________________________________________________________________________________________________
</TABLE>
See Notes to Consolidated Financial Statements.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - First Midwest Bancorp, Inc. ("First Midwest" or the
"Company") is a Delaware corporation that was incorporated in 1982, began
operations on March 31, 1983 and was formed through an exchange of common stock.
First Midwest, the third largest Illinois based publicly traded banking company,
has operations primarily located in Northern Illinois with approximately 85% of
its banking assets in the suburban metropolitan Chicago area. First Midwest is
engaged in commercial and retail banking and offers a broad array of lending,
depository and related financial services tailored for individual, commercial
and industrial and governmental customers. Additionally, First Midwest offers
trust, investment management, mortgage banking and insurance services in the
same markets served by its banking operations.
Principles of Consolidation - The consolidated financial statements include the
accounts and results of operations of First Midwest after elimination of all
significant intercompany accounts and transactions. Assets held by its
subsidiaries (the "Affiliates") in a fiduciary or agency capacity are not assets
of the Affiliates and, accordingly, are not included in the consolidated
financial statements.
Basis of Presentation - Certain reclassifications have been made to prior year
amounts to conform with the current year presentation. For purposes of the
Consolidated Statements of Cash Flows, cash and cash equivalents have been
defined by Management to include cash and due from banks, funds sold and other
short-term investments. First Midwest uses the accrual basis of accounting for
financial reporting purposes, except for immaterial sources of income and
expense which are recorded when received or paid.
Use of Estimates - The accounting and reporting policies of First Midwest and
its Affiliates conform to generally accepted accounting principles and general
practice within the banking industry. The preparation of consolidated financial
statements in conformity with generally accepted accounting principles requires
Management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed in the preparation of the consolidated financial
statements.
Business Combinations and Other Financial Disclosures - Certain business
combinations have been accounted for under the pooling-of-interests method of
accounting. This method requires the assets, liabilities and shareholders'
equity of the merged entity to be retroactively combined with First Midwest's
respective accounts at recorded value. Prior period financial statements and
other financial disclosures have been restated to give effect to business
combinations accounted for under this method.
Mortgages Held for Sale - First Midwest originates residential real estate
mortgage loans which are to be sold in the secondary market, including loans
securitized under programs with the Federal Home Loan Mortgage Corporation
("FHLMC"), and the Federal National Mortgage Association ("FNMA"). Mortgage
loans held for sale may be hedged with forward sales commitments in order to
minimize interest rate exposure by contracting for the sale of loans in the
future at specific prices. Gains and losses from hedging transactions on
residential real estate mortgage loans held for sale are included in the cost of
the loans in determining the gain or loss when the loans are sold. Residential
real estate mortgage loans held for sale are carried at the lower of aggregate
cost or market value.
Securities - Securities which Management believes could be sold prior to
maturity in order to manage interest rate risk, prepayment or liquidity risk are
classified as securities available for sale and are carried at fair market value
with unrealized gains and losses reported in Accumulated Other Comprehensive
Income. Held to maturity securities, which include any security for which First
Midwest has the positive intent and ability to hold until maturity, are valued
at historical cost adjusted for amortization of premium and accretion of
discount computed principally using the interest method, adjusted for actual
prepayments, if any. A decline in the market value of any available for sale or
held to maturity security below cost that is deemed to be other than temporary
results in a charge to earnings thereby establishing a new cost basis for such
security. First Midwest has no trading account securities. Gain or loss on the
sale of securities is determined based on the adjusted cost of the specific
security sold.
41
<PAGE>
Loans - Loans are carried at the principal amount outstanding, net of unearned
discount, including certain net deferred loan fees. Unearned discount on certain
consumer installment loans is credited to income over the term of the loan using
the level yield method. Interest income on loans is accrued based on principal
amounts outstanding.
Generally a loan, including an impaired loan, is classified as nonaccrual and
the accrual of interest thereon discontinued when, in the opinion of Management,
there is reasonable doubt as to the timely collection of interest or principal.
When a loan is placed on nonaccrual status, unpaid interest credited to income
in the current year is reversed and unpaid interest accrued in prior years is
charged against the reserve for loan losses. Interest received on nonaccrual
loans is either applied against principal or reported as interest income,
according to Management's judgment as to the collectability of principal.
Nonaccrual loans are returned to an accrual status when, in the opinion of
Management, the financial condition of the borrower and other relevant factors
indicate there is no longer reasonable doubt as to the timely payment of
principal or interest.
Reserve for Loan Losses - The reserve for loan losses is increased by provisions
charged to operating expenses, decreased by charge-offs, net of recoveries, and
is available for losses incurred on loans, including certain accrued interest
receivable.
The reserve for loan losses is maintained in an amount that Management believes
is adequate to absorb loan losses inherent in the portfolio. The provision for
loan losses is based on Management's judgment as to the adequacy of the reserve
for loan losses, after considering such factors as the volume and character of
the portfolio, present and prospective financial condition of the borrowers,
general economic conditions and past loan loss experience.
Specific reserves are established for any impaired commercial, real estate
commercial and real estate construction loans for which the recorded investment
in the loan exceeds the measured value of the loan. A loan is considered
impaired when it is probable that a creditor will be unable to collect all
contractual principal and interest due according to the terms of the loan
agreement. Loans subject to impairment valuation are defined as nonaccrual and
restructured loans exclusive of smaller balance homogeneous loans such as home
equity, installment and 1-4 family residential loans. The value of the loan is
determined based on the present value of expected future cash flows discounted
at the loan's effective interest rate, the market price of the loan or the fair
value of the underlying collateral less costs to sell, if the loan is collateral
dependent.
Foreclosed Real Estate - Foreclosed real estate includes properties acquired in
partial or total satisfaction of certain loans and is included in other assets
in the accompanying consolidated statements of condition. Properties are
recorded at the lower of the recorded investment in the loans for which the
properties previously served as collateral or the fair value, which represents
the estimated sales price of the properties on the date acquired less estimated
selling costs. Any writedowns in the carrying value of a property at the time of
acquisition are charged against the reserve for loan losses. The carrying value
of foreclosed real estate properties is periodically reviewed by Management. Any
write-downs of the properties subsequent to acquisition, as well as gains or
losses on disposition and income or expense from the operations of foreclosed
real estate, are recognized in operating results in the period they are
realized.
Premises, Furniture and Equipment - Premises, furniture and equipment are stated
at cost less accumulated depreciation. Depreciation expense is determined by the
straight-line method over the estimated useful lives of the assets. Rates of
depreciation are generally based on the following useful lives: building - 25 to
40 years; building improvements, furniture and equipment - 3 to 5 years. Gains
and losses on dispositions are reflected in other income and other expense,
respectively. Maintenance and repairs are charged to operating expenses as
incurred.
Long-lived assets to be held and those to be disposed of and certain intangibles
are evaluated for impairment using the guidance provided by Financial Accounting
Standards Board ("FASB") Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
Goodwill and Other Intangibles - Goodwill, representing the excess of purchase
price over the fair value of net assets acquired using the purchase method of
accounting, is being amortized using the straight-line method over periods not
exceeding 20 years. Core deposit intangibles, representing the premium
associated with the acquisition of certain deposit liabilities, are being
amortized to operating expense on an accelerated basis over the average lives of
such deposit liabilities.
Goodwill and other intangibles, which collectively represent less than 1% of
total assets, are periodically assessed for recoverability through review of
various economic factors to determine whether any impairment exists.
42
<PAGE>
Mortgage Servicing Rights - First Midwest recognizes as separate assets the
rights to service mortgage loans for others, however those rights are acquired.
Capitalized servicing rights are reported in other assets. After the residential
mortgage loan portfolio is stratified by servicing type, loan type, rate type
and interest rate, the fair value of the mortgage servicing rights ("MSR") is
determined using the present value of estimated expected future cash flows
assuming a market discount rate and certain forecasted prepayment rates based on
the industry experience. MSRs are amortized in proportion to, and over the
period of, the estimated net servicing income of the underlying financial
assets. The assessment of impairment on MSRs is based on the current fair value
of those rights. Such impairment is recognized through a valuation allowance
established through a charge to expense. First Midwest hedges its exposure to
the prepayment risk associated with the servicing rights by using off-balance
sheet derivative financial instruments.
Advertising Costs - All advertising costs incurred by First Midwest are expensed
in the period in which they are incurred.
Derivative Financial Instruments
Interest Rate Risk Management - As part of managing First Midwest's interest
rate risk, derivative financial instruments are used to hedge market values and
to alter the cash flow characteristics of certain on-balance sheet assets and
liabilities. The derivative financial instruments used to manage interest rate
risk consist of interest rate swaps. The derivative instruments used to manage
interest rate risk are linked with a specific asset or liability or a group of
related assets or liabilities at the inception of the derivative contract and
have a high degree of correlation with the associated balance sheet item during
the hedge period. Net interest income or expense on derivative contracts used
for interest rate risk management is accrued to the income or expense related to
the asset or liability, or group, being hedged. Realized gains and losses on
contracts, either settled or terminated, are deferred and are recorded as either
an adjustment to the carrying value of the related on-balance sheet asset or
liability or are amortized into interest income or expense over either the
remaining original life of the derivative instrument or the expected life of the
associated asset or liability. Unrealized gains or losses on these contracts are
not recognized on the balance sheet. First Midwest does not hold or issue
derivative financial instruments for trading purposes.
Mortgage Servicing Rights Risk Management - The market value of First Midwest's
mortgage servicing rights portfolio is adversely affected when mortgage interest
rates decline and mortgage loan prepayments increase. To hedge the market value
of its fixed rate servicing rights portfolio, First Midwest uses futures
contracts balanced with put and call options. The hedge position is
marked-to-market monthly, with realized and unrealized gains and losses
offsetting the changes in the value of the mortgage servicing rights. The
adjusted carrying value is the basis used for evaluating impairment. Realized
gains and losses on settled or terminated contracts are recorded on the income
statement.
Income Taxes - First Midwest's deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax basis
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to periods in which
the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or refundable for
the period adjusted for the change during the period in deferred tax assets and
liabilities.
First Midwest and its subsidiaries file a consolidated federal income tax
return. The intercompany settlement of taxes paid is based on tax sharing
agreements which generally allocate taxes to each entity on a separate return
basis.
Earnings Per Share - Basic earnings per share ("EPS") is computed by dividing
net income by the weighted average number of common shares outstanding for the
period. The basic EPS computation excludes the dilutive effect of all common
stock equivalents. Diluted EPS is computed by dividing net income by the
weighted average number of common shares outstanding plus all potential common
shares. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. First Midwest's potential common shares represent shares
issuable under its stock option plans. Such common stock equivalents are
computed based on the treasury stock method using the average market price for
the period.
Stock Split - In November 1999, First Midwest's board of directors approved a
three-for-two stock split effected in the form of a stock dividend. The
additional shares resulting from the split were distributed on December 20, 1999
to shareholders of record as of December 3, 1999. The consolidated financial
statements, notes and other references to share and per share data have been
retroactively restated for the stock split.
Stock-Based Compensation - Pursuant to FASB No. 123, "Accounting for Stock-Based
Compensation", which establishes financial accounting and reporting standards
for stock-based compensation plans, First Midwest has elected to continue
43
<PAGE>
accounting for stock-based employee compensation plans in accordance with
Accounting Principles Board ("APB") Opinion 25 and related interpretations.
Under APB 25, no compensation expense is recognized as the exercise price of
First Midwest's stock options is equal to the fair market value of it's common
stock on the date of the grant. Accordingly, pro forma net income, pro forma
earnings per share, and stock-based compensation plan disclosure requirements as
set forth in FASB No. 123 are presented in Note 16 Stock Option Plans.
Accounting for Transfers and Servicing of Financial Assets - Transfers of
financial assets are accounted for as sales, when control over the assets has
been surrendered. Control over transferred assets is deemed to be surrendered
when (1) the assets have been isolated from the Company, (2) the transferee
obtains the right (free of conditions that constrain it from taking advantage of
that right) to pledge or exchange the transferred assets, and (3) the Company
does not maintain effective control over the transferred assets through an
agreement to repurchase them before their maturity.
Comprehensive Income - Comprehensive income is the total of reported net income
and all other revenues, expenses, gains and losses that under generally accepted
accounting principles bypass reported net income. First Midwest includes
unrealized gains or losses, net of tax on securities available for sale in other
comprehensive income.
Segment Disclosures - Operating segments are components of a business about
which separate financial information is available and that are evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and assessing performance. Public companies are required to report
certain financial information about operating segments in interim and annual
financial statements. First Midwest's chief operating decision maker evaluates
the operations of the Company as one operating segment, commercial banking, due
to the materiality of the commercial banking operation to the Company's
financial condition and results of operations, taken as a whole, and as a result
separate segment disclosures are not required. First Midwest offers the
following products and services to external customers: deposits, loans, mortgage
banking related services and trust services. Revenues for each of these products
and services are disclosed separately in the Consolidated Statements of Income.
Recent Accounting Pronouncements
In June 1998, FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded on the balance
sheet as either assets or liabilities measured at fair value. FASB No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
changes in value of the hedged item in the income statement and requires that a
company document, designate, and assess the effectiveness of transactions that
qualify for hedge accounting. The effective date for FASB No. 133 was delayed by
one year pursuant to the issuance of Statement No. 137 "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement 133." The revised effective date for FASB No. 133 is for
fiscal years beginning after June 15, 2000. FASB No. 133 cannot be applied
retroactively; it must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued, acquired,
or substantively modified after December 31, 1997 (and, at the company's
election, before January 1, 1998). First Midwest has not yet quantified nor
determined the extent to which the Statement will alter its use of certain
derivatives in the future and the impact on its financial position or results of
operations.
2. MERGERS
Heritage Financial Services, Inc.
On July 1, 1998, First Midwest consummated the merger with Heritage Financial
Services, Inc. ("Heritage"), in a transaction accounted for as a
pooling-of-interests. Each outstanding share of Heritage common stock, no par
value, was converted into 1.15 shares of First Midwest Common Stock, $.01 par
value, resulting in the issuance of approximately 14.4 million shares of First
Midwest Common Stock.
In connection with the merger, First Midwest recognized a third quarter 1998
pre-tax merger related charge of $16,798 consisting of $16,148 in merger
expenses and $650 in provision for loan losses incident to conforming Heritage's
credit policies to First Midwest's. The merger expenses, certain of which are
nondeductible for income tax purposes, were recorded through the establishment
of a reserve with the $1,590 December 31, 1998 balance being paid during 1999.
44
<PAGE>
SparBank, Incorporated
On October 1, 1997 First Midwest consummated the merger of SparBank,
Incorporated ("SparBank"), in a transaction that was structured as a tax-free
exchange and accounted for as a pooling-of-interests, resulting in the issuance
of 4,847 shares of First Midwest Common Stock to SparBank stockholders.
Coincident with the SparBank merger, First Midwest recorded $6,742 in
merger-related costs consisting of $5,446 in acquisition expenses and $1,296 in
provisions for loan losses incident to conforming SparBank's credit policies to
First Midwest's. The merger expenses, certain of which are nondeductible for
income tax purposes, were recorded through the establishment of a reserve of
which the $541 remaining balance from December 31, 1998 being paid over the
course of 1999 primarily related to legal and employee severance.
3. REGULATORY AND CAPITAL MATTERS
The principal source of cash flow for First Midwest (parent company) is
dividends from its banking and other subsidiaries. Various Federal and state
banking regulations and capital guidelines limit the amount of dividends that
may be paid to the parent company by its banking subsidiaries. Future payment of
dividends by the subsidiaries is dependent on individual regulatory capital
requirements and levels of profitability. The amount of dividends the banking
subsidiaries can pay to First Midwest without prior approval of regulatory
agencies is limited to the banking subsidiaries net profits, as defined, for
that year combined with its retained net profits for the preceding two calendar
years. Since First Midwest is a legal entity, separate and distinct from it's
subsidiaries, the dividends of First Midwest are not subject to such bank
regulatory guidelines.
First Midwest and First Midwest Bank, National Association (the "Bank") are
subject to various regulatory capital requirements administered by the federal
banking agencies. Under capital adequacy guidelines, First Midwest and the Bank
must meet specific guidelines that involve quantitative measures of assets,
liabilities and certain off-balance sheet items calculated under regulatory
accounting practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors. Quantative measures established by regulation to ensure capital
adequacy require First Midwest and the Bank to maintain minimum amounts and
ratios of Total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital to average assets (as
defined). Management believes that, as of December 31, 1999, First Midwest and
the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 1999, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. To be categorized as "well
capitalized", the banking subsidiary must maintain minimum Total and Tier 1
capital to risk-weighted assets and Tier 1 capital to average assets ratios as
set forth in the table below. There are no conditions or events since that
notification that Management believes have changed the Bank's category.
The following table summarizes the actual capital ratios for First Midwest and
its banking subsidiary, as well as those required to be categorized as
adequately capitalized and well capitalized.
<TABLE>
<CAPTION>
First Midwest For Capital Well Capitalized for
Actual Adequacy Purposes FDICIA
- -----------------------------------------------------------------------------------------------------------------------
Capital Ratio Capital Ratio Capital Ratio
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk-Weighted Assets)
First Midwest Bancorp, Inc............. $ 437,951 11.32% $ 309,604 8.00% $ 387,005 10.00%
First Midwest Bank, N.A................ 392,071 10.28 305,053 8.00 381,316 10.00
Tier 1 Capital (to Risk-Weighted Assets):
First Midwest Bancorp, Inc............. 395,306 10.21 154,802 4.00 232,203 6.00
First Midwest Bank, N.A................ 349,426 9.16 152,526 4.00 228,790 6.00
Tier 1 Leverage Ratio:
First Midwest Bancorp, Inc............. 395,306 7.19 164,876 3.00 274,793 5.00
First Midwest Bank, N.A................ 349,426 6.45 162,502 3.00 270,836 5.00
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
First Midwest For Capital Well Capitalized for
Actual Adequacy Purposes FDICIA
- -----------------------------------------------------------------------------------------------------------------------
Capital Ratio Capital Ratio Capital Ratio
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to Risk-Weighted Assets)
First Midwest Bancorp, Inc..............$ 480,611 13.29% $ 277,310 8.00% $ 346,637 10.00%
First Midwest Bank, N.A................. 379,210 11.27 269,237 8.00 336,546 10.00
Tier 1 Capital (to Risk-Weighted Assets):
First Midwest Bancorp, Inc.............. 417,321 12.04 138,655 4.00 207,982 6.00
First Midwest Bank, N.A................. 337,138 10.02 134,619 4.00 201,928 6.00
Tier 1 Leverage Ratio:
First Midwest Bancorp, Inc.............. 417,321 8.04 154,993 3.00 258,322 5.00
First Midwest Bank, N.A................. 337,138 6.64 152,340 3.00 253,900 5.00
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the provisions of the Federal Reserve Act, depository institutions are
required to maintain certain average balances in the form of cash or
noninterest-bearing balances with the Federal Reserve Bank. Average reserve
balances aggregating $40,165 million in 1999 were maintained in fulfillment of
these requirements.
4. SECURITIES
The aggregate amortized cost, gross unrealized gains and losses, and market
value of securities as of December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------- -------------------------------------------------
Gross Unrealized Gross Unrealized
----------------------- -----------------------
Amortized Market Amortized Market
Cost Gains Losses Value Cost Gains Losses Value
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale
U.S. Treasury securities... $ 2,136 $ 1 $ (5) $ 2,132 $ 19,575 $ 156 $ -- 19,731
U.S. Agency securities..... 644,151 309 (7,542) 636,918 283,920 251 (312) 283,859
Mortgage-backed securities. 943,949 611 (40,038) 904,522 1,258,184 8,172 (8,020) 1,258,336
State and Municipal
securities................ 488,793 1,150 (31,676) 458,267 392,633 17,567 (1,644) 408,556
Other securities........... 34,664 23 (3,279) 31,408 8,609 24 -- 8,633
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total................ $2,113,693 $ 2,094 $ (82,540) $2,033,247 $1,962,921 $ 26,170 $ (9,976) $1,979,115
========== ========== ========== ========== ========== ========== ========== ==========
Held to Maturity
U.S. Treasury securities... $ 1,120 $ -- $ -- $ 1,120 $ 896 $ 3 $ -- $ 899
U.S. Agency securities..... 401 -- -- 401 403 2 (1) 404
State and municipal
securities................ 20,619 729 (28) 21,320 26,388 1,825 -- 28,213
Other securities........... 21,403 -- -- 21,403 21,277 1 -- 21,278
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total...................... $ 43,543 $ 729 $ (28) $ 44,244 $ 48,964 $ 1,831 $ (1) $ 50,794
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
In conjunction with the 1998 Heritage merger, First Midwest transferred certain
state and municipal securities with an amortized cost of $85,519 from the held
to maturity portfolio to available for sale portfolio incident to conforming the
securities acquired to First Midwest's interest rate and credit risk policies.
At the time of the transfer, the net unrealized gain on these securities totaled
$3,427.
The amortized cost and market value of securities as of December 31, 1999, by
contractual maturity, are shown in the following table. Actual maturities may
differ from contractual maturities when there exists a right to call or prepay
obligations with or without call or payment penalties.
46
<PAGE>
<TABLE>
<CAPTION>
Available For Sale Held To Maturity
-------------------------------- ------------------------------
Amortized Market Amortized Market
Cost Value Cost Value
--------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
One year or less............ $ 201,912 $ 197,467 $ 3,017 $ 3,025
One year to five years...... 738,023 715,844 6,991 7,125
Five years to ten years..... 504,486 352,363 5,763 6,110
Over ten years.............. 669,272 767,573 27,772 27,984
--------------- -------------- ------------- --------------
Total....................... $ 2,113,693 $ 2,033,247 $ 43,543 $ 44,244
============== ============== ============= ==============
</TABLE>
The following table presents proceeds from sales of securities and the
components of net security gains for the three years ended December 31:
<TABLE>
<CAPTION>
------------ ------------- --------------
1999 1998 1997
------------ ------------- --------------
<S> <C> <C> <C>
Proceeds from sales..................... $ 380,216 $ 823,029 $ 366,898
Gross realized gains.................... 2,597 10,062 2,840
Gross realized losses................... (2,500) (8,405) (1,557)
------------ ------------- --------------
Net realized gains................... $ 97 $ 1,657 $ 1,283
============ ============= ==============
Income taxes on net realized gains..... $ 38 $ 625 $ 500
</TABLE>
The book value of securities available for sale, securities held to maturity and
securities purchased under agreements to resell, which were pledged to secure
deposits and for other purposes as permitted or required by law at December 31,
1999 and 1998 totaled $1,758,761 and $1,643,254, respectively.
5. LOANS
Major classification of loans at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
------------- -------------
1999 1998
------------- -------------
<S> <C> <C>
Commercial and industrial...................... $ 714,305 $ 721,599
Agricultural................................... 56,852 49,397
Consumer....................................... 847,997 688,774
Real Estate - 1 - 4 family..................... 253,268 257,307
Real Estate - commercial....................... 834,852 769,514
Real Estate - construction..................... 189,018 148,469
Other.......................................... 66,195 29,357
------------- -------------
Loans, net of unearned discount............. $ 2,962,487 $ 2,664,417
============= =============
</TABLE>
First Midwest concentrates its lending activity in the geographic market areas
that it serves, generally lending to consumers and small to mid-sized businesses
from whom deposits are garnered in the same market areas. As a result, First
Midwest strives to maintain a loan portfolio that is diverse in terms of loan
type, industry, borrower and geographic concentrations. Such diversification
reduces the exposure to economic downturns that may occur in different segments
of the economy or in different industries. As of December 31, 1999 and 1998,
there were no significant loan concentrations with any single borrower, industry
or geographic segment.
It is the policy of First Midwest to review each prospective credit in order to
determine the appropriateness of and when required, the adequacy of security or
collateral to obtain prior to making a loan. The type of collateral, when
required, will vary in ranges from liquid assets to real estate. The Company's
access to collateral, in the event of borrower default, is assured through
adherence to state lending laws and the Company's lending standards and credit
monitoring procedures.
The following table summarizes the book value of loans that were pledged to
secure deposits and for other purposes as required or permitted by law at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
------------- -------------
1999 1998
------------- -------------
<S> <C> <C>
Deposits.......................................... $ 66,657 $ 67,183
Federal Home Loan Bank advances................... 250,000 166,667
------------- -------------
Total.......................................... $ 316,657 $ 233,850
============= =============
</TABLE>
47
<PAGE>
6. RESERVE FOR LOAN LOSSES/IMPAIRED LOANS
A summary of the transactions in the reserve for loan losses and details
regarding impaired loans follows for the three years ended December 31:
<TABLE>
<CAPTION>
------------- ------------- -------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Balance at beginning of year..................... $ 43,290 $ 46,965 $ 41,609
Loans charged-off.............................. (9,141) (12,955) (12,060)
Recoveries on loans previously charged-off..... 2,736 3,738 8,051
------------- ------------- -------------
Net (charge-offs)........................... (6,405) (9,217) (4,009)
Provision for loan losses...................... 5,760 5,542 9,365
------------- ------------- -------------
Balance at end of year........................... $ 42,645 $ 43,290 $ 46,965
============= ============= =============
Impaired Loans:
Valuation reserve required/(1)/................ $ 348 $ 325 $ 3,009
No valuation reserve required.................. 16,193 15,890 7,801
------------- ------------- -------------
Total impaired loans........................ $ 16,541 $ 16,215 $ 10,810
============= ============= =============
Valuation reserve related to impaired loans...... $ 333 $ 232 $ 952
Average impaired loans........................... $ 15,544 $ 15,552 $ 14,079
Interest income recognized on impaired loans..... $ -- $ 52 $ 215
</TABLE>
/(1)/ These impaired loans require a valuation reserve allocation because the
value of the loans is less than the recorded investment in the loans.
7. MORTGAGE SERVICING RIGHTS
First Midwest serviced $1,543,094 and $1,474,206 for other investors as of
December 31, 1999 and 1998, respectively. Changes in capitalized mortgage
servicing rights are summarized as follows:
<TABLE>
<CAPTION>
------------- ------------- -------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Balance at beginning of year........................ $ 15,006 $ 9,529 $ 5,368
Servicing rights capitalized...................... 5,007 9,671 5,401
Amortization of servicing rights.................. (3,789) (4,047) (1,240)
Mortgage servicing rights hedge value............. 6,858 (346) --
Change in valuation allowance..................... 41 -- --
Other............................................. (199) 199 --
------------- ------------- -------------
Balance at end of year.............................. $ 22,924 $ 15,006 $ 9,529
============= ============= =============
Fair value of capitalized mortgage servicing rights. $ 22,958 $ 16,113 $ 10,424
Valuation allowance, balance at end of year......... $ 202 $ 243 $ 243
</TABLE>
Based upon current fair values, capitalized mortgage servicing rights are
periodically assessed for impairment, which is recognized in income during the
period in which impairment occurs by establishing a corresponding valuation
allowance. For purposes of performing impairment evaluation, First Midwest
evaluates and measures impairment of its servicing rights using stratifications
based on risk characteristics of the underlying loans. These stratifications
include source of origination (retail, correspondent or purchased), loan type
(fixed or adjustable) and interest rate. Impairment is recognized through a
valuation allowance allocated by individual stratum.
48
<PAGE>
8. PREMISES, FURNITURE, AND EQUIPMENT
Premises, furniture, and equipment at December 31 is summarized as follows:
------------- ------------
1999 1998
------------ ------------
Land................................... $ 23,310 $ 21,883
Premises............................... 81,597 75,922
Furniture and equipment................ 51,410 48,399
------------ ------------
Total cost.......................... 156,317 146,204
Accumulated depreciation............... (75,909) (68,036)
------------ ------------
Net book value...................... $ 80,408 $ 78,168
============ ============
Depreciation and amortization expense on premises, furniture and equipment for
the years 1999, 1998 and 1997 totaled $8,988, $8,875 and $8,924, respectively.
Operating Leases
At December 31, 1999, the Company and its subsidiaries were obligated under
certain noncancellable operating leases for land, building and equipment which
expire at various dates through the year 2017. Many of these leases contain
renewal options, and certain leases provide options to purchase the leased
property during or at the expiration of the lease period at specific prices.
Some leases contain escalation clauses calling for rentals to be adjusted for
increased real estate taxes and other operating expenses, or proportionately
adjusted for increases in the consumer or other price indices. The following
summary reflects the future minimum rental payments, by year, required under
operating leases that, as of December 31, 1999, have initial or remaining
noncancellable lease terms in excess of one year.
Years Ended December 31, Total
------------
2000........................................... $ 1,794
2001........................................... 1,510
2002........................................... 1,278
2003........................................... 1,101
2004........................................... 1,079
2005 and thereafter............................ 1,439
------------
Total Minimum Lease Payments..................... $ 8,201
============
Rental expense charged to operations in 1999, 1998 and 1997, amounted to
approximately $2,239, $2,115 and $1,906 respectively, including amounts paid
under short-term cancelable leases. Occupancy expense has been reduced by rental
income from premises leased to others in the amount of $238 in 1999, $249 in
1998 and $245 in 1997.
9. INTANGIBLE ASSETS
The following is a summary of intangible assets at December 31 which are
included in other assets in the consolidated statements of condition:
------------- -------------
1999 1998
------------- -------------
Intangibles from acquisitions:
Goodwill................................. 20,717 22,874
Core deposit premiums.................... 2,644 3,131
Other identified intangibles............. 345 437
Mortgage servicing rights.................. 22,924 15,006
------------- -------------
Total intangible assets.................. $ 46,630 $ 41,448
============= =============
At December 31, 1999 the average remaining life of unamortized goodwill was 9
years.
49
<PAGE>
10. DEPOSITS
The following is a summary of deposits at December 31:
<TABLE>
<CAPTION>
-------------- -------------
1999 1998
-------------- -------------
<S> <C> <C>
Noninterest bearing demand deposits................. $ 663,306 $ 695,484
NOW accounts........................................ 451,269 452,028
Savings and money market deposits................... 944,972 1,045,834
Time deposits less than $100........................ 1,302,442 1,303,132
Time deposits $100 or more.......................... 639,194 553,973
-------------- -------------
Total deposits.................................... $ 4,001,183 $ 4,050,451
============== =============
</TABLE>
The maturities of time deposits as of December 31, 1999, for the years 2000
through 2004 and thereafter, were $1,708,937, $159,726, $41,355, $21,208 and
$10,410, respectively.
11. BORROWED FUNDS
The following is a summary of other borrowed funds and rates for the last three
years ended December 31:
<TABLE>
<CAPTION>
------------------------- ----------------------- ------------------------
1999 1998 1997
------------------------- ----------------------- ------------------------
Amount Rate Amount Rate Amount Rate
------------ ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
At year end:
Securities sold under agreements to repurchase... $ 788,432 5.61% $ 457,103 4.56% $ 423,601 5.05%
Federal funds purchased.......................... 133,000 5.44 40,000 4.53 -- --
Federal Home Loan Bank advances.................. 150,000 5.46 100,000 5.14 60,000 4.56
Other borrowed funds............................. 6,300 6.96 26,796 5.65 -- --
------------ ---- ---------- ---- ---------- -----
Total borrowed funds........................... $ 1,077,732 5.58% $ 623,899 4.70% $ 483,601 4.99%
============ ==== ========== ===== ========== =====
Average for the year:
Securities sold under agreements to repurchase... $ 605,527 4.89% $ 451,620 5.09% $ 480,992 5.16%
Federal funds purchased.......................... 38,348 5.23 27,974 5.39 15,668 10.17
Federal Home Loan Bank advances.................. 142,603 5.15 108,384 5.28 22,849 5.72
Other borrowed funds............................. 7,794 5.93 9,652 6.19 4,320 3.13
------------ ---- ---------- ---- ---------- -----
Total borrowed funds........................... $ 794,272 4.97% $ 597,630 5.15% $ 523,829 5.32%
============ ==== ========== ===== ========== =====
Maximum month-end balance:
Securities sold under agreements to repurchase... $ 844,534 $ 555,778 $ 535,302
Federal funds purchased.......................... 133,000 92,000 95,000
Federal Home Loan Bank advances.................. 170,000 160,000 60,000
Other borrowed funds............................. 16,801 29,906 5,000
</TABLE>
Securities sold under agreements to repurchase and federal funds purchased
generally mature within 1 to 90 days from the transaction date. Securities sold
under agreements to repurchase are treated as financings, and the obligations to
repurchase securities sold are reflected as a liability in the consolidated
statements of condition. Repurchase agreements are secured by U.S. Treasury and
U.S. Agency securities which are held in third party pledge accounts. The
securities underlying the agreements remain in the respective asset accounts. As
of December 31, 1999, First Midwest did not have amounts at risk under
repurchase agreements with any individual counterparty or group of
counterparties which exceed 10% of stockholders' equity.
Federal Home Loan Bank ("FHLB") advances are secured by FHLB stock and
qualifying residential mortgages. FHLB advances mature as follows:
<TABLE>
<CAPTION>
Advance
Amount Maturity Callable
---------- ------------- ---------------------------------------
<S> <C> <C>
$ 30,000 January 2000 --
50,000 July 2004 July 2000 and quarterly thereafter
70,000 February 2008 February 2000 and quarterly thereafter
----------
$ 150,000
==========
</TABLE>
50
<PAGE>
Other borrowed funds consist of term federal funds purchased, treasury tax and
loan deposits, and short-term credit arrangements with unaffiliated banks and
are generally repaid within 30 to 90 days from the transaction date. None of
First Midwest's borrowings have any related compensating balance requirements
which restrict the usage of Company assets.
Exclusive of certain correspondent bank and Federal Reserve Bank discount
borrowing facilities, at December 31, 1999 First Midwest had available to
Affiliates $163.7 million of unused short-term credit lines.
12. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the three years ended December 31:
<TABLE>
<CAPTION>
---------------- --------------- ---------------
1999 1998 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
Basic Earnings Per Share:
Net Income...................................................... $ 70,909 $ 54,704 $ 56,608
Average common shares outstanding............................... 42,135 43,996 43,980
Basic earnings per share........................................ $ 1.68 $ 1.24 $ 1.29
Diluted Earnings Per Share:
Net income...................................................... $ 70,909 $ 54,704 $ 56,608
Average common shares outstanding............................... 42,135 43,996 43,980
Dilutive effect of stock options................................ 322 709 875
--------------- ------------- ------------
Diluted average common shares outstanding....................... 42,457 44,705 44,855
=============== ============= ============
Dilutive earnings per share..................................... $ 1.67 $ 1.22 $ 1.26
</TABLE>
13. COMPREHENSIVE INCOME
The following table summarizes the related income tax effect and
reclassification adjustments to the components of other comprehensive income for
three years ended December 31:
<TABLE>
<CAPTION>
--------------- -------------- --------------
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Unrealized holding gains/(losses) on available for sale
securities arising during the period:
Unrealized net gains/(losses)................................. $ (96,748) $ (2,483) $ 16,671
Related tax (expense)/benefit................................. 37,736 1,030 (6,572)
---------- ----------- ---------
Net after tax unrealized losses on available for sale
securities.................................................... (59,012) (1,453) 10,099
Less: Reclassification adjustment for net gains/(losses)
realized during the period:
Realized net gains/(losses) on sales of available for sale
securities.................................................... (107) 1,119 995
Related tax (expense)/benefit................................. 42 (436) (388)
---------- ----------- ---------
Net after tax reclassification adjustment..................... (65) 683 607
---------- ----------- ---------
Total other comprehensive income................................ $ (58,947) $ (2,136) $ 9,492
========== =========== =========
</TABLE>
14. RETIREMENT PLANS
A summary of the First Midwest retirement plans, including the funding policies
and benefit information, is presented below:
First Midwest Savings and Profit Sharing Plan (Profit Sharing Plan) - The Profit
Sharing Plan covers substantially all full-time employees, provides for
retirement benefits based upon vesting requirements with full vesting after 7
years and allows for contributions by participants of up to 10% of defined
compensation on a tax sheltered basis under the provisions of Section 401 of the
Internal Revenue Code.
First Midwest provides a matching contribution to the Profit Sharing Plan of 2%
of defined compensation of the contributing participants, and a discretionary
contribution of up to an additional 6%, based upon both individual Affiliate
performance and the overall consolidated performance of First Midwest.
51
<PAGE>
First Midwest Pension Plan (Pension Plan) - The Pension Plan covers
substantially all full-time employees, is noncontributory, and provides for
retirement benefits based upon years of service and compensation levels of the
participants. Actuarially determined pension costs are charged to current
operations.
The following table summarizes the Pension Plan's costs and obligations to
participants for the years ended December 31:
<TABLE>
<CAPTION>
As of December 31,
---------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Change in benefit obligation:
Projected benefit obligation at beginning of year.............................. $ 14,855 $ 14,135
Service cost................................................................... 2,244 1,530
Interest cost.................................................................. 942 878
Actuarial (gains)/losses....................................................... (3,244) 638
Benefits paid.................................................................. (2,111) (1,033)
Settlements.................................................................... -- (1,875)
Special termination benefits................................................... -- 582
------------- -------------
Projected benefit obligation at end of year..................................... $ 12,686 $ 14,855
============= =============
Change in plan assets:
Fair value of plan assets at beginning of year................................. $ 13,387 $ 14,529
Actual return on plan assets................................................... 657 2,397
Employer contributions......................................................... 776 229
Benefits paid.................................................................. (2,111) (1,033)
Settlements.................................................................... -- (2,735)
------------- -------------
Fair value of plan assets at end of year........................................ $ 12,709 $ 13,387
============= =============
Reconciliation of funded status:
Over (under) funded............................................................ $ 23 $ (1,468)
Unrecognized transition (asset)................................................ (5) (221)
Unamortized prior service cost................................................. (177) (258)
Unrecognized net actuarial (gains) losses...................................... (2,591) 342
------------- -------------
Net accrued benefit cost recognized............................................. $ (2,750) $ (1,605)
============= =============
Amounts recognized in the consolidated statement of condition
consist of:
Accrued benefit liability.................................................... $ (2,750) $ (1,605)
------------- -------------
Net accrued benefit cost recognized............................................. $ (2,750) $ (1,605)
============= =============
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1999 1998 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service cost...................................................... $ 2,244 $ 1,530 $ 610
Interest cost..................................................... 942 878 608
Expected return on plan assets.................................... (967) (1,021) (691)
Recognized transition obligation (asset).......................... (216) (216) (274)
Amortization of prior service cost................................ (81) (81) (98)
Recognized net actuarial loss..................................... -- -- 67
Business combinations............................................. -- -- 290
Settlements....................................................... -- (59) --
Special termination benefits...................................... -- 582 117
------------ ------------ ------------
Net periodic cost................................................... $ 1,922 $ 1,613 $ 629
============ =========== ============
Weighted-average assumptions:
Discount rate..................................................... 7.75% 7.00% 7.25%
Expected return on plan assets.................................... 8.50% 8.00% 8.00%
Rate of compensation increase..................................... 4.50% 4.50% 4.50%
</TABLE>
52
<PAGE>
First Midwest Employee Stock Ownership Plan (ESOP) - In 1998, the ESOP plan was
terminated with participant account balances merged into the Profit Sharing
Plan. Contributions to the ESOP totaled .5% of defined compensation for all
participants in 1997.
The aggregate expense related to First Midwest's retirement plans for the
periods noted, included in retirement and other employee benefits in the
accompanying consolidated statements of income, is summarized in the table
below:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1999 1998 1997
-------------- ------------- --------------
<S> <C> <C> <C>
Profit Sharing Plan................................ $ 2,784 $ 2,874 $ 4,220
Pension Plan....................................... 1,922 1,613 629
ESOP............................................... -- -- 156
------------- ------------- --------------
$ 4,706 $ 4,487 $ 5,005
============= ============= ==============
</TABLE>
At December 31, 1999, the Profit Sharing Plan held as investments 1,814 shares
of First Midwest common stock, representing 4.4%, in aggregate, of the total
shares outstanding at such date. Fair value of shares held by the Profit Sharing
Plan at December 31, 1999 and dividends paid thereon during 1999 were $48,069
and $1,054, respectively.
15. INCOME TAXES
Total income taxes (benefits) reported in the consolidated income statements for
the years ended December 31, 1999, 1998 and 1997 include the following
components:
<TABLE>
<CAPTION>
-------------- ------------- --------------
1999 1998 1997
-------------- ------------- --------------
<S> <C> <C> <C>
Current tax expense:
Federal........................................................ $ 21,597 $ 24,026 $ 28,468
State.......................................................... (373) 1,417 2,651
-------------- ------------- --------------
Total........................................................ 21,224 25,443 31,119
-------------- ------------- --------------
Deferred tax expense (benefit):
Federal........................................................ 2,705 (1,191) (2,508)
State.......................................................... 591 (257) (186)
-------------- ------------- --------------
Total......................................................... 3,296 (1,448) (2,694)
-------------- ------------- --------------
Total income tax expense...................................... $ 24,520 $ 23,995 $ 28,425
============== ============= ==============
</TABLE>
Differences between the amounts reported in the consolidated financial
statements and the tax bases of assets and liabilities result in temporary
differences for which deferred tax assets and liabilities have been recorded.
Deferred tax assets and liabilities as of December 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
-------------- --------------
1999 1998
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Reserve for loan losses............................................ $ 14,890 $ 14,836
Unrealized losses.................................................. 412 1,147
Account retirement benefits........................................ 2,482 1,854
Acquisition charge................................................. 692 2,337
State tax benefits................................................. 1,711 2,095
Other.............................................................. 1,748 1,690
------------- -------------
Deferred tax assets.............................................. 21,935 23,959
------------- -------------
Deferred tax liabilities:
Mortgage servicing rights.......................................... (3,363) (2,673)
Purchase accounting adjustments.................................... (2,068) (2,332)
Other.............................................................. (2,111) (1,265)
------------- -------------
Total deferred tax liabilities..................................... (7,542) (6,270)
------------- -------------
Net deferred tax assets......................................... 14,393 17,689
Tax effect of adjustment related to available for sale securities.... 31,424 (6,316)
------------- -------------
Net deferred tax assets including adjustments........................ $ 45,817 $ 11,373
============= =============
</TABLE>
53
<PAGE>
Deferred tax assets and liabilities are included in other assets and other
liabilities, respectively, in the accompanying consolidated statements of
condition. Management believes that it is more likely than not that the deferred
tax assets will be fully realized, therefore no valuation allowance has been
recorded as of December 31, 1999 or 1998.
The differences between the statutory federal income tax rate and the effective
tax rate on income for the years ended December 31, 1999, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
---------------- -------------- ------------
1999 1998 1997
---------------- -------------- ------------
<S> <C> <C> <C>
Statutory federal income tax rate.................................. 35.0% 35.0% 35.0%
Tax exempt income, net of interest expense disallowance........... (8.4) (7.9) (5.5)
State income tax, net of federal tax effect....................... 0.1 1.0 1.7
Other, net........................................................ (1.0) 2.4 2.2
-------- ---------- ---------
Effective tax rate................................................. 25.7% 30.5% 33.4%
======== ========== =========
</TABLE>
As of December 31, 1999 and 1998, First Midwest's retained earnings includes an
appropriation for an acquired thrift's tax bad debt reserves of approximately
$2,480 for which no provision for federal or state income taxes has been made.
If, in the future, this portion of retained earnings is distributed as a result
of the liquidation of First Midwest or its Affiliates, federal and state income
taxes would be imposed at the then applicable rates.
16. STOCK OPTION PLANS
1989 Omnibus Stock and Incentive Plan (the "1989 Plan") - In February 1989, the
Board of Directors of First Midwest adopted the 1989 Plan which allows for the
granting of both incentive and non-statutory ("nonqualified") stock options,
stock appreciation rights, restricted stock, performance units and performance
shares to certain key employees. The total number of shares of First Midwest's
common stock available for awards under the 1989 Plan as amended may not exceed
3,145 of which 100 shares may be granted in restricted stock.
Since inception of the 1989 Plan, in February of each year certain key employees
have been granted nonqualified stock options. The option exercise price is set
at the fair market value of First Midwest common stock on the date the options
are granted. Except in the case of death or disability of a 1989 Plan
participant, after two years following the date of the grant 50% of the options
can be exercised with the remaining 50% becoming exercisable three years after
the grant date. Upon a change in control of First Midwest, as defined in the
1989 Plan, all options become fully exercisable and non-forfeitable. The options
generally may be exercised within a period of ten years following the date of
the grant.
Nonemployee Directors Stock Option Plan (the "Directors Plan") - During 1997,
the Board of Directors of First Midwest adopted the Directors Plan which
provides for the granting of nonqualified options for shares of common stock to
outside directors and nonmanagement Board members of the Company. A maximum of
38 nonqualified options for shares of common stock are available for grant under
the Directors Plan. The timing, amounts, recipients and other terms of the
option grants are determined by the provisions of, or formulas in, the Directors
Plan. The exercise price of the options is equal to the fair market value of the
common stock on the grant date. All options have a term of ten years from the
date of grant and become exercisable one year from the grant date subject to
accelerated vesting in the event of death, disability, or a change in control,
as defined in the Directors Plan. Directors elected during the service year are
granted options on a pro rata basis to those granted to the directors at the
start of the service year.
A combined summary of the nonqualified stock option transactions under the 1989
Plan and Directors Plan for the periods noted are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------------------------------------
1999 1998 1997
------------------------ --------------------------- ---------------------------
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.. 1,446 $ 16.25 2,091 $ 9.61 2,604 $ 8.26
Granted........................ 436 24.49 278 27.52 204 15.20
Canceled....................... (91) 25.96 (23) 22.59 (54) 12.98
Exercised...................... (312) 11.32 (900) 6.19 (663) 4.52
--------- ---------- ----------
Outstanding at end of year........ 1,479 19.12 1,446 15.79 2,091 9.61
========= ========== ==========
Exercisable at end of year........ 869 $ 15.07 926 $ 17.62 1,562 $ 8.43
========= ========== ==========
</TABLE>
54
<PAGE>
The following is a summary of options outstanding and exercisable at December
31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Exercisable Options
------------------------------------------------- ----------------------------------
Average Average
Number Average Exercise Number Exercise
Range of Exercise Prices Outstanding Life/(1)/ Price Exercisable Price
- ------------------------ --------------- ------------ --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
$7.93 - $13.47........... 393 3.6 $ 11.55 393 $ 11.55
$13.73 - $21.38.......... 460 5.9 16.81 384 15.90
$23.19 - $27.13.......... 488 7.7 24.92 55 25.13
$27.25 - $30.72.......... 138 7.4 27.90 37 28.93
--------- -------- ----------- ---------- --------------
Total 1,479 6.0 $ 19.12 869 $ 15.07
========= ======== =========== ========== ==============
</TABLE>
(1) Average contractual life remaining in years.
The weighted average fair values of options at their grant date during 1999,
1998 and 1997 were $6.16, $9.02 and $7.67, respectively. The estimated fair
value of each option granted is calculated using the Black-Scholes option
pricing model. The following table summarizes the weighted average assumptions
used in the model:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ---------- -------------
<S> <C> <C> <C>
Risk-free interest rate.................... 5.42% 5.40% 6.30%
Dividend yield............................. 2.34% 2.38% 2.63%
Expected stock volatility.................. 0.21 0.23 0.18
Expected years until exercise.............. 7.5 5.0 6.0
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. Option valuation models such as the Black-Scholes require the
input of highly subjective assumptions including the expected stock price
volatility. First Midwest's stock options have characteristics significantly
different from traded options and inasmuch as changes in the subjective input
assumptions can materially affect the fair value estimate, in Management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
First Midwest accounts for its Plan in accordance with ABP Opinion 25, as
allowed under FASB No. 123, no compensation cost has been recognized in
connection with nonqualified stock options granted in any year. Pursuant to FASB
No. 123 disclosure requirements, pro forma net income and earnings per share are
presented below as if compensation cost for employee stock options was
determined under the fair value method and amortized to expense over the
options' vesting period.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Net income:
As reported................................. $ 70,909 $ 54,704 $ 56,608
Pro forma................................... $ 69,783 $ 54,059 $ 56,200
Basic Earnings Per Share:
As reported................................. $ 1.68 $ 1.24 $ 1.29
Pro forma................................... $ 1.66 $ 1.23 $ 1.28
Diluted Earnings Per Share:
As reported................................. $ 1.67 $ 1.22 $ 1.26
Pro forma................................... $ 1.64 $ 1.21 $ 1.25
</TABLE>
The pro forma net income and earnings per share amounts reflect only the effect
of stock options granted subsequent to January 1, 1995. Accordingly, the pro
forma amounts may not be indicative of the future effects on reported net income
and earnings per share that will result from the future granting of stock
options, since the pro forma compensation cost is allocated over the periods in
which options become exercisable, and new awards may be granted each year.
55
<PAGE>
17. STOCKHOLDER RIGHTS PLAN
On February 15, 1989, the Board of Directors of First Midwest declared a
dividend, paid March 1, 1989, of one right ("Right") for each outstanding share
of common stock of First Midwest held on record on March 1, 1989 pursuant to a
Rights Agreement dated February 15, 1989. The Rights Agreement was amended and
restated on November 15, 1995 and again amended on June 18, 1997, to exclude the
SparBank acquisition. As amended, each right entitles the registered holder to
purchase from First Midwest one 1/100 of a share of Series A Preferred Stock for
a price of $100, subject to adjustment. The Rights will be exercisable only if a
person or group has acquired, or announces the intention to acquire, 10% or more
of First Midwest's outstanding shares of common stock. First Midwest is entitled
to redeem the Rights at $0.01 per Right, subject to adjustment, at any time
prior to the earlier of the tenth business day following the acquisition by any
person or group of 10% or more of the outstanding shares of First Midwest common
stock, or the expiration of the Rights in November, 2005.
As a result of the Rights distribution, 600 of the 1,000 shares of authorized
preferred stock were reserved for issuance as Series A Preferred Stock.
18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, First Midwest is a party to financial
instruments with off-balance sheet risk in order to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in interest rates.
All financial instruments are held or issued for purposes other than trading.
These instruments include commitments to extend credit, standby letters of
credit, commercial letters of credit (collectively "credit commitments"),
forward sales agreements, interest rate swap transactions and futures contracts.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statements of condition.
Credit Commitments - Commitments to extend credit are agreements to lend funds
to a customer as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by First Midwest to
guarantee the performance of a customer to a third party. The letters of credit
are generally issued in favor of a municipality where construction is taking
place to ensure that the borrower adequately completes the construction.
Commercial letters of credit are conditional guarantees of payment to a third
party on behalf of a First Midwest customer who is generally involved in
international business activity such as the importing of goods.
First Midwest's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit,
standby letters of credit and commercial letters of credit is represented by the
contractual amount of those instruments. However, as First Midwest uses the same
credit policies in making credit commitments as it does for on-balance sheet
instruments, this exposure is minimized due to various collateral requirements
in place. Credit commitments whose contractual amounts represent credit risk as
of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Contract
Amount
------------
<S> <C>
Commitments to extend credit...................... $ 773,688
Standby letters of credit......................... $ 51,481
Commercial letters of credit...................... $ 610
</TABLE>
Of the total $773,688 in commitments to extend credit, $129,346 represent unused
home equity lines of credit.
Forward Sales Agreements - First Midwest enters into certain sales contracts for
the future delivery of loans at a specified price and date. These contracts, in
the form of forward sales agreements, are entered into to limit exposure to
fluctuation in interest rates in First Midwest's mortgage loan sales operations.
As of December 31, 1999, forward sales agreements totaled $15,885. As part of
such loan sales operations, First Midwest generally contracts for the sale of
loans without recourse. At December 31, 1999, loans sold with recourse totaled
$11,641.
Interest Rate Swap Transactions - Interest rate swap transactions generally
involve the exchange of fixed and floating rate interest payment obligations
without the exchange of the underlying principal amounts. First Midwest enters
into interest rate swaps as part of its asset and liability management process.
Credit exposure on the interest rate swaps is comprised of the aggregate net
interest payable to First Midwest by the counterparty in addition to the
aggregate unrealized gain on
56
<PAGE>
the interest rate swap position. First Midwest maintains a policy limiting
credit exposure to any one counterparty to not more than 2.5% of consolidated
stockholders' equity. In addition, First Midwest's interest rate swaps generally
require the establishment of a mutual mark-to-market arrangement whereby cash
collateral may be required to be on deposit with First Midwest and/or the
agreement's counterparty.
First Midwest had interest rate swaps with an aggregate notional amount totaling
$357,900 in place, hedging various balance sheet categories, as of December 31,
1999. Further information with respect to these interest rate swap contracts is
as follows:
<TABLE>
<CAPTION>
Weighted Fair Weighted Average Rate
-------------------------
Average Value as
Notional Maturity of Interest Interest
Amount (in years) 12/31/99 Received Paid
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Type of Interest Rate Swap:
Receive fixed rate/pay variable rate...... $ 157,900 0.71 $ (463) 5.71% 6.31%
Receive variable rate/pay fixed rate...... $ 200,000 0.71 $ 762 6.19% 5.70%
</TABLE>
The fair value of interest rate swaps is the estimated amount that First Midwest
would pay or receive to terminate the swap agreements at the reporting date,
taking into account current interest rates and the credit worthiness of the swap
counterparties.
Financial Derivatives Related to the Hedging of Mortgage Servicing Rights -First
Midwest uses financial derivatives to hedge interest rate risk associated with
mortgage servicing rights ("MSRs"). The market value of the MSRs is adversely
affected when mortgage interest rates decline and mortgage prepayments increase.
The hedge policy of First Midwest relative to MSRs is to hedge against changes
in the asset value of MSRs arising from unanticipated interest rate driven
prepayments. First Midwest uses the value of futures contracts on 10-year U.S.
Treasury Notes to hedge the present values of the cash flows of the mortgage
loans underlying the MSRs, balanced with puts and calls to hedge convexity.
Convexity is defined as the sensitivity of the underlying mortgage loan lives to
changes in interest rates. First Midwest hedges all fixed rate, capitalized
MSRs. Adjustable rate and balloon mortgages are not hedged because there is no
effective method to predict duration of prepayment of these assets. Since 30-
year fixed-rate mortgages are priced off the 10-year U.S. Treasury Note curve,
the 10-year Treasury Note closely approximates the changes in the value of the
30-year fixed-rate mortgages and their associated servicing virtually in all
interest rate environments. It is the policy of First Midwest to have between
80% and 125% correlation between the change in market value of the MSRs and the
value of the change in the hedge position. First Midwest began using financial
derivatives to hedge MSR value changes in August, 1998. From that time until
December 31, 1999, the correlation, was not below 95%. As of December 31, 1999,
the value of the hedge, net of broker commissions, was $6.5 million, with a
correlation of 97%. Should such correlation approach 80% or 125%, First Midwest
would adjust the hedge coverage to bring correlation back into line with policy.
The hedge position is marked-to-market monthly, with realized and unrealized
gains and losses recognized as an adjustment to the capitalized MSRs. Impairment
analysis of the MSRs includes combined unrealized gains and losses on open hedge
positions, resulting in a net impairment value. For the year ending December 31,
1999, there was no impairment in net MSR value. The contract value of the
underlying financial derivatives hedging MSRs is carried off balance sheet and
detailed in the table below.
<TABLE>
<CAPTION>
As of December 31, 1999
---------------------------------------
Face Amount Market Value
------------------ ------------------
<S> <C> <C>
Futures............................................ $ 6,854 $ 6,710
Long Options....................................... 42 4
Short Options...................................... (49) (114)
-------------- -----------
Total Hedge Contract Value......................... $ 6,847 $ 6,600
============== ===========
</TABLE>
The cash margin requirement for the options fluctuates with the market value of
the instruments and is adjusted daily. First Midwest carries the margin amount
($253 at December 31, 1999) on its balance sheet as an asset. To terminate the
hedge, the difference between the face amount and the market value would be
settled between the broker and First Midwest and would result in a gain or loss
flowing directly to the income statement.
57
<PAGE>
19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Generally accepted accounting principles require disclosure of the estimated
fair values of certain financial instruments, both assets and liabilities on and
off the balance sheet, for which it is practical to estimate the fair value.
Because the estimated fair values provided herein exclude disclosure of the fair
value of certain other financial instruments and all non-financial instruments,
any aggregation of the estimated fair value amounts presented would not
represent the underlying value of First Midwest. Examples of non-financial
instruments having significant value include core deposit intangibles, mortgage
servicing rights, the future earnings potential of significant customer
relationships, and the value of First Midwest's trust company operations and
other fee-generating businesses. In addition, other significant assets including
property, plant and equipment and goodwill are not considered financial
instruments and therefore have not been valued.
Various methodologies and assumptions have been utilized in Management's
determination of the estimated fair value of First Midwest's financial
instruments which are detailed below. The fair value estimates are made at a
discrete point in time based upon relevant market information. Because no market
exists for a significant portion of these financial instruments, fair value
estimates are based on judgments regarding future expected economic conditions
and loss experience and risk characteristics of the financial instruments. These
estimates are subjective, involve uncertainties and cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
The following methods and assumptions were used in estimating the fair value of
financial instruments:
Short-Term Financial Assets and Liabilities - For financial instruments with a
short or no stated maturity, prevailing market rates and limited credit risk,
carrying amounts approximate fair value. Those financial instruments include
cash and due from banks, funds sold and other short-term investments, mortgages
held for sale, corporate owned life insurance, accrued interest receivable,
certain deposits (demand, NOW, savings and money market), funds borrowed and
other borrowed funds and accrued interest payable.
Securities Available for Sale and Held to Maturity - The fair value of
securities is based on quoted market prices or dealer quotes. If a quoted market
price is not available, fair value is estimated using quoted market prices for
similar securities.
Loans - The fair value of loans was estimated using present value techniques by
discounting the future cash flows of the remaining maturities of the loans. The
discount rate was based on the U.S. Treasury securities yield curve, with rate
adjustments for prepayment, liquidity and credit risk. The primary impact of
credit risk on the present value of the loan portfolio, however, was
accommodated through the use of the reserve for loan losses, which is believed
to represent the current fair value of all possible future losses for purposes
of the fair value calculation.
Deposit Liabilities - The fair value of fixed-maturity certificates of deposits
were estimated using a discounted cashflow analysis that applies interest rates
currently being offered for deposits of similar remaining maturities.
Other Borrowed Funds - The fair value of repurchase agreements is estimated by
discounting the agreements based on maturities using the rates currently offered
for repurchase agreements of similar remaining maturities.
Interest Rate Swaps - The fair value of interest rate swaps is the estimated
amount that First Midwest would receive or pay to terminate the swap agreements
at the reporting date, taking into account current interest rates and the
creditworthiness of the swap counterparties.
Future Contracts - The fair value of futures contracts is the estimated amount
that First Midwest would receive or pay to terminate the hedge at the reporting
date.
Commitments - Given the limited interest rate exposure posed by the commitments
outstanding at year-end due to their general variable nature, coupled with the
general short-term nature of the commitment periods entered into, termination
clauses provided in the agreements, and the market rate of fees charged, First
Midwest has not estimated the fair value of commitments outstanding and believes
that, if measured, the resulting fair value would be immaterial.
58
<PAGE>
The carrying amount and estimated fair value of First Midwest's financial
instruments at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------- ------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks........................... $ 155,407 $ 155,407 $ 156,524 $ 156,524
Funds sold and other short-term investments....... 1,566 1,566 12 12
Mortgages held for sale........................... 12,215 12,215 75,235 75,235
Securities available for sale..................... 2,033,247 2,033,247 1,979,115 1,979,115
Securities held to maturity....................... 43,543 44,244 48,964 50,794
Loans, net of reserve for loan losses............. 2,919,842 2,865,988 2,621,127 2,649,839
Investment on corporate owned life insurance...... 105,343 105,343 100,135 100,135
Accrued interest receivable....................... 43,181 43,181 36,362 36,362
Financial Liabilities:
Deposits.......................................... $ 4,001,183 $ 3,992,845 $ 4,050,451 $ 4,061,595
Borrowed funds.................................... 1,077,732 1,078,823 623,899 625,052
Accrued interest payable.......................... 21,722 21,722 17,245 17,245
Off-Balance Sheet Financial Instruments:
Interest rate swaps............................... -- $ 299 -- $ 1,542
Future contracts.................................. -- 247 -- 68
</TABLE>
20. SUPPLEMENTARY CASH FLOW INFORMATION
Supplemental disclosures to the consolidated statements of cash flows for the
three years ended December 31, are as follows:
<TABLE>
<CAPTION>
----------- ------------ -----------
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Income taxes paid.............................................................. $ 19,984 $ 23,016 $ 32,697
Interest paid to depositors and creditors...................................... 164,138 178,894 166,542
Non-cash transfers of loans to foreclosed real estate.......................... 5,216 1,534 (1,485)
Non-cash transfers to securities available for sale from loans................. -- 245,000 --
Non-cash transfers to securities available for sale from securities
held to maturity............................................................ 113 85,519 --
Dividends declared but unpaid.................................................. 7,409 6,973 4,532
</TABLE>
21. CONTINGENT LIABILITIES AND OTHER MATTERS
There are certain legal proceedings pending against First Midwest and its
Affiliates in the ordinary course of business at December 31, 1999. In assessing
these proceedings, including the advice of counsel, First Midwest believes that
liabilities arising from these proceedings, if any, would not have a material
adverse effect on the consolidated financial condition of First Midwest.
59
<PAGE>
22. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
The following represents the condensed financial statements of First Midwest
Bancorp, Inc., the Parent Company:
Statements of Condition
(Parent Company only)
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Assets:
Cash and interest bearing deposits......................... $ 7,932 $ 1,645
Investment in and advances to Affiliates................... 368,849 475,862
Other assets............................................... 21,199 24,131
------------- --------------
Total assets........................................... $397,980 $501,638
============= ==============
Liabilities and Stockholders' Equity
Accrued expenses and other liabilities..................... $ 22,419 $ 21,740
Borrowed funds............................................. 6,300 27,000
Stockholders' equity....................................... 369,261 452,898
------------- --------------
Total liabilities and stockholders' equity............. $397,980 $501,638
============= ==============
</TABLE>
Statements of Income
(Parent Company only)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
Income: 1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Dividends from Affiliates.................................... $65,781 $ 92,864 $48,411
Interest income.............................................. 2,533 2,994 1,554
Security transactions and other income....................... 406 502 493
------------ ------------- ------------
Total income............................................. 68,720 96,360 $50,458
------------ ------------- ------------
Expenses:
Interest expense............................................. 462 598 141
Salaries and employee benefits............................... 1,973 2,585 2,916
Acquisition and restructure charges.......................... -- 16,148 5,446
Other expenses............................................... 3,139 3,316 1,977
------------ ------------- ------------
Total expenses........................................... 5,574 22,647 10,480
------------ ------------- ------------
Income before income tax benefit and equity in undistributed
income of Affiliates......................................... 63,146 73,713 39,978
Income tax benefit.............................................. 717 5,122 2,452
------------ ------------- ------------
Income before equity in undistributed income of Affiliates 63,863 78,835 42,430
Equity in undistributed income of Affiliates.................... 7,046 (24,131) 14,178
------------ ------------- ------------
Net income................................................... $70,909 $ 54,704 $56,608
============ ============= ============
</TABLE>
60
<PAGE>
Statements of Cash Flows
(Parent Company only)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
Operating Activities 1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Net Income........................................................... $70,909 $54,704 $56,608
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed income from Affiliates....................... (7,046) 24,131 (14,178)
Net (increase) decrease in other assets.............................. 6,470 (12,046) 1,566
Net increase (decrease) in accrued expenses and other liabilities.... 125 6,578 (2,639)
----------- ------------ -----------
Net cash provided by operating activities.......................... 70,458 73,367 41,357
----------- ------------ -----------
Investing Activities
Purchases of securities net of proceeds from sale/
maturity of securities............................................. 1,341 (3,840) (1,504)
Purchase of other asset sales, net of sales.......................... (4,013) 4,569 1,169
----------- ------------ -----------
Net cash (used) provided by investing activities..................... (2,672) 729 (335)
----------- ------------ -----------
Financing Activities
Net (decrease) increase in borrowed funds............................ (20,700) 27,000 (7,000)
Net purchases of treasury stock...................................... (69,644) (33,937) (5,369)
Exercise of stock options............................................ 1,720 2,140 1,709
Cash dividends paid.................................................. (27,208) (25,103) (20,521)
Capital contributions and other advances, and repayments (to) from
Affiliates.......................................................... 54,333 (52,130) (27,865)
----------- ------------ -----------
Net cash (used) by financing activities............................ (61,499) (82,030) (59,046)
----------- ------------ -----------
Increase (decrease) in cash and cash equivalent...................... 6,287 (7,934) (18,024)
Cash and cash equivalents at beginning of year....................... 1,645 9,579 27,603
----------- ------------ -----------
Cash and cash equivalents at end of year............................. $7,932 $1,645 $9,579
=========== ============ ===========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Directors and Executive Officers of First Midwest,
their family relationships and their business experience is contained in the
Registrant's Proxy Statement for the 2000 Annual Meeting of Shareholders of
First Midwest, which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of the Executive Officers of First Midwest is
contained in the "Executive Officers and Executive Compensation" section of the
Registrant's Proxy Statement for the 2000 Annual Meeting of Shareholders of
First Midwest, which is incorporated herein by reference.
61
<PAGE>
The Compensation Committee's Report on Executive Compensation contained in the
"Executive Compensation" section of the Registrant's Proxy Statement shall not
be deemed incorporated by reference by any general statement incorporating by
reference the Registrant's Proxy Statement into any filing under the Securities
Act of 1933, as amended, or under the Securities Exchange Act of 1934, as
amended, except to the extent First Midwest specifically incorporates this
information by reference, and shall not otherwise be deemed "filed" under such
Acts.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is contained in the Registrant's Proxy Statement for the 2000 Annual
Meeting of Shareholders of First Midwest, which is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions of First
Midwest is contained in the Registrant's Proxy Statement for the 2000 Annual
Meeting of Shareholders of First Midwest, which is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The following exhibits, financial statements and financial statement
schedules are filed as part of this report:
FINANCIAL STATEMENTS
Consolidated Statements of Condition - December 31, 1999 and 1998
Consolidated Statements of Income - Years ended December 31, 1999, 1998
and 1997
Consolidated Statements of Changes in Stockholders' Equity - Years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended December 31, 1999,
1998 and 1997
Notes to Consolidated Financial Statements
Reports of Independent Auditors
FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted from this Annual Report
because the required information is presented in the consolidated financial
statements or in the notes thereto, the amounts involved are not significant, or
the required subject matter is not applicable.
62
<PAGE>
EXHIBITS
See Exhibit Index appearing on page 66.
(b) Reports on Form 8-K - Reports on Form 8-K were filed during the period
covered by this report as follows:
On November 19, 1999, First Midwest filed a report on Form 8-K announcing
the following:
(1) A three-for-two stock split payable on December 20, 1999; and
(2) A 12.5% quarterly cash dividend increase to $.18 per share; and
(3) The Company's intent to repurchase shares of its common stock in
both open market and private transactions.
63
<PAGE>
Management's Report
To Our Stockholders:
The accompanying consolidated financial statements were prepared by Management,
which is responsible for the integrity and objectivity of the data presented. In
the opinion of Management, the financial statements, which necessarily include
amounts based on Management's estimates and judgments, have been prepared in
conformity with generally accepted accounting principles appropriate to the
circumstances.
Management depends upon First Midwest's system of internal controls in meeting
its responsibilities for reliable financial statements. This system is designed
to provide reasonable assurance that assets are safeguarded and that
transactions are properly recorded and executed in accordance with Management's
authorization. Judgments are required to assess and balance the relative cost
and the expected benefits of these controls. As an integral part of the system
of internal controls, First Midwest relies upon a professional Internal Audit
function who conduct operational, financial, and special audits, and coordinate
audit coverage with the Independent Auditors.
The consolidated financial statements have been audited by the Independent
Auditors, Ernst and Young LLP, who render an independent professional opinion on
Management's financial statements.
The Audit Committee of First Midwest's Board of Directors, composed solely of
outside directors, meets regularly with the Internal Auditors, the Independent
Auditors and Management to assess the scope of the annual examination plan and
to discuss audit, internal control and financial reporting issues, including
major changes in accounting policies and reporting practices. The Internal
Auditors and the Independent Auditors have free access to the Audit Committee,
without Management present, to discuss the results of their audit work and their
evaluations of the adequacy of internal controls and the quality of financial
reporting.
/s/ Robert P. O'Meara /s/ Donald J. Swistowicz
Robert P. O'Meara Donald J. Swistowicz
Chairman and Executive Vice President,
Chief Executive Officer Chief Financial and Accounting Officer
January 18, 2000
64
<PAGE>
Reports of Independent Auditors
The Board of Directors and Stockholders
First Midwest Bancorp, Inc:
We have audited the accompanying consolidated statements of condition of First
Midwest Bancorp, Inc. as of December 31,1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1997 financial statements of Heritage Financial
Services, Inc., which reflect net income constituting 31.4% of the consolidated
financial statement totals for the year ended December 31, 1997. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to data included for Heritage Financial
Services, Inc., is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and, for 1997, the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and, for 1997, the report of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of First Midwest Bancorp, Inc. as
of December 31, 1999 and 1998, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/Ernst & Young LLP
Chicago, Illinois
January 18, 2000
Report of Independent Auditors
To the Shareholders of
Heritage Financial Services, Inc:
We have audited the accompanying consolidated statements of income, changes in
shareholders' equity and cash flows of Heritage Financial Services, Inc. and
subsidiaries for the year ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Heritage Financial Services, Inc. and subsidiaries for the year ended December
31, 1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Chicago, Illinois
January 19, 1998
65
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Documents
- ------ ------------------------
3 Restated Certificate of Incorporation is incorporated herein by reference
to Exhibit 3 to the Quarterly Report on Form 10-Q dated March 31, 1996.
3.1 Restated By-laws of the Company is incorporated herein by reference to
Exhibit 3.1 to the Company's Annual Report on Form 10-K dated December
31, 1994.
4 Amended and Restated Rights Agreement, Form of Rights Certificate and
Designation of Series A Preferred Stock of the Company, dated November
15, 1995, is incorporated herein by reference to Exhibits (1) through (3)
of the Company's Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on November 21, 1995.
4.1 First Amendment to Rights Agreements, dated June 18, 1997, is
incorporated herein by reference to Exhibit 4 of First Midwest's
Amendment No. 2 to the Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on June 30, 1997.
10 Restated 1989 Omnibus Stock and Incentive Plan.
10.1 Restated Non-Employee Directors' 1997 Stock Option Plan.
10.2 Restated Nonqualified Stock Option-Gain Deferral Plan.
10.3 Restated Deferred Compensation Plan for Nonemployee Directors.
10.4 Restated Nonqualified Retirement Plan.
10.5 Form of Letter Agreement for Nonqualified Stock Options Grant executed
between the Company and executive officers of the Company pursuant to the
Company's Omnibus Stock and Incentive Plan.
10.6 Form of Letter Agreement for Nonqualified Stock Options Grant executed
between the Company and directors of the Company pursuant to the
Company's Non-Employee Directors' 1997 Stock Option Plan.
10.7 Form of Indemnification Agreements executed between the Company and
executive officers and directors of the Company is incorporated herein by
reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K
dated December 31, 1991.
10.8 Form of Employment Agreements executed between the Company and certain
executive officers of the Company is incorporated herein by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-K dated December
31, 1997.
10.9 Form of Split-Dollar Life Insurance Agreements executed between the
Company and certain executive officers of the Company is incorporated
herein by reference to Exhibit 10.6 to the Company's Annual Report on
Form 10-K dated December 31, 1991.
10.10 Form of Amendment to Split-Dollar Life Insurance Agreements executed
between the Company and certain executive officers of the Company is
incorporated herein by reference to Exhibit 10.7 to the Company's Annual
Report on Form 10-K dated December 31, 1992.
10.11 Form of Right of First Refusal Agreement executed between the Company and
certain Shareholders of the Company is incorporated herein by reference
to Exhibit 10.10 to the Company's Annual Report on Form 10-K dated
December 31, 1994.
10.12 Investment Agreement dated June 18, 1998 between the Company and all of
the Stockholders of SparBank, Incorporated is incorporated herein by
reference to Exhibit 10.1 to the Company's Registration Statement on Form
S-3 (Registration No. 333-37809), filed with the Securities and Exchange
Commission on October 14, 1997.
10.13 Restated Savings and Profit Sharing Plan.
11 Statement re: Computation of Per Share Earnings - The computation of
basic and diluted earnings per share is described in Note 1 of the
Company's Notes to Consolidated Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" of this document.
66
<PAGE>
13 Quarterly Report to Security Holders for the quarter ended December 31,
1999.
21 Subsidiaries of the Registrant.
23 Consents of Experts and Counsel.
27 Financial Data Schedule.
________________________
Exhibits 10 through 10.10 are management contracts or compensatory plans or
arrangements required to be filed as an exhibit pursuant to item 14(a)3.
All other Exhibits which are required to be filed with this Form are not
applicable.
67
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST MIDWEST BANCORP, INC.
Registrant
By ROBERT P. O'MEARA
---------------------------------
Robert P. O'Meara
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
their capacities on February 24, 2000.
Signatures
----------
ROBERT P. O'MEARA
- ----------------------------------
Robert P. O'Meara Chairman of the Board and Chief
Executive Officer
JOHN M. O'MEARA
- ----------------------------------
John M. O'Meara President, Chief Operating Officer and
Director
DONALD J. SWISTOWICZ
- ----------------------------------
Donald J. Swistowicz Executive Vice President, Chief
Financial and Accounting Officer
VERNON A. BRUNNER
- ----------------------------------
Vernon A. Brunner Director
WILLIAM J. COWLIN
- ----------------------------------
William J. Cowlin Director
BRUCE S. CHELBERG
- ----------------------------------
Bruce S. Chelberg Director
O. RALPH EDWARDS
- ----------------------------------
O. Ralph Edwards Director
JOSEPH W. ENGLAND
- ----------------------------------
Joseph W. England Director
BROTHER JAMES GAFFNEY, FSC
- ----------------------------------
Brother James Gaffney, FSC Director
THOMAS M. GARVIN
- ----------------------------------
Thomas M. Garvin Director
JACK PAYAN
- ----------------------------------
Jack Payan Director
JOHN L. STERLING
- ----------------------------------
John L. Sterling Director
J. STEPHEN VANDERWOUDE
- ----------------------------------
J. Stephen Vanderwoude Director
RICHARD T. WOJCIK
- ----------------------------------
Richard T. Wojcik Director
68
<PAGE>
Exhibit 10
[LOGO APPEARS HERE] First Midwest Bancorp, Inc.
Tab
---
1989 Omnibus Stock and Incentive Plan, As Amended
Plan Document........................................................ A
1989 Omnibus Stock and Incentive Plan, As Amended
Summary Description.................................................. B
<PAGE>
[LOGO APPEARS HERE] First Midwest Bancorp, Inc.
