<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1997
COMMISSION FILE NUMBER 0-18121
___________________
MAF BANCORP, INC.
DELAWARE 36-3664868
(State of incorporation) (IRS Employer identification No.)
55TH STREET & HOLMES AVENUE, CLARENDON HILLS, ILLINOIS 60514-1596
TELEPHONE NUMBER (630) 325-7300
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE NASDAQ
(Title of Class) (Name of each exchange
on which registered)
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. _____
Based upon the closing price of the registrant's common stock as of March 3,
1998, the aggregate market value of the voting stock held by non-affiliates of
the registrant was $472,137,346.*
The number of shares of Common Stock outstanding as of March 3, 1998: 15,012,836
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
PART III - Portions of the Proxy Statement for the Annual Meeting of
Shareholders to be held on April 29, 1998 are incorporated by reference into
Part III hereof.
- ---------------------------
* Solely for purposes of this calculation, all executive officers and directors
of the registrant are considered to be affiliates. Also included are shares held
by various employee benefit plans where trustees are (i) directors or executive
officers of the registrant or (ii) required to vote a portion of unallocated
shares at the direction of employees.
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
MAF Bancorp, Inc. ("Company"), is a registered savings and loan holding
company incorporated under the laws of the state of Delaware and is primarily
engaged in the consumer banking business through its wholly-owned subsidiary,
Mid America Bank, fsb ("Bank") and secondarily, in the residential real estate
development business through MAF Developments, Inc. ("MAF Developments").
On May 30, 1996, the Company acquired N.S. Bancorp, Inc. ("NSBI"), which was
the sole shareholder of Northwestern Savings Bank ("Northwestern"). At
acquisition, Northwestern had $749.7 million in loans receivable, which were
primarily one-to four-family residential mortgage loans, and $872.0 million in
deposits, which were serviced from six branch locations. All but one of the
branches are in markets which the Bank did not service in the past. See Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a more detailed review of the acquisition.
The Bank is a consumer-oriented financial institution offering various
financial services to its customers through 22 retail banking offices. The
Bank's market area is generally defined as the western suburbs of Chicago,
including DuPage County, which has the second highest per capita income in
Illinois, as well as the northwest side of Chicago. It is principally engaged
in the business of attracting deposits from the general public and using such
deposits, along with other borrowings, to make loans secured by real estate,
primarily one-to four-family residential mortgage loans. To a lesser extent,
the Bank also makes multi-family mortgage, residential construction, land
acquisition and development and a variety of consumer loans. The Bank also has
a small portfolio of commercial real estate. Through three wholly-owned
subsidiaries, MAF Developments, Mid America Development Services, Inc. ("Mid
America Developments"), and NW Financial, Inc. ("NW Financial"), the Company and
the Bank are also engaged in primarily residential real estate development
activities. Additionally, the Bank operates an insurance agency, Mid America
Insurance Agency, Inc., which provides general insurance services, and an
investment brokerage operation through its affiliation with INVEST, a registered
broker-dealer.
As a federally chartered savings bank, the Bank's deposits are insured up to
the applicable limits by the Federal Deposit Insurance Corporation ("FDIC").
The Bank is a member of the Federal Home Loan Bank ("FHLB") of Chicago, which is
one of the twelve regional banks for federally insured savings institutions
comprising the FHLB system. The Bank is regulated by the Office of Thrift
Supervision ("OTS") and the FDIC. The Bank is further regulated by the Board of
Governors of the Federal Reserve System as to reserves required to be maintained
against deposits and certain other matters.
The Company's executive offices are located at 55th Street and Holmes Avenue,
Clarendon Hills, Illinois 60514-1596. The telephone number is (630) 325-7300.
MARKET DATA
Based on total assets at December 31, 1997, the Bank is one of the largest
financial institutions headquartered in the Chicago metropolitan area, with its
home office located in Clarendon Hills, Illinois in the southeastern portion of
DuPage County. Through its network of 22 retail banking offices, the Bank
serves the residential, commercial and high technology sector west of Chicago,
including western Cook County, northern Will County, eastern Kane County and
DuPage County, as well as the northwest side of the City of Chicago.