1989 OMNIBUS STOCK AND INCENTIVE PLAN,
AS AMENDED
(As Restated to Incorporate
the First through Sixth Amendments,
as approved by the Board of Directors
on February 17, 1998)
* * * * *
PLAN DOCUMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Establishment, Purpose, and Effective Date of Plan.................. 1
1.1 Establishment..................................................... 1
1.2 Purpose........................................................... 1
1.3 Effective Date.................................................... 1
Section 2. Definitions......................................................... 1
2.1 Definitions....................................................... 1
2.2 Gender and Number................................................. 3
Section 3. Eligibility and Participation....................................... 4
3.1 Eligibility and Participation..................................... 4
Section 4. Administration...................................................... 4
4.1 Administration.................................................... 4
Section 5. Stock Subject to Plan............................................... 4
5.1 Number and Amount Available for Award to Single Participant....... 4
5.2 Reuse............................................................. 4
5.3 Adjustment in Capitalization...................................... 5
Section 6. Duration of Plan.................................................... 5
6.1 Duration of Plan.................................................. 5
Section 7. Stock Options....................................................... 5
7.1 Grant of Options.................................................. 5
7.2 Option Agreement.................................................. 5
7.3 Option Price...................................................... 6
7.4 Exercise of Options............................................... 6
7.5 Payment........................................................... 6
7.6 Limitations on ISOs............................................... 7
7.7 Restrictions on Stock Transferability............................. 7
7.8 Termination of Employment Due to Death, Disability, or Retirement. 7
7.9 Termination of Employment Due to Death, Disability, or Retirement. 8
7.10 Limited Transferability of Options................................ 8
Section 8. Stock Appreciation Rights........................................... 9
8.1 Grant of Stock Appreciation Rights................................ 9
8.2 Exercise of SARs in Lieu of Options............................... 9
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.3 Exercise of SARs in Addition to Options........................... 9
8.4 Exercise of SARs Independent of Options........................... 10
8.5 Exercise of SARs Upon Lapse of Options............................ 10
8.6 Payment of SAR Amount............................................. 10
8.7 Form and Timing of Payment........................................ 10
8.8 Limit of Appreciation............................................. 10
8.9 Term of SAR....................................................... 10
8.10 Termination of Employment......................................... 10
8.11 Nontransferability of SARs........................................ 10
Section 9. Restricted Stock.................................................... 10
9.1 Grant of Restricted Stock......................................... 10
9.2 Transferability................................................... 11
9.3 Other Restrictions................................................ 11
9.4 Voting Rights..................................................... 11
9.5 Dividends and Other Distributions................................. 11
9.6 Termination of Employment Due to Retirement....................... 11
9.7 Termination of Employment Due to Death or Disability.............. 11
9.8 Termination of Employment for Reasons Other than Death,
Disability, or Retirement......................................... 11
9.9 Nontransferability of Restricted Stock............................ 12
Section 10. Performance Units and Performance Shares............................ 12
10.1 Grant of Performance Units or Performance Shares.................. 12
10.2 Value of Performance Units and Performance Shares................. 12
10.3 Payment of Performance Units and Performance Shares............... 12
10.4 Form and Timing of Payment........................................ 12
10.5 Termination of Employment Due to Death, Disability, or Retirement. 12
10.6 Termination of Employment for Other Reasons....................... 13
10.7 Nontransferability................................................ 13
10.8 Performance Goals................................................. 13
Section 11. Beneficiary Designation............................................. 13
11.1 Beneficiary Designation........................................... 13
Section 12. Rights of Employees................................................. 13
12.1 Employment........................................................ 13
12.2 Participation..................................................... 13
Section 13. Change in Control................................................... 14
</TABLE>
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<TABLE>
<S> <C>
13.1 In General........................................................ 14
13.2 Definition........................................................ 14
Section 14. Amendment, Modification, and Termination of Plan.................... 15
14.1 Amendment, Modification, and Termination of Plan.................. 15
Section 15. Tax Withholding..................................................... 16
15.1 Tax Withholding................................................... 16
15.2 Share Withholding................................................. 16
Section 16. Indemnification..................................................... 16
16.1 Indemnification................................................... 16
Section 17. Requirements of Law................................................. 17
17.1 Requirements of Law............................................... 17
17.2 Governing Law..................................................... 17
</TABLE>
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Section 1. Establishment, Purpose, and Effective Date of Plan
1.1 Establishment. First Midwest Bancorp, Inc., a Delaware corporation,
hereby establishes the "FIRST MIDWEST BANCORP, INC. 1989 OMNIBUS STOCK AND
INCENTIVE PLAN" for key employees. The Plan permits the grant of stock options,
stock appreciation rights, restricted stock, common stock or cash as a payout
medium for payments under the plans, specifically stock appreciation rights,
performance units, and performance shares.
1.2 Purpose. The purpose of the Plan is to advance the interests of the
Company, by encouraging and providing for the acquisition of an equity interest
in the success of the Company by key employees, by providing additional
incentives and motivation toward superior performance of the Company, and by
enabling the Company to attract and retain the services of key employees upon
whose judgment, interest, and special effort the successful conduct of its
operations is largely dependent.
1.3 Effective Date. The Plan shall become effective immediately upon its
adoption by the Board of Directors of the Company, subject to ratification by
the stockholders of the Company. Awards may be granted hereunder on or after the
effective date but shall in no event be exercisable or payable to a Participant
prior to such stockholder approval; and, if such approval is not obtained within
twelve (12) months after the effective date, such Awards shall be of no force
and effect.
Section 2. Definitions
2.1 Definitions. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "Award" means any Stock Option, Stock Appreciation Right,
Restricted Stock, Performance Unit or Performance Share granted
under this Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" shall mean any one of the following:
(i) gross misconduct in, or the continued and willful refusal
by the Participant after written notice by the Company to
make himself available for the performance of the
Participant's duties for the Company or a subsidiary; or
(ii) conviction for a felony for a matter related to the
Company or a subsidiary; or
(iii) suspension due to the direction of any authorized bank
regulatory agency that the Participant be relieved of his
duties and responsibilities to the Company or a
subsidiary.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
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(e) "Committee" means the Compensation Committee of the Board of
Directors or such other committee appointed from time to time by
the Board of Directors to administer this Plan. The Committee
shall consist of two or more members, each of whom shall qualify
as a "non-employee director," as the term (or similar or
successor term) is defined by Rule 16b-3, and as an "outside
director" within the meaning of Code Section 162(m) and
regulations thereunder.
(f) "Company" means First Midwest Bancorp, Inc., a Delaware
corporation.
(g) "Disability" means totally and permanently disabled as from time
to time defined under the First Midwest Bancorp Consolidated
Pension Plan.
(h) "Employee" means a regular salaried employee (including officers
and directors who are also employees) of the Company or its
Subsidiaries, or any branch or division thereof.
(i) "Fair Market Value" means the average of the highest and lowest
prices of the Stock as reported by the consolidated tape of the
NASDAQ National Market System on a particular date. In the event
that there are no Stock transactions on such date, the Fair
Market Value shall be determined as of the immediately preceding
date on which there were Stock transactions.
(j) "Option" means the right to purchase Stock at a stated price for
a specified period of time. For purposes of the Plan an Option
may be either (i) an "Incentive Stock Option," or "ISO" within
the meaning of Section 422A of the Code, (ii) a "Nonstatutory
(Nonqualified) Stock Option," or "NSO," or (iii) any other type
of option encompassed by the Code.
(k) "Participant" means any Employee designated by the Committee to
participate in the Plan.
(l) "Performance Unit" means a right to receive a payment equal to
the value of a Performance Unit as determined by the Committee
based upon performance and pursuant to Section 10 of the Plan.
(m) "Performance Share" means a right to receive a payment equal to
the value of a Performance Share as determined by the Committee
based on performance and pursuant to Section 10 of the Plan.
(n) "Period of Restriction" means the period during which the
transfer of shares of Restricted Stock is restricted pursuant to
Section 9 of the Plan.
(o) "Plan" means the First Midwest Bancorp, Inc. 1989 Omnibus Stock
and Incentive Plan as set forth herein and any amendments hereto.
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(p) "Restricted Stock" means Stock granted to a Participant pursuant
to Section 9 of the Plan.
(q) "Retirement" means termination of employment other than for
Cause, after the Participant's (a) "Normal Retirement Date" or
(b) "Early Retirement Date" as defined from time to time under
the First Midwest Bancorp Consolidated Pension Plan.
(r) "Rule 16b-3" means Rule 16b-3 or any successor or comparable rule
or rules applicable to Awards granted under the Plan promulgated
by the Securities and Exchange Commission under Section 16(b) of
the Securities Exchange Act of 1934, as amended.
(s) "Stock" means the Common Stock, without par value, of the
Company.
(t) "Stock Appreciation Right" and "SAR" mean the right to receive a
payment from the Company equal to the excess of the Fair Market
Value of a share of stock at the date of exercise over a
specified price fixed by the Committee, which shall not be less
than 100% of the Fair Market Value of the Stock on the date of
grant. In the case of a Stock Appreciation Right which is granted
in conjunction with an Option, the specified price shall be the
Option exercise price.
(u) "Tax Date" means the date on which the amount of any income tax
or other tax withholding obligation applicable to a Participant
with respect to any Award is determined in accordance with the
Code.
2.2 Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender when used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.
Section 3. Eligibility and Participation
3.1 Eligibility and Participation. Participants in the Plan shall be
selected by the Committee from among those employees who are recommended for
participation by the Chief Executive Officer and who, in the opinion of the
Committee, are key employees in a position to contribute materially to the
Company's continued growth and development and to its long-term financial
success.
Section 4. Administration
4.1 Administration. The Committee shall be responsible for the
administration of the Plan. The Committee, by majority action thereof (whether
taken during a meeting or by written consent), is authorized to interpret the
Plan, to prescribe, amend, and rescind rules and regulations relating to the
Plan, to provide
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for conditions and assurances deemed necessary or advisable to protect the
interests of the Company, and to make all other determinations necessary or
advisable for the administration of the Plan, but only to the extent not
contrary to the express provisions of the Plan. Determinations, interpretations,
or other actions made or taken by the Committee pursuant to the provisions of
the Plan shall be final and binding and conclusive for all purposes and upon all
persons whomsoever. To the extent deemed necessary or advisable for purposes of
Rule 16b-3 or otherwise, the Board may act as the Committee hereunder.
Section 5. Stock Subject to Plan
5.1 Number and Amount Available for Award to Single Participant. Giving
effect to the 5-for-4 stock split accomplished in the form of a stock dividend
paid during January 1997, the total number of shares of Stock subject to Awards
under the Plan may not exceed 2,096,875 (of this total number up to 100,000
shares of Stock may be issued in Restricted Stock), and the total number of
shares of Stock which may be made subject to Awards granted under the Plan in
any calendar year to any single Participant may not exceed 81,250. Such numbers
of shares shall be subject to adjustment upon occurrence of any of the events
described in Section 5.3. The shares to be delivered under the Plan may consist,
in whole or in part, of authorized but unissued Stock or treasury Stock, not
reserved for any other purpose.
5.2 Reuse. If, and to the extent:
(a) An Option shall expire or terminate for any reason without having
been exercised in full (including, without limitation,
cancellation and re-grant), or in the event that an Option is
exercised or settled in a manner such that some or all of the
shares of Stock related to the Option are not issued to the
Participant (or beneficiary) including as the result of the use
of shares for withholding taxes, the shares of Stock subject
thereto which have not become outstanding shall (unless the Plan
shall have terminated) become available for issuance under the
Plan; provided, however, that with respect to a share-for-share
exercise, only the net shares issued shall be deemed to have
become outstanding as a result thereof.
(b) Restricted Stock, Performance Shares or Performance Units under
the Plan forfeited for any reason, or settled in cash in lieu of
Stock or in a manner such that some or all of the shares of Stock
related to the award are not issued to the Participant (or
beneficiary), such shares of Stock shall (unless the Plan shall
have terminated) become available for issuance under the Plan;
provided, however, that if any dividends paid with respect to
shares of Restricted Stock or Performance Shares were paid to the
Participant prior to the forfeiture thereof, such shares shall
not be reused for grants or awards.
(c) SARs expire or terminate for any reasons without having been
earned in full, an equal number of SARs shall (unless the 1989
Plan shall have terminated) become available for issuance under
the Plan.
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5.3 Adjustment in Capitalization. In the event of any change in the
outstanding shares of Stock that occurs after ratification of the Plan by the
stockholders of the Company by reason of a Stock dividend or split,
recapitalization, merger, consolidation, combination, exchange of shares, or
other similar corporate change, the aggregate number of shares of Stock subject
to each outstanding Option, and its stated Option price, shall be adjusted
appropriately by the Committee, whose determination shall be conclusive;
provided, however, that fractional shares shall be rounded to the nearest whole
share. In such event, the Committee also shall have discretion to make
appropriate adjustments in the number and type of shares subject to Restricted
Stock grants then outstanding under the Plan pursuant to the terms of such
grants or otherwise.
Section 6. Duration of Plan
6.1 Duration of Plan. The Plan shall remain in effect, subject to the
Board's right to earlier terminate the Plan pursuant to Section 14 hereof, until
all Stock subject to it shall have been purchased or acquired pursuant to the
provisions hereof. Notwithstanding the foregoing, no Award may be granted under
the Plan on or after February 21, 2006.
Section 7. Stock Options
7.1 Grant of Options. Subject to the provisions of Section 5 and 6,
Options may be granted to Participants at any time and from time to time as
shall be determined by the Committee. The Committee shall have complete
discretion in determining the number of Options granted to each Participant. The
Committee may grant any type of Option to purchase Stock that is permitted by
law at the time of grant.
7.2 Option Agreement. Each Option shall be evidenced by an Option
agreement that shall specify the type of Option granted, the Option price the
duration of the Option, the number of shares of Stock to which the Option
pertains, and such other provisions as the Committee shall determine.
7.3 Option Price. No Option granted pursuant to the Plan shall have an
Option price that is less than the Fair Market Value of the Stock on the date
the Option is granted.
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7.4 Exercise of Options. Options awarded under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall approve, either at the time of grant of such Options or
pursuant to a general determination, and which need not be the same for all
Participants, provided that, to the extent required to comply with Rule 16b-3,
no Option shall be exercisable within the first six months of its term, unless
death or Disability of the Participant occurs during such period. Each Option
which is intended to qualify as an Incentive Stock Option pursuant to Section
422A of the Code, and each Option which is intended to qualify as another type
of ISO which may subsequently be authorized by law, shall comply with the
applicable provisions of the Code pertaining to such Options.
7.5 Payment. Options shall be exercised by the delivery of a written
notice of exercise to the Company, setting forth the number of shares of Stock
with respect to which the Option is to be exercised, accompanied by full payment
for the Stock. The Option Price upon exercise of any Option shall be payable to
the Company in full either:
(a) in cash or its equivalent (including, for this purpose, the
proceeds from a cashless exercise as permitted under Federal
Reserve Board's Regulation T, or other borrowed funds),
(b) by tendering previously-acquired Stock having an aggregate Fair
Market Value at the time of exercise equal to the total Option
price (including, for this purpose, Stock deemed tendered by
affirmation of ownership),
(c) by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law, or
(d) by a combination of (a), (b), and (c).
The exercise of an Option shall cancel any related SAR to the extent of the
number of shares as to which the Option is exercised. As soon as practicable
after receipt of each notice and full payment, the Company shall deliver to the
Participant a certificate or certificates representing acquired shares of Stock.
Notwithstanding the foregoing, the Option price payable with respect to the
exercise of any Options by a Participant who has a deferral election in effect
under the Company's Nonqualified Stock Option--Gain Deferral Plan (the "Gain
Deferral Plan") shall be made solely by tendering previously-acquired Stock in
accordance with paragraph (b) above. As soon as practicable after receipt of
notice of exercise and payment, the Company shall deliver to the trustee of the
trust established under the Gain Deferral Plan, a certificate or certificates
representing such number of shares of Stock determined by dividing (i) the
excess of (A) the Fair Market Value of the shares of Stock purchased pursuant to
such Option exercise, over (B) the aggregate exercise price of the shares of
Stock purchased, by (ii) the Fair Market Value of one share of Stock. In
addition, as soon as practicable after receipt of such notice and payment of the
Option price (other than payment by affirmation of ownership), the Company shall
deliver to the Participant a certificate or certificates representing shares
with a Fair Market Value equal to the aggregate option exercise price paid, net
of any tax withholding pursuant to Section 15.2. For purposes of the foregoing,
Fair Market Value shall be determined on the date of Option exercise.
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<PAGE>
7.6 Limitations on ISOs. Notwithstanding anything in the Plan to the
contrary, to the extent required from time to time by the Code, the following
additional provisions shall apply to the grant of Options which are intended to
qualify as Incentive Stock Options (as such term is defined in Section 422A of
the Code):
(a) The aggregate Fair Market Value (determined as of the date the
Option is granted) of the shares of Common Stock with respect to
which Incentive Stock Options are exercisable for the first time
by any Participant during any calendar year (under all plans of
the Company) shall not exceed $100,000 or such other amount as
may subsequently be specified by the Code; provided that, to the
extent that such limitation is exceeded, any excess Options (as
determined under the Code) shall be deemed to be Nonstatutory
(Nonqualified) Stock Options.
(b) Any Incentive Stock Option authorized under the Plan shall
contain such other provisions as the Committee shall deem
advisable, but shall in all events be consistent with and contain
or be deemed to contain all provisions required in order to
qualify the Options as Incentive Stock Options.
(c) All Incentive Stock Options must be granted within ten years from
the earlier of the date on which this Plan was adopted by the
Board of Directors or the date this Plan was approved by the
stockholders.
(d) Unless exercised, terminated, or cancelled sooner, all Incentive
Stock Options shall expire no later than ten years after the date
of grant.
7.7 Restrictions on Stock Transferability. The Committee shall impose
such restrictions on any shares of Stock acquired pursuant to the exercise of an
Option under the Plan as it may deem advisable, including, without limitation,
restrictions under the applicable Federal securities law, under the requirements
of any stock exchange upon which such shares of Stock are then listed and under
any blue sky or state securities laws applicable to such shares.
7.8 Termination of Employment Due to Death, Disability, or Retirement.
In the event the employment of a Participant is terminated by reason of death,
Disability, or Retirement, any outstanding Options then exercisable may be
exercised at any time prior to the expiration date of the Options or within
three (3) years after such date of termination of employment, whichever period
is the shorter. However, in the case of Incentive Stock Options, the favorable
tax treatment prescribed under Section 422A of the Code shall not be available
if such options are not exercised within three (3) months after date of
termination, or twelve (12) months in the case of Disability, provided such
Disability constitutes total and permanent disability as defined in Section
22(e)(3) of the Code. If an Incentive Stock Option is not exercised within three
(3) months of termination due to Retirement, it shall be treated as a
Nonstatutory (Nonqualified) Stock Option for the remainder of its allowable
exercise period.
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7.9 Termination of Employment Due to Death, Disability, or Retirement.
If the employment of the Participant shall terminate for any reason other than
death, Disability, Retirement, or involuntarily for Cause, the rights under any
then outstanding Option granted pursuant to the Plan shall terminate upon the
expiration date of the Option or one month after such date of termination of
employment, whichever first occurs; provided, however, that in the event such
termination of employment occurs after a change in control (as defined in
Section 13.2 of the Plan), the rights under any then outstanding Option granted
pursuant to the Plan shall terminate upon the expiration date of the Option or
one year after such date of termination of employment, whichever first occurs.
Where termination of employment is involuntarily for Cause, rights under all
Options shall terminate immediately upon termination of employment.
7.10 Limited Transferability of Options. Except as provided below, no
Option granted under the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, otherwise than by will or by the laws of
descent and distribution. Further, all Options granted to a Participant under
the Plan shall be exercisable during his lifetime only by such Participant.
Notwithstanding the foregoing, the Committee may, in its discretion, authorize
all or a portion of the Options (other than Incentive Stock Options) granted to
a Participant to be on terms which permit transfer by such Participant to:
(a) the spouse, children or grandchildren of the Participant
("Immediate Family Members");
(b) a trust or trusts for the exclusive benefit of such Immediate
Family Members, or;
(c) a partnership in which such Immediate Family Members are the only
partners, provided that:
(i) there may be no consideration for any such transfer;
(ii) the Award Agreement pursuant to which such Options are
granted expressly provides for transferability in a manner
consistent with this Section 7.10; and
(iii) subsequent transfers of transferred Options shall be
prohibited except those in accordance with Section 11.
Following transfer, any such Options shall continue to be
subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that
for purposes of Section 11 hereof the term "Participant"
shall be deemed to refer to the transferee. The provisions
of Sections 7 and 13 relating to the period of
exercisability and expiration of the Option shall continue
to be applied with respect to the original Participant,
and the Options shall be exercisable by the transferee
only to the extent, and for the periods, set forth in said
Sections 7 and 13.
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Section 8. Stock Appreciation Rights
8.1 Grant of Stock Appreciation Rights. Subject to the provisions of
Sections 5 and 6, Stock Appreciation Rights ("SARs") may be granted to
Participants at any time and from time to time as shall be determined by the
Committee. An SAR may be granted at the discretion of the Committee in any of
the following forms:
(a) In lieu of Options,
(b) In addition to Options,
(c) Upon lapse of Options,
(d) Independent of Options,
(e) Each of the above in connection with previously awarded Options.
8.2 Exercise of SARs in Lieu of Options. SARs granted in lieu of Options
may be exercised for all or part of the shares of Stock subject to the related
Option upon the surrender of the right to exercise an equivalent number of
Options. The SAR may be exercised only with respect to the shares of Stock for
which its related Option is then exercisable. Option shares with respect to
which the SAR shall have been exercised may not be subject again to an Award
under this Plan. SARs granted pursuant to this Section 8.2 with respect to which
the Option shares have been exercised will immediately lapse upon such exercise.
8.3 Exercise of SARs in Addition to Options. SARs granted in addition to
Options shall be deemed to be exercised upon the exercise of the related
Options.
8.4 Exercise of SARs Independent of Options. SARs granted independent of
Options may be exercised upon whatever terms and conditions the Committee, in
its sole discretion, imposes upon the SARs.
8.5 Exercise of SARs Upon Lapse of Options. SARs granted upon lapse of
Options shall be deemed to have been exercised upon the lapse of the related
Options as to the number of shares of Stock subject to the Options.
Notwithstanding Section 5.2 above, cancelled Options in an amount equal to the
related SARs shall not be available again for Awards under the Plan.
8.6 Payment of SAR Amount. Upon exercise of the SAR, the holder shall be
entitled to receive payment of an amount (subject to Section 8.8 below)
determined by multiplying:
(a) The difference between the Fair Market Value of a share of Stock
at the date of exercise over the price fixed by the Committee at
the date of grant, by
(b) The number of shares with respect to which the Stock Appreciation
Right is exercised.
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8.7 Form and Timing of Payment. At the discretion of the
Committee, payment for SARs may be made in cash or Stock, or in a combination
thereof.
8.8 Limit of Appreciation. At the time of grant, the Committee
may establish in its sole discretion, a maximum amount per share which will be
payable upon exercise of an SAR.
8.9 Term of SAR. The term of an SAR granted under the Plan shall
not exceed ten years and one day.
8.10 Termination of Employment. In the event the employment of a
Participant is terminated by reason of death, Disability, Retirement, or any
other reason, any SARs outstanding shall terminate in the same manner as
specified for Options under Sections 7.8 and 7.9 herein.
8.11 Nontransferability of SARs. No SAR granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, otherwise than by will or by the laws of descent and distribution.
Further, all SARs granted to a Participant under the Plan shall be exercisable
during his lifetime only by such Participant.
Section 9. Restricted Stock
9.1 Grant of Restricted Stock. Subject to the provisions of
Sections 5 and 6, the Committee, at any time and from time to time, may grant
shares of Restricted Stock under the Plan to such Participants and in such
amounts as it shall determine. Each grant of Restricted Stock shall be in
writing.
9.2 Transferability. Except as provided in Sections 9.8 and 9.9
hereof, the shares of Restricted Stock granted hereunder may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated for such
period of time as shall be determined by the Committee and shall be specified in
the Restricted Stock grant, or upon earlier satisfaction of other conditions
(which may include the attainment of performance goals as defined in Section
10.8 hereof), as specified by the Committee in its sole discretion and set forth
in the Restricted Stock grant.
9.3 Other Restrictions. The Committee shall impose such other
restrictions on any shares of Restricted Stock granted pursuant to the Plan as
it may deem advisable including, without limitation, restrictions under
applicable Federal or state securities laws, and may legend the certificates
representing Restricted Stock to give appropriate notice of such restrictions.
9.4 Voting Rights. Participants holding shares of Restricted
Stock granted hereunder may exercise full voting rights with respect to those
shares during the Period of Restriction.
9.5 Dividends and Other Distributions. During the Period of
Restriction, Participants holding shares of Restricted Stock granted hereunder
shall be entitled to receive all dividends and other distributions paid with
respect to those shares while they are so held. If any such dividends or
distributions are paid in
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<PAGE>
shares of Stock, the shares shall be subject to the same restrictions on
transferability as the shares of Restricted Stock with respect to which they
were paid.
9.6 Termination of Employment Due to Retirement. In the event a
Participant's employment terminates on or after his Normal Retirement Date, the
Period of Restriction applicable to the Restricted Stock pursuant to Subsection
9.2 hereof shall automatically terminate and, except as otherwise provided in
Subsection 9.3, the shares of Restricted Stock shall thereby be free of
restrictions and freely transferable. In the event a Participant terminates
employment on or after his Early Retirement Date but prior to Normal Retirement
Date, any shares of Restricted Stock still subject to restrictions at the date
of such termination automatically shall be forfeited and returned to the
Company; provided, however, that the Committee in its sole discretion may waive
the restrictions remaining on any or all shares of Restricted Stock or add such
new restrictions to those shares of Restricted Stock as it deems appropriate.
9.7 Termination of Employment Due to Death or Disability. In the
event a Participant terminates his employment with the Company because of death
or Disability during the Period of Restriction, the restrictions applicable to
the shares of Restricted Stock pursuant to Section 9.2 hereof shall
automatically terminate and, except as otherwise provided in Subsection 9.3, the
shares of Restricted Stock shall thereby be free and restrictions and freely
transferable.
9.8 Termination of Employment for Reasons Other than Death,
Disability, or Retirement. In the event that a Participant terminates his
employment with the Company for any reason other than those set forth in
Sections 9.6 and 9.7 hereof during the Period of Restriction, then any shares of
Restricted Stock still subject to restrictions at the date of such termination
automatically shall be forfeited and returned to the Company; provided, however,
that, in the event of an involuntary termination of the employment of a
Participant by the Company other than for Cause, the Committee in its sole
discretion may waive the automatic forfeiture of any or all such shares and/or
may add such new restrictions to such shares of Restricted Stock as it deems
appropriate.
9.9 Nontransferability of Restricted Stock. No shares of
Restricted Stock granted under the Plan may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, otherwise than by will or by
the laws of descent and distribution until the termination of the applicable
Period of Restriction. All rights with respect to Restricted Stock granted to a
Participant under the Plan shall be exercisable during his lifetime only by such
Participant.
Section 10. Performance Units and Performance Shares
10.1 Grant of Performance Units or Performance Shares. Subject to
the provisions of Sections 5 and 6, Performance Units or Performance Shares may
be granted to Participants at any time and from time to time as shall be
determined by the Committee. The Committee shall have complete discretion in
determining the number of Performance Units or Performance Shares granted to
each Participant.
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10.2 Value of Performance Units and Performance Shares. Each
Performance Unit shall have an initial value of one hundred dollars ($100) and
each Performance Share initially shall represent one share of Stock. The
Committee shall set performance goals in its discretion which, depending on the
extent to which they are met, will determine the ultimate value of the
Performance Unit or Performance Share to the Participant. The time period during
which the performance goals must be met shall be called a performance period,
and also is to be determined by the Committee.
10.3 Payment of Performance Units and Performance Shares. After a
performance period has ended, the holder of a Performance Unit or Performance
Share shall be entitled to receive the value thereof as determined by the extent
to which performance goals discussed in Section 10.2 have been met.
10.4 Form and Timing of Payment. Payment in Section 10.3 above
shall be made in cash, stock, or a combination thereof as determined by the
Committee. Payment may be made in a lump sum or installments as prescribed by
the Committee. If any payment is to be made on a deferred basis, the Committee
may provide for the payment of dividend equivalents or interest during the
deferral period.
10.5 Termination of Employment Due to Death, Disability, or
Retirement. In the case of death, Disability, or Retirement, the holder of a
Performance Unit or Performance Share shall receive prorata payment based on the
number of months' service during the performance period but based on the
achievement of performance goals during the entire performance period. Payment
shall be made at the time payments are made to Participants who did not
terminate service during the performance period.
10.6 Termination of Employment for Other Reasons. In the event
that a Participant terminates employment with the Company for any reason other
than death, Disability or Retirement, all Performance Units and Performance
Shares shall be forfeited; provided, however, that in the event of an
involuntary termination of the employment of the Participant by the Company
other than for Cause, the Committee in its sole discretion may waive the
automatic forfeiture provisions and pay out on a prorata basis.
10.7 Nontransferability. Units or Performance Shares granted
under the Plan may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, otherwise than by will or by the laws of descent and
distribution until the termination of the applicable performance period. All
rights with respect to Performance Units and Performance Shares granted to a
Participant under the Plan shall be exercisable during his lifetime only by such
Participant.
10.8 Performance Goals. For purposes of Section 9.2 and 10.2
hereof, "performance goals" shall mean the criteria and objectives, determined
by the Committee pursuant to the Plan, which shall be satisfied or met during
the applicable restriction period or performance period, as the case may be, as
a condition to the Participant's receipt, in the case of a grant of the
Restricted Stock or a grant of Performance Shares, of the shares of Stock
subject to such grant, or in the case of a Performance Unit Award, of payment
with respect to such Award. Such criteria and objectives may include, but are
not limited to, return on assets, return on equity, growth in net earnings,
growth in earnings per share, asset growth, deposit growth, loan growth, asset
quality levels, growth in the Fair Market Value of the Stock, or any combination
of the
12
<PAGE>
foregoing or any other criteria and objectives determined by the Committee. Upon
completion of the restricted period or the performance period, as the case may
be, the Committee shall certify the level of the performance goals attained and
the amount of the Award payable as a result thereof.
Section 11. Beneficiary Designation
11.1 Beneficiary Designation. Each Participant under the Plan may name,
from time to time, any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in case of his death before he receives any or all of such benefit. Each
designation will revoke all prior designations by the same Participant, shall be
in a form prescribed by the Committee, and will be effective only when filed by
the Participant in writing with the Committee during his lifetime. In the
absence of any such designation, benefits remaining unpaid at the Participant's
death shall be paid to his estate.
Section 12. Rights of Employees
12.1 Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
12.2 Participation. No employee shall have a right to be selected as a
Participant, or, having been so selected, to be selected again as a Participant.
Section 13. Change in Control
13.1 In General. In the event of a change in control of the Company as
defined in Section 13.2 below, all Awards under the Plan shall vest 100%,
whereupon all Options shall become exercisable in full, the restrictions
applicable to Restricted Stock shall terminate, and Performance Units and
Performance Shares shall be paid out based upon the extent to which performance
goals during the performance period have been met up to the date of the change
in control, or at target, whichever is higher.
13.2 Definition. For purposes of the Plan, a "change in control" shall
mean any of the following events:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended), other than
(i) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a subsidiary, or (ii) a
corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company
representing 10% or more of the total voting power of the then
outstanding shares of capital stock of the Company entitled to
vote generally in the election of directors (the "Voting
Stock"),
13
<PAGE>
provided, however, that the following shall not constitute a
change in control: (A) such person becomes a beneficial owner
of 10% of more of the Voting Stock as the result of an
acquisition of such stock directly from the Company, or (B)
such person becomes a beneficial owner of 10% or more of the
Voting Stock as a result of the decrease in the number of
outstanding shares caused by the repurchase of shares by the
Company; provided, further, that in the event a person
described in clause (A) or (B) shall thereafter increase (other
than in circumstances described in clause (A) or (B))
beneficial ownership of stock representing more than 1% of the
Voting Stock, such person shall then be deemed to become a
beneficial owner of 10% or more of the Voting Stock for
purposes of this paragraph (a), provided such person continues
to beneficially own 10% or more of the Voting Stock after such
subsequent increase in beneficial ownership, or
(b) During any period of two consecutive years, individuals, who at
the beginning of such period constitute the Board of Directors
of the Company, and any new director, whose election by the
Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for
any reason to constitute a majority thereof, or
(c) the stockholders of the Company approve, or if such approval is
not necessary or required, the consummation of, a
reorganization, merger or consolidation, the sale or other
disposition of all or substantially all of the assets, or a
similar transaction or series of transactions involving the
Company (a "Business Combination") in each case, unless (1) all
or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Voting Stock
immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of the total voting
power represented by the voting securities entitled to vote
generally in the election of directors of the Company or the
corporation resulting from the Business Combination (including,
without limitation, a corporation which as a result of the
Business Combination owns the Company or all or substantially
all of the Company's assets either directly or through one or
more subsidiaries), in substantially the same proportions as
their ownership, immediately prior to the Business Combination
of the Voting Stock of the Company, and (2) at least a majority
of the members of the board of directors of the Company or such
corporation resulting from the Business Combination were
members of the Incumbent Board at the time of the execution of
the initial agreement, or action of the Incumbent Board,
providing for such Business Combination; or
(d) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
14
<PAGE>
The Board has final authority to determine the exact date on which a change in
control has been deemed to have occurred under (a), (b), (c) and (d) above.
Section 14. Amendment, Modification, and Termination of Plan
14.1 Amendment, Modification, and Termination of Plan. The Board at any
time may terminate, and from time to time may amend or modify the Plan,
provided, however, that except as provided in Section 5.3 of the Plan, no such
action of the Board, without approval thereof by the stockholders of the Company
as may then be required by the Code, Rule 16b-3, any national securities
exchange or system on which the Stock is then listed or reported, or any
regulatory body having jurisdiction with respect thereto, may:
(a) Increase the total amount of Stock which may be issued under
the Plan.
(b) Change the provisions of the Plan regarding the Option price.
(c) Materially increase the cost of the Plan or materially
increase the benefits to Participants.
(d) Extend the period during which Awards may be granted.
(e) Extend the maximum period after the date of grant during which
Options may be exercised.
No amendment, modification, or termination of the Plan shall in any manner
adversely affect any Award theretofore granted under the Plan, without the
consent of the Participant.
Section 15. Tax Withholding
15.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of the Plan.
15.2 Share Withholding. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising as a result of awards granted hereunder,
Participants may elect to satisfy the withholding requirement, in whole or in
part, by having the Company withhold shares of Stock having a Fair Market Value
on the date the tax is to be determined equal to the minimum statutory total tax
which would be imposed on the transaction; provided, however, that in the event
a deferral election is in effect with respect to the shares deliverable upon
exercise of an Option, then the Participant may only elect to have such
withholding made from the Stock tendered to exercise such Option. All such
elections shall be irrevocable, made in writing, signed by the Participant, and
shall be subject to any restrictions or limitations that the Committee, in its
sole discretion,
15
<PAGE>
deems appropriate.
Section 16. Indemnification
16.1 Indemnification. Each Person who is or shall have been a member of
the Committee or of the Board shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be a party or in which he
may be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by him in settlement thereof, with
the Company's approval, or paid by him in satisfaction of any judgment in any
such action, suit, or proceeding against him, provided he shall give the Company
an opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the
Company may have to indemnify them or hold them harmless.
Section 17. Requirements of Law
17.1 Requirements of Law. The granting of Awards and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
17.2 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware.
16
<PAGE>
[LOGO APPEARS HERE]
First Midwest Bancorp, Inc.
1989 OMNIBUS STOCK AND INCENTIVE PLAN,
AS AMENDED
* * * * *
SUMMARY DESCRIPTION
THIS DOCUMENT (INCLUDING THE APPENDICES HERETO) CONSTITUTES PART OF A PROSPECTUS
COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THE DATE OF THIS SUMMARY DESCRIPTION IS MAY 1, 1998.
<PAGE>
FIRST MIDWEST BANCORP, INC.
1989 Omnibus Stock and Incentive Plan, as Amended ("Plan")
Summary Description
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction............................................................................. 1
Authority of the Compensation Committee.................................................. 1
Awards under the Plan.................................................................... 1
Available information.................................................................... 2
Resale of Shares......................................................................... 3
Appendix A - General Information Regarding Nonqualified Stock Option Grants.............. A-1 to A-4
Appendix B - General Information Regarding Reload Stock Options.......................... B-1 to B-4
Appendix C - General Information Regarding Transferability of
Nonqualified Stock Options................................................. C-1 to C-2
Appendix D - General Information Regarding Nonqualified Stock Option Loan Program........ D-1 to D-3
Appendix E - General Information Regarding Nonqualified Stock Option Gain Deferral Plan.. E-1 to E-2
</TABLE>
<PAGE>
First Midwest Bancorp, Inc.
Nonqualified Stock Option Grants
SUMMARY DESCRIPTION
* * * * *
Introduction
------------
In February 1989, the Board of Directors of First Midwest Bancorp, Inc. ("First
Midwest" or Company") established the First Midwest Bancorp, Inc. 1989 Omnibus
Stock and Incentive Plan (the "Plan") for key executives. The Plan was approved
by the Company's stockholders at the Annual Meeting of Stockholders held in May
1989. At the 1996 Annual Meeting, the Plan was amended to increase the number of
shares available for award thereunder and extend the duration of the Plan.
The Plan permits the granting of stock options (both incentive and
nonqualified), restricted stock, stock appreciation rights, performance units
and performance shares. The purpose of the Plan is to advance the interests of
First Midwest by encouraging the acquisition of any equity interest by key
executives and by enabling the Company to attract and retain the services of key
executives upon which the successful operations of the Company is largely
dependent.
This Summary Description provides general information about the Plan. Appendices
A through E attached hereto provide information about the nonqualified stock
options granted under the Plan and the exercise of such options. A complete copy
of the Plan, as well as additional information about the Company and the common
stock issuable under the Plan, is available upon request, as set forth later in
the Summary Description.
Authority of the Compensation Committee
---------------------------------------
The Plan provides that the Compensation Committee of the Board of Directors of
First Midwest (the "Committee") is responsible for the administration of the
Plan. The Committee is authorized to interpret the Plan, to prescribe and modify
rules and procedures, and to make all other determinations necessary in the
administration of the Plan.
Awards under the Plan
---------------------
The Plan, as amended, provides for the reservation of 2,096,875 shares of common
stock, $.01 par value, of First Midwest ("Common Stock") for issuance pursuant
to awards granted under the Plan.
In making awards under the Plan, the Committee has flexibility to choose from
several alternatives available under the Plan, including nonqualified and tax-
qualified incentive stock options, stock appreciation rights, restricted stock,
performance units and performance shares. Each award will be evidenced by an
Agreement between the Company and the recipient. Specific terms of the awards,
including minimum service or performance criteria, which must be met in order to
exercise rights or receive payments under the award will be provided in the
individual award Agreement between the Company and each award recipient, and in
the applicable terms of the Plan.
-1-
<PAGE>
To date, the Committee has authorized only the issuance of nonqualified stock
options under the Plan and may continue to do so in the future or it may
authorize the use of one of the alternative forms of awards. As of the date of
this Summary Description, nonqualified stock options to purchase approximately
1,044,000 shares of Common Stock were held by 81 key executives. General
information regarding the nonqualified stock options granted under the Plan is
set forth in Appendices A through E attached to this Summary Description.
Additional appendices providing information with respect to other forms of
awards will be distributed to award recipients at the time, if any, that the
Committee grants such awards.
Available Information
---------------------
The Company has filed a Registration Statement with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Act of 1933 (the "Securities
Act") with respect to the shares of Common Stock which may be issued under the
Plan. Pursuant to the rules of the SEC, this Summary Description does not
contain all of the information set forth in the Registration Statement and
exhibits thereto, to which reference is made.
The Company will provide, without charge, to each person to whom this Summary
Description is delivered, upon written or oral request of such person, a copy of
any and all of the following documents which have been incorporated by reference
into the Registration Statement:
- The Company's latest Annual Report on Form 10-K filed with the SEC.
- All quarterly and other reports filed by the Company with the SEC
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act").
- The description of the Company's Company Stock and its Preferred Share
Purchase Rights contained in applicable registration statements and
other reports filed by the Company with the SEC under Section 12 of
the Exchange Act.
In addition, a copy of First Midwest's most recent Annual Report to Stockholders
accompanies this Summary Description or has been furnished previously. The
Company will provide to each employee who has received this Summary Description
copies of all reports, proxy statements and other communications distributed by
the Company to its stockholders generally. In the event a recipient of this
Summary Description misplaces any such documents, another will be furnished,
without charge, upon written request.
Requests for copies of any of the documents referred to above, or any questions
regarding the Plan or its administration, should be directed to the office of
the Corporate Controller, First Midwest Bancorp, Inc. 300 Park Blvd., Suite 405,
Itasca, IL 60143 (telephone (630) 875-7459).
-2-
<PAGE>
Resale of Shares
----------------
The Plan does not apply any specific restrictions on the resale of shares of
Common Stock issued to recipients under the Plan. However, the Securities Act
and Exchange Act may impose certain limitations on such resale.
Under the Securities Act, all directors and certain policy-making executive
officers of the Company and certain of its subsidiaries may be deemed to be
"affiliates" of the Company for purposes of the Securities Act. Because such
affiliates are so closely identified with the Company, sales of Common Stock by
such persons may be deemed to be sales of Common Stock by the Company. Rule 144,
promulgated under the Securities Act, sets forth a "safe harbor" procedure for
affiliates to sell shares yet not have the sale be deemed a distribution of
Common Stock on behalf of the Company. Rule 144 restricts the number of shares
of Common Stock which may be sold by an affiliate during any 90-day period,
designates a manner of sale and requires the filing of a notice of proposed sale
with the SEC. Executive officers of the Company and its subsidiaries who are
considered "affiliates" of the Company for purposes of the Securities Act
include the President and any Executive Vice President of the Company. Any
affiliates of the Company should consult with a qualified legal advisor
regarding his or her own situation before making any resales of Common Stock
issued pursuant to the Plan.
Section 16(b) of the Exchange Act provides that, in certain circumstances, the
profit realized by an affiliate of the Company on the purchase and sale, or sale
and purchase, of Common Stock within a six-month time frame, is recoverable by
the Company from the affiliate if it is a prohibited "short-swing profit".
Accordingly, employees of the Company or its subsidiaries who are considered
affiliates (as described in the preceding paragraph) should review the
implications of the "short-swing profit" prohibitions prior to exercising any
rights pursuant to any awards received under the Plan or prior to disposing of
any shares of Common Stock purchased or otherwise received under the Plan.
General information about the applicability of Section 16(b) and the rules
promulgated thereunder to the particular forms of awards granted under the Plan
is included in the applicable Appendix describing such awards.
-3-
<PAGE>
[LOGO APPEARS HERE]
First Midwest Bancorp, Inc.
1989 OMNIBUS STOCK AND INCENTIVE PLAN,
AS AMENDED
SUMMARY DESCRIPTION
* * * * *
APPENDIX A
GENERAL INFORMATION
REGARDING
NONQUALIFIED STOCK OPTION GRANTS
May 1, 1998
<PAGE>
FIRST MIDWEST BANCORP, INC.
1989 OMNIBUS STOCK AND INCENTIVE PLAN, AS AMENDED
SUMMARY DESCRIPTION
* * * * *
APPENDIX A
GENERAL INFORMATION PERTAINING TO
NONQUALIFIED STOCK OPTION GRANTS
This Appendix A to the Summary Description of the First Midwest Bancorp, Inc.
("First Midwest") 1989 Omnibus Stock and Incentive Plan, as Amended (the "Plan")
sets forth general information relating to nonqualified stock options granted
under the Plan and supersedes the "1989 Omnibus Stock and Incentive Plan -
Summary Description" dated February 19, 1997 and any other prior summary
description of the Plan. This Appendix A should be read in conjunction with the
Summary Description and the information incorporated by reference therein, as
well as the text of the Plan to which reference is made.
Introduction
------------
Nonqualified stock options may be granted to key executives (the "participants")
at any time and on such terms as set forth by the Compensation Committee (the
"Committee") of the Board of Directors of First Midwest Bancorp, Inc. (the
"Board of Directors"). The Committee determines the number of participants to
whom nonqualified stock options are to be granted and the number of shares to be
covered by such options.
Program Eligibility
-------------------
Eligibility for the nonqualified stock option grants, subject to change at any
time, is limited to participants as determined by the Committee. The current
conditions established by the Committee for program eligibility are:
1. The participant must be a full-time employee of First Midwest or its
subsidiaries as defined in the First Midwest Personnel Policies.
2. The participant must be classified in a Salary Range defined as
eligible by the Committee.
3. Certain employees not in the Salary Ranges defined as eligible may
become participants upon recommendation by the Subsidiary and Holding
Company CEO and approval of the Committee. Program eligibility of such
employees will be determined annually.
Nonqualified stock option grants will be awarded to participants annually or at
such other time as determined by the Committee based upon performance
recommendations from the CEO of the Company or applicable Subsidiary. The
performance recommendations will take the form of the CEO recommending that the
participants receive a predetermined percentage of the Program Eligible Annual
Option Grant as calculated below. The performance recommendation will be based
upon the participant's performance vs. performance standards for the calendar
year preceding the date of the grant.
A-1
<PAGE>
Calculation of Program Eligible Annual Option Grants
----------------------------------------------------
Nonqualified stock option grants are expressed as the number of shares of First
Midwest Common Stock (the "Common Stock") which may be purchased by such grant.
The number of shares of Common Stock that may be purchased is calculated by
dividing the Program Eligible Annual Option Grant (as calculated below) by the
Exercise Price (as hereinafter defined).
Program Eligible Annual Option Grants will generally be considered each year at
the meeting of the Committee held in conjunction with the February Board of
Directors Meeting or at other times as determined appropriate by the Committee.
The Program Eligible Annual Option Grant will be calculated by multiplying the
participant's base salary by a percentage determined by the Committee based upon
the most recently available market data. The Committee may apply different
percentages to different Salary Ranges based on the responsibilities/duties of
the participants in such Salary Range and the current market information. The
differentiation in percentages applied to such Salary Ranges will result in
"Grant Classes".
If a participant becomes program eligible or moves between Grant Classes during
the course of the year, the Program Eligible Annual Option Grant will be
prorated, subject to the approval of the Committee, as follows:
Timing Proration
------- ---------
If program eligibility or The employee will receive:
Grant Class movement occurs:
. During the first six months . 100% of the next Program
of the calendar year preceding Eligible Annual Option Grant
the date of the next Annual Grant. applicable to the new Grant Class.
. During the second six months of the . 50% of the next Program Eligible
calendar year preceding the date Annual Option Grant applicable to
of the next Annual Grant. each of the Grant Classes which
applied to the participant during
the preceding year.
Determination of Stock Option Exercise Price
--------------------------------------------
The exercise price for each share of Common Stock covered by the nonqualified
stock option grant will be the average of the high and low sale prices for the
Common Stock as quoted by NASDAQ on the effective date of the grant; for
purposes of nonqualified stock options, the effective date of each grant will be
the date the grant is made by the Committee.
In the event of any change in the outstanding shares of Common Stock by reason
of a stock dividend, split or other similar corporate change, the aggregate
number of shares of Common Stock subject to each outstanding nonqualified stock
option grant, and the stated exercise price, shall be adjusted appropriately by
the Committee.
A-2
<PAGE>
Exerciseability of Nonqualified Stock Options
---------------------------------------------
Except as otherwise approved by the Committee, nonqualified stock options shall
be exercisable (i.e. vested) as follows:
. No options are exercisable until two years following the date of the
grant.
. Two years following the date of the grant, the option is exercisable
with respect to 50% of the number of shares of Common Stock covered
thereby.
. Three years following the date of the grant, the option will be
exercisable as to the remaining 50% of the shares of Common Stock
covered thereby.
. Upon a change in control of First Midwest, as defined in the Plan, all
options will be immediately exercisable in full.
The options expire ten years after the date of the grant. If employment with
First Midwest and all subsidiaries terminates prior to the expiration date, the
options, to the extent exercisable as of the date of termination of employment
will remain exercisable for 30 days after the date on which employment is
-------
terminated and will then expire. However, termination due to retirement, death
or disability may result in an extension of the expiration date of the options
as provided in the option Letter Agreement (see below).
Nonqualified Stock Option Grant Letter Agreement
------------------------------------------------
Within a reasonable period of time after each nonqualified stock option grant is
approved by the Committee, a Letter Agreement between First Midwest and the
participant will be executed along with the appropriate beneficiary forms. The
participant will also be supplied with forms and other information related to
the procedures for the exercise of options.
Federal Income Tax Considerations
---------------------------------
The following is a brief summary of the principal income tax consequences under
the Internal Revenue Code of 1986, as amended (the "Code") relating to
nonqualified stock options granted under the Plan. This summary is not intended
to be exhaustive and, among other things, does not describe the impact of any
state and local taxes.
General - In general, the participant will not realize income for federal
-------
income tax purposes at the time a nonqualified stock option is granted. The
participant will recognize ordinary income upon exercise of the
nonqualified stock option in an amount equal to the difference between the
aggregate exercise price paid for the shares of Common Stock purchased and
the fair market value of such shares as of the date of exercise. Upon
disposition of the shares acquired upon exercise, appreciation (or
depreciation) after the date of exercise will be treated as either short-
term or long-term capital gain (or loss) depending upon the holding period
of the shares sold.
The Plan allows participants to pay for the exercise price of nonqualified
stock options by surrendering shares of Common Stock that the participant
currently owns having a fair market value equal to such exercise price if
such shares have been held by the participant for at least 6 months prior
to the date of exercise (the "previously acquired shares"). If the
participant pays the exercise price, in full or in part, with previously
acquired shares of Common Stock, the use of such shares will not affect the
tax treatment of the exercise. No gain or loss will be recognized with
respect to the shares of Common
A-3
<PAGE>
Stock tendered to the Company in payment of the exercise price or with
respect to the equivalent number of shares of Common Stock issued in
connection with the option exercise. Such number of shares of Common Stock
received upon exercise will have the same basis and holding period for
purposes of determining capital gain or loss upon subsequent disposition as
did the previously acquired shares. The shares of Common Stock received
upon exercise in excess of the number of previously acquired shares
tendered will have a basis equal to the fair market value of such
previously acquired shares as of the date ordinary income is recognized
with respect to the option exercise and the holding period will commence on
that date.
To the extent that the participant recognizes ordinary income on the
exercise of the option, the Company will be entitled to a tax deduction in
an amount equal to the amount of ordinary income recognized.
Payment of Withholding Taxes - No shares of Common Stock will be issued
----------------------------
under the Plan unless the participant pays to the Company, in addition to
the exercise price, the amount of federal, state and local income and other
payroll taxes applicable as a result of such exercise. The taxes must be
paid in cash, unless the participant has elected, with the Committee's
consent, to deliver previously acquired shares, or to have withheld from
the shares of Common Stock issuable as a result of such exercise, the
number of shares with a fair market value equal to the amount of the
required minimum withholding taxes.
An election to deliver previously acquired shares or to have shares withheld in
satisfaction of the withholding tax obligation must be made by the participant
on or prior to the date the option is exercised.
Section 16 of the Exchange Act
------------------------------
In general, an affiliate subject to the reporting obligations of Section 16(a)
and the short-swing profit recovery provisions of Section 16(b) of the Exchange
Act will be deemed to have "purchased" shares of Common Stock as of the date any
nonqualified stock option is granted to the affiliate (see Page 3 of the Summary
Description for definition of "affiliate"). Such purchase will, however,
generally be exempt from reporting and from any short-swing profit recovery.
Such options should, however, be reported on the first Form 4 or Form 5 filed by
the affiliate following the date of grant. The exercise of a nonqualified stock
option is not considered a "purchase" for purposes of the short-swing profit
recovery rules, but must be reported on a Form 4 by the 10th day of the month
following the option exercise. Any subsequent sale of the shares received is a
reportable transaction that can give rise to a short-swing profit recovery.
Affiliates are encouraged to consult with the Corporate Secretary of the Holding
Company regarding the Form 4 and Form 5 reporting and short-swing profit
recovery implications of the exercise and subsequent sale of shares of Common
Stock prior to any such exercise or sale.
A-4
<PAGE>
[LOGO APPEARS HERE]
First Midwest Bancorp, Inc.
1989 OMNIBUS STOCK AND INCENTIVE PLAN,
AS AMENDED
SUMMARY DESCRIPTION
* * * * *
APPENDIX B
GENERAL INFORMATION
REGARDING
RELOAD STOCK OPTIONS
May 1, 1998
<PAGE>
FIRST MIDWEST BANCORP, INC.
1989 OMNIBUS STOCK AND INCENTIVE PLAN, AS AMENDED
SUMMARY DESCRIPTION
* * * * *
APPENDIX B
GENERAL INFORMATION REGARDING
RELOAD STOCK OPTIONS
--------------------
This Appendix B to the Summary Description of the First Midwest Bancorp, Inc.
("First Midwest") 1989 Omnibus Stock and Incentive Plan, as Amended (the "Plan")
sets forth general information relating to Reload Stock Options granted under
the Plan and supersedes the "1989 Omnibus Stock and Incentive Plan - Summary
Description" dated February 19, 1997 and any other prior summary descriptions of
the Plan. This Appendix B should be read in conjunction with the Summary
Description and the information incorporated by reference therein, as well as
the text of the Plan to which reference is made.
Introduction
------------
Reload Stock Options may be granted to key executives (the "participants") at
any time and on such terms as set forth by the Compensation Committee (the
"Committee") of the Board of Directors of First Midwest Bancorp, Inc. (the
"Board of Directors"). The Committee has determined that Reload Options will be
granted at such times and under such terms as discussed in the sections below.
Definition and Purpose of Reload Stock Options
----------------------------------------------
First Midwest's nonqualified stock option Letter Agreements provide that First
Midwest Common Stock ("Common Stock") may be used as consideration for the
exercise price of option exercises as well as for payment of federal, state and
withholding taxes on such exercises. Furthermore, such procedures provide that,
in the alternative, solely for purposes of payment of taxes, shares of Common
---------------------------------------
Stock due to the participant upon exercise may be withheld in payment therefor.
As part of its program to encourage ownership of Common Stock by its key
executives, the Committee and the Board of Directors approved the granting of
Reload Stock Options ("Reloads") when Common Stock is tendered as consideration
for a nonqualified stock option exercise and the taxes thereon. The purpose of
granting Reloads is to enable the participant to maintain the same "upside
potential" when tendering Common Stock to pay for the exercise price and/or
taxes. The benefit to First Midwest through the granting of Reloads, and the
holding requirements of the underlying shares imposed thereon, are not only
increased ownership on the part of the participant but also the realization of a
tax benefit by the Company from such exercise.
Eligibility for Reload Options
------------------------------
Reloads will be granted in situations where the participant is an active
employee or director; retirees are not eligible for Reloads. Reloads will be
granted only for shares already owned for at least 6 months prior to an option
exercise. Shares tendered for option exercise will be considered as newly-held
for purposes of the 6 month holding rule and may not be used for a subsequent
option exercise for at least 6 months. A nonqualified stock option grant will be
reloaded only three times.
Date of the Reload Option Grant
-------------------------------
The date of the Reload grant will be the same date on which the Common Stock is
tendered in consideration for a nonqualified stock option exercise. Until the
Committee determines otherwise, Reloads will be granted, and canceled if
appropriate (see below), automatically, with no further action by the Committee
required.
B-1
<PAGE>
Reload Option Price
-------------------
The Reload exercise price will be the average of the high and low market prices
quoted on the NASDAQ National Market System on the date of the option exercise
for which Common Stock is used as consideration and the Reload is granted. This
also represents the methodology used for valuing the Common Stock used for
consideration and/or taxes, and for the annual granting of nonqualified stock
options.
Reload Option Term
------------------
The term, or maturity, of the Reload will be the same as the remaining term of
--------------
the underlying nonqualified stock option that is exercised.
Reload Option Vesting
---------------------
Reloads will vest on a date that is the earlier of 6 months after the Reload is
granted or 30 days prior to the expiration of the underlying nonqualified stock
--
option for which the Reload is granted.
Reload Option Cancellation
--------------------------
If any Common Stock is sold by a participant who receives Reloads while such
---
participant holds Reloads, a like number of the unvested Reloads will be
canceled. The cancellation will be first applied to the unvested Reloads with
the longest remaining term. Once vested, the Reload option will only be
cancelled to the extent the participant sells the Common Stock that was received
when the underlying option was exercised. Since the purpose of granting Reloads
is to enable a participant to maintain the same upside potential on Common
Stock, any voluntary reduction in such upside potential (through the sale of
Common Stock by the participant) should be reflected by a like reduction in the
Reloads held by the participant.
Examples of Reload Stock Option Grants
--------------------------------------
Pages B - 3 and B - 4 are examples of Reloads granted in both taxable stock
option exercises and stock option exercises under the Nonqualified Stock Option
Gain Deferral Plan (see Appendix D to the Summary Description).
Actions Necessary To Be Granted Reload Stock Options
----------------------------------------------------
Until the Committee amends or modifies the Reload feature, Reload Stock Options
will automatically be granted upon the exercise of nonqualified stock options
where the purchase price and/or applicable taxes are paid with Common Stock held
6 months or longer. The Reload Stock Option Grant will be made in the form of a
Letter Agreement (similar to the Annual Grant Letter Agreement) which will be
provided to the participant within 30 days after the eligible exercise.
B-2
<PAGE>
Example of Reload Stock Option Grants
Taxable Option Exercises
================================================================================
Note: Reload Stock Option Grants are only applicable to stock option
exercises when FMBI Common Stock is tendered for payment of the option
exercise price and/or applicable taxes.
================================================================================
. FMBI Stock Price is $50 per share.
. Optionee does not elect gain deferral and owns 10,300 shares of FMBI.
. Options to be exercised are as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a) 5,000 options @ $10; exp. date 1999; exercise price $ 50,000; Profit - $200,000
(b) 10,000 options @ $20; exp. date 2000; exercise price $200,000; Profit - $300,000
(c) 3,000 options @ $30; exp. date 2001; exercise price $ 90,000; Profit - $ 60,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
. FMBI stock required to exercise all 18,000 options:
(a) $340,000 exercise price / $50 FMV = 6,800 shares
tendered for exercise
(b) $560,000 profit X 31% = $175,000 tax due
(c) $175,000 / $50FMV = 3500 shares tendered for taxes
. Optionee receives 18,000 shares of FMBI Common Stock.
. Reduction in Optionee's "upside potential" before and after exercise
is 10,300 shares, as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
Before Exercise After Exercise
------------------------------ --------------------------------
<S> <C> <C>
Outstanding Options 18,000 ---
Shares tendered for exercise + taxes 10,300 ---
Shares from Option exercise -- 18,000
------------------------------ --------------------------------
Total 28,300 18,000
============================== ================================
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
. Reload Options granted at $50 per share applicable to the exercise
price are as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
Expiration Date Reload Options Granted Methodology
--------------- ---------------------- -----------
<S> <C> <C>
1999 1,000 Exercise price of each grant exercised
/ total exercise price X reduction in
2000 4,000 upside potential (6800 shares)
applicable to exercise.
2001 1,800
----------------------------
Total 6,800
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
. Reload Options granted at $50 per share applicable to the taxes are as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Expiration Date Reload Option Grants Methodology
- --------------- -------------------- -----------
<S> <C> <C>
1999 1,250 Profit from each grant exercised /
total profit X reduction in upside
2000 1,875 potential applicable to taxes (3500
shares).
2001 375
-------------------------------------
3,500
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
B-3
<PAGE>
Example of Reload Stock Option Grants
Option Exercises under Gain Deferral Plan
================================================================================
Note: Reload Stock Option Grants are only applicable to stock option
exercises when FMBI common stock is tendered for payment of the option
exercise price and/or applicable taxes.
================================================================================
. FMBI Stock Price is $50 per share.
. Optionee elects gain deferral and owns 6,800 shares of FMBI.
. Options to be exercised are as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a) 5,000 options @ $10; exp. date 1999; exercise price $ 50,000; Profit - $200,000
(b) 10,000 options @ $20; exp. date 2000; exercise price $200,000; Profit - $300,000
(c) 3,000 options @ $30; exp. date 2001; exercise price $ 90,000; Profit - $ 60,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
. FMBI stock required to exercise all 18,000 options (which are then
immediately returned to optionee under terms of the tax-free exchange):
$340,000 exercise price / $50 FMV = 6,800 shares
. "Profit Shares" to be deposited in the Gain Deferral Plan:
$560,000 profit / $50 FMV = 11,200 shares
. Reduction in Optionee's "upside potential" before and after exercise is
6,800 shares as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Before Exercise After Exercise
--------------- --------------
<S> <C> <C>
Outstanding Options 18,000 ---
Shares tendered for exercise (no taxes 6,800 6,800
due)
Shares in Gain Deferral Plan -- 11,200
------------------------------ --------------------------------
Total 24,800 18,000
============================== ================================
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
. Reload Options granted at $50 per share applicable to the exercise
price are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Expiration Date Reload Options Granted Methodology
--------------- ---------------------- -----------
<S> <C> <C> <C>
1999 1,000 Exercise price of each grant exercised
/ total exercise price X reduction in
2000 4,000 upside potential (6,800 shares).
2001 1,800
-----------------------
Total 6,800
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
. Any shares tendered to pay FICA or Medicare taxes would be Reloaded
using the same methodology outlined above, except that the profit, and
not the exercise price, would be the basis of the prorata allocation.
B-4
<PAGE>
[LOGO APPEARS HERE] First Midwest Bancorp, Inc.
1989 OMNIBUS STOCK AND INCENTIVE PLAN,
AS AMENDED
SUMMARY DESCRIPTION
* * * * *
APPENDIX C
GENERAL INFORMATION
REGARDING
TRANSFERABILITY OF
NONQUALIFIED STOCK OPTIONS
May 1, 1998
<PAGE>
FIRST MIDWEST BANCORP, INC.
1989 OMNIBUS STOCK AND INCENTIVE PLAN, AS AMENDED
SUMMARY DESCRIPTION
* * * * *
APPENDIX C
GENERAL INFORMATION REGARDING
TRANSFERABILITY OF NONQUALIFIED STOCK OPTIONS
---------------------------------------------
This Appendix C to the Summary Description of the First Midwest Bancorp, Inc.
("First Midwest") 1989 Omnibus Stock and Incentive Plan, as Amended (the "Plan")
sets forth general information relating to the transferability of nonqualified
stock options ("stock options") under the Plan and supersedes the "1989 Omnibus
Stock Incentive Plan - Summary Description" dated February 19, 1997 and any
other prior summary descriptions of the Plan. This Appendix C should be read in
conjunction with the Summary Description and the information incorporated by
reference therein, as well as the text of the Plan to which reference is made.
Purpose of Stock Option Transferability
---------------------------------------
Transferability of stock options by key executives of First Midwest who hold
stock options (the "Optionees"), enable the optionees to enhance the after-tax
value of stock options by allowing maximum flexibility for gift and estate tax
planning purposes.
Eligibility to Transfer Stock Options
-------------------------------------
In order to transfer stock options in accordance with the requirements outlined
below, the optionee must be an active employee of First Midwest; retirees are
not eligible.
Requirements for Transferability
--------------------------------
For optionees transferring stock options, the following requirements must be
meet:
1. Transferability is limited to immediate family members only, as defined
in the Plan.
2. The transfer must be a bonafide gift that is not made in exchange for
any consideration.
3. The transferred option will continue to be subject to the same terms
and conditions which were applicable prior to the transfer such as
vesting requirements and expiration dates.
C-1
<PAGE>
Example of a Stock Option Transfer
----------------------------------
The following is an example of the steps necessary to affect a stock option
transfer:
1. Based upon the restrictions outlined in the Plan and the Letter
Agreement, an optionee will assign the stock option to a family
member - donee and pay all appropriate gift taxes.
2. The potential appreciating asset represented by the stock option is
thereby removed from the estate of the optionee - donor through the
transfer to the family member.
3. Prior to the stock option expiration date, the family member can
exercise the stock option. Any income or other taxes relating to the
stock option exercise must be paid by the donor through withholding by
------------
First Midwest.
4. After the stock option exercise, if the shares of First Midwest are
retained by the family member exercising the stock option, such shares
are considered "restricted" stock and are subject to SEC Rule 144 and
145 governing resale. The First Midwest Corporate Secretary should be
contacted if the family member wishes to resell such shares.
Tax Considerations
------------------
As noted above, transfer of options is intended to provide flexibility to
participants with regard to gift and estate planning purposes. The tax rules
governing the transfer of options are complex. Accordingly a participant
considering a transfer of options should consult with his or her tax advisor
prior to initiating an option transfer.
Actions Necessary to Make a Stock Option Transfer
-------------------------------------------------
If an optionee wishes to make a transfer of stock options (whether vested or
unvested), the optionee should contact the Corporate Controller of First Midwest
who will initiate the appropriate transfer documentation.
C-2
<PAGE>
[LOGO APPEARS HERE]
First Midwest Bancorp, Inc.
1989 OMNIBUS STOCK AND INCENTIVE PLAN,
AS AMENDED
SUMMARY DESCRIPTION
* * * * *
APPENDIX D
GENERAL INFORMATION
REGARDING
NONQUALIFIED STOCK OPTION LOAN PROGRAM
May 1, 1998
<PAGE>
FIRST MIDWEST BANCORP, INC.
1989 OMNIBUS STOCK AND INCENTIVE PLAN, AS AMENDED
SUMMARY DESCRIPTION
* * * * *
APPENDIX D
GENERAL INFORMATION REGARDING
NONQUALIFIED STOCK OPTION GRANTS
--------------------------------
This Appendix D to the Summary Description of the First Midwest Bancorp, Inc.
("First Midwest") 1989 Omnibus Stock and Incentive Plan, as Amended (the "Plan")
sets forth general information relating to the Nonqualified Stock Option Loan
Program. This Appendix D should be read in conjunction with the Summary
Description and the information incorporated by reference therein, as well as
the text of the Plan to which reference is made.
Purpose of Loan Program
-----------------------
First Midwest has established a Loan Program to facilitate both the exercise of
nonqualified stock options and the retention of the acquired shares for the
purpose of increasing First Midwest stock ownership by its key executives who
hold stock options ("participants").
Eligibility for Stock Option Loans
----------------------------------
Participants eligible for stock option loans must be employees of First Midwest;
retirees are not eligible for stock option loans.
Loan Collateral
---------------
All stock option loans will be fully recourse to the participant. In addition,
all First Midwest Common Stock ("Common Stock") acquired by a participant upon
the exercise of a nonqualified stock option that is funded by the stock option
loan will be collateral for such loan. For example, a participant exercises
1,000 options and pays for 1/2 of the exercise price and applicable taxes with a
stock option loan, 500 shares of the Common Stock acquired will be held as
collateral for the loan.
D - 1
<PAGE>
Loan Term
---------
The term of the stock option loan will be established at the inception of the
loan and cannot exceed five years.
Loan Interest Rate
------------------
The Applicable Federal Rate ("A.F.R.") as defined by the Internal Revenue Code
("IRC") on the date that the loan is made will be the interest rate applicable
to such loan. The A.F.R. is the lowest rate allowable under the IRC without
imputing interest income to the borrower. As an example, the May 1998 A.F.R.'s
are as follows:
. Loans of three years or less - 5.61%
. Loans over three years and up to five years - 6.10%
Loan Interest Calculation
-------------------------
Interest on stock option loans will be calculated on a 365 day basis and will be
compounded annually. Interest will be payable at the maturity of the loan, but
may be paid prior to maturity at the election of the participant.
Maximum Loan Amount
-------------------
The maximum amount of a stock option loan will be the full stock option exercise
price plus any applicable taxes arising from the exercise. The income tax
withholding rates applicable to the exercise will be the maximum rates provided
by the Letter Agreement or the Plan. The maximum amount of all stock option
loans outstanding at any one time to a participant will be $250,000.
Impact of Subsequent Common Stock Sales
---------------------------------------
Stock option loans must be repaid on a pro-rata basis if any of the underlying
collateral is sold. For example, if a participant sells 50% of the shares
acquired in a stock option exercise funded by the Loan Program, the participant
must repay 50% of the outstanding loan balance, including any accrued interest
applicable to such balance. Conversely, if a portion of the principal balance of
the loan is repaid, a pro-rata portion of the underlying collateral will be
returned to the participant. Tendering by a participant of the underlying
collateral for purposes of taxable, as well as gain deferral, stock option
exercises is permitted under the Stock Option Loan Program and will not require
loan repayment as long as an identical number of shares is returned as
collateral for the loan after the exercise.
Repayment Schedule
------------------
All principal and interest on a stock option loan will be payable at the end of
the term of the loan.
D - 2
<PAGE>
Effect of Termination of Employment of Participant
--------------------------------------------------
If a participant retires in accordance with the provisions of First Midwest's
Retirement Policy, the stock option loan will continue under the same terms and
conditions until the end of the term of the loan or loans.
If a participant resigns, the stock option loan will be payable in full within
60 days after the last day of active employment.
A termination of the participant for any reason after a change in control, as
defined the Plan, will be treated as a retirement and not a resignation.
D - 3
<PAGE>
[GRAPHIC OMITTED] First Midwest Bancorp, Inc.
1989 OMNIBUS STOCK AND INCENTIVE PLAN,
AS AMENDED
SUMMARY DESCRIPTION
* * * * *
APPENDIX E
GENERAL INFORMATION
REGARDING
NONQUALIFIED STOCK OPTION GAIN DEFERRAL PLAN
May 1, 1998
<PAGE>
FIRST MIDWEST BANCORP, INC.
1989 OMNIBUS STOCK AND INCENTIVE PLAN, AS AMENDED
SUMMARY DESCRIPTION
* * * * *
APPENDIX E
GENERAL INFORMATION REGARDING
NONQUALIFIED STOCK OPTION GAIN DEFERRAL PLAN
--------------------------------------------
This Appendix E to the Summary Description of the First Midwest Bancorp, Inc.
("First Midwest") 1989 Omnibus Stock and Incentive Plan, as Amended (the "Plan")
sets forth general information relating to the Nonqualified Stock Options Gain
Deferral Plan (the "Gain Deferral Plan") feature of the Plan and supersedes the
"1989 Omnibus Stock and Incentive Plan - Summary Description" dated February 19,
1997 and any other prior summary descriptions of the Plan. This Appendix E
should be read in conjunction with the Summary Description and the information
incorporated by reference therein, as well as the text of the Plan to which
reference is made.
The purpose of this Appendix E is to provide general information about the Gain
Deferral Plan and is qualified in its entirety by the Summary Description of the
Gain Deferral Plan and the text of the Gain Deferral Plan document. The Gain
Deferral Plan provides the Compensation Committee of the Board of Directors of
First Midwest Bancorp, Inc. (the "Committee") with the responsibility for the
administration of the Gain Deferral Plan. The Committee is authorized to
interpret the Gain Deferral Plan, to prescribe and modify its rules and
procedures, and to make all other determinations necessary in its
administration.
Purpose of the Gain Deferral Plan
---------------------------------
The purpose of the Gain Deferral Plan is to further stock ownership of certain
key executives ("participants") of First Midwest by facilitating deferral of
gains resulting from the exercise of First Midwest nonqualified stock options
("options"). In order to defer receipt of gains resulting from such exercises,
participants must make appropriate elections and must exercise their options
only through the exchange of First Midwest Common Stock held for six months
prior to the exercise date. Deferred gains can only be invested in First Midwest
Common Stock ("Common Stock"); dividends earned on such Common Stock held by the
Gain Deferral Plan can likewise only be reinvested.
E - 1
<PAGE>
Eligibility for Participation
-----------------------------
The Gain Deferral Plan is structured as a "Nonqualified Plan" under applicable
IRS and Department of Labor guidelines. As such, eligibility for participation
must be monitored closely to ensure that the Gain Deferral Plan maintains
compliance with these rules, regulations and limitations and is not
disqualified. Accordingly, eligibility for participation in the Gain Deferral
Plan will be determined by the Committee and all new participants must be
approved by the Committee prior to entering the Plan.
For 1998, participation in the Gain Deferral Plan has been restricted to First
Midwest directors, key executives with a base salary of $98,800 or more and all
members of the First Midwest Bank Executive Committee. Additionally, the ability
to defer gains from option exercises is further restricted to participants who
own 500 or more shares of Common Stock in their own name, in joint tenancy with
their spouse or in an alternative ownership from whereby the participant has
sole voting and investment power (such as a Trust). The base salary limitation
will be reviewed annually by the Committee based upon IRS and Department of
Labor guidelines, as well as changes in laws governing plans of this nature. The
Common Stock ownership limitation will also be reviewed annually.
Election to Participate
-----------------------
Participants who meet the above requirements (other than stock ownership) will
be notified of their participation eligibility (the "commencement date") by the
Corporate Controller of First Midwest as discussed below.
In order to effectuate participation in the Gain Deferral Plan, the participant
must execute a Deferral Election Form within 30 days following the participant's
commencement date. The deferral election will apply to all options exercised
where Common Stock is used as the sole payment of the exercise price. If a
participant does not execute a form with 30 days following his/her participation
commencement date, the deferral election will become effective only for options
exercised in the calendar year following, and at least six months after, the
execution date of the Deferral Election Form.
A participant may execute additional forms, or a Deferral Election Revocation
Form, with each subsequent form superseding all prior forms in accordance with
the timing provisions contained in the Gain Deferral Plan.
If a participant executes a Deferral Election Form, it will apply to all option
exercises that utilize Common Stock as consideration until revoked. However, the
participant may still exercise options using cash as consideration (or in
cashless exercises) to the maximum extent allowed by the Plan.
Actions Necessary to Participant in Gain Deferral Plan
------------------------------------------------------
Annually, the First Midwest Corporate Controller's office, in conjunction with
the Human Resources Department, will determine those eligible to participate in
the Gain Deferral Plan. The optionees will be provided with a Gain Deferral Plan
Document, Trust Agreement and Summary Description as well as the forms necessary
to exercise stock options on a gain deferral basis. Any questions regarding the
Gain Deferral Plan should be directed to the First Midwest Corporate
Controller's office.
E-2
<PAGE>
Exhibit 10.1
FIRST MIDWEST BANCORP, INC.
NON-EMPLOYEE DIRECTORS' 1997 STOCK OPTION PLAN
(As Restated)
-------------
Section 1. Establishment, Purposes and Effective Date of Plan
1.1 Establishment. First Midwest Bancorp, Inc., a Delaware corporation,
hereby restates the "NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN" (the "Plan").
The Plan provides for the grant of nonqualified stock options to the Company's
Non-Employee Directors.
1.2 Purposes. The purpose of the Plan is to advance the interests of the
Company and its stockholders by augmenting the Company's traditional
compensation program for Non-Employee Directors with awards of nonqualified
stock options, thereby increasing their stake in the future growth and
prosperity of the Company, and furthering the Directors' identity of interest
with those of the Company's stockholders. By thus compensating Non-Employee
Directors, the Company seeks to attract, retain, compensate and motivate those
highly competent individuals whose judgment, initiative, leadership, and efforts
are important to the success of the Company.
1.3 Effective Date. The effective date of the Plan is May 21, 1997.
Section 2. Definitions
As used herein, the following terms shall have the meanings hereinafter set
forth:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" or "Share" means the Common Stock, par value $.01
per share, of the Company or such other class of shares or other securities
as may be applicable pursuant to the provisions of subsection 4.3.
(d) "Company" means First Midwest Bancorp, Inc., a Delaware
corporation.
(e) "Director Options" means options granted hereunder to non-employee
directors.
(f) "Effective Date" means May 21, 1997, the date on which the Plan
was approved by the Board.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(h) "Fair Market Value" means, as to any date, the average of the
highest and lowest prices of a share of Common Stock as reported in the
consolidated tape of the
<PAGE>
NASDAQ National Market System. In the event there are no transactions
reported for such date, the Fair Market Value shall be determined as of the
immediately preceding date on which such prices of Common Stock are so
quoted.
(i) "Grant Date" means, with respect to the annual grant of Directors
Options described in Section 5.1(a), November 19, 1997, with respect to
each individual who is a Non-Employee Director on that date, and
thereafter, means with respect to each individual who is a Non-Employee
Director, the date of the first regularly-scheduled Board meeting held in
each calendar year (generally in February), beginning with the first Board
meeting held in 1998. With respect to any individual who first becomes a
Non-Employee Director after the date of the first Board meeting held in
1998, the date the individual first becomes a Non-Employee Director shall
also be a Grant Date. In addition, Grant Date shall mean any other date on
which a Director Option is granted to a non-Employee Director pursuant to
Section 5.1(b).
(j) "Non-Employee Director", with respect to the annual grant of
Directors Options described in Section 5.1(a) means any person who is a
member of the Board and who is not, as of the date of an award under the
Plan, an employee of the Company or any of its subsidiaries.
Section 3. Eligibility
Each Non-Employee Director as of the Effective Date and each person who
becomes a Non-Employee Director after the Effective Date shall be eligible to
participate in the Plan.
Section 4. Shares of Common Stock Available
4.1 Number. The total number of shares of Common Stock of the Company
subject to issuance under the Plan, and subject to adjustment upon occurrence of
any of the events indicated in subsection 4.3, may not exceed 25,000. The Shares
to be delivered under the Plan may consist, in whole or in part, of authorized
but unissued stock or treasury stock not reserved for any other purpose.
4.2 Unused Stock. In the event any shares of Common Stock that are subject
to an Director Option which, for any reason, expires, terminates or is canceled
as to such shares, such shares again shall become available for issuance under
the Plan.
4.3 Adjustment in Capitalization. In the event of any change in the
outstanding shares of Common Stock that occurs after ratification of the Plan by
the stockholders of the Company by reason of a Common Stock dividend or split,
recapitalization, merger, consolidation, combination, exchange of shares, or
other similar corporate change, the aggregate number of shares of Common Stock
subject to Director Options to be granted or outstanding pursuant to Section 5
hereof, and/or the stated option price, shall be appropriately adjusted by the
Board, whose determination shall
2
<PAGE>
be conclusive; provided, however, that fractional shares shall be rounded to the
nearest whole share.