2
<PAGE>
COMPETITION
The Bank is faced with increasing competition in attracting retail customer
business, including deposit accounts and loan originations. Competition for
deposit accounts comes primarily from other savings institutions, commercial
banks, money market mutual funds, and insurance companies (primarily in the form
of annuity products). Factors affecting the attraction of customers include
interest rates offered, convenience of branch locations, ease of business
transactions, and office hours. Competition for loan products comes primarily
from other mortgage brokers, savings institutions, commercial banks and mortgage
banking companies. Factors affecting business include interest rates, terms,
fees, and customer service.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain 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. The Company intends such forward-
looking statements to be covered by the safe harbor provisions for forward-
looking statements contained in the Private Securities Reform Act of 1995, and
is including this statement for purposes of these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company, are generally
identifiable by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. The Company's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse affect on the operations
and future prospects of the Company and the subsidiaries include, but are not
limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area and accounting principals, policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
REGULATORY ENVIRONMENT
The Bank is subject to extensive regulation, supervision and examination by
the OTS, as its chartering authority and primary federal regulator, and by the
FDIC, which insures its deposits up to applicable limits. Such regulation and
supervision establish a comprehensive framework of activities in which the Bank
can engage and is designed primarily for the protection of the insurance fund
and depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities. Any change in such regulation, whether by the OTS, the FDIC or
Congress, could have a material impact on the Bank and its operations. See
"Regulation and Supervision - Federal Savings Institution Regulation - Thrift
Rechartering Legislation" for more information.
3
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following executive officers were employed by the Company and the Bank as
of January 1, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- ----------------
<S> <C> <C>
Allen H. Koranda 51 Chairman of the Board and Chief Executive
Officer of the Company and the Bank
Kenneth Koranda 48 President and Director of the Company
and the Bank
Jerry A. Weberling 46 Executive Vice President and Chief Financial
Officer of the Company and the Bank
Gerard J. Buccino 36 Senior Vice President and Controller of the
Company and the Bank
William Haider 46 Senior Vice President of the Company and
the Bank; President of Mid America
Developments, NW Financial and MAF Developments
Michael J. Janssen 38 Senior Vice President of the Company and
the Bank
David W. Kohlsaat 43 Senior Vice President of the Company and
the Bank
Thomas Miers 46 Senior Vice President of the Company and
the Bank
Kenneth Rusdal 56 Senior Vice President of the Company and
the Bank
Sharon Wheeler 45 Senior Vice President of the Company and
the Bank
Gail Brzostek 49 First Vice President of the Bank
Alan W. Schatz 39 First Vice President of the Bank
Diane Stutte 49 First Vice President of the Bank
Carolyn Pihera 55 Vice President and Corporate Secretary of the
Company and the Bank
</TABLE>
4
<PAGE>
BIOGRAPHICAL INFORMATION
Set forth below is certain information with respect to executive officers of
the Company and the Bank. Unless otherwise indicated, the principal occupation
listed for each person below has been their principal occupation for the past
five years.
Allen H. Koranda has been Chairman of the Board and Chief Executive Officer of
the Company since August, 1989, and of the Bank since May, 1984. He joined the
Bank in 1972. He is also Senior Vice President and a director of Mid America
Developments, a wholly-owned subsidiary of the Bank. Mr. Koranda holds Bachelor
of Arts and Juris Doctor degrees from Northwestern University. Mr. Koranda is
the brother of Kenneth Koranda.
Kenneth Koranda has been President of the Company since August, 1989, and of
the Bank since July 1984. He joined the Bank in 1972. He is also Chairman of
Mid America Developments. Mr. Koranda holds a Bachelor of Arts degree from
Stanford University and a Juris Doctor degree from Northwestern University. Mr.
Koranda is the brother of Allen Koranda.
Jerry A. Weberling has been Executive Vice President and Chief Financial
Officer of the Company and the Bank since July 1993. Prior to that, he was
Senior Vice President of the Company since August, 1989, and Senior Vice
President and Chief Financial Officer of the Bank from March 1990 to July 1993.
He was Senior Vice President and Controller from 1986 to March 1990. He joined
the Bank in 1984. He is a certified public accountant. Mr. Weberling holds a
Bachelor of Science degree from Northern Illinois University.
Gerard J. Buccino has been Senior Vice President and Controller of the Company
and the Bank since July 1996. Prior to that he was First Vice President and
Controller of the Company and the Bank from July 1993 to July 1996 and Vice
President and Controller of the Company and the Bank from March 1990 to July
1993. He is a certified public accountant. Mr. Buccino holds a Bachelor of
Science degree from Marquette University and a Master of Business Administration
degree from the University of Chicago Graduate School of Business.