Section 5. Director Options
5.1 Grant and Eligibility.
(a) On each Grant Date, Director Options for the purchase of shares of
Common Stock will be granted to each individual who is a Non-Employee Director.
The number of shares of Common Stock subject to each Director Option shall be
determined by dividing (a) the average cash compensation earned by the Non-
Employee Directors during the calendar year immediately preceding the calendar
year in which the Grant Date occurs, by (b) the Fair Market Value of the Common
Stock on the Grant Date (provided, however, that such number shall be rounded
down to the nearest whole Share).
(b) Director Options may be granted to Non-Employee Directors at any
time and from time to the time as the Board shall determine.
5.2 Director Option Agreement. Each Director Option shall be evidenced by
a Director Option Agreement that shall specify the option price, the duration of
the option, the number of shares of Common Stock to which the option pertains,
and such other provisions as the Board shall determine.
5.3 Tax Status. Director Options shall be options in the form of
nonqualified stock options which are intended not to fall under the provisions
of Code Section 422.
5.4 Option Price and Payment. The option price of each share of Common
Stock subject to a Director Option shall be 100% of the Fair Market Value on the
Grant Date. Director Options shall be exercised by the delivery of a written
notice to the Company setting forth the number of shares of Common Stock with
respect to which the option is to be exercised, accompanied by full payment for
the Shares. Upon exercise of any Director Option, the option price shall be
payable to the Company in full either (a) in cash or its equivalent (including
for this purpose, the proceeds from a cashless exercise as permitted under the
Federal Reserve Board's Regulation T, or other borrowed funds), or (b) by
tendering previously-acquired Common Stock having an aggregate Fair Market Value
at the time of exercise equal to the total option price (including for this
purpose Shares deemed tendered by affirmation of ownership), or (c) by a
combination of (a) and (b). Notwithstanding the foregoing, the exercise price
payable upon the exercise of a Director Option by a Non-Employee Director who
has a deferral election in effect under the Company's Nonqualified Stock Option-
Gain Deferral Plan or similar plan (the "Gain Deferral Plan"), shall be made
solely by tendering previously-acquired Shares in accordance with clause (b)
above.
3
<PAGE>
5.5 Vesting and Duration of Options. Each Director Option shall vest and
become exercisable in full upon the first to occur of (a) the expiration of one
year after the Grant Date with respect to the Director Options described in
Section 5.1(a) or six months after the Grant Date with respect to any other
Director Options, unless prior thereto the Non-Employee Director has ceased to
be a director for any reason other than death or disability, (b) the death or
disability of the Non-Employee Director, or (c) a Change in Control (as provided
in Section 6.1 hereof). Once vested, Director Options shall expire upon the
first to occur of the date which is (I) three years following termination of the
director's Board membership for any reason other than death, or (ii) one year
following the date of the Non-Employee Director's death; provided, however, in
no event may any Director Option be exercised beyond the tenth anniversary of
its Grant Date, or such shorter period which may be set forth in the Director
Option agreement.
5.6 Delivery of Certificate. As soon as practicable after receipt of each
notice of exercise and full payment of the exercise price, the Company shall
deliver to the Non-Employee Director a certificate or certificates representing
acquired shares of Common Stock. Notwithstanding the foregoing, in the event the
Non-Employee Director has in effect a deferral election under the Gain Deferral
Plan, the Company shall deliver to the trustee of the trust established under
the Gain Deferral Plan, a certificate or certificates representing such number
of Shares determined by dividing (a) the excess of the (I) Fair Market Value of
the Shares purchased pursuant to the option exercise, over (ii) the exercise
price for the Shares purchased, by (b) the Fair Market Value of one Share. The
Company shall deliver a certificate or certificates for the remainder of the
Shares, representing Shares with a Fair Market Value equal to the option
exercise price paid. For purposes of the foregoing, Fair Market Value shall be
determined on the date the Director Option is exercised.
Section 6. Coordination with 1989 Omnibus Stock and Incentive Plan
The following provisions of the Company's 1989 Omnibus Stock and Incentive
Plan, as from time to time amended (the "Omnibus Plan"), shall be applicable to
the Director Options as if such provisions were set forth in this Plan in full:
6.1 Change in Control. For purposes of this Plan, a "Change in Control"
shall be deemed to have occurred on the date a Change in Control occurs under
the Omnibus Plan. Notwithstanding any other provision of the Plan, if a Change
in Control occurs, then each Director Option shall become fully vested and
exercisable as of the date of the Change in Control.
6.2 Limited Transferability of Options; Beneficiary Designations. No
Director Option granted under this Plan may be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated, otherwise than by will or the
laws of descent and distribution. Notwithstanding the foregoing, the Board may,
in its discretion, authorize all or a portion of the Director Options to be on
terms which permit the transfer by the Non-Employee Director to the extent the
Committee under the Omnibus Plan may permit such transfers. Non-Employee
Directors may designate
4
<PAGE>
beneficiaries with respect to Director Options granted hereunder on the same
basis as applicable to options under the Omnibus Plan.
Section 7. Amendment and Termination
The Board, or any committee to the extent authorized by the Board, may make
such modifications to the Plan as it shall deem advisable. The Plan shall
continue in effect unless and until the Board otherwise determines.
Section 8. Miscellaneous
8.1 Rights of Directors. Neither the Plan nor any action taken hereunder
shall be construed as giving any Non-Employee Director any right to continue to
serve as a Director of the Company or otherwise to be retained in the service of
the Company.
8.2 Indemnification. Each person who is or shall have been a member of
the Board shall be indemnified and held harmless by the Company against and from
any loss, cost, liability or expense that may be imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit or
proceeding to which he may be a party or in which he may be involved by reason
of any action taken or failure to act under the Plan and against and from any
and all amounts paid by him in settlement thereof, with the Company's approval,
or paid by him in satisfaction of any judgment in any such action, suit or
proceeding against him, provided he shall give the Company an opportunity, at
its expense, to handle and defend the same before he undertakes to handle and
defend it on his own behalf. The foregoing right of indemnification shall not
be exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Certificate of Incorporation or Bylaws, as a matter
of law or otherwise, or any power that the Company may have to indemnify them or
hold them harmless.
8.3 Requirements of Law. The granting of Director Options and the
issuance of shares of Common Stock with respect to an option exercise, shall be
subject to all applicable laws, rules and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may be required.
8.4 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware.
8.5 Administration. The Board may establish such rules and regulations
with respect to the proper administration of the Plan as it may determine, and
may amend or revoke any rule or regulation so established. This Plan shall be
interpreted by and all questions arising in connection therewith shall be
determined by a majority of the Board, whose interpretation or determination,
when made in good faith, shall be conclusive and binding.
5
<PAGE>
[LOGO] First Midwest Bancorp, Inc.
Non-Employee Directors'
1997 Stock Option Plan
* * * * *
SUMMARY DESCRIPTION
THIS DOCUMENT (INCLUDING THE APPENDICES HERETO) CONSTITUTES PART OF A PROSPECTUS
COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THE DATE OF THIS SUMMARY DESCRIPTION IS OCTOBER 1, 1998
<PAGE>
FIRST MIDWEST BANCORP, INC.
Non-Employee Directors'
1997 Stock Option Plan
Summary Description
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Introduction.............................................................................. 1
Available information..................................................................... 1
Resale of Shares.......................................................................... 2
Appendix A - General Information Regarding Director Stock Option Grants.................. A - 1 to A - 3
Appendix B - General Information Regarding Reload Stock Options........................... B - 1 to B - 4
Appendix C - General Information Regarding Transferability of Director Stock Options ..... C - 1 to C - 2
Appendix D - General Information Regarding Director Stock Option Loan Program............. D - 1 to D - 2
Appendix E - General Information Regarding Nonqualified Stock Option Gain Deferral Plan... E - 1 to E - 2
</TABLE>
<PAGE>
FIRST MIDWEST BANCORP, INC.
Non-Employee Directors'
1997 Stock Option Plan
SUMMARY DESCRIPTION
* * * * *
Introduction
------------
In May, 1997 the Board of Directors of First Midwest Bancorp, Inc. ("First
Midwest" or Company") established the First Midwest Bancorp, Inc. Non-Employee
Directors' 1997 Stock Option Plan (the "Plan") for directors.
The Plan permits the granting of 25,000 nonqualified stock options. The purpose
of the Plan is to advance the interests of First Midwest by encouraging the
acquisition of an equity interest by Directors and by enabling the Company to
attract and retain the services of Directors.
This Summary Description provides general information about the Plan. Appendices
A through E attached hereto provide information about the nonqualified stock
options granted under the Plan and the exercise of such options.
Available Information
---------------------
The Company has filed a Registration Statement with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Act of 1933 (the "Securities
Act") with respect to the shares of Common Stock which may be issued under the
Plan. Pursuant to the rules of the SEC, this Summary Description does not
contain all of the information set forth in the Registration Statement and
exhibits thereto, to which reference is made.
The Company will provide, without charge, to each person to whom this Summary
Description is delivered, upon written or oral request of such person, a copy of
any and all of the following documents which have been incorporated by reference
into the Registration Statement:
- The Company's latest Annual Report on Form 10-K filed with the SEC.
- All quarterly and other reports filed by the Company with the SEC
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act").
- The description of the Company's Company Stock and its Preferred Share
Purchase Rights contained in applicable registration statements and
other reports filed by the Company with the SEC under Section 12 of
the Exchange Act.
In addition, a copy of First Midwest's most recent Annual Report to Stockholders
accompanies this Summary Description or has been furnished previously. The
Company will provide to each Director who has received this Summary Description
copies of all reports, proxy statements and other communications distributed by
the Company to its stockholders generally. In the event a recipient of this
Summary Description misplaces any such documents, another will be furnished,
without charge, upon written request.
<PAGE>
Requests for copies of any of the documents referred to above, or any questions
regarding the Plan or its administration, should be directed to the office of
the Corporate Controller, First Midwest Bancorp, Inc. 300 Park Blvd., Suite 405,
Itasca, IL 60143 (telephone (630) 875-7459).
Resale of Shares
----------------
The Plan does not apply any specific restrictions on the resale of shares of
Common Stock issued to Directors under the Plan. However, the Securities Act and
Exchange Act may impose certain limitations on such resale.
Under the Securities Act, all Directors of the Company may be deemed to be
"affiliates" of the Company for purposes of the Securities Act. Because such
affiliates are so closely identified with the Company, sales of Common Stock by
such persons may be deemed to be sales of Common Stock by the Company. Rule 144,
promulgated under the Securities Act, sets forth a "safe harbor" procedure for
affiliates to sell shares yet not have the sale be deemed a distribution of
Common Stock on behalf of the Company. Rule 144 restricts the number of shares
of Common Stock which may be sold by an affiliate during any 90-day period,
designates a manner of sale and requires the filing of a notice of proposed sale
with the SEC. Any affiliates of the Company should consult with a qualified
legal advisor regarding his or her own situation before making any resales of
Common Stock issued pursuant to the Plan.
Section 16(b) of the Exchange Act provides that, in certain circumstances, the
profit realized by an affiliate of the Company on the purchase and sale, or sale
and purchase, of Common Stock within a six-month time frame, is recoverable by
the Company from the affiliate if it is a prohibited "short-swing profit".
Accordingly, Directors of the Company should review the implications of the
"short-swing profit" prohibitions prior to exercising any rights pursuant to any
awards received under the Plan or prior to disposing of any shares of Common
Stock purchased or otherwise received under the Plan. General information about
the applicability of Section 16(b) and the rules promulgated thereunder to the
particular forms of awards granted under the Plan is included in the applicable
Appendix describing such awards.
2
<PAGE>
[LOGO] First Midwest Bancorp, Inc.
Non-Employee Directors'
1997 Stock Option Plan
SUMMARY DESCRIPTION
* * * * *
APPENDIX A
GENERAL INFORMATION
REGARDING
DIRECTOR STOCK OPTION GRANTS
October 1, 1998
<PAGE>
FIRST MIDWEST BANCORP, INC.
Non-Employee Directors'
1997 Stock Option Plan ("Plan")
SUMMARY DESCRIPTION
* * * * *
APPENDIX A
GENERAL INFORMATION PERTAINING TO
DIRECTOR STOCK OPTION GRANTS
Introduction
------------
Nonqualified stock options are granted to non-employee directors ("Directors")
on each grant date, as defined in the Plan. Generally, the grant date will be
the date of the first regularly scheduled Board Meeting held in each calendar
year. With respect to any individual who becomes a Director after the date of
such first Board Meeting, the date the individual first becomes a Director shall
also be a grant date, and the stock options granted will be pro-rated.
Calculation and Exercise Price of Director Stock Option Grants
--------------------------------------------------------------
Directors stock option grants are expressed as the number of shares of First
Midwest Common Stock (the "Common Stock") that may be purchased by such grant.
The number of shares of Common Stock subject to each Director stock option grant
is determined by dividing the average cash compensation earned by Directors
during the prior calendar year by the fair market value of the Common Stock on
the grant date. The fair market value of the Common Stock on the grant date is
the average of the high and low sale prices for the Common Stock as quoted by
NASDAQ on the date of the grant.
In the event of any change in outstanding shares of Common Stock by reason of a
stock dividend, split or similar Corporate change, the aggregate number of
shares of Common Stock subject to each outstanding Director stock option grant,
and the stated exercise price, shall be adjusted.
Exerciseability of Director Stock Options
-----------------------------------------
Except as otherwise approved, nonqualified stock options shall be exercisable
(i.e. vested) as follows:
. No options are exercisable until one year following the date of the
grant.
. One year following the date of the grant, the option is exercisable
with respect to 100% of the number of shares of Common Stock covered
thereby.
. Upon the death or disability of the Director, or upon a change in
control of First Midwest, as defined in the Plan, all options will be
immediately exercisable in full.
A-1
<PAGE>
The options expire ten years after the date of the grant. If the Director's
Board membership terminates prior to the expiration date, the options, to the
extend exercisable as of the date of such termination will remain exercisable
for 3 years after the date on which membership is terminated and will then
expire. In the case of a Director's death, the Director stock option shall
expire one year following such date.
Director Stock Option Grant Letter Agreement
--------------------------------------------
Within a reasonable period of time after each Director stock option grant is
approved by the Committee, a Letter Agreement between First Midwest and the
Director will be executed along with the appropriate beneficiary forms. The
Director will also be supplied with forms and other information related to the
procedures for the exercise of options.
Federal Income Tax Considerations
---------------------------------
The following is a brief summary of the principal income tax consequences under
the Internal Revenue Code of 1986, as amended (the "Code") relating to
nonqualified stock options granted under the Plan. This summary is not intended
to be exhaustive and, among other things, does not describe the impact of any
state and local taxes.
General - In general, a Director will not realize income for federal
-------
income tax purposes at the time a Director stock option is granted. The
Director will recognize ordinary income upon exercise of the Director stock
option in an amount equal to the difference between the aggregate exercise
price paid for the shares of Common Stock purchased and the fair market
value of such shares as of the date of exercise. Upon disposition of the
shares acquired upon exercise, appreciation (or depreciation) after the
date of exercise will be treated as either short-term or long-term capital
gain (or loss) depending upon the holding period of the shares sold.
The Plan allows Directors to pay for the exercise price of nonqualified
stock options by surrendering shares of Common Stock that the Director
currently owns having a fair market value equal to such exercise price if
such shares have been held for at least 6 months prior to the date of
exercise (the "previously acquired shares"). If the Director pays the
exercise price, in full or in part, with previously acquired shares of
Common Stock, the use of such shares will not affect the tax treatment of
the exercise. No gain or loss will be recognized with respect to the shares
of Common Stock tendered to the Company in payment of the exercise price or
with respect to the equivalent number of shares of Common Stock issued in
connection with the option exercise. Such number of shares of Common Stock
received upon exercise will have the same basis and holding period for
purposes of determining capital gain or loss upon subsequent disposition as
did the previously acquired shares. The shares of Common Stock received
upon exercise in excess of the number of previously acquired shares
tendered will have a basis equal to the fair market value of such
previously acquired shares as of the date ordinary income is recognized
with respect to the option exercise and the holding period will commence on
that date.
A-2
<PAGE>
To the extent that the Director recognizes ordinary income on the exercise
of the option, the Company will be entitled to a tax deduction in an amount
equal to the amount of ordinary income recognized.
No Withholding Taxes Due on Exercise - No withholding taxes (either income
------------------------------------
or FICA/Medicare) are due on the exercise of Director stock options. This
tax treatment is the same as that applied to Directors' fees, where no tax
withholding is required. A Form 1099 will be issued to Directors exercising
stock options for the calendar year in which the exercise occurs.
Accordingly, Directors should be aware that estimated tax payments may be
required for the years in which Director stock options are exercised.
Section 16 of the Exchange Act
------------------------------
In general, an affiliate subject to the reporting obligations of Section 16(a)
and the short-swing profit recovery provisions of Section 16(b) of the Exchange
Act will be deemed to have "purchased" shares of Common Stock as of the date any
stock option is granted to the affiliate. Such purchase will, however, generally
be exempt from reporting and from any short-swing profit recovery. Such options
should, however, be reported on the first Form 4 or Form 5 filed by the
affiliate following the date of grant. The exercise of a Director stock option
is not considered a "purchase" for purposes of the short-swing profit recovery
rules, but must be reported on a Form 4 by the 10th day of the month following
the option exercise. Any subsequent sale of the shares received is a reportable
transaction that can give rise to a short-swing profit recovery. Affiliates are
encouraged to consult with the Corporate Secretary of the Holding Company
regarding the Form 4 and Form 5 reporting and short-swing profit recovery
implications of the exercise and subsequent sale of shares of Common Stock prior
to any such exercise or sale.
A-3
<PAGE>
[LOGO] First Midwest Bancorp, Inc.
Non-Employee Directors'
1997 Stock Option Plan
SUMMARY DESCRIPTION
* * * * *
APPENDIX B
GENERAL INFORMATION
REGARDING
RELOAD STOCK OPTIONS
October 1, 1998
<PAGE>
FIRST MIDWEST BANCORP, INC.
Non-Employee Directors'
1997 Stock Option Plan ("Plan")
SUMMARY DESCRIPTION
* * * * *
APPENDIX B
GENERAL INFORMATION REGARDING
RELOAD STOCK OPTIONS
--------------------
Introduction
------------
Reload Stock Options may be granted to Directors at any time and on such terms
as set forth by the Board of Directors of First Midwest Bancorp, Inc. (the
"Board"). The Board has determined that Reload Stock Options will be granted at
such times and under such terms as discussed in the sections below.
Definition and Purpose of Reload Stock Options
----------------------------------------------
First Midwest's Director Stock Option Letter Agreements provide that First
Midwest Common Stock ("Common Stock") may be used as consideration for the
exercise price of option exercises.
As part of its program to encourage ownership of Common Stock by its Directors,
the Board approved the granting of Reload Stock Options ("Reloads") when Common
Stock is tendered as consideration for a Director stock option exercise. The
purpose of granting Reloads is to enable the Director to maintain the same
"upside potential" when tendering Common Stock to pay for the exercise price.
The benefit to First Midwest through the granting of Reloads, and the holding
requirements of the underlying shares imposed thereon, are not only increased
ownership on the part of the Director but also the realization of a tax benefit
by the Company from such exercise.
Eligibility for Reload Options
-------------------------------
Reloads will be granted in situations where the Director is an active director.
------
Reloads will be granted only for shares tendered in an option exercise that are
already owned for at least 6 months prior to the option exercise. Shares
tendered for option exercises will be considered as newly-held for purposes of
the 6 month holding rule and may not be used for a subsequent option exercise
for at least 6 months. A Director stock option grant will be reloaded only three
times.
Date of the Reload Option Grant
-------------------------------
The date of the Reload grant will be the same date on which the Common Stock is
tendered in consideration for the Director stock option exercise. Until the
Board determines otherwise, Reloads will be granted, and canceled if appropriate
(see below), automatically, with no further action by the Board required.
B-1
<PAGE>
Reload Option Price
-------------------
The Reload exercise price will be the average of the high and low market prices
quoted on the NASDAQ National Market System on the date of the option exercise
for which Common Stock is used as consideration and the Reload is granted. This
also represents the methodology used for valuing the Common Stock used for
consideration and for the annual granting of Director stock options.
Reload Option Term
------------------
The term, or maturity, of the Reload will be the same as the remaining term of
--------------
the underlying Director stock option that is exercised.
Reload Option Vesting
---------------------
Reloads will vest on a date that is the earlier of 6 months after the Reload is
granted or 30 days prior to the expiration of the underlying Director stock
--
option for which the Reload is granted.
Reload Option Cancellation
--------------------------
If any Common Stock is sold by a Director who receives Reloads while such
---
Director holds unvested Reloads, a like number of the unvested Reloads will be
canceled. The cancellation will be first applied to the unvested Reloads with
the longest remaining term. Once vested, the Reload will only be canceled to
the extent the Director sells the Common Stock that was received when the
underlying option was exercised. Since the purpose of granting Reloads is to
enable a Director to maintain the same upside potential on Common Stock, any
voluntary reduction in such upside potential (through the sale of Common Stock
by the Director) should be reflected by a like reduction in the Reloads held by
the Director.
Examples of Reload Stock Option Grants
--------------------------------------
Pages B - 3 and B - 4 are examples of Reloads granted in both taxable stock
option exercises and stock option exercises under the Nonqualified Stock Option
Gain Deferral Plan (see Appendix D to the Summary Description).
Actions Necessary To Be Granted Reload Stock Options
----------------------------------------------------
Until the Board amends or modifies the Reload feature, Reloads will
automatically be granted upon the exercise of Director stock options where the
purchase price is paid with Common Stock held 6 months or longer. The Reload
will be made in the form of a Letter Agreement (similar to the Director Letter
Agreement) which will be provided to the Director within 30 days after the
eligible exercise.
B-2
<PAGE>
Example of Reload Stock Option Grants
Taxable Option Exercises
Note: Reload Stock Option Grants are only applicable to stock option
exercises when FMBI Common Stock is tendered for payment of
the option exercise price.
. FMBI Stock Price is $50 per share.
. Director does not elect gain deferral and owns 680 shares of FMBI.
. Options to be exercised are as follows:
<TABLE>
<S> <C> <C> <C>
(a) 500 options @$10; exp. date 1999; exercise price $ 5,000; Profit - $20,000
(b) 1,000 options @ $20; exp. date 2000; exercise price $20,000; Profit - $30,000
(c) 300 options @ $30; exp. date 2001; exercise price $ 9,000; Profit - $ 6,000
</TABLE>
. FMBI stock
required to exercise all 1,800 options:
(a) $34,000 exercise price / $50 FMV = 680 shares tendered for exercise
. Director receives 1,800 shares of FMBI Common Stock.
. Reduction in Director's "upside potential" before and after exercise is 680
shares, as follows:
<TABLE>
<CAPTION>
Before Exercise After Exercise
------------------- -------------------
<S> <C> <C>
Outstanding Options 1,800 ---
Shares tendered for exercise 680 ---
Shares from option exercise -- 1,800
------------------- -------------------
Total 2,480 1,800
=================== ===================
</TABLE>
. Reload Options granted at $50 per share applicable to the exercise price
are as follows:
<TABLE>
<CAPTION>
Expiration Date Reload Options Granted Methodology
--------------- ---------------------- ------------
<S> <C> <C>
1999 100 Exercise price of each grant
exercised / total exercise price
2000 400 x reduction in upside potential
(680 shares) applicable to
2001 180 exercise.
---------
Total 680
</TABLE>
B-3
<PAGE>
Example of Reload Stock Option Grants
Option Exercises under Gain Deferral Plan
Note: Reload Stock Option Grants are only applicable to stock option
exercises when FMBI common stock is tendered for payment of the
option exercise price.
. FMBI Stock Price is $50 per share.
. Director elects gain deferral and owns 680 shares of FMBI.
. Options to be exercised are as follows:
<TABLE>
<S> <C> <C> <C>
(a) 500 options @$10; exp. date 1999; exercise price $ 5,000; Profit - $20,000
(b) 1,000 options @ $20; exp. date 2000; exercise price $20,000; Profit - $30,000
(c) 300 options @ $30; exp. date 2001; exercise price $ 9,000; Profit - $ 6,000
</TABLE>
. FMBI stock required to exercise all 1,800 options (which are then
immediately returned to Director under terms of the tax-free exchange):
$34,000 exercise price / $50 FMV = 680 shares
. "Profit Shares" to be deposited in the Gain Deferral Plan:
$56,000 profit / $50 FMV = 1,120 shares
. Reduction in Director's "upside potential" before and after exercise is 680
shares as follows:
<TABLE>
<CAPTION>
Before Exercise After Exercise
------------------- -------------------
<S> <C> <C>
Outstanding Options 1,800 --
Shares tendered for exercise 680 680
Shares in Gain Deferral Plan -- 1,120
------------------- -------------------
Total 2,480 1,800
=================== ===================
</TABLE>
. Reload Options granted at $50 per share applicable to the exercise price
are as follows:
<TABLE>
<CAPTION>
Expiration Date Reload Options Methodology
--------------- -------------- -----------
Granted
-------
<S> <C> <C>
1999 100 Exercise price of each grant exercised /
total exercise price x reduction in
2000 400 upside potential (680 shares).
2001 180
-------
Total 680
</TABLE>
B-4
<PAGE>
[LOGO] First Midwest Bancorp, Inc.
Non-Employee Directors'
1997 Stock Option Plan
SUMMARY DESCRIPTION
* * * * *
APPENDIX C
GENERAL INFORMATION
REGARDING
TRANSFERABILITY OF
DIRECTOR STOCK OPTIONS
October 1, 1998
<PAGE>
FIRST MIDWEST BANCORP, INC.
Non-Employee Directors'
1997 Stock Option Plan ("Plan")
SUMMARY DESCRIPTION
* * * * *
APPENDIX C
GENERAL INFORMATION REGARDING
TRANSFERABILITY OF DIRECTOR STOCK OPTIONS
-----------------------------------------
Purpose of Stock Option Transferability
---------------------------------------
Transferability of stock options by Directors of First Midwest who hold stock
options enable Directors to enhance the after-tax value of stock options by
allowing maximum flexibility for gift and estate tax planning purposes.
Eligibility to Transfer Stock Options
-------------------------------------
In order to transfer stock options in accordance with the requirements outlined
below, the Director must be an active Director of First Midwest; retirees are
not eligible.
Requirements for Transferability
--------------------------------
For Directors transferring stock options, the following requirements must be
meet:
1. Transferability is limited to immediate family members only, as
defined in the Plan.
2. The transfer must be a bonafide gift that is not made in exchange for
any consideration.
3. The transferred option will continue to be subject to the same terms
and conditions which were applicable prior to the transfer such as vesting
requirements and expiration dates.
Example of a Stock Option Transfer
----------------------------------
The following is an example of the steps necessary to affect a stock option
transfer:
<PAGE>
1. Based upon the restrictions outlined in the Plan and the Letter
Agreement, a Director will assign the stock option to a family member - donee
and pay all appropriate gift taxes.
2. The potential appreciating asset represented by the stock option is
thereby removed from the estate of the optionee - donor through the transfer to
the family member.
3. Prior to the stock option expiration date, the family member can
exercise the stock option.
4. After the stock option exercise, if the shares of First Midwest are
retained by the family member exercising the stock option, such shares are
considered "restricted" stock and are subject to SEC Rule 144 and 145 governing
resale. The First Midwest Corporate Secretary should be contacted if the family
member wishes to resell such shares.
Tax Considerations
------------------
As noted above, transfer of options is intended to provide flexibility to
optionees with regard to gift and estate planning purposes. The tax rules
governing the transfer of options are complex. Accordingly a Director
considering a transfer of options should consult with his or her tax advisor
prior to initiating an option transfer.
Actions Necessary to Make a Stock Option Transfer
-------------------------------------------------
If a Director wishes to make a transfer of stock options (whether vested or
unvested), he/she should contact the Corporate Controller of First Midwest who
will initiate the appropriate transfer documentation.
<PAGE>
[LOGO] First Midwest Bancorp, Inc.
Non-Employee Directors'
1997 Stock Option Plan
SUMMARY DESCRIPTION
* * * * *
APPENDIX D
GENERAL INFORMATION
REGARDING
DIRECTOR STOCK OPTION LOAN PROGRAM
October 1, 1998
<PAGE>
FIRST MIDWEST BANCORP, INC.
Non-Employee Directors'
1997 Stock Option Plan ("Plan")
SUMMARY DESCRIPTION
* * * * *
APPENDIX D
GENERAL INFORMATION REGARDING
DIRECTOR STOCK OPTION LOAN PROGRAM
----------------------------------
Purpose of Loan Program
-----------------------
First Midwest has established a Loan Program to facilitate both the exercise of
Director stock options and the retention of the acquired shares for the purpose
of increasing First Midwest stock ownership.
Eligibility for Stock Option Loans
----------------------------------
Directors eligible for stock option loans must be active Directors of First
Midwest; retirees are not eligible.
Loan Collateral
---------------
All stock option loans will be fully recourse. In addition, all First Midwest
Common Stock ("Common Stock") acquired upon the exercise of a stock option that
is funded by the stock option loan will be collateral for such loan. For
example, if a Director exercises 1,000 options and pays for 1/2 of the exercise
price with a stock option loan, 500 shares of the Common Stock acquired will be
held as collateral for the loan.
Loan Term
---------
The term of the stock option loan will be established at the inception of the
loan and cannot exceed five years.
Loan Interest Rate
------------------
The Applicable Federal Rate ("A.F.R.") as defined by the Internal Revenue Code
("IRC") on the date that the loan is made will be the interest rate applicable
to such loan. The A.F.R. is the lowest rate allowable under the IRC without
imputing interest income to the borrower. As an example, the May 1998 A.F.R.'s
are as follows:
. Loans of three years or less - 5.61%
. Loans over three years and up to five years - 6.10%
D-1
<PAGE>
Loan Interest Calculation
-------------------------
Interest on stock option loans will be calculated on a 365 day basis and will be
compounded annually. Interest will be payable at the maturity of the loan, but
may be paid prior to maturity at the election of the Director.
Maximum Loan Amount
-------------------
The maximum amount of a stock option loan will be the full stock option exercise
price. The maximum amount of all stock option loans outstanding at any one time
to a Director will be $250,000.
Impact of Subsequent Common Stock Sales
---------------------------------------
Stock option loans must be repaid on a pro-rata basis if any of the underlying
collateral is sold. For example, if a Director sells 50% of the shares acquired
in a stock option exercise funded by the Loan Program, the Director must repay
50% of the outstanding loan balance, including any accrued interest applicable
to such balance. Conversely, if a portion of the principal balance of the loan
is repaid, a pro-rata portion of the underlying collateral will be returned.
Tendering of the underlying collateral for purposes of taxable, as well as gain
deferral, stock option exercises is permitted under the Stock Option Loan
Program and will not require loan repayment as long as an identical number of
shares is returned as collateral for the loan after the exercise.
Repayment Schedule
------------------
All principal and interest on a stock option loan will be payable at the end of
the term of the loan.
Effect of Termination of Directorship
-------------------------------------
Upon termination of a Directorship for any reason, including after a change in
control, as defined in the Plan, the stock option loan will continue under the
same terms and conditions until the end of the term of the loan or loans.
D-2
<PAGE>
[LOGO] First Midwest Bancorp, Inc.
Non-Employee Directors'
1997 Stock Option Plan
SUMMARY DESCRIPTION
* * * * *
APPENDIX E
GENERAL INFORMATION
REGARDING
NONQUALIFIED STOCK OPTION GAIN DEFERRAL PLAN
October 1, 1998
<PAGE>
FIRST MIDWEST BANCORP, INC.
Non-Employee Directors'
1997 Stock Option Plan ("Plan")
SUMMARY DESCRIPTION
* * * * *
APPENDIX E
GENERAL INFORMATION REGARDING
NONQUALIFIED STOCK OPTION GAIN DEFERRAL PLAN
--------------------------------------------
The purpose of this Appendix E is to provide general information about the Gain
Deferral Plan and is qualified in its entirety by the Summary Description of the
Gain Deferral Plan and the text of the Gain Deferral Plan document. The Gain
Deferral Plan provides the Compensation Committee of the Board of Directors of
First Midwest Bancorp, Inc. (the "Committee") with the responsibility for the
administration of the Gain Deferral Plan. The Committee is authorized to
interpret the Gain Deferral Plan, to prescribe and modify its rules and
procedures, and to make all other determinations necessary in its
administration.
Purpose of the Gain Deferral Plan
---------------------------------
The purpose of the Gain Deferral Plan is to further stock ownership by Directors
of First Midwest by facilitating deferral of gains resulting from the exercise
of Director stock options ("options"). In order to defer receipt of gains
resulting from such exercises, Directors must make appropriate elections and
must exercise their options only through the exchange of First Midwest Common
Stock held for six months prior to the exercise date. Deferred gains can only be
invested in First Midwest Common Stock ("Common Stock"); dividends earned on
such Common Stock held by the Gain Deferral Plan can likewise only be
reinvested.
Eligibility for Participation
-----------------------------
The Gain Deferral Plan is structured as a "Nonqualified Plan" under applicable
IRS and Department of Labor guidelines. As such, eligibility for participation
must be monitored closely to ensure that the Gain Deferral Plan maintains
compliance with these rules, regulations and limitations and is not
disqualified.
For 1998, participation in the Gain Deferral Plan has been restricted to First
Midwest Directors, key executives with a base salary of $98,800 or more and all
members of the First Midwest Bank Executive Committee ("Participants").
Additionally, the ability to defer gains from option exercises is further
restricted to participants who own 500 or more shares of Common Stock in their
own name, in joint tenancy with their spouse or in an alternative ownership from
whereby the participant has sole voting and investment power (such as a Trust).
The Common Stock ownership limitation will be reviewed annually.
E-1
<PAGE>
Election to Participate
- -----------------------
In order to effectuate participation in the Gain Deferral Plan, the participant
must execute a Deferral Election Form within 30 days following the participant's
commencement date. The deferral election will apply to all options exercised
where Common Stock is used as the sole payment of the exercise price. If a
participant does not execute a form with 30 days following his/her participation
commencement date, the deferral election will become effective only for options
exercised in the calendar year following, and at least six months after, the
execution date of the Deferral Election Form.
A participant may execute additional forms, or a Deferral Election Revocation
Form, with each subsequent form superseding all prior forms in accordance with
the timing provisions contained in the Gain Deferral Plan.
If a participant executes a Deferral Election Form, it will apply to all option
exercises that utilize Common Stock as consideration until revoked. However, the
participant may still exercise options using cash as consideration (or in
cashless exercises) to the maximum extent allowed by the Plan.
E-2
<PAGE>
First Midwest Bancorp, Inc. Exhibit 10.2
Nonqualified Stock Option Gain
Deferral Plan
Master Plan Document
================================================================================
Amended and Restated
to Reflect Amendments
Effective January 1, 2000
<PAGE>
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED STOCK OPTION - GAIN DEFERRAL PLAN
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I GENERAL...................................................... 1
1.1 Effective Date............................................... 1
1.2 Purpose...................................................... 1
1.3 Intent....................................................... 1
ARTICLE II DEFINITIONS AND USAGE........................................ 2
2.1 Definitions.................................................. 2
2.2 Usage........................................................ 3
ARTICLE III ELIGIBILITY AND PARTICIPATION................................ 3
3.1 Eligibility.................................................. 3
3.2 Participation................................................ 3
3.3 Deferral Election Procedure.................................. 4
3.4 Stock-for-Stock Payment Method............................... 4
3.5 Delivery of Stock............................................ 4
ARTICLE IV PARTICIPANT ACCOUNTS......................................... 5
4.1 Accounts..................................................... 5
4.2 Participant Deferrals........................................ 5
4.3 Investment Procedure......................................... 5
4.4 Valuation of Accounts........................................ 5
ARTICLE V PAYMENT OF BENEFITS.......................................... 6
5.1 Entitlement to Benefit Payments.............................. 6
5.2 Commencement of Benefit Payments............................. 6
5.3 Short-Term Payout............................................ 7
5.4 Unforeseeable Financial Emergencies.......................... 7
5.5 Withdrawal Election.......................................... 7
5.6 Payments in Stock............................................ 8
ARTICLE VI PAYMENT OF BENEFIT ON OR AFTER DEATH......................... 8
6.1 Commencement of Payments After Death......................... 8
6.2 Designation of Beneficiary................................... 8
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII ADMINISTRATION............................................... 8
7.1 General...................................................... 8
7.2 Administrative Rules......................................... 8
7.3 Duties....................................................... 8
7.4 Fees......................................................... 9
ARTICLE VIII CLAIMS PROCEDURE............................................. 9
8.1 General...................................................... 9
8.2 Denials...................................................... 9
8.3 Notice....................................................... 9
8.4 Appeals Procedure............................................ 10
8.5 Review....................................................... 10
ARTICLE IX MISCELLANEOUS PROVISIONS..................................... 10
9.1 Amendment.................................................... 10
9.2 Termination.................................................. 10
9.3 No Assignment................................................ 10
9.4 Incapacity................................................... 11
9.5 Successors and Assigns....................................... 11
9.6 Governing Law................................................ 11
9.7 No Guarantee of Employment................................... 11
9.8 Severability................................................. 11
9.9 Notification of Addresses.................................... 11
ARTICLE X ADOPTING EMPLOYERS........................................... 11
10.1 Adoption of Plan............................................. 11
10.2 Administration............................................... 11
10.3 Company as Agent............................................. 12
10.4 Termination.................................................. 12
ARTICLE XI TRUST........................................................ 12
11.1 Trust........................................................ 12
11.2 Contributions and Expense.................................... 12
11.3 Trustee Duties............................................... 12
11.4 Voting Rights................................................ 12
11.5 Reversion to the Company..................................... 12
</TABLE>
<PAGE>
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED STOCK OPTION - GAIN DEFERRAL PLAN
(As Restated)
WHEREAS, First Midwest Bancorp, Inc. ("the Company') has heretofore
established the First Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive
Plan, as Amended (the "Stock Plan") for its Employees; and
WHEREAS, the Company recognizes the unique qualifications of key employees
and the valuable services that they have provided; and
WHEREAS, the Company desires to increase Company stock ownership by
facilitating the deferral of gains resulting from the exercise of Company
nonqualified stock Options;
NOW, THEREFORE, the Company hereby restates the First Midwest Bancorp, Inc.
Nonqualified Stock Option - Gain Deferral Plan (the "Plan") as hereinafter
provided:
ARTICLE 1
GENERAL
-------
1.1 Effective Date. The provisions of the Plan shall be effective as of
--------------
December 1, 1997 (the "Effective Date"). The rights, if any, of any person
whose status as an Employee of the Company and its subsidiaries and affiliates,
if any, has terminated shall be determined pursuant to the Plan as in effect on
the date such Employee terminated, unless a subsequently adopted provision of
the Plan is made specifically applicable to such person.
1.2 Purpose. The purpose of the Plan is to increase Company stock
-------
ownership by facilitating the deferral of gains resulting from the exercise of
Company nonqualified stock Options.
1.3 Intent. With respect to the participation of Employees hereunder, the
------
Plan is intended to be (and shall be construed and administered as) an "employee
pension benefit plan" under the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA") which is unfunded and maintained by the Company
or an Employer solely to provide retirement income to a select group of
management or highly compensated Employees as such group is described under
section 201(2), 301(a)(3), and 401(a)(1) of ERISA as interpreted by the U.S.
Department of Labor. The Plan is not intended to be a plan described in section
401(a) of the Code, or section 3(2)(A) of ERISA. With respect to the
participation in the Plan by nonemployee directors of the Company, the Plan is
intended to be a plan of deferred compensation. The obligation of the Company
and an Employer to make payments under this Plan constitutes nothing more than
an unsecured promise to make such payments and any property of the Company or an
Employer that may be set aside for the payment of benefits under the Plan shall
in the event of the Company's or Employer's bankruptcy or insolvency, remain
subject to the claims of the Company's general creditors and the Employer's
general creditors, respectively, until such benefits are distributed in
accordance with Article V herein.
<PAGE>
ARTICLE 2
DEFINITIONS AND USAGE
---------------------
2.1 Definitions. Wherever used in the Plan, the following words and
-----------
phrases shall have the meaning set forth below unless the context plainly
requires a different meaning:
(a) "Account" means the account established on behalf of the
Participant as described in Section 4.1.
(b) "Administrator" means the person or persons described in Article
VII.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Committee" means the Compensation Committee of the Board of
Directors or such other committee appointed from time to time by the Board of
Directors to administer this Plan. The Committee shall consist of two or more
members, each of whom shall qualify as a "non-employee director," as the term
(or similar successor term) is defined by Rule 16b-3, and as an "outside
director" within the meaning of Code Section 162(m) and regulations thereunder.
(f) "Company" means First Midwest Bancorp, Inc. and any successor
thereto.
(g) "Effective Date" means December 1, 1997.
(h) "Employee" means a regular salaried employee (including officers
and directors who are also employees) of the Company or an Employer, or any
branch or division thereof.
(i) "Employer" means the Company and any subsidiary or affiliate of
the Company that adopts the Plan for the benefit of its key Employees with the
approval of the Company and in accordance with Article X.
(j) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
(k) "Fair Market Value" means the average of the highest and lowest
prices of the Stock as reported by the consolidated tape of the NASDAQ National
Market System on a particular date. In the event that there are no Stock
transactions on such date, the Fair Market Value shall be determined as of the
immediately preceding date on which there were Stock transactions.
(l) "Option" means the right to purchase Stock at a stated price for a
specified period of time granted by the Company to an Employee under the Stock
Plan. For purposes of the Plan, an Option shall be a "Nonstatutory
(Nonqualified) Stock Option," or "NSO," as provided for under the Stock Plan.
2
<PAGE>
(m) "Participant" means an eligible Employee and any nonemployee
director of the Company who is participating in the Plan in accordance with
Section 3.1.
(n) "Plan" means the First Midwest Bancorp, Inc. Nonqualified Stock
Option -Gain Deferral Plan.
(o) "Plan Year" means the calendar year. Notwithstanding the
foregoing, the initial Plan Year shall be the period beginning on the Effective
Date and ending December 31, 1997.
(p) "Profit Shares" means, (A) with respect to any exercise of an
Option, the number of shares equal in value to the excess of (i) the Fair Market
Value of the shares of Stock purchased on Option exercise over (ii) the exercise
price of the shares of Stock purchased, divided by the Fair Market Value of one
share of Stock, and (B) with respect to any Stock Award, the number of shares
payable upon the vesting of such Award For purposes of this definition, Fair
Market Value shall be determined as of the date of Option exercise.
(q) "Stock" means the common stock, $0.01 par value per share, of the
Company.
(r) "Stock Award" means any award under the Stock Plan, other than an
Option, which is payable in Stock, including, but not limited to, restricted
stock or performance share awards.
(s) "Stock Plan" means the First Midwest Bancorp, Inc. 1989 Omnibus
Stock and Incentive Plan as Amended, and any other similar or successor plan
established by the Company and under which Employees have been granted
nonqualified stock options.
(t) "Valuation Date" means the last business day of each Plan Year and
such other dates as determined from time to time by the Administrator.
2.2 Usage. Except where otherwise indicated by the context, any masculine
-----
terminology used herein shall also include the feminine and vice versa, and the
definition of any term herein in the singular shall also include the plural and
vice versa.
ARTICLE 3
ELIGIBILITY AND PARTICIPATION
-----------------------------
3.1 Eligibility. The Committee shall designate from time to time those
-----------
Employees who shall participate in the Plan; provided, however, that such
-------- -------
Employees are members of a select group of management or highly compensated
Employees as such group is described under sections 201(2), 301(a)(3), and
401(a)(1) of ERISA as interpreted by the Department of Labor. In addition, each
nonemployee director of the Company shall also be entitled to participate in the
Plan.
3.2 Participation. An Employee shall commence participation in the Plan
-------------
as of the date designated by the Committee. A nonemployee director shall
commence participation in the Plan as
3
<PAGE>
of the later of the Effective Date or the date service as a nonemployee director
commences. The participation of any Participant may be suspended or terminated
by the Committee at any time, but no such suspension or termination shall
operate to reduce the balance of the Account of the Participant as of the
Valuation Date that precedes or coincides with the date of such suspension or
termination without such Participant's consent. An Employee or nonemployee
director shall cease to be a Participant when he terminates employment and
service as a director with the Company and all Employers and the balance in his
Account is distributed to him or on his behalf.
3.3 Deferral Election Procedure.
---------------------------
(i) Each Participant may execute one or more Deferral Election
Forms as set out in Appendix A. Each Deferral Election Form shall be
treated in accordance with Section 4.2. In order to be effective with
respect to the exercise of any Option or payment of any Stock Award, a
Deferral Election Form must be executed by the Participant: (i) in a
calendar year preceding the exercise of such Options or vesting of the
Stock Award; and (ii) at least six months prior to the exercise of such
Options or vesting of the Stock Award; provided, however, that a Deferral
Election Form executed by a Participant during the first 30 days following
the later of the Effective Date of the Plan or the participation
commencement date designated by the Committee pursuant to Section 3.2 for
such Participant, shall be effective with respect to the exercise of
Options or vesting of the Stock Award after the date of such Deferral
Election Form without regard to clauses (i) and (ii).
(ii) An Agreement shall be effective no earlier than the date on
which it is delivered to the Administrator and shall continue in effect for
all succeeding Plan Years unless otherwise superseded by a subsequent
Deferral Election Form (or Deferral Revocation Form).
3.4 Stock-for-Stock Payment Method for Options. If a Participant has
------------------------------------------
executed a Deferral Election Form, and such Deferral Election Form is effective
under the terms of the Plan with respect to the Option being exercised, then the
Option price shall be payable to the Company in full solely by tendering shares
of Stock, which have been held for at least six months prior to the date of the
exercise of the Option, having an aggregate Fair Market Value at the time of
exercise equal to the total Option price (including, for this purpose, Stock
deemed tendered by affirmation of ownership). Shares of Stock tendered or
deemed tendered shall, for purposes of the six month holding rule, be deemed to
be newly-held following use to exercise the Option and thus cannot be used for a
subsequent exercise until six months have elapsed.
3.5 Delivery of Stock. As soon as practicable after (a) receipt of the
-----------------
tendered Stock or the affirmation of ownership of Stock pursuant to Section 3.4
above, or (b) vesting of the Stock Award, the Company shall deliver to the
Trustee, as named pursuant to Article XI of the Plan, a certificate or
certificates representing the Profit Shares generated with respect to the
exercise of any such Option or vesting of the Stock Award.
4
<PAGE>
ARTICLE 4
PARTICIPANT ACCOUNTS
--------------------
4.1 Accounts. The Administrator shall establish and maintain, pursuant to
--------
the terms of the Plan, one or more Accounts for each Participant consisting of
amounts credited to such Account pursuant to Section 4.2 below. All amounts
which are credited to a Participant's Account shall be credited solely for
purposes of accounting and computation, and shall remain assets of the Company
subject to the claims of the Company's general creditors. A Participant shall
not have any interest or right in or to such Account at any time.
4.2 Participant Deferrals. The Administrator shall credit to a
---------------------
Participant's Account for a Plan Year the amount of Profit Shares resulting from
the exercise of an Option or Options or vesting of Stock Awards for which a
valid Deferral Election Form is in effect. In order for a Deferral Election
Form to be valid with respect to the exercise of an Option: (a) the Deferral
Election Form must have been timely executed in accordance with Section 3.5; and
(b) with respect to an Option, (i) the exercise complies with all of the
applicable terms of the Option and of the Stock Plan; and (ii) the Option price
is satisfied by a tender of Stock as described in Section 3.4.
4.3 Investment Procedure. A Participant's Account shall be deemed
--------------------
invested in Stock of the Company. Any dividends deemed paid on Stock shall be
deemed to be reinvested in Stock. In the event of a change in the Stock of the
type that results in an adjustment to the Stock pursuant to adjustment
provisions set forth in the Stock Plan, then the Participant's Account shall be
deemed invested in Stock as so adjusted; provided, however, to the extent that
the adjustment results in a deemed investment in cash and stock, such cash shall
be deemed reinvested in Stock (as adjusted); provided, further, that if such
adjustment results in the deemed investment of the Account entirely in cash,
then such cash shall be deemed invested in an interest-bearing account and
credited with interest quarterly at an annual rate equal to the prime rate as
published in The Wall Street Journal at the beginning of such quarterly period
-----------------------
plus 2%, or such other investments as the Committee may permit the Participants
to recommend to the trustee of the Trust established pursuant to Article XI
below.
4.4 Valuation of Accounts. The value of a Participant's Account shall be
---------------------
determined from time to time by the Administrator in the following manner:
(i) The income and expense, gains, and losses, both realized and
unrealized, from such deemed investments as are required under Section 4.3
shall be determined by the Administrator. The amount so determined shall
be allocated to the Account of a Participant proportionately in accordance
with the procedures established by the Administrator.
(ii) Each Participant's Account shall be valued as of the
Valuation Date of each Plan Year or more frequently as determined in the
sole discretion of the Administrator, and shall again be valued as of the
date that a Participant receives a payment under the Plan, in accordance
with the procedures established by the Administrator.
5
<PAGE>
(iii) A Participant's Account shall be reduced by the amount of
any benefits distributed to or on behalf of the Participant pursuant to
Article V.
(iv) All allocations to and deductions from a Participant's
Account under this Section 4.4 shall be deemed to have been made on the
applicable Valuation Date in the order of priority set forth in this
Section 4.4, even though actually determined at a later date.
ARTICLE 5
PAYMENT OF BENEFITS
-------------------
5.1 Entitlement to Benefit Payments. Upon a Participant's separation from
-------------------------------
service as an Employee or nonemployee director, as applicable, from the Company
and all Employers, the Participant shall be entitled to his Account Balance
payable by the Company or by his Employer at the time and in the manner
determined in accordance with Section 5.2. Notwithstanding the foregoing, if a
Participant's separation from service is the result of termination "for cause,"
no benefits shall be payable to the Participant under the Plan and his Account
balance shall be zero. A Participant shall be deemed to have been terminated
"for cause" if his employment or service as a director is terminated voluntarily
or involuntarily as a result of the Participant's fraud, misappropriation or
embezzlement of Company or Employer funds or property. The Committee shall
determine whether a Participant's separation from service is "for cause."
5.2 Commencement of Benefit Payments. In connection with commencement of
--------------------------------
participation in the Plan, a Participant shall elect on an election form to
receive payment of the Account Balance in a lump sum or in annual or quarterly
installments over a period of up to fifteen years. The Participant may annually
change the election to an allowable alternative payout period by submitting a
new election form to the Committee, provided that any such election form is
submitted during a calendar year preceding and at least six months prior to the
Participant's separation from service and is accepted by the Committee in its
sole discretion; provided, however, that such advance filing period shall not
apply to an election form submitted prior to a Change in Control (as defined in
the Stock Plan) which is applicable to a separation from service which occurs on
or after the date of such Change in Control. The election form most recently
accepted by the Committee shall govern the payout of the Account Balance. If a
Participant does not make any election with respect to the payment of the
Participant's Account Balance, then such benefit shall be payable in five annual
installments. The lump sum payment shall be made, or installment payments shall
commence, no later than 30 days after the last day of the calendar quarter in
which the Participant experiences the separation from service; provided,
however, the Participant may elect to have the payment commencement date delayed
for up to five (5) years from the separation date by submitting an election form
to that effect which is accepted by the Committee at least six months prior to
the separation date; provided, further, if the Participant's Account Balance is
less than $25,000 at the time of separation from service, payment of the Account
Balance will be made in a lump sum no later than 30 days after the last day of
the calendar quarter in which the separation from service occurs.
Notwithstanding the foregoing, the Committee, in its sole discretion, shall
establish the commencement date for the payment of benefits, the deductibility
of which may be limited by Code Section 162(m), as the earliest practicable date
upon which such limitations would not apply.
6
<PAGE>
5.3 Short-Term Payout. In connection with a Deferral Election, a
-----------------
Participant may irrevocably elect to receive a future "Short-Term Payout" from
the Plan with respect to the amounts covered by such Deferral Election. The
Short-Term Payout shall be a lump sum payment in an amount that is equal to the
Profit Shares covered by the particular Deferral Election plus additional shares
credited in the manner provided in Section 4.2 above on that amount, determined
at the time that the Short-Term Payout becomes payable. Subject to the other
terms and conditions of this Plan, each Short-Term Payout elected shall be paid
out during a 60 day period commencing immediately after the last day of any Plan
year designed by the Participant that is at least three Plan Years after the
Plan Year in which the Profit Shares were actually deferred. Notwithstanding
the foregoing, the Committee, in its sole discretion may delay the payment of
any Short-Term Payment, the deductibility of which may be limited by Code
Section 162(m), to this earliest practicable date upon which such limitations
would not apply.
5.4 Unforeseeable Financial Emergencies. If the Participant experiences
-----------------------------------
an Unforeseeable Financial Emergency, the Participant may petition the Committee
to (i) suspend any Deferral Election made by a Participant and/or (ii) receive a
partial or full payout of the Participant's Account Balance from the Plan. The
payout shall not exceed the lesser of the Participant's Account Balance, or the
amount reasonably needed to satisfy the Unforeseeable Financial Emergency. If,
subject to the sole discretion of the Committee, the petition for a suspension
and/or payout is approved, suspension shall take effect upon the date of
approval and any payout shall be made within 60 days of the date of approval.
For purposes of this Section 5.4, "Unforeseeable Financial Emergency" shall mean
an unanticipated emergency that is caused by an event beyond the control of the
Participant that would result in severe financial hardship to the Participant
resulting from (i) a sudden and unexpected illness or accident of the
Participant or a dependent of the Participant, (ii) a loss of the Participant's
property due to casualty, or (iii) such other extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant in which distribution is necessary to preserve the value of the
benefits of this Plan to the Participant, all as determined in the sole
discretion of the Committee.
5.5 Withdrawal Election. A Participant (or, after a Participant's death,
-------------------
his or her Beneficiary) may elect, at any time, to withdraw all of his or her
Account Balance, less a withdrawal penalty equal to 10% of such amount (the net
amount shall be referred to as the "Withdrawal Amount"). This election can be
made at any time, before or after death or separation from service and whether
or not the Participant (or Beneficiary) is in the process of being paid pursuant
to an installment payment schedule. No partial withdrawals of the Withdrawal
Amount shall be allowed. The Participant (or his or her Beneficiary) shall make
this election by giving the Committee advance written notice of the election in
a form determined from time to time by the Committee. The Participant (or his
or her Beneficiary) shall be paid the Withdrawal Amount within 60 days of his or
her election. Once the Withdrawal Amount is paid, the Participant's right to
voluntarily submit Deferral Elections under the Plan shall terminate and the
Participant shall not be eligible to make any Deferral Election for the
remainder of the Plan Year of the Withdrawal Election and the next Plan Year.
Notwithstanding the foregoing, the Committee, in its sole discretion may delay
the payment of any Withdrawal Amount, the deductibility of which may be limited
by Code Section 162(m), to this earliest practicable date upon which such
limitations would not apply.
7
<PAGE>
5.6 Payments in Stock. Unless a Participant's Account Balance has been
-----------------
deemed invested in cash pursuant to an adjustment described in Section 4.2
above, all payments with respect to such Account Balance shall be made in shares
of Stock (as such Stock may be adjusted in accordance with Section 4.2).
ARTICLE 6
PAYMENT OF BENEFIT ON OR AFTER DEATH
------------------------------------
6.1 Commencement of Payments After Death. If a Participant dies before
------------------------------------
receiving his entire Account Balance, the remainder of the Account otherwise
payable with respect to the Participant shall be paid to the Participant's
beneficiary or beneficiaries as a single lump-sum amount within ninety (90) days
following the date on which the Administrator is notified of the Participant's
death.
6.2 Designation of Beneficiary. A Participant may, by executing a
--------------------------
Beneficiary Designation Form (see Appendix A) during the Participant's lifetime,
designate one or more primary and contingent beneficiaries to receive his
Account balance which may be payable to the Participant hereunder following the
Participant's death, and may designate the proportions in which such
beneficiaries are to receive such payments. A Participant may change such
designations from time to time, and the last written designation filed with the
Administrator prior to the Participant's death shall control. If a Participant
fails to specifically designate a beneficiary or, if no designated beneficiary
survives the Participant, payment shall be made by the Administrator in the
following order of priority:
(i) to the Participant's surviving spouse; or if none,
(ii) to the Participant's children, per stirpes; or if none,
--- -------
(iii) to the Participant's estate.
ARTICLE 7
ADMINISTRATION
--------------
7.1 General. The Administrator shall be the Committee, or such other
-------
person or persons as designated by the Board or the Committee. Except as
otherwise specifically provided in the Plan, the Administrator shall be
responsible for the administration of the Plan. The Administrator shall be the
"named fiduciary" within the meaning of Section 402(c)(2) of ERISA.
7.2 Administrative Rules. The Administrator may adopt such rules of
--------------------
procedure as it deems desirable for the conduct of its affairs, except to the
extent that such rules conflict with the provisions of the Plan.
7.3 Duties. The Administrator shall have the following rights, powers and
------
duties:
8
<PAGE>
(i) The decision of the Administrator in matters within its
jurisdiction shall be final, binding and conclusive upon each Employer and
upon any other person affected by such decision, subject to the claims
procedure hereinafter set forth.
(ii) The Administrator shall have the duty and authority to
interpret and construe the provisions of the Plan, to decide any question
which may arise regarding the rights of Employees, Participants and
beneficiaries, and the amounts of their respective interests, to adopt such
rules and to exercise such powers as the Administrator may deem necessary
for the administration of the Plan, and to exercise any other rights,
powers or privileges granted to the Administrator by the terms of the Plan.
(iii) The Administrator shall maintain full and complete records
of its decisions. Its records shall contain all relevant data pertaining
to the Participant and his rights and duties under the Plan. The
Administrator shall have the duty to maintain Account records of all
Participants.
(iv) The Administrator shall cause the principal provisions of
the Plan to be communicated to the Participants, and a copy of the Plan and
other documents shall be available at the principal office of the Company
for inspection by the Participants at reasonable times determined by the
Administrator.
(v) The Administrator shall periodically report to the
Committee with respect to the status of the Plan.
7.4 Fees. No fee or compensation shall be paid to any person for services
----
as the Administrator.
ARTICLE 8
CLAIMS PROCEDURE
----------------
8.1 General. Any claim for benefits under the Plan shall be filed by the
-------
Participant or beneficiary ("claimant") on the form prescribed for such purpose
with the Administrator.
8.2 Denials. If a claim for benefits under the Plan is wholly or
-------
partially denied, notice of the decision shall be furnished to the claimant by
the Administrator within a reasonable period of time after receipt of the claim
by the Administrator.
8.3 Notice. Any claimant who is denied a claim for benefits shall be
------
furnished written notice setting forth:
(i) the specific reason or reasons for the denial;
(ii) specific reference to the pertinent provision of the Plan
upon which the denial is based;
9
<PAGE>
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim; and
(iv) an explanation of the claim review procedure under the
Plan.
8.4 Appeals Procedure. In order that a claimant may appeal a denial of a
-----------------
claim, the claimant or the claimant's duly authorized representative may:
(i) request a review by written application to the
Administrator, or its designate, no later than sixty (60) days after
receipt by the claimant of written notification of denial of a claim;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
8.5 Review. A decision on review of a denied claim shall be made not
------
later than sixty (60) days after receipt of a request for review, unless special
circumstances require an extension of time for processing, in which case a
decision shall be rendered within a reasonable period of time, but not later
than one hundred and twenty (120) days after receipt of a request for review.
The decision on review shall be in writing and shall include the specific
reason(s) for the decision and the specific reference(s) to the pertinent
provisions of the Plan on which the decision is based.
ARTICLE 9
MISCELLANEOUS PROVISIONS
------------------------
9.1 Amendment. The Company reserves the right to amend the Plan in any
---------
manner that it deems advisable by a resolution of the Board or the Committee.
No amendment shall, without the Participant's written consent, affect the amount
of the Participant's Account balance at the time the amendment becomes effective
or the right of the Participant to receive a distribution of his Account
balance. Notwithstanding the foregoing, following a Change in Control (as
defined in the Stock Plan), no amendment or termination of the Plan shall,
without the Participant's written consent, have an adverse effect on the
computation or amount or entitlement to benefits of such Participant, including,
but not limited to the time or manner of the payment of the Account. For
purposes hereof, an "adverse effect" shall include, but not be limited to, any
acceleration of the payment of the Account.
9.2 Termination. The Company reserves the right to terminate the Plan at
-----------
any time. No termination shall, without the Participant's written consent,
affect the amount of the Participant's Account balance prior to the termination
or the right of the Participant to receive a distribution of his Account
balance.
9.3 No Assignment. The Participant shall not have the power to pledge,
-------------
transfer, assign, anticipate, mortgage or otherwise encumber or dispose of in
advance any interest in amounts payable hereunder or any of the payments
provided for herein, nor shall any interest in amounts payable
10
<PAGE>
hereunder or in any payments be subject to seizure for payments of any debts,
judgments, alimony or separate maintenance, or be reached or transferred by
operation of law in the event of bankruptcy, insolvency or otherwise.
9.4 Incapacity. If any person to whom a benefit is payable under the Plan
----------
is an infant or if the Administrator determines that any person to whom such
benefit is payable is incompetent by reason of physical or mental disability,
the Administrator may cause the payments becoming due to such person to be made
to another for his benefit. Payments made pursuant to this Section shall, as to
such payment, operate as a complete discharge of the Plan, the Company, each
Employer, the Committee and the Administrator.
9.5 Successors and Assigns. The provisions of the Plan are binding upon
----------------------
and inure to the benefit of the Company, each Employer, its respective
successors and assigns, and the Participant, his beneficiaries, heirs, legal
representatives and assigns.
9.6 Governing Law. The Plan shall be subject to and construed in
-------------
accordance with the laws of Illinois to the extent not pre-empted by the
provisions of ERISA.
9.7 No Guarantee of Employment. Nothing contained in the Plan shall be
--------------------------
construed as a contract of employment or deemed to give any Participant the
right to be retained in the employ of any Employer or any equity or other
interest in the assets, business or affairs of any Employer. No Participant
hereunder shall have a security interest in the assets of any Employer used to
make contributions or pay benefits.
9.8 Severability. If any provision of the Plan shall be held illegal or
------------
invalid for any reason, such illegality or invalidity shall not affect the
remaining provisions of the Plan, but the Plan shall be construed and enforced
as if such illegal or invalid provision had never been included herein.
9.9 Notification of Addresses. Each Participant and each beneficiary
-------------------------
shall file with the Administrator, from time to time, in writing, the post
office address of the Participant, the post office address of each beneficiary,
and each change of post office address. Any communication, statement or notice
addressed to the last post office address filed with the Administrator (or if no
such address was filed with the Administrator, then to the last post office
address of the Participant or beneficiary as shown on the Company's or
Employer's records) shall be binding on the Participant and each beneficiary for
all purposes of the Plan and neither the Administrator nor the Company or an
Employer shall be obligated to search for or ascertain the whereabouts of any
Participant or beneficiary.
ARTICLE 10
ADOPTING EMPLOYERS
------------------
10.1 Adoption of Plan. The Plan may be adopted by any subsidiary or
----------------
affiliate of the Company for the benefit of any Employee designated by the
Committee to participate herein. Such adoption shall be by resolution of the
adopting Employer's governing body, a copy of which shall be filed with the
Company.
11
<PAGE>
10.2 Administration. As a condition to participating in the Plan, each
--------------
adopting Employer shall be deemed to have authorized the Committee and the
Administrator (if different from the Committee) to act for it in all matters
arising under or with respect to the Plan and shall comply with such other terms
and conditions as may be imposed by the Administrator.
10.3 Company as Agent. Each adopting Employer hereby irrevocably grants
----------------
the Company full and exclusive power to exercise, enforce or waive any right
which such Employer might otherwise have under the terms of the Plan, and each
adopting Employer irrevocably appoints the Company as its agent for such
purpose.
10.4 Termination. If authorized by the Company, each adopting Employer
-----------
may, upon written notice to the Company, cease to participate in the Plan with
respect to its Employees by resolution of its governing body.
ARTICLE 11
TRUST
-----
11.1 Trust. A Trust has been established under the Plan by the execution
-----
of a separate trust agreement entitled the First Midwest Bancorp, Inc.
Nonqualified Stock Option - Gain Deferral Trust with one or more trustees. The
Trust is intended to be maintained as a "grantor trust", under section 677 of
the Code, for which the Company is the grantor. The assets of the Trust will be
held, invested and disposed of by the trustee, in accordance with the terms of
the Trust, for the exclusive purpose of providing Plan benefits for the
Participants. Notwithstanding any provision of the Plan or the Trust to the
contrary, the assets of each Trust shall at all times be subject to the claims
of the grantor's general creditors in the event of the grantor's insolvency or
bankruptcy.
11.2 Contributions and Expense. The Company, in its sole discretion, and
-------------------------
from time to time, may make contributions to the Trust. All benefits under the
Plan and expenses chargeable to the Plan, to the extent not paid directly by the
Company, shall be paid from the Trust.
11.3 Trustee Duties. The powers, duties and responsibilities of the
--------------
trustee shall be as set forth in the Trust agreement and nothing contained in
the Plan, either expressly or by implication, shall impose any additional powers
or duties responsibilities upon the trustee.
11.4 Voting Rights. Each Participant (or, in the event of his death, his
-------------
beneficiary) shall have the right to direct the Trustee as to the manner in
which whole and partial shares of Stock allocated to his Account as of the
record date are to be voted on each matter brought before an annual or special
stockholders' meeting. Upon timely receipt of such directions, the Trustee
shall on each such matter vote as directed the number of shares (including
fractional shares) of Stock allocated to such Participant's Account, and the
Trustee shall have no discretion in such matter. The directions received by the
Trustee from Participants shall be held by the Trustee in confidence and shall
not be divulged or released to any person, including officers or employees of
any Employer. The Trustee shall vote allocated shares for which it has not
received direction in the same proportion as directed shares are voted, and
shall have no discretion in such matter. Additionally, in the event a tender
12
<PAGE>
offer is extended with respect to the Stock, each Participant shall have the
identical rights to direct the voting of the shares allocated to his Account as
detailed in the preceding sentences of this Section 11.4.
11.5 Reversion to the Company. The Company shall not have any beneficial
------------------------
interest in the Trust and no part of the Trust shall ever revert or be repaid to
the Company prior to the payment of all Plan benefits to Participants, except
with respect to amounts allocable to forfeited benefits (including without
limitation, any amounts forfeited on account of a termination "for cause") and
as otherwise reasonably determined by the Committee not to be necessary to pay
benefits to Participants.
* * * * *
13
<PAGE>
IN WITNESS WHEREOF, the Company has caused this restated Plan to be
executed by its duly authorized officer effective as of the 1st day of January,
2000.
ATTEST/WITNESS: FIRST MIDWEST BANCORP, INC.
James M. Roolf By: Donald J. Swistowicz
- -------------------------------------- -------------------------------------
Corporate Secretary Executive V.P. Chief Financial Officer
- -------------------------------------- ----------------------------------------
/s/ James M. Roolf /s/ Donald J. Swistowicz
- -------------------------------------- ----------------------------------------
Date: December 14, 1999 Date: December 14, 1999
--------------------------------- -----------------------------------
14
<PAGE>
[LOGO] First Midwest Bancorp, Inc.
NONQUALIFIED STOCK OPTION
GAIN DEFERRAL PLAN
* * * * *
SUMMARY DESCRIPTION
For Plan Years
Beginning On Or After
January 1, 2000
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THE DATE OF THIS SUMMARY DESCRIPTION IS DECEMBER 10, 1999.
<PAGE>
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED STOCK OPTION GAIN DEFERRAL PLAN
Summary Description
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction...................................................................... 1
Purpose of the Gain Deferral Plan................................................. 1
Eligibility for Participation..................................................... 1
Election to Participate........................................................... 1
Payment of the Option Exercise Price.............................................. 2
Investment of Deferred Gains...................................................... 2
Maintenance of Participant Account Balances....................................... 2
Distributions from the Gain Deferral Plan......................................... 2
Taxability of Deferred Gains and Distributions.................................... 3
Voting Rights..................................................................... 3
Risks of Participation............................................................ 4
Other Information................................................................. 4
Available Information............................................................. 5
Resale of Shares.................................................................. 5
Exhibit A Deferral Election Form.................................................. 6
Exhibit B Deferral Election Revocation Form....................................... 7
Exhibit C Notice of Intention to Exercise Form/Aggregate Exercise Price
Computational Worksheet/Computation of Tax Withholding.................. 8
Exhibit D Election Form of Benefit Distribution/Request for Changes in Form of
Benefit Distribution.................................................... 11
Exhibit E Designation of Beneficiary.............................................. 13
</TABLE>
<PAGE>
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED STOCK OPTION GAIN DEFERRAL PLAN
Summary Description
January 1, 2000
INTRODUCTION
- ------------
The purpose of this Summary Description is to provide general information about
the Nonqualified Stock Option Gain Deferral Plan (the "Gain Deferral Plan"). A
complete copy of the Gain Deferral Plan, as well as additional information about
First Midwest and the Common Stock issuable thereunder, is available upon
request.
The Gain Deferral Plan provides that the Compensation Committee (the
"Committee") of the Board of Directors of First Midwest Bancorp, Inc. ("First
Midwest" or the "Company") is responsible for the administration of the Gain
Deferral Plan. The Committee is authorized to interpret the Gain Deferral Plan,
to prescribe and modify its rules and procedures, and to make all other
determinations necessary in its administration.
PURPOSE OF THE GAIN DEFERRAL PLAN
- ---------------------------------
The purpose of the Gain Deferral Plan is to further stock ownership of certain
key executives and directors of First Midwest by facilitating deferral of gains
resulting from the exercise of First Midwest Nonqualified Stock Options
("options").
The Gain Deferral Plan permits the deferral of gains realized as a result of the
exercise of options granted pursuant to the First Midwest Bancorp, Inc. 1989
Omnibus Stock and Incentive Plan, as Amended (the "1989 Plan") and the Non-
Employee Directors' 1997 Stock Option Plan ("Directors' Plan"). In order to
defer receipt of gains resulting from such exercises, participants must make
appropriate elections and must exercise their options only through the exchange
of First Midwest Common Stock held for six months or more prior to the exercise
date. Deferred gains can only be invested in First Midwest Common Stock;
dividends earned on such Common Stock purchased with deferred gains can likewise
only be reinvested.
ELIGIBILITY FOR PARTICIPATION
- -----------------------------
The Gain Deferral Plan is structured as a "Nonqualified Plan" under applicable
IRS and Department of Labor ("DOL") guidelines. As such, eligibility for
participation by employees must be monitored closely to ensure that the Gain
Deferral Plan maintains compliance with these rules, regulations and limitations
and is not disqualified. Accordingly, eligibility for participation in the Gain
Deferral Plan will be determined by the Committee based upon the compensation
guidelines of the IRS and DOL.
Additionally, the ability to defer gains from option exercises is further
restricted to participants who own 500 or more shares of First Midwest Common
Stock in their own name, in joint tenancy with their spouse or in an
alternative ownership form whereby the participant has sole voting and
investment power (such as a Trust).
ELECTION TO PARTICIPATE
- -----------------------
In order to begin participation in the Gain Deferral Plan, a participant must
execute a Deferral Election Form. A participant may execute such form within 30
days following the participant's commencement date as determined by the
Committee. The deferral election will apply to all options exercised under the
1989 Plan and the Directors' Plan where First Midwest Common Stock is used as
the sole payment of the exercise price. If a participant does not execute a
form within 30 days following the effective date of his/her participation, the
deferral election will become effective only for options exercised in the
calendar year following, and at least six months after, the execution date of
the form. For example, if a participant (who did not execute a form in the 30
day period described above) executes a form on November 1, 1999, then May 1,
2000 is the first date on which gains can be deferred from the exercise of
options under the Gain Deferral Plan.
A participant may execute additional forms, or a Deferral Election Revocation
Form, with each subsequent form superseding all prior forms in accordance with
the timing provisions contained in the Gain Deferral Plan.
1
<PAGE>
If a participant executes a Deferral Election Form, it will apply to all option
exercises that utilize First Midwest Common Stock as consideration until
revoked. However, the participant may still exercise options using cash as
consideration (or in cashless exercises) to the maximum extent allowed by the
1989 Plan or the Directors' Plan.
The Deferral Election Form and the Deferral Election Revocation Form are
attached to this Summary Description as Exhibit A and B, respectively.
PAYMENT OF THE OPTION EXERCISE PRICE
- ------------------------------------
Under the Gain Deferral Plan, the option exercise price will be payable in full
to First Midwest solely by tendering shares of First Midwest Common Stock which
have been held for at least six months or more prior to the date of the option
exercise. Such shares must be registered only in the name of the participant,
in joint tenancy with the participant's spouse or in an alternative ownership
form wherein the participant maintains sole voting and investment power (such as
a Trust). Shares tendered will be considered as newly held for purposes of the
six month holding rule and may not be used for a subsequent option exercise for
at least six months.
The participant must use the Notice of Intention to Exercise Nonqualified Stock
Options With Gain Deferral, which is attached to this Summary Description as
Exhibit C.
INVESTMENT OF DEFERRED GAINS
- ----------------------------
Upon the exercise of options under the Gain Deferral Plan, the participant will
be required to pay, in cash, FICA and Medicare taxes at the time of exercise.
--------
However, participants who are Directors will not be required to make such
payment because no such taxes are due on Director compensation. No Federal or
State income tax withholding will be required at the time of exercise. After
such taxes are paid, First Midwest will deposit certificates of First Midwest
Common Stock representing the gain realized from the exercise in a Grantor Trust
(as further described below). Each participant's shares will be maintained in
an individual account. All dividends received on such shares will be reinvested
in additional shares of First Midwest Common Stock.
MAINTENANCE OF PARTICIPANT ACCOUNT BALANCES
- -------------------------------------------
Since the Gain Deferral Plan is not an ERISA-Qualified Plan, it does not carry
the same protections under ERISA as do such plans.
Nonetheless, in order to facilitate the administration of participant balances,
First Midwest has established a Grantor Trust through a third party trustee
(not First Midwest). Although the Gain Deferral Plan participants will continue
to be unsecured creditors of First Midwest under the Grantor Trust (as is
required by Internal Revenue Code rules to preserve the non taxability of funds
to the participants until distribution) the Trust provides a vehicle for the
direct distribution of participant balances by the Trustee when such amounts
become payable.
DISTRIBUTIONS FROM THE GAIN DEFERRAL PLAN
- -----------------------------------------
Distributions of account balances under the Gain Deferral Plan are payable upon
termination, disability, retirement or death (a "distribution event"). The
definition of disability for the Gain Deferral Plan will be the same as the
definition of disability in the Group Long Term Disability Plan.
All Plan account balances due to be distributed with a value of $25,000 or less
will be distributed on the first distribution date. Distributions with a value
in excess of $25,000 will be distributed in accordance with the participant's
election. The first distribution will be made in the first 30 days of the
calender quarter following the distribution event.
Due to certain accounting restrictions placed on the Gain Deferral Plan, all
distributions from the Gain Deferral Plan will be made in the form of First
Midwest's stock and will not be made in cash.
A participant will be asked to make a distribution election upon admittance to
the Gain Deferral Plan. Distributions are currently allowed in a lump-sum (in
the form of First Midwest Common Stock) or in annual or quarterly installments
(of First Midwest Common Stock) of up to 15 years. Additionally, a participant
can elect to defer the receipt of distributions from the Gain Deferral Plan
(whether such distributions are in a lump-sum or in installments)
2
<PAGE>
for up to 5 years. For example, a participant may elect to receive his/her
first annual or quarterly distribution under the Gain Deferral Plan for 3 years
from the date of retirement or termination. After the 3 year period has expired,
annual or quarterly distributions will begin within 30 days after the end of the
quarter that is three years from the date of the distribution event.
A distribution can be changed, but only for a distribution event which occurs
both during the calendar year following the year in which the election is
- ----
changed, and 6 months prior to the distribution event. For example, if a
---
participant originally elects a distribution of 5 annual installments and on
November 1, 1999 changes that election to 10 annual installments, the change in
distribution election to 10 years would only be applicable for distribution
events after May 1, 2000 (the calendar year following, and 6 months after, the
date on which the change was made). These waiting periods will not apply to a
change which is made prior to a change-in-control of First Midwest as defined in
the 1989 Plan, and which is applicable to a distribution event which occurs on
or after a change-in-control. However, this exception is subject to approval by
the Committee of First Midwest Bancorp, Inc. as further discussed in the Plan
Document.
If, for any reason, a participant does not elect a form of distribution, the
default option for distributions to that participant will be 5 annual
installments.
To provide maximum flexibility, the Gain Deferral Plan also permits certain
short-term payouts and a withdrawal election. The short-term payouts provide
participants with access to all or a portion of a specifically identified stock
-----------------------------
option gain deferral amount, plus dividends, payable to the participant in 3
- ---------------------------
years or more after the end of the gain deferral plan year in which the short-
term payout election is made. Short-term payouts are only made in lump-sums.
The withdrawal election feature permits a participant to withdraw his/her entire
account balance at any time (during employment with First Midwest or after
termination of employment), less a 10% withdrawal penalty and forfeiture of
participation in the Gain Deferral Plan for one full plan year (if still
employed or serving as a Director of First Midwest).
The Election of Form of Distribution Form and the Request for Change in Election
of Form of Distribution Form are attached to this Summary Description as Exhibit
D (2 pages).
TAXABILITY OF DEFERRED GAINS AND DISTRIBUTIONS
- ----------------------------------------------
Since director compensation is not subject to FICA and Medicare taxes, no FICA
or Medicare tax will be applied to deferred gain upon the exercise of Directors'
Plan options. Distributions to directors from the Gain Deferral Plan are taxed
as ordinary income in the year received as Form 1099 income based upon the
distribution election selected by the recipient. Furthermore, since Federal and
State income tax withholding does not apply to director compensation, no such
withholding tax will be deducted by First Midwest. Directors' should consult
their tax advisors for guidance regarding estimated income tax payments that may
be advisable after receiving gain deferral plan distributions.
FICA tax will be applied to deferred gains upon the exercise of 1989 Plan stock
options by employees up to the maximum FICA limit for each year. Once a
participant reaches the maximum FICA limit for the year (based upon total
compensation for that year, not just deferred gains) no further FICA taxes will
be due. Medicare tax will be applied to all deferred gains at the time of
exercise on an unlimited basis as required by law. No Federal or State income
tax withholding will be assessed to the gain at the time of exercise. Due to
IRS restrictions, FICA and Medicare taxes must be paid in cash.
Distributions from the Gain Deferral Plan are taxed to non-Director participants
in the year received as W-2 income based upon the distribution election selected
by the participant. At the time of distribution, all such amounts will be
subject to Federal and State income tax withholding, but not to FICA or Medicare
tax.
All distributions from the Gain Deferral Plan are taxed as ordinary income equal
to the value of the stock at the time it is distributed. Such value will be the
recipient's tax basis in the stock for purposes of computing taxable gain or
loss when the stock is subsequently sold.
VOTING RIGHTS
- -------------
Each participant in the Gain Deferral Plan will have the right to instruct the
Trustee of the Grantor Trust as to the manner in which all shares of Common
Stock allocated to such participant's account shall be voted on each matter
brought before an annual or special stockholders' meeting. The Trustee shall
have no discretion in determining the manner of voting such shares.
Additionally, in the event of a tender offer, each participant shall have the
right to direct the Trustee to tender or not to tender shares of Common Stock
allocated to such participant's account.
3
<PAGE>
RISKS OF PARTICIPATION
- ----------------------
Participants should be aware that certain risks are associated with
participation in the Gain Deferral Plan. Some of these risks are greater than
the risks associated with participation in an other First Midwest benefit and
retirement plans.
Because the Gain Deferral Plan is a Nonqualified Plan, the participant will be
an unsecured creditor of First Midwest with respect to all amounts comprising
such participant's account balance. As an unsecured general creditor, the
participant's benefits are at risk in the unlikely event that First Midwest
becomes insolvent or is declared bankrupt.
Although the participants may realize substantial current tax benefits from the
deferral of gains from the exercise of options, the ultimate distribution of
such gains will represent ordinary income and may be taxed at rates higher than
long-term capital gain rates. The participant should consider, when deciding
to participate in the Gain Deferral Plan, whether to exercise options on a
taxable basis and hold the underlying Common Stock to take advantage of long-
term capital gain tax rates.
The Gain Deferral Plan may only hold First Midwest Common Stock as an investment
under current accounting rules. Accordingly, each participant should consider
whether the investment represented by his/her account balance in the Gain
Deferral Plan, together with such participant's other investments in First
Midwest Common Stock, represents an appropriate allocation of the participant's
total assets.
OTHER INFORMATION
- -----------------
1. Unsecured General Creditor - Each participant is an unsecured creditor of
--------------------------
First Midwest with respect to such participant's account balances. The
unsecured status is necessary to protect the account balances from being
taxed currently.
2. Plan Documents Governs the Gain Deferral Plan - This Summary Description
---------------------------------------------
has been prepared to provide a better understanding of the benefits and
features of the Gain Deferral Plan. The participant's benefits and rights
under the Gain Deferral Plan are at all times governed by the text of the
First Midwest Bancorp, Inc. Nonqualified Stock Option Gain Deferral Plan
document. Such document is in no way altered or modified by the contents
of this Summary Description.
3. Amendment or Termination of the Gain Deferral Plan; Effect of Change-in-
-----------------------------------------------------------------------
Control - First Midwest reserves the right to amend or terminate the Gain
-------
Deferral Plan, in whole or in part, at any time its sole discretion. No
amendment or termination of the Gain Deferral Plan can eliminate benefits
accrued to the date of such amendment or termination. Following a change-
in-control, amendments or termination which would adversely affect the
amount of, or entitlement to, benefits of a participant or beneficiary may
not be made unless the participant or beneficiary consents in writing.
4. Not an Employment Contract - The Gain Deferral Plan does not constitute a
--------------------------
contract of employment between the participants and First Midwest.
5. Plan Administration - Discretion with respect to the determination of
-------------------
benefits under the Gain Deferral Plan will be reserved to the Committee.
Day to day administration will be delegated to the First Midwest Retirement
and Benefit Plan Administration Committee.
6. Consult Your Financial and Tax Advisor - Although the Gain Deferral Plan is
--------------------------------------
intended to enable participants to obtain the benefits of a tax deferred
account and earnings credited thereto, no assurance can be given as to the
actual after-tax benefit that may be achieved. Accordingly, each
participant should consult a personal tax and financial advisor for
detailed information and guidance regarding participation in the Gain
Deferral Plan.
4
<PAGE>
AVAILABLE INFORMATION
- ---------------------
The Company has filed a Registration Statement with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Act of 1933 (the "Securities
Act") with respect to the shares of Common Stock which may be issued under the
1989 Plan and Directors' Plan and deferred under the Gain Deferral Plan.
Pursuant to the rules of the SEC, this Summary Description does not contain all
of the information set forth in the Registration Statement and exhibits thereto,
to which reference is made.
The Company will provide, without charge, to each person to whom this Summary
Description is delivered, upon written or oral request of such person, a copy of
any and all of the following documents which have been incorporated by reference
into the Registration Statement.
. The Company's latest Annual Report on Form 10-K filed with the SEC.
. All quarterly and other reports filed by the Company with the SEC
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act").
. The description of the Company's Company Stock and its Preferred Share
Purchase Rights contained in applicable registration statements and
other reports filed by the Company with the SEC under Section 12 of
the Exchange Act.
In addition, a copy of First Midwest's most recent Annual Report to Shareholders
accompanies this Summary Description or has been furnished previously. The
Company will provide to each employee who has received this Summary Description
copies of all reports, proxy statements and other communications distributed by
the Company to its stockholders generally. In the event a recipient of this
Summary Description misplaces any such documents, another will be furnished,
without charge, upon written request.
Requests for copies of any of the documents referred to above, or any questions
regarding the Gain Deferral Plan or its administration, should be directed to
the office of the Corporate Controller, First Midwest Bancorp, Inc. 300 Park
Blvd., Suite 405, Itasca, IL 60143 (telephone (630) 875-7459).
RESALE OF SHARES
- ----------------
None of the 1989 Plan, the Directors' Plan or the Gain Deferral Plan (the
"Plans") apply any specific restrictions on the resale of shares of Common Stock
issued to recipients under the Gain Deferral Plan. However, the Securities Act
and Exchange Act may impose certain limitations on such resale.
Under the Securities Act, all directors and certain policy-making executive
officers of the Company and certain of its subsidiaries may be deemed to be
"affiliates" of the Company for purposes of the Securities Act. Because such
affiliates are so closely identified with the Company, sales of Common Stock by
such persons may be deemed to be sales of Common Stock by the Company. Rule 144,
promulgated under the Securities Act, sets forth a "safe harbor" procedures for
affiliates to sell shares yet not have the sale be deemed a distribution of
Common Stock on behalf of the Company. Rule 144 restricts the number of shares
of Common Stock which may be sold by an affiliate during any 90-day period,
designates a manner of sale and requires the filing of a notice of proposed sale
with the SEC. Executive officers of the Company who are considered "affiliates"
of the Company for purposes of the Securities Act include the Chairman,
President and any Executive Vice President of the Company. Any affiliates of the
Company should consult with a qualified legal advisor regarding his or her own
situation before making any resales of Common Stock issued pursuant to the Plan.
Section 16(b) of the Exchange Act provides that, in certain circumstances, the
profit realized by an affiliate of the Company on the purchase and sale, or sale
and purchase, of Common Stock within a six-month time frame, is recoverable by
the Company from the affiliate if it is a prohibited "short-swing profit".
Accordingly, employees of the Company or its subsidiaries who are considered
affiliates (as described in the preceding paragraph) should review the
implications of the "short-swing profit" prohibitions prior to exercising any
options or prior to disposing of any shares of Common Stock purchased or
otherwise received under the Plans. General information about the applicability
of Section 16(b) and the rules promulgated thereunder to the options granted
under the 1989 Plan and Directors' Plan is included in the applicable Appendix
or Summary Description describing such awards.
5
<PAGE>
Exhibit A
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED STOCK OPTION GAIN DEFERRAL PLAN
DEFERRAL ELECTION FORM
----------------------
To: Office of the Corporate Controller of First Midwest Bancorp, Inc:
This Deferral Election Form sets forth my election to defer, as specified below,
the Profit Shares (defined below) receivable upon stock Option exercises using
the stock-for-stock method of payment under the First Midwest Bancorp, Inc.
Nonqualified Stock Option Gain Deferral Plan (the "Gain Deferral Plan"), subject
to the terms, definition of terms, and conditions of the Gain Deferral Plan
which are incorporated herein by reference.
I understand that, in order to be effective with respect to the exercise of any
Option, this Deferral Election Form must be executed in a calendar year
preceding, and at least six months prior to, the exercise of such Options,
except that if this Deferral Election Form is executed within 30 days following
the inception of the Gain Deferral Plan or, if later, the date I was first
designated as eligible to participate in the Gain Deferral Plan, then this
Deferral Election Form will be effective for all Options exercised after the
date on which this Deferral Election Form is executed. Furthermore, I understand
that this Form supersedes, as of its earliest effective date under the preceding
sentence, the Deferral Election Form that I have previously executed, if any.
I understand that this Deferral Election Form shall be effective for all
subsequent calendar years, until the earlier of: (i) the first day of the
calendar year following the year in which I execute a Deferral Election
Revocation Form; or (ii) the date any subsequently executed Deferral Election
Form becomes effective.
The Profit Shares, as made eligible for deferral under the terms of the Gain
Deferral Plan, and effectively deferred under this Deferral Election Form, shall
be the number of shares equal in value to the excess of (1) the Fair Market
Value of the shares of Stock purchased on Option exercise, over (2) the exercise
price of the shares of Stock purchased, divided by the Fair Market Value of one
share of Stock. For the purposes of this election, Fair Market Value shall be
determined as the average of the high and low market prices of First Midwest
Bancorp, Inc. common stock as quoted on the NASDAQ National Market System on the
date of Option exercise or on the following date, if no shares are traded on the
exercise date.
Therefore, based on the foregoing, I elect to defer, for all Options exercised
consistent with the timing rules and Option price tender methods described
above, the Profit Shares.
__________________________________
Participant's Name (Print)
__________________________________ __________________________
Participant's Signature Date
6
<PAGE>
EXHIBIT B
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED STOCK OPTION GAIN DEFERRAL PLAN
DEFERRAL ELECTION REVOCATION FORM
---------------------------------
To: Office of the Corporate Controller of First Midwest Bancorp, Inc:
This Deferral Election Revocation Form sets forth my revocation to defer, as
specified in my previously executed Deferral Election Form, the Profit Shares
receivable upon stock Option exercises under the First Midwest Bancorp, Inc.
Nonqualified Stock Option Gain Deferral Plan (the "Gain Deferral Plan"), subject
to the terms, definitions of terms, and conditions of the Gain Deferral Plan
which are incorporated herein by reference.
I understand that this Deferral Election Revocation Form shall be effective for
all subsequent calendar years, until the calendar year following the year in
which I execute a subsequent Deferral Election Form.
Furthermore, I understand that in order to be effective with respect to the
exercise of any Option, this Deferral Election Revocation Form must be executed
in a calendar year preceding the exercise of any such Options.
Therefore, based on the foregoing, I elect to revoke my prior election to defer
the profit Shares applicable to Options exercised pursuant to the Gain Deferral
Plan.
__________________________________
Participant's Name (Print)
__________________________________ ___________________________
Participant's Signature Date
7
<PAGE>
EXHIBIT C (Page 1 of 3)
FIRST MIDWEST BANCORP, INC.
1989 OMNIBUS STOCK AND INCENTIVE PLAN, AS AMENDED
NOTICE OF INTENTION TO EXERCISE
NONQUALIFIED STOCK OPTIONS
WITH GAIN DEFERRAL
(Important Note: If exercising nonqualified stock options granted under
different grant dates with different grant prices, please use a separate Notice
of Intention to Exercise Form for each such grant.)
PART ONE
- --------
To: Office of the Corporate Controller of First Midwest Bancorp, Inc:
In accordance with the First Midwest Bancorp, Inc. 1989 Omnibus Stock and
Incentive Plan, as Amended (the "1989 Plan"), the Non-Employee Directors' 1997
Stock Option Plan (the "Directors' Plan"), and the First Midwest Bancorp, Inc.
Nonqualified Stock Option Gain Deferral Plan (the "Gain Deferral Plan"), subject
to the terms, definition of terms, and conditions of the 1989 Plan, the
Directors' Plan and the Gain Deferral Plan which are incorporated herein by
reference, I elect to exercise my nonqualified stock options granted on the
_____ day of ______________, _______, and to purchase ______________ shares of
First Midwest Bancorp, Inc. $.01 par value common stock ("Stock") at the
exercise price of $________ per share.
In satisfaction of the option price (check one of the two following lines):
_______ enclosed are
_______ I hereby affirm ownership of
______ shares of previously acquired Stock. I hereby attest that the shares of
stock hereby tendered (or tendered through my affirmation of ownership) in
satisfaction of the Option price have been owned by me for a period of at least
six months prior to the date on which I executed this Notice. Furthermore, I
will provide evidence of such ownership as may be requested.
Additionally, I understand that, for 1989 Plan stock option exercises, the
excess of the fair market value of the shares acquired in this exercise, over
the exercise price of the shares of Stock purchased, is subject to current
Social Security taxation for this tax year. I further understand that once the
Fair Market Value of the shares acquired is established, I will be required to
remit this taxable amount to First Midwest Bancorp, Inc. prior to the shares
being issued. To satisfy such withholding, the taxes will be paid in accordance
with Part Three of this Form.
The specific amount conforming to the exercise election above is detailed on
Part Two of this Form, attached hereto and incorporated by reference.
- --------
The computation of tax withholding for 1989 Plan stock option exercises is
detailed on Part Three of this Form, attached hereto and incorporated by
----------
reference.
__________________________________
Participant's Signature
__________________________________ ____________________________
Participant's Signature Date
8
<PAGE>
EXHIBIT C (Page 2 of 3)
PART TWO
--------
FIRST MIDWEST BANCORP, INC.
AGGREGATE EXERCISE PRICE COMPUTATIONAL WORKSHEET
FIRST MIDWEST BANCORP, INC.
1989 OMNIBUS STOCK AND INCENTIVE PLAN, AS AMENDED
<TABLE>
<CAPTION>
<S> <C>
1. Participant's Name: _____________________________
2. Date of Grant: __________________________________
3. Exercise Price Per Share: $__________
4. Effective Date of Notice to Exercise:____________
5. Expiration Date of Option: ______________________
6. Number of Shares Acquired in this Exercise: ___________
7. Aggregate Exercise Price (#3 multiplied by #5) $__________
8. Satisfaction of Aggregate Exercise Price:
Surrender (or affirmation of ownership) of _____
previously acquired shares that have been held
by me for at least 6 months prior to the date
of this Form with a Fair Market
Value of $_____ per share: $__________
TOTAL $__________
</TABLE>
9
<PAGE>
Exhibit C (Page 3 of 3)
COMPUTATION OF TAX WITHHOLDING
FIRST MIDWEST BANCORP, INC.
1989 OMNIBUS STOCK AND INCENTIVE PLAN, AS AMENDED
PART THREE
Upon receipt of the Notice to Exercise, First Midwest Bancorp, Inc. will
calculate the appropriate taxes and forward such calculations to the participant
for payment.
<TABLE>
<CAPTION>
<S> <C>
1. Participant's Name: ____________________________
2. Date of Grant: ____________________________
3. Effective Date of Notice to Exercise: _______________________
4. Fair Market Value of First Midwest Bancorp, Inc.
Common Stock on Effective Date of Notice to Exercise: $__________
5. Exercise Price Per Share: $__________
6. Appreciation per Share (4 minus 5) $__________
7. Shares acquired in Exercise: ___________
8. Taxable appreciation (6 multiplied by 7) $__________
9. Social Security Withholding (OSDI)
a. Applicable Social Security Wage Base $__________
b. Year to date salary subject to OSDI $__________
c. Maximum amount of taxable appreciation subject
to OSDI (11a. minus 11b.) $__________
d. The lessor of the maximum amount of taxable
appreciation subject to OSDI (11c.) or the
taxable appreciation (8) $__________
e. Social Security OSDI Tax Rate ___________
f. OSDI Tax (11d. multiplied by 11e.) $__________
10. Social Security (Medicare)
a. Taxable appreciation (8) $__________
b. Medicare Tax Rate ___________
c. Medicare tax (12a. multiplied by 12b.) $__________
Total Tax Withholding (9 f plus 10 c) $
===========
</TABLE>
================================================================================
Satisfaction of Tax Withholding
(1) By Check or via wire transfer $__________
________________________________________ ______________________________
Participant's Signature Date
10
<PAGE>
EXHIBIT D (Page 1 of 2)
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED STOCK OPTION GAIN DEFERRAL PLAN
ELECTION OF FORM OF BENEFIT DISTRIBUTION
----------------------------------------
To: Office of the Corporate Controller of First Midwest Bancorp, Inc:
I understand that I have executed one or more Deferral Election Form(s) pursuant
to the First Midwest Bancorp, Inc. Nonqualified Stock Option Gain Deferral Plan
(the "Gain Deferral Plan"). Furthermore, I understand that the deferrals which
accumulate as a result of execution of the Deferral Election Form(s) will be
maintained in one or more accounts established for me pursuant to the Gain
Deferral Plan. I further understand that the balance in my account(s) will be
paid out to me in accordance with the Gain Deferral Plan.
In accordance with the Gain Deferral Plan, I hereby make the following request
with regard to the form of benefit payments to which I become entitled and which
will be paid pursuant to the dates, terms, and conditions as set forth in the
Gain Deferral Plan:
(Check One)
_____________ ______ annual installments
(Fill in the # of whole years up to a maximum of 15)
_____________ ______ quarterly installments
(Fill in the # of quarters up to a maximum of 60)
_____________ ______ Lump sum payment
(NOTE: If no selection is made, your Account will be paid out in five annual
installments).
In accordance with the Gain Deferral Plan, I hereby make the following election
with regard to deferring the benefit payments to which I become entitled and
which will be paid pursuant to the distribution to the benefit distribution
election made above:
. I elect to have my Gain Deferral Plan benefit distribution payments,
whether in annual or quarterly installments or in a lump sum, deferred for
a period of _________ years. (Fill in zero or the # of whole years up to a
maximum of 5).
* * * * *
I understand that I may elect to change the form of my benefit payments by
executing a timely Request for Change in the Form of Benefit Distribution Form.
The approval of such change in election shall be at the sole discretion of the
Compensation Committee and, except in the circumstance of a change-in-control
and subject to the approval of this exception by the Compensation Committee,
will be effective only for distribution events occurring in the calendar year
following the year in which the change is made and six months or more after the
---
date of the change.
____________________________________
Participant's Name (Print)
____________________________________ -------------------------
Participant's Signature Date
11
<PAGE>
EXHIBIT D (Page 2 of 2)
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED STOCK OPTION GAIN DEFERRAL PLAN
REQUEST FOR CHANGE IN THE FORM OF BENEFIT DISTRIBUTION
------------------------------------------------------
To: Office of the Corporate Controller of First Midwest Bancorp, Inc:
Pursuant to the First Midwest Bancorp, Inc. Nonqualified Stock Option Gain
Deferral Plan (the "Gain Deferral Plan"), I have previously executed a valid
Election of Form of Benefit Distribution form. Now, as further provided in the
Gain Deferral Plan, I request that the form of benefit payments, as designated
in my current Election of Form of Benefit Distribution form, be amended as
indicated below:
CURRENT FORM OF BENEFIT:
(Check One)
_____________ ________ annual installments
(Fill in the # of whole years up to a
maximum of 15)
_____________ ________ quarterly installments
(Fill in the # of quarters up to a
maximum of 60)
_____________ ________ Lump sum payment
. I elect to have my Gain Deferral Plan benefit distribution payments,
whether in annual or quarterly installments or in a lump sum, deferred for
a period of _________ years. (Fill in zero or the # of whole years up to a
maximum of 5).
REQUESTED CHANGE IN FORM OF BENEFIT:
(Check One)
_____________ ________ annual installments
(Fill in the # of whole years up to a
maximum of 15)
_____________ ________ quarterly installments
(Fill in the # of quarters up to a
maximum of 60)
_____________ ________ Lump sum payment
. I elect to have my Gain Defferal Plan benefit distribution payments,
whether in annual or quarterly installments or in a lump sum, deferred for
a period of _________ years. (Fill in zero or the # of whole years up to a
maximum of 5).
* * * * *
I understand that the Compensation Committee, in its sole discretion will
determine whether to honor this request and, except in the circumstance of a
change-in-control and subject to the approval of this exception by the
Compensation Committee, will be effective only for distribution events occurring
in the calendar year following the year in which the change is made and six
---
months or more after the date of the change.
____________________________________
Participant's Name (Print)
____________________________________ _______________________
Participant's Signature Date
12
<PAGE>
Exhibit E
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED
STOCK OPTION GAIN DEFERRAL PLAN ("GAIN DEFERRAL PLAN")
DESIGNATION OF BENEFICIARY
--------------------------
To: Office of the Compensation Committee of the Board of Directors
The following beneficiary(ies) is (are) designated to receive the benefits under
the Gain Deferral Plan which are payable upon my death. This designation
supersedes any prior designations and shall remain effective until I execute a
subsequent beneficiary designation, made in writing and signed by me.
Beneficiary Relationship to Participant
- ----------- ---------------------------
Primary: _____________________ ________________________________________
Address: _____________________ ________________________________________
Contingent: _____________________ ________________________________________
Address: _____________________ ________________________________________
If no beneficiary survives me, my benefits shall be paid in accordance with the
terms of the above Gain Deferral Plan.
Date:_______________ Participant Signature:____________________
Print Participant's Name:_____________________
13
<PAGE>
First Midwest Bancorp, Inc. Exhibit 10.3
Deferred Compensation Plan
For Nonemployee Directors
Master Plan Document
================================================================================
Amended and Restated
to Reflect Amendments
Effective January 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 1. Establishment and Purpose.................................... 4
1.1 Establishment...................................... 4
1.2 Purpose............................................ 4
1.3 Coordination with Nonqualified Retirement Plan..... 4
Section 2. Definitions.................................................. 4
2.1 Definitions........................................ 4
2.2 Gender and Number.................................. 5
Section 3. Eligibility and Participation................................ 5
3.1 Eligibility........................................ 5
3.2 Participation...................................... 5
Section 4. Election to Defer............................................ 5
4.1 Deferral Election.................................. 5
4.2 Deferral Period.................................... 5
4.3 Manner of Payment Election......................... 5
4.4 Deferral Payment................................... 6
4.5 Payment Upon Death................................. 6
4.6 Growth Additions................................... 6
4.7 Selection of Beneficiary........................... 6
Section 5. Deferred Accounts............................................ 6
5.1 Participant Accounts............................... 6
5.2 Growth Additions................................... 6
5.3 Charges Against Accounts........................... 6
5.4 Contractual Obligation............................. 7
5.5 Unsecured Interest................................. 7
Section 6. Short-Term Payout; Financial Emergency; Withdrawal Election.. 7
6.1 Short-Term Payout.................................. 7
6.2 Withdrawal Payout/Suspension for Unforeseeable
Financial Emergencies.............................. 7
6.3 Withdrawal Election................................ 7
Section 7. Forfeiture................................................... 7
7.1 Forfeiture......................................... 7
Section 8. Beneficiary Designation...................................... 7
8.1 Beneficiary Designation............................ 7
8.2. Change of Beneficiary.............................. 8
2
<PAGE>
Section 9. Nontransferability........................................... 8
9.1 Nontransferability................................. 8
Section 10. Administration............................................... 8
10.1 Administration..................................... 8
10.2 Finality of Determination.......................... 8
10.3 Expenses........................................... 8
Section 11. Amendment and Termination.................................... 8
11.1 Amendment and Termination.......................... 8
Section 12. Trust........................................................ 9
12.1 Nonqualified Retirement Trust...................... 9
Section 13. Successors................................................... 9
13.1 Successors and Assignees........................... 9
</TABLE>
3
<PAGE>
FIRST MIDWEST BANCORP, INC.
DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
----------------------------------------------------
(As Restated)
Section 1. Establishment and Purpose
-------------------------
1.1 Establishment. First Midwest Bancorp, Inc., a Delaware
-------------
Corporation, hereby restates its "FIRST MIDWEST BANCORP, INC. DEFERRED
COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS" (hereinafter called the "Plan").
1.2 Purpose. The purpose of this Plan is to provide a means
-------
whereby a nonemployee member of the Board of Directors of the Company may defer,
to some future period, all or one-half of the fees payable to the Director for
services as a Director. The Plan is intended as a means of maximizing the
effectiveness and flexibility of the Company's compensation arrangements for
Directors and an aid in attracting and retaining individual of outstanding
abilities for service as Directors.
1.3 Coordination with Nonqualified Retirement Plan. It is
----------------------------------------------
intended that except to the extent provided otherwise herein, the provisions of
this Plan relating to the time and manner of making elections, crediting and
debiting accounts, and the payment thereof shall coordinate with and be governed
by the applicable provisions of the Company's Nonqualified Retirement Plan (the
"Nonqualified Retirement Plan"), as amended from time to time. Such provisions
of the Nonqualified Retirement Plan shall be applicable to this Plan as if set
forth in this Plan in full.
Section 2. Definitions
-----------
2.1 Definitions. Whenever used hereinafter, the following terms
-----------
shall have the meaning set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means any Committee of the Board of Directors of
the Company.
(c) "Company means First Midwest Bancorp, Inc., a Delaware
Corporation.
(d) "Director" means a nonemployee member of the Board of
Directors of First Midwest Bancorp, Inc.
(e) "Director Fees" means any Board or Committee retainer and
attendance fees earned while a nonemployee Director.
(f) "Year" means the fiscal year of the Company ending December
31.
4
<PAGE>
2.2 Gender and Number. Except when otherwise indicated by the
-----------------
context, any masculine terminology, when used in the Plan, shall also
include the feminine gender, and the definition of any term herein in
the singular shall also include the plural.
Section 3. Eligibility and Participation
-----------------------------
3.1 Eligibility. Any Director who is not an employee of the
-----------
Company or one of its subsidiaries on the date the fees to be deferred
are earned.
3.2 Participation. An eligible Director may become a
-------------
Participant in the Plan by making an election pursuant to Subsection
4.1 hereof. In the event a Participant no longer meets the
requirements for participation in this Plan, he shall become an
inactive Participant, retaining all the rights described under this
Plan, except the right to make any further deferrals, until the time
that he again becomes an active Participant.
Section 4. Election to Defer.
-----------------
4.1 Deferral Election. Each eligible Director may elect, by
-----------------
written notice of an Election Form, to defer payment of all or one-
half of the Director Fees payable to the Director during the Year
following the date of the election for future services as a Director;
provided, however, that an Eligible Director may, within 30 days of
the date he becomes an Eligible Director, make an election which
relates to Director Fees otherwise payable to him during the Year when
made, provided such Director fees relate to future services. Such
election will be filed with the Secretary of the Company or such other
person designated by the Company and continue in force with respect to
subsequent Years, until timely terminated or modified by the Director
in writing with respect to Director Fees that relate to services to be
performed and are payable in the future. no modification shall affect
prior deferrals.
4.2 Deferral Period. The Participant shall select the deferral
---------------
period and the payment period to begin subsequent to one of the
following dates:
(a) The date a Director ceases to be a Director, or
(b) The date specified by the Director.
If timely elected by the Director, pursuant to Section 4.1 above,
such payment commencement date may be delayed for up to five (5) years
from the applicable date described in (a) or (b) above.
4.3 Manner of Payment Election. If a Participant defers any
--------------------------
amounts pursuant to Section 4.1, the Participant, by written notice to
the Secretary of the Company, also shall elect the manner in which the
deferred amount will be paid. The Participant shall choose to have
payment made either in a lump sum or in a specified number of
approximately equal annual or quarterly installments over a period not
to exceed fifteen years. The Participant may make and may revoke in
writing his election with respect to the manner of payment (but not
the commencement thereof) at any time not later than the earlier of
December 31 or the date which is six months prior to the date such
payment is to commence; provided, however, that an election in effect
upon the expiration for
5
<PAGE>
such election period shall be irrevocable. Notwithstanding the
foregoing, if the deferred amounts and growth additions credited to
the Director at the time payments are to commence is less than
$25,000, then the entire amount shall be paid in a single lump sum.
4.4 Deferral Payment The first installment (or the single
----------------
payment if the Director has so elected) shall be paid on the first day
of each calendar quarter or year, as the case may be, following the
commencement date applicable under Section 4.1 above, until the entire
amount credited to the Director's account shall have been paid.
4.5 Payment Upon Death. Notwithstanding the election made in
------------------
Section 4.1, if a Director should die before any or full payment of
all amounts, the balance in his deferred account, together with growth
additions computed to date of payout, shall be paid to the Director's
estate or to a beneficiary or beneficiaries designated in writing by
the Director. The amount payable shall be paid in a lump sum or
quarterly or annual installments as elected by the Director.
Notwithstanding the foregoing, if the deferred amounts and growth
additions credited to the Director at the time payments are to
commence is less than $25,000, then the entire amount shall be paid in
a single lump sum.
4.6 Growth Additions. A growth increment shall be applied to
----------------
deferred amounts in accordance with the provisions stated in Section
5.2 hereof.
4.7 Selection of Beneficiary. At the time of deferral, the
------------------------
Participant shall designate a beneficiary or beneficiaries in
accordance with the provisions stated in Section 8.1.
Section 5. Deferred Accounts
-----------------
5.1 Participant Accounts. The Company shall establish and
--------------------
maintain a bookkeeping account for each deferral made by a
Participant. This account shall be credited as of the date of the
deferral with the amount deferred.
5.2 Growth Additions. The Company shall provide the opportunity
----------------
for growth additions to be earned on any deferred amounts in a
Participant's account, including remaining balances in an account
during payout. The amount and timing of the crediting of growth
additions shall be made in the same manner as is done under the
Crediting/Debiting of Account Balances and Measurement Funds
provisions of Nonqualified Retirement Plan.
5.3 Charges Against Accounts. There shall be charged against
------------------------
each Participant's account any payments made to the Participant or to
his beneficiary in accordance with Sections 4.4, 4.5, and 6.1 hereof.
5.4 Contractual Obligation. It is intended that the Company is
----------------------
under a contractual obligation to make payments from a Participant's
account when due. However, this Plan shall not be funded in any
respect. Payment of account balances shall be made out of the general
funds of the Company as determined by the Human Resource Committee.
5.5 Unsecured Interest. No Participant or beneficiary shall
------------------
have any interest whatsoever in any specific asset of the Company. To
the extent that any person acquires a right to receive
6
<PAGE>
payments under this Plan, such right shall be no greater than the
right of any unsecured general creditor of the Company.
Section 6. Short-Term Payout; Financial Emergency; Withdrawal Election
-----------------------------------------------------------
6.1 Short-Term Payout. In connection with an election to defer
-----------------
with respect to a Year, a Director may irrevocably elect to receive a
future Short-Term Payout with respect to such amount. The election and
payment of such Short-Term Payout amount shall be made in the same
manner applicable to Short Term Payouts under the Nonqualified
Retirement Plan.
6.2 Withdrawal Payout/Suspension for Unforeseeable Financial
--------------------------------------------------------
Emergencies. If a Director experiences an Unforeseeable Financial
-----------
Emergency, the Director may petition the Board to suspend any deferral
election then in place and/or receive a full or partial payout from
the Plan. The determination of whether the Director has experienced an
Unforeseeable Financial Emergency and the actions taken with respect
thereto shall be made by the Board in the same manner as applicable to
Unforeseeable Financial Emergencies under the Nonqualified Retirement
Plan.
6.3 Withdrawal Election. A Director (or, after a Director's
-------------------
death, his or her beneficiary) may elect, at any time, to withdraw all
of his or her amounts credited under the Plan, calculated as if the
date for commencement of payments had occurred as of the day of the
election, less a withdrawal penalty equal to 10% of such amount. The
timing and manner of any such election and payment of such withdrawal
shall be made in the same manner as applicable to similar withdrawals
under the Nonqualified Retirement Plan.
Section 7. Forfeiture.
----------
7.1 Forfeiture. Amounts deferred or payable under this Plan are
----------
not forfeitable under any circumstances.
Section 8. Beneficiary Designation
-----------------------
8.1 Beneficiary Designation. A Participant shall designate a
-----------------------
beneficiary or beneficiaries who, upon his death, are to receive the
distributions that otherwise would have been paid to him. All
designations shall be in writing and shall be effective only if and
then delivered to the Secretary of the Company during the lifetime of
the Participant. If a Participant designates a beneficiary without
providing in the designation that the beneficiary must be living at
the time of such distribution, the designation shall vest in the
beneficiary all of the distributions whether payable before or after
the beneficiary's death, and any distributions remaining upon the
beneficiary's death shall be made to the beneficiary's estate.
8.2. Change of Beneficiary. A Participant may, from time to time
---------------------
during his lifetime, change his beneficiary or beneficiaries by a
written instrument delivered to the Secretary of the Company. In the
event a Participant shall not designate a beneficiary or beneficiaries
as aforesaid, or if for any reason such designation shall be
ineffective, in whole or in part, the distribution that otherwise
would have been paid to such Participant shall be paid to his estate
and, in such event, the term "beneficiary" shall include his estate.
7
<PAGE>
Section 9. Nontransferability
------------------
9.1 Nontransferability. The Director shall have no right to
------------------
sell, gift, transfer, assign, or hypothecate the right to receive such
payments in any manner whatsoever.
Section 10. Administration
--------------
10.1 Administration. This Plan shall be administered by the
--------------
Board. The Board may, from time to time, establish rules for the
administration of this Plan and may broadly delegate administrative
responsibility hereunder to officers of the Company.
10.2 Finality of Determination. The determination of the Board
-------------------------
as to any disputed questions arising under this Plan, including
questions or construction and interpretation, shall be final, binding,
and conclusive upon all persons.
10.3 Expenses. The expenses of administering the Plan shall be
--------
borne by the Company.
Section 11. Amendment and Termination.
-------------------------
11.1 Amendment and Termination. The Company expects to continue
-------------------------
the Plan indefinitely, but since future conditions affecting the
Company cannot be anticipated or foreseen, the Company must
necessarily and does hereby reserve the right to amend, modify, or
terminate the Plan at any time by action of its Board of Directors,
including, but not limited to, by amendment of those provisions of the
Nonqualified Retirement Plan which are applicable hereto as if set
forth herein in their entirety. Notwithstanding the foregoing, the
provisions, restrictions and limitations applicable to the Company's
ability to amend, modify or terminate the Nonqualified Retirement Plan
as set forth in the Nonqualified Retirement Plan shall apply to this
Plan.
8
<PAGE>
Section 12. Trust
-----
12.1 Nonqualified Retirement Trust The Company had established a
-----------------------------
grantor trust (the "Trust") in connection with the Nonqualified
Retirement Plan for the purpose of assisting the Company in the
administration and payment of amounts under the Nonqualified
Retirement Plan and this Plan. The Company shall at least annually
transfer over to the Nonqualified Retirement Trust such assets as the
Company determines, in its sole discretion, are necessary to provide,
on a present value basis, for its future liabilities created with
respect to this Plan. The provisions of this Plan shall govern the
right of a Director (or, after the Director's death, his or her
beneficiaries) to receive distributions pursuant to the Plan. The
provisions of the Trust shall govern the rights of the Company,
directors, beneficiaries and creditors of the Company to the assets
transferred to the Trust. The Company shall at all times remain liable
to carry out its obligations under the Plan.
Section 13. Successors
----------
13.1 Successors and Assignees. The provisions of this Plan shall
------------------------
be binding upon and inure to the benefit of the Company and its
successors and its assigns and the director and the director's
beneficiaries. The Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all of the business assets of the
Company, expressly and unconditionally to assume and agree to perform
the obligations of the Company under this Plan, in the same manner and
to the same extends that the Company would be required to perform if
no such successor or assignee had taken place. In addition, the
Company shall require the ultimate parent entity or any successor or
assignee corporations or entities to expressly guaranty the prompt
performance by such successor or assignee.
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this restated Plan to be
executed by its duly authorized officer as of the 1/st/ day of January, 2000.
ATTEST/WITNESS: FIRST MIDWEST BANCORP, INC.
James M. Roolf _____________ By: Donald J. Swistowicz_______________________
Corporate Secretary_________ Executive V.P., Chief Financial Officer____
/s/ James M. Roolf__________ /s/ Donald J. Swistowicz___________________
Date: December 14, 1999 ____ Date: December 14, 1999________________________
10
<PAGE>
[LOGO] First Midwest Bancorp, Inc.
Deferred Compensation Plan
for Directors
* * * * *
SUMMARY DESCRIPTION
For Plan Years
Beginning On Or After
January 1, 2000
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THE DATE OF THIS SUMMARY DESCRIPTION IS FEBRUARY 16, 2000.
<PAGE>
First Midwest Bancorp, Inc.
Deferred Compensation Plan
for Directors
Table of Contents
-----------------
<TABLE>
<S> <C>
Summary Description
Features of the Deferred Compensation Plan for Directors..................... 1
Administration of the Directors Plan......................................... 1
Election to Defer............................................................ 2
Investment Elections......................................................... 2
Procedures for Making Changes................................................ 2
How to Resolve Problems With Your Account.................................... 4
Exhibit A - Election Form and Election of Form of Benefit Distribution Form.. 5
Exhibit B - Investment Election Form......................................... 6
Exhibit C - Deferral Election Revocation Form................................ 7
Exhibit D - Request for Change in the Form of Benefit Distribution........... 8
Exhibit E - Designation of Beneficiary....................................... 9
</TABLE>
<PAGE>
FIRST MIDWEST BANCORP, INC.
Deferred Compensation Plan for Directors
SUMMARY DESCRIPTION
January 1, 2000
*************************
FEATURES OF THE DEFERRED COMPENSATION PLAN FOR DIRECTORS
First Midwest Bancorp, Inc. ("First Midwest") has established a Deferred
Compensation Plan for Directors ("Directors Plan"or "Plan") to afford
nonemployee directors the opportunity to defer receipt of 100% or 50% of their
directors' fees and to invest the same in various investment alternatives
offered under the Directors Plan, including a First Midwest Stock Fund. Once
made, Directors may elect to change their deferral election, but such change
will only be effective for directors' fees earned in the calendar year
subsequent to the year in which change in election is made.
First Midwest has established a Grantor Trust to secure the account balances of
participants in the Directors Plan. The Grantor Trust offers security to
participants as well as flexibility with respect to investment options for
participant account balances.
First Midwest's obligations to Directors Plan participants as well as the
available investment elections and the procedures for distribution upon
termination as a Director of First Midwest are as follows:
1. Securing of Director Account Balances
-------------------------------------
Although the Directors Plan participants will continue to be unsecured
creditors of First Midwest (as is required by IRS regulations to
preserve the nontaxability of funds to the participants until
distribution), the Directors Plan, nonetheless, provides a vehicle for
segregating the participants' funds from the general operating
accounts of First Midwest.
2. Expansion of Investment Elections
---------------------------------
The establishment of the Directors Plan also provides a vehicle for
expanding investment options to the participants. Although First
Midwest is not obligated to provide such investment elections to the
participants (again, this is required by IRS regulations in order to
preserve the nontaxability referred to above), First Midwest intends
to direct the Trustee to credit earnings and losses on the basis of
investment elections selected by the participants.
3. Distributions to Participants
-----------------------------
Upon a participant's termination from the Directors Plan (as a result
of resignation as a Director, retirement or death), the Trustee will
make distributions in accordance with the instructions on the
Directors Plan Election of Form of Benefit Distribution Form directly
to the participant from the Directors Plan funds. It should be noted
that, although a participant's account balance is not taxable while
the participant remains a director, such balance becomes taxable upon
distribution.
ADMINISTRATION OF THE DIRECTORS PLAN
The administration of the Directors Plan will be completely outsourced to a
third party Trustee.
1
<PAGE>
The responsibilities of the Trustee are as follows:
. The Trustee will administer all recordkeeping functions with quarterly
statements coming directly from the Trustee within 30 days after
quarter end.
. The Trustee will credit earnings and losses on the basis of investment
elections made by each participant.
. Changes in investment elections will be permitted once per month.
. Distributions from the Directors Plan and the related income tax
reporting will be handled through the Trustee.
ELECTION TO DEFER
Once you have elected to participate in the Directors Plan, your participation
will begin with the next payment of directors' fees (for new Directors in the
Directors Plan who elect to participate in the first 30 days after becoming
eligible) or for directors' fees earned for the calendar year following the year
in which the election to participate is made (for existing Directors).
To begin participation, the Director must complete the Election Form which
includes the election to defer directors' fees and the election of frequency of
benefit distributions. The Election Form/Election of Form of Benefit
Distribution Form is attached as Exhibit A to this Summary Description.
INVESTMENT ELECTIONS
Your account balance in the Directors Plan can be invested in several different
investment alternatives; both mutual funds and a First Midwest Stock Fund.
In order to invest your account balance under the Directors Plan, you must
complete an Investment Election Form. You will be provided with a prospectus
covering the mutual funds investment elections and a summary sheet describing
the investment performance and objective of each fund. The Investment Election
Form is attached as Exhibit B to this Summary Sheet.
PROCEDURES FOR MAKING CHANGES
1. Changes to Your Deferral Election - Once you have made your initial
----------------------------------
deferral election, it will be irrevocable for the calendar year to
which it applies. The election will also be in force for future years
until it is either changed or revoked.
To change your deferral election, you must complete a new Election
------
Form (Exhibit A).
To revoke your deferral election, you must complete a Deferral
------
Election Revocation Form (Exhibit C).
Election Forms and Deferral Election Revocation Forms should be
submitted to both the First Midwest Corporate Secretary and Harris
----
Bank at the following addresses:
First Midwest Bancorp, Inc. Harris Bank
Corporate Secretary's Office c/o Charon Planning Corporation
Attn: James M. Roolf Attn: Charlene Gumkowski
300 Park Blvd., Suite 405 435 N. Main Street
Itasca, IL 60143 Doylestown, PA 18901
Telephone #: 630-875-7452 Telephone #: 215-489-6827
Fax #: 630-875-7474 Fax #: 215-230-8480
Both changes in, and revocations of, elections will be effective for the
calendar year following the calendar year in which the change or revocation is
made.
2
<PAGE>
2. Changes to Your Investment Elections - Investment elections may be
------------------------------------
changed once per month. The change will be processed as soon as
administratively possible (which will generally be 2 - 3 days) after
receipt by Harris Bank/Charon Planning Corporation.
To change your investment elections, you must complete a revised
Investment Election Form (Exhibit C) and submit it directly to Harris
Bank at the following address:
Harris Bank
c/o Charon Planning Corporation
Attn: Charlene Gumkowski
435 N. Main Street
Doylestown, PA 18901
Telephone #: 215-489-6827
Fax #: 215-230-8480
Investment election changes can be made to both current account
balances and future contributions to your Directors Plan account.
3. Changes to Your Benefit Distribution - Upon resignation, retirement,
------------------------------------
disability or death (referred to as "distribution events"), you or
your beneficiary will receive distributions from the Directors Plan
based on the Election of Form of Benefit Distribution that you
completed upon admittance to the Plan.
All account balances due to be distributed with a value of $25,000 or
less will be distributed in a lump sum. Distributions with a value in
excess of $25,000 will be distributed in accordance with the
participant's election. The first distribution will be in the first 30
days of the calendar quarter following the later of the distribution
event or the date elected by the participant as described below.
A participant will be asked to make a distribution election upon
admittance to the Directors Plan. Distributions are currently allowed
in a lump sum or in annual or quarterly installments of up to 15
years. Additionally, a participant can elect to defer the receipt of
distributions from the Plan (whether such distributions are in a lump
sum or in installments) for up to 5 years. For example, a participant
may elect to receive his/her first annual or quarterly distribution
for 3 years from the date of retirement or termination. After the 3
year period has expired, annual or quarterly distributions will begin
within 30 days after the end of the calendar quarter that is 3 years
from the date of the distribution event.
A distribution election can be changed, but only for a distribution
event which occurs both during the calendar year following the year in
----
which the election is changed and six months prior to the distribution
---
event. For example, if a participant originally elects a distribution
of five annual installments and on November 1, 1999 changes that
election to 10 annual installments, the change in distribution
election to 10 years would only be applicable for distribution events
occurring after May 1, 2000 (the calendar year following, and six
months after, the date on which the change was made). These waiting
periods will not apply to a change which is made prior to a
change-in-control of First Midwest as defined in the Plan, and
applicable to a distribution event which occurs on or after a change-
in-control. However, this exception is subject to approval by the
Compensation Committee of First Midwest Bancorp, Inc. as further
discussed in the Plan Document.
If, for any reason, a participant does not elect a form of
distribution, the default option for distribution to that participant
will be 5 annual installments.
3
<PAGE>
In order to change your benefit distribution, you must complete a
Request for Change in the Form of Benefit Distribution Form (Exhibit
D) and mail it to the following address:
Harris Bank
c/o Charon Planning Corporation
Attn: Charlene Gumkowski
435 N. Main Street
Doylestown, PA 18901
Telephone #: 215-489-6827
Fax #: 215-230-8480
To provide maximum flexibility, the Directors Plan also permits
certain short-term payouts and a withdrawal election. The short-term
payouts provide participants with access to all or a portion of
specifically identified deferral amount, plus earnings, payable to the
---------------------------------------
participant in 3 years or more after the end of the plan year in which
the short-term payout election is made. Short-term payouts are only
made in lump-sums. The withdrawal election feature permits a
participant to withdraw his/her entire account balance at any time
less a 10% withdrawal penalty and forfeiture of participation in the
Directors Plan for one full plan year.
If you wish to take advantage of either a short-term payout or
withdrawal election, please contact the First Midwest Corporate
Secretary's Office.
4. Change to Your Designation of Beneficiary - Upon admittance to the
-----------------------------------------
Directors Plan, you completed a Designation of Beneficiary Form
indicating your primary and contingent beneficiaries. Should you wish
to change your beneficiary(ies), you must complete a revised
Designation of Beneficiary Form (Exhibit E) and submit it to both the
----
First Midwest Corporate Secretary and Harris Bank at the following
addresses:
First Midwest Bancorp, Inc. Harris Bank
Corporate Secretary's Office c/o Charon Planning Corporation
Attn: James M. Roolf Attn: Charlene Gumkowski
300 Park Blvd., Suite 405 435 N. Main Street
Itasca, IL 60143 Doylestown, PA 18901
Telephone #: 630-875-7452 Telephone #: 215-489-6827
Fax #: 630-875-7474 Fax #: 215-230-8480
Provided above are both mailing addresses and fax numbers. It is strongly
recommended that you fax information to the appropriate address and follow up
---
the fax with a copy of the form(s) or correspondence through the mail.
HOW TO RESOLVE PROBLEMS WITH YOUR ACCOUNT
Should you have any problems with your account, including questions regarding
your statement, statements not received or miscommunication of information,
please contact the person identified at Harris Bank/Charon Planning Corporation.
If your problem or questions cannot be resolved by such person, please refer
your questions to the First Midwest Corporate Secretary.
4
<PAGE>
EXHIBIT A
---------
FIRST MIDWEST BANCORP, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
ELECTION FORM
AND
ELECTION OF FORM OF BENEFIT DISTRIBUTION FORM
Election to Defer
- -----------------
To the Corporate Secretary of First Midwest Bancorp, Inc.:
I, the undersigned, hereby irrevocably elect, until I otherwise direct you, to
defer receipt of Directors' fees, if any, which may become payable to me. I
understand that this election will be effective with respect to fees earned and
payable to me during the year following the date of the election, unless this is
made within the 30 days of the later of the effective date of this Plan or the
date I become an Eligible Director.
[_] 50% of Director Fees
[_] 100% of Director Fees
Election of Form of Benefit Distribution
- ----------------------------------------
I elect to have payments commence in accordance with the following:
[_] Specified date (date: __________________________)
[_] Date I cease to be a Director
I wish the payments to be made in the following fashion:
(Check One)
____________ annual installments
____________ (fill in the # of whole years up to a maximum of 15)
____________ ____________ quarterly installments
(fill in the # of quarters up to a maximum of 60)
____________ Lump sum payment
(Note: If no selection is made, your Account will be paid out in five annual
installments).
In accordance with the Plan, I hereby make the following election with regard to
deferring the benefit payments to which I become entitled and which will be paid
pursuant to the distribution to the benefit distribution election made above:
. I elect to have my Plan benefit distribution payments, whether in
annual or quarterly installments or in a lump sum, deferred for a
period of ________ years. (Fill in zero or the # of whole years up to
a maximum of 5).
I understand that I may elect to change the form of my benefit payments by
executing a timely Request for Change in the Form of Benefit Distribution form.
The approval of such change in election shall be at the sole discretion of the
Compensation Committee and, except in the circumstance of a change-in-control
and subject to the approval of this exception by the Compensation Committee,
will be effective only for distribution events occurring in the calendar year
following the year in which the change is made and six months or more after the
---
date of the change.
________________________________
Participant's Name (Print)
________________________________ _____________________
Participant's Signature Date
5
<PAGE>
EXHIBIT B
---------
FIRST MIDWEST BANCORP, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
INVESTMENT ELECTION FORM
________________________________ _________________ __________________
First Name (Please print) Middle Initial Last Name
Investment Options
Instructions: If you want to change the investment vehicle used to measure funds
previously deposited, complete Section 1. If you want to change the investment
vehicle used to measure funds to be deposited in the future, complete Section 2.
If you want to change both, complete Sections ! and 2. You may only change in 1%
multiples.
<TABLE>
<CAPTION>
Section 1 - Current Account Balance Section 2 - Future Contributions
Retirement Retirement
Mutual Funds and Company Stock Account Mutual Funds and Company Stock Account
<S> <C> <C> <C>
Money Market Fund % Money Market Fund %
--------------- ---------------
Bond Fund % Bond Fund %
--------------- ---------------
Short/Intermediate Bond Fund % Short/Intermediate Bond Fund %
--------------- ---------------
Index Fund % Index Fund %
--------------- ---------------
Equity Fund % Equity Fund %
--------------- ---------------
Equity Income Fund % Equity Income Fund %
--------------- ---------------
Growth Fund % Growth Fund %
--------------- ---------------
Small Cap Opportunity Fund % Small Cap Opportunity Fund %
--------------- ---------------
First Midwest Common Stock Fund % First Midwest Common Stock Fund %
--------------- ---------------
Total 100% Total 100%
--------------- ---------------
</TABLE>
I authorize First Midwest Bancorp to change my investment options as specified
above. I understand this change will occur upon receipt of this written
authorization subject to the investment policies of the Trustee.
_____________________________ ________________
Participant's Signature Date
The First Midwest Bancorp Directors Plan is unfunded. While the Company is
contractually obligated to pay benefits as they become due, nothing contained
herein shall imply an obligation of the Company to purchase or maintain any
asset, and any reference to assets or investments is solely for the purpose of
computing benefits.
******
Please submit the completed form by fax, followed up through a mailing to:
First Midwest Bancorp, Inc. Harris Bank
Corporate Secretary's Office c/o Charon Planning Corporation
Attn: James M. Roolf Attn: Charlene Gumkowski
300 Park Blvd., Suite 405 435 N. Main Street
Itasca, IL 60143 Doylestown, PA 18901
Telephone #: 630-875-7452 Telephone #: 215-489-6827
Fax #: 630-875-7474 Fax #: 215-230-8480
6
<PAGE>
EXHIBIT C
FIRST MIDWEST BANCORP, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
DEFERRAL ELECTION REVOCATION FORM
---------------------------------
This Deferral Election Revocation Form set forth my revocation to defer, as
specified in my previously executed Election Form, Directors' Fees under the
First Midwest Bancorp, Inc. Deferred Compensation Plan for Directors subject to
the terms, definitions of terms, and conditions of the Directors Plan which are
incorporated herein by reference.
I understand that this Deferral Election Revocation Form shall be effective as
to directors' fees to be made for the calendar year following the year in which
I execute this Form.
Therefore, based on the foregoing, I elect to revoke my prior election to defer
directors' fees pursuant to the Directors Plan.
__________________________________
Participant's Name (Please Print)
__________________________________ _______________________
Participant' Signature Date
Please submit the completed form by fax, followed up through a mailing to:
First Midwest Bancorp, Inc. Harris Bank
Corporate Secretary's Office c/o Charon Planning Corporation
Attn: James M. Roolf Attn: Charlene Gumkowski
300 Park Blvd., Suite 405 435 N. Main Street
Itasca, IL 60143 Doylestown, PA 18901
Telephone #: 630-875-7452 Telephone #: 215-489-6827
Fax #: 630-875-7474 Fax #: 215-230-8480
7
<PAGE>
EXHIBIT D
FIRST MIDWEST BANCORP, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
REQUEST FOR CHANGE IN THE FORM OF BENEFIT DISTRIBUTION
------------------------------------------------------
Pursuant to the First Midwest Bancorp, Inc. Deferred Compensation Plan for
Directors, I have previously executed a valid Election of Form of Benefit
Distribution. Now, as further provided in the Directors Plan, I request that the
form of benefit payments, as designated in my current Election of Form of
Benefit Distribution, be amended as indicated below:
CURRENT FORM OF BENEFIT:
(Check One)
____________ annual installments
______________ (fill in the # of whole years up to a maximum of 15)
______________ ____________ quarterly installments
(fill in the # of quarters up t a maximum of 60)
______________ Lump sum payment
. I elect to have my Plan benefit distribution payments, whether in annual or
quarterly installments or in a lump sum, deferred for a period of ______
years. (Fill in zero or the # of whole years up to a maximum of 5).
REQUESTED CHANGE IN FORM OF BENEFIT:
(Check One)
____________ annual installments
______________ (fill in the # of whole years up to a maximum of 15)
______________ ____________ quarterly installments
(fill in the # of quarters up to a maximum of 60)
______________ Lump sum payment
. I elect to have my Plan benefit distribution payments, whether in annual or
quarterly installments or in a lump sum, deferred for a period of ______
years. (Fill in zero or the # of whole years up to a maximum of 5).
I understand that I may elect to change the form of my benefit payments by
executing a timely Request for Change in the Form of Benefit Distribution form.
The approval of such change in election shall be at the sole discretion of the
Compensation Committee and, except in the circumstance of a change-in-control
and subject to the approval of this exception by the Compensation Committee,
will be effective only for distribution events occurring in the calendar year
following the year in which the change is made and six months or more after the
---
date of the change.
_______________________________
Participant's Name (Print)
_______________________________ _____________________
Participant's Signature Date
Please submit the completed form by fax, followed up through a mailing to:
Harris Bank
c/o Charon Planning Corporation
Attn: Charlene Gumkowski
435 N. Main Street
Doylestown, PA 18901
Telephone #: 215-489-6827
Fax #: 215-230-8480
8
<PAGE>
EXHIBIT E
FIRST MIDWEST BANCORP, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
DESIGNATION BENEFICIARY
-----------------------
CONFIDENTIAL
_________________________ _________________________________
Participant Social Security Number
________________________________________________________________________________
Residence
If I die prior to the payment of all or a portion of any amount payable to me
under the First Midwest Bancorp, Inc. Deferred Compensation Plan for Directors,
the balance of the amount payable shall be paid to the following person(s):
<TABLE>
<CAPTION>
(A) (B) (C) (D)
- ---------------------------- ---------------------------- ---------------------------- ----------------------------
Beneficiary's Name
and Beneficiary's Beneficiary's Relationship
Social Security Number Address to Participant Share (Percent)
- ---------------------------- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
Instructions:
- -------------
List each beneficiary who is to share in any payment due under the Plan. State
specifically in Column (D) what percentage of the total amount is to be received
by each beneficiary.
In the event that all of the above-named beneficiaries shall predecease me, or
if there is no doubt as to the right of any beneficiary, First Midwest Bancorp,
Inc. shall make payments, which would otherwise have been made to such
beneficiary, to my estate; and in such event, First Midwest shall not be under
any further liability.
This beneficiary designation cancels and supersedes any previous designation
that I may have made with respect to this Plan. The designation is effective as
of the date this form is signed by me. I withhold the right to change this
designation at any time by filing a new beneficiary form with the Corporate
Secretary of the Company.
_____________________________________ ______________________
Signature Date
Spouse's Consent (Community Property States Only)
- ----------------
I hereby agree to the beneficiary(ies) designated above:
______________________________________ ______________________
Spouse's Signature Date
9
<PAGE>
First Midwest Bancorp, Inc. Exhibit 10.4
Nonqualified Retirement Plan
Master Plan Document
================================================================================
Amended and Restated
to Reflect Amendments
Effective January 1, 2000
and Incorporating Amendments
Effective as of September 30, 1998
----------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Purpose...................................................................... 1
ARTICLE 1
Definitions............................................................. 1
ARTICLE 2
Selection, Enrollment, Eligibility...................................... 7
2.1 Selection by Committee............................................. 7
2.2 Enrollment Requirements............................................ 7
2.3 Eligibility; Commencement of Participation......................... 7
2.4 Termination of Participation and/or Deferrals...................... 8
ARTICLE 3
Deferral Commitments/Company Matching/Crediting/Taxes................... 8
3.1 Minimum Deferrals.................................................. 8
3.2 Maximum Deferral................................................... 8
3.3 Election to Defer; Effect of Election Form......................... 9
3.4 Withholding of Annual Deferral Amounts............................. 9
3.5 Annual Company Contribution Amount................................. 9
3.6 Annual Company Matching Amount..................................... 9
3.7 Annual Profit Sharing Restoration Amount........................... 10
3.8 Annual Pension Restoration Amount.................................. 10
3.9 Investment of Trust Assets......................................... 10
3.10 Vesting............................................................ 11
3.11 Crediting/Debiting of Account Balances............................. 11
3.12 FICA and Other Taxes............................................... 14
ARTICLE 4
Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal
Election...................................................... 14
4.1 Short-Term Payout.................................................. 14
4.2 Other Benefits Take Precedence Over Short-Term..................... 14
4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial
Emergencies................................................... 15
4.4 Withdrawal Election................................................ 15
ARTICLE 5
Termination Benefit..................................................... 15
5.1 Termination Benefit................................................ 15
5.2 Payment of Termination Benefit..................................... 15
5.3 Death Prior to Completion of Termination Benefit................... 16
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 6
Pre-Termination Survivor Benefit....................................... 16
6.1 Pre-Termination Survivor Benefit............................. 16
6.2 Payment of Pre-Termination Survivor Benefit.................. 16
ARTICLE 7
[Intentionally Omitted]................................................ 17
ARTICLE 8
Disability Waiver and Benefit.......................................... 17
8.1 Disability Waiver............................................ 17
8.2 Continued Eligibility; Disability Benefit.................... 17
ARTICLE 9
Beneficiary Designation................................................ 17
9.1 Beneficiary.................................................. 17
9.2 Beneficiary Designation...................................... 18
9.3 Acknowledgment............................................... 18
9.4 No Beneficiary Designation................................... 18
9.5 Doubt as to Beneficiary...................................... 18
9.6 Discharge of Obligations..................................... 18
ARTICLE 10
Leave of Absence....................................................... 18
10.1 Paid Leave of Absence........................................ 18
10.2 Unpaid Leave of Absence...................................... 18
ARTICLE 11
Termination, Amendment or Modification................................. 19
11.1 Termination.................................................. 19
11.2 Amendment.................................................... 19
11.3 Effect of Change in Control.................................. 20
11.4 Plan Agreement............................................... 20
11.5 Effect of Payment............................................ 20
ARTICLE 12
Administration......................................................... 20
12.1 Committee Duties............................................. 20
12.2 Agents....................................................... 20
12.3 Indemnity of Committee....................................... 21
12.4 Employer Information......................................... 21
ARTICLE 13
Other Benefits and Agreements.......................................... 21
13.1 Coordination with Other Benefits............................. 21
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 14
Claims Procedures...................................................... 21
14.1 Presentation of Claim........................................ 21
14.2 Notification of Decision..................................... 21
14.3 Review of a Denied Claim..................................... 22
14.4 Decision on Review........................................... 22
14.5 Legal Action................................................. 22
ARTICLE 15
Trust.................................................................. 22
15.1 Establishment of the Trust................................... 22
15.2 Interrelationship of the Plan and the Trust.................. 23
15.3 Distributions From the Trust................................. 23
ARTICLE 16
Miscellaneous.......................................................... 23
16.1 Status of Plan............................................... 23
16.2 Unsecured General Creditor................................... 23
16.3 Employer's Liability......................................... 23
16.4 Nonassignability............................................. 23
16.5 Not a Contract of Employment................................. 24
16.6 Furnishing Information....................................... 24
16.7 Terms........................................................ 24
16.8 Captions..................................................... 24
16.9 Governing Law................................................ 24
16.10 Notice....................................................... 24
16.11 Successors................................................... 25
16.12 Spouse's Interest............................................ 25
16.13 Validity..................................................... 25
16.14 Incompetent.................................................. 25
16.15 Court Order.................................................. 25
16.16 Distribution in the Event of Taxation........................ 25
16.17 Insurance.................................................... 26
16.18 Legal Fees To Enforce Rights After Change in Control......... 26
</TABLE>
iv
<PAGE>
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED RETIREMENT PLAN
Amended and Restated
Effective January 1, 2000
Purpose
-------
The purpose of this Plan is to provide specified benefits to a select group
of management and highly compensated Employees who contribute materially to the
continued growth, development and future business success of First Midwest
Bancorp, Inc., a Delaware corporation, and its subsidiaries, if any, that
sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes
of Title I of ERISA.
ARTICLE 1
Definitions
-----------
For purposes of this Plan, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, a credit
on the records of the Employer equal to the sum of (i) the Deferral Account
balance, (ii) the vested Company Contribution Account balance, (iii) the vested
Company Matching Account balance, (iv) the vested Profit Sharing Restoration
Account balance and (v) the vested Pension Restoration Account balance. The
Account Balance, and each other specified account balance, shall be a
bookkeeping entry only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to a Participant, or his
or her designated Beneficiary, pursuant to this Plan.
1.2 "Actuarial Equivalent" shall mean an actuarial equivalent single sum
value determined in the same manner as such Actuarial Equivalent single sum
value would be determined under the Pension Plan.
1.3 "Annual Bonus" shall mean any compensation, in addition to Base Annual
Salary relating to services performed during any calendar year, whether or not
paid in such calendar year or included on the Federal Income Tax Form W-2 for
such calendar year, payable to a Participant as an Employee under any Employer's
annual bonus and cash incentive plans, excluding stock options.
1.4 "Annual Company Contribution Amount" shall mean, for any one Plan
Year, the amount determined in accordance with Section 3.5.
1.5 "Annual Company Matching Amount" for any one Plan Year shall be the
amount determined in accordance with Section 3.6.
<PAGE>
1.6 "Annual Deferral Amount" shall mean that portion of a Participant's
Base Annual Salary and Annual Bonus that a Participant elects to have, and is
deferred, in accordance with Article 3, for any one Plan Year. In the event of a
Participant's Disability (if deferrals cease in accordance with Section 8.1),
death or a Termination of Employment prior to the end of a Plan Year, such
year's Annual Deferral Amount shall be the actual amount withheld prior to such
event.
1.7 "Annual Pension Restoration Amount" for any one Plan Year shall be the
amount determined in accordance with Section 3.8.
1.8 "Annual Profit Sharing Restoration Amount" for any one Plan Year shall
be the amount determined in accordance with Section 3.7.
1.9 "Base Annual Salary" shall mean the annual cash compensation relating
to services performed during any calendar year, whether or not paid in such
calendar year or included on the Federal Income Tax Form W-2 for such calendar
year, excluding bonuses, commissions, overtime, fringe benefits, stock options,
relocation expenses, incentive payments, non-monetary awards, directors' fees
and other fees, automobile and other allowances paid to a Participant for
employment services rendered (whether or not such allowances are included in the
Employee's gross income). Base Annual Salary shall be calculated before
reduction for compensation voluntarily deferred or contributed by the
Participant pursuant to all qualified or non-qualified plans of any Employer and
shall be calculated to include amounts not otherwise included in the
Participant's gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b)
pursuant to plans established by any Employer; provided, however, that all such
amounts will be included in compensation only to the extent that, had there been
no such plan, the amount would have been payable in cash to the Employee.
1.10 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 9, that are entitled to receive
benefits under this Plan upon the death of a Participant.
1.11 "Beneficiary Designation Form" shall mean the form established from
time to time by the Committee that a Participant completes, signs and returns to
the Committee to designate one or more Beneficiaries.
1.12 "Board" shall mean the board of directors of the Company.
1.13 "Change in Control" shall mean any of the following events:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Act of 1934, as amended, other than (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
subsidiary, or (ii) a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing 10% or more of the total voting power of the then
outstanding shares of capital stock of the Company entitled to vote generally in
the election of directors (the "Voting Stock"); provided, however, that the
following
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shall not constitute a Change in Control: (A) such person becomes the beneficial
owner of 10% or more of the Voting Stock as the result of the acquisition of
such stock directly from the Company, or (B) such person becomes the beneficial
owner of 10% or more of the Voting Stock as a result of the decrease in the
number of outstanding shares caused by the repurchase of shares by the Company;
provided, further, that in the event a person described in clause (A) or (B)
shall thereafter increase (other than in circumstances described in clause (A)
or (B)) beneficial ownership of stock representing more than 1% of the Voting
Stock, such person shall then be deemed to be a beneficial owner of 10% or more
of the Voting Stock for purposes of this paragraph (a), provided that such
person continues to beneficially own 10% or more of the Voting Stock after such
subsequent increase in beneficial ownership, or
(b) During any period of two consecutive years, individuals, who at
the beginning of such period, constitute the Board of Directors of the Company,
and any new director, whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved (the "Incumbent Directors"), cease for any reason to
constitute a majority thereof, or
(c) The stockholders of the Company approve, or if such approval is
not necessary or required, the consummation of, a reorganization, merger or
consolidation, the sale or other disposition of all or substantially all of the
assets, or a similar transaction or series of transactions involving the Company
(a "Business Combination") in each case, unless (1) all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Voting Stock immediately prior to such Business Combination beneficially,
own, directly or indirectly, more than 50% of the total voting power represented
by the voting securities entitled to vote generally in the election of directors
of the Company or the corporation resulting from the Business Combination
(including, without limitation, a corporation which as a result of the Business
Combination owns the Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries), in substantially the same
proportions as their ownership, immediately prior to the Business Combination of
the Voting Stock of the Company, and (2) at least a majority of the members of
the board of directors of the Company or such corporation resulting from the
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or action of the Incumbent Board, providing
for such Business Combination, or
(d) The stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
1.14 "Claimant" shall have the meaning set forth in Section 14.1.
1.15 "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
1.16 "Committee" shall mean the committee described in Article 12.
3
<PAGE>
1.17 "Company" shall mean First Midwest Bancorp, Inc., a Delaware
corporation, and any successor to all or substantially all of the Company's
assets or business.
1.18 "Company Contribution Account" shall mean (i) the sum of the
Participant's Annual Company Contribution Amounts, plus (ii) amounts credited in
accordance with all the applicable crediting provisions of this Plan that relate
to the Participant's Company Contribution Account, less (iii) all distributions
made to the Participant or his or her Beneficiary pursuant to this Plan that
relate to the Participant's Company Contribution Account.
1.19 "Company Matching Account" shall mean (i) the sum of all of a
Participant's Annual Company Matching Amounts, plus (ii) amounts credited in
accordance with all the applicable crediting provisions of this Plan that relate
to the Participant's Company Matching Account, less (iii) all distributions made
to the Participant or his or her Beneficiary pursuant to this Plan that relate
to the Participant's Company Matching Account.
1.20 "Deduction Limitation" shall mean the following described limitation
on a benefit that may otherwise be distributable pursuant to the provisions of
this Plan. Except as otherwise provided, this limitation shall be applied to all
distributions that are "subject to the Deduction Limitation" under this Plan. If
an Employer determines in good faith prior to a Change in Control that there is
a reasonable likelihood that any compensation paid to a Participant for a
taxable year of the Employer would not be deductible by the Employer solely by
reason of the limitation under Code Section 162(m), then to the extent deemed
necessary by the Employer to ensure that the entire amount of any distribution
to the Participant pursuant to this Plan prior to the Change in Control is
deductible, the Employer may defer all or any portion of a distribution under
this Plan. Any amounts deferred pursuant to this limitation shall continue to be
credited/debited with additional amounts in accordance with Section 3.11 below,
even if such amount is being paid out in installments. The amounts so deferred
and amounts credited thereon shall be distributed to the Participant or his or
her Beneficiary (in the event of the Participant's death) at the earliest
possible date, as determined by the Employer in good faith, on which the
deductibility of compensation paid or payable to the Participant for the taxable
year of the Employer during which the distribution is made will not be limited
by Section 162(m), or if earlier, the effective date of a Change in Control.
Notwithstanding anything to the contrary in this Plan, the Deduction Limitation
shall not apply to any distributions made after a Change in Control.
1.21 "Deferral Account" shall mean (i) the sum of all of a Participant's
Annual Deferral Amounts, plus (ii) amounts credited in accordance with all the
applicable crediting provisions of this Plan that relate to the Participant's
Deferral Account, less (iii) all distributions made to the Participant or his or
her Beneficiary pursuant to this Plan that relate to his or her Deferral
Account.
1.22 "Disability" shall mean a period of disability during which a
Participant qualifies for permanent disability benefits under the Participant's
Employer's long-term disability plan, or, if a Participant does not participate
in such a plan, a period of disability during which the Participant would have
qualified for permanent disability benefits under such a plan had the
Participant been a participant in such a plan, as determined in the sole
discretion of the Committee. If the
4
<PAGE>
Participant's Employer does not sponsor such a plan, or discontinues to sponsor
such a plan, Disability shall be determined by the Committee in its sole
discretion.
1.23 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.24 "Election Form" shall mean the form established from time to time by
the Committee that a Participant completes, signs and returns to the Committee
to make an election under the Plan.
1.25 "Employee" shall mean a person who is an employee of any Employer.
1.26 "Employer(s)" shall mean the Company and/or any of its subsidiaries
(now in existence or hereafter formed or acquired) that have been selected by
the Board to participate in the Plan and have adopted the Plan as a sponsor.
1.27 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as it may be amended from time to time.
1.28 "401(k) Plan" shall be that certain First Midwest Bancorp, Inc.
Savings and Profit Sharing Plan, as it may from time to time be amended.
1.29 "Participant" shall mean any Employee (i) who is selected to
participate in the Plan, (ii) who elects to participate in the Plan, (iii) who
signs a Plan Agreement, an Election Form and a Beneficiary Designation Form,
(iv) whose signed Plan Agreement, Election Form and Beneficiary Designation Form
are accepted by the Committee, (v) who commences participation in the Plan, and
(vi) whose Plan Agreement has not terminated. A spouse or former spouse of a
Participant shall not be treated as a Participant in the Plan or have an account
balance under the Plan, even if he or she has an interest in the Participant's
benefits under the Plan as a result of applicable law or property settlements
resulting from legal separation or divorce.
1.30 "Pension Plan" shall be that certain First Midwest Bancorp, Inc.
Consolidated Pension Plan, as it may from time to time be amended.
1.31 "Pension Restoration Account" shall mean (i) the sum of all of a
Participant's Annual Pension Restoration Amounts, plus (ii) amounts credited in
accordance with all the applicable crediting provisions of this Plan that relate
to the Participant's Pension Restoration Account, less (iii) all distributions
made to the Participant or his or her Beneficiary pursuant to this Plan that
relate to the Participant's Pension Restoration Account.
1.32 "Plan Agreement" shall mean a written agreement, as may be amended
from time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant and the
Participant's Employer shall provide for the entire benefit to which such
Participant is entitled under the Plan; should there be more than one Plan
Agreement, the Plan Agreement bearing the latest date of acceptance by the
Employer shall supersede all previous Plan Agreements in their entirety and
shall govern such entitlement. The terms of any Plan Agreement may be different
for any Participant, and any Plan Agreement may provide additional benefits not
5
<PAGE>
set forth in the Plan or limit the benefits otherwise provided under the Plan;
provided, however, that any such additional benefits or benefit limitations must
be agreed to by both the Employer and the Participant.
1.33 "Plan Year" shall mean a period beginning on January 1 of each
calendar year and continuing through December 31 of such calendar year.
1.34 "Plan" shall mean the Company's Nonqualified Retirement Plan, which
shall be evidenced by this instrument and by each Plan Agreement, as they may
from time to time be amended.
1.35 "Pre-Termination Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.36 "Profit Sharing Restoration Account" shall mean (i) the sum of all of
a Participant's Annual Profit Sharing Restoration Amounts, plus (ii) amounts
credited in accordance with all the applicable crediting provisions of this Plan
that relate to the Participant's Profit Sharing Restoration Account, less (iii)
all distributions made to the Participant or his or her Beneficiary pursuant to
this Plan that relate to the Participant's Profit Sharing Restoration Account.
1.37 "Qualified Plan Limits" shall mean the limitations imposed under Code
Section 401(a)(17), Code Section 401(k)(3), Code Section 402(g) and/or Code
Section 415, as the context so requires.
1.38 "Quarterly or Annual Installment Method" shall be a quarterly or
annual installment payment over the number of quarters or years selected by the
Participant in accordance with this Plan, calculated as follows: The Account
Balance of the Participant shall be calculated as of the close of business on
the last business day of a quarter. The quarterly or annual installment to be
paid shall be calculated by multiplying this balance by a fraction, the
numerator of which is one, and the denominator of which is the remaining number
of quarterly payments due the Participant. By way of example, if the Participant
elects a 40 quarter Quarterly or Annual Installment Method, the first payment
shall be 1/40 of the Account Balance, calculated as described in this
definition. The following quarter, the payment shall be 1/39 of the Account
Balance, calculated as described in this definition. If the Participant had
elected 10 annual installments, then the first payment shall be 1/10 of the
Account Balance and the subsequent installment would be 1/9 of the Account
Balance at the end of the fourth quarter following the quarter with respect to
which the first payment was determined. Each quarterly or annual installment
shall be paid on or as soon as practicable after the last business day of the
applicable quarter, but in no event more than 30 days after such date.
1.39 "Retirement" means termination of employment on or after age 65 or on
or after 55 with 15 years of service credited under the Pension Plan.
1.40 "Short-Term Payout" shall mean the payout set forth in Section 4.1.