William Haider has been Senior Vice President of the Company and the Bank
since July 1996. Prior to that he was Vice President of the Company since April
1993 and of the Bank since 1987. He is President of Mid America Developments,
MAF Developments, and NW Financial, managing the real estate development
activities of the Company. Mr. Haider holds a Bachelor of Science degree from
Southern Illinois University. He joined the Bank in 1984.
Michael J. Janssen has been Senior Vice President - Investor Relations and
Taxation of the Company and the Bank since July 1996. Prior to that he was
First Vice President - Investor Relations and Taxation of the Company and the
Bank from July 1993 to July 1996, and Vice President of the Company from March
1990 to July 1993. He is a certified public accountant. Mr. Janssen holds a
Bachelor of Business Administration degree from the University of Notre Dame,
and a Master of Science of Taxation degree from DePaul University.
David W. Kohlsaat has been Senior Vice President - Administration since July
1996. Prior to that he was First Vice President - Administration of the Company
from July 1993 to July 1996, and is responsible for retail deposit
administration and Human Resources. He has been Vice President of the Company
since April 1993 and of the Bank since 1980. Mr. Kohlsaat holds a Bachelor of
Science degree from Southern Methodist University. He joined the Bank in 1976.
5
<PAGE>
Thomas Miers has been Senior Vice President of the Company since April 1993
and Senior Vice President-Retail Banking of the Bank since January 1992. Prior
to that he was Senior Vice President - Marketing. Mr. Miers holds a Bachelor of
Science degree from George Williams College. He joined the Bank in 1979.
Kenneth Rusdal has been Senior Vice President of the Company since April 1993
and Senior Vice President-Operations and Information System since January 1992.
Prior to that he was Senior Vice President-Information Systems from 1987 through
1991. He also served as Vice President of Software Development for FISERV,
Inc., where he was employed from 1983 to 1987.
Sharon Wheeler has been Senior Vice President of the Company since April 1993
and has been Senior Vice President - Residential Lending of the Bank since July
1986. She joined the Bank in 1971.
Gail Brzostek has been First Vice President - Check Operations and VISA
services since July 1996. Prior to that she was Vice President - Check
Operations since 1985. She joined the Bank in 1967.
Alan W. Schatz has been First Vice President - Secondary Marketing of the Bank
since July 1996. Prior to that he was Vice President - Secondary Marketing of
the Bank from September 1992 to July 1996. Prior to that he served as the
Director of Trading and Risk Management at First Illinois Mortgage Corporation
where he was employed from 1987 until 1992. Mr. Schatz holds a Bachelor of
Science degree from the University of Illinois at Chicago and a Master of
Business Administration degree from Rosary College.
Diane Stutte has been First Vice President - Teller Operations since July
1996. Prior to that, she was Vice President - Teller Operations of the Bank
since 1985. She joined the Bank in 1970.
Carolyn Pihera has been Vice President since 1979 and Corporate Secretary to
the Board of Directors of the Company since August 1989, and of the Bank since
1980. She joined the Bank in 1959 and currently is also Office Manager of the
Clarendon Hills office.
Employees
The Bank employs a total of 855 full time equivalent employees as of December
31, 1997. Management considers its relationship with its employees to be
excellent.
ITEM 2. PROPERTIES
The Company neither owns nor leases any real property. For the time being, it
utilizes the property and equipment of the Bank without payment to the Bank.
The Bank conducts its business through 22 retail banking offices, including
its executive office location in Clarendon Hills, Illinois, and a 30,000 square
foot centralized loan processing and servicing operation located in Naperville,
Illinois, which it leases. The Bank has its own data processing equipment. The
data processing equipment primarily consists of mainframe hardware, network
servers, personal computers and ATMs. At December 31, 1997, the data processing
equipment owned has a net book value of $2.7 million.
6
<PAGE>
The following table sets forth information regarding the Bank's executive
office and its 22 branches. At December 31, 1997, the net book value of the
Bank's premises and related equipment was $35.8 million.