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<PAGE>
1.41 "Stock" means the common stock, $.01 par value per share, of the
Company. In the event of a change in the Stock by reason of a Stock dividend or
split, recapitalization, merger, consolidation, combination, exchange of shares,
or similar corporate change, the Stock shall be appropriately adjusted by the
Committee.
1.42 "Termination Benefit" shall mean the benefit set forth in Article 5.
1.43 "Termination of Employment" or "Termination" shall mean the severing
of employment with all Employers, voluntarily or involuntarily, for any reason
other than Disability, death or an authorized leave of absence.
1.44 "Trust" shall mean one or more trusts established pursuant to that
certain First Midwest Bancorp, Inc. Nonqualified Retirement Plan Grantor Trust
Agreement, dated as of May 13, 1994, as amended from time to time, between the
Company and Harris Bank Barrington, N.A.
1.45 "Unforeseeable Financial Emergency" shall mean an unanticipated
emergency that is caused by an event beyond the control of the Participant that
would result in severe financial hardship to the Participant resulting from (i)
a sudden and unexpected illness or accident of the Participant or a dependent of
the Participant, (ii) a loss of the Participant's property due to casualty, or
(iii) such other extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant for which distribution is
necessary to preserve the value of the benefits of this Plan to the Participant,
all as determined in the sole discretion of the Committee.
ARTICLE 2
Selection, Enrollment, Eligibility
----------------------------------
2.1 Selection by Committee. Participation in the Plan shall be limited
----------------------
to a select group of management and highly compensated Employees of the
Employers, as determined by the Committee in its sole discretion. From that
group, the Committee shall select, in its sole discretion, Employees to
participate in the Plan.
2.2 Enrollment Requirements. As a condition to participation, each
-----------------------
selected Employee shall complete, execute and return to the Committee a Plan
Agreement, an Election Form and a Beneficiary Designation Form, all within 30
days after he or she is selected to participate in the Plan. In addition, the
Committee shall establish from time to time such other enrollment requirements
as it determines in its sole discretion are necessary.
2.3 Eligibility; Commencement of Participation. Provided an Employee
------------------------------------------
selected to participate in the Plan has met all enrollment requirements set
forth in this Plan and required by the Committee, including returning all
required documents to the Committee within the specified time period, that
Employee shall commence participation in the Plan on the first day of the month
following the month in which the Employee completes all enrollment requirements.
If an Employee fails to meet all such requirements within the period required,
in accordance with Section 2.2,that
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<PAGE>
Employee shall not be eligible to participate in the Plan until the first day of
the Plan Year following the delivery to and acceptance by the Committee of the
required documents.
2.4 Termination of Participation and/or Deferrals. If the Committee
---------------------------------------------
determines in good faith that a Participant no longer qualifies as a member of a
select group of management or highly compensated employees, as membership in
such group is determined in accordance with Sections 201(2), 301(a)(3) and
401(a)(1) of ERISA, the Committee shall have the right, in its sole discretion,
to (i) terminate any deferral election the Participant has made for the
remainder of the Plan Year in which the Participant's membership status changes,
(ii) prevent the Participant from making future deferral elections and/or (iii)
immediately distribute the Participant's then Account Balance as a Termination
Benefit and terminate the Participant's participation in the Plan.
ARTICLE 3
Deferral Commitments/Company Matching/Crediting/Taxes
-----------------------------------------------------
3.1 Minimum Deferrals.
-----------------
(a) Base Annual Salary and Annual Bonus. For each Plan Year,
-----------------------------------
commencing with the 1998 Plan Year, a Participant may elect to defer, as his or
her Annual Deferral Amount, Base Annual Salary and Annual Bonus in the following
combined minimum amount:
---------------------------------------------
Deferral Minimum Amount
---------------------------------------------
Base Annual Salary $ 0
--------------------------------------------
Annual Bonus $ 0
--------------------------------------------
Combined Minimum $2,500
--------------------------------------------
If an election is made for less than the combined minimum, or if no election is
made, the amount deferred shall be zero.
(b) Short Plan Year. Notwithstanding the foregoing, if a Participant
---------------
first becomes a Participant after the first day of a Plan Year, the minimum
deferral shall be an amount equal to the minimum set forth above, multiplied by
a fraction, the numerator of which is the number of complete months remaining in
the Plan Year and the denominator of which is 12.
3.2 Maximum Deferral.
----------------
(a) Base Annual Salary and Annual Bonus. For each Plan Year,
-----------------------------------
commencing with the 1998 plan year, a Participant may elect to defer, as his or
her Annual Deferral Amount, Base Annual Salary and Annual Bonus up to the
following maximum percentages for each deferral elected:
---------------------------------------------
Deferral Maximum Amount
---------------------------------------------
Base Annual Salary 75%
---------------------------------------------
Annual Bonus 100%
---------------------------------------------
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<PAGE>
Notwithstanding the foregoing, if a Participant first becomes a Participant
after the first day of a Plan Year, the maximum Annual Deferral Amount shall be
limited to the amount of compensation not yet earned by the Participant as of
the date the Participant submits a Plan Agreement and Election Form to the
Committee for acceptance.
3.3 Election to Defer; Effect of Election Form.
------------------------------------------
(a) First Plan Year. In connection with a Participant's commencement
---------------
of participation in the Plan, the Participant shall make an irrevocable deferral
election for the Plan Year in which the Participant commences participation in
the Plan, along with such other elections as the Committee deems necessary or
desirable under the Plan. For these elections to be valid, the Election Form
must be completed and signed by the Participant, timely delivered to the
Committee (in accordance with Section 2.2 above) and accepted by the Committee.
(b) Subsequent Plan Years. For each succeeding Plan Year, an
---------------------
irrevocable deferral election for that Plan Year, and such other elections as
the Committee deems necessary or desirable under the Plan, shall be made by
timely delivering to the Committee, in accordance with its rules and procedures,
before the end of the Plan Year preceding the Plan Year for which the election
is made, a new Election Form. In the absence of the timely delivery of such a
new Election Form, the Election Form in effect at the end of a Plan Year shall
constitute the Participant's irrevocable deferral election for the succeeding
Plan Year.
3.4 Withholding of Annual Deferral Amounts. For each Plan Year, the Base
--------------------------------------
Annual Salary portion of the Annual Deferral Amount shall be withheld from each
regularly scheduled Base Annual Salary payroll in equal amounts, as adjusted
from time to time for increases and decreases in Base Annual Salary. The Annual
Bonus portion of the Annual Deferral Amount shall be withheld at the time the
Annual Bonus is or otherwise would be paid to the Participant, whether or not
this occurs during the Plan Year itself.
3.5 Annual Company Contribution Amount. For each Plan Year, an Employer,
----------------------------------
in its sole discretion, may, but is not required to, credit any amount it
desires to any Participant's Company Contribution Account under this Plan, which
amount shall be for that Participant the Annual Company Contribution Amount for
that Plan Year. The amount so credited to a Participant may be smaller or larger
than the amount credited to any other Participant, and the amount credited to
any Participant for a Plan Year may be zero, even though one or more other
Participants receive an Annual Company Contribution Amount for that Plan Year.
The Annual Company Contribution Amount, if any, shall be credited as of the last
day of the Plan Year. If a Participant is not employed by an Employer as of the
last day of a Plan Year other than by reason of his or her death while employed,
the Annual Company Contribution Amount for that Plan Year shall be zero.
3.6 Annual Company Matching Amount. Provided the Participant has elected
------------------------------
to defer an Annual Deferral Amount for the Plan Year, the Participant's Annual
Company Matching Amount for any Plan Year shall be equal to 2 % of the
Participant's Base Annual Salary, reduced by the amount of any matching
contributions made to the 401(k) Plan on his or her behalf for the plan year of
the 401(k) Plan that corresponds to the Plan Year. The Annual Company Matching
Amount shall
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<PAGE>
be credited on a quarterly basis during the Plan Year in the same manner as the
matching contribution under the 401(k) Plan. If a Participant is not employed by
an Employer as of the last day of a calendar quarter during the Plan Year other
than by reason of his or her Retirement, Disability or death, the Annual Company
Matching Amount attributable to such quarter and the remainder of such Plan Year
shall be zero. In the event of death, a Participant shall be credited with the
Annual Company Matching Amount attributable to the quarter of the Plan Year in
which he or she dies.
3.7 Annual Profit Sharing Restoration Amount. A Participant's Annual
----------------------------------------
Profit Sharing Amount for any Plan Year shall be an amount, determined by the
Company, equal to the amount of profit sharing and matching benefits which would
have been credited to the Participant under the 401(k) Plan during the
corresponding plan year of the 401(k) Plan, but for the Qualified Plan Limits
and the Participant's participation in this Plan. If recommended by the
Company's retirement and benefit plans administrative committee and approved by
the Committee in connection with the Participant's commencement of employment
with the Company, the Participant's Annual Profit Sharing Restoration Amount
shall also include an amount, determined by the Company, equal to the amount of
profit sharing and matching benefits which would have been credited to the
Participant under the 401(k) Plan for the period of the Participant's employment
with the Company prior to the date the Participant first becomes eligible to
participate in the 401(k) Plan. If a Participant is not employed by an Employer
as of the last day of a Plan Year other than by reason of his or her Retirement,
Disability or death, the Annual Profit Sharing Amount for such Plan Year shall
be zero. In the event of Retirement, Disability or death, a Participant shall be
credited with the Annual Profit Sharing Amount for the Plan Year in which he or
she dies.
3.8 Annual Pension Restoration Amount. A Participant's Annual Pension
---------------------------------
Restoration Amount for any Plan Year shall be an amount, determined on an
Actuarial Equivalent basis by the Company, equal to (a) the amount by which the
Actuarial Equivalent value of the Participant's accrued benefit under the
Pension Plan determined (i) as if the Participant's termination of employment
occurred on the last day of the Plan Year or such earlier date of retirement,
(ii) without giving effect to the Qualified Plan Limits and the Participant's
deferral elections under this Plan, and (iii) if recommended by the Company's
retirement and benefit plans administrative committee and approved by the
Committee in connection with the Participant's commencement of employment with
the Company, by crediting of the period of employment prior to the date the
Participant first became eligible to participate in the Pension Plan as benefit
service, exceeds (b) the sum of (i) the Actuarial Equivalent value as of last
day of the Plan Year of the Participant's accrued benefit under the Pension
Plan, plus (ii) the Actuarial Equivalent value of the Annual Pension Restoration
Amounts credited to the Participant's Pension Restoration Account or paid to the
Participant with respect to prior Plan Years. If a Participant is not employed
by an Employer as of the last day of a Plan Year other than by reason of his or
her Retirement, Disability or death, the Annual Pension Restoration Amount for
such Plan Year shall be zero. In the event of Retirement, Disability or death,
a Participant shall be credited with the Annual Pension Restoration Amount for
the Plan Year in which he or she dies.
3.9 Investment of Trust Assets. The Trustee of the Trust shall be
--------------------------
authorized, upon written instructions received from the Committee or investment
manager appointed by the
10
<PAGE>
Committee, to invest and reinvest the assets of the Trust in accordance with the
applicable Trust Agreement.
3.10 Vesting.
-------
(a) A Participant shall at all times be 100% vested in his or her
Deferral Account.
(b) Except as otherwise provided in the Plan Agreement or other
written agreement between the Company and the Participant, a Participant shall
be 100% vested in his or her Company Contribution Account.
(c) A Participant shall be 100% vested in his or her Company Matching
Account.
(d) A Participant shall be vested in his or her Profit Sharing
Restoration Account in accordance with the vesting schedule for Company profit
sharing and matching contributions set forth in the 401(k) Plan.
(e) A Participant shall be vested in his or her Pension Restoration
Account in accordance with the vesting schedule for retirement benefits set
forth in the Pension Plan.
(f) Notwithstanding anything to the contrary contained in this
Section 3.10, in the event of a Change in Control, a Participant's Company
Contribution Account, Company Matching Account, Profit Sharing Restoration
Account and Pension Restoration Account shall immediately become 100% vested (if
it is not already vested in accordance with the above vesting schedules).
3.11 Crediting/Debiting of Account Balances. In accordance with, and
--------------------------------------
subject to, the rules and procedures that are established from time to time by
the Committee, in its sole discretion, amounts shall be credited or debited to a
Participant's Account Balance in accordance with the following rules:
(a) Election of Investment Funds. Subject to Section 3.11(f) below,
----------------------------
a Participant, in connection with his or her initial deferral election in
accordance with Section 3.3(a) above, shall elect, on the Election Form, one or
more Investment Fund(s) (as described in Section 3.11(c) below) to be used to
determine the additional amounts to be credited to his or her Account Balance
for the first calendar quarter or portion thereof in which the Participant
commences participation in the Plan and continuing thereafter for each
subsequent calendar quarter in which the Participant participates in the Plan,
unless changed in accordance with the next sentence. Subject to Section 3.11(f)
below, commencing with the first calendar quarter that follows the Participant's
commencement of participation in the Plan and continuing thereafter for each
subsequent calendar quarter in which the Participant participates in the Plan,
no later than the next to last business day of the calendar quarter, the
Participant may (but is not required to) elect, by submitting an Election Form
to the Committee that is accepted by the Committee, to add or delete one or more
Investment Fund(s) to be used to determine the additional amounts to be credited
to his or her Account Balance, or to change the portion of his or her Account
Balance allocated to each
11
<PAGE>
previously or newly elected Investment Fund. If an election is made in
accordance with the previous sentence, it shall apply to the next calendar
quarter and continue thereafter for each subsequent calendar quarter in which
the Participant participates in the Plan, unless changed in accordance with the
previous sentence.
(b) Proportionate Allocation. In making any election described in
------------------------
Section 3.11(a) above, the Participant shall specify on the Election Form, in
increments of one percentage point (1%), the percentage of his or her Account
Balance to be allocated to a Investment Fund (as if the Participant was making
an investment in that Investment Fund with that portion of his or her Account
Balance).
(c) Investment Funds. The Participant may elect one or more
----------------
Investment funds, based on such funds as are designated from time to time by
Committee (the "Investment Funds"), including a Investment Fund deemed invested
in Stock (the "Stock Investment Fund").
As necessary, the Committee may, in its sole discretion, discontinue, substitute
or add a Investment Fund. Each such action will take effect as of the first day
of the calendar quarter that follows by thirty (30) days the day on which the
Committee gives Participants advance written notice of such change.
(d) Crediting or Debiting Method. The performance of each elected
----------------------------
Investment Fund (either positive or negative) will be determined by the
Committee, in its reasonable discretion, based on the performance of the
Investment Funds themselves. A Participant's Account Balance shall be credited
or debited on a daily basis based on the performance of each Investment Fund
selected by the Participant, as determined by the Committee in its sole
discretion, as though (i) a Participant's Account Balance were invested in the
Investment Fund(s) selected by the Participant, in the percentages applicable to
such calendar quarter, as of the close of business on the first business day of
such calendar quarter, at the closing price on such date; (ii) the portion of
the Annual Deferral Amount that was actually deferred during any calendar
quarter were invested in the Investment Fund(s) selected by the Participant, in
the percentages applicable to such calendar quarter, no later than the close of
business on the first business day after the day on which such amounts are
actually deferred from the Participant's Base Annual Salary through reductions
in his or her payroll, at the closing price on such date; and (iii) any
distribution made to a Participant that decreases such Participant's Account
Balance ceased being invested in the Investment Fund(s), in the percentages
applicable to such calendar quarter, no earlier than one business day prior to
the distribution, at the closing price on such date. In furtherance of the
foregoing, for purposes of crediting dividends attributable to the Stock
Investment Fund, dividends shall be credited as of the record date thereof. The
Participant's Annual Company Contribution Amount, Annual Company Matching
Amount, Annual Profit Sharing Restoration Amount and Annual Pension Restoration
Amount shall be credited to his or her Company Contribution Account, Company
Matching Account, Profit Sharing Restoration Account and/or Pension Restoration
Account, as the case may be, as of the last day of the Plan Year to which they
relate. Despite the foregoing, to the extent the Deferral and other amounts
described in this Article 3 are paid into the Trust and the Trust assets are
invested from time to time to reflect the elections made by Participants
pursuant to Section 3.11(a) above, then each Participant's Account Balance shall
be debited or credited on the basis of the actual investment gains
12
<PAGE>
or losses of the Trust in lieu of crediting of the gains or losses in accordance
with clauses (i), (ii) and (iii) above.
(e) No Actual Investment. Notwithstanding any other provision of this
--------------------
Plan that may be interpreted to the contrary, the Investment Funds are to be
used for Investment purposes only, and a Participant's election of any such
Investment Fund, the allocation to his or her Account Balance thereto, the
calculation of additional amounts and the crediting or debiting of such amounts
to a Participant's Account Balance shall not be considered or construed in any
manner as an actual investment of his or her Account Balance in any such
Investment Fund. In the event that the Company or the Trustee (as that term is
defined in the Trust), in its own discretion, decides to invest funds in any or
all of the Investment Funds, no Participant shall have any rights in or to such
investments themselves. Without limiting the foregoing, a Participant's Account
Balance shall at all times be a bookkeeping entry only and shall not represent
any investment made on his or her behalf by the Company or the Trust; the
Participant shall at all times remain an unsecured creditor of the Company.
(f) Stock Investment Fund - Frozen. As of the September 30, 1998, the
------------------------------
portion of each Participant's Account Balance deemed invested in the Stock
Investment Fund shall be referred to herein as the Stock Investment Fund -
Frozen and be subject to the provisions of this Section 3.11 (f). The portion of
the Account Balance allocated to the Stock Investment Fund - Frozen shall ,for
so long as amounts deemed invested in such Fund are deemed invested in Stock, be
subject to crediting and debiting solely on the basis of the investment
performance of the Stock in which such portion of the Account Balance is deemed
invested, including any dividends attributable thereto. No other amounts may be
allocated to the Stock Investment Fund - Frozen, nor may any portion of the
Account Balance deemed invested in the Stock Investment Fund - Frozen be
allocated by the Participant (or Beneficiary) to any other Investment Fund. The
distribution of any amount deemed invested in the Stock Investment Fund - Frozen
shall be distributed in shares of Stock only; provided, however, that cash shall
be distributed in lieu of any fractional share.
(g) Stock Investment Fund - Active. Effective October 1, 1998,
------------------------------
allocation of any portion of the Account Balance by a Participant (or
Beneficiary) for deemed investment in the Stock Investment Fund shall be
referred to herein as allocated to the Stock Investment Fund - Active and be
subject to the limitations of this Section 3.11(g). Allocations of the Account
Balance to the Stock Investment Fund - Active shall be limited such that no
amount, other than that attributable to reinvested dividends, may be allocated
to the Stock Investment Fund - Active if such allocation will cause the number
of shares of Stock deemed represented by the Account Balance allocated to the
Stock Investment Fund - Active to exceed 1,000. Amounts allocated to the Stock
Investment Fund - Active may be allocated to other Investment Funds.
Distribution of any portion of the Account Balance then deemed invested in the
Stock Investment Fund - Active shall be distributed only in cash.
13
<PAGE>
3.12 FICA and Other Taxes.
--------------------
(a) Deferral Account. For each Plan Year in which an Annual Deferral
----------------
Amount is being withheld from a Participant, the Participant's Employer(s) shall
withhold from that portion of the Participant's Base Annual Salary and Bonus
that is not being deferred, in a manner determined by the Employer(s), the
Participant's share of FICA and other employment taxes on such Annual Deferral
Amount. If necessary, the Committee may reduce the Annual Deferral Amount in
order to comply with this Section 3.12.
(b) Company Matching Account, Company Contribution Account, Profit
--------------------------------------------------------------
Sharing Restoration Account and Pension Restoration Account. When a participant
- -----------------------------------------------------------
becomes vested in a portion of his or her Company Contribution Account, Company
Matching Account, Profit Sharing Restoration Account and/or Pension Restoration
Account, the Participant's Employer(s) shall withhold from the Participant's
Base Annual Salary and/or Annual Bonus that is not deferred, in a manner
determined by the Employer(s), the Participant's share of FICA and other
employment taxes on such amount. If necessary, the Committee may reduce the
vested portion of the Company Contribution Account, Participant's Company
Matching Account, Profit Sharing Restoration Account and/or Pension Restoration
Account in order to comply with this Section 3.12.
(c) Distributions. The Participant's Employer(s), or the trustee of
-------------
the Trust, shall withhold from any payments made to a Participant under this
Plan all federal, state and local income, employment and other taxes required to
be withheld by the Employer(s), or the trustee of the Trust, in connection with
such payments, in amounts and in a manner to be determined in the sole
discretion of the Employer(s) and the trustee of the Trust.
ARTICLE 4
Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election
---------------------------------------------------------------------------
4.1 Short-Term Payout. In connection with each election to defer an
-----------------
Annual Deferral Amount, a Participant may irrevocably elect to receive a future
"Short-Term Payout" from the Plan with respect to such Annual Deferral Amount.
Subject to the Deduction Limitation, the Short-Term Payout shall be a lump sum
payment in an amount that is equal to the Annual Deferral Amount plus amounts
credited or debited in the manner provided in Section 3.11 above on that amount,
determined at the time that the Short-Term Payout becomes payable (rather than
the date of a Termination of Employment). Subject to the Deduction Limitation
and the other terms and conditions of this Plan, each Short-Term Payout elected
shall be paid out during a 60-day period commencing immediately after the last
day of any Plan Year designated by the Participant that is at least three Plan
Years after the Plan Year in which the Annual Deferral Amount is actually
deferred. By way of example, if a three year Short-Term Payout is elected for
Annual Deferral Amounts that are deferred in the Plan Year commencing January 1,
2000, the three year Short-Term Payout would become payable during a 60-day
period commencing January 1, 2004.
4.2 Other Benefits Take Precedence Over Short-Term. Should an event
----------------------------------------------
occur that triggers a benefit under Article 5, 6 or 8, any Annual Deferral
Amount, plus amounts credited or
14
<PAGE>
debited thereon, that is subject to a Short-Term Payout election under Section
4.1 shall not be paid in accordance with Section 4.1 but shall be paid in
accordance with the other applicable Article.
4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies.
---------------------------------------------------------------------
If the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee to (i) suspend any deferrals required to
be made by a Participant and/or (ii) receive a partial or full payout from the
Plan. The payout shall not exceed the lesser of the Participant's Account
Balance, calculated as if such Participant were receiving a Termination Benefit,
or the amount reasonably needed to satisfy the Unforeseeable Financial
Emergency. If, subject to the sole discretion of the Committee, the petition for
a suspension and/or payout is approved, suspension shall take effect upon the
date of approval and any payout shall be made within 60 days of the date of
approval. The payment of any amount under this Section 4.3 shall be subject to
the Deduction Limitation.
4.4 Withdrawal Election. A Participant (or, after a Participant's death,
-------------------
his or her Beneficiary) may elect, at any time, to withdraw all of his or her
Account Balance, calculated as if there had occurred a Termination of Employment
as of the day of the election, less a withdrawal penalty equal to 10% of such
amount (the net amount shall be referred to as the "Withdrawal Amount"). This
election can be made at any time, before or after Disability, death or
Termination of Employment, and whether or not the Participant (or Beneficiary)
is in the process of being paid pursuant to an installment payment schedule. If
made before Disability or death, a Participant's Withdrawal Amount shall be his
or her Account Balance calculated as if there had occurred a Termination of
Employment as of the day of the election. No partial withdrawals of the
Withdrawal Amount shall be allowed. The Participant (or his or her Beneficiary)
shall make this election by giving the Committee advance written notice of the
election in a form determined from time to time by the Committee. The
Participant (or his or her Beneficiary) shall be paid the Withdrawal Amount
within 60 days of his or her election. Once the Withdrawal Amount is paid, the
Participant's right to voluntarily defer compensation into the Plan shall
terminate and the Participant shall not be eligible to make any voluntary
deferral elections for the remainder of the Plan Year of the Withdrawal Election
and the next Plan Year. The payment of the Withdrawal Amount shall be subject to
the Deduction Limitation.
ARTICLE 5
Termination Benefit
-------------------
5.1 Termination Benefit. Subject to the Deduction Limitation, a
-------------------
Participant who Experiences a Termination of Employment shall receive, as a
Termination Benefit, his or her Account Balance.
5.2 Payment of Termination Benefit. A Participant, in connection with his
------------------------------
or her commencement of participation in the Plan, shall elect on an Election
Form to receive the Termination Benefit in a lump sum or pursuant to an
Quarterly or Annual Installment Method of up to 60 quarters or 15 years. The
Participant may annually change his or her election to an allowable alternative
payout period by submitting a new Election Form to the Committee, provided that
any such Election Form is applicable to a Termination date which occurs in a
subsequent calendar year
15
<PAGE>
and at least six months after the date the new Election Form is filed and the
new Election Form is accepted by the Committee in its sole discretion; provided,
however, such advance filing period shall not apply to a new Election Form
submitted prior to a Change in Control which is applicable to a Termination date
which occurs on or after the date of the Change in Control. The Election Form
most recently accepted by the Committee shall govern the payout of the
Termination Benefit. If a Participant does not make any election with respect to
the payment of the Termination Benefit, then such benefit shall be payable in
five annual payments under the Quarterly or Annual Installment Method. The lump
sum payment shall be made, or installment payments shall commence, no later than
30 days after the last day of the calendar quarter in which the Participant
experiences the Termination of Employment; provided, however, the Participant
may elect to have the Termination Benefit payment commencement date delayed for
up to five (5) years from the Termination date by submitting an Election Form to
that effect which is accepted by the Committee at least 6 months prior to the
Termination date. Despite the foregoing, if the Participant's Account Balance is
less than $25,000 at the time of Termination, payment of the Account Balance
shall be made in a lump sum no later than 30 days after the last day of the
calendar quarter in which the Participant experiences the Termination. Any
payment made shall be subject to the Deduction Limitation.
5.3 Death Prior to Completion of Termination Benefit. If a Participant
------------------------------------------------
dies after experiencing the Termination of Employment but before the Termination
Benefit is paid in full, the Participant's unpaid Termination Benefit payments
shall continue and shall be paid to the Participant's Beneficiary (a) over the
remaining number of quarters and in the same amounts as that benefit would have
been paid to the Participant had the Participant survived, or (b) in a lump sum,
if requested by the Beneficiary and allowed in the sole discretion of the
Committee, that is equal to the Participant's unpaid remaining Account Balance.
ARTICLE 6
Pre-Termination Survivor Benefit
--------------------------------
6.1 Pre-Termination Survivor Benefit. Subject to the Deduction
--------------------------------
Limitation, the Participant's Beneficiary shall receive a Pre-Termination
Survivor Benefit equal to the Participant's Account Balance if the Participant
dies before he or she experiences a Termination of Employment or suffers a
Disability.
6.2 Payment of Pre-Termination Survivor Benefit. A Participant, in
-------------------------------------------
connection with his or her commencement of participation in the Plan, shall
elect on an Election Form whether the Pre-Termination Survivor Benefit shall be
received by his or her Beneficiary in a lump sum or pursuant to an Quarterly or
Annual Installment Method of up to 60 quarters or 15 years. The Participant may
annually change this election to an allowable alternative payout period by
submitting a new Election Form to the Committee, which form must be accepted by
the Committee in its sole discretion. The Election Form most recently accepted
by the Committee prior to the Participant's death shall govern the payout of the
Participant's Pre-Termination Survivor Benefit. If a Participant does not make
any election with respect to the payment of the Pre-Termination Survivor
Benefit, then such benefit shall be paid in a lump sum. Despite the foregoing,
if the Participant's Account Balance at the time of his or her death is less
than $25,000, payment of the Pre-Termination Survivor Benefit shall be made in a
lump sum. The lump sum payment shall be made, or installment
16
<PAGE>
payments shall commence, no later than 30 days after the last day of the
calendar quarter in which the Committee is provided with proof that is
satisfactory to the Committee of the Participant's death. Any payment made shall
be subject to the Deduction Limitation.
ARTICLE 7
[Intentionally Omitted]
-----------------------
ARTICLE 8
Disability Waiver and Benefit
-----------------------------
8.1 Disability Waiver.
-----------------
(a) Waiver of Deferral. A Participant who is determined by the
------------------
Committee to be suffering from a Disability shall be excused from fulfilling
that portion of the Annual Deferral Amount commitment that would otherwise have
been withheld from a Participant's Base Annual Salary and Annual Bonus for the
Plan Year during which the Participant first suffers a Disability. During the
period of Disability, the Participant shall not be allowed to make any
additional deferral elections, but will continue to be considered a Participant
for all other purposes of this Plan.
(b) Return to Work. If a Participant returns to employment with an
--------------
Employer after a Disability ceases, the Participant may elect to defer an Annual
Deferral Amount for the Plan Year following his or her return to employment or
service and for every Plan Year thereafter while a Participant in the Plan;
provided such deferral elections are otherwise allowed and an Election Form is
delivered to and accepted by the Committee for each such election in accordance
with Section 3.3 above.
8.2 Continued Eligibility; Disability Benefit. A Participant suffering a
-----------------------------------------
Disability shall, for benefit purposes under this Plan, continue to be
considered to be employed and shall be eligible for the benefits provided for in
Articles 4, 5, 6 or 8 in accordance with the provisions of those Articles.
Notwithstanding the above, the Committee shall have the right to, in its sole
and absolute discretion and for purposes of this Plan only, deem the Participant
to have experienced a Termination of Employment, at any time after such
Participant is determined to be suffering a Disability, in which case the
Participant shall receive a Disability Benefit equal to his or her Account
Balance at the time of the Committee's determination. The Disability Benefit
shall be paid in a lump sum within 60 days of the Committee's exercise of such
right. Any payment made shall be subject to the Deduction Limitation.
8.3
ARTICLE 9
Beneficiary Designation
-----------------------
9.1 Beneficiary. Each Participant shall have the right, at any time, to
-----------
designate his or her Beneficiary(ies) (both primary as well as contingent) to
receive any benefits payable under the Plan to a beneficiary upon the death of a
Participant. The Beneficiary designated under this Plan
17
<PAGE>
may be the same as or different from the Beneficiary designation under any other
plan of an Employer in which the Participant participates.
9.2 Beneficiary Designation. A Participant shall designate his or her
-----------------------
Beneficiary by completing and signing the Beneficiary Designation Form, and
returning it to the Committee or its designated agent. A Participant shall have
the right to change a Beneficiary by completing, signing and otherwise complying
with the terms of the Beneficiary Designation Form and the Committee's rules and
procedures, as in effect from time to time. Upon the acceptance by the Committee
of a new Beneficiary Designation Form, all Beneficiary designations previously
filed shall be canceled. The Committee shall be entitled to rely on the last
Beneficiary Designation Form filed by the Participant and accepted by the
Committee prior to his or her death.
9.3 Acknowledgment. No designation or change in designation of a
--------------
Beneficiary shall be effective until received and acknowledged in writing by the
Committee or its designated agent.
9.4 No Beneficiary Designation. If a Participant fails to designate a
--------------------------
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all designated
Beneficiaries predecease the Participant or die prior to complete distribution
of the Participant's benefits, then the Participant's designated Beneficiary
shall be deemed to be his or her surviving spouse. If the Participant has no
surviving spouse, the benefits remaining under the Plan to be paid to a
Beneficiary shall be payable to the executor or personal representative of the
Participant's estate.
9.5 Doubt as to Beneficiary. If the Committee has any doubt as to the
-----------------------
proper Beneficiary to receive payments pursuant to this Plan, the Committee
shall have the right, exercisable in its discretion, to cause the Participant's
Employer to withhold such payments until this matter is resolved to the
Committee's satisfaction.
9.6 Discharge of Obligations. The payment of benefits under the Plan to
------------------------
a Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to the
Participant, and that Participant's Plan Agreement shall terminate upon such
full payment of benefits.
ARTICLE 10
Leave of Absence
----------------
10.1 Paid Leave of Absence. If a Participant is authorized by the
---------------------
Participant's Employer for any reason to take a paid leave of absence from the
employment of the Employer, the Participant shall continue to be considered
employed by the Employer and the Annual Deferral Amount shall continue to be
withheld during such paid leave of absence in accordance with Section 3.3.
10.2 Unpaid Leave of Absence. If a Participant is authorized by the
-----------------------
Participant's Employer for any reason to take an unpaid leave of absence from
the employment of the Employer, the Participant shall continue to be considered
employed by the Employer and the Participant shall be excused from making
deferrals until the earlier of the date the leave of absence expires or the
Participant returns to a paid employment status. Upon such expiration or return,
deferrals shall
18
<PAGE>
resume for the remaining portion of the Plan Year in which the expiration or
return occurs, based on the deferral election, if any, made for that Plan Year.
If no election was made for that Plan Year, no deferral shall be withheld.
ARTICLE 11
Termination, Amendment or Modification
--------------------------------------
11.1 Termination. Although each Employer anticipates that it will
-----------
continue the Plan for an indefinite period of time, there is no guarantee that
any Employer will continue the Plan or will not terminate the Plan at any time
in the future. Accordingly, each Employer reserves the right to discontinue its
sponsorship of the Plan and/or to terminate the Plan at any time with respect to
any or all of its participating Employees, by action of its board of directors.
Upon the termination of the Plan with respect to any Employer, the Plan
Agreements of the affected Participants who are employed by that Employer shall
terminate and their Account Balances, determined as if they had experienced a
Termination of Employment on the date of Plan termination, shall be paid to the
Participants as follows: Prior to a Change in Control, if the Plan is terminated
with respect to all of its Participants, an Employer shall have the right, in
its sole discretion, and notwithstanding any elections made by the Participant,
to pay such benefits in a lump sum or pursuant to Quarterly or Annual
Installment Method of up to 60 quarters or 15 years, with amounts credited and
debited during the installment period as provided herein. Prior to a Change in
Control, if the Plan is terminated with respect to less than all of its
Participants, an Employer shall be required to pay such benefits in a lump sum.
The termination of the Plan shall not adversely affect any Participant or
Beneficiary who has become entitled to the payment of any benefits under the
Plan as of the date of termination; provided however, that the Employer shall
have the right to accelerate installment payments without a premium or
prepayment penalty by paying the Account Balance in a lump sum or pursuant to a
Quarterly or Annual Installment Method using fewer quarters or years (provided
that the present value of all payments that will have been received by a
Participant at any given point of time under the different payment schedule
shall equal or exceed the present value of all payments that would have been
received at that point in time under the original payment schedule). After a
Change in Control, the effect of termination of the Plan shall be governed by
Section 11.3 below.
11.2 Amendment. Subject to Section 11.3 below relating to amendments made
---------
after a Change in Control, any Employer may, at any time, amend or modify the
Plan in whole or in part with respect to that Employer by the action of its
board of directors; provided, however, that: (i) no amendment or modification
shall be effective to decrease or restrict the value of a Participant's Account
Balance in existence at the time the amendment or modification is made,
calculated as if the Participant had experienced a Termination of Employment as
of the effective date of the amendment or modification; and (ii) no amendment or
modification of this Section 11.2 or Section 12.2 of the Plan shall be
effective. Such amendment or modification of the Plan shall not affect any
Participant or Beneficiary who has become entitled to the payment of benefits
under the Plan as of the date of the amendment or modification; provided,
however, that the Employer shall have the right to accelerate installment
payments by paying the Account Balance in a lump sum or pursuant to an Quarterly
or Annual Installment Method using fewer quarters or years (provided that the
present value of all payments that will have been received by a Participant at
any given point of
19
<PAGE>
time under the different payment schedule shall equal or exceed the present
value of all payments that would have been received at that point in time under
the original payment schedule).
11.3 Effect of Change in Control. Despite the provisions of Sections 11.1
---------------------------
and 11.2 above, following a Change in Control, the provisions of this Plan or
any Participant's Plan Agreement may not be amended or terminated in any manner
with respect to a Participant or Beneficiary if such amendment or termination
would have an adverse effect in any way upon the computation or amount of or
entitlement to benefits of such Participant or Beneficiary under the Plan as in
effect immediately prior to the Change in Control, including, but not limited
to, any adverse change in or to the crediting or debiting of amounts to the
Account Balances or the time or manner of payment of the Account Balances to any
Participant or Beneficiary, unless the Participant or Beneficiary has given
written consent to such amendment or termination. An "adverse change" for
purposes of this Section 11.3 shall include, but not be limited to, any
acceleration of the payment of the Account Balances payable to the Participant
or Beneficiary or a change in the composition of the risk and return
characteristics represented by the available Investment Funds or the
Participant's or Beneficiary's ability to allocate his or her Account Balances
among such Investment Funds.
11.4 Plan Agreement. Despite the provisions of Sections 11.1 and 11.2
--------------
above, if a Participant's Plan Agreement contains benefits or limitations that
are not in this Plan document, the Employer may only amend or terminate such
provisions with the consent of the Participant.
11.5 Effect of Payment. The full payment of the applicable benefit under
-----------------
Articles 4, 5, 6 or 8 of the Plan shall completely discharge all obligations to
a Participant and his or her designated Beneficiaries under this Plan and the
Participant's Plan Agreement shall terminate.
ARTICLE 12
Administration
--------------
12.1 Committee Duties. Except as otherwise provided in this Article 12,
----------------
this Plan shall be administered by a Committee which shall consist of the Board,
or such committee as the Board shall appoint. Members of the Committee may be
Participants under this Plan. The Committee shall also have the discretion and
authority to (i) make, amend, interpret, and enforce all appropriate rules and
regulations for the administration of this Plan and (ii) decide or resolve any
and all questions including interpretations of this Plan, as may arise in
connection with the Plan. Any individual serving on the Committee who is a
Participant shall not vote or act on any matter relating solely to himself or
herself. When making a determination or calculation, the Committee shall be
entitled to rely on information furnished by a Participant or the Company.
12.2 Agents. In the administration of this Plan, the Committee may, from
------
time to time, employ agents and delegate to them such administrative duties as
it sees fit (including acting through a duly appointed representative) and may
from time to time consult with counsel who may be counsel to any Employer.
20
<PAGE>
12.3 Indemnity of Committee. All Employers shall indemnify and hold
----------------------
harmless the members of the Committee, any Employee to whom the duties of the
Committee may be delegated, and the Administrator against any and all claims,
losses, damages, expenses or liabilities arising from any action or failure to
act with respect to this Plan, except in the case of willful misconduct by the
Committee, any of its members, any such Employee or the Administrator.
12.4 Employer Information. To enable the Committee and/or Administrator
--------------------
to perform its functions, the Company and each Employer shall supply full and
timely information to the Committee and/or Administrator, as the case may be, on
all matters relating to the compensation of its Participants, the date and
circumstances of the Disability, death or Termination of Employment of its
Participants, and such other pertinent information as the Committee or
Administrator may reasonably require.
ARTICLE 13
Other Benefits and Agreements
-----------------------------
13.1 Coordination with Other Benefits. The benefits provided for a
--------------------------------
Participant and Participant's Beneficiary under the Plan are in addition to any
other benefits available to such Participant under any other plan or program for
employees of the Participant's Employer. The Plan shall supplement and shall not
supersede, modify or amend any other such plan or program except as may
otherwise be expressly provided.
ARTICLE 14
Claims Procedures
-----------------
14.1 Presentation of Claim. Any Participant or Beneficiary of a deceased
---------------------
Participant (such Participant or Beneficiary being referred to below as a
"Claimant") may deliver to the Committee a written claim for a determination
with respect to the amounts distributable to such Claimant from the Plan. If
such a claim relates to the contents of a notice received by the Claimant, the
claim must be made within 60 days after such notice was received by the
Claimant. All other claims must be made within 180 days of the date on which the
event that caused the claim to arise occurred. The claim must state with
particularity the determination desired by the Claimant.
14.2 Notification of Decision. The Committee shall consider a Claimant's
------------------------
claim within a reasonable time, and shall notify the Claimant in writing:
(a) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or
in part, to the Claimant's requested determination, and such notice must set
forth in a manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or any
part of it;
21
<PAGE>
(ii) specific reference(s) to pertinent provisions of the Plan
upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an explanation of why
such material or information is necessary; and
(iv) an explanation of the claim review procedure set forth in
Section 14.3 below.
14.3 Review of a Denied Claim. Within 60 days after receiving a notice
------------------------
from the Committee that a claim has been denied, in whole or in part, a Claimant
(or the Claimant's duly authorized representative) may file with the Committee a
written request for a review of the denial of the claim. Thereafter, but not
later than 30 days after the review procedure began, the Claimant (or the
Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
14.4 Decision on Review. The Committee shall render its decision on
------------------
review promptly, and not later than 60 days after the filing of a written
request for review of the denial, unless a hearing is held or other special
circumstances require additional time, in which case the Committee's decision
must be rendered within 120 days after such date. Such decision must be written
in a manner calculated to be understood by the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which
the decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 Legal Action. A Claimant's compliance with the foregoing provisions
------------
of this Article 14 is a mandatory prerequisite to a Claimant's right to commence
any legal action with respect to any claim for benefits under this Plan.
ARTICLE 15
Trust
-----
15.1 Establishment of the Trust. The Company shall establish the Trust,
--------------------------
and each Employer shall at least annually transfer over to the Trust such assets
as the Employer determines, in its sole discretion, are necessary to provide, on
a present value basis, for its respective future
22
<PAGE>
liabilities created with respect to the Annual Deferral Amounts, Annual Company
Contribution Amounts, and Company Matching Amounts for such Employer's
Participants for all periods prior to the transfer, as well as any debits and
credits to the Participants' Account Balances for all periods prior to the
transfer, taking into consideration the value of the assets in the trust at the
time of the transfer.
15.2 Interrelationship of the Plan and the Trust. The provisions of the
-------------------------------------------
Plan and the Plan Agreement shall govern the rights of a Participant to receive
distributions pursuant to the Plan. The provisions of the Trust shall govern the
rights of the Employers, Participants and the creditors of the Employers to the
assets transferred to the Trust. Each Employer shall at all times remain liable
to carry out its obligations under the Plan.
15.3 Distributions From the Trust. Each Employer's obligations under the
----------------------------
Plan may be satisfied with Trust assets distributed pursuant to the terms of the
Trust, and any such distribution shall reduce the Employer's obligations under
this Plan.
ARTICLE 16
Miscellaneous
-------------
16.1 Status of Plan. The Plan is intended to be a plan that is not
--------------
qualified within the meaning of Code Section 401(a) and that "is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employee"
within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan
shall be administered and interpreted to the extent possible in a manner
consistent with that intent.
16.2 Unsecured General Creditor. Participants and their Beneficiaries,
--------------------------
heirs, successors and assigns shall have no legal or equitable rights, interests
or claims in any property or assets of an Employer. For purposes of the payment
of benefits under this Plan, any and all of an Employer's assets shall be, and
remain, the general, unpledged unrestricted assets of the Employer. An
Employer's obligation under the Plan shall be merely that of an unfunded and
unsecured promise to pay money in the future.
16.3 Employer's Liability. An Employer's liability for the payment of
--------------------
benefits shall be defined only by the Plan and the Plan Agreement, as entered
into between the Employer and a Participant. An Employer shall have no
obligation to a Participant under the Plan except as expressly provided in the
Plan and his or her Plan Agreement.
16.4 Nonassignability. Neither a Participant nor any other person shall
----------------
have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate, alienate or convey in advance of
actual receipt, the amounts, if any, payable hereunder, or any part thereof,
which are, and all rights to which are expressly declared to be, unassignable
and non-transferable. No part of the amounts payable shall, prior to actual
payment, be subject to seizure, attachment, garnishment or sequestration for the
payment of any debts, judgments, alimony or separate maintenance owed by a
Participant or any other person, be transferable by operation of
23
<PAGE>
law in the event of a Participant's or any other person's bankruptcy or
insolvency or be transferable to a spouse as a result of a property settlement
or otherwise.
16.5 Not a Contract of Employment. The terms and conditions of this Plan
----------------------------
shall not be deemed to constitute a contract of employment between any Employer
and the Participant. Such employment is hereby acknowledged to be an "at will"
employment relationship that can be terminated at any time for any reason, or no
reason, with or without cause, and with or without notice, unless expressly
provided in a written employment agreement. Nothing in this Plan shall be deemed
to give a Participant the right to be retained in the service of any Employer as
an Employee, or to interfere with the right of any Employer to discipline or
discharge the Participant at any time.
16.6 Furnishing Information. A Participant or his or her Beneficiary will
----------------------
cooperate with the Committee by furnishing any and all information requested by
the Committee and take such other actions as may be requested in order to
facilitate the administration of the Plan and the payments of benefits
hereunder, including but not limited to taking such physical examinations as the
Committee may deem necessary.
16.7 Terms. Whenever any words are used herein in the masculine, they
-----
shall be construed as though they were in the feminine in all cases where they
would so apply; and whenever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural or the
singular, as the case may be, in all cases where they would so apply.
16.8 Captions. The captions of the articles, sections and paragraphs of
--------
this Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
16.9 Governing Law. Subject to ERISA, the provisions of this Plan shall
-------------
be construed and interpreted according to the internal laws of the State of
Illinois without regard to its conflicts of laws principles.
16.10 Notice. Any notice or filing required or permitted to be given to
------
the Committee under this Plan shall be sufficient if in writing and hand-
delivered, or sent by registered or certified mail, to the address below:
Chief Financial Officer
First Midwest Bancorp, Inc.
300 Park Boulevard, Suite 405
Itasca, IL 60143-0459
Such notice shall be deemed given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark on the receipt for
registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered, or sent by
mail, to the last known address of the Participant.
24
<PAGE>
16.11 Successors. The provisions of this Plan shall bind and inure to the
----------
benefit of the Participant's Employer and its successors and assigns and the
Participant and the Participant's designated Beneficiaries. The Company shall
require any successor or assignee to expressly and unconditionally assume and
agree to perform or cause to be performed each Employer's obligations hereunder.
In addition, the Company shall require the ultimate parent entity of any
successor or assignee to expressly guaranty the prompt performance by such
successor or assignee.
16.12 Spouse's Interest. The interest in the benefits hereunder of a
-----------------
spouse of a Participant who has predeceased the Participant shall automatically
pass to the Participant and shall not be transferable by such spouse in any
manner, including but not limited to such spouse's will, nor shall such interest
pass under the laws of intestate succession.
16.13 Validity. In case any provision of this Plan shall be illegal or
--------
invalid for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be construed and enforced as if such
illegal or invalid provision had never been inserted herein.
16.14 Incompetent. If the Committee determines in its discretion that a
-----------
benefit under this Plan is to be paid to a minor, a person declared incompetent
or to a person incapable of handling the disposition of that person's property,
the Committee may direct payment of such benefit to the guardian, legal
representative or person having the care and custody of such minor, incompetent
or incapable person. The Committee may require proof of minority, incompetence,
incapacity or guardianship, as it may deem appropriate prior to distribution of
the benefit. Any payment of a benefit shall be a payment for the account of the
Participant and the Participant's Beneficiary, as the case may be, and shall be
a complete discharge of any liability under the Plan for such payment amount.
16.15 Court Order. The Committee is authorized to make any payments
-----------
directed by court order in any action in which the Plan or the Committee has
been named as a party. In addition, if a court determines that a spouse or
former spouse of a Participant has an interest in the Participant's benefits
under the Plan in connection with a property settlement or otherwise, the
Committee, in its sole discretion, shall have the right, notwithstanding any
election made by a Participant, to immediately distribute the spouse's or former
spouse's interest in the Participant's benefits under the Plan to that spouse or
former spouse.
16.16 Distribution in the Event of Taxation.
-------------------------------------
(a) In General. If, for any reason, all or any portion of a
----------
Participant's benefits under this Plan becomes taxable to the Participant prior
to receipt, a Participant may petition the Committee before a Change in Control,
or the trustee of the Trust after a Change in Control, for a distribution of
that portion of his or her benefit that has become taxable. Upon the grant of
such a petition, which grant shall not be unreasonably withheld (and, after a
Change in Control, shall be granted), a Participant's Employer shall distribute
to the Participant immediately available funds in an amount equal to the taxable
portion of his or her benefit (which amount shall not exceed a Participant's
unpaid Account Balance under the Plan). If the petition is granted, the tax
liability
25
<PAGE>
distribution shall be made within 90 days of the date when the Participant's
petition is granted. Such a distribution shall affect and reduce the benefits to
be paid under this Plan.
(b) Trust. If the Trust terminates in accordance with its terms
-----
and benefits are distributed from the Trust thereunder to a Participant, the
Participant's benefits under this Plan shall be reduced to the extent of such
distributions.
16.17 Insurance. The Employers, on their own behalf or on behalf of the
---------
trustee of the Trust, and, in their sole discretion, may apply for and procure
insurance on the life of the Participant, in such amounts and in such forms as
the Trust may choose. The Employers or the trustee of the Trust, as the case may
be, shall be the sole owner and beneficiary of any such insurance. The
Participant shall have no interest whatsoever in any such policy or policies,
and at the request of the Employers shall submit to medical examinations and
supply such information and execute such documents as may be required by the
insurance company or companies to whom the Employers have applied for insurance.
16.18 Legal Fees To Enforce Rights After Change in Control. In the
----------------------------------------------------
event of a Change in Control, the Company shall pay all reasonable legal fees,
costs and expenses incurred by a Participant or Beneficiary in enforcing any
provision of this Plan or as a result of the Company's or any Employer's
contesting the validity, enforceability or interpretation of this Plan.
26
<PAGE>
IN WITNESS WHEREOF, the Company has caused this restated Plan to be
executed by its duly authorized officer effective as of the 1/st/ day of
January, 2000.
ATTEST/WITNESS:
James M. Roolf
- --------------------------------------
Corporate Secretary
- --------------------------------------
/s/ James M. Roolf
- --------------------------------------
Date: December 14, 1999
--------------------------------
FIRST MIDWEST BANCORP, INC.
By: Donald J. Swistowicz
----------------------------------
Executive V.P. Chief Financial Officer
- --------------------------------------
/s/ Donald J. Swistowicz
- --------------------------------------
Date: December 14, 1999
--------------------------------
27
<PAGE>
[LOGO]
First Midwest Bancorp, Inc.
NONQUALIFIED RETIREMENT PLAN
* * * * *
. SUMMARY DESCRIPTION
. QUESTIONS AND ANSWERS
For Plan Years
Beginning On Or After
January 1, 2000
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THE DATE OF THIS SUMMARY DESCRIPTION IS DECEMBER 10, 1999
<PAGE>
First Midwest Bancorp, Inc.
Nonqualified Retirement Plan
Table of Contents
-----------------
<TABLE>
<CAPTION>
Summary Description
<S> <C>
Introduction............................................................................. 1
Purpose of the Plan...................................................................... 1
Eligibility for Participation............................................................ 1
Election to Participate.................................................................. 1
Contributions to the Plan - Company Provided............................................. 2
Contributions to the Plan - Participant 401K Excess...................................... 2
Contributions to the Plan - Participant Supplemental Base Salary Deferral................ 2
Contributions to the Plan - Participant Annual Bonus Deferral............................ 2
Vesting.................................................................................. 3
Investment of Contributions.............................................................. 3
Maintenance of Participant Account Balances.............................................. 3
Distributions from the Plan.............................................................. 3
Taxability of Contributions and Distributions............................................ 4
Risks of Participation................................................................... 4
Other Information........................................................................ 5
Available Information.................................................................... 5
Resale of Shares......................................................................... 6
Exhibit A - Deferral Election Form....................................................... 7
Exhibit B - Deferral Election Revocation Form............................................ 8
Exhibit C - Investment Election Form - 2000 Plan Year.................................... 9
Exhibit D - Election of Form of Benefit Distribution ( Page 1 of 2 )..................... 10
Exhibit D - Request for Change in the Form of Benefit Distribution ( Page 2 of 2 )....... 10
Exhibit E - Designation of Beneficiary................................................... 12
Questions and Answers.................................................................... 12 - 17
</TABLE>
<PAGE>
First Midwest Bancorp, Inc.
Nonqualified Retirement Plan
Summary Description
January 1, 2000
INTRODUCTION
- ------------
The purpose of this Summary Description is to provide general information about
the Nonqualified Retirement Plan ("Plan"). A complete copy of the Plan, as well
as additional information about First Midwest Bancorp, Inc. ("First Midwest")
and the common stock issuable under the Plan, is available upon request.
The Plan provides that the Compensation Committee of the Board of Directors of
First Midwest (the "Committee") is responsible for the administration of the
Plan. The Committee is authorized to interpret the Plan, to prescribe and modify
its rules and procedures, and to make all other determinations necessary in the
administration of the Plan.
PURPOSE OF THE PLAN
- -------------------
The purpose of the Plan is to provide eligible participants with a savings
vehicle to defer a portion of their base salary and annual bonus in excess of
the amounts limited by Internal Revenue Code imposed restrictions on the First
Midwest ERISA-Qualified 401K Savings and Profit Sharing Plan ("401K Plan").
Additionally, the Plan has also been designed to replace benefits lost by
certain participants whose compensation exceeds the amounts eligible for
inclusion in all ERISA - Qualified Retirement Plans of First Midwest, so that
such employees can be maintained on the same basis as all other employees of
First Midwest with respect to retirement plan benefits.
ELIGIBILITY FOR PARTICIPATION
- -----------------------------
The Plan is structured as a "Nonqualified Plan" under applicable IRS and
Department of Labor ("DOL") guidelines. As such, eligibility for participation
must be monitored closely to ensure that the Plan maintains compliance with
these rules, requirements and limitations. Accordingly, eligibility for
participation in the Plan will be determined by the Committee based upon the
compensation guidelines of the IRS and DOL.
ELECTION TO PARTICIPATE
- -----------------------
Participant deferred compensation contributions (as discussed below) will be
effective for compensation (base salary and annual bonus) payable in the
calendar year following the year in which an appropriate election is made. A
minimum of $2,500 (total) in base salary and annual bonus deferrals is required
to participate in the deferred compensation feature of the Plan for each Plan
year.
In the case of newly-eligible employees, as determined by the Committee during a
calendar year, the election to participate must be made within the first 30 days
after commencement of eligibility in order to defer compensation payable in the
year in which eligibility begins.
A participant's deferral election, once made, will be irrevocable for the
calendar year to which the deferral election applies. For a newly eligible
participant, the election will irrevocable for the remainder of the calendar
year to which the deferral election applies. However, deferral elections may be
revoked for subsequent calendar years. For example, an election by a participant
made in 1999 to defer 2000 compensation will be irrevocable for all of 2000.
However, such participant may elect, in 2000, to revoke the deferral election
and not defer compensation for 2001.
Participation in Company-provided contributions to the Plan resulting from
Internal Revenue Code imposed limitations (as discussed below) will be automatic
and will take place at the same time that such Company contributions are made to
the First Midwest ERISA-Qualified Retirement Plans. Participants eligible for
these contributions will be so informed by the Human Resource Department, which
will ensure that the participant executes all appropriate documentation and
elections.
1
<PAGE>
The Deferral Election Form and the Deferral Election Revocation Form are
attached to this summary description as Exhibit A and Exhibit B, respectively.
CONTRIBUTIONS TO THE PLAN - COMPANY PROVIDED (ANNUAL AND 401K MATCHING)
- -----------------------------------------------------------------------
Whether or not an eligible participant elects to defer compensation under the
Plan, the participant will be eligible for Company contributions if his/her
compensation for purposes of the First Midwest ERISA-Qualified Retirement Plans
or benefits under such Plans have been subject to Internal Revenue Code imposed
limitations. For example, if a participant's total compensation covered by the
401K Plan would provide the participant with a contribution of $35,000 and the
then-current Internal Revenue Code imposed limitation for such contribution is
$30,000, $5,000 will be contributed on behalf of such participant to the Plan.
If the participant does not currently defer base salary or annual bonus
compensation under (and thereby participate in) the Plan, he/she will be
notified of the pendency of such contribution and will be provided with the
applicable Investment Election Forms (see following section in this Summary
Description) and other forms to affect participation by the Human Resource
Department..
CONTRIBUTIONS TO THE PLAN - PARTICIPANT 401K EXCESS
- ---------------------------------------------------
Participants whose contributions to the 401K Plan (based on such participant's
base salary and contribution percentage) are restricted as a result of Internal
Revenue Code imposed limitations will be allowed to make such excess
contributions to the Plan. For example, the limit on contributions to the 401K
Plan for 2000 is $10,500. A participant who has elected to contribute 10% to the
401K Plan and whose base salary is $150,000 will be allowed to contribute
$10,500 to the 401K Plan and $4,500 to the Plan.
Prior to the beginning of each calendar year, the Human Resource Department will
determine those potential participants who may exceed the Internal Revenue Code
limits and inform them of the opportunity to elect to participate in the Plan
and provide them with the appropriate election and other forms.
401K excess contributions will be made on a pre-tax basis and will reduce the
participant's W-2 income and current Federal and State Tax withholding.
Contributions will be credited to the participant's Plan account as of the day
they would have otherwise been paid to the participant or as soon as practicable
thereafter.
CONTRIBUTIONS TO THE PLAN - PARTICIPANT SUPPLEMENTAL BASE SALARY DEFERRAL
- -------------------------------------------------------------------------
In addition to the maximum 10% contribution to the 401K Plan, eligible
participants will be allowed to contribute an additional percentage of their
base salary to the Plan (the "Supplemental Deferrals"), as determined from time
to time by the Committee. Supplemental deferrals will be made ratably over the
full calendar year (or portion of a calendar year for newly hired participants)
based on the payroll system requirements.
Supplemental deferral contributions to the Plan will be made on a pre-tax basis
and will reduce the participant's W-2 income and current Federal and State Tax
withholding. Contributions will be credited to the participant's Plan account as
of the day they would have otherwise been paid to the participant or as soon as
practicable thereafter.
CONTRIBUTIONS TO THE PLAN - PARTICIPANT ANNUAL BONUS DEFERRAL
- -------------------------------------------------------------
In order to maintain compliance with Internal Revenue Code discrimination
testing rules, the 401K Plan does not permit deferral of any portion of a
participant's annual bonus. The Plan, however, has been designed to allow
participants to defer a percentage of each year's annual bonus, as determined
from time to time by the Committee.
Annual bonus deferral contributions to the Plan will be made on a pre-tax basis
and will reduce the participant's W-2 income and current Federal and State Tax
withholding. Contributions will be credited to the participant's account as of
the day they would have otherwise been paid to the participant or as soon as
practicable thereafter.
2
<PAGE>
VESTING
- -------
A participant will "vest" in Company-provided contributions to the Plan to the
same extent he/she will be vested in the underlying First Midwest ERISA-
Qualified Retirement Plan benefit. For example, any employee who has completed 5
years of service with First Midwest will be fully vested in any Pension Plan
Company contributions which accrue under the Plan. Vesting in Company-provided
annual Profit Sharing Plan contributions will also follow the graduated vesting
schedule under that plan. Company-provided 401K matching contributions are 100%
vested. Earnings on Company-provided contributions will likewise follow the same
vesting schedules.
Participant 401K excess, supplemental deferral and annual bonus deferral
contributions, as well as any earnings thereon, will always be 100% vested.
INVESTMENT OF CONTRIBUTIONS
- ---------------------------
The Plan administrator has attempted to provide participants with the
opportunity to elect to have contributions to the Plan credited with earnings
and losses on the basis of investment elections that are sufficiently
diversified. Additionally, the Plan has established a fund that will invest
exclusively in the Common Stock of First Midwest Bancorp, Inc.
Since the Plan is not an ERISA-Qualified Retirement Plan, the ability to offer
maximum flexibility and investment alternatives maybe limited as a result of
regulatory, accounting and Securities and Exchange Commission guidelines.
Accordingly, the Plan Administrator, from time to time, may elect to change or
offer additional investment funds. Information for all investment funds,
including the First Midwest Stock Fund, will be provided to participants by the
Plan Administrator.
The Investment Election Form is attached as Exhibit C to this Summary
Description.
MAINTENANCE OF PARTICIPANT ACCOUNT BALANCES
- -------------------------------------------
Since the Plan is not an ERISA-Qualified Retirement Plan, it does not carry the
same participant protections under the law as qualified retirement plans.
Nonetheless, in order to facilitate the administration of participant balances
and provide some level of participant protections, First Midwest has established
a Grantor Trust through a third party trustee (not First Midwest). Although the
Plan participants will continue to be unsecured creditors of First Midwest under
the Grantor Trust (as is required by Internal Revenue Code rules to preserve the
non-taxability of funds to the participants until distribution), the Trust
provides a vehicle for measuring investment gains and losses, providing
participants with statements and for the direct distribution of participant
balances by the Trustee when such amounts became payable.
DISTRIBUTIONS FROM THE PLAN
- ---------------------------
Distributions of account balances under the Plan are payable upon termination,
disability, retirement or death (a "distribution event"). The definition of
disability for the Plan will be the same as the definition of disability in the
First Midwest Group Long Term Disability Plan.
All Plan account balances due to be distributed with a value of $25,000 or less
will be distributed in a lump sum. Distributions with a value in excess of
$25,000 will be distributed in accordance with the participant's election. The
first distribution will be in the first 30 days of the calendar quarter
following the later of the distribution event or the date elected by the
participant as described below.
A participant will be asked to make a distribution election upon admittance to
the Plan. Distributions are currently allowed in a lump sum or in annual or
quarterly installments of up to 15 years. Additionally, a participant can elect
to defer the receipt of distributions from the Plan (whether such distributions
are in a lump sum or in installments) for up to 5 years. For example, a
participant may elect to receive his/her first annual or quarterly distribution
under the Plan for 3 years from the date of retirement or termination. After the
3 year period has expired, annual or quarterly distributions will begin within
30 days after the end of the calendar quarter that is 3 years from the date of
the distribution event.
3
<PAGE>
A distribution election can be changed, but only for a distribution event which
occurs both during the calendar year following the year in which the election is
----
changed, and six months prior to the distribution event. For example, if a
---
participant originally elects a distribution of five annual installments and on
November 1, 1999 changes that election to 10 annual installments, the change in
distribution election to 10 years would only be applicable for distribution
events occurring after May 1, 2000 (the calendar year following, and six months
after, the date on which the change was made). These waiting periods will not
apply to a change which is made prior to a change-in-control of First Midwest as
defined in the Plan, and applicable to a distribution event which occurs on or
after a change-in-control. However, this exception is subject to approval by
the Committee of First Midwest Bancorp, Inc. as further discussed in the Plan
Document.
If, for any reason, a participant does not elect a form of distribution, the
default option for distribution to that participant will be 5 annual
installments.
To provide maximum flexibility, the Plan also permits certain short-term payouts
and a withdrawal election. The short-term payouts provide participants with
access to all or a portion of a specifically identified deferral amount, plus
----------------------------------------
earnings, payable to the participant in 3 years or more after the end of the
Plan year in which the short-term payout election is made. Short-term payouts
are only made in lump-sums. The withdrawal election feature permits a
participant to withdraw his/her entire account balance at any time (during
employment with First Midwest or after termination of employment), less a 10%
withdrawal penalty and forfeiture of participation in the Plan for one full Plan
year (if still employed).
The Election of Form of Benefit Distribution form and the Request for Change in
Election of Form of Benefit Distribution form are attached to this Summary
Description as Exhibit D (2 Pages).
TAXABILITY OF CONTRIBUTIONS AND DISTRIBUTIONS
- ---------------------------------------------
All participant contributions are made on a pre-tax basis, similar to the
contributions made to the 401K Plan. As such, the contributions will not be
included in the participant's W-2 income. Company-provided contributions on
behalf of a participant also will not be included in W-2 income for income tax
purposes. Furthermore, all earnings on participant account balances will not be
included in the participant's current W-2 income.
However, FICA tax will be applied to both participant and Company-provided
contributions up to the maximum FICA limit for each year. Once a participant
reaches the maximum FICA limit for the year (based upon total compensation for
that year, not just Plan contributions) no further FICA taxes will be due.
Medicare tax will be applied to all Plan contributions, both participant and
Company-provided, on an unlimited basis as required by law.
Distributions from the Plan are taxed in the year received based upon the
distribution election selected by the participant. All distributions will be
ordinary income and are not eligible for capital gains treatment. Because the
distributions received by the participant under the Plan are not ERISA-
Qualified, such distributions are not eligible to be rolled over into another
ERISA-Qualified Retirement Plan or into an IRA. As a result, all distributions
will be subject to income tax withholding. There is no vehicle available under
current tax law to shelter such distributions from income taxation.
RISKS OF PARTICIPATION
- ----------------------
Participants should be aware that certain risks are associated with
participation in the Plan. Some of these risks are greater than the risks
associated with participation in an ERISA-Qualified Retirement Plan.
Because the Plan is a Nonqualified Plan, the participant will be an unsecured
creditor of First Midwest with respect to his/her entire account balance. As an
unsecured general creditor, the participant's benefits will be at risk in the
unlikely event that First Midwest becomes insolvent or is declared bankrupt. The
risk as an unsecured creditor is a risk that does not apply to First Midwest's
ERISA-Qualified Retirement Plans.
The growth of the participant's account balances is subject to standard
investment risk associated with the investment alternatives selected by the
participant in connection with the Plan. For example, if the actual rate of
return on the investment vehicles selected by the participant is positive, the
participant's account balances will experience growth. However, if such rates of
return turn negative, there will be reduction in the participant's account
balances, which may include a loss of the participant's contributions as well as
the Company -provided contributions. In order to assist
4
<PAGE>
participants in monitoring these risks, a quarterly statement will be provided
showing all contribution and investment activity in the participant's accounts.
OTHER INFORMATION
- -----------------
1. Unsecured General Creditor - Each participant is an unsecured creditor of
--------------------------
First Midwest with respect to such participant's account balances. The
unsecured status is necessary to protect the account balances from being
taxed currently.
2. Plan Document Governs the Plan - This Summary Description has been prepared
------------------------------
to provide a better understanding of the benefits and features of the Plan.
The participant's benefits and rights under the Plan are at all times
governed by the text of the First Midwest Bancorp Inc. Nonqualified
Retirement Plan document. Such document is in no way altered or modified
by the contents of this Summary Description.
3. Amendment or Termination of the Plan; Effect of Change-In-Control- First
-----------------------------------------------------------------
Midwest reserves the right to amend or terminate the Plan, in whole or in
part, at any time in its sole discretion. No amendment or termination of
the Plan can eliminate benefits accrued to the date of such amendment or
termination. The Plan limits the ability of the Company, or its successor,
to amend or terminate the Plan following a change- in-control if the
amendment or termination would adversely affect the computation or amounts
of, and entitlement to, benefits of any participant or beneficiary, unless
the participant or beneficiary consents in writing.
4. Not an Employment Contract - The Plan does not constitute a contract of
--------------------------
employment between the participants and First Midwest.
5. Plan Administration - Discretion with respect to the determination of
-------------------
benefits under the Plan will be reserved to the Committee. Day to day
administration will be delegated to the First Midwest Retirement and
Benefit Plan Administration Committee and the Human Resource Department.
6. Consult Your Financial and Tax Advisor - Although the Plan is intended to
--------------------------------------
enable participants to obtain the benefits of a tax deferred account and
earnings credited thereto, no assurance can be given as to the actual
after-tax benefit that may be achieved. Accordingly, each participant
should consult a personal tax and financial advisor for detailed
information and guidance regarding participation in the Plan.
AVAILABLE INFORMATION
- ---------------------
The Company has filed a Registration Statement with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Act of 1933 (the "Securities
Act") with respect to the deferred compensation obligations and shares of Common
Stock which may be issued under the Plan. Pursuant to the rules of the SEC, this
Summary Description does not contain all of the information set forth in the
Registration Statement and exhibits thereto, to which reference is made.
The Company will provide, without charge, to each person to whom this Summary
Description is delivered, upon written or oral request of such person, a copy of
any and all of the following documents which have been incorporated by reference
into the Registration Statement.
. The Company's latest Annual Report on Form 10-K filed with the SEC.
. All quarterly and other reports filed by the Company with the SEC
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act").
. The description of the Company's Company Stock and its Preferred
Share Purchase Rights contained in applicable registration statements and
other reports filed by the Company with the SEC under Section 12 of the
Exchange Act.
5
<PAGE>
In addition, a copy of First Midwest's most recent Annual Report to Shareholders
accompanies this Summary Description or has been furnished previously. The
Company will provide to each employee who has received this Summary Description
copies of all reports, proxy statements and other communications distributed by
the Company to its stockholders generally. In the event a recipient of this
Summary Description misplaces any such documents, another will be furnished,
without charge, upon written request.
Requests for copies of any of the documents referred to above, or any questions
regarding the Plan or its administration, should be directed to the office of
the Corporate Controller, First Midwest Bancorp, Inc. 300 Park Blvd., Suite 405,
Itasca, IL 60143 (telephone (630) 875-7459).
RESALE OF SHARES
- ----------------
The Plan does not apply any specific restrictions on the resale of shares of
Common Stock which may be issued under the Plan. However, the Securities Act and
Exchange Act may impose certain limitations on such resale.
Under the Securities Act, all directors and certain policy-making executive
officers of the Company and certain of its subsidiaries may be deemed to be
"affiliates" of the Company for purposes of the Securities Act. Because such
affiliates are so closely identified with the Company, sales of Common Stock by
such persons may be deemed to be sales of Common Stock by the Company. Rule 144,
promulgated under the Securities Act, sets forth a "safe harbor" procedures for
affiliates to sell shares yet not have the sale be deemed a distribution of
Common Stock on behalf of the Company. Rule 144 restricts the number of shares
of Common Stock which may be sold by an affiliate during any 90-day period,
designates a manner of sale and requires the filing of a notice of proposed sale
with the SEC. Executive officers of the Company who are considered "affiliates"
of the Company for purposes of the Securities Act include the Chairman,
President and any Executive Vice President of the Company. Any affiliates of the
Company should consult with a qualified legal advisor regarding his or her own
situation before making any resales of Common Stock issued pursuant to the Plan.
Section 16(b) of the Exchange Act provides that, in certain circumstances, the
profit realized by an affiliate of the Company on the purchase and sale, or sale
and purchase, of Common Stock within a six-month time frame, is recoverable by
the Company from the affiliate if it is a prohibited "short-swing profit".
Accordingly, directors and executive officers of the Company who are considered
affiliates (as described in the preceding paragraph) should review the
implications of the "short-swing profit" prohibitions prior to electing to have
his or her account deemed invested in Common Stock or making transfers into or
out of the Common Stock investment fund under the Plan or prior to disposing of
any shares of Common Stock received under the Plan.
6
<PAGE>
Exhibit A
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED RETIREMENT PLAN
DEFERRAL ELECTION FORM
----------------------
To: Office of the Compensation Committee of the Board of Directors:
I have been offered an opportunity to participate in the First Midwest Bancorp,
Inc. Nonqualified Retirement Plan (the "Plan"). I will participate in the Plan
and irrevocably authorize First Midwest to make the appropriate deductions, as
indicated on this form, from my compensation for the Plan year indicated below.
I understand that I must defer at least $2,500 (base salary and bonus combined)
to participate in the Plan. If my election is less than the minimum required,
the amount deferred will be zero.
I hereby elect to defer that percentage of compensation payable to me during the
calendar year which begins after the date on which the Company receives this
Deferral Election Form as follows:
<TABLE>
<CAPTION>
<S> <C>
Plan Year............................................................................................................. ---------
- ---------
Base Salary Deferral
- --------------------
. % (not to exceed 10%) of my Base Salary to the FMBI 401K Savings and Profit Sharing Plan,
with that portion of this contribution that cannot be made due to IRS contribution limits being contributed to the
Nonqualified Retirement Plan.......................................................................................... %
---------
. % (not to exceed 65%) of my Base Salary that I elect to contribute to the Nonqualified
Retirement Plan....................................................................................................... %
---------
. Total (not to exceed 75%)................................................................................... %
----------------- ---------
Annual Bonus Deferral
- ---------------------
. % (not to exceed 100%) of my Annual Bonus that I elect to contribute to the Nonqualified
Retirement Plan....................................................................................................... %
---------
Non Participation Election
- --------------------------
---------
. I elect not to participate in the Plan for this Plan Year...................................................
---------
(Initials)
</TABLE>
I understand that my deferrals are subject to all of the terms and provisions of
the FMBI 401K Savings and Profit Sharing Plan and the Nonqualified Retirement
Plan and that my benefits will be paid as I have elected on the Election of Form
of Benefit Distribution form.
I also understand that this election is irrevocable for the calendar year for
which it applies and that such election will remain in effect for each
subsequent calendar year until I execute a Deferral Election Revocation Form or
file a new Deferral Election Form to supersede this Form.
___________________________________
Participant's Name (Print)
___________________________________ _________________
Participant's Signature Date
7
<PAGE>
Exhibit B
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED RETIREMENT PLAN
DEFERRAL ELECTION REVOCATION FORM
---------------------------------
To: Office of the Compensation Committee of the Board of Directors:
This Deferral Election Revocation Form sets forth my revocation to defer, as
specified in my previously executed Deferral Election Form, salary and/or annual
bonus under the First Midwest Bancorp, Inc. Nonqualified Retirement Plan,
subject to the terms, definitions of terms, and conditions of the Nonqualified
Retirement Plan which are incorporated herein by reference.
I understand that this Deferral Election Revocation Form shall be effective as
to base salary and/or annual bonus payments to be made for the calendar year
following the year in which I execute this Form.
Therefore, based on the foregoing, I elect to revoke my prior election to defer
base salary and/or annual bonus pursuant to the Nonqualified Retirement Plan.
___________________________________
Participant's Name (Print)
___________________________________ ______________________________
Participant's Signature Date
8
<PAGE>
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED RETIREMENT PLAN EXHIBIT C
INVESTMENT ELECTION FORM
________________________________________________________________________________
First Name (Please Print) Middle Initial Last Name
Investment Options
Instructions: If you want to change the investment vehicle used to measure funds
previously deposited, complete Section 1. If you want to change the investment
vehicle used to measure funds to be deposited in the future, complete Section 2.
If you want to change both, complete Sections 1 and 2. You may only change in
1% multiples.
Section I - Current Account Balance
Mutual Funds and Company Stock
------------------------------
Money Market Fund........................................ %
-----------------
Bond Fund................................................ %
-----------------
Short/Intermediate Bond Fund............................. %
-----------------
Index Fund............................................... %
-----------------
Equity Fund.............................................. %
-----------------
Equity Income Fund....................................... %
-----------------
Growth Fund.............................................. %
-----------------
Small Cap Opportunity Fund............................... %
-----------------
First Midwest Common Stock Fund.......................... %
-----------------
Total 100%
-----------------
Section 2 - Future Contributions
Mutual Funds and Company Stock
------------------------------
Money Market Fund........................................ %
-----------------
Bond Fund................................................ %
-----------------
Short/Intermediate Bond Fund............................. %
-----------------
Index Fund............................................... %
-----------------
Equity Fund.............................................. %
-----------------
Equity Income Fund....................................... %
-----------------
Growth Fund.............................................. %
-----------------
Small Cap Opportunity Fund............................... %
-----------------
First Midwest Common Stock Fund.......................... %
-----------------
Total 100%
-----------------
I authorize First Midwest Bancorp to change my investment options as specified
above. I understand this change will occur upon receipt of this written
authorization subject to the investment policies of the Trustee.
_____________________________ _____________________________
Participant's Signature Date
The First Midwest Bancorp Nonqualified Retirement Plan is unfunded. While the
Company is contractually obligated to pay benefits as they become due, nothing
contained herein shall imply an obligation of the Company to purchase or
maintain any asset, and any reference to assets or investments is solely for the
purpose of computing benefits.
Please submit the completed form by fax, followed up through a mailing to:
Harris Bank
c/o Charon Planning Corporation
Attn: Charlene Gumkowski
435 N. Main Street
Doylestown, PA 18901
Tel:# 215-489-6827
Fax::# 215-230-8480
9
<PAGE>
Exhibit D (Page 1 of 2)
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED RETIREMENT PLAN
ELECTION OF FORM OF BENEFIT DISTRIBUTION
----------------------------------------
To: Office of the Compensation Committee of the Board of Directors:
I understand that Company contributions have been credited to me and/or I have
executed one or more Deferral Election Form(s) pursuant to the First Midwest
Bancorp, Inc. Nonqualified Retirement Plan. Furthermore, I understand that the
deferrals which accumulate as a result of such contributions and/or my execution
of the Deferral Election Form(s) will be maintained in one or more accounts
established for me pursuant to the Nonqualified Retirement Plan and that the
balance in my account(s) will be paid out to me in accordance with the
Nonqualified Retirement Plan.
In accordance with the Nonqualified Retirement Plan, I hereby make the following
election with regard to the form of benefit payments to which I become entitled
and which will be paid pursuant to the dates, terms, and conditions as set forth
in the Nonqualified Retirement Plan:
(Check One)
__________ ________ annual installments
(Fill in the # of whole years up to a maximum of 15)
__________ ________ quarterly installments
(Fill in the # of quarters up to a maximum of 60)
__________ Lump sum payment
(NOTE: If no selection is made, your Account will be paid out in five annual
installments.)