<TABLE>
<CAPTION>
NET BOOK VALUE
DATE LEASED DATE LEASE % OF TOTAL DECEMBER 31,
LOCATION OR ACQUIRED EXPIRES DEPOSITS 1997
-------- ----------- ---------- ---------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
EXECUTIVE AND HOME OFFICE
55th Street and Holmes Avenue
Clarendon Hills, Illinois 60514 1975/1986 owned 11.34% $ 4,826
BRANCHES
Chicago, Illinois
2300 North Western Avenue 1996 owned 5.48 683
3844 West Belmont Avenue 1996 owned 11.48 490
6333 North Milwaukee Avenue 1996 2001 5.16 40
5075 South Archer Avenue 1996 owned 7.98 760
Norridge, Illinois
4100 North Harlem Avenue 1996 1998 6.12 5
4350 North Harlem Avenue 1997 owned(1)
Cicero, Illinois
5900/5847 West Cermak Road 1939/1978 owned 13.00 1,115
4830 West Cermak Road 1970 owned 1.72 446
Berwyn, Illinois
6620 West Ogden Avenue 1996 owned 0.59 1,080
6650 West Cermak Avenue 1996 owned 3.51 507
Riverside, Illinois
40 East Burlington 1977 owned 4.33 908
LaGrange Park, Illinois
1921 East 31st Street 1981 owned 4.40 859
Broadview, Illinois
800 Broadview Village Square 1997 2011 .01 181
Western Springs, Illinois
40 West 47th Street 1978 owned 3.54 802
Downers Grove
7351 S. Lemont Road 1997 owned(2) .22 896
Naperville, Illinois
1001 South Washington 1974 owned 7.46 2,065
9 East Ogden Avenue 1982 owned 1.81 930
1308 S. Naperville Blvd. 1987 owned 2.71 1,452
3135 Book Road 1997 owned 0.97 1,978
Wheaton, Illinois
250 East Roosevelt Road 1977 owned 3.75 910
161 Danada Square East 1988 2009 1.60 294
St. Charles, Illinois
2600 East Main Street 1979 owned 2.82 2,073
Other fixed assets - 12,520
------- -------
Total 100.00% $35,820
======= =======
</TABLE>
- ------------------------------------------
(1) Land lease expires in 2006, new branch currently under construction.
(2) Land lease expires in 2007.
7
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no outstanding legal proceedings against the Company. There are
various actions pending against the Bank but, in the opinion of management, the
probable liability resulting from these suits is unlikely, individually or in
the aggregate, to have a material effect on the Bank's or the Company's
financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS
MATTERS
The Company's common stock is traded over-the-counter and quoted on the
NASDAQ/National Market System under the symbol "MAFB". As of March 3, 1998, the
Company had 1,772 stockholders of record. The table below shows the reported
high and low sales prices of the common stock during the periods indicated.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter 27.83 22.25 17.00 16.33
Second Quarter 28.42 24.83 18.00 16.00
Third Quarter 34.75 27.92 17.67 14.83
Fourth Quarter 35.38 30.50 23.50 17.33
</TABLE>
Such over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
The Company declared $0.27 per share in dividends during the year ended
December 31, 1997, and $0.12 per share in dividends for the six months ended
December 31, 1996. The Company's ability to pay cash dividends primarily
depends on cash dividends received from the Bank. Dividend payments from the
Bank are subject to various restrictions. See Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Regulation and
Supervision - Federal Savings Institution Regulation - Limitation on Capital
Distributions."
All amounts in this Form 10-K have been adjusted for the 3-for-2 stock split
announced by the Company on April 30, 1997, which was paid on July 9, 1997 to
shareholders of record on June 17, 1997.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain summary consolidated financial data at or
for the periods indicated. This information should be read in conjunction with
the Consolidated Financial Statements and notes thereto included herein. See
Item 8. "Financial Statements and Supplementary Data."