In accordance with the Nonqualified Retirement Plan, I hereby make the following
election with regard to deferring the benefit payments to which I become
entitled and which will be paid pursuant to the distribution to the benefit
distribution election made above:
[_] I elect to have my Nonqualified Retirement Plan benefit distribution
payments, whether in annual or quarterly installments or in a lump sum, deferred
for a period of _______ years. (Fill in zero or the # of whole years up to a
maximum of 5).
* * * * *
I understand that I may elect to change the form of my benefit payments by
executing a timely Request for Change in the Form of Benefit Distribution form.
The approval of such change in election shall be at the sole discretion of the
Compensation Committee and, except in the circumstance of a change-in-control
and subject to the approval of this exception by the Compensation Committee,
will be effective only for distribution events occurring in the calendar year
following the year in which the change is made and six months or more after the
---
date of the change.
___________________________________
Participant's Name (Print)
___________________________________ ______________________________
Participant's Signature Date
10
<PAGE>
EXHIBIT D (Page 2 of 2)
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED RETIREMENT PLAN
REQUEST FOR CHANGE IN THE FORM OF BENEFIT DISTRIBUTION
------------------------------------------------------
To: Office of the Compensation Committee of the Board of Directors:
Pursuant to the First Midwest Bancorp, Inc. Nonqualified Retirement Plan, I have
previously executed a valid Election of Form of Benefit Distribution form. Now,
as further provided in the Nonqualified Retirement Plan, I request that the form
of benefit payments, as designated in my current Election of Form of Benefit
Distribution form, be amended as indicated below:
CURRENT FORM OF BENEFIT:
(Check One)
___________ __________ annual installments
(Fill in the # of whole years up to a maximum of 15)
___________ __________ quarterly installments
(Fill in the # of quarters up to a maximum of 60)
___________ Lump sum payment
[_] I elect to have my Nonqualified Retirement Plan benefit distribution
payments, whether in annual or quarterly installments or in a lump sum, deferred
for a period of _______ years. (Fill in zero or the # of whole years up to a
maximum of 5).
REQUESTED CHANGE IN FORM OF BENEFIT:
(Check One)
___________ __________ annual installments
(Fill in the # of whole years up to a maximum of 15)
___________ __________ quarterly installments
(Fill in the # of quarters up to a maximum of 60)
___________ Lump sum payment
[_] I elect to have my Nonqualified Retirement Plan benefit distribution
payments, whether in annual or quarterly installments or in a lump sum, deferred
for a period of _______ years. (Fill in zero or the # of whole years up to a
maximum of 5).
I understand that the Compensation Committee, in its sole discretion, will
determine whether to honor this request and that, except in the circumstances of
a change-in-control and subject to the approval of this exception by the
Compensation Committee, will be effective only for distribution events occurring
in the calendar year following the year in which the change is made and six
---
months or more after the date of the change.
___________________________________
Participant's Name (Print)
___________________________________ ______________________________
Participant's Signature Date
11
<PAGE>
Exhibit E
FIRST MIDWEST BANCORP, INC.
NONQUALIFIED RETIREMENT PLAN
DESIGNATION OF BENEFICIARY
--------------------------
To: Office of the Compensation Committee of the Board of Directors
The following beneficiary(ies) is (are) designated to receive the benefits under
the Nonqualified Retirement Plan which are payable upon my death. This
designation supersedes any prior designations and shall remain effective until I
execute a subsequent beneficiary designation, made in writing and signed by me.
Beneficiary Relationship to Participant
- ------------ ---------------------------
Primary: ______________________ ____________________________
Address: ______________________ ____________________________
Contingent: ______________________ ____________________________
Address: ______________________ ____________________________
If no beneficiary survives me, my benefits shall be paid in accordance with the
terms of the above Nonqualified Retirement Plan.
___________________________________
Participant's Name (Print)
___________________________________ ______________________________
Participant's Signature Date
12
<PAGE>
First Midwest Bancorp, Inc.
Nonqualified Retirement Plan
Questions and Answers
January 1, 2000
These questions and answers are qualified in their entirety by the more detailed
information set forth in the Plan Document and Summary Description. First
Midwest Bancorp, Inc. (the "Company") and its sponsoring subsidiaries encourage
you to read the Plan Document and Summary Description in their entirety and to
ask any questions you may have. If any discrepancy arises between these
questions and answers and the Plan Document, you should rely on the Plan
Document. (Unless otherwise indicated in these questions and answers,
capitalized terms have the meanings set forth in the Plan).
Plan Objectives
Q What is the purpose of the Plan?
A The Plan is designed to allow Participants to defer a portion of their
current income on a pre-tax basis, and receive an attractive, tax-deferred
return on these deferrals.
Eligibility
Q Who is eligible for the Plan?
A Participation in the Plan is limited to a select group of Management or
highly compensated Employees. The Committee, described under "Plan
Administration" below, will select based upon compensation guidelines, the
Employees who may participate.
Deferrals
Q What is the income tax effect of electing to defer income?
A Amounts you defer including Company contributions under the Plan will not
be taxed for federal or state income tax purposes in the year they would
have otherwise been paid to you. In addition, earnings credited in
accordance with the Plan will not be taxed for federal or state income tax
purposes in the year they are credited to your Account Balance. Rather,
these amounts will be taxed as ordinary, W-2 income when they are paid to
you.
Annual Salary and Bonus Deferrals
Q How much Base Salary and Annual Bonus, can I defer under the Plan?
A You can elect to defer up to a maximum of 75% of your Base Salary and up to
100% of your Annual Bonus, per Plan year. If you wish to participate in the
Plan, you must defer a minimum of $2,500 per Plan year.
The percentage amount of Base Salary you elect to defer will be divided by
the number of pay periods in the Plan year and that amount will be deducted
from each of your paychecks. The percentage amount of Annual Bonus you
elect to defer will be withheld from your paycheck when the amount would
otherwise have been paid. This deferral schedule cannot be altered. You
will always be 100% vested in the amount that you defer.
Q When do I make my Annual Salary and Bonus, deferral election?
A To participate in the Plan during the 2000 Plan year, you must enroll in
the Plan and make your election by the deadline set by the Committee.
Enrollment forms received after the deadline cannot be accepted.
Q Can I change the amount of Base Salary and Annual Bonus I am deferring or
stop my deferrals during a Plan year?
A No. IRS rules and regulations require that an irrevocable election be made
prior to each Plan Year. Therefore, changing or stopping an elected Annual
Deferral Amount while remaining a Participant is not permitted, except in
limited circumstances set forth in the Plan (e.g., Disability).
13
<PAGE>
Company Contributions
Q What Company contributions will I receive?
A IRS regulations limit the amount of 401K matching and annual Company
contributions that can be made to the ERISA-Qualified Profit Sharing Plan.
To ensure that you receive the total amount of matching and annual Company
contributions that you are entitled to, any amounts limited by IRS
regulations that cannot be paid into the Profit Sharing Plan will be
credited to this Plan. The same concept applies to Pension Plan amounts to
which you would be otherwise entitled. Any 401K matching contributions
will be 100% vested while annual Company contributions will vest in the
same manner as the Profit Sharing Plan and Pension Plan.
Q What if I reach the limit on my 401K contributions to the Profit Sharing
Plan?
A Any 401 K contributions that are limited by IRS regulations to the Profit
Sharing Plan can be contributed to your account in this Plan.
Social Security Taxes
Q If my deferrals are considered pre-tax deferrals, why is FICA and Medicare
Tax currently withheld?
A Your deferral amounts are considered earnings at the time that they are
earned, regardless of when paid, for the purpose of calculating Social
Security taxes. Thus, FICA must be withheld at the time your deferrals are
earned and credited to your Account Balance. FICA is withheld only up to
the annual wage base under Social Security; there is currently no
limitation on the Medicare Tax.
Q Will I pay Social Security taxes when I take my distribution on either
contributions or earnings?
A No. Because your contributions are included in the wage base at the time
of deferral, the amounts are not subject to Social Security taxes (FICA or
Medicare) when paid.
Earnings on Account Balances
Q How will the earnings on the deferred amounts be calculated?
A When you make your deferral election, you must select between certain
Investment Funds. You must allocate your deferral to each fund in one
percentage point (1%) increments, and the total must equal 100%. Deferred
amounts will earn returns (which may be positive or negative) based upon
the actual returns of each Investment Fund selected.
Q Where can I get more information about the Investment Funds?
A In selecting your Investment Funds, you should consider the effect your
selections will have on your overall asset portfolio. To help you in this
process, you should read prospectuses for the Investment Funds provided by
the Trustee.
Q After selecting my Investment Funds, may I change them in the future?
A Yes. You may change your selections among any of the available Investment
Funds. You may reallocate in any whole percentage point increments among
the Investment Funds. Currently, the Plan permits one change per month.
Distributions
Q Under what circumstances can I receive a distribution of all or part of my
Account Balance?
A There are several ways you can elect to receive a distribution of all or a
portion of your Account Balance:
14
<PAGE>
. Your Retirement Benefit allows you to receive an amount equal to
------------------
your account balance in a lump sum or in annual quarterly payments up to 15
years, following your Retirement. For account balances under $25,000 the
benefit will be paid only as a lump sum.
----
. If you leave the Company prior to Retirement, Disability, or
Death, you will receive a Termination Benefit equal to your account balance
-------------------
in the manner you elected for retirement. If your account balance is
$25,000 or greater, you will receive your Termination Benefit in a lump sum
or in annual or quarterly installments over 15 years, following your
termination of Employment
. Short-Term Payouts provide you with access to all or a portion of
------------------
your annual balance as soon as three (3) years from the end of the Pan year
of your short-term election. This balance is paid out only in a lump sum.
----
. If you die before Retirement, Disability or Termination of
Employment, the Beneficiary you name will receive an amount equal to your
account balance over whatever distribution period you have selected, or as
a lump sum, at the Committee's discretion, as a Pre-Retirement Survivor
-----------------------
Benefit. If you die after Retirement or Termination, your Beneficiary will
-------
continue to receive your elected benefit payments.
. If you are permanently disabled, you may receive your Account
Balance as a Disability Benefit. In addition to the benefits discussed
------------------
above, you may elect, at any time, to make a Withdrawal Election of your
-------------------
Account Balance, less a 10% withdrawal penalty and the forfeiture of your
ability to participate in the Plan for one full Plan year. The Withdrawal
Election is the only way that you can withdraw from the Plan prior to a
payout under one of your benefit elections discussed above.
. Your distribution alternatives are described in greater detail
in the following questions and answers and in the Plan Document and Summary
Description.
Q When will I decide how and when to receive a distribution from the Plan?
A Once you become a Plan participant, you will be asked to complete a an
Election of Form of Benefit Distribution form stating the manner in which
you want to receive distributions from the Plan upon retirement,
termination, disability or death.
If you wish to make an election for a Short-Term Payout, you must contact
the Human Resource Department for the applicable form. The Short-Term
Payout election is applicable only to a specific Plan year's base salary or
annual bonus deferral and is irrevocable. The Short-Term Payout cannot be
received by you earlier than three years from the end of the Plan year of
your election.
Q Can I change my distribution elections?
A Yes. A distribution election can be changed, but only for a retirement or
termination event that occurs both during the calendar year following the
year in which the election is changed and 6 months prior to the event.
---
This prior notice period does not apply to changes elected prior to a
change-in-control which apply to a distribution event which occurs after a
change-in-control. These restrictions are required by IRS regulation and
are discussed in more detail in the Plan Document and Summary Description.
Once you have terminated employment distribution changes are no longer
permitted. However, you will still be eligible to make withdrawal
elections.
Q Can you tell me more about the Short-Term Payouts?
A Short-Term Payouts are available to help you meet shorter term financial
needs, such as helping to fund a child's college education, financing a
future home purchase, exercising stock options or for whatever foreseeable
use you may have.
This option allows you to receive a distribution of all or a portion of an
annual deferral amount (such as your base salary or annual bonus deferral),
plus earnings, from the Plan in any year as long as it is at least 3 years
after the end of the Plan year in which the election is made. For example,
a Short-Term Payout elected for the 2000 Plan year can be paid no earlier
than January 1, 2004. Your Short-Term Payout distribution will be paid to
you only in a lump sum.
The Short-Term Payout is an annual election. Each year you may elect
either to receive a future Short-Term Payout from that Plan year's annual
deferral amount.
15
<PAGE>
Q If I receive a distribution from the Plan, can I roll the money over into
another tax qualified plan to avoid taxes?
A No. The Plan is a nonqualified plan and distributions may not be rolled
-------
over into a tax-qualified retirement plan or an IRA.
Q Can I take a loan from my Account Balance?
A No, loans from the Account Balance are not available due to IRS
limitations.
Q Who can I name as Beneficiary?
A You can name any individual or entity you wish to. Your tax advisor can
provide you with more information on this topic.
Q What happens if I experience a Disability?
A If you experience a qualifying Disability, you will be excused from
fulfilling that portion of the annual deferral amount commitment that would
otherwise have been withheld during your Disability. You will thereafter
be permitted to continue your deferrals once you return to work. (Your
account balance will be affected accordingly.) In addition, at the
discretion of the Committee, you may receive an amount equal to your
termination distribution if you are permanently disabled.
Q What happens if I take a Paid Leave of Absence?
A Deferrals will continue through the election period you chose for that
year.
Q What happens if I take an Unpaid Leave of Absence?
A You will be excused from making deferrals until the earlier of the date the
Unpaid Leave of Absence expires or the date you return to a paid employment
status. Upon such expiration or return, deferrals shall resume for the
remaining portion of the Plan year in which the return occurs, based on the
deferral election, if any, made for that Plan year. If no election was made
for that Plan year, no deferral will be withheld. Your account balance will
be affected accordingly.
Q How are my annual deferral amounts taxed when they are distributed to me?
A Distributions and earnings accrued on such amounts, are taxed as ordinary
W-2 income, credited or debited when they are distributed to you. Unlike
ERISA-Qualified plans, special income tax averaging is not available.
Q Will taxes be withheld from my distributions?
A Yes. Although distributions are not subject to FICA or Medicare Taxes,
Federal and State income taxes must be withheld, by law, from
distributions. Federal taxes are currently withheld at a flat rate of 28%;
State taxes will depend upon your state of origin for tax purposes.
Q Will the distributions from the Plan affect my Social Security benefits
after I retire?
A Yes and No. Distributions made from the Plan will not affect your Social
Security benefits themselves. For purposes of Social Security, these
distributions are considered "earned" when they are credited to your
account; therefore, they do not constitute earned income under the earnings
test when they are distributed to you. However, because the distributions
will be considered gross income for federal income tax purposes, they may
have the effect of subjecting your social security benefits to federal
income taxation. These issues need to be discussed with your tax advisor.
16
<PAGE>
Q Will the Company guarantee the payment of my account balance under all
circumstances?
A The Company's obligation under the Plan shall be that of an unsecured
promise to pay money in the future. Amounts payable to you or your
Beneficiaries shall be paid from the general assets of the Company
exclusively.
Q What happens to my account balance if the Company becomes insolvent or
bankrupt?
A In the event that the Company becomes insolvent, you will be an unsecured
general creditor of the Company. Your claim against the assets of the
Company will be considered in sequence with the claims of other general
creditors of the Company.
Q Can I assign or dispose of my interest in the Plan?
A No. You cannot in any way sell, assign, hypothecate, alienate, encumber or
in any way transfer or convey in advance of receipt, any of your rights
under the Plan.
Plan Administration
Q How frequently will I receive a statement of my account balance?
A You will receive an account statement quarterly. The statement will be
sent to you as soon as practical (generally within 30 days) after December
31, March 31, June 30 and September 30.
Q Who will oversee the operation of the Plan?
A The Compensation Committee of the Board of Directors interprets and
administers the Plan. The Committee has the authority and responsibility
to interpret and enforce the Plan and all applicable regulations. The
Human Resources Department of the Company is responsible for the day-to-day
administration of the Plan.
Q Where can I get more information about the Plan and its administrators?
A The Plan Document and Summary Description will be provided to you and you
are encouraged to read it. If you still have questions after reading the
information, you may call: Annemarie Bradley (First Midwest Bancorp, Inc.)
630-875-7212. For a complete description of Plan provisions and benefits,
please refer to the Plan Document, Summary Description and the Trust. If
any conflicts arise between the Summary Description, the Questions and
Answers contained herein and the Plan Document itself, the Document will
prevail.
December 1999
17
<PAGE>
Exhibit 10.5
February 17, 2000
First Midwest Bancorp, Inc.
300 Park Boulevard, Suite 405
Itasca, IL 60143
RE: Letter Agreement - February 16, 2000
Grant of Nonqualified Stock Options (the "Agreement")
Dear ______ :
I am pleased to advise you that on February 16, 2000 (the "Date of Grant") and
pursuant to the "First Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive
Plan", as Amended (the "Plan"), the Compensation Committee (the "Committee") of
the Board of Directors of First Midwest Bancorp, Inc. (the "Company") approved a
grant to you of a "Nonqualified Stock Option" (the "Option"). The Option
provides you with the opportunity to purchase, for $23.0000 per share, up to
1,765 shares of the Company's Common Stock.
The Option is subject to the terms and conditions of the Plan, including any
Amendments thereto, which are incorporated herein by reference, and to the
following provisions:
(1) Exerciseability
---------------
Except as otherwise provided in paragraphs (3), (4) and (5) below, and
subject to paragraph (10) below, the Option shall be exercisable only if
you continue in the employment of the Company. The Option will become
exercisable as follows: (a) 50% of the Option to purchase the shares
indicated above is exercisable on or after February 16, 2002; b) the
remaining 50% of the Option to purchase the shares indicated above is
exercisable on February 16, 2003. Option expires upon the close of
business on February 16, 2010 (the "Expiration Date").
(2) Procedure for Exercise
----------------------
Subject to the forgoing paragraph (1), you may exercise the Option at any
time and from time to time during the term of the Option by:
(a) delivery of written notification of exercise and payment in full:
(i) in cash or its equivalent; or
(ii) by tendering shares of previously-acquired Company stock that
have been held by you for at least 6 months prior to the date of
written notification of exercise and having a fair market value
at the exercise date (defined as the average of the high and low
prices of the Company's Common Stock quoted on the NASDAQ Stock
Market on the date the written notice of exercise is received by
the office of the Senior Vice President and Corporate
Controller) equal to all or part of the total Option price; or
(iii) by combination of (i) and (ii);
for all Option shares being purchased, plus the amount of any
additional federal and state income tax and FICA required to be
withheld by reason of the exercise of the Option, unless you have
properly elected, with the Committee's consent in accordance with
Section 15 of the Plan, to deliver previously-owned shares that have
been held by you for at least 6 months prior to the date of written
notification of exercise or have Option shares withheld to satisfy
such taxes; and
---
(b) if requested within the specified time set forth in any such request,
delivery to the Company of such written representations and
undertakings as may, in the opinion of the Company's counsel, be
necessary or desirable to comply with federal and state securities
laws.
<PAGE>
Page 2
Also subject to the foregoing paragraph (1), you may exercise the Option by
delivery of written notification of exercise and payment in full of the
exercise price and applicable taxes in connection with the Nonqualified
Stock Option Gain Deferral Plan (the "Gain Deferral Plan") if at the sole
discretion of the committee you qualify to participate in the Gain Deferral
Plan.
Further information regarding procedures for exercising your options can be
found in the Plan, the Plan's "Summary Description" and the document
entitled "How to Exercise Your Stock Options" both dated May 1, 1998. If
you are a first time grant recipient, these documents accompany this
Agreement.
(3) Termination of Employment
-------------------------
If your employment with the Company or any of its subsidiaries terminates
prior to the Expiration Date, the Option will continue to be exercisable by
you (or in the event of your death, by your beneficiary or your estate's
executor or administrator) to the same degree that the Option was
exercisable on your employment termination date, until the first of the
following occur:
(a) the expiration of 30 days after the date your employment is terminated
for any reason other than retirement, death, disability or discharge
for cause;
(b) the expiration of three years following retirement, death or
disability;
(c) the termination date if the termination is for cause; or
(d) the Expiration Date.
(4) Merger, Consolidation or Change in Control
------------------------------------------
In the event of a Change in Control as defined in Section 13 of the Plan,
as amended by the Board of Directors of the Company on February 18, 1998,
all holding period and vesting exercise restrictions will lapse and the
Options will become immediately exercisable in full and the 30 day period
set forth in paragraph (3) (a) above will be extended to one year.
(5) Limited Transferability
-----------------------
The Option is personal to you and may not be sold, transferred, pledged,
assigned or otherwise alienated, other than as provided herein. Your
Option shall be exercisable during your lifetime only by you.
Notwithstanding the foregoing, you may transfer your Option to:
(a) your spouse, children or grandchildren ("Immediate Family
Members");
(b) a trust or trusts for the exclusive benefit of such Immediate
Family Members, or;
(c) a partnership in which such Immediate Family Members are the
only partners,
provided that:
(i) there may be no consideration for any such transfer;
(ii) subsequent transfers of the transferred Option shall be
prohibited, except to designated beneficiaries; and
(iii) such transfer is evidenced by documents acceptable to the
Company and filed with the Corporate Secretary.
Following transfer, the Option shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer,
provided that for purposes of designating a beneficiary with respect
thereto, the transferee shall be entitled to designate the beneficiary.
The provisions of this Letter Agreement relating to the period of
exerciseability and expiration of the Option shall continue to be applied
with respect to you and the Option shall be exercisable by the transferee
only to the extent, and for the periods, set forth above. Transfer of
Common Stock purchased by your transferee upon exercise of the Option may
also be subject to the restrictions and limitations described in Paragraph
(6) below.
<PAGE>
Page 3
(6) Securities Law Restrictions
---------------------------
You understand and acknowledge that applicable securities laws govern and
may restrict your right to offer, sell, or otherwise dispose of any Option
shares. The Company registered the Option shares under The Securities Act
of 1933.
Executive Officers of the Company subject to Section 16(b) of the
Securities Exchange Act of 1934 should consult the Company's Corporate
Secretary prior to purchasing any shares under this Option or selling such
shares thereafter.
Additional information regarding these rules can be found in the Plan's
"Summary Description" and the document entitled "How to Exercise Your Stock
Options".
(7) Tax Consequences
----------------
Information regarding federal tax consequences of the option can be found
in the Plan's "Summary Description" and the document entitled "How to
Exercise Your Stock Options". You are strongly encouraged to contact your
tax advisor regarding such tax consequences as they relate to you.
(8) Employment of Successors
------------------------
Nothing herein confers any right or obligation on you to continue in the
employment of the Company or any subsidiary or shall affect in any way your
right or the right of the Company or any subsidiary, as the case may be, to
terminate your employment at any time. This Agreement shall be binding
upon, and inure to the benefit of, any successor or successors of the
Company.
(9) Conformity with Plan
--------------------
The Option is intended to conform in all respects with the Plan.
Inconsistencies between this Agreement and the Plan shall be resolved in
accordance with the terms of the Plan. By executing and returning the
enclosed copy of this Agreement, you agree to be bound by all the terms of
the Plan. All definitions stated in the Plan shall be fully applicable to
this Agreement.
(10) Effect of Certain Accounting Rules
----------------------------------
In the event the Board of Directors determines it is to be in the best
interests of the Company to account for a business combination under the
pooling-of-interests method and, in the written opinion of the accounting
firm then serving as the Company's independent auditors, the grant of this
Option or any of the terms of this Option, makes such business combination
ineligible for pooling-of-interests accounting that but for the grant of
this Option or such terms would otherwise be eligible for such accounting
treatment, then this Option or such be rescinded or the terms modified to
the extent the Compensation Committee determines to be necessary to enable
the business combination to so qualify for pooling-of-interests accounting
treatment.
To confirm your understanding and acceptance of the Option granted to you by
this Agreement, please execute and return in the enclosed envelope the following
enclosed documents: (a) the "Beneficiary Designation Form" and (b) the
Confirmation of Acceptance endorsement on the extra copy of this Agreement. The
----------
original copy of this Agreement should be retained for your permanent records.
If you have any questions, please do not hesitate to contact the office of the
Senior Vice President and Corporate Controller of First Midwest Bancorp, Inc. at
(630) 875-7459.
Very truly yours,
Robert P. O'Meara
Chairman and Chief Executive Officer
First Midwest Bancorp, Inc.
RPO:m
<PAGE>
**************************************************
CONFIRMATION OF ACCEPTANCE BY PARTICIPANT
-----------------------------------------
I acknowledge having read the Plan (as amended), the Summary Description and
this Agreement and I agree to be bound by all provisions as set forth in the
Plan and this Agreement.
_______________________________ _______________________________
Participant's Signature Date
<PAGE>
1989 OMNIBUS STOCK AND INCENTIVE PLAN
BENEFICIARY DESIGNATION FORM
----------------------------
This Beneficiary Designation Form applies to Nonqualified Stock Option and
Reload Option Agreement(s) as follows (fill in the Option Grant Date from the
-----------------
applicable Letter Agreement):
_______________________ _______________________ _______________________
_______________________ _______________________ _______________________
_______________________ _______________________ _______________________
All prior Beneficiary Designation Forms applicable to Nonqualified Stock
------------------------------------------------------------------------
Options or Reload Options not listed above will remain in effect as previously
- ------------------------------------------------------------------------------
submitted.
- ----------
You may designate a primary beneficiary and a secondary beneficiary to whom
rights under your Nonqualified or Reload Options will pass in the event of your
death. You may name more than one person as a primary or secondary beneficiary.
For example, you may wish to name your spouse as primary beneficiary and your
children as secondary beneficiaries. Your primary beneficiaries will have equal
rights with respect to your Nonqualified or Reload Options unless you indicate
otherwise. The same rule applies for secondary beneficiaries.
Designate Your Beneficiary(ies):
Primary Beneficiary(ies) (give name, address and relationship to you): ____
________________________________________________________________________________
________________________________________________________________________________
Secondary Beneficiary(ies) (give name, address and relationship to you):___
________________________________________________________________________________
________________________________________________________________________________
I certify that my designation of beneficiary(ies) set forth above is my
free act and deed and acknowledge that when effective it will revoke any prior
designation I may have made with regard to Nonqualified or Reload Option(s) set
forth above.
_________________________________________
(Signature)
_________________________________________
(Date)
This Beneficiary Designation Form shall be effective on the day it is
received by the Corporate Secretary of the Company. This Form shall be (i)
delivered to the Corporate Secretary by personal delivery, facsimile, United
States mail or by express courier service, and (ii) deemed to be received upon
personal delivery, upon confirmation of receipt of facsimile transmission or
upon receipt by the Corporate Secretary if by United States mail or express
courier service; provided, however, that if this Form is not received during
regular business hours, it shall be deemed to be received on the next succeeding
business day of the Company.
RECEIVED AND ACKNOWLEDGED:
FIRST MIDWEST BANCORP, INC.
BY: _____________________________________
(On behalf of the Corporate Secretary)
Date:_____________________
<PAGE>
Exhibit 10.6
February 17, 2000
RE: Grant of Director Options - Letter Agreement (February 16, 2000)
Dear ________:
I am pleased to confirm to you the grant on (February 16, 2000 (the "Date of
Grant") of a nonqualified stock option (the "Director Option") under the First
Midwest Bancorp, Inc. Non-Employee Directors' 1997 Stock Option Plan (the
"Directors' Plan"). The Director Option provides you with the opportunity to
purchase for $23.0000 per share up to 804 shares of the Company's Common Stock.
The Director Option is subject to the terms and conditions of the Directors'
Plan, which are incorporated herein by reference, and to the following :
(1) Vesting and Exercisability: Subject to paragraph (9) below, in general, the
--------------------------
Director Option will become fully vested and exercisable on February 16,
2001. In the event of your death or disability, or of a Change in Control
as defined in the Company's 1989 Omnibus Stock and Incentive Plan, as
Amended (the "Omnibus Plan"), the Director Option will become fully vested
and exercisable.
(2) Expiration: If you cease to be a director for any reason other than death
----------
or disability prior to the date the Director Option becomes fully vested,
the Director Option will expire on the date your directorship ends. If the
Director Option has become fully vested at the time you cease to be a
director, the Director Option will expire on the third anniversary of the
date you ceased to be a director or one year, in the event of your death.
In no event, however, may the Director Option be exercised beyond February
16, 2010.
(3) Procedure for Exercise: Once vested, you may exercise the Director Option
----------------------
at any time by delivering written notice of exercise and payment of the
Exercise Price in full either (a) in cash or its equivalent (as described
in the Directors' Plan), or (b) by tendering previously-acquired shares of
Common Stock having an aggregate fair market value equal to the total
Exercise Price that have been owned by you for six months or more, or (c)
by a combination of the (a) and (b). You may deliver an affirmation of
ownership of Common Stock having the required fair market value in lieu of
physically tendering such shares. In the event you have made an election
under the Company's Nonqualified Stock Option Gain Deferral Plan, you may
only make payment with shares of Common Stock in accordance with clause (b)
above. Further information regarding exercise procedures will be provided
to you.
(4) Limited Transferability; Beneficiary Designation: The Director Option is
------------------------------------------------
personal to you and may not be sold, transferred, pledged, assigned or
otherwise alienated, other than as provided herein.
<PAGE>
The Director Option shall be exercisable during your lifetime only by you.
Notwithstanding the foregoing, you may transfer the Director Option to:
(a) your spouse, children or grandchildren ("Immediate Family
Members");
(b) a trust or trusts for the exclusive benefit of such Immediate
Family Members,
or;
(c) a partnership in which such Immediate Family Members are the
only partners,
provided that:
(i) there may be no consideration for any such transfer,
(ii) subsequent transfers of the transferred Director Option shall be
prohibited, except to designated beneficiaries; and
(iii) such transfer is evidenced by documents acceptable to the
Company and filed with the Corporate Secretary.
Following transfer, the Director Option shall continue to be subject to the
same terms and conditions as were applicable immediately prior to transfer,
provided that for purposes of designating a beneficiary with respect
thereto, the transfer, provided that for purposes of designating a
beneficiary with respect thereto, the transferee shall be entitled to
designate the beneficiary. The provisions of this Letter Agreement
relating to the period of exerciseability and expiration of the Director
Option shall continue to be applied with respect to you and your status as
a director, and the Director Option shall be exercisable by the transferee
only to the extent, and for the periods, set forth in Paragraphs (1) and
(2) above. Transfer of Common Stock purchased by your transferee upon
exercise of the Director Option may also be subject to the restrictions and
limitations described in Paragraph (5) below.
Kindly designate a beneficiary or beneficiaries with respect to the
Director Option by completing and returning the attached Beneficiary
Designation Form.
(5) Securities Law Restrictions: You understand and acknowledge that
---------------------------
applicable securities laws govern and may restrict your right to offer,
sell or otherwise dispose of any Common Stock purchased upon exercise of
the Director Option. In addition, because of your status as a director of
the Company, prior to exercise of the Director Option or sale of any shares
acquired upon exercise, you should consult with the Company's Corporate
Secretary with respect to the implications of Section 16(a) and (b) of the
Securities Exchange Act of 1934 on such exercise or sale. Additional
information regarding these rules will be provided to you, on request, from
the Company's Corporate Secretary.
(6) Tax Consequences: Director Options are in the form of nonqualified stock
----------------
options which are not intended to fall under the provisions of Internal
Revenue Code Section 422. No federal or state income taxes or
FICA/Medicare taxes will be withheld by the Company upon exercise.
Information regarding the tax consequences of the Director Option will be
provided to you.
(7) Miscellaneous: Nothing in this Letter Agreement confers any right on you to
-------------
continue as a director of the Company. This Letter Agreement will be
binding upon, and insure to the benefit of, your and the Company's
successors and assigns.
<PAGE>
(8) Conformity with Directors' Plan: The Director Option is intended to
-------------------------------
conform to the Directors' Plan in all respects. Inconsistencies between
this Letter Agreement and the Directors' Plan shall be resolved in
accordance with the terms of the Directors' Plan. By executing and
returning the enclosed copy of this Letter Agreement you agree to be bound
by the terms hereof and of the Directors' Plan. Except as otherwise
expressly provided herein, all definitions stated in the Directors' Plan
shall be applicable to this Letter Agreement.
(9) Effect of Certain Accounting Rules: In the event the Board of Directors
----------------------------------
determines it is to be in the best interests of the Company to account for
a business combination under the pooling-of-interests method and, in the
written opinion of the accounting firm then serving as the Company's
independent auditors, the grant of this Option or any of the terms of this
Option, makes such business combination ineligible for pooling-of-interests
accounting that but for the grant of this Option or such terms would
otherwise be eligible for such accounting treatment, then this Option or
such be rescinded or the terms modified to the extent the Compensation
Committee determines to be necessary to enable the business combination to
so qualify for pooling-of-interests accounting treatment.
To confirm your understanding and acceptance of the Director Option granted to
you by this Letter Agreement, kindly execute and return to the Company's
Corporate Secretary in the enclosed envelope the following documents: (a) the
"Confirmation of Acceptance" endorsement on the extra copy of this Letter
----------
Agreement, and (b) the Beneficiary Designation Form.
If you have any questions, please do not hesitate to contact the Corporate
Secretary.
Very truly yours,
First Midwest Bancorp, Inc.
Robert P. O'Meara
Chairman and Chief Executive Officer
CONFIRMATION OF ACCEPTANCE
--------------------------
I acknowledge receipt of a copy of the Directors' Plan, that I have reviewed
this Letter Agreement and the Directors' Plan, and I agree to be bound by all
provisions of this Letter Agreement and the Directors' Plan.
_______________________________ ______________________________
Director's Signature Date
<PAGE>
NON-EMPLOYEE DIRECTORS' 1997 STOCK OPTION PLAN
BENEFICIARY DESIGNATION FORM
----------------------------
This Beneficiary Designation Form applies to Director Stock Option and Reload
Option Agreement(s) as follows (fill in the Option Grant Date from the
-----------------
applicable Letter Agreement):
______________________ __________________________ ______________________
______________________ __________________________ ______________________
______________________ __________________________ ______________________
All prior Beneficiary Designation Forms applicable to Director Stock
--------------------------------------------------------------------
Options or Reload Options not listed above will remain in effect as previously
- ------------------------------------------------------------------------------
submitted.
- ----------
You may designate a primary beneficiary and a secondary beneficiary to whom
rights under your Director or Reload Options will pass in the event of your
death. You may name more than one person as a primary or secondary beneficiary.
For example, you may wish to name your spouse as primary beneficiary and your
children as secondary beneficiaries. Your primary beneficiaries will have equal
rights with respect to your Director or Reload Options unless you indicate
otherwise. The same rule applies for secondary beneficiaries.
Designate Your Beneficiary(ies):
Primary Beneficiary(ies) (give name, address and relationship to you): ____
________________________________________________________________________________
________________________________________________________________________________
Secondary Beneficiary(ies) (give name, address and relationship to you): __
________________________________________________________________________________
________________________________________________________________________________
I certify that my designation of beneficiary(ies) set forth above is my
free act and deed and acknowledge that when effective it will revoke any prior
designation I may have made with regard to Director or Reload Option(s) set
forth above.
____________________________________
(Signature)
____________________________________
(Date)
This Beneficiary Designation Form shall be effective on the day it is
received by the Corporate Secretary of the Company. This Form shall be (i)
delivered to the Corporate Secretary by personal delivery, facsimile, United
States mail or by express courier service, and (ii) deemed to be received upon
personal delivery, upon confirmation of receipt of facsimile transmission or
upon receipt by the Corporate Secretary if by United States mail or express
courier service; provided, however, that if this Form is not received during
regular business hours, it shall be deemed to be received on the next succeeding
business day of the Company.
RECEIVED AND ACKNOWLEDGED:
FIRST MIDWEST BANCORP, INC.
BY: _____________________________________
(On behalf of the Corporate Secretary)
Date:_____________________
<PAGE>
Exhibit 10.13
FIRST MIDWEST BANCORP
SAVINGS AND PROFIT SHARING PLAN
(Amended and Restated Effective January 1, 1998, Except as Expressly Provided
Otherwise)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1
General................................................................................................ 1
-------
1.1 Purpose.............................................................................. 1
-------
1.2 Source of Funds...................................................................... 1
---------------
1.3 Effective Date....................................................................... 1
--------------
1.4 Definitions.......................................................................... 1
-----------
ARTICLE 2
Eligibility and Participation............................................................................. 11
- -----------------------------
2.1 Eligibility Requirements............................................................. 11
------------------------
2.2 Leaves of Absence.................................................................... 12
-----------------
2.3 Years of Service to be Credited...................................................... 12
-------------------------------
2.4 Years of Service to be Disregarded................................................... 12
----------------------------------
2.5 Leased Employees..................................................................... 13
----------------
2.6 Qualified Military Service........................................................... 13
--------------------------
ARTICLE 3
Contributions by Employer and Rollover Contributions...................................................... 14
- ----------------------------------------------------
3.1 Contributions to the Plan............................................................ 14
-------------------------
3.2 Before-Tax Contribution.............................................................. 14
-----------------------
3.3 Limitations on Before-Tax Contributions.............................................. 14
---------------------------------------
3.4 Employer Contribution................................................................ 17
---------------------
3.5 Matching Employer Contribution....................................................... 17
------------------------------
3.6 Rollover Contributions............................................................... 18
----------------------
ARTICLE 4
Accounting Provisions and Allocations..................................................................... 19
- -------------------------------------
4.1 Participant's Accounts............................................................... 19
----------------------
4.2 Common Fund.......................................................................... 19
-----------
4.3 Allocation Procedure................................................................. 20
--------------------
4.4 Determination of Value of Trust Fund and of Net Earnings or Losses................... 21
------------------------------------------------------------------
4.5 Allocation of Net Earnings or Losses................................................. 21
------------------------------------
4.6 Eligibility to Share in the Employer's Contributions................................. 21
----------------------------------------------------
4.7 Allocation of Before-Tax Contributions............................................... 22
--------------------------------------
4.8 Allocation of Matching Employer Contributions........................................ 22
---------------------------------------------
4.9 Allocation of Employer Contribution.................................................. 23
-----------------------------------
4.10 Provisional Annual Addition.......................................................... 23
---------------------------
4.11 Limitation on Annual Additions....................................................... 23
------------------------------
4.12 Special Limitation on Maximum Contribution........................................... 24
------------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE 5
Amount of Payments to Participants........................................................................................ 26
- ----------------------------------
5.1 General Rule......................................................................................... 26
------------
5.2 Normal Retirement.................................................................................... 26
-----------------
5.3 Death................................................................................................ 26
-----
5.4 Disability........................................................................................... 27
----------
5.5 Vesting.............................................................................................. 27
-------
5.6 Resignation or Dismissal............................................................................. 27
------------------------
5.7 Treatment of Forfeitures............................................................................. 28
------------------------
ARTICLE 6
Distributions............................................................................................................. 30
- -------------
6.1 Commencement of Distributions........................................................................ 30
-----------------------------
6.2 Form of Distributions................................................................................ 31
---------------------
6.3 Purchase of an Annuity Contract (Applicable to the Heritage and McHenry Plan Accounts Only).......... 32
-------------------------------------------------------------------------------------------
6.4 Distributions to Beneficiaries....................................................................... 34
------------------------------
6.5 Beneficiaries........................................................................................ 35
-------------
6.6 Form of Elections and Applications for Benefits...................................................... 36
-----------------------------------------------
6.7 Unclaimed Distributions.............................................................................. 36
-----------------------
6.8 Loans................................................................................................ 36
-----
6.9 Withdrawals Prior to Termination of Employment....................................................... 37
----------------------------------------------
6.10 Facility of Payment.................................................................................. 39
-------------------
6.11 Claims Procedure..................................................................................... 40
----------------
6.12 Eligible Rollover Distributions...................................................................... 41
-------------------------------
ARTICLE 7
Top-Heavy Plan Requirements............................................................................................... 42
- ---------------------------
7.1 Definition of Top-Heavy Plan......................................................................... 42
----------------------------
7.2 Top-Heavy Plan Requirements.......................................................................... 42
---------------------------
7.3 Definitions.......................................................................................... 43
-----------
7.4 Cessation of Top-Heavy Requirements.................................................................. 43
-----------------------------------
ARTICLE 8
Powers and Duties of Plan Committee....................................................................................... 45
- -----------------------------------
8.1 Appointment of Plan Committee........................................................................ 45
-----------------------------
8.2 Powers and Duties of Committee....................................................................... 45
------------------------------
8.3 Committee Procedures................................................................................. 46
--------------------
8.4 Consultation with Advisors........................................................................... 46
--------------------------
8.5 Committee Members as Participants.................................................................... 46
---------------------------------
8.6 Records and Reports.................................................................................. 47
-------------------
8.7 Investment Policy.................................................................................... 47
-----------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
8.8 Designation of Other Fiduciaries.................................................................... 47
--------------------------------
8.9 Obligations of Committee............................................................................ 48
------------------------
8.10 Indemnification of Committee........................................................................ 48
----------------------------
ARTICLE 9
Trustee and Trust Fund.................................................................................................... 49
- ----------------------
9.1 Trust Fund.......................................................................................... 49
----------
9.2 Payments to Trust Fund and Expenses................................................................. 49
-----------------------------------
9.3 Trustee's Responsibilities.......................................................................... 49
--------------------------
9.4 Reversion to the Employer........................................................................... 49
-------------------------
9.5 Investment Options.................................................................................. 49
------------------
9.6 Rollover from Prior Plan............................................................................ 50
------------------------
ARTICLE 10
Amendment or Termination.................................................................................................. 52
- ------------------------
10.1 Amendment........................................................................................... 52
---------
10.2 Termination......................................................................................... 52
-----------
10.3 Form of Amendment, Discontinuance of Employer Contributions, and Termination........................ 52
----------------------------------------------------------------------------
10.4 Limitations on Amendments........................................................................... 52
-------------------------
10.5 Level of Benefits upon Merger....................................................................... 53
-----------------------------
10.6 Vesting upon Termination or Discontinuance of Employer Contributions; Liquidation of Trust.......... 53
------------------------------------------------------------------------------------------
ARTICLE 11
Adoption by Affiliates.................................................................................................... 54
- ----------------------
11.1 Adoption of Plan.................................................................................... 54
----------------
11.2 The Company as Agent for Employer................................................................... 54
---------------------------------
11.3 Adoption of Amendments.............................................................................. 54
----------------------
11.4 Termination......................................................................................... 54
-----------
11.5 Data to be Furnished by Employers................................................................... 54
---------------------------------
11.6 Joint Employees..................................................................................... 54
---------------
11.7 Expenses............................................................................................ 55
--------
11.8 Withdrawal.......................................................................................... 55
----------
11.9 Prior Plans......................................................................................... 55
-----------
11.10 Merger of the Heritage Plan into the Plan........................................................... 55
-----------------------------------------
ARTICLE 12
Miscellaneous............................................................................................................. 56
- -------------
12.1 No Guarantee of Employment, etc..................................................................... 56
-------------------------------
12.2 Rights of Participants and Others................................................................... 56
---------------------------------
12.3 Qualified Domestic Relations Order.................................................................. 56
----------------------------------
12.4 Controlling Law..................................................................................... 56
---------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
12.5 Severability........................................................................................ 56
------------
12.6 Notification of Addresses........................................................................... 57
-------------------------
12.7 Gender and Number................................................................................... 57
-----------------
</TABLE>
iv
<PAGE>
ARTICLE 1
General
-------
1.1 Purpose. It is the intention of the Company to continue to provide
-------
for the administration of the First Midwest Bancorp Savings and Profit Sharing
Plan and a Trust Fund in conjunction therewith for the benefit of Eligible
Employees of the Employers, in accordance with the provisions of Sections 401
and 501 of the Code and in accordance with other provisions of law relating to
defined contribution plans. Except as provided in this Plan or the Trust, upon
the transfer by the Employer of any funds to the Trust Fund in accordance with
the provisions of this Plan, all interest of the Employer therein shall cease
and terminate, and no part of the Trust Fund shall be used for, or diverted to,
purposes other than the exclusive benefit of Participants and their
beneficiaries.
1.2 Source of Funds. The Trust Fund shall be created, funded and
---------------
maintained by contributions of the Employers, by contributions of Participants,
and by such net earnings as are obtained from the investment of the funds of the
Trust Fund.
1.3 Effective Date. The provisions of the Plan as herein restated shall
--------------
be effective as of January 1, 1998, except as expressly provided otherwise.
Except as may be required by ERISA or the Code, the rights of any person whose
status as an employee of the Employer and all Affiliates has terminated shall be
determined pursuant to the Plan as in effect on the date such employment
terminated, unless a subsequently adopted provision of the Plan is made
specifically applicable to such person.
1.4 Definitions. Certain terms are capitalized and have the respective
-----------
meanings set forth in the Plan.
"Account" or "Accounts" shall mean the individual accounts established
------- --------
pursuant to Section 4.1 representing a Participant's allocable share of the
Trust Fund. Such Accounts may include:
(a) An "Employer Contribution Account" maintained to record the
amount of Employer Contributions, any net earnings or losses of the Trust Fund
thereon and any distributions or forfeitures thereof allocated to a Participant
in accordance with Article 4.
(b) A "Vested Employer Account" maintained to record the amount of
Employer Contributions, if any, made on behalf of a Participant prior to January
1, 1998 which were, under the terms of the Plan in effect at such time,
immediately nonforfeitable when contributed, and adjustments for net earnings or
losses of the Trust Fund thereon and any distributions or forfeitures thereof
allocated to a Participant in accordance with Article 4.
<PAGE>
(c) A "Before-Tax Account" maintained to record the amount of Before-
Tax Contributions, any net earnings or losses of the Trust Fund thereon and any
distributions thereof allocated to a Participant in accordance with Article 4.
(d) A "Matching Account" maintained to record the amount of Matching
Employer Contributions and forfeitures, any net earnings or losses of the Trust
Fund thereon and any distributions thereof allocated to a Participant in
accordance with Article 4.
(e) A "Prior Plan Account" maintained to record the balance of any
account under a Prior Plan, other than the McHenry Plan Account and the Heritage
Plan Account, attributable to amounts other than after-tax contributions which
is transferred to the Trust Fund, adjustments for net earnings or losses of the
Trust Fund thereon and any distributions thereof allocated to a Participant in
accordance with Article 4.
(f) A "Heritage Plan Account" maintained to record the balance of any
contributions made on behalf of a Participant under the Heritage Plan,
adjustments for net earnings or losses of the Trust Fund thereon and any
distributions thereof allocated to a Participant in accordance with Article 4.
(g) A "McHenry Plan Account" maintained to record the balance of any
discretionary employer contributions made on behalf of a Participant under the
McHenry Plan, adjustments for net earnings or losses of the Trust Fund thereon
and any distributions thereof allocated to a Participant in accordance with
Article 4.
(h) An "After-Tax Account" maintained to record the balance of any
account under a Prior Plan attributable to after-tax contributions which is
transferred to the Trust Fund, adjustments for net earnings or losses of the
Trust Fund thereon and any distributions thereof allocated to a Participant in
accordance with Article 4.
(i) A "Rollover Account" maintained to record the balance of any
Rollover Contribution pursuant to Section 3.6, any net earnings or losses of the
Trust Fund thereon and any distributions thereof allocated to a Participant in
accordance with Article 4. To the extent applicable to any Rollover Account, an
after-tax sub-account shall be maintained as part of the Participant's Rollover
Account to record the balance of any account under a Prior Plan or Rollover
Contribution attributable to after-tax contributions, any net earnings or losses
of the Trust Fund thereon and any distributions thereof allocated to a
Participant in accordance with Article 4.
Active Participant. "Active Participant" means a Participant who, on a
------------------
given date, is employed by the Employer as an Eligible Employee.
Affiliate. "Affiliate" means any corporation or enterprise, other than the
---------
Company, which, as of a given date, is a member of the same controlled group of
corporations, the same group of trades or businesses under common control or the
same affiliated service group, determined in
2
<PAGE>
accordance with Sections 414(b), (c), (m) or (o) of the Code, as is the Company.
For purposes of applying the limitations of Section 415 of the Code set forth in
Article 4, "Affiliate" shall include any corporation or enterprise, other than
the Company, which, as of a given date, is a member of the same controlled group
of corporations or the same group of trades or businesses under common control,
determined in accordance with Sections 414(b) or (c) of the Code as modified by
Section 415(h) thereof, as is the Company.
Annual Addition. "Annual Addition" means for any Limitation Year, the sum
---------------
of (a) all Before-Tax Contributions, Matching Employer Contributions, Employer
Contributions, forfeitures and after-tax contributions allocated to the accounts
of the Participant under this Plan; (b) any employer contributions, forfeitures
and employee after-tax contributions allocated to such Participant under any
other defined contribution plan maintained by an Employer or Affiliate; and (c)
amounts allocated to an individual medical account as defined in Code Section
415(l)(2) and amounts attributable to post-retirement medical benefits allocated
to an account described in Code Section 419A(d)(2) maintained by the Employer or
an Affiliate.
Before-Tax Contribution. "Before-Tax Contribution" means, with respect to
-----------------------
a Participant, the contributions of the Employer on his behalf as described in
Section 3.2 and, with respect to the Employer, means the sum of such
contributions.
Board of Directors. "Board of Directors" means the Board of Directors of
------------------
the Company.
Code. "Code" means the Internal Revenue Code of 1986, as from time to time
----
amended.
Committee. "Committee" means the plan administrator and named fiduciary
---------
appointed pursuant to Section 8.1.
Company. The "Company" means First Midwest Bancorp, Inc., a corporation
-------
organized and existing under the laws of the State of Delaware.
Considered Compensation. A Participant's "Considered Compensation" for any
-----------------------
Plan Year is his Total Compensation, excluding any severance or transitional
pay, received from an Employer during such Plan Year paid while he was a
Participant; provided, however, Considered Compensation shall not include any
amount in excess of $150,000, as adjusted for increases in the cost of living
in accordance with Code Section 401(a)(17)(B).
Defined Contribution Dollar Limitation. The "Defined Contribution Dollar
--------------------------------------
Limitation" shall, for any Limitation Year, be equal to the greater of (a)
$30,000 or (b) one-fourth of the dollar limitation set forth in Code Section
415(b)(1)(A) (as such dollar limitation may be adjusted in accordance with Code
Section 415(b)) in effect for such Limitation Year.
Determination Date. A Participant's "Determination Date" is the Valuation
------------------
Date coinciding with or next succeeding his termination of employment.
3
<PAGE>
Early Retirement Date. A Participant's "Early Retirement Date" is the date
---------------------
on which he has completed at least 15 Years of Service and attained age 55.
Notwithstanding the foregoing, with respect to any Participant who formerly
participated in the Heritage Plan and was an employee of Heritage Bank Country
Club Hills (f/n/a 1st Heritage Bank) on January 13, 1992, the effective date of
its acquisition by Heritage Financial Services, "Early Retirement Date" means
the date on which such Participant attains his 55th birthday and has completed
five Years of Service. For purposes of Section 4.6, "Early Retirement Date"
also includes a retirement date designated by an Employer in connection with the
Participant's election to participate in a voluntary retirement program offered
by the Participant's Employer. Retirement shall be considered as commencing on
the day immediately following a Participant's last day of employment (or
Authorized Leave of Absence, if later).
Eligible Employee. An "Eligible Employee" is any employee of the Employer
-----------------
who is not a Member of a Collective Bargaining Unit or a Leased Employee.
Notwithstanding the foregoing, however, any employee of an Employer who was
hired on or after January 1, 1996 and before January 1, 1998 and who was in a
job classification for which compensation was based primarily on sales
commissions, including, without limitation, Mortgage Loan Specialists and
Commissioned Loan Originators, was not an "Eligible Employee" for any portion of
the 1996 and 1997 Plan Years during which the employee was employed in such job
classification.
Eligible Participant. An "Eligible Participant" is a Participant as
--------------------
defined in Section 4.6.
Eligibility Period. An "Eligibility Period" is a one-year period used for
------------------
the purpose of determining when an employee is eligible to participate in the
Plan. An employee's first Eligibility Period shall commence on the date on
which he first completes an Hour of Service and subsequent Eligibility Periods
shall commence on each anniversary thereof; provided, however, that subsequent
Eligibility Periods shall commence on the first day of each Plan Year which
begins after the date on which the Participant first completes an Hour of
Service. Notwithstanding the foregoing, the initial Eligibility Period of a
former employee who is reemployed after incurring one or more One-Year Breaks in
Service and who is not eligible for immediate participation pursuant to Section
2.1(c) shall commence on the date on which he first performs duties for the
Employer or an Affiliate after such One-Year Break in Service, and subsequent
Eligibility Periods shall commence on the anniversary thereof or on the first
day of each Plan Year which begins after said date, as determined by applying
the preceding sentence as if such date were the first date on which the
Participant first completed an Hour of Service.
Employer. "Employer" means the Company or any such Affiliate thereof which
--------
adopts the Plan in accordance with Article 11.
Employer Contribution. "Employer Contribution" is the contribution
---------------------
referred to in Section 3.4.
4
<PAGE>
Employment Commencement Date. An individual's "Employment Commencement
----------------------------
Date" is the first date on which he performs duties for the Employer or an
Affiliate as an employee; provided that in the case of an employee who returns
to service following his Severance Date, the employee's "Employment Commencement
Date" is the first date on which he performs duties for the Employer or an
Affiliate as an employee following such Severance Date.
Entry Date. January 1 and July 1 of each Plan Year shall be an "Entry
----------
Date."
ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974,
-----
as from time to time amended.
Excess Tentative Contribution. "Excess Tentative Contribution" is the
-----------------------------
excess contribution described in Section 4.11(d).
Five-Percent Owner. "Five-Percent Owner" means a five-percent owner of the
------------------
Employer or an Affiliate within the meaning of Section 414(i)(1) of the Code.
Heritage Fund. "Heritage Fund" means the Fund established and maintained
-------------
under Section 9.5(a)(iv) of the Plan.
Heritage Plan. "Heritage Plan" means the Heritage Financial Services
-------------
Profit Sharing Plan as in effect on September 30, 1998, which was merged into
this Plan effective October 1, 1998.
Highly Compensated Employee. "Highly Compensated Employee" means,
---------------------------
effective January 1, 1997, an employee of the Employer or an Affiliate who was a
Participant eligible during the Plan Year to make Before-Tax Contributions and
who:
(a) was a Five-Percent Owner at any time during the Plan Year; or;
(b) received Section 415 Compensation in excess of $80,000 (as
adjusted for increases in the cost of living by the Secretary of the Treasury)
during the preceding Plan Year and was among the top 20% of the employees
(disregarding those employees excludable under Code Section 415(q)(5)) when
ranked on the basis of Section 415 Compensation paid for that year.
To the extent required by Code Section 414(q)(6), a former employee who was
a Highly Compensated Employee when he or she separated from service with the
Employer and all Affiliates or at any time after attaining age 55 shall be
treated as a Highly Compensated Employee.
Hour of Service. An "Hour of Service" is:
---------------
(a) each hour for which an employee is paid or entitled to payment
for the performance of duties for the Employer or an Affiliate;
5
<PAGE>
(b) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer or an Affiliate; and
(c) each hour for which an employee is paid or entitled to payment
for a period during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday, illness,
incapacity, layoff, jury duty, military duty, or leave of absence. In crediting
Hours of Service pursuant to this subparagraph (c), all payments made or due
shall be taken into account, whether such payments are made directly by the
Employer or an Affiliate or indirectly (e.g., through a trust fund or insurer to
----
which the Employer or an Affiliate makes payments, or otherwise), except that:
(i) no more than 501 such Hours of Service shall be credited
for any continuous period during which the employee performs no duties;
(ii) no such Hours of Service shall be credited if payments are
made or due under a plan maintained solely for the purpose of complying
with any workers' compensation, unemployment compensation or disability
insurance laws; and
(iii) no such Hours of Service shall be credited for payments
which are made solely to reimburse the employee for medical or medically
related expenses.
The Hours of Service, if any, for which an employee is credited for a period in
which he performs no duties shall be computed and credited to computation
periods in accordance with 29 C.F.R. 2530.200b-2 and other applicable
regulations promulgated by the Secretary of Labor. For purposes of computing the
Hours of Service to be credited to an employee for whom a record of hours worked
is not maintained, an employee shall be credited with 45 Hours of Service for
each week in which he completes at least one Hour of Service. In addition, an
employee shall be credited with Hours of Service for each week the employee is
on a leave of absence in accordance with Section 2.2.
Individual Beneficiary. "Individual Beneficiary" means a natural person
----------------------
designated by the Participant in accordance with Section 6.5 to receive all or
any portion of the amounts remaining in the Participant's Accounts at the time
of the Participant's death. "Individual Beneficiary" also means a natural person
who is a beneficiary of a trust designated by the Participant in accordance with
Section 6.5 to receive all or a portion of such amount, provided the trust
requires that such amounts be paid to the beneficiary in the time and manner
that this Plan would require that direct payments be made to an Individual
Beneficiary.
Leased Employee. "Leased Employee" means, effective January 1, 1997, any
---------------
individual who is not an employee of the Employer or an Affiliate and who
provides services for the Employer or an Affiliate if:
(a) such services are provided pursuant to an agreement between the
Employer or an Affiliate and any other person;
6
<PAGE>
(b) such individual has performed such services for the Employer or
an Affiliate (or a related person within the meaning of Section 144(a)(3) of the
Code) on a substantially full-time basis for a period of at least one year; and
(c) such services have been performed under the primary direction or
control of the Employer or an Affiliate.
Contributions or benefits provided a Leased Employee by the leasing
organization which are attributable to services performed for the Employer shall
be treated as provided by the Employer. To the extent and for purposes required
by Sections 414(n) and (o), a Leased Employee shall be deemed to be an Employee
of the Employer, unless: (i) he or she is covered by a money purchase pension
plan providing (1) a nonintegrated employer contribution rate of at least 10
percent of compensation, as defined in Code Section 415(c)(3), but including
amounts contributed pursuant to a salary reduction agreement which are
excludable from the Employee's gross income under Code Sections 125, 401(e)(3),
402(h) or 403(b), (2) immediate participation, and (3) full and immediate
vesting; and (ii) Leased Employees do not constitute more than 20 percent of the
Employer's nonhighly compensated workforce.
Limitation Year. "Limitation Year" means a 12-month period beginning
---------------
January 1 and ending December 31.
Matching Employer Contributions. "Matching Employer Contributions" means
-------------------------------
the contributions described in Section 3.5.
McHenry Plan. "McHenry Plan" means the McHenry State Bank Profit Sharing
------------
and Savings Plan & Trust, as in effect prior to its merger with this Plan
effective December 31, 1997.
Member of a Collective Bargaining Unit. "Member of a Collective Bargaining
--------------------------------------
Unit" means any employee who is included in a collective bargaining unit and
whose terms and conditions of employment are covered by a collective bargaining
agreement if there is evidence that retirement benefits were the subject of
good-faith bargaining between representatives of such employee and the Employer,
unless such collective bargaining agreement makes this Plan applicable to such
employee.
Non-Highly Compensated Employee. "Non-Highly Compensated Employee" means,
-------------------------------
for any Plan Year, any employee of the Employer or Affiliate who (a) at any time
during the Plan Year was a Participant eligible to make Before-Tax
Contributions, and (b) was not a Highly Compensated Employee for such Plan Year.
Normal Retirement Date. A Participant's "Normal Retirement Date" shall be
----------------------
his 65th birthday.
One-Year Break in Service. A "One-Year Break in Service" is a one-year
-------------------------
period, commencing on an employee's Severance Date, during which such employee
does not perform
7
<PAGE>
duties for an Employer or an Affiliate. Solely for purposes of determining
whether a One-Year Break in Service has occurred, absences shall be disregarded
if the employee otherwise would normally have been credited but for the
employee's absence because of a maternity or paternity absence. No more than one
year of absence on a single maternity or paternity absence shall be so
disregarded. A maternity or paternity absence is an absence from work:
(a) by reason of the pregnancy of the employee;
(b) by reason of the birth of a child of the employee;
(c) by reason of the placement of a child with the employee in
connection with the adoption of such child by the employee; or
(d) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
Any employee requesting such credit shall promptly furnish the Committee such
information as the Committee requires to show that the absence from work is a
maternity or paternity absence and the number of days for which there was such
an absence. No more than 501 hours shall be credited for a maternity or
paternity absence. All such hours shall be credited in the Plan Year in which
the absence begins if necessary to prevent a One-Year Break in Service in such
Plan Year. If such hours are not necessary to prevent a One-Year Break in
Service in such Plan Year, the hours shall be credited in the succeeding Plan
Year if necessary to prevent a One-Year Break in Service in such Plan Year. In
the event the Committee is unable to determine the hours which otherwise would
normally have been credited for such absence, the employee shall be credited
with 8 hours per day.
Participant. A "Participant" is (a) a current employee of the Employer or
-----------
an Affiliate who has become eligible to participate in the Plan pursuant to
Section 2.1 or (b) a former employee for whose benefit an Account in the Trust
Fund is maintained. Notwithstanding the foregoing, an Eligible Employee who is
not otherwise a Participant and who makes a Rollover Contribution to the Plan
pursuant to Section 3.6 shall also be treated as a Participant solely to the
extent of such Rollover Contribution until such time as the Eligible Employee
has become eligible to participate in the Plan pursuant to Section 2.1
Plan. "Plan" means the First Midwest Bancorp, Inc. Savings and Profit
----
Sharing Plan as set forth herein and as from time to time amended.
Plan Year. A "Plan Year" is a 12-month period beginning on January 1 and
---------
ending on December 31. References to specific Plan Years are made herein by
reference to the calendar year in which the Plan Year began. For example, the
"1998 Plan Year" is the Plan Year beginning January 1, 1998.
8
<PAGE>
Prior Plan. "Prior Plan" means a defined contribution plan maintained or
----------
previously maintained by an Employer from which accounts held for the benefit of
individuals who have become Participants hereunder have been transferred to this
Plan for the benefit of such Participants.
Provisional Annual Addition. "Provisional Annual Addition" is the amount
---------------------------
described in Section 4.10.
Required Beginning Date. "Required Beginning Date" means, effective
-----------------------
January 1, 1997, as follows:
(a) For a Participant whose 70th birthday occurs prior to July 1,
1998, and who is not a Five-Percent Owner as defined in Code Section 416(i)(1),
the April 1 following the calendar year in which the Participant attains age 70
1/2;
(b) For a Participant whose 70th birthday occurs on or after July 1,
1998, and who is not a Five Percent Owner as defined in Code Section 416(i)(1),
the April 1 following the later of the calendar year in which the Participant
attains age 70 1/2 or the calendar year in which the Participant terminates
employment; or
(c) For a Participant who is a Five-Percent Owner with respect to the
Plan Year in which he/she attains age 70 1/2, the April 1 following the calendar
year in which he/she attained age 70 1/2.
Rollover Contribution. A "Rollover Contribution" is (a) all or a portion
---------------------
of a distribution received by an Eligible Employee from another qualified plan
which is eligible for tax-free rollover to a qualified plan and which is
transferred by the Eligible Employee to this Plan within 60 days following his
or her receipt thereof; (b) amounts transferred to this Plan from a conduit
individual retirement account which has no assets other than assets (and the
earnings thereon) which were (i) previously distributed to the Eligible Employee
by another qualified plan as a rollover distribution, (ii) eligible for tax-free
rollover to a qualified plan and (iii) deposited in such conduit individual
retirement account within 60 days of receipt thereof; (c) amounts distributed to
the Eligible Employee from a conduit individual retirement account meeting the
requirements of the preceding clause (ii), and transferred by the Eligible
Employee to this Plan within 60 days of receipt thereof; and (d) a direct
rollover within the meaning of Code Section 401(a)(31) or all or a portion of an
Eligible Rollover Distribution to this Plan by the trustee of another qualified
plan.
Section 415 Compensation. "Section 415 Compensation" means, effective
------------------------
January 1, 1997, for a period, the Participant's compensation (as described in
Treasury Regulation Section 1.415-2(d)(2)) paid during the period for personal
services actually rendered in the course of employment with the Employer and all
Affiliates, excluding deferred compensation and other amounts which receive
special tax treatment (as described in Treasury Regulation Section 1.415-
2(d)(3)), plus amounts excluded from the Participant's income for the period
under Code Section 125, 402(g)(3) or 457.
9
<PAGE>
Severance Date. An employee "Severance Date" is the earlier of:
--------------
(a) the date on which he quits, retires, dies or is discharged; or
(b) the first day following any one-year period during which he
performed no duties for the Employer or an Affiliate, other than a period which
is a period of a leave of absence described in Section 2.2.
Taxable Compensation. A Participant's "Taxable Compensation" for any Plan
--------------------
Year is his Total Compensation for such Plan Year less his Before-Tax
Contribution and any contributions made at his election to a cafeteria plan as
defined in Section 125 of the Code for such Plan Year.
Tentative Employer Contribution. "Tentative Employer Contribution" is the
-------------------------------
contribution described in Section 3.1.
Total Compensation. A Participant's "Total Compensation" for a period is
------------------
the Participant's wages, salaries, fees, vacation pay, Before-Tax Contribution,
contributions made at his election under a cafeteria plan as defined in Section
125 of the Code, and other amounts paid to him for personal services actually
rendered in the course of employment with the Company and all Affiliates,
including, but not limited to, commissions, compensation for services on the
basis of a percentage of profits, tips and bonuses, but (in accordance with
regulations prescribed by the Secretary of the Treasury) excluding:
(a) Contributions (other than the Before-Tax Contribution) made by
the Employer to a plan of deferred compensation to the extent that such are not
included in the gross income of the Participant in the year made; Employer
contributions to simplified employee pension plans which are excluded from
compensation by the Participant; and any distribution from any such plan other
than an unfunded non-qualified plan;
(b) Amounts realized from the exercise of a non-qualified stock
option or when restricted stock either becomes freely transferable or free from
a substantial risk of forfeiture;
(c) Amounts realized from the disposition of stock acquired under a
qualified stock option; and
(d) Other amounts which receive special tax benefits.
Trust. "Trust" means the First Midwest Bancorp, Inc. Savings and Profit
-----
Sharing Trust established in accordance with Article 9.
Trustee. "Trustee" means the Trustee or Trustees under the Trust referred
-------
to in Article 9.
Valuation Date. The last day of each quarter of each Plan Year shall be a
--------------
"Valuation Date."
10
<PAGE>
Year of Service. A "Year of Service" is a unit of service credited to an
---------------
employee pursuant to Sections 2.3 and 2.4, for purposes of determining the
percentage of the balance in a Participant's Employer Contribution Account which
is nonforfeitable. An employee who is reemployed shall retain service credited
to him in his previous employment with the Employer or an Affiliate, except as
otherwise provided in the Plan.
ARTICLE 2
Eligibility and Participation
-----------------------------
2.1 Eligibility Requirements.
------------------------
(a) Every Participant on the effective date of the Plan as herein
restated shall continue as such subject to the provisions of the Plan.
(b) Every Eligible Employee who accepted employment with the Employer
in connection with the Company's acquisition of First of America Bank, Crystal
Lake Office, which was effective September 4, 1998, shall commence participation
in this Plan effective as of such date.
(c) Every Eligible Employee who is a participant in the Heritage Plan
on September 30, 1998 shall continue participation in this Plan effective
October 1, 1998.
(d) Every other Eligible Employee shall be eligible to participate,
if he is then employed by the Employer, on the Entry Date coinciding with or
next following the later of (i) the end of the first Eligibility Period in which
he completes 1,000 Hours of Service or (ii) his 21st birthday. Notwithstanding
any other provision of this Plan, hours of service with Heritage Financial
Services, Inc. and First of America Bank, Crystal Lake Office, shall be deemed
to be Hours of Service with the Employer under this Plan for purposes of this
Section 2.1.
(e) Any former employee of the Employer or an Affiliate who was a
Participant or could have become a Participant under subsection (b) above had he
been employed on a prior Entry Date, and is reemployed by the Employer as an
Eligible Employee shall be eligible to participate immediately upon reemployment
if, on the date of such reemployment, that employee:
(i) has not incurred a One-Year Break in Service; or
(ii) had a nonforfeitable right to any part of the balance in
his Employer Contribution Account or Before-Tax Account on the date his
most recent employment with the Employer and all Affiliates terminated (or
would have had such right if he had been a Participant); or
(iii) has attained age 21 and has incurred a One-Year Break in
Service, but has not lost credit for service prior to such One-Year Break
in Service pursuant to Section 2.4(b); or
11
<PAGE>
(iv) terminated his employment because of a maternity or
paternity absence defined in Section 1.4, has attained age 21, and has
incurred a One-Year Break in Service, but has not lost credit for services
prior to such One-Year Break in Service pursuant to Section 2.4(c).
2.2 Leaves of Absence. During the period that any Participant is granted
-----------------
a leave of absence, he shall share in Employer Contributions, forfeitures, and
net earnings or losses of the Trust Fund in the same manner and subject to the
same conditions as if he were not on leave of absence. Any leave of absence
under this Section 2.2 must be granted in writing and pursuant to the Employer's
established leave policy, which shall be administered in a uniform and
nondiscriminatory manner to similarly situated employees.
2.3 Years of Service to be Credited.
-------------------------------
(a) An employee shall be credited with One Year of Service for each
full year in the period commencing on his Employment Commencement Date and
ending on his Severance Date. An employee shall also be credited with 1/12 of a
Year of Service for each full calendar month in such period for which he did not
receive credit pursuant to the preceding sentence, including, if applicable,
1/12 of a Year of Service for the partial calendar month in which the employee's
Employment Commencement Date and in which the employee's Severance Date
occurred. Notwithstanding any other provision of this Plan, the following
service shall be deemed to be service with the Employer for purposes of this
Section 2.3: (i) with respect to any employee who commenced employment on or
prior to September 4, 1998, service with First of America Bank, Crystal Lake
Office; and (ii) with respect to any employee who commenced employment with the
Employer prior to October 1, 1998, service with Heritage Financial Services,
Inc.
(b) Notwithstanding Section 2.3(a) above, any Participant who, on
September 30, 1998, had completed three (3) years of service under the Heritage
Plan, shall be credited with Years of Service under this Section 2.3 equal to
the greater of: (i) the Participant's Years of Service determined under Section
2.3(a) above; or (ii) the Participant's years of service calculated by crediting
him with one Year of Service for each Plan Year during which he has completed at
least 1,000 Hours of Service.
(c) An employee reemployed after his Severance Date but prior to a
One-Year Break in Service shall be credited with 1/12 of a Year of Service for
each calendar month or partial calendar month during the period from his
Severance Date to the date of reemployment not otherwise credited pursuant to
paragraph (a) above.
(d) Years of Service to be Disregarded. A Participant shall be
----------------------------------
credited with all Years of Service, except that the following shall be
disregarded:
12
<PAGE>
(e) Years of Service for an Employer or Affiliate prior to the
Employer's adoption of the Plan, except to the extent otherwise provided by the
Employer when adopting the Plan;
(f) Years of Service prior to a One-Year Break in Service if the
Employee fails to complete one Year of Service after such One-Year Break in
Service;
(g) In the case of an employee whose nonforfeitable percentage of the
balance of his Employer Contribution Account is 0%, the number of years and
portions thereof in the period after the employee's Severance Date but before he
next performs duties for the Employer or an Affiliate equals or exceeds the
greater of 5 or the aggregate number of Years of Service and portions thereof
before such One-Year Break in Service (excluding any years of Service previously
disregarded); or
(h) In the case of an employee whose nonforfeitable percentage of the
balance of his Employer Contribution Account is 0%, and who terminated his
employment with the Employer and all Affiliates because of a maternity or
paternity absence defined in Section 1.4, the number of years and portions
thereof in the period after the employee's Severance Date but before he next
performs duties for the Employer or an Affiliate equals or exceeds the greater
of six or one plus the aggregate number of Years of Service and portions thereof
before such One-Year Break in Service (excluding any Years of Service previously
disregarded).
2.4 Leased Employees. To the extent required by Section 414(n) of
----------------
the Code and the regulations thereunder, a Leased Employee shall be treated as
an employee of the Employer or an Affiliate but shall not be eligible for any
benefit under the Plan.
2.5 Qualified Military Service. Notwithstanding any provision of
--------------------------
this Plan to the contrary, effective December 12, 1994, contributions, benefits
and service credit with respect to qualified military service will be provided
in accordance with Code Section 414(u).
13
<PAGE>
ARTICLE 3
Contributions by Employer and Rollover Contributions
----------------------------------------------------
3.1 Contributions to the Plan. Subject to the right reserved to the
-------------------------
Company to alter, amend or discontinue this Plan and Trust, the Employer shall
for each Plan Year contribute to the Plan for its Eligible Participants an
amount equal to the sum of:
(a) the Employer Contribution;
(b) the Before-Tax Contribution; and
(c) the Matching Employer Contribution.
Such sum, which is known as the "Tentative Employer Contribution," shall be
reduced by an amount equal to the Excess Tentative Contribution (as provided in
Section 4.11); provided that in no event shall the Tentative Employer
Contribution, as reduced by the Excess Tentative Contribution, exceed the amount
deductible by the Employer for said year for federal income tax purposes.
3.2 Before-Tax Contribution.
-----------------------
(a) Subject to the provisions of Sections 3.1 and 3.3, each
Participant may for each Plan Year elect to have the Employer make a Basic
Before-Tax Contribution on his or her behalf in an amount equal to one percent
(1%) (rounded to the nearest dollar) of his or her Considered Compensation,
excluding bonuses and any other payment of a similar nature. Each Participant
may in addition to his or her Basic Before-Tax Contribution elect to have the
Employer make a Supplemental Before-Tax Contribution on his or her behalf in an
amount not in excess of 9% (rounded to the nearest dollar) of his or her
Considered Compensation, excluding bonuses and any other payment of a similar
nature. Such elections shall be subject to change in accordance with procedures
established by the Committee from time to time.
(b) The amount of the Before-Tax Contributions to be made pursuant to
a Participant's election shall reduce the compensation otherwise payable to him
by the Employer.
3.3 Limitations on Before-Tax Contributions.
---------------------------------------
(a) In no event shall a Participant's Before-Tax Contributions during
any calendar year exceed the dollar limitation in effect under Code Section
402(g) at the beginning of such calendar year. If a Participant's Before-Tax
Contributions, together with any additional employer contributions to a
qualified cash or deferred arrangement, any elective deferrals under a tax-
sheltered annuity program or a simplified employee pension plan, exceed such
dollar limitation for any calendar year, the Participant shall notify the
Committee of the amount of such excess allocable to
14
<PAGE>
this Plan by March 1 of the following year, and such excess, and any earnings
allocable thereto, may be distributed to the Participant by April 15 of such
following year.
(b) Notwithstanding any other provision of this Plan to the contrary,
effective January 1, 1997, the Before-Tax Contributions and Matching Employer
Contributions for the Highly Compensated Employees for the Plan Year shall be
reduced in accordance with the following provisions:
(i) The Before-Tax Contributions and Matching Employer
Contributions of the Highly Compensated Employees shall be reduced if
neither of the Actual Deferral Percentage tests set forth in (A) or (B)
below is satisfied after taking into account the provisions of subsection
(f):
(A) The 1.25 Test. The Actual Deferral Percentage of the
-------------
Highly Compensated Employees is not more than the Actual Deferral
Percentage of all other Eligible Participants multiplied by 1.25.
(B) The 2.0 Test. The Actual Deferral Percentage of the
------------
Highly Compensated Employees is not more than 2 percentage points
greater than the Actual Deferral Percentage of all other Eligible
Participants, and the Actual Deferral Percentage of the Highly
Compensated Employees is not more than the Actual Deferral Percentage
of all other Eligible Participants multiplied by 2.0.
(ii)
(A) As used in this subsection, "Actual Deferral
Percentage" means:
(1) With respect to Non-Highly Compensated
Employees, the average of the ratios of each Non-Highly
Compensated Employee's Before-Tax Contributions and
share of the Matching Employer Contribution with
respect to the prior Plan Year, to each such
-----
Participant's Considered Compensation for such Plan
Year; and
(2) With respect to Highly Compensated
Employees, the average of the ratios of each Highly
Compensated Employee's Before-Tax Contributions and
share of the Matching Employer Contribution with
respect to the current Plan Year, to each such
-------
Participant's Considered Compensation for such Plan
Year.
(B) All Before-Tax Contributions and Matching Employer
Contributions made under this Plan and all before-tax and matching
contributions
15
<PAGE>
made under any other plan that is aggregated with this Plan for
purposes of Code Sections 401(a)(4) and 410(b) shall be treated as
made under a single plan. If any plan is permissively aggregated with
this Plan for purposes of Code Section 401(k), the aggregated plans
must also satisfy Code Sections 401(a)(4) and 410(b) as though they
were a single plan. The Actual Deferral Percentage ratios of any
Highly Compensated Employee will be determined by treating all plans
subject to Code Section 401(k) under which the Highly Compensated
Employee is eligible as a single plan.
(iii) If neither Actual Deferral Percentage test is satisfied as
of the end of the Plan Year, the Committee shall cause the Before-Tax
Contributions for the Highly Compensated Employees to be reduced and
refunded to each Highly Compensated Employee until either Actual Deferral
Percentage Test is satisfied. The sequence of such reductions and refunds
shall begin with Highly Compensated Employees who elected to defer the
greatest dollar amount of Before-Tax Contributions, then the second
greatest dollar amount, continuing until either Actual Deferral
Percentage Test is satisfied.
(iv) Once the reductions have been determined under (iii) above,
the Committee shall direct the Trustee to distribute to the appropriate
Highly Compensated Employees the amount of the reduction of the Before-Tax
Contributions of each Highly Compensated Employee and to treat as
forfeitures the appropriate amount of Matching Employer Contributions,
together with the net earnings or losses allocable thereto. The Committee
shall designate such distribution and forfeiture as a distribution and
forfeiture of excess contributions, determine the amount of the allocable
net earnings or losses to be distributed in accordance with subsection (c)
below, and cause such distributions and forfeitures to occur prior to the
end of the Plan Year following the Plan Year in which the excess Before-Tax
Contributions and excess Matching Employer Contributions were made.
(c)
(i) The net earnings or losses to be refunded with the excess
Before-Tax Contributions shall be equal to the net earnings or losses on
such contributions for the Plan Year in which the contributions were made.
(ii) The net earnings or losses allocable to the excess Before-
Tax Contributions for the Plan Year shall be determined in the manner set
forth in Article 4.
(d) Net earnings or losses to be treated as forfeitures together with
the Matching Employer Contributions shall be equal to the net earnings or losses
on such contributions for the Plan Year in which the contributions were made.
Net earnings or losses on Matching Employer Contributions shall be determined in
the same manner as in subsection (c) above.
(e) Any Matching Employer Contribution treated as a forfeiture
pursuant to subsection (b) above shall be used to reduce the Matching Employer
Contribution in Section 3.5.
16
<PAGE>
(f) For the purpose of avoiding the necessity of adjustments pursuant
to this Section or Section 4.11, or to comply with any applicable law or
regulation:
(i) The Committee may adopt such rules as it deems necessary or
desirable to:
(A) impose limitations during a Plan Year on the percentage
of Before-Tax Contributions elected by Participants pursuant to
Section 3.2; or
(B) increase during a Plan Year the percentage of
Considered Compensation with respect to which a Participant may elect
a Before-Tax Contribution for the purpose of providing Participants
with the opportunity to increase their Before-Tax Contributions within
the limitations of this Section 3.3;
(ii) The Employer may at its sole discretion make fully vested
contributions to the Plan which will be allocated to the Before-Tax
Accounts of one or more Participants who are Non-Highly Compensated
Employees in such amounts as the Employer directs for the purpose of
complying with the applicable limits on Before-Tax Contributions in the
Code. Such contributions will not be taken into account in the allocation
of Matching Contributions.
(g) The amount of each Eligible Participant's Before-Tax Contribution
as determined under this Section 3.3 is subject to the provisions of Sections
4.11 and 4.12.
3.4 Employer Contribution. Subject to the provisions of Section 3.1, each
---------------------
Employer shall pay to the Trustee for each Plan Year with respect to its
Participants who are Eligible Participants for purposes of the allocation of the
Employer Contribution pursuant to Section 4.9, such amount as may be determined
by its board of directors, based on guidelines established by the Board of
Directors. The amount so determined shall be no greater than 15% of such
Eligible Participants' Considered Compensation. Such amount paid to the Trustee
pursuant to this Section 3.4 is known as the "Employer Contribution."
3.5 Matching Employer Contribution. Subject to the provisions of Section
------------------------------
3.1, each Employer shall pay to the Trustee as of each Valuation Date an amount
which, when added to the forfeitures of Employer Contributions for the Plan
Year, shall be equal to $2 for each $1 of Basic Before-Tax Contributions made
during the calendar quarter ending on the Valuation Date on behalf of: (a) each
Participant employed by such Employer on the Valuation Date as of which the
contribution is made; and (b) each Participant who, prior to such Valuation
Date, (i) retires on or after his Normal Retirement Date or Early Retirement
Date, (ii) dies, (iii) is initially deemed totally and permanently disabled, or
(iv) as expressly provided in the terms of an agreement approved, or a
resolution adopted, by the board of directors of an Employer in connection with
the termination of the Employer's participation in the Plan during the calendar
quarter, provided such agreement or resolution was authorized by the Board of
Directors. Notwithstanding the foregoing, however, for
17
<PAGE>
the period commencing October 1, 1998 and ending on December 31, 1998 (the
"Incentive Period"), each Employer shall pay to the Trustee, as of December 31,
1998, an amount equal to $8 for each $1 of Basic Before-Tax Contributions made
on behalf of each Participant who is employed by such Employer on December 31,
1998 and who first became a Participant on or before January 1, 1998, and each
such Participant who retired on or after his Normal Retirement Date or Early
Retirement Date, died, or was initially deemed totally and permanently disabled
during the Incentive Period; provided, however, the total amount contributed by
the Employer under this Section with respect to any such Participant for the
Plan Year ending on December 31, 1998 shall not exceed two percent (2%) of the
lesser of (i) the product of the Participant's Total Compensation for the
Incentive Period multiplied by four (4), or (ii) $160,000. With respect to any
Participant who is employed by an Employer on December 31, 1998, and who first
became a Participant on July 1, 1998, and each such Participant who retired on
or after his Normal Retirement Date or Early Retirement Date, died, or was
initially deemed totally and permanently disabled during the Incentive Period,
the Employer shall pay to the Trustee, as of December 31, 1998, an amount equal
to $4 for each $1 of Basic Before-Tax Contributions made on behalf of each such
Participant; provided, however, the total amount contributed by the Employer
under this Section with respect to any such Participant for the Plan Year ending
on December 31, 1998 shall not exceed two percent (2%) of the lesser of (i) the
Participant's Total Compensation for the Incentive Period multiplied by two (2),
or (ii) $80,000. With respect to any Participant who made Basic Before-Tax
Contributions during the Plan Year ending on December 31, 1998, and who was
unable to continue to make Basic Before-Tax Contributions during the Incentive
Period because the limitations of Plan Section 3.3(a) were imposed earlier in
such Plan Year, then, subject to the limitations of Sections 3.1 and 3.3(b), for
purposes of determining the entitlement of such Participant to an allocation of
contributions under this Section 3.5, such Participant shall be deemed to have
made the maximum Basic Before-Tax Contribution permissible under Plan Section
3.2 during the Incentive Period. The Employer contributions made pursuant to
this Section 3.5 shall be known as the "Matching Employer Contributions."
3.6 Rollover Contributions. A Participant or Eligible Employee may with
----------------------
the written consent of the Committee make a Rollover Contribution to the Trust
Fund. The Committee may adopt such rules and limitations as it deems necessary
or appropriate with respect to the approval of Rollover Contributions, including
but not limited to the time period or periods during which such requests may be
made and the frequency of such requests.
18
<PAGE>
ARTICLE 4
Accounting Provisions and Allocations
-------------------------------------
4.1 Participant's Accounts.
----------------------
(a) For each Participant there shall be maintained as appropriate a
separate Employer Contribution Account, Vested Employer Account, Before-Tax
Account, Matching Account, Prior Plan Account, Heritage Plan Account, McHenry
Plan Account, After-Tax Account, Rollover Account and Trustee Transfer Account.
Each account shall be credited with the amount of contributions, interest and
earnings of the Trust Fund allocated to such Account and shall be charged with
all distributions, withdrawals and losses of the Trust Fund allocated to such
Account.
4.2 Common Fund.
-----------
(a) The Trust Fund shall be a common fund divided into separate
investment funds ("Funds") as provided in Section 9.5. Each Fund as may from
time to time be established shall be a common fund in which each Participant and
Beneficiary shall have an undivided interest in the respective assets of the
Fund, provided that all Accounts segregated and all loans made pursuant to
Section 6.8 shall together with the net earnings or losses of such Accounts or
loans be accounted for separately and will not be included in any of the
adjustments resulting from the application of this Section 4.2. Except as
otherwise provided, the value of each Participant's Accounts in each Fund shall
be measured by the proportion that the net credits to his Accounts bear to the
total net credits to all Accounts as of the date such share is being determined.
For purposes of allocation of the net earnings and losses and for the valuation
of the Trust Fund, each Fund shall be considered separately. No Fund shall share
in the net earnings or losses of any other, and no Fund shall be valued by
taking into account any assets or distributions for any other.
(b) Each loan made pursuant to Section 6.8 shall be valued as of each
Valuation Date. Any changes in value resulting from such valuation, together
with any income or expenses attributable thereto, shall be credited or charged
as of such Valuation Date to the Accounts of the Participant from which such
loan was made.
(c) Except as provided in Subsection (e) below, the interest of each
Participant and Beneficiary in the net earnings and losses and of the valuation
of one or more of the Funds may be measured by the value of the shares or units
of such Fund credited to the Participant's or Beneficiary's Accounts as of the
date that such valuation is being determined. The value of a unit in each such
Fund on any Valuation Date shall be the quotient obtained by dividing the sum of
(i) the cash and (ii) the fair market value of all securities or property
allocated to such Fund, less any charges and expenses accrued and properly
chargeable to such Fund as of said Valuation Date, by the aggregate number of
units credited to all Accounts with respect to such Fund. The Trustee will
furnish to the Committee a report with respect to the fair market value of all
securities and property held in any Fund as of each Valuation Date. To the
extent that any assets of a Fund have been
19
<PAGE>
invested in one or more separate investment trusts, mutual funds, investment
contracts or similar investment media, the net earnings and losses and valuation
attributable to such investments shall be determined in accordance with the
procedures of such investment media.
(d) Notwithstanding any other provision of the Plan, effective with
respect to the September 30, 1999 Valuation Date, dividends declared by the
Company with respect to Company common stock held in the Investment Funds
described in Sections 9.5(a)(ii) and 9.5(a)(iv) shall, for purposes of
determining and allocating net earnings or losses under Sections 4.4 and 4.5, be
deemed to have been paid to the Plan and held in the Trust as of the record date
for such dividends as declared by the Company, regardless of the date such
dividends are actually paid to the Plan and held in the Trust.
(e) Effective with respect to the September 30, 1999 Valuation Date,
notwithstanding any other Plan provision, the assets of the Investment Funds
described in Sections 9.5(a)(ii) and 9.5(a)(iv) shall be allocated to
Participants' Accounts in shares and fractional shares of Company common stock
and dividends receivable and cash, to the extent of such receivables or cash
then in the Fund.
4.3 Allocation Procedure. As of each Valuation Date, the Committee shall,
--------------------
with respect to each Account:
(a) First, charge each Account for any withdrawals, loans or
distributions made therefrom since the preceding Valuation Date.
(b) Second, credit each Before-Tax Account with one-half of the
Before-Tax Contributions made by the Participant since the immediately preceding
Valuation Date.
(c) Third, credit each Rollover Contribution Account with the daily
weighted average of the amount of any Rollover Contribution made by the
Participant since the preceding Valuation Date.
(d) Fourth, credit any Accounts segregated pursuant to Article 6 with
one-half of the amount of any loan repayments made since the last Valuation
Date.
(e) Fifth, credit or charge the respective Accounts with the net
earnings or losses of each Fund allocable thereto in accordance with Section
4.5, or, in the case of Accounts segregated in accordance with Article 6, the
net earnings or losses allocable thereto in accordance with Article 6.
(f) Sixth, credit each Before-Tax Account, Matching Account and the
Rollover Account, respectively, with the amount of Before-Tax Contributions,
Matching Employer Contributions, and Rollover Contributions, respectively, made
since the preceding Valuation Date and not already allocated in accordance with
paragraphs (b), (c) and (d) above.
20
<PAGE>
(g) Seventh, credit any Accounts segregated pursuant to Article 6
with the amount of any loan repayments made since the last Valuation Date and
not already allocated in accordance with paragraph (e) above.
(h) Eighth, if the Valuation Date is the last day of the Plan Year,
credit each Employer Contribution Account with the Employer Contribution
allocable thereto in accordance with Section 4.9.
4.4 Determination of Value of Trust Fund and of Net Earnings or Losses.
------------------------------------------------------------------
As of each Valuation Date the Trustee shall determine for the period then ended
the sum of the net earnings or losses of the Trust Fund (excluding any gains and
losses attributable to the Accounts and loans to Participants segregated
pursuant to Article 6), which shall reflect accrued but unpaid interest, gains
or losses realized from the sale, exchange or collection of assets, other income
received, appreciation or depreciation in the fair market value of assets,
administration expenses, taxes and other expenses paid and, subject to Section
4.2(d), dividends. Gains or losses realized and adjustments for appreciation or
depreciation in fair market value shall be computed with respect to the
difference between such value as of the preceding Valuation Date or date of
purchase, whichever is later, and the value as of the date of disposition or the
current Valuation Date, whichever is earlier.
4.5 Allocation of Net Earnings or Losses. As of each Valuation Date, the
------------------------------------
net earnings or losses of the Trust Fund or of each Fund established under
Section 4.2 for the quarter then ended shall be allocated to the Accounts
(excluding Accounts and loans to Participants segregated pursuant to Section
6.8) of all Participants (or beneficiaries of deceased Participants) having
credits in the Trust Fund or Fund both on such date and at the beginning of that
quarter. Such allocation shall be in the ratio that (i) the net credits to each
Account of each Participant on the first day of the quarter, plus in the case of
the Before-Tax Account, one-half of any Before-Tax Contributions made to that
Account during the quarter, or in the case of the Rollover Account, the weighted
average daily balance of any Rollover Contribution made to that Account during
the quarter, less in each case the total amount of any distributions and loans
from such Account to such Participant during that quarter bears to (ii) the
total net credits to all such Accounts of all Participants on said first day of
the quarter, plus, in the case of the Before-Tax Accounts, one-half of the
Before-Tax Contributions made to such Accounts of all Participants, and in the
case of the Rollover Accounts, the weighted average daily balances of any
Rollover Contributions made to that Account during the quarter, less the total
amount of distributions and loans from all such Accounts during the quarter.
4.6 Eligibility to Share in the Employer's Contributions.
-----------------------------------------------------
(a) An Active Participant shall be eligible to share in Employer
Contributions for the Plan Year as of the last day of which such Employer
Contributions are being allocated if he or she is then employed by the Employer
as an Eligible Employee and has completed 1,000 Hours of Service in such Plan
Year. A Participant who, during a Plan Year, (i) retires on or after his Normal
Retirement Date or Early Retirement Date, (ii) dies, (iii) is initially deemed
totally and permanently disabled, or (iv) as expressly provided in the terms of
an agreement approved or a
21
<PAGE>
resolution adopted by the board of directors of an Employer in connection with
the termination of the Employer's participation in the Plan during the Plan
Year, provided such agreement or resolution was authorized by the Board of
Directors, shall also be eligible to share in the Employer Contributions for
said Plan Year. A Participant who is eligible to share in the Employer
Contributions shall be known as an "Eligible Participant."
(b) Notwithstanding anything in the Plan to the contrary, if the Plan
would otherwise fail to meet the requirements of Code Section 410(b) and the
regulations thereunder because Employer Contributions have not been allocated to
a sufficient number or percentage of Participants for a Plan Year, then the
following rules will apply:
(i) The group of Participants eligible to share in the Employer
Contribution for the Plan Year will be expanded to include the minimum
number of Participants who would not otherwise be eligible as are necessary
to satisfy the applicable test specified above. The specific Participants
who will become eligible under the terms of this paragraph will be those
who are actively employed on the last day of the Plan Year and, when
compared to similarly situated Participants, have completed the greatest
number of Hours of Service in the Plan Year.
(ii) If after application of the previous paragraph, the
applicable test is still not satisfied, then the group of Participants
eligible to share in the Employer Contribution for the Plan Year will be
further expanded to include the minimum number of former Participants who
are (A) not employed on the last day of the Plan Year, (B) Non-Highly
Compensated Employees and (C) are vested or partially vested in their
Accounts, as are necessary to satisfy the applicable test. The specific
former Participants who will become eligible under the terms of this
paragraph will be those former Participants, when compared to similarly
situated former Participants, who have completed the greatest number of
Hours of Service in the Plan Year before terminating employment.
(iii) Nothing in this Section will permit the reduction of a
Participant's benefit. Therefore any amounts that have previously been
allocated to Participants may not be reallocated to satisfy these
requirements. In the event allocations to additional Participants or former
Participants are required, the Employer will make an additional
contribution equal to the amount such persons would have received had they
been included in the allocations, even if it exceeds the amount which would
be deductible under Code Section 404. Any adjustment to the allocations
pursuant to this Section will be made by the 15th day of the tenth month
after the end of the Plan Year and will be considered a retroactive
amendment adopted by the last day of the Plan Year.
22
<PAGE>
4.7 Allocation of Before-Tax Contributions. As of each Valuation Date,
--------------------------------------
the Before-tax Contributions made on behalf of each Participant since the prior
Valuation Date shall be allocated to such Participant's Before-Tax Account.
4.8 Allocation of Matching Employer Contributions. As of each Valuation
---------------------------------------------
Date, the sum of the Matching Employer Contributions made on behalf of each
Participant in accordance with Section 3.5 of the Plan shall be allocated to the
Matching Account of each such Participant.
4.9 Allocation of Employer Contribution. As of the last day of each Plan
-----------------------------------
Year, the Employer Contribution shall be allocated among the Employer
Contribution Accounts of all Eligible Participants in the ratio that each such
Participant's Considered Compensation for the Plan Year from that Employer bears
to the total Considered Compensation of all such Eligible Participants from that
Employer for the Plan Year.
4.10 Provisional Annual Addition. The sum of the amounts allocated to the
---------------------------
Accounts of the Participants pursuant to Section 4.7, 4.8 and 4.9 for a Plan
Year shall be known as the "Provisional Annual Addition" and shall be subject to
the limitation on Annual Additions in Section 4.11.
4.11 Limitation on Annual Additions.
------------------------------
(a) For the purpose of complying with the restrictions on Annual
Additions to defined contribution plans imposed by Code Section 415, for each
Eligible Participant and each other Participant who has made Before-Tax
Contributions during the Plan Year, there shall be computed a Maximum Annual
Addition, which shall be the excess of the lesser of
(i) 25% of his Section 415 Compensation for the Plan Year; or
(ii) the Defined Contribution Dollar Limitation for the Plan
Year,
over the amount of employer contributions, forfeitures and employee
contributions allocated as of any day in the Limitation Year to such
Participant's accounts under any other defined contribution plan maintained by
the Employer or an Affiliate.
If a short Limitation Year is created because of an amendment changing the
Limitation Year to a different 12 consecutive month period, the Maximum Annual
Addition will not exceed the Defined Contribution Dollar Limitation multiplied
by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
The limitation under (i) above shall not apply to any contribution for medical
benefits within the meaning of Code Section 419A(f)(2) after separation from
service which is otherwise treated as an
23
<PAGE>
Annual Addition, or any amount otherwise treated as an annual addition under
Code Section 415(l)(2).
(b) If the Maximum Annual Addition for a Participant equals or
exceeds the Provisional Annual Addition for that Participant, an amount equal to
the Provisional Annual Addition shall be allocated to the Participant's
respective Accounts.
(c) If the Provisional Annual Addition exceeds the Maximum Annual
Addition for that Participant, the Provisional Annual Addition shall be reduced
as set forth below until the Provisional Annual Addition as so reduced equals
the Maximum Annual Addition for such Participant:
(i) first, the Tentative Employer Contribution allocable to
such Participant's Employer Contribution Account shall be reduced;
(ii) second, the amount of forfeiture allocable to the
Participant's Matching Employer Account shall be reduced;
(iii) third, the Supplemental Before-Tax Contributions shall be
reduced; and
(iv) finally, the Basic Before-Tax Contributions and Matching
Employer Contributions, proportionately, shall be reduced.
The Provisional Annual Addition remaining after such reductions shall be
allocated to the Participant's respective Accounts.
(d) The "Excess Tentative Employer Contribution" is an amount equal
to the sum of the reductions in the Tentative Employer Contribution allocable to
the Accounts of Participants pursuant to subsections (c)(i), (iii) and (iv)
above.
(e) Notwithstanding anything to the contrary in this Plan, any
Before-Tax Contributions reduced in accordance with subsection (c) above shall
be distributed to the Participant with allocable earnings in accordance with
Treasury Regulation Section 1.415-6(b)(6)(iv).
4.12 Special Limitation on Maximum Contribution. (Effective through the
------------------------------------------
1999 Plan Year)
(a) In the case of any Participant who is also a participant in a
defined benefit plan maintained by the Employer or an Affiliate, the sum of the
Defined Contribution Fraction and Defined Benefit Fraction as of the end of any
Plan Year shall not exceed 1.0. In the event that the sum of such Fractions
would otherwise exceed 1.0, then the amount determined under Section 4.11(a)(i)
or (ii), whichever is applicable, in determining the Maximum Annual Addition
under
24
<PAGE>
Section 4.11(a) shall be equal to such applicable amount multiplied by the
difference between 1.0 and the Defined Benefit Fraction.
(b) The "Defined Benefit Fraction" applicable to a Participant for
any Limitation Year is a fraction, the numerator of which is the sum of the
Projected Annual Benefit of the Participant under all of the defined benefit
plans maintained or previously maintained by an Employer or Affiliate in which
he participates (determined as of the close of the Limitation Year) and the
denominator of which is the lesser of (i) the product of 1.25 multiplied by the
maximum dollar limitation on a Participant's Projected Annual Benefit if the
plan provided the maximum benefit allowable under Section 415(b) of the Internal
Revenue Code for such Limitation Year, or (ii) the product of 1.4 multiplied by
100% of the Participant's Highest Average Compensation (as determined below).
(c) The "Defined Contribution Fraction" applicable to a Participant
for any Limitation Year is a fraction, the numerator of which is the sum of the
Participant's Annual Additions as of the close of such Limitation Year for that
Limitation Year and for all prior Limitation Years under this Plan and all other
defined contribution plans maintained by an Employer or Affiliate, and the
denominator of which is the sum of the lesser of the following amounts
(determined for such Limitation Year and for each prior Limitation Year of
service with the Employer or any Affiliate regardless of whether a plan was in
existence during those years): (i) the product of 1.25 multiplied by the Defined
Contribution Dollar Limitation for the Limitation Year (determined without
regard to the special dollar limitation for employee stock ownership plans), or
(ii) the product of 1.4 multiplied by 25% of the Participant's Taxable
Compensation for the Limitation Year.
(d) In accordance with regulations issued by the Secretary of the
Treasury or his delegate pursuant to Section 1106(i)(4) of The Tax Reform Act of
1986, an amount shall be subtracted from the numerator of the Defined
Contribution Fraction (not exceeding such numerator) so that the sum of the
Defined Benefit Fraction and the Defined Contribution Fraction does not exceed
1.0 as of December 31, 1986. To the extent provided under applicable law and
regulations, adjustments shall be made to the Defined Benefit Fraction or the
Defined Contribution Fraction with respect to previous transition rules.
(e)
(i) "Highest Average Compensation" means the average of a
Participant's Taxable Compensation from the Employer and all Affiliates for
the high three consecutive Limitation Years (determined as of the close of
the Limitation Year) of employment with the Employer or any Affiliate (or
the actual number of years of employment for those Participants who are
employed for less than three consecutive years for which the Participant's
Taxable Compensation is the highest).
(ii) "Projected Annual Benefit" means the annual benefit a
Participant would receive from employer contributions under a defined
benefit plan, adjusted, in the case of any benefit payable in a form other
than a single life annuity or a qualified joint and
25
<PAGE>
survivor annuity, to the actuarial equivalent of a single life annuity,
assuming (A) the Participant continued employment until reaching the plan's
normal retirement age (or his current age, if later), (B) his compensation
remained unchanged and (C) all other relevant factors used to determine
benefits under the plan remained constant in the future.
ARTICLE 5
Amount of Payments to Participants
----------------------------------
5.1 General Rule. Upon the retirement, disability, resignation or
------------
dismissal of a Participant, he, or in the event of his death, his beneficiary,
shall be entitled to receive from his respective Accounts in the Trust Fund as
of his Determination Date:
(a) An amount equal to the Participant's Before-Tax Account and
Matching Account, plus any of the Participant's contributions made to the Trust
Fund but not allocated to the Participant's Before-Tax Account as of his
Determination Date; and
(b) An amount equal to his Prior Plan Account and After-Tax Account;
(c) An amount equal to his Vested Employer Account; and
(d) The nonforfeitable portion of the Participant's Employer
Contribution Account, Heritage Plan Account and McHenry Plan Account determined
as hereafter set forth.
All rights of Participants or of any other person or persons shall be subject to
the provisions of Article 6 concerning the time and manner of making
distributions.
Notwithstanding anything in this Plan to the contrary, the nonforfeitable
portion of the Employer Contribution Account of any Participant whose employment
terminates pursuant to the Participant's participation in a voluntary retirement
program applicable to such Participant shall be equal to the greater of such
percentage determined on the basis of the Participant's age and Years of Service
as of the date of termination, or such percentage determined on the basis of the
Participant's age as of the date of termination and Years of Service as of the
date of termination increased by the number of additional years of Credited
Service (as defined in the First Midwest Bancorp Consolidated Pension Plan), if
any, with which such Participant is credited under the Pension Plan as a result
of his participation in the voluntary retirement program.
5.2 Normal Retirement. Any Participant may retire on or after his Normal
-----------------
Retirement Date, at which date the forfeitable portion, if any, of his Employer
Contribution Account, Heritage Plan Account, and McHenry Plan Account, shall
become nonforfeitable. If the retirement of a Participant is deferred beyond his
Normal Retirement Date, he shall continue in full participation in the Plan and
Trust Fund.
26
<PAGE>
5.3 Death. As of the date any Participant shall die while in the employ
-----
of the Employer or an Affiliate, the forfeitable portion, if any, of his
Employer Contribution Account, Heritage Plan Account, and McHenry Plan Account
shall become nonforfeitable, including forfeitures eligible to be restored
pursuant to Section 5.7(c).
5.4 Disability.
----------
(a) As of the date any Participant shall be determined by the
Committee to have become totally and permanently disabled because of physical or
mental infirmity while in the employ of the Employer or an Affiliate and his
employment shall have terminated, the forfeitable portion, if any, of his
Employer Contribution Account, Heritage Plan Account and McHenry Plan Account
shall become nonforfeitable, including forfeitures eligible to be restored
pursuant to Section 5.7(c).
(b) A Participant shall be deemed totally and permanently disabled
when, on the basis of qualified medical evidence, the Committee finds such
Participant to be unable to satisfactorily perform his normal duties required of
him by an Employer or Affiliate as a result of physical or mental infirmity,
injury, or disease, either occupational or nonoccupational in cause; provided,
however, that disability hereunder shall not include any disability incurred or
resulting from the Participant's having engaged in a criminal enterprise, or any
disability consisting of or resulting from the Participant's chronic alcoholism,
addiction to narcotics or an intentionally self-inflicted injury.
5.5 Vesting. A Participant's interest in his Before-Tax Account, Matching
-------
Account, Vested Employer Account, Prior Plan Account and After-Tax Account shall
be nonforfeitable at all times. Except as otherwise provided in this Article 5,
a Participant's nonforfeitable interest in his Employer Contribution Account,
Heritage Plan Account and McHenry Plan Account at any point in time shall be
determined under Section 5.6.
5.6 Resignation or Dismissal.
------------------------
(a) If any Participant shall incur his Severance Date, other than by
reason of death or disability or on or after his Normal Retirement Date or Early
Retirement Date, there shall become nonforfeitable none, a portion, or all of
his Employer Contribution Account and Heritage Plan Account computed as of his
Determination Date in accordance with the following schedule, subject to
Sections 2.3 and 2.4:
27
<PAGE>
If His Years The Nonforfeitable
of Service Percentage of His Employer
Shall Have Been Contribution Account Shall Be
--------------- -----------------------------
Less than 2 0%
2 but less than 3 20%
3 but less than 4 30%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more 100%
Any part of the Employer Contribution Account and Heritage Plan Account of such
Participant which does not become nonforfeitable shall be treated as a
forfeiture pursuant to Section 5.7.
(b) If any Participant shall incur his Severance Date, other than by
reason of death or disability or on or after his Normal Retirement Date or Early
Retirement Date, there shall become nonforfeitable none, a portion, or all of
his McHenry Plan Account computed as of his Determination Date in accordance
with the following schedule, subject to Sections 2.3 and 2.4:
The Nonforfeitable
If His Years of Percentage of His
Service Shall Employer Contribution
Have Been Account Shall Be
--------- ----------------
Less than 2 0%
2 but less than 3 20%
3 but less than 4 30%
4 but less than 5 40%
5 or more 100%
Any part of the McHenry Plan Account of such Participant which does not become
nonforfeitable shall be treated as a forfeiture pursuant to Section 5.7.
5.7 Treatment of Forfeitures.
------------------------
(a) Upon termination of a Participant's employment with the Employer
and all Affiliates, the nonvested portion of his Employer Contribution Account,
Heritage Plan Account and McHenry Plan Account shall become a forfeiture
pursuant to Section 5.6 as of the end of the Plan Year in which the termination
of employment occurred if the Participant is not then reemployed by the Employer
or an Affiliate. Forfeitures shall be used to reduce the Matching Employer
Contributions that would otherwise be paid by the Employer to the Plan pursuant
to Section 3.5.
28
<PAGE>
(b) If a Participant is reemployed by the Employer or an Affiliate
without incurring 5 consecutive One-Year Breaks in Service, and before
distribution of the nonforfeitable portion of his Employer Contribution Account,
Heritage Plan Account and McHenry Plan Account, the amount of the forfeiture
shall be restored to his Employer Contribution Account, Heritage Plan Account
and McHenry Plan Account, as appropriate, as of the last day of the Plan Year in
which he is reemployed.
(c) If the Participant is reemployed by the Employer or an Affiliate
without incurring 5 consecutive One-Year Breaks in Service but after
distribution of the nonforfeitable portion of his Employer Contribution Account,
Heritage Plan Account and McHenry Plan Account, and if the Participant repays,
the amount of the Employer Contribution Account, Heritage Plan Account and
McHenry Plan Account distributed to him before the earlier of (i) the date which
is 5 years after the first date on which the Participant is reemployed by the
Employer or an Affiliate, or (ii) the date on which he incurs 5 consecutive One-
Year Breaks in Service, then the amount of the forfeiture shall be restored to
his Employer Contribution Account, Heritage Plan Account and McHenry Plan
Account, as appropriate, as of the last day of the Plan Year in which such
repayment is made.
(d) Notwithstanding the foregoing, if a Participant terminated his
employment with the Employer and all Affiliates because of a maternity or
paternity absence as defined in Section 1.4, then this Section 5.7 shall be read
by substituting the word "six" for the number "five" as it appears in
Subsections (b) and (c) above.
(e) Amounts restored to a Participant's Employer Contribution
Account, Heritage Plan Account and McHenry Plan Account pursuant to paragraph
(b) or (c) above shall be deducted from the forfeitures which otherwise would be
allocable for the Plan Year in which such reemployment or repayment occurs or,
to the extent such forfeitures are insufficient, shall require a supplemental
contribution from the Employer.
29
<PAGE>
ARTICLE 6
Distributions
-------------
6.1 Commencement of Distributions.
-----------------------------
(a)
(i) Distribution of a Participant's Accounts in the Trust Fund
shall commence or be made on or as soon as practicable after his 65th
birthday or, if later, the Participant's termination of employment with the
Employer and all Affiliates and, unless a Participant and his spouse (if
applicable) otherwise request in writing, distributions shall commence no
later than the 60th day after the close of the Plan Year in which the later
of such events occurs.
(ii) In all events, distribution shall commence no later than
the Required Beginning Date, and subsequent distributions required to be
made each year for compliance with Code Section 401(a)(9) and the
regulations promulgated thereunder shall be made no later than December 31
of such year.
(iii) Distribution of a Participant's Accounts shall occur at
such time after the Participant's Determination Date and after a Valuation
Date immediately following the Participant's written request for such
distribution, provided: (A) the Committee has notified the Participant of
the availability of the distribution in a manner that would satisfy the
notice requirements of Section 1.411(a)-11(c) of the income tax
regulations, and such notification is given no less than 30 days nor more
than 90 days prior to such Valuation Date; and (B) such distribution may
commence as of a Valuation Date which is less than 30 days after the date
such notice is given by the Committee if the Committee has notified the
Participant that the Participant has a right to a period of at least 30
days after receiving the notice to consider the decision of whether or not
to elect a distribution and the Participant after receiving the notice
affirmatively elects a distribution.
(b) Notwithstanding anything in this Section 6.1 to the contrary, if
any further amount becomes due from a Participant's Accounts after a
distribution has occurred, a payment retroactive to such distribution date shall
be made no later than 60 days after the earliest date on which such amount can
be ascertained.
(c) Notwithstanding anything in this Article 6 to the contrary, the
Committee shall direct the Trustee to distribute to the Participant the
distributable balance of his Accounts in a lump sum payment at any time after
his Determination Date without his written consent to such distribution if, at
the time of the distribution, the value of the nonforfeitable portion of the
Participant's Accounts does not exceed $5,000.
30
<PAGE>
(d) Any distribution made in accordance with this Article 6 shall, to
the extent required by law, be eligible to be distributed in a direct rollover
as an Eligible Rollover Distribution in accordance with Section 6.12.
6.2 Form of Distributions.
---------------------
(a) Subject to Sections 6.2(b), 6.2(c) and 6.3 below, the Accounts in
the Trust Fund distributable to any Participant shall be distributed in one lump
sum payment.
(b) Notwithstanding Section 6.2(a), a Participant or a Participant's
beneficiary, whichever is applicable, may elect to receive his vested interest
in any portion of his Account under this Plan that is attributable to benefits
accrued under the McHenry Plan and, effective January 1, 1999, under the
Heritage Plan, in any one or a combination of the following methods:
(i) by payment in a lump sum, which in the case of a
Participant's Heritage Plan Account may be made in the following:
(A) cash;
(B) Employer securities, which, with respect to any
distribution prior to January 1, 2000, shall be limited
to the number of shares in the Heritage Fund allocable
to the Participant, and to which the Participant had a
vested right, as of December 31, 1998, reduced by any
transfers or distributions from the Heritage Fund made
on behalf of the Participant prior to the distribution;
or
(C) a combination of (A) and (B) above.
(ii) by payment in monthly installments over a period not to
exceed the Participant's statistical life expectancy or the Participant's
and his beneficiary's statistical life expectancy.
(iii) by payment through the purchase of an annuity contract from
a registered insurance company selected by the Trustee.
Such an election must be filed in writing with the Committee on forms to be
furnished by the Committee. In the event a Participant elects the installment
form of payment, the amount of the monthly payment shall be determined annually,
as of the date the first payment is due and as of each subsequent anniversary of
such date, by dividing the value of the Participant's accrued benefit payable in
such form as of such date by the Participant's or the Participant's and his
beneficiary's statistical life expectancy, as published in the Code.
31
<PAGE>
(c) Effective for lump sum distributions made with respect to any
Determination Date which occurs on or after December 31, 1999, notwithstanding
any other Plan provision, shares of Company common stock held in the Investment
Funds described in Sections 9.5(a)(ii) and 9.5 (a)(iv), which are allocated to a
Participant's Account hereunder may be distributed in-kind to the extent the
Participant or, if applicable, the Participant's designated beneficiary elects a
lump sum in-kind form of distribution; provided, however, any fractional shares
shall be distributed in the form of cash.
6.3 Purchase of an Annuity Contract (Applicable to the Heritage and
---------------------------------------------------------------
McHenry Plan Accounts Only).
- ---------------------------
(a) If a distribution of benefits attributable to the McHenry Plan or
the Heritage Plan is to be made in the form of an annuity under Section 6.2(b),
the form of payment will be a joint and survivor life annuity ending with the
payment made in the month in which the joint annuitant's death occurs. This
option provides for payment of a monthly pension to the Participant for his
lifetime and for the continuance of the Participant's annuity to the surviving
joint annuitant named by the Participant, to be paid for the remainder of the
joint annuitant's lifetime. Payments under this option will be the actuarial
equivalent, as defined by the insurance company from whom the annuity is
purchased, of the Participant's Account balance attributable to benefits accrued
under the McHenry Plan or the Heritage Plan, as applicable. The survivor annuity
will be 50% of the Participant's annuity unless otherwise selected by the
Participant.
(b) Unless an optional form of benefit is selected pursuant to a
qualified election within the ninety (90) day period ending on the annuity
starting date, a married participant's vested Account balance attributable to
benefits accrued under the McHenry Plan or Heritage Plan will be paid in the
form of a qualified joint and survivor annuity and an unmarried Participant's
vested Account balance attributable to benefits accrued under the McHenry Plan
or Heritage Plan will be paid in the form of a life annuity. The Participant may
elect to have such annuity distributed upon attainment of the earliest
retirement age under the Plan.
(c) An election not to receive benefits in the form of this qualified
joint and survivor annuity may be made in writing on a form furnished by the
Committee at any time within the ninety (90) day period ending on the annuity
starting date. The Committee shall furnish to the Participant, at least ninety
(90) days prior to a Participant's annuity starting date (as defined in Code
Section 417(f)(2)):
(i) the terms and conditions of the qualified joint and
survivor annuity;
(ii) the Participant's right to make, and the effect of, an
election to waive the qualified joint and survivor annuity,
(iii) the rights of the Participant's spouse in the event of a
waiver, and
32
<PAGE>
(iv) the right to make, and the effect of, a revocation of an
election.
(d) If a Participant dies prior to the date he receives a
distribution from the plan, his spouse will receive a preretirement survivor
annuity which will be actuarially equivalent to 100% of the Participant's vested
Account balance attributable to benefits accrued under the McHenry Plan or
Heritage Plan, as applicable. The spouse may elect to have such annuity
distributed within a reasonable period after the Participant's death.
(e) As regards a Participant's McHenry Plan Account, the
preretirement survivor annuity and the qualified joint and survivor annuity will
be payable to the Participant's spouse only if the Participant and spouse have
been married to each other throughout the one year period ending on the date of
the Participant's death.
(f) In the case of a preretirement survivor annuity as described in
Subsections (d) and (e) above, the Committee shall provide each Participant
within the applicable period for such Participant a written explanation of the
preretirement survivor annuity in such terms and in such manner as would be
comparable to the explanation provided for meeting the requirements of a
qualified joint and survivor annuity as described above. The applicable period
for a Participant is whichever of the following periods ends last:
(i) the period beginning with the first day of the Plan Year in
which the Participant attains age thirty-two (32) and ending with the close
of the Plan Year preceding the Plan Year in which the Participant attains
age thirty-five (35),
(ii) a reasonable period ending after the individual becomes a
Participant,
(iii) a reasonable period following the time the annuity benefit
may cease to be fully subsidized, or
(iv) a reasonable period ending after the qualified joint and
survivor annuity or preretirement survivor annuity rules apply to the
Participant.
Notwithstanding the foregoing, notice must be provided within a reasonable
period ending after separation from service in the case of a Participant who
separates from service before attaining age thirty-five (35).
For purposes of applying the preceding paragraph, a reasonable period
ending after the enumerated events described in (ii), (iii) and (iv) is the end
of the two-year period beginning one year prior to the date the applicable event
occurs, and ending one year after that date. In the case of a Participant who
separates from service before the Plan Year in which age thirty-five (35) is
attained, notice shall be provided within the two-year period beginning one year
prior to separation and ending one year after separation. If such a Participant
thereafter returns to employment with the Employer, the applicable period for
such Participant shall be redetermined.
33
<PAGE>
(g) Any election not to receive benefits in the form of the qualified
joint and survivor annuity or preretirement survivor annuity may be revoked by
the Participant in writing on a form furnished by the Committee at any time
prior to the date such Participant's benefit payments are to commence. Once
revoked, a Participant may again elect not to receive benefits in the form of
this qualified joint and survivor annuity or preretirement survivor annuity in
writing on a form furnished by the Committee at any time prior to the date such
Participant's benefit payments are to commence.
(h) In no event shall any Participant elect to waive his right to
receive benefits in the form of this qualified joint and survivor annuity or
preretirement survivor annuity without the written consent of the Participant's
spouse and the spouse's acknowledgment of the effect of such election, as
witnessed by either a representative of the Committee or a notary public. A
waiver may be made no earlier than the first day of the Plan Year in which the
Participant attains age thirty-five (35) and no later than the Participant's
date of death. However, the waiver may be effective as of the date of a
Participant's separation from service from the Employer. Any waiver of a
qualified joint and survivor annuity or preretirement survivor annuity shall not
be effective unless:
(i) the election designates a specific Individual Beneficiary,
including any class of Individual Beneficiaries or any contingent
Individual Beneficiaries, which may not be changed without spousal consent
(or the spouse expressly permits designations by the Participant without
any further spousal consent),
(ii) the election designates a form of benefit payments which
may not be changed without spousal consent (or the spouse expressly permits
designations by the Participant without any further spousal consent), and
(iii) the spouse's consent acknowledges the effect of the
election.
The written consent shall not be required if the Committee is satisfied that
there is no spouse or the spouse cannot be located or for any reason established
by regulations pursuant to Code Section 417(a)(2)(B).
(i) Any annuity contract distributed herefrom must be
nontransferable. The terms of any annuity contract purchased and distributed by
the Plan to a Participant or spouse shall comply with the requirements of this
Plan.
6.4 Distributions to Beneficiaries.
------------------------------
(a) Subject to Sections 6.2(b) and 6.3, the balance of a deceased
Participant's Accounts which is distributable to a beneficiary shall be
distributed in one lump sum as soon as practicable (but in no event later than
the December 31 of the calendar year in which the fifth anniversary of the
Participant's death occurs) after the Valuation Date immediately following the
Participant's death, based on the value of the Participant's accounts as of such
Valuation Date.
34
<PAGE>
(b)
(i) As regards distributions made under Sections 6.2(b) and 6.3,
notwithstanding anything in this Article 6 to the contrary, in the event a
Participant dies on or prior to the date benefit payments commence
hereunder, benefit payments if any, to a Participant's Individual
Beneficiary shall commence within ninety (90 days after the Participant's
death occurs and such benefits shall be fully distributed within five (5)
years from the Participant's date of death, unless the Participant's entire
interest will be distributed to the Participant's Individual Beneficiary
over the life of such Individual Beneficiary or the life expectancy of such
Individual Beneficiary.
(ii) As regards distributions made under Sections 6.2(b) and 6.3,
notwithstanding anything in this Article 6 to the contrary, in the event a
Participant dies after benefit payments have commenced hereunder, and the
Participant has not received his entire vested Account balance attributable
to benefits accrued under the McHenry Plan or Heritage Plan, if any, the
undistributed portion shall be paid to the Participant's Individual
Beneficiary in the form in which payments were being paid to the
Participant, with any installments paid over the period remaining under the
Participant's election.
6.5 Beneficiaries.
-------------
(a) Except as otherwise provided in Section 6.3 and this Section 6.5,
the distributable balance of a deceased Participant's Accounts shall be paid to
his surviving spouse.
(b) The balance of a deceased Participant's Accounts shall be
distributed to the persons effectively designated by the Participant as his
beneficiaries. To be effective, the designation shall be filed with the
Committee in such written form as the Committee requires and may include
contingent or successive beneficiaries; provided that any designation by a
Participant who is married at the time of his death which fails to name his
surviving spouse as the sole primary beneficiary shall not be effective unless
such surviving spouse has consented to the designation in writing, witnessed by
a Plan representative or notary public, acknowledging the effect of the
designation and the specific non-spouse beneficiary, including any class of
beneficiaries or any contingent beneficiary. Such consent shall not be required
if, at the time of filing such designation, the Participant established to the
satisfaction of the Committee that the consent of the Participant's spouse could
not be obtained because there is no spouse, the spouse could not be located or
by reason of such other circumstances as may be prescribed by regulations. Any
consent (or establishment that the consent could not be obtained) shall be
effective only with respect to such spouse. Any Participant may change his
beneficiary designation at any time by filing with the Committee a new
beneficiary designation (with such spousal consent as may be required).
(c) If a Participant dies, and to the knowledge of the Committee
after reasonable inquiry leaves no surviving spouse, has not filed an effective
beneficiary designation or has revoked all such designations, or has filed an
effective designation but the beneficiary or beneficiaries predeceased him or
the beneficiary dies before complete distribution of the Participant's benefits,
35
<PAGE>
the distributable portion of the Participant's Accounts shall be paid in
accordance with the following order of priority:
(i) to the Participant's surviving spouse, or if there be none
surviving,
(ii) to the Participant's children, in equal parts, or if there
be none surviving,
(iii) to the Participant's father and mother, in equal parts, or
if there be none surviving,
(iv) to the executor or administrator of the Participant's
estate.
6.6 Form of Elections and Applications for Benefits. Any election,
-----------------------------------------------
revocation of an election or application for benefits pursuant to the Plan shall
not be effective unless it is (a) made on such form, if any, as the Committee
may prescribe for such purpose; (b) signed by the Participant and, if required
under Section 6.3 or 6.5, by the Participant's spouse; and (c) filed with the
Committee.
6.7 Unclaimed Distributions. In the event any distribution cannot be made
-----------------------
because the person entitled thereto cannot be located and the distribution
remains unclaimed for 2 years after the distribution date established by the
Committee, then such amount shall be treated as a forfeiture and allocated in
accordance with Section 4.8. In the event such person subsequently files a valid
claim for such amount, such amount shall be restored to the Participant's
Accounts in a manner similar to the restoration of forfeitures under
Section 5.7.
6.8 Loans.
-----
(a) Upon the request of a Participant, the Committee shall authorize
a loan to such Participant in accordance with this Section 6.8, provided that
the Participant has no outstanding loans from the Plan.
(b) The amount of any loan shall not be less than $1,000, and shall
not exceed 50% of the amount which he would be entitled to receive from his
Accounts if he had resigned from the service of the Employer and all Affiliates
and if his Determination Date was the Valuation Date next preceding the date of
such loan request; provided, however, that the amount of such loan shall not
exceed $50,000 reduced by the highest outstanding balance of loans from the
Trust Fund during the one-year period ending on the day before the date on which
such loan is made or modified. Such loans shall be made available to all
Participants on a reasonably equivalent basis.
(c) Loans shall be made on such terms as the Committee may prescribe,
provided that any such loan shall be evidenced by a note, shall bear a
reasonable rate of interest on the unpaid
36
<PAGE>
principal thereof, and shall be secured by the Participant's Accounts and such
other security as the Committee in its discretion deems appropriate.
(d) Loans shall be repaid by the Participant by payroll deductions or
any other methods approved by the Committee which require level amortization of
principal and repayments not less frequently than quarterly. Such loans shall be
repaid over a period not to exceed 5 years in accordance with procedures
established by the Committee from time to time.
(e) Loans shall be deemed made from the Participant's Accounts.
Amounts necessary to fund such loan shall be transferred from amounts credited
to the respective Accounts invested in the respective Funds in accordance with
the following order:
(i) from the Accounts indicated in the Money Market Fund:
(A) first, the After-Tax Account;
(B) second, the Prior Plan Account;
(C) third, either the McHenry Plan Account or Heritage
Plan Account, as applicable;
(D) fourth, the Vested Employer Account;
(E) fifth, the Before-Tax Account;
(F) sixth, the Matching Account; and
(G) seventh, the Employer Contribution Account.
(ii) from the Accounts invested in the Fixed Income Fund, in the
order set forth in (i) above;
(iii) from the Accounts invested in the Balanced Fund, in the
order set forth in (i) above;
(iv) from the Accounts invested in the Equity Fund, in the order
set forth in (i) above; and
(v) from the Accounts investment in the First Midwest Stock
Fund, in the order set forth in (i) above.
The portion of each Account used to secure the loan shall be held for the
benefit of the Participant and treated in the manner described in
Section 4.2(b). Loan repayments shall be credited to the
37
<PAGE>
Accounts in the manner described in Section 4.4 and invested in the separate
Funds in accordance with the Participant's investment directions applicable to
contributions in effect under Section 9.5 at the time of the repayment. Upon the
occurrence of a Participant's Determination Date, the unpaid balance of any loan
shall be charged against the Accounts from which made to the extent not repaid
before distribution to the Participant.
6.9 Withdrawals Prior to Termination of Employment.
----------------------------------------------
(a) Subject to paragraph (b) below, a Participant who has not
incurred his Severance Date may, upon the determination by the Committee that he
has incurred a financial hardship, make a withdrawal from his After-Tax Account
and, to the extent necessary, his Before-Tax Account. In any case where the
Participant claims financial hardship, he shall submit a written request for
such distribution in accordance with procedures prescribed by the Committee. The
Committee shall determine whether the Participant has a "financial hardship" on
the basis of such written request in accordance with this Section 6.9, and such
determination shall be made in a uniform and nondiscriminatory manner. The
Committee shall only make a determination of "financial hardship" if the
distribution to be made is made on account of (A) an immediate and heavy
financial need of the Participant and (B) the amounts to be distributed from the
Participant's After-Tax Account and Before-Tax Account are necessary to satisfy
the Participant's need.
(b) The determination of whether a Participant has an immediate and
heavy financial need is to be made by the Committee on the basis of all relevant
facts and circumstances. A distribution will be deemed to be on account of an
immediate and heavy financial need only if made on account of:
(i) Medical expenses described in Section 213(d) of the Code
incurred by the Participant, the Participant's spouse or any dependents of
the Participant (as defined in Section 152 of the Code) or necessary for
these persons to obtain such medical care;
(ii) The purchase (excluding mortgage payments) of a principal
residence for the Participant;
(iii) Payment of tuition, related educational fees, and room and
board expenses, for the next 12 months of post-secondary education for the
Participant, the Participant's spouse, for children or dependents;
(iv) The need to prevent the eviction of the Participant from
his principal residence or foreclosure on the mortgage of the Participant's
principal residence; or
(v) Any other event or expense deemed an immediate and heavy
financial need by the Committee or by Department of the Treasury
regulations.
38
<PAGE>
(c) The determination of whether a distribution is necessary to
satisfy the immediate and heavy financial need of the Participant shall be made
by the Committee on the basis of all relevant facts and circumstances, provided,
however, that this requirement shall be met only if the Participant reasonably
demonstrates that all of the following requirements are satisfied:
(i) the distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant; and
(ii) the Participant has obtained all distributions (other than
hardship distributions) and all nontaxable loans currently available under
the Plan;
(iii) the Participant will not make any Before-Tax Contributions
for twelve months after receiving the hardship distribution; and
(iv) the Participant's Before-Tax Contributions in the Plan Year
following the Plan Year of the hardship distribution do not exceed the
limitations in Section 3.2(a) applicable to such following Plan Year, minus
the amount of his Before-Tax Contributions for the Plan Year of the
hardship distribution.
(d) Any withdrawals under this Section shall not reduce the non-
forfeitable portion of the Participant's Account below the amount of the balance
of any outstanding loan made pursuant to Section 6.8. Withdrawals on account of
hardship shall be further limited by paragraph (e) below.
(e) Distributions from the Participant's Before-Tax Account on
account of hardship pursuant to this Section 6.9 shall not exceed the lesser of:
(i) the amount needed to relieve the immediate and heavy
financial need;
(ii) the balance of the Participant's Before-Tax Account at the
time of the distribution; or
(ii) (A) the sum of the balance of the Before-Tax Contribution
as of December 31, 1988 plus the Participant's Before-Tax Contributions
made on or after January 1, 1989, reduced by (B) the aggregate amount
distributed from the Participant's Before-Tax Account on or after
January 1, 1989.
(f) Notwithstanding the foregoing, if a Participant is married at the
time he requests a withdrawal, no such withdrawal shall be permitted without the
written consent of the Participant's spouse, which shall be witnessed by a
notary public or a Plan representative.
39
<PAGE>
6.10 Facility of Payment. When, in the Committee's opinion, a Participant
-------------------
or beneficiary is under a legal disability or is incapacitated in any way so as
to be unable to manage his affairs, the Committee may direct the Trustee to make
payments:
(a) directly to the Participant or beneficiary;
(b) to a duly appointed guardian or conservator of the Participant or
beneficiary;
(c) to a custodian for the Participant or beneficiary under the
Uniform Gifts to Minors Act;
(d) to an adult relative of the Participant or beneficiary; or
(e) directly for the benefit of the Participant or beneficiary.
Any such payment shall constitute a complete discharge therefor with respect to
the Trustee and the Committee.
6.11 Claims Procedure.
----------------
(a) Any person who believes that he is then entitled to receive a
benefit under the Plan, including one greater than that initially determined by
the Committee, may file a claim in writing with the Committee.
(b) The Committee shall within 90 days of the receipt of a claim
either allow or deny the claim in writing. A denial of a claim shall be written
in a manner calculated to be understood by the claimant and shall include:
(i) the specific reason or reasons for the denial;
(ii) specific references to pertinent Plan provisions on which
the denial is based;
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and
(iv) an explanation of the Plan's claim review procedure.
(c) A claimant whose claim is denied (or his duly authorized
representative) may, within 60 days after receipt of denial of his claim:
(i) submit a written request for review to the Committee;
40
<PAGE>
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
(d) The Committee shall notify the claimant of its decision on review
within 60 days of receipt of a request for review. The decision on review shall
be written in a manner calculated to be understood by the claimant and shall
include specific reasons for the decision and specific references to the
pertinent Plan provisions on which the decision is based.
(e) The 90-day and 60-day periods described in subsections (b) and
(d), respectively, may be extended at the discretion of the Committee for a
second 90- or 60-day period, as the case may be, provided that written notice of
the extension is furnished to the claimant prior to the termination of the
initial period, indicating the special circumstances requiring such extension of
time and the date by which a final decision is expected.
(f) Participants and beneficiaries shall not be entitled to challenge
the Committee's determinations in judicial or administrative proceedings without
first complying with the procedures in this Article. The Committee's decisions
made pursuant to this Section are intended to be final and binding on
Participants, beneficiaries and others.
6.12 Eligible Rollover Distributions.
-------------------------------
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article 6, a
distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
(b) Eligible rollover distribution: An eligible rollover distribution
is any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the extent such distribution is
required under Code Section 401(a)(9); and the portion of any distribution that
is not includible in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer securities).
(c) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an annuity plan described
in Code Section 403(a), or a qualified trust described in Code Section 401(a),
that accepts the distributee's eligible rollover distribution. However, in the
41
<PAGE>
case of an eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or individual retirement
annuity.
(d) Distributee: A distributee includes an employee or former
employee. In addition, the employee's or former employee's surviving spouse and
the employee's or former employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p), are distributees with regard to the interest of the spouse or former
spouse.
(e) Direct rollover: A direct rollover is a payment by the Plan to
the eligible retirement plan specified by the distributee.
ARTICLE 7
Top-Heavy Plan Requirements
---------------------------
7.1 Definition of Top-Heavy Plan. The Plan shall be Top-Heavy with
----------------------------
respect to a Plan Year if it is a member of a Required Aggregation Group and the
present value of the accrued benefits for Key Employees under all plans in the
Aggregation Group exceeds 60% of the present value of the accrued benefits for
all employees under all plans in the Aggregation Group. This ratio shall be
computed as provided in Section 416(g) of the Code. Such present values shall be
determined as of the last day of the preceding Plan Year of each plan. If all
plans in the Aggregation Group do not have the same Plan Year, then such present
values shall be determined as of the last day of each Plan Year ending in the
same calendar year as the last day of the preceding Plan Year of this Plan.
Under a defined contribution plan, such present values shall be determined by
aggregating the value of all accounts of all Key Employees and all employees
respectively. As used in this Section, the term "accounts" includes certain
prior distributions, Employer contributions payable to the Plan, employee
contributions, and rollover accounts, if any, all in accordance with Section
416(g) of the Code or regulations thereunder.
7.2 Top-Heavy Plan Requirements. Notwithstanding any provision of the
---------------------------
Plan to the contrary but subject to the Company's right to terminate the Plan,
the following provisions shall apply with respect to any Plan Year in which the
Plan is Top-Heavy.
(a) Minimum Vesting. Effective as of the first day of such Plan
---------------
Year, the following vesting schedule shall be substituted for the schedules set
forth in Section 5.6, except to the extent, with respect to any Participant, a
schedule in Section 5.6 applicable to such Participant produces a larger Plan
benefit:
42
<PAGE>
The Nonforfeitable
If His Years of Percentage of His
Service Shall Employer Contribution
Have Been Account Shall Be
--------- -----------------
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
(b) Minimum Contribution. All Participants who are Non-Key Employees
--------------------
participating in the Plan are also participants in a defined benefit plan
maintained by the Employer. Consequently, any minimum benefits required due to
the top-heavy status of this Plan will be provided in such defined benefit plan.
If the defined benefit plan is terminated and if the Required Aggregation Group
is top-heavy, the Employer shall make a supplemental contribution to the Vested
Employer Accounts and Employer Contribution Account of any such Participant, in
an amount sufficient for the total amount of Employer contributions allocated to
accounts of such Participant to equal 5% of such Participant's Total
Compensation for such Plan Year. For purposes of this subsection, the term
"Participant" means a Participant who was employed by the Employer on the last
day of a Plan Year in which the Plan is Top-Heavy.
7.3 Definitions. For purposes of this Article:
-----------
(a) A "Key Employee" is any current or former employee described in
Section 416(i)(1) of the Code or his beneficiary. The compensation used in
determining whether any such employee is a Key Employee shall be based on such
employee's Total Compensation from the Employer (including all Affiliates) for
the applicable Plan Year, including amounts contributed by an Employer pursuant
to a salary reduction agreement which are excludable from the Employee's gross
income under Code Section 125, 402(e)(3), 402(h) or 403(b).
(b) A "Non-Key Employee" is an employee of the Employer other than a
Key Employee.
(c) "Employer" means the Employer and all Affiliates.
(d) "Aggregation Group" means a group of qualified plans consisting
of this Plan and certain other defined contribution plans and defined benefit
plans maintained by the Employer which are aggregated for purposes of
determining whether the group as whole is Top-Heavy. The Aggregation Group
includes plans which must be aggregated for this purpose (the "Required
Aggregation Group") and other plans which are aggregated for this purpose (the
"Permissive Aggregation Group").
43
<PAGE>
(e) The "Required Aggregation Group" shall include:
(i) each employee benefit plan of the Employer qualified under
Section 401(a) of the Code in which a Key Employee is a participant; and
(ii) each other qualified plan which enables any plan described
in (i) to meet the anti-discrimination or coverage requirements of the
Code.
(f) The "Permissive Aggregation Group" includes such other qualified
plan or plans of the Employer as the Committee may in its discretion elect,
provided the inclusion of any such plan in the Aggregation Group does not cause
it to fail to meet the anti-discrimination or coverage requirements of the Code.
7.4 Cessation of Top-Heavy Requirements.
-----------------------------------
(a) Once the Plan has been Top-Heavy but is no longer Top-Heavy, this
Article shall be inapplicable except as provided in this Section.
(b) The vesting schedule set forth in Section 7.2(a) shall continue
to apply to a Participant who had 5 or more Years of Service as of the last day
on which the Plan was Top-Heavy.
(c) The Employer Contribution Account of any other Participant
constituted as of the last day on which the Plan was Top-Heavy shall be
separately accounted for as a subaccount until the nonforfeitable percentage of
his Employer Contribution Account pursuant to Section 5.6 equals or exceeds the
nonforfeitable percentage of his Employer Account on the last day on which the
Plan was Top-Heavy. In the event such Participant shall resign or be dismissed
from the employ of the Employer while a subaccount is being maintained, his
nonforfeitable interest in such subaccount shall be computed pursuant to Section
5.6 but using the same nonforfeitable percentage as was applicable to him on the
last day on which the Plan was Top-Heavy.
44
<PAGE>
ARTICLE 8
Powers and Duties of Plan Committee
-----------------------------------
8.1 Appointment of Plan Committee.
-----------------------------
(a) The Board of Directors of the Company (the "Board of Directors")
shall name a Plan Committee (the "Committee") to consist of not less than 3
persons to serve as administrator and named fiduciary of the Plan. Any person,
including directors, shareholders, officers and employees of the Company, shall
be eligible to serve on the Committee. Every person appointed a member of the
Committee shall signify his acceptance in writing to the Board of Directors.
(b) Members of the Committee shall serve at the pleasure of the Board
of Directors and may be removed by the Board of Directors at any time with or
without cause. Any member of the Committee may resign by delivering his written
resignation to the Board of Directors, and such resignation shall become
effective at delivery or at any later date specified therein. Vacancies in the
Committee shall be filled by the Board of Directors.
(c) Usual and reasonable expenses of the Committee may be paid in
whole or in part by the Employers and any such expenses not paid by the
Employers shall be paid by the Trustee out of the principal or income of the
Trust Fund. The members of the Committee who are employees of the Employer or
any Affiliate shall not receive any compensation for their services as such.
8.2 Powers and Duties of Committee. The Company shall have final and
------------------------------
binding authority to control and manage the operation and administration of the
Plan, including all rights and powers necessary or convenient to the carrying
out of its functions hereunder, whether or not such rights and powers are
specifically enumerated herein. The Committee shall have the specific delegated
powers and duties described in this Article 8, and such further powers and
duties as may be delegated to it by the Company. In exercising its
responsibilities hereunder, the Committee may manage and administer the Plan
through the use of agents who may include employees of the Employer.
Without limiting the generality of the foregoing, and in addition to the
other powers set forth in this Article 8, the Committee shall have the following
express authorities:
(a) To construe and interpret the Plan, decide all questions of
eligibility and determine the amount, manner and time of payment of any benefits
hereunder.
(b) To prescribe procedures to be followed by Participants or
beneficiaries filing applications for benefits.
(c) To prepare and distribute, in such manner as the Committee
determines to be appropriate, information explaining the Plan.
45
<PAGE>
(d) To receive from the Employers, Participants and others such
information as shall be necessary for the proper administration of the Plan.
(e) To furnish the Company upon request such annual and other reports
with respect to the administration of the Plan as are reasonable and
appropriate.
(f) To receive, review and maintain on file reports of the financial
condition and of the receipts and disbursements of the Trust Fund from the
Trustee.
8.3 Committee Procedures.
--------------------
(a) The Committee may adopt such bylaws and regulations as it deems
desirable for the conduct of its affairs.
(b) A majority of the members of the Committee at the time in office
shall constitute a quorum for the transaction of business. All resolutions or
other actions taken by the Committee at any meeting shall be by the vote of the
majority of the members of the Committee present at the meeting. The Committee
may act without a meeting by written consent of a majority of its members.
(c) The Committee may elect one of its members as chairman and may
appoint a secretary, who may or may not be a Committee member, and shall advise
the Trustee and the Employer of such actions in writing. The secretary shall
keep a record of all actions of the Committee and shall forward all necessary
communications to the Employer or the Trustee.
(d) Filing or delivery of any document with or to the secretary of
the Committee in person or by registered or certified mail, addressed in care of
the Employer, shall be deemed a filing with or delivery to the Committee.
8.4 Consultation with Advisors. The Committee (or any fiduciary
--------------------------
designated by the Committee pursuant to Section 8.8) may employ or consult with
counsel, actuaries, accountants, physicians or other advisors (who may be
counsel, actuaries, accountants, physicians or other advisors for the Employer).
8.5 Committee Members as Participants. Any Committee member may also be a
---------------------------------
Participant, but no Committee member shall have power to take part in any
discretionary decision or action affecting his own interest as a Participant
under this Plan unless such decision or action is upon a matter which affects
all other Participants similarly situated and confers no special right, benefit
or privilege not simultaneously conferred upon all other such Participants.
46
<PAGE>
8.6 Records and Reports. The Committee shall take all such action as it
-------------------
deems necessary or appropriate to comply with governmental laws and regulations
relating to the maintenance of records, notifications to Participants,
registrations with the Internal Revenue Service, reports to the U.S. Department
of Labor and all other requirements applicable to the Plan.
8.7 Investment Policy.
-----------------
(a) The Committee from time to time shall determine the short-term
and long-term financial needs of the separate Investment Funds comprising the
Trust Fund and such needs shall be communicated from time to time to the
Trustee, Investment Managers or others having responsibility and control of the
Trust Fund.
(b) Subject to subsection (c) below, the Trustee shall have the
exclusive authority and discretion to manage and control the assets of the
respective Investment Funds pursuant to the investment policy determined by the
Committee.
(c) The Committee may in its discretion:
(i) appoint one or more Investment Managers to manage (including
the power to direct the Trustee to acquire or dispose of) any assets of the
Plan pursuant to the investment policy determined by the Committee, in
which case the Trustee shall not be liable for the acts or omissions of any
such Investment Manager or be under an obligation to invest or otherwise
manage any asset of the Plan which is subject to the management of any such
Investment Manager; and
(ii) direct the Trustee with respect to the investment of the
assets of the Plan in any mutual fund, insurance company separate account
or collective investment fund maintained by a bank or trust company
(including but not limited to such funds maintained by the Trustee or any
affiliate thereof), or similar pooled investment vehicle, pursuant to the
investment policy of any Investment Fund determined by the Committee.
(d) For purposes of this Section 8.7, an Investment Manager shall
mean (i) a registered investment adviser under the Investment Advisers Act of
1940, (ii) a bank as defined in such Act, or (iii) an insurance company
qualified under the laws of more than one state to manage, acquire and dispose
of plan assets. Any Investment Manager appointed by the Committee shall
acknowledge in writing that it is a fiduciary with respect to the Plan.
8.8 Designation of Other Fiduciaries. The Committee may designate in
--------------------------------
writing other persons to carry out a specified part or parts of its
responsibilities hereunder (including the power to designate other persons to
carry out a part of such designated responsibility), but not including the power
to appoint Investment Managers. Any such designation shall be accepted by the
designated person, who shall acknowledge in writing that he is a fiduciary with
respect to the Plan.
47
<PAGE>
8.9 Obligations of Committee.
------------------------
(a) The Committee or its properly authorized delegate shall make
such determinations as are necessary to accomplish the purposes of the Plan with
respect to individual Participants or classes of such Participants. The Employer
shall notify the Committee of facts relevant to such determinations, including,
without limitation, length of service, compensation for services, dates of
death, permanent disability, granting or terminating of leaves of absence, ages,
retirement and termination of service for any reason (but indicating such
reason), and termination of participation. The Employer shall also be
responsible for notifying the Committee of any other facts which may be
necessary for the Committee to discharge its responsibilities hereunder.
(b) The Committee is hereby authorized to act solely upon the basis
of such notifications from the Company and to rely upon any document or
signature believed by the Committee to be genuine and shall be fully protected
in so doing. For the purpose of this Section, a letter or other written
instrument signed in the name of the Company by any officer thereof shall
constitute a notification therefrom; except that any action by the Company or
its Board of Directors with respect to the appointment or removal of a member of
the Committee or the amendment of the Plan and Trust or the designation of a
group of employees to which the Plan is applicable shall be evidenced by an
instrument in writing, signed by a duly authorized officer or officers,
certifying that said action has been authorized and directed by a resolution of
the Board of Directors of the Company.
(c) The Committee shall notify the Trustee of its actions and
determinations affecting the responsibilities of the Trustee and shall give the
Trustee directions as to payments or other distributions from the Trust Fund to
the extent they may be necessary for the Trustee to fulfill the terms of the
Trust Agreement.
(d) The Committee shall be under no obligation to enforce payment
of contributions hereunder or to determine whether contributions delivered to
the Trustee comply with the provisions hereof relating to contributions, and is
obligated only to administer this Plan pursuant to the terms hereof.
8.10 Indemnification of Committee. The Employers shall indemnify members
----------------------------
of the Committee and its authorized delegates who are employees of the Employer
for any liability or expenses, including attorneys' fees, incurred in the
defense of any threatened or pending action, suit or proceeding by reason of
their status as members of the Committee or its authorized delegates, to the
full extent permitted by the law of the Employer's state of incorporation.
48
<PAGE>
ARTICLE 9
Trustee and Trust Fund
----------------------
9.1 Trust Fund. A Trust Fund to be known as the First Midwest Bancorp
----------
Savings and Profit Sharing Trust (herein referred to as the "Trust" or the
"Trust Fund") has been established by the execution of a trust agreement with
one or more Trustees and is maintained for the purposes of this Plan. The assets
of the Trust will be held, invested and disposed of by the Trustee, in
accordance with the terms of the Trust, for the benefit of the Participants and
their beneficiaries.
9.2 Payments to Trust Fund and Expenses. All contributions hereunder will
-----------------------------------
be paid into and credited to the Trust Fund and all benefits hereunder and
expenses chargeable thereto will be paid from the Trust Fund and charged
thereto.
9.3 Trustee's Responsibilities. The powers, duties and responsibilities
--------------------------
of the Trustee shall be as set forth in the Trust Agreement and nothing
contained in this Plan, either expressly or by implication, shall impose any
additional powers, duties or responsibilities upon the Trustee.
9.4 Reversion to the Employer. The Employer has no beneficial interest in
-------------------------
the Trust Fund and no part of the Trust Fund shall ever revert or be repaid to
the Employer, directly or indirectly, except that the Employer shall upon
written request have a right to recover:
(a) within one year of the date of payment of a contribution by the
Employer, any amount (less any losses attributable thereto) contributed through
a mistake of fact;
(b) within one year of the date on which any deduction for a
contribution by the Employer under Section 404 of the Code is disallowed, an
amount equal to the amount disallowed (less any losses attributable thereto);
and
(c) at the termination of the Plan, any amounts remaining in the
Excess Forfeiture Suspense Account.
9.5 Investment Options. Each Participant shall direct the Trustee with
------------------
respect to the Investment Fund or Funds in which the Participant's contributions
and Accounts are to be invested.
(a) Subject to the discretion of the Committee to establish
additional Funds or to consolidate Funds, Funds shall be maintained as follows:
(i) At least one Fund shall be established, maintained and
invested with the objective of protection of principal and substantial
liquidity, with a rate of return consistent with such objective.
(ii) A second Fund shall be established, maintained and invested
in common stock of the Company purchased (i) in the open market, (ii) by
participation in a
49
<PAGE>
dividend reinvestment or similar plan available to stockholders of the
Company, or (iii) privately from the Company or any other person; provided
that amounts allocated to this Fund may be invested in short-term interest
bearing accounts to facilitate investments in common stock of the Company,
transfers among Funds or distributions to Participants.
(iii) At least two additional Funds shall be established,
maintained and invested with objectives which, when combined with the other
Funds, provide Participants with the opportunity to designate the
investment of their Accounts among Funds providing a range of risk and
return consistent with the requirements of the regulations of the
Department of Labor under Section 404(c) of ERISA.
(iv) With respect to any Participant that participated in the
Heritage Plan on September 30, 1998, a Fund holding Employer securities
transferred to this Plan from the Heritage Plan as part of the merger of
the Heritage Plan into this Plan effective October 1, 1998.
(b) A Participant shall designate the Fund or Funds into which any
contributions made to the Plan on behalf of the Participant shall be invested at
the time of initial Participation in the Plan. Thereafter, a Participant may
change the mix of the investment of future contributions and may transfer
existing Account balances among the Funds in accordance with procedures
established by the Committee from time to time. Notwithstanding any other
provision of the Plan, a Participant may not direct that any contributions to
the Plan be invested in, and no existing Account balances may be transferred to,
the Heritage Fund. However, existing Account balances invested in the Heritage
Fund may be transferred from the Heritage Fund to any other Fund maintained
under the Plan under such rules as may be established and uniformly applied by
the Committee from time to time.
(c) Designations under this Section 9.5 shall be made by filing with
the Committee the appropriate written form required thereby at such times and in
accordance with such procedures and limitations as the Committee may from time
to time establish. The Trustee shall invest the assets of the Plan attributable
to the Participant's Accounts in accordance with such properly filed
designations.
9.6 Rollover from Prior Plan. Notwithstanding any other provision
------------------------
contained in this Plan, the Trustee, at the written direction of the Committee,
may accept and hold for the account of a Participant, funds transferred from an
Employer's trust described in Section 401(a) of the Code, and which is exempt
from tax under Section 501(a) of the Code, and which: (1) relates to the merger
of the Heritage Plan into the Plan effective October 1, 1998; (2) relates to the
merger of the McHenry Plan into the Plan effective December 31, 1997; or (3) is
or was maintained by either the Continental Illinois Bank of Deerfield, N.A., or
the Continental Bank of Buffalo Grove, N.A., so long as such transferred amount
constitutes an eligible rollover distribution, within the meaning of Code
Section 402(c)(4) or any corresponding predecessor Code Section, from the
transferor plan. In the event of such a transfer, the Trustee shall establish
and maintain a Prior Plan Account, consisting of any
50
<PAGE>
employer and rollover contributions to the Prior Plan and adjustments relating
thereto, and an After-Tax Account, consisting of any after-tax contributions to
the Prior Plan and adjustments relating thereto, in the name of the Participant,
which Accounts shall not be forfeitable for any reason. As regards the Heritage
Plan and the McHenry Plan, however, a Heritage Plan Account and McHenry Plan
Account, respectively, shall be established with respect to the employer
contributions accrued under the Heritage Plan and McHenry Plan, which Accounts
shall vest in accordance with Section 5.6. Furthermore, all benefits accrued
under the Heritage Plan and McHenry Plan, shall be separately accounted for and
subject to the optional forms of benefit set forth in Sections 6.2(b) and 6.3.
All funds or assets which are transferred to the Prior Plan Account and the
After-Tax Account shall be invested and accounted for separately; provided that
to the extent that any such balances have been generated by after-tax
contributions of the Participant, such Participant and his spouse may withdraw
such amounts to the extent of their after-tax contributions on request to the
Committee in writing. Assets in the Prior Plan Account and After-Tax Account
shall be accounted for in such manner as shall be determined by the Trustee.
51
<PAGE>
ARTICLE 10
Amendment or Termination
------------------------
10.1 Amendment. The Company reserves the right to amend this Plan at any
---------
time to take effect retroactively or otherwise, in any manner which it deems
desirable including, but not by way of limitation, the right to increase or
diminish contributions to be made by the Employer hereunder, to change or modify
the method of allocation of its contributions, to change any provision relating
to the distribution or payment, or both, of any assets of the Trust.
10.2 Termination. The Company further reserves the right to terminate this
-----------
Plan at any time.
10.3 Form of Amendment, Discontinuance of Employer Contributions, and
----------------------------------------------------------------
Termination. Any such amendment, discontinuance of Employer Contributions or
- -----------
termination shall be made only by resolution of the Board of Directors of the
Company.
10.4 Limitations on Amendments. The provisions of this Article are subject
-------------------------
to the following restrictions:
(a) Except as provided in Section 9.4, no amendment shall operate
either directly or indirectly to give the Employer any interest whatsoever in
any funds or property held by the Trustee under the terms hereof, or to permit
corpus or income of the Trust to be used for or diverted to purposes other than
the exclusive benefit of the Participants and their beneficiaries.
(b) Except to the extent necessary to conform to the laws and
regulations or to the extent permitted by any applicable law or regulation, no
amendment shall operate either directly or indirectly to deprive any Participant
of his nonforfeitable beneficial interest in his Accounts as they are
constituted at the time of the amendment.
(c) No amendment shall change any vesting schedule unless each
Participant who has completed 3 or more Years of Service is permitted to elect
to have the nonforfeitable percentage of his Employer Account computed under the
Plan without regard to such amendment. The period for making such amendment
shall expire no later than the latest of the following dates: (i) the date which
is 60 days after the date the Plan amendment is adopted, (ii) the date which is
60 days after the date the Plan amendment becomes effective, or (iii) the date
which is 60 days after the Participant is issued written notice of the Plan
amendment by the Committee. Notwithstanding the foregoing, no election need be
offered to a Participant whose nonforfeitable percentage of his Employer
Contribution Account cannot at any time be lower than such percentage determined
without regard to such amendment.
(d) Except as permitted by applicable law, no amendment shall
eliminate or reduce an early retirement benefit or a retirement-type subsidy or
eliminate an optional form of benefit.
52
<PAGE>
10.5 Level of Benefits upon Merger. This Plan shall not merge or
-----------------------------
consolidate with, or transfer assets or liabilities to, any other plan, unless
each Participant shall be entitled to receive a benefit immediately after said
merger, consolidation or transfer (if such other plan were then terminated)
which shall be not less than the benefit he would have been entitled to receive
immediately before said merger, consolidation or transfer (if this Plan were
then terminated).
10.6 Vesting upon Termination or Discontinuance of Employer Contributions;
---------------------------------------------------------------------
Liquidation of Trust.
- --------------------
(a) This Plan shall be deemed terminated if and only if the Plan
terminates by operation of law or pursuant to Section 10.2. In the event of any
termination or partial termination within the meaning of the Code, or in the
event the Employer permanently discontinues the making of contributions to the
Plan, the Employer Contribution Account of each affected Participant who is
employed by the Employer on the date of the occurrence of such event shall be
nonforfeitable; provided, however, that in no event shall any Participant or
beneficiary have recourse to other than the Trust Fund for the satisfaction of
benefits hereunder.
(b) In the event an Employer permanently discontinues the making of
contributions to the Plan, the Trustee shall make or commence distribution to
each Participant or his beneficiaries of the value of such Participant's
Accounts as provided herein within the time prescribed in Article 6. However,
if, after such discontinuance the Company shall determine it to be impracticable
to continue the Trust any longer, the Company may, in its discretion, declare a
date to be the Determination Date for all Participants whose Determination Date
has not yet occurred, and the Trustee shall thereupon, as promptly as shall then
be reasonable under the circumstances, liquidate the Trust assets and distribute
to each such Participant his Accounts in the Trust Fund. Such date shall also
constitute the final distribution date for each Participant or beneficiary whose
Accounts are being distributed in installments. Upon completion of such
liquidation and distribution, the Trust shall finally and completely terminate.
(c) The liquidation of the Trust, if any, in connection with any Plan
termination shall be accomplished by the Committee acting on behalf of the
Company. After directing that sufficient funds be set aside to provide for the
payment of all expenses incurred in the administration of the Plan and the
Trust, to the extent not paid or provided for by the Employer, the Committee
shall, as promptly as shall then be reasonable under the circumstances,
liquidate the Trust assets and distribute to each Participant his Accounts in
the Trust Fund. Upon completion of such liquidation and distribution, the
Trust shall finally and completely terminate. In the event the Committee is no
longer in existence, the actions to be taken by the Committee pursuant to this
Section shall be taken by the Trustee.
53
<PAGE>
ARTICLE 11
Adoption by Affiliates
----------------------
11.1 Adoption of Plan. Any Affiliate may adopt this Plan for the benefit
----------------
of its eligible employees if authorized to do so by a resolution or the terms of
an agreement approved by the Board of Directors of the Company. Such adoption
shall be by resolution of such Affiliate's board of directors, a certified copy
of which shall be filed with the Company, the Committees and the Trustee. Upon
such adoption, such Affiliate shall become an "Employer."
11.2 The Company as Agent for Employer. Each Employer which has adopted
---------------------------------
this Plan pursuant to Section 11.1 hereby irrevocably gives and grants to the
Company full and exclusive power conferred upon it by the terms of the Plan and
Trust to take or refrain from taking any and all action which such Employer
might otherwise take or refrain from taking with respect to the Plan, including
sole and exclusive power to exercise, enforce or waive any rights whatsoever
which such Employer might otherwise have with respect to the Trust, and each
such Employer, by adopting this Plan, irrevocably appoints the Company its agent
for such purposes. Neither the Trustee nor the Committee nor any other person
shall have any obligation to account to any such Employer or to follow the
instructions of or otherwise deal with any such Employer, the intention being
that all persons shall deal solely with the Company as if it were the sole
company which had adopted this Plan. Each such Employer shall contribute such
amounts as determined under Article 3.
11.3 Adoption of Amendments. Any Employer which adopts this Plan pursuant
----------------------
to Section 11.1 may amend this Plan with respect to its own employees by
resolution of its board of directors, if authorized to do so by the Board of
Directors of the Company.
11.4 Termination. Any Employer which adopts this Plan pursuant to Section
-----------
11.1 may terminate this Plan with respect to its own employees by resolution of
its board of directors, if authorized to do so by the Board of Directors.
11.5 Data to be Furnished by Employers. Each Employer which adopts this
---------------------------------
Plan pursuant to Section 11.1 shall furnish information and maintain such
records with respect to its employee Participants as called for hereunder, and
its determinations and notifications with respect thereto shall have the same
force and effect as comparable determinations by the Company with respect to its
employee Participants.
11.6 Joint Employees. If a Participant receives Considered Compensation
---------------
simultaneously from more than one Employer, the total amount of such Considered
Compensation shall be considered for the purposes of the Plan, and the
respective Employers shall share in contributions to the Plan on account of said
Participant based on the Considered Compensation paid to such Participant by the
Employer.
54
<PAGE>
11.7 Expenses. To the extent that the Employers shall pay any of the
--------
necessary expenses incurred in the administration of the Plan or Trust pursuant
to the Trust, then each Employer shall pay such portion thereof as the Company
shall determine.
11.8 Withdrawal. An Employer may withdraw from the Plan by giving 60
----------
days' written notice of its intention to the Company and the Trustee, unless a
shorter notice shall be agreed to by the Company.
11.9 Prior Plans. If an Employer adopting the Plan already maintains a
-----------
defined contribution plan covering employees who will be covered by this Plan,
it may, with the consent of the Company, provide in its resolution adopting this
Plan for the termination of its own Plan or for the merger, restatement and
continuation, of its own plan by this Plan. In either case, such Employer may,
subject to the approval of the Company, provide in its resolution of adoption of
this Plan for the transfer of the assets of such plan to the Trust for this Plan
for the payment of benefits accrued under such other plan. Any such plan is
referred to herein as a "Prior Plan".
11.10 Merger of the Heritage Plan into the Plan. Effective October 1,
-----------------------------------------
1998, the Heritage Plan shall be merged into this Plan. Notwithstanding any
other provision of this Plan, for all purposes other than eligibility to
participate, as provided in Section 2.1 of this Plan, the terms, conditions and
benefits of this Plan with respect to participants in the Heritage Plan on
September 30, 1998 shall, for the period commencing on October 1, 1998 and
ending on December 31, 1998, subject to amendment in accordance with the terms
of this Plan, be governed by the provisions of the Heritage Plan as in effect on
September 30, 1998, which provisions are incorporated into this Plan by this
reference as if fully set forth herein verbatim; provided, however, that: (i)
service with the Company and any of its Affiliates shall be deemed to be service
with the "Employer," as defined in Section 1.13 of the provisions of the
Heritage Plan, for purposes of determining a Heritage Employee's "Year of
Service" under Section 1.51 of the provisions of the Heritage Plan; and (ii) the
Trustee of this Plan shall constitute the "Trustee" under Section 1.48 of the
provisions of the Heritage Plan. On and after January 1, 1999, the provisions of
this Plan as amended from time to time, and without respect to the provisions of
the Heritage Plan, shall govern the terms, conditions and benefits of employees
who previously participated in the Heritage Plan.
55
<PAGE>
ARTICLE 12
Miscellaneous
-------------
12.1 No Guarantee of Employment, etc. Neither the creation of the Plan nor
-------------------------------
anything contained in the Plan or Trust Agreement shall be construed as giving
any Participant hereunder or other employee of the Employer any right to remain
in the employ of the Employer, any equity or other interest in the assets,
business or affairs of the Employer, or any right to complain about any action
taken or any policy adopted or pursued by the Employer.
12.2 Rights of Participants and Others.
---------------------------------
(a) Except as provided in the Plan with respect to loans to a
Participant, no Participant shall have any right to sell, assign, pledge,
hypothecate, anticipate or in any way create a lien upon any part of the Trust
Fund. Except to the extent required by law or provided in the Plan, no interest
in the Trust Fund, or any part thereof, shall be assignable in or by operation
of law, or be subject to liability in any way for the debts or defaults of
Participants, their beneficiaries, spouses or heirs-at-law, whether to the
Employer or to others.
(b) Prior to the time that distributions are to be made hereunder,
the Participants, their spouses, beneficiaries, heirs-at-law or legal
representatives shall have no right to receive cash or other things of value
from the Employer or the Trustee from or as a result of the Plan and Trust.
12.3 Qualified Domestic Relations Order. Notwithstanding anything in this
----------------------------------
Plan to the contrary, the Committee shall distribute a Participant's Accounts,
or any portion thereof, in accordance with the terms of any domestic relations
order entered on or after January 1, 1985, which the Committee determines to be
a qualified domestic relations order described in Section 414(p) of the Code.
Further notwithstanding any other provision of this Plan to the contrary,
effective as of September 1, 1997, such distribution of a Participant's Accounts
or any portion thereof, to an alternate payee under a qualified domestic
relations order shall, unless such order otherwise provides, be made in one lump
sum as soon as administratively practicable after the Committee has determined
that a domestic relations order is a qualified domestic relations order
described in Code Section 414(p).
12.4 Controlling Law. To the extent not preempted by the laws of the
---------------
United States of America, the laws of the State of Illinois shall be controlling
state law in all matters relating to the Plan.
12.5 Severability. If any provision of this Plan shall be held illegal or
------------
invalid for any reason, said illegality or invalidity shall not affect the
remaining parts of this Plan, but this Plan shall be construed and enforced as
if said illegal or invalid provision had never been included herein.
56
<PAGE>
12.6 Notification of Addresses. Each Participant and each beneficiary of a
-------------------------
deceased Participant shall file with the Committee from time to time in writing
his post-office address and each change of post-office address. Any
communication, statement or notice addressed to the last post-office address
filed with the Committee, or if no such address was filed with the Committee,
then to the last post-office address of the Participant or beneficiary as shown
on the Employer's records, will be binding on the Participant and his
beneficiary for all purposes of this Plan and neither the Committee nor the
Employer shall be obliged to search for or ascertain the whereabouts of any
Participant or beneficiary.
12.7 Gender and Number. Whenever the context requires or permits, the
-----------------
gender and number of words shall be interchangeable.
* * * * *
IN WITNESS WHEREOF, in accordance with the authorizations and directions of
the Board of Directors at First Midwest Bancorp, Inc., this First Midwest
Bancorp Savings and Profit Sharing Plan, as Amended and Restated Effective
January 1, 1998, Except as Expressly Provided Otherwise, is hereby adapted on
behalf of the Company, effective as of such date, by the undersigned duly
authorized officer.
FIRST MIDWEST BANCORP, INC.
By: /s/ Robert P. O'Meara
----------------------------------
Robert P. O'Meara
Chairman and Chief Executive Officer
ATTEST:
/s/ James M. Roolf
- ----------------------------
Corporate Secretary
57
<PAGE>
FIRST MIDWEST BANCORP
SAVINGS AND PROFIT SHARING PLAN
-------------------------------
In accordance with the authorizations and directions of the Board of
Directors of First Midwest Bancorp, Inc., the attached First Midwest Bancorp
Savings and Profit Sharing Plan, As Amended and Restated Effective January 1,
1998, Except as Expressly Provided Otherwise, is hereby adopted effective as of
such date by the undersigned duly authorized officers.
FIRST MIDWEST BANCORP, INC.
By: /s/ Robert P/ O'Meara
-------------------------------
Robert P. O'Meara
Chairman and Chief Executive Officer
ATTEST:
/s/ James M. Roolf
- ----------------------------------------
James M. Roolf
Corporate Secretary
<PAGE>
FIRST MIDWEST BANCORP
SAVINGS AND PROFIT SHARING PLAN
******
SUMMARY PLAN DESCRIPTION
RELATING TO THE PLAN
AS IN EFFECT
JANUARY 1, 2000
This booklet, dated January 1, 2000,
makes up part of a prospectus covering
securities that have been registered
under the Securities Act of 1933.
59
<PAGE>
FIRST MIDWEST BANCORP
SAVINGS AND PROFIT SHARING PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page #
------
<S> <C>
GENERAL INFORMATION ABOUT THE PLAN............................................................ 1
DESCRIPTION OF THE FIRST MIDWEST
SAVINGS AND PROFIT SHARING PLAN.......................................................... 2
WHAT ARE THE PURPOSES OF THE PLAN?............................................................ 2
WHAT ARE THE PURPOSES OF THIS BOOKLET?........................................................ 2
WHEN AM I ELIGIBLE TO JOIN THE PLAN?.......................................................... 2
HOW MUCH CAN I ELECT TO CONTRIBUTE TO THE PLAN?............................................... 3
HOW MUCH WILL FIRST MIDWEST CONTRIBUTE
TO THE PLAN ON MY BEHALF?................................................................ 5
WHAT COMPENSATION IS TAKEN INTO ACCOUNT
FOR PURPOSES OF PLAN CONTRIBUTIONS?...................................................... 6
ARE ROLLOVER CONTRIBUTIONS AND ROLLOVER
TRANSFERS PERMITTED UNDER THE PLAN?...................................................... 7
WHAT IF I PREVIOUSLY PARTICIPATED IN A
PLAN THAT WAS MERGED INTO THIS PLAN?..................................................... 7
HOW DO I BECOME VESTED IN CONTRIBUTIONS
TO MY PLAN ACCOUNTS?..................................................................... 7
HOW ARE PLAN CONTRIBUTIONS INVESTED?.......................................................... 8
HOW CAN I CHANGE MY INVESTMENT OPTIONS?....................................................... 9
WILL I RECEIVE A REGULAR STATEMENT OF
THE VALUE OF MY PLAN ACCOUNT?............................................................ 9
MAY I BORROW AMOUNTS FROM MY PLAN ACCOUNTS?................................................... 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
CAN I WITHDRAW PLAN CONTRIBUTIONS WHILE I AM STILL EMPLOYED?.......................................................... 10
WHEN WILL I BE ENTITLED TO RECEIVE MY ACCOUNTS?....................................................................... 11
HOW AND WHEN ARE MY PLAN BENEFITS TAXED?.............................................................................. 11
HOW IS THE PLAN ADMINISTERED?......................................................................................... 12
WHAT ARE MY RIGHTS WITH RESPECT TO SHARES OF FIRST MIDWESTCOMMON STOCK HELD IN THE CORPORATION COMMON STOCK FUND?..... 13
WHO PAYS TRANSACTION FEES, MANAGEMENT FEES AND PLAN EXPENSES?......................................................... 13
CAN THE PLAN BE CHANGED OR DISCONTINUED?.............................................................................. 14
WHAT ELSE SHOULD I KNOW ABOUT THE PLAN?............................................................................... 14
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................................................... 19
</TABLE>
ii
<PAGE>
SUMMARY PLAN DESCRIPTION
GENERAL INFORMATION ABOUT THE PLAN
First Midwest Bancorp, Inc. ("First Midwest") maintains the First Midwest
Bancorp Savings and Profit Sharing Plan ("Plan") to help you meet your long-term
financial goals. Under the Plan, you may save regularly through payroll
deductions, receive matching and profit sharing contributions, and reduce your
current income taxes.
The Plan may be adopted by any affiliated company of First Midwest for the
benefit of its eligible employees. For purposes of this booklet, the term
"Employer" refers to both First Midwest and any affiliated companies that have
adopted the Plan. If an affiliated company adopts this Plan, it will be listed
in Appendix B to this booklet.
The Plan is designed primarily as a deferred compensation program which
permits you to elect to contribute to the Plan on a before-tax basis. Because
such contributions reduce the amount of federal, and in most cases state, income
tax which you currently pay, they are known as "before-tax contributions." The
earnings on your before-tax contributions are also not taxable to you until
withdrawn. The Employer matches your before-tax contributions by contributing to
the Plan $2.00 for each $1.00 of the first 1% of your compensation you elect to
have contributed to the Plan on your behalf as before-tax contributions.
The Employer may also make profit sharing contributions, known as "Employer
Contributions," to the Plan. Each year, after reviewing the performance of each
subsidiary, and of First Midwest on a consolidated basis, the Board of Directors
of First Midwest may determine an amount of Employer Contribution to be
contributed to the Plan on your behalf. An Employer Contribution is expressed as
a percent of compensation received during the year, while a Participant, and is
added to your Plan account. The Employer Contribution made on your behalf is not
included as part of your compensation for federal or state income tax purposes
so long as it remains in the Plan.
The Plan permits participants to borrow a portion of the vested amounts in
their accounts subject to certain limitations. In addition, withdrawals of
before-tax contributions are allowed in the event of a demonstrated financial
hardship.
All contributions are deposited in a trust fund and invested for you and
other participants. Your individual accounts will grow from Employer
contributions, your own contributions if you elect to contribute, and the tax-
deferred income from the Trust Fund's investments. You have the ability, within
limits, to direct the investment of your Plan account.
The Plan is maintained on a calendar plan year, beginning January 1 and
ending December 31 ("Plan Year").
<PAGE>
DESCRIPTION OF THE FIRST MIDWEST
SAVINGS AND PROFIT SHARING PLAN
The following questions and answers provide a summary of the legal
documents governing the Plan:
WHAT ARE THE PURPOSES OF THE PLAN?
The purposes of the Plan are to encourage and assist employees in the
accumulations of capital for retirement by means of regular, before-tax
participant contributions and matching and profit sharing contributions by the
Employer. Additionally, the Plan provides a means for effectuating the desire of
many employees to have an ownership interest in First Midwest through the
Corporation's Common Stock, stimulating the efforts of employees and
strengthening their desire to remain employees of First Midwest.
WHAT ARE THE PURPOSES OF THIS BOOKLET?
This booklet is a summary of the legal documents governing the Plan
effective on and after January 1, 2000, and only applies to persons employed by
the Employer on or after that date and to persons who have account balances in
the Plan on or after that date. You and your spouse (if you are married) should
read this booklet carefully. Raise any questions you may have with the Plan
Committee. The Plan Committee will be pleased to help you understand how the
Plan is designed to provide you with an additional measure of financial security
for your future.
WHEN AM I ELIGIBLE TO JOIN THE PLAN?
Eligibility
- -----------
If you are not now a participant, you will automatically become a
participant in the Plan on the first January 1 or July 1 on which you have
completed a 1-year eligibility period, have attained age 21 and are employed in
an eligible group of employees.
In general, all employees (other than leased employees) of the Employer are
eligible. However, employees covered by a collective bargaining agreement under
which retirement benefits were the subject of good faith bargaining are not
eligible to participate unless the collective bargaining agreement provides for
their participation.
Eligibility Period
- ------------------
To satisfy the 1-year eligibility requirement, you must complete at least
1,000 hours of service in a 1-year period of employment with the Employer or an
affiliated company. The 1-year period begins on the date you first perform
duties for the Employer or an affiliated company. However, because you may enter
the Plan only on January 1 or July 1, it is possible to wait
2
<PAGE>
almost 18 months to become a participant, even if you are age 21. If you do not
complete 1,000 hours of service in your first eligibility period, you can meet
the requirement in later eligibility periods which correspond to the Plan Year.
Hours of Service
- ----------------
You get an "hour of service" for each hour for which you are paid by the
Employer or an affiliated company for the job you perform. You may also be
credited with "hours of service" for certain paid absences, such as for
vacation, holidays, illness or disability, authorized leaves of absence, or if
you receive a back pay award. However, the maximum hours you can earn in any 12-
month period for any non-working time is 501 hours.
Eligibility for Purposes of Rollover Contributions
- --------------------------------------------------
If you are an eligible employee, you may become a participant in the Plan
immediately upon your employment, but only for the limited purpose of having a
rollover contribution, or rollover transfer, made to the Plan from another
qualified plan, directing the investment of your rollover account, and naming a
beneficiary to receive the balance in your rollover account. You may also borrow
from your rollover account in accordance with the terms of the Plan (see the
section of this booklet entitled "May I Borrow Amounts from My Plan Accounts?").
You will not be a participant entitled to make before-tax contributions or to
share in matching contributions or Employer Contributions until you have
completed the required period of service and have entered the Plan on the
appropriate entry date. See the applicable sections of this booklet for more
information. Additional information and rules governing rollover and rollover
transfer contributions are also available from the Plan Committee.
HOW MUCH CAN I ELECT TO CONTRIBUTE TO THE PLAN?
Basic Before-Tax Contributions
- ------------------------------
You may elect to have the Employer make before-tax contributions to the
Plan on your behalf of up to 1% of your regular compensation during each Plan
Year while you are a participant. These before-tax contributions are referred to
as your "basic before-tax contributions." Your basic before-tax contributions
----- -----
are matched by the Employer, as explained below.
Supplemental Before-Tax Contributions
- -------------------------------------
You may also elect to have the Employer make additional before-tax
contributions to the Plan on your behalf in full percentage increments of at
least 1% and up to 9% of your regular compensation during each plan year while
you are a participant. These before-tax contributions are referred to as your
"supplemental before-tax contributions," and are not matched by the Employer.
- ------------- ---
3
<PAGE>
Dollar Limitation On Before-Tax Contributions
- ---------------------------------------------
Your total before-tax contributions may not exceed a certain dollar
limitation established by the IRS, and may be further limited in certain
circumstances. The dollar limitation for the 2000 calendar year is $10,500, but
this amount will be adjusted by the IRS in future years to reflect increases in
the cost-of-living.
Your Reportable Compensation
- ----------------------------
The amount of your before-tax contributions (up to the applicable legal
limits) will reduce the amount of your compensation which is subject to federal
and certain state income taxes. However, your before-tax contributions will not
reduce the amount of your compensation subject to Social Security tax, nor your
Social Security benefits.
How Your Contributions Are Made to the Plan
- -------------------------------------------
All of your contributions will be deducted from your paycheck and
transferred by the Employer to the Trust Fund.
Changing Your Contribution
- --------------------------
You may change the amount of your before-tax contributions, or suspend your
before-tax contributions, on written notice to the Plan Committee. These changes
will be effective on January 1, April 1, July 1, or October 1 of each year,
provided notice is properly submitted at least 15 days prior to such dates.
Other benefits which you receive through First Midwest, such as life insurance,
social security benefits, disability benefits and pension benefits will be based
upon your salary before reduction for your before-tax Plan contributions.
------
Limitations on Before-Tax Contributions
- ---------------------------------------
In addition to the percentage of compensation and dollar limitations on
contributions as explained above, the Plan must meet certain other legal
requirements which limit the before-tax contributions elected by higher-paid
employees. You will be notified if your before-tax contributions must be reduced
or refunded. Similar restrictions apply to matching contributions made on behalf
of higher-paid employees. The Plan Committee reserves the right to restrict the
amount of contributions made by or on behalf of higher-paid employees to comply
with these requirements.
4
<PAGE>
HOW MUCH WILL FIRST MIDWEST CONTRIBUTE
TO THE PLAN ON MY BEHALF?
Matching Contributions
- ----------------------
As of the last day of each calendar quarter, the Employer will contribute
on your behalf, if you are employed by the Employer on that date, $2.00 for each
$1.00 of basic before-tax contributions you made during that calendar quarter.
-----
Matching contributions will also be made on your behalf for a calendar quarter
if, prior to the last day of the calendar quarter, you retire on or after age 65
(or age 55 with 15 years of service), die, or are initially deemed to be totally
and permanently disabled. Special enhanced matching contributions apply during
the 1998 Plan Year. If these special matching contributions apply to you, you
will receive separate notifications about them.
Discretionary Employer Contributions
- ------------------------------------
Each year, after reviewing the performance of each subsidiary, and of First
Midwest as a whole, First Midwest's Board of Directors may determine an
additional amount to be contributed to the Plan on behalf of eligible
participants. The contribution will be expressed as a percentage of compensation
received during the year (or half year for participants who entered the Plan on
July 1 of the year). Generally, this Employer Contribution will be in the range
of 0% to 6% of compensation.
The Employer Contribution will only be added to your Plan account if:
* on December 31 of the year of the Employer Contribution, you were
employed by an Employer and you completed 1,000 hours of
employment during the year; or,
* your employment ended during the year due to retirement on or
after age 65 (or age 55 with 15 years of service), disability or
death.
If your employment with the Employer terminates during the year for any
other reason, or you are employed on December 31, but did not complete 1,000
hours of employment during the year, you will not be eligible to receive an
Employer Contribution for that year.
General Limitations on Contributions
- ------------------------------------
Under applicable IRS rules, the aggregate amount for any Plan Year of (1)
your before-tax contributions, (2) your share of the matching contributions and
discretionary Employer Contributions cannot exceed the lesser of 25% of your
compensation for the Plan Year or $30,000. You will be notified if this
limitation restricts any contributions made to the Plan on your behalf.
5
<PAGE>
The total amount of before-tax contributions, matching contributions and
discretionary Employer Contributions is also limited to the amount of such
contributions deductible by the Employer for federal income tax purposes.
Discretionary Employer Contributions will increase the amount available to
you and your family when you retire or otherwise terminate employment. However,
they are subject to the vesting schedule of the Plan (see the section of this
booklet entitled "How Do I Become Vested In Contributions To My Plan
Accounts?").
WHAT COMPENSATION IS TAKEN INTO ACCOUNT
FOR PURPOSES OF PLAN CONTRIBUTIONS?
Compensation For Purposes of Before-Tax Contributions
- -----------------------------------------------------
Your compensation for purposes of determining the amount of your before-tax
and matching contributions is your base salary from the Employer, excluding
certain forms of irregular compensation, such as severance pay, bonuses and
other incentive compensation. However, any contributions you make under First
Midwest's Flexcomp Program for medical plan coverage, health care and child care
benefit expense accounts, and/or life insurance are included as part of your
compensation for purposes of determining your before-tax and matching
contributions.
Compensation For Purposes Of Employer Contributions
- ---------------------------------------------------
Your compensation for purposes of determining your allocable share of
Employer Contributions (i.e., your discretionary profit sharing contributions)
is your total compensation from the Employer. It includes base salary, overtime,
and any employee bonuses and other incentive compensation and excludes stock
option income, nonqualified plan benefits, severance and transitional pay.
Additionally, any contributions you make under First Midwest's Flexcomp Program
for medical plan coverage, health care and child care benefit expense accounts,
and/or life insurance are also included as part of your compensation for
purposes of Employer Contributions.
Limitations On Compensation
- ---------------------------
Only compensation earned while you are a participant in the Plan is taken
into account. For example, if you join the Plan on July 1, your compensation for
that year while you are a participant will be the total compensation you receive
during the 6-month period from July 1 through December 31. Also, due to IRS
limitations, for the 2000 plan year, annual compensation in excess of $170,000
(as adjusted by the IRS for changes in the cost of living) is not taken into
account for purposes of the Plan.
6
<PAGE>
ARE ROLLOVER CONTRIBUTIONS AND ROLLOVER
TRANSFERS PERMITTED UNDER THE PLAN?
You may, with the permission of the Plan Committee, make "rollover
contributions" to the Plan. A "rollover contribution" is an amount held for your
benefit under another qualified plan or in an IRA that is deposited with, or
transferred to, this Plan.
The rollover contribution must be deposited with this Plan within 60 days
after distribution to you and must be made in cash. A rollover contribution
accepted by the Plan Committee will be credited to your separate rollover
account.
You may also, with the permission of the Plan Committee, have a direct
rollover transfer of assets from any other qualified plan made to this Plan. Any
amount transferred will also be credited to your rollover account.
If you are interested in making a rollover contribution, or a rollover
transfer, you should request information from the Plan Committee.
WHAT IF I PREVIOUSLY PARTICIPATED IN A
PLAN THAT WAS MERGED INTO THIS PLAN?
If you were a participant in a Prior Plan, special rules may apply to your
Prior Plan Account. A "Prior Plan" is any tax-qualified plan that was merged
into this Plan. A "Prior Plan Account" is an account under this Plan
attributable to funds accumulated under the Prior Plan that were transferred
into this Plan. If you worked for an employer that was acquired by First Midwest
(an "acquired company"), and you participated in a profit sharing or 401(k) plan
sponsored by the acquired company, you may have a Prior Plan Account. Any
special provisions applicable to your Prior Plan Account, such as a separate
vesting schedule or additional optional forms of payment of your benefit, are
explained in a special appendix to this booklet. A separate appendix is created
for each Prior Plan if special rules apply to the Prior Plan Accounts
attributable to that Prior Plan. Check to see if a separate appendix to this
booklet applies to you. If you have any questions, contact the Plan Committee.
HOW DO I BECOME VESTED IN CONTRIBUTIONS
TO MY PLAN ACCOUNTS?
Vesting Schedule
- ----------------
Vesting refers to your right to receive your Plan accounts. For purposes of
vesting, all of your service from the date of hire counts towards vested
service.
You are, at all times, fully vested in the Plan with the respect to the
amounts which you have contributed (i.e., your before-tax contributions, any
rollover contributions or transfers, and
7
<PAGE>
after-tax employee contributions made under a prior plan) and the investment
earnings thereon. You are also fully vested in all matching contributions made
to the Plan on your behalf, and the investment earnings thereon, at all times.
You become vested in Employer Contributions (i.e., discretionary profit
sharing contributions), and investment earnings thereon, in accordance with the
following schedule:
Years of Service Percent Vested
------------------- ---------------
7 or more 100%
6 but less than 7 80%
5 but less than 6 60%
4 but less than 5 40%
3 but less than 4 30%
2 but less than 3 20%
Less than 2 0%
Notwithstanding the above schedule, you will be 100% vested in all Employer
Contributions, and investment earnings thereon, if you retire after attaining
age 65 (or age 55 with 15 years of service), become permanently disabled or die.
Amounts representing non-vested company contributions and earnings of
participants who terminate employment and who are less than 100% vested are
treated as "forfeitures" and used to reduce the Employer's future contributions.
HOW ARE PLAN CONTRIBUTIONS INVESTED?
All Plan Contributions are paid to First Midwest Trust Company, N.A. (the
"Trustee"), a subsidiary of First Midwest, and are invested in accordance with
the provisions of the Plan and related Trust Agreement. The Trustee is
authorized to pay certain fees and expenses from the Plan. For a discussion of
the payment of transaction fees and other expenses, see the section of this
booklet entitled "Who Pays Transaction Fees, Management Fees and Plan Expenses?"
Once you become a participant, you have the opportunity to choose the
manner in which your before-tax contributions, matching contributions, Employer
Contributions, as well as any rollover contributions or transfers, are invested.
You may invest all your contributions in one investment option or allocate your
contributions among the various investment options in multiples of 10%. The
investment options available under the Plan are listed in Appendix A of this
booklet. Plan investment options may be added, eliminated or modified from time
to time. You will be notified of any such changes.
All dividends, interest, gains and losses received or incurred with respect
to each investment fund are allocated quarterly to each participant's Plan
account in the ratio that such
8
<PAGE>
account balance invested in such fund bears to all account balances invested in
such fund. Adjustments are made for changes in any common stock held by an
investment fund resulting from stock dividends, stock splits or similar changes.
The Plan is intended to comply with section 404(c) of the Employee
Retirement Income Security Act of 1974 (ERISA) and applicable Federal
regulations. Therefore, neither First Midwest, the Plan Committee, the Trustee
nor any other Plan fiduciary will be responsible for any losses you may incur as
a result of your investment elections.
HOW CAN I CHANGE MY INVESTMENT OPTIONS?
You may change your investment allocation, with respect to future before-
tax, matching and Employer Contributions, or you may transfer existing account
balances between Plan investment funds, on January 1, April 1, July 1, and
October 1 of each year by giving proper written notice at least 15 days prior to
these dates. The Human Resources Department of your Employer should be contacted
in order to receive the appropriate forms for this purpose.
WILL I RECEIVE A REGULAR STATEMENT OF
THE VALUE OF MY PLAN ACCOUNT?
The assets of the Plan are valued as of the last day of each calendar
quarter. As soon as practical thereafter, a statement which indicates the dollar
amount of your before-tax contributions, matching contributions, Employer
Contributions, and other Plan accounts, the investment earnings thereon, and any
transfers between Plan investment funds made during that quarter, will be
provided to participants.
In addition to quarterly statements, an annual report for the Plan is
prepared by First Midwest. This annual report will include, among other
information, the performance of each Plan investment fund, any significant
changes with respect to the Trustee, the Plan, or the investment options
available under the Plan, and the allocation of Plan assets among the various
investment funds. The annual report also includes financial statements for the
Plan for the current and prior year. These financial statements include the
annual activity of the Plan, including contributions, investment income,
expenses and distributions to participants under the Plan, and other changes in
net assets available to Plan participants.
The annual report of the Plan, in addition to all official Plan documents,
are available for review by Plan participants. In addition, each Plan
participant will receive, as soon as practicable after the last day of each
calendar year, a summary of the Plan's annual report for that year, at no cost
to the participant. In addition, each participant may obtain information about
the specific assets held in the various Plan investment funds, expenses and
charges, and certain other information upon request to the Plan Committee.
9
<PAGE>
MAY I BORROW AMOUNTS FROM MY PLAN ACCOUNTS?
You may borrow from the Plan against the aggregate value of your accounts.
You may have only one loan outstanding at any time. Loans may not be less
than $1,000 nor more than the lesser of (i) 50% of the aggregate vested balance
of your accounts determined as of the last day of the calendar quarter preceding
the date of your loan request, or (ii) $50,000 (reduced by your highest
outstanding loan balance at any time during the l-year period preceding the date
the new loan is made). You may request a loan by submitting the required forms
to the Plan Committee.
The amount necessary to fund the loan will be taken from your Plan accounts
invested in the various investment funds as you elect. The loan will be treated
as a separate investment of those accounts which will be credited with your
payments of principal and interest. The amount of your repayments will be
reinvested in the Plan investment funds in accordance with your investment
elections in effect at the time of repayment.
Each participant interested in obtaining a loan from the Plan should
request from the Plan Committee forms and information relating to the interest
rate and other repayment terms, as well as the effect of the failure to make
timely loan payments and the effect of employment upon the loan.
CAN I WITHDRAW PLAN CONTRIBUTIONS WHILE I AM STILL EMPLOYED?
As noted in the responses to the previous questions, the Plan is designed
primarily to meet your long-range financial needs. ACCORDINGLY, THE WITHDRAWAL
OF BEFORE-TAX CONTRIBUTIONS IS SUBJECT TO SUBSTANTIAL RESTRICTIONS (However, see
the section of this booklet above regarding the ability to borrow from your Plan
account).
Withdrawals of before-tax contributions (and certain employee after-tax
contributions under prior plans) are possible in the event of a demonstrated
financial hardship, subject to the approval of the Plan Committee. Such
approvals are necessary in order to meet Internal Revenue Service rules. The
financial need to be met for withdrawal of before-tax or after-tax contributions
must be an amount not reasonably available from your other resources. If you are
married, the written consent of your spouse, witnessed by a notary public or
Plan representative, is required for such a withdrawal. WITHDRAWALS OF MATCHING
AND EMPLOYER CONTRIBUTIONS ARE NOT PERMITTED UNDER ANY CIRCUMSTANCES.
In the event you incur a "financial hardship" that cannot be fully
satisfied with a loan from the Plan, you may request to withdraw from your prior
plan after-tax contributions account and, if necessary, your before-tax
contributions and earnings credited thereon prior to 1989, the amount necessary
to satisfy the hardship. A financial hardship is defined to mean an immediate
and heavy financial need which includes extraordinary expenses due to accident,
sickness,
10
<PAGE>
disability or other financial emergency affecting you or any of your dependents,
tuition for college or postgraduate education for you, your spouse, children or
dependents, amounts needed for the purchase of your principal residence or to
prevent eviction or foreclosure on your principal residence.
Internal Revenue Service regulations require participants who request
hardship withdrawals to demonstrate that the amount needed from the Plan is not
reasonably available from the resources of the participant and his or her
spouse. Additionally, a participant must fully suspend all before-tax
contributions for at least 12 months and limit contributions made during the
following calendar year as a condition to receiving the hardship withdrawal.
WHEN WILL I BE ENTITLED TO RECEIVE MY ACCOUNTS?
You will be entitled to the entire balance in your Plan accounts when you
retire, terminate employment with the Employer become totally disabled or die,
subject to the vesting provisions outlined in the section of this booklet
entitled "How Do I Become Vested In Contributions To My Plan Accounts?"
Distributions of Plan account balances will be made in a single lump sum
payment of cash only. However, you may elect to receive an "in-kind"
distribution of shares of Corporation Common Stock representing the portion of
your account balances invested in the FMBI Stock Fund (see section of this
booklet entitled, "What Special Rules Apply to the FMBI Stock Fund?"). If you
have a Prior Plan Account, additional optional forms of payment may apply to
your Prior Plan Account (see the section of this booklet entitled "What If I
Previously Participated In A Plan That Was Merged Into This Plan?").
Generally, lump sum benefits are payable as soon as practicable after the
-----
quarterly valuation date (March 31, June 30, September 30, and December 31)
which follows your separation from service with the Employer. If you become age
65 in the year you leave, and your benefit is at least $5,000, you can defer
your lump sum until after the end of the year. The amount of the benefit will
then be based on the value of your account on December 31. Payment in that case
will be within 60 days after year end.
You may elect to leave your account balance in the Plan after you terminate
participation. This election applies only to the entire account balance. If you
------
subsequently elect to withdraw such balance, the withdrawal will be payable
after the next quarterly valuation date.
If you die before receiving your account distribution, the distribution
will be made to the beneficiary or beneficiaries you and/or your spouse have
designated. If no beneficiary is designated, or if no beneficiary is living at
the time the benefit is payable, the account distribution will be made to your
estate.
11
<PAGE>
HOW AND WHEN ARE MY PLAN BENEFITS TAXED?
For federal and state income tax purposes, before-tax contributions,
matching contributions, Employer Contributions, rollover contributions and
transfers to the Plan are not included in the income of Plan participants in the
year in which such contributions or transfers are made. In accordance with rules
summarized below, federal and state income taxation of account balances of
participants is deferred until those account balances are distributed to
recipients. Also, while employee after-tax contributions made under a prior plan
are not subject to income tax, investment earnings on such funds are only tax-
deferred until the date of distribution.
Under IRS regulations, certain employees must begin receiving distributions
under the Plan beginning no later than April 1 of the calendar year following
the calendar year in which they attain age 70-1/2. You will be notified if these
rules apply to you. Any such distributions (exclusive of the amount of any
after-tax contributions in a prior plan account) will generally be taxed as
ordinary income at the regular rates in effect in the year of distribution.
Distributions made from the Plan to a participant before the participant
attains age 59-1/2 may be subject to a special 10% additional income tax on the
amount of the distribution. This additional tax will not be applicable if the
distribution is made because the participant has become disabled, died, or if it
is made to the participant after separation from service after attainment of age
55. Further, the additional tax will not be applicable to a distribution to the
extent the distribution does not exceed the amount allowable as a deduction on
the participant's individual income tax return for amounts paid during the
taxable year for medical care. There are other limited exceptions to the 10%
additional income tax. You should consult with a qualified tax advisor if you
think the 10% additional income tax may apply to you.
Distributions from the Plan will generally be subject to mandatory 20%
withholding for federal income tax unless the distribution is transferred
directly to an IRA or another company's tax-qualified retirement plan. If a
direct transfer is not elected at the time of distribution, you may still
rollover your distribution to an IRA or another tax-qualified plan within 60
days after receipt of the distribution along with an amount from your other
assets equal to the withholding.
Hardship distributions will be subject to mandatory 10% withholding for
federal income tax.
Special tax rules apply if you elect to receive an "in-kind" distribution
of Common Stock for the portion of your account balance invested in the FMBI
Stock Fund (see section of this booklet entitled, "What Special Rules Apply to
the FMBI Stock Fund?").
Each Participant will receive distribution election forms and other
material in connection with any distributions from the Plan which provides
additional information regarding the foregoing tax rules.
12
<PAGE>
BECAUSE OF THE COMPLEXITY OF THE FEDERAL TAX LAWS, AND THE
APPLICATION OF STATE AND LOCAL TAX LAWS, PARTICIPANTS ARE ADVISED TO
CONSULT THEIR PERSONAL TAX ADVISORS REGARDING THESE MATTERS.
HOW IS THE PLAN ADMINISTERED?
The Plan is administered by a Plan Administration Committee (the "Plan
Committee") which is appointed by the management of First Midwest. The assets of
the Plan are held and administered by the Trustee for the Plan in accordance
with the terms and conditions of the First Midwest Bancorp Savings and Profit
Sharing Trust.
The Plan Committee has the responsibility for controlling and managing the
operation and administration of the Plan, which includes construing and
interpreting the Plan's provisions, deciding all eligibility questions,
verifying the need for and approving qualifying withdrawal requests, approving
Plan loans, determining the amount, manner and time of payment of any benefit
under the Plan and determining whether death or total and permanent disability
has occurred. In exercising its responsibilities, the Plan Committee is
obligated to act in a non-discriminatory manner. The Plan Committee's decisions
with respect to all disputes involving participating employees or their
beneficiaries are final, conclusive and binding.
In connection with its administrative responsibilities, the Plan Committee
may employ such agents to perform clerical and other services, and such legal
counsel, accountants and actuaries as it may deem necessary or desirable for the
operation and administration of the Plan. In connection with any action or
determination, the Plan Committee is entitled to rely upon information furnished
by the Trustee and upon tables, valuations, certificates, opinions and reports
furnished by any trustee, accountant or legal counsel.
Plan Committee members receive no special compensation for their services
in administering the Plan, have no specified term of office and may be removed
at any time by the management of First Midwest. The address and telephone number
of the Plan Committee is listed in the section of this booklet entitled "What
Else Should I Know About the Plan?"
WHAT SPECIAL RULES APPLY TO THE FMBI STOCK FUND?
The Plan offers a fund invested in the Corporation's Common Stock (the
"FMBI Stock Fund"), as more fully described in Appendix A of this booklet, as an
investment option. Participants with Plan accounts invested in the FMBI Stock
Fund will be permitted to direct the Trustee with respect to voting and other
shareholder rights relating to the First Midwest Common Stock held in the FMBI
Stock Fund to the same extent as other stockholders of the corporation.
Participants in the FMBI Stock Fund receive the same materials First Midwest
provides other stockholders regarding voting and other shareholder action.
Participants are also provided instructions and forms with which to direct the
Trustee as regards the shares of First Midwest Common Stock held in their FMBI
Stock Fund account. Such participant directions to the
13
<PAGE>
Trustee regarding voting and other shareholder action are kept confidential from
First Midwest and its affiliated companies. Participants are notified of the
Plan Committee's procedures to ensure such confidentiality.
You may elect as part of your lump sum payment to receive an "in-kind"
distribution of shares of Common Stock representing the portion of your account
balance invested in the FMBI Stock Fund. There is a special tax rule that
applies to an "in-kind" distribution. Under the special rule, you may elect to
not pay tax on the "net unrealized appreciation" of the shares of Common Stock
until you sell the shares. "Net unrealized appreciation" is generally the
increase in the value of the shares while they were held in the Plan. If you
receive an "in-kind" distribution and elect to have the special rule apply, you
will be required to pay tax on the value of the shares when received, minus the
net unrealized appreciation (which will not be taxed until you sell the shares).
You may elect not to have the special rule apply and either pay tax on the full
value of the shares when received or rollover the shares to an IRA or another
employer plan. If you roll over the shares, you will not be able to take
advantage of the special "net unrealized appreciation" rule in the future with
respect to such shares. You will receive distribution election forms and other
material describing the election and special tax rule in connection with any
distributions (see section entitled, "How are my Plan Benefits Taxed?").
WHO PAYS TRANSACTION FEES, MANAGEMENT FEES AND PLAN EXPENSES?
The Plan provides that any fees or expenses incurred in conjunction with
the administration of the Plan will be paid by the Plan to the extent not paid
by First Midwest. Since the inception of the Plan on January 1, 1985, First
Midwest has paid all fees and expenses assessed by the Trustee for
administration of the Plan and its investment funds. Should First Midwest elect
not to pay the fees and expenses incurred in the administration of the Plan,
such expenses will be paid out of the Plan investment funds, by the Trustee.
All transaction costs (i.e., brokerage fees) of each Plan investment fund
will be paid by the Trustee from the assets of such Plan investment fund. When
First Midwest Common Stock is purchased for the FMBI Stock Fund from First
Midwest, no fees, commissions or other charges are paid by the Plan, Trust or
your account. However, any fees, commissions or other charges associated with
the purchase of First Midwest Common Stock in the open market are paid by the
FMBI Stock Fund and shared on a pro rata basis by the participants invested in
the FMBI Stock Fund. Likewise, all fees, commissions or other charges associated
with the purchase of common equity stocks and fixed income securities for each
other investment fund option under the Plan are paid from that fund, and
allocated among the participants whose accounts are invested in that fund.
The Trustee charges an annual fee for its services based upon current
competitive market rates. Information regarding expenses and charges paid by the
Plan may be obtained upon request from the Plan Committee.
14
<PAGE>
CAN THE PLAN BE CHANGED OR DISCONTINUED?
The Board of Directors of First Midwest may modify or amend the Plan at any
time in any respect, or terminate the Plan at any time, except that no amendment
or termination may deprive any participant of any rights or benefits irrevocably
vested prior to such amendment. The Plan, if and as amended, must continue to be
maintained exclusively for the benefit of Plan participants and beneficiaries.
Amendments required by a change in tax laws are not, however, subject to the
restrictions set forth in the preceding sentences. The First Midwest Bancorp
Savings and Profit Sharing Trust can be amended at any time by First Midwest,
except that no such amendment shall divest any benefits held in the Trust for
any Plan participant or beneficiary under the Plan.
Upon termination, all Plan contributions and earnings thereon become
nonforfeitable and will be distributed to participants in proportion to their
individual interests and no part thereof shall revert to the Employer. See the
section of this booklet entitled "How and When are My Plan Benefits Taxed?" for
a discussion of the tax consequences of such a termination.
WHAT ELSE SHOULD I KNOW ABOUT THE PLAN?
Naming a Beneficiary
- --------------------
Since your Plan accounts are fully payable in the event of your death, you
will be asked to name one or more beneficiaries. If you are not married, you may
name anyone, and you may change your designation at any time, using the
appropriate form available for this purpose.
However, if you are married and do not name your spouse as sole
beneficiary, the informed consent of your spouse to an alternate beneficiary is
required. Your spouse's consent must be in writing and notarized. Be sure to
keep your designation up to date as your family and personal circumstances
change. The Plan Committee can only direct payment of your benefits to the
beneficiary or beneficiaries you properly designate.
If you die with no surviving beneficiary, the Plan Committee will direct
the payment of your Plan account to your spouse or, if there is no surviving
spouse, to your children in equal shares. If there is no surviving spouse or
child, your death benefits will be paid to your mother and father in equal parts
or, if none survive, to your estate.
Reemployment
- ------------
If you terminated employment and are reemployed within one year, your
period of absence counts as service and you can participate or re-participate if
you otherwise meet the Plan's eligibility requirements.
15
<PAGE>
If you are reemployed after one year, your period of prior employment, but
not your period of absence, counts as service if:
. You had two or more years of service when your employment terminated,
or
. Your absence is less than 5 years (6 years in the event of maternity
or paternity leave).
If you are reemployed within five years (six in the event of
maternity/paternity leave), any amount you forfeited can be returned to your
account if you repay the amount of the Employer Contribution Account you
received when you left.
Non-Alienation of Benefits
- --------------------------
Except for tax withholding, a Plan loan to you, or a qualified domestic
relations order (described below), your benefits under the Plan cannot be
assigned or alienated in any way. You may not sell, transfer, pledge, or
--------------------------------------
otherwise use your benefits to obtain credit in any form. The Plan is not liable
- --------------------------------------------------------
for or subject to, and will not pay, any debts or obligations of a participant
who is eligible for benefits.
Domestic Relations Order
- ------------------------
If a qualified domestic relations order is entered against you, the Plan
may be required to pay all or part of your benefits to someone else. A domestic
relations order is a court-ordered judgement or decree under state law that
requires payment of child support, alimony, or marital property rights to a
spouse, former spouse, child, or other dependent. To be qualified, the order
must clearly specify who is to be paid, the amount to be paid, the number of
payments, and the plan or plans to which the order applies. The form of benefit
provided by the Plan cannot be changed. You will be notified if such an order is
received with respect to your Plan account. In such event, you will be advised
of the Plan Committee's procedures for determining whether the order is
qualified.
Benefits Not Insured
- --------------------
The Plan is classified as a defined contribution plan. Therefore, it is not
insured by the Pension Benefit Guaranty Corporation, which only applies to
pension plans classified as defined benefit plans under the Employee Retirement
Income Security Act of 1974. The Plan is audited each year by an independent
accounting firm.
Employment Rights Not Implied
- -----------------------------
16
<PAGE>
Participation in the Plan does not give you the right to be retained in
employment with the Employer. Notwithstanding Plan participation, an Employer
may discharge or terminate any employee at any time.
Official Plan Documents
- -----------------------
This Summary Plan Description contains the highlights of the First Midwest
Bancorp Savings and Profit Sharing Plan. All of your rights and benefits are
described in the official plan and trust document, which is controlling. The
Plan identification number for government filings is EIN 36-3161078, PN 002.
Telephone Numbers and Addresses You Should Know
- -----------------------------------------------
You can reach the Plan Committee at First Midwest Bancorp, Inc., 300 Park
Boulevard, Suite 400, Itasca, Illinois 60143. The Plan Committee can be reached
by telephone at (630) 875-7211.
The Trustee of the Plan is First Midwest Trust Company, N.A. The Trustee's
address is 121 North Chicago Street, Joliet, Illinois 60432.
Service of legal process may be made upon the Trustee as well as the Plan
Committee.
Claims Procedure
- ----------------
When a distribution or other determination of benefits under the Plan is
made or denied, you will receive a notice explaining how the distribution was
calculated or why benefits have been denied. Such action will generally be taken
within 90 days of the request for the distribution or determination of benefits,
unless the Plan Committee notifies you in writing that an extension (not to
exceed an additional 90 days) is needed in order to make the determination. If
you believe that a distribution calculation or denial is incorrect, you may
request a full review by the Plan Committee within 60 days after you receive the
notice. You have the right to review pertinent documents and submit issues and
comments in writing. If you want to appeal the decision on a denied application,
send details in writing to the Plan Committee.
All disputed claims will be reviewed by the Plan Committee or its delegate.
They will notify you of their findings and decision in writing within 60 days
(unless special circumstances require an extension, not to exceed an additional
60 days) after they receive the appeal. Your notification will include reasons
for the Plan Committee's decision and references to the Plan provisions on which
the decision is based.
17
<PAGE>
Your Rights Under the Law
- -------------------------
As a participant in the Plan, you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974 (ERISA).
ERISA is a Federal law that established rules for the operation of pension and
profit sharing plans. In general, ERISA sets standards for (1) employees'
eligibility, participation, vesting and benefit accrual; (2) reports to the
Federal Government and to Plan participants of information concerning the Plan
and Plan participants' rights under the Plan; and (3) the conduct and
responsibilities of the persons who administer and control the Plan. The Plan is
subject to the provisions of Titles I and II of ERISA, including the provisions
with respect to reporting, disclosure, participation, vesting and fiduciary
responsibilities. The Plan, however, is not subject to the minimum funding
standards of ERISA Title I and, therefore, benefits under the Plan are not
guaranteed by the Pension Benefit Guaranty Corporation under Title IV of ERISA.
The following is a summary of your rights under ERISA:
. You may read all Plan documents, including the official Plan document,
the trust agreement, and the Plan description and annual financial
reports that are filed with the U.S. Department of Labor.
. You will automatically receive a summary of the Plan's annual
financial report at no cost. You may examine the complete report or
any of the other documents referred to above without charge. If you
would like a copy of any of them for yourself, you may obtain one at a
reasonable cost by writing the Plan Committee.
. Upon written request to the Plan Committee once a year you can obtain,
without cost, a statement telling you whether you have enough service
to qualify for the full balance of your Employer Contribution Account
if you should leave, and if not, how may more years of service you
need to become eligible.
. If your claim for a Plan benefit is denied in whole or in part, you
have the right to a written explanation, and upon request, a review
and reconsideration of the claim denial.
. The people who operate the Plan are called fiduciaries. They must act
prudently and in the interests of you and other Plan participants and
beneficiaries.
. Under ERISA you can take action to enforce your rights. Furthermore,
you cannot be fired, nor can your employer or any other person
discriminate against you in any way to prevent you from obtaining a
plan benefit or exercising your rights under ERISA.
. If you request documents you are entitled to receive, and the Plan
Committee does not comply within 30 days, you may file suit in federal
court. The court may
18
<PAGE>
require the Plan Committee to provide the requested materials and pay
up to $100 for each day of delay, unless the delay was beyond the Plan
Committee's control.
. If you file a claim for benefits and it is denied in whole or in part,
or ignored, you may file suit in a state or federal court. If you
believe a Plan fiduciary has misused the plan's money, or if you are
discriminated against for asserting your ERISA rights, you may file
suit in a federal court or seek help from the U.S. Department of
Labor. In the event you have sued and win, the court may order the
person you have sued to pay court costs and fees. On the other hand,
if you lose, you may have to pay court costs and fees yourself if, for
example, the court decides your claim is frivolous.
If you have questions about the Plan, write directly to the First Midwest
Human Resources Department at the Corporate Office. If you have questions about
this statement of rights under ERISA, or about your rights under ERISA, you
should contact the nearest office of the Pension and Welfare Benefits
Administration, U.S. Department of Labor, listed in your telephone directory or
the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits
Administration, U. S. Department of Labor, 200 Constitutional Avenue, N.W.,
Washington, D.C. 20210.
***************************************
19
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have heretofore been filed by First Midwest with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934 and are incorporated by reference into this
Summary Plan Description:
(i) The Corporation's latest Annual Report on Form 10-K.
(ii) The Corporation's Quarterly Reports on Form 10-Q and other
reports filed with the Commission since the end of the Corporation's fiscal
year covered by its latest Annual Report on form 10-K.
(iii) The description of the Common Stock of the Corporation, no
par value, and the description of the Preferred Share Purchase Rights of
the Corporation, as contained in applicable Registration Statements on Form
8-A and other reports filed by the Corporation with the Commission amending
such descriptions.
(iv) The Plan's latest Annual Report on Form 11-K.
Upon oral or written request, the Corporation will furnish without charge
to each person to whom this prospectus is delivered, a copy of any and all of
the documents referred to in this section, other than exhibits thereto not
incorporated by reference into such documents. Such requests should be
addressed to the Plan Committee or to the Director of Communications, First
Midwest Bancorp, Inc., 300 Park Boulevard, Suite 400, Itasca, Illinois 60143;
telephone (630) 875-7211.
20
<PAGE>
APPENDIX A
INVESTMENT OPTIONS UNDER
THE FIRST MIDWEST BANCORP
SAVINGS AND PROFIT SHARING PLAN
-------------------------------
As of January 1, 2000, your contributions will be invested by the Trustee
in the following investment options, in accordance with your investment
direction:
ARTICLE 13
Money Market Fund - The Money Market Fund is managed by First Midwest Trust
- -----------------
Company to provide current money market yield through high quality short term
investments. The principal objectives of the Money Market Fund are protection
of principal, high liquidity and competitive money market yields for the given
risk level.
ARTICLE 14
Fixed Income Fund - The Fixed Income Fund provides attractive, risk adjusted
- -----------------
total return through the use of intermediate-term (1-15 years) interest bearing
securities. A ladder of maturity approach is used in which a portion of the
portfolio matures in each year over the next 5-15 years. The average maturity
of the portfolio will generally range from 3-7 years. The portfolio is
diversified by maturity and by issue (with the exception of U.S. Government
securities. Most bonds purchased have a quality rating of AA or better (this is
the second highest rating possible).
ARTICLE 15
Balanced Fund - The Balanced Fund is managed by First Midwest Trust Company to
- -------------
be a diversified fund comprised of common stocks, not including First Midwest
Common Stock, and fixed income investments. Common stock investments of the
Balanced Fund represent high quality, well capitalized companies with the
potential for long-term capital appreciation and dividend growth, which are
selected with the objective of providing above average growth of income and
capital with below-market volatility. The investment guideline for the common
stock investments of the Balanced Fund is 40-60% of the current fair market
value of the fund although the level of common stock investments may be above or
below this range as the investment manager in its discretion may permit.
The Balanced Fund also maintains fixed income investments with various
maturities not in excess of 10 years. This strategy allows the
Balanced fund to increase the average return from fixed income
investments without sacrificing liquidity or assuming substantial
interest rate risk. The majority of the fixed income investments
purchased by the Balanced Fund will generally consist of U.S.
Government and U.S. Government Agency Securities.
21
<PAGE>
ARTICLE 16
Equity Fund - The Equity Fund is managed by First Midwest Trust Company to
- -----------
provide above average growth of income and capital with below market volatility.
This fund invests in value oriented common stocks with a relatively low
price/earnings ratio. Additionally, this fund is diversified by industry.
Although the actual mix of stocks varies from time to time at the manager's
discretion, in general the amount invested in one industry is limited to 20
percent of the common stocks and the amount invested in one company is limited
to 15 percent of the common stocks. This diversification reduces the risk
exposure.
This fund is long term oriented and invests in undervalued (out of
favor) high quality companies that have an annual increase in
earnings. Due to this conservative approach, you can normally expect
to under-perform the market in a strong up-market and out-perform the
market in a strong down-market. This disciplined approach has
provided attractive long-term returns relative to those of the Fixed
Income Fund or the Balanced Fund.
ARTICLE 17
Corporation Common Stock Fund (the "FMBI Stock Fund") - Amounts allocated to
- -----------------------------------------------------
this fund will be invested in shares of Common Stock purchased by the First
Midwest Trust Company either in open market transactions (through the NASDAQ
National Market System) or in private transactions from First Midwest or other
persons. When Common Stock is purchased directly from First Midwest, the price
per share will be the average of the high and low sale prices reported by the
NASDAQ National Market System on the trading day preceding the purchase, and no
fees, commissions or other charges will be paid in connection with such
purchase. Any fees, commissions or other charges associated with the purchase
of Common Stock in open market transactions will be paid by the FMBI Stock Fund.
Effective September 30, 1999, all cash dividends paid on the Common Stock held
by the FMBI Stock Fund and any distributions of Common Stock received by the
Trustee by reason of a stock dividend or stock split, or other similar
transaction, will be credited to the FMBI Stock Fund during the quarter in which
the record date for the dividend or other distribution occurs.
From time to time a portion of the Fixed Income, Balanced, Equity, FMBI
Stock Fund will be held as a cash reserve for purposes of distributions upon
termination of employment, hardship withdrawals, Plan loans or transfer to other
Plan investment funds. All cash maintained by the FMBI Stock Fund will be
invested in an interest-bearing cash management account.
22
<PAGE>
APPENDIX B
PARTICIPATING EMPLOYERS IN THE
FIRST MIDWEST BANCORP SAVINGS AND
PROFIT SHARING PLAN
-------------------
First Midwest Bank, N.A.
First Midwest Trust Company, N.A.
First Midwest Bancorp, Inc.
First Midwest Mortgage Company
23
<PAGE>
APPENDIX C
SPECIAL PROVISIONS APPLICABLE TO PRIOR PARTICIPANTS IN THE
MCHENRY STATE BANK PROFIT SHARING AND SAVINGS PLAN & TRUST
----------------------------------------------------------
If you were a participant in the McHenry State Bank Profit Sharing and
Savings Plan & Trust ("McHenry Plan") on December 31, 1997, the date the McHenry
Plan was merged into this Plan, your McHenry Plan Account is subject to a
separate vesting schedule. Also, additional optional forms of payment of your
McHenry Plan Account are available. Your "McHenry Plan Account" consists of
discretionary employer contributions made on your behalf under the McHenry
Plan, and transferred to this Plan, subject to adjustments for investment
earnings or losses and any distributions made from the Account. The special
rules applicable to your McHenry Plan Account are more fully described below:
Vesting Rules Applicable To McHenry Plan Accounts
- -------------------------------------------------
Notwithstanding any other provisions of this booklet, your McHenry Plan
Account vests according to the following schedule:
Years of Service Percent Vested
------------------- ---------------
Less than 2 0%
2 but less than 3 20%
3 but less than 4 30%
4 but less than 5 40%
5 or more 100%
Optional Forms Of Payment Applicable To McHenry Plan Accounts
- -------------------------------------------------------------
You or your designated beneficiary, as applicable, may elect to receive
your vested interest in any portion of your Plan account attributable to
benefits accrued under the McHenry Plan in any one or a combination of the
following methods: (1) by payment in a lump sum; (2) by payment in monthly
installments over a period not to exceed your statistical life expectancy or the
life expectancy of you and your beneficiary; or by payment through the purchase
of an annuity contract from a registered insurance company selected by the
Trustee. If you are vested in any portion of your McHenry Plan Account, you will
be provided with special distribution and other forms relating to your benefits
under this Plan attributable to the benefits you accrued under the McHenry Plan.
24
<PAGE>
APPENDIX D
SPECIAL PROVISIONS APPLICABLE TO PRIOR PARTICIPANTS IN THE
HERITAGE FINANCIAL SERVICES PROFIT SHARING PLAN
-----------------------------------------------
If you were a participant in the Heritage Financial Services Profit Sharing
Plan ("Heritage Plan") on October 1, 1998, the date the Heritage Plan was merged
into this Plan, your Heritage Plan Account is subject to the same vesting
schedule applicable to Employer Contributions under the Plan (see the section
entitled "How Do I Become Vested in Contributions to My Plan Accounts") and
additional optional forms of payments described below. Your "Heritage Plan
Account" consists of your account balance under the Heritage Plan as transferred
to this Plan, subject to adjustments for investment earnings or losses and any
distributions made from the Account after October 1, 1998.
Optional Forms Of Payment Applicable To Heritage Plan Accounts
- --------------------------------------------------------------
You or your designated beneficiary, as applicable, may elect to receive
your vested interest in any portion of your Heritage Plan Account in any one or
a combination of the following methods: (1) by payment in a lump sum; (2) by
payment in monthly installments over a period not to exceed your statistical
life expectancy or the life expectancy of you and your beneficiary; or by
payment through the purchase of an annuity contract from a registered insurance
company selected by the Trustee. If you are vested in any portion of your
Heritage Plan Account, you will be provided with special distribution and other
forms relating to your benefits under this Plan attributable to your Heritage
Plan Account.
25
<PAGE>
Exhibit 13
FOR IMMEDIATE RELEASE
CONTACT: James M. Roolf
630/875-7452
TRADED: Nasdaq
SYMBOL: FMBI
FIRST MIDWEST BANCORP REPORTS RECORD EARNINGS:
FOURTH QUARTER UP 12.8% - FULL YEAR 1999 UP 36.9%
ITASCA, IL., JANUARY 19, 2000 - First Midwest Bancorp, Inc. (Nasdaq: FMBI) today
reported net income for the quarter ended December 31, 1999 increased to a
record $18.1 million, or $0.44 per diluted share, as compared to 1998's fourth
quarter net income of $17.3 million, or $0.39 per diluted share, representing an
increase on a per diluted share basis of 12.8%. The record results for the
quarter equate to returns on average equity and average assets of 19.49% and
1.31%, respectively.
Full year 1999 net income increased to a record $70.9 million, or $1.67 per
diluted share, as compared to 1998's net income of $54.7 million or $1.22 per
diluted share, representing an increase on a per diluted share basis of 36.9%.
Included in 1998 net income were expenses and provisions related to the
acquisition of Heritage Financial Services, Inc. totalling $12.5 million or
$0.28 per share after tax. The year's record results represent returns on
average equity and average assets of 17.39% and 1.34%, respectively.
The improved operating performance of both the quarter and full year is
attributable to increases in both net interest income and noninterest income as
well as tightly-managed noninterest expenses.
<PAGE>
The increases in net interest income for both the quarter and full year were
driven by solid loan growth experienced during both periods as discussed below.
Turning to non interest income, increases experienced in all categories of
service charges and fees more than offset the combined effect of declining
mortgage revenues (related to the higher rate-slowed refinance environment of
the year) and significantly lower securities gains. Focusing on operating non
interest expenses, all categories continued to be closely controlled with the
dominant component of salaries and employee benefits increasing only modestly.
Loan growth of 11.2% for the year was propelled by increases recorded during
each of the last three quarters with the growth occurring in virtually all
categories of commercial and consumer loans. At the same time, asset quality
remained sound as both non performing loans and non performing assets at year
end stood at their lowest levels for the year and compared favorably with year
ago levels. Net loan charge offs for both the quarter and full year improved
further and again compared favorably with year ago levels.
In November 1999 the Board of Directors declared a 3 for 2 common stock split
that was paid December 20, 1999 to shareholders of record as of December 3, 1999
and represented the fourth stock split in the last 12 years. At the November
meeting the Board also increased the quarterly dividend 12.5% to $0.18 per
share, this being the eighth such increase in the last seven years.
With assets of $5.5 billion, First Midwest is the largest independent and fifth
overall largest banking company in the highly attractive suburban Chicago
banking market. As the premier independent suburban Chicago banking company,
First Midwest provides commercial banking, trust, investment management,
mortgage and related financial services to a broad array of customers through 73
offices and 105 ATMs located in more than 40 communities of northern Illinois.
2
<PAGE>
<TABLE>
<CAPTION>
First Midwest Bancorp, Inc. Quarter Ended Year Ended
Operating Highlights (unaudited) December 31, December 31,
- --------------------------------------------------------------------------------------------------------------
(Amounts in thousands except per share data) 1999 1998 1999 1998*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income................................................. $18,131 $17,323 $70,909 $54,704
Diluted earnings per share.................................. $ 0.44 $ 0.39 $ 1.67 $ 1.22
Return on average equity.................................... 19.49% 15.18% 17.39% 11.78%
Return on average assets.................................... 1.31% 1.32% 1.34% 1.07%
Net interest margin......................................... 4.06% 4.02% 4.24% 4.21%
Efficiency ratio............................................ 55.47% 55.33% 55.66% 62.43%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* 1998 includes $12,533 ($16,798 pretax) or $0.28 per share in expenses and
provisions incurred in the third quarter related to the acquisition of
Heritage Financial Services, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Quarter Ended Year Ended
Stock Performance (unaudited) December 31, December 31,
- --------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Market Price, Quarters Ended:
Quarter End.............................................. $ 26.50 $ 25.38 $ 26.50 $ 25.38
High..................................................... $ 30.13 $ 27.75 $ 30.13 $ 34.67
Low...................................................... $ 24.38 $ 23.33 $ 23.04 $ 22.75
Book value per share........................................ $ 8.98 $ 10.40 $ 8.98 $ 10.40
Market price to book value.................................. 2.9 x 2.4 x 2.9 x 2.4 x
Market price to analysts' estimated 1999 earnings........... 15.87 x NA 15.87 x NA
Quarterly dividend declared per share....................... $ 0.18 $ 0.16 $ 0.66 $ 0.61
Shares outstanding, in thousands............................ 41,113 43,549 41,113 43,549
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Per share data has been restated to reflect the three-for-two stock split
paid in December 1999.
<PAGE>
<TABLE>
<CAPTION>
First Midwest Bancorp, Inc. Quarter Ended Year Ended
Condensed Consolidated Statements of Income (unaudited) December 31, December 31,
- ----------------------------------------------------------------------------------------------------------------
(Amounts in thousands except per share data) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans....................................................... $ 61,643 $ 61,015 $ 233,744 $ 259,495
Securities.................................................. 32,604 27,163 123,569 98,881
Other....................................................... 606 1,202 3,966 6,221
- ----------------------------------------------------------------------------------------------------------------
Total interest income.................................... 94,853 89,380 361,279 364,597
- ----------------------------------------------------------------------------------------------------------------
Interest Expense
Deposits.................................................... 33,669 35,894 129,177 146,212
Borrowed funds.............................................. 13,394 8,055 39,438 30,804
- ----------------------------------------------------------------------------------------------------------------
Total interest expense................................... 47,063 43,949 168,615 177,016
- ----------------------------------------------------------------------------------------------------------------
Net interest income...................................... 47,790 45,431 192,664 187,581
Provision for Loan Losses................................... 1,484 1,003 5,760 5,542
- ----------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses...... 46,306 44,428 186,904 182,039
- ----------------------------------------------------------------------------------------------------------------
Noninterest Income
Service charges on deposit accounts......................... 5,170 4,529 18,720 17,100
Trust and investment management fees........................ 2,609 2,209 10,135 9,134
Other service charges, commissions and fees................. 3,038 2,565 11,825 10,197
Mortgage banking revenues................................... 976 3,002 5,646 8,535
Corporate owned life insurance income....................... 1,334 896 5,209 3,135
Security gains, net......................................... 401 551 97 1,657
Other....................................................... 1,712 1,467 6,702 5,704
- ----------------------------------------------------------------------------------------------------------------
Total noninterest income................................. 15,240 15,219 58,334 55,462
- ----------------------------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and employee benefits.............................. 19,756 19,073 79,015 77,294
Occupancy expenses.......................................... 3,225 3,003 13,366 12,039
Equipment expenses.......................................... 2,050 2,204 8,479 8,354
Computer processing costs................................... 2,878 2,202 10,113 9,846
Acquisition charges......................................... 0 0 0 16,148
Other expenses.............................................. 9,434 8,765 38,836 35,121
- ----------------------------------------------------------------------------------------------------------------
Total noninterest expense................................ 37,343 35,247 149,809 158,802
- ----------------------------------------------------------------------------------------------------------------
Income before taxes......................................... 24,203 24,400 95,429 78,699
Income tax expense.......................................... 6,072 7,077 24,520 23,995
- ----------------------------------------------------------------------------------------------------------------
Net Income............................................... $ 18,131 $ 17,323 $ 70,909 $ 54,704
- ----------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share............................... $ 0.44 $ 0.39 $ 1.67 $ 1.22
- ----------------------------------------------------------------------------------------------------------------
Dividends Declared Per Share............................. $ 0.18 $ 0.16 $ 0.66 $ 0.61
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Per share data has been restated to reflect the three-for-two stock split
paid in December 1999.
<PAGE>
<TABLE>
<CAPTION>
First Midwest Bancorp, Inc.
Condensed Consolidated Statements of Condition (unaudited) December 31,
- --------------------------------------------------------------------------------------------------------------
(Amounts in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks.................................................. $ 155,407 $ 156,524
Funds sold and other short-term investments.............................. 13,781 75,247
Securities available for sale............................................ 2,033,247 1,979,115
Securities held to maturity, at amortized cost........................... 43,543 48,964
Loans.................................................................... 2,962,487 2,664,417
Reserve for loan losses.................................................. (42,645) (43,290)
- -------------------------------------------------------------------------------------------------------------
Net loans......................................................... 2,919,842 2,621,127
- -------------------------------------------------------------------------------------------------------------
Premises, furniture and equipment........................................ 80,408 78,168
Investment in corporate owned life insurance............................. 105,343 100,135
Accrued interest receivable and other assets............................. 160,017 133,607
- -------------------------------------------------------------------------------------------------------------
Total assets...................................................... $ 5,511,588 $ 5,192,887
- -------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits................................................................. $ 4,001,183 $ 4,050,451
Borrowed funds........................................................... 1,077,732 623,899
Accrued interest payable and other liabilities........................... 63,300 65,639
- -------------------------------------------------------------------------------------------------------------
Total liabilities................................................. 5,142,215 4,739,989
- -------------------------------------------------------------------------------------------------------------
Common stock............................................................. 455 455
Additional paid-in capital............................................... 81,957 85,889
Retained earnings........................................................ 442,711 399,446
Accumulated other comprehensive income................................... (49,072) 9,875
Treasury stock, at cost.................................................. (106,678) (42,767)
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity........................................ 369,373 452,898
- -------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity........................ $ 5,511,588 $ 5,192,887
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Asset Quality (unaudited) Quarters Ending
- -------------------------------------------------------------------------------------------------------------
(Amounts in thousands) 12/31/99 09/30/99 06/30/99 03/31/99 12/31/98
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans........................................... $20,278 $20,905 $18,995 $18,055 $20,638
Foreclosed real estate..................................... 1,157 1,529 1,792 1,960 1,015
Loans past due 90 days and still accruing.................. 5,286 4,998 5,195 5,005 5,342
- -------------------------------------------------------------------------------------------------------------
Nonperforming loans to loans............................... 0.68% 0.73% 0.69% 0.68% 0.77%
Nonperforming assets to loans plus foreclosed real estate.. 0.72% 0.78% 0.75% 0.75% 0.81%
Reserve for loan losses to loans........................... 1.44% 1.49% 1.54% 1.62% 1.62%
Reserve for loan losses to nonperforming loans............. 210% 204% 224% 238% 210%
- -------------------------------------------------------------------------------------------------------------
Net loan charge-offs....................................... $ 1,437 $ 1,801 $ 1,564 $ 1,603 $ 2,550
- -------------------------------------------------------------------------------------------------------------
Net loan charge-offs to average loans...................... 0.20% 0.26% 0.23% 0.24% 0.36%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
State of Jurisdiction
Subsidiary of Incorporation
- -------------------------------- ---------------------
First Midwest Bank, N.A. Illinois
First Midwest Insurance Company Arizona
First Midwest Trust Company, N.A. Illinois
First Midwest Mortgage Corporation Illinois
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following documents of our
report dated January 18, 2000, with respect to the consolidated financial
statements of First Midwest Bancorp, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1999:
. Registration Statement (Form S-3 No. 33-20439) pertaining to the First
Midwest Bancorp, Inc. Dividend Reinvestment and Stock Purchase Plan.
. Registration Statement (Form S-8 No. 33-25136) pertaining to the First
Midwest Bancorp Savings and Profit Sharing Plan.
. Registration Statement (Form S-8 No. 33-42980) pertaining to the First
Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive Plan.
. Registration Statement (Form S-8 No. 333-42273) pertaining to the First
Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive Plan.
. Registration Statement (Form S-8 No. 333-63095) pertaining to the First
Midwest Bancorp, Inc. Non-employee Director Stock Option Plan.
. Registration Statement (Form S-8 No. 333-63097) pertaining to the First
Midwest Bancorp, Inc. Nonqualified Retirement Plan.
ERNST & YOUNG LLP
Chicago, Illinois
February 26, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of our report dated January 19, 1998 with respect to the consolidated
financial statements of Heritage Financial Services, Inc. included in this
Annual Report on Form 10-K of First Midwest Bancorp, Inc. for the year ended
December 31, 1999:
. Registration Statement (Form S-3 No. 33-20439) pertaining to the First
Midwest Bancorp, Inc. Dividend Reinvestment and Stock Purchase Plan.
. Registration Statement (Form S-8 No. 33-25136) pertaining to the First
Midwest Bancorp Inc. Savings and Profit Sharing Plan.
. Registration Statement (Form S-8 No. 33-42980) pertaining to the First
Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive Plan.
. Registration Statement (Form S-8 No. 333-42273) pertaining to the First
Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive Plan.
. Registration Statement (Form S-8 No. 333-63095) pertaining to the First
Midwest Bancorp, Inc. Non-employee Stock Option Plan.
. Registration Statement (Form S-8 No. 333-63097) pertaining to the First
Midwest Bancorp, Inc. Nonqualified Retirement Plan.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 24, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 155,407
<INT-BEARING-DEPOSITS> 1,551
<FED-FUNDS-SOLD> 15
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,033,247
<INVESTMENTS-CARRYING> 43,543
<INVESTMENTS-MARKET> 49,784
<LOANS> 2,962,487
<ALLOWANCE> (42,645)
<TOTAL-ASSETS> 5,511,588
<DEPOSITS> 4,001,183
<SHORT-TERM> 1,077,732
<LIABILITIES-OTHER> 63,412
<LONG-TERM> 0
455
0
<COMMON> 0
<OTHER-SE> 368,806
<TOTAL-LIABILITIES-AND-EQUITY> 5,511,588
<INTEREST-LOAN> 233,744
<INTEREST-INVEST> 123,569
<INTEREST-OTHER> 3,966
<INTEREST-TOTAL> 361,279
<INTEREST-DEPOSIT> 129,177
<INTEREST-EXPENSE> 168,615
<INTEREST-INCOME-NET> 192,664
<LOAN-LOSSES> 5,760
<SECURITIES-GAINS> 97
<EXPENSE-OTHER> 149,809
<INCOME-PRETAX> 95,429
<INCOME-PRE-EXTRAORDINARY> 95,429
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,909
<EPS-BASIC> 1.68
<EPS-DILUTED> 1.67
<YIELD-ACTUAL> 4.24
<LOANS-NON> 20,905
<LOANS-PAST> 4,998
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 30,620
<ALLOWANCE-OPEN> 43,290
<CHARGE-OFFS> 6,405
<RECOVERIES> 5,760
<ALLOWANCE-CLOSE> 42,645
<ALLOWANCE-DOMESTIC> 26,850
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 15,795
</TABLE>