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- --------------------------------------
1997 1996 1996 1995 1994
------ ------- --------- -------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets $ 3,457,664 3,230,341 3,117,149 1,783,076 1,586,334
Loans receivable, net 2,707,127 2,430,113 2,293,399 1,267,453 1,010,992
Mortgage-backed securities 283,008 359,587 418,102 307,390 347,902
Interest-bearing deposits 57,197 55,285 37,496 10,465 29,922
Federal funds sold 50,000 24,700 5,700 9,360 17,450
Investment securities 177,803 171,818 171,251 90,319 97,260
Real estate held for
development or sale 31,197 28,112 26,620 11,454 6,404
Deposits 2,337,013 2,262,226 2,254,100 1,313,306 1,292,531
Borrowed funds 770,013 632,897 537,696 307,024 149,856
Subordinated capital note, net 26,779 26,709 26,676 20,100 20,027
Stockholders' equity 263,411 250,625 242,226 105,419 95,150
Book value per share 17.55 15.93 15.62 12.80 11.18
Tangible book value per share 15.46 13.74 13.32 12.80 11.18
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------------------------------
1997 1996 1996 1995 1994
---------- --------- ---------- ----------- ------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income $ 238,915 112,827 143,095 114,963 103,778
Interest expense 145,216 68,631 93,221 73,367 69,694
---------- --------- --------- --------- ---------
Net interest income 93,699 44,196 49,874 41,596 34,084
Provision for loan losses 1,150 700 700 475 1,200
---------- --------- --------- --------- ---------
Net interest income after provision
for loan losses 92,549 43,496 49,174 41,121 32,884
Non-interest income:
Gain (loss) on sale of loans receivable
and mortgage-backed securities 432 (32) 198 (56) 3,135
Income from real estate operations 6,876 4,133 4,786 7,497 7,719
Gain (loss) on sale and writedown of:
Investment securities 404 251 188 (231) 200
Foreclosed real estate 17 161 50 181 145
Deposit account service charges 7,217 3,219 4,894 3,347 2,414
Loan servicing fee income 2,278 1,249 2,394 2,373 2,456
Other 5,493 2,978 4,590 3,539 3,579
---------- --------- --------- --------- ---------
Total non-interest income 22,717 11,959 17,100 16,650 19,648
Non-interest expense:
Compensation and benefits 30,472 14,503 21,209 18,257 16,954
Office occupancy and equipment 6,203 2,652 3,774 3,522 3,569
Federal deposit insurance premiums 1,468 2,338 3,255 3,003 2,996
Special SAIF assessment - 14,216 - - -
Other 16,468 7,369 9,548 8,630 7,797
---------- --------- --------- --------- ---------
Total non-interest expense 54,611 41,078 37,786 33,412 31,316
---------- --------- --------- --------- ---------
Income before income taxes
and other items 60,655 14,377 28,488 24,359 21,216
Income taxes 22,707 5,602 10,805 9,316 7,766
---------- --------- --------- --------- ---------
Income before other items 37,948 8,775 17,683 15,043 13,450
Extraordinary item (1) - - (474) - -
---------- --------- --------- --------- ---------
Net income $ 37,948 8,775 17,209 15,043 13,450
========== ========= ========= ========= =========
Basic earnings per share $ 2.46 .56 1.97 1.80 1.55
========== ========= ========= ========= =========
Diluted earnings per share $ 2.38 .54 1.84 1.70 1.48
========== ========= ========= ========= =========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended Year Ended June 30,
December 31, December 31, --------------------------------------------
1997 1996(2) 1996 1995 1994
------- ---------- --------- --------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND
OTHER DATA:
Return on average assets 1.14% 1.11% (3) .85% .90% .85%
Return on average equity 14.69 14.18 (3) 14.21 15.22 14.80
Average stockholders' equity
to average assets 7.79 7.80 6.00 5.91 5.75
Stockholders' equity to
total assets 7.62 7.76 7.77 5.91 6.00
Tangible and core capital to
total assets (Bank only) 6.88 6.96 7.02 5.64 5.90
Risk-based capital ratio
(Bank only) 14.34 15.05 15.36 12.07 13.24
Interest rate spread during
period 2.62 2.64 2.24 2.29 1.99
Net yield on average interest-
earning assets 2.98 2.96 2.62 2.62 2.29
Average interest-earning
assets to average
interest-bearing liabilities 107.99 107.98 107.83 107.22 106.48
Non-interest expense to
average assets 1.65 1.70 (3) 1.87 2.00 1.98
Non-interest expense to
average assets and
average loans serviced
for others 1.26 1.27 (3) 1.27 1.31 1.31
Efficiency ratio 47.07 47.79 (3) 56.58 57.14 58.50
Ratio of earnings to fixed
charges:
Including interest on deposits 1.41x 1.41x (3) 1.30x 1.32x 1.30x
Excluding interest on deposits 2.26x 2.35x (3) 1.93x 2.34x 2.24x
Non-performing loans to
total loans .39 .55 .56 .57 .83
Non-performing assets to
total assets .32 .46 .44 .42 .75
Cumulative one-year gap (.80) 7.50 5.22 4.89 1.84
Number of deposit accounts 275,055 259,041 255,960 164,592 148,519
Mortgage loans serviced for
others $ 997,204 1,045,740 1,040,260 887,887 823,924
Loan originations 1,091,824 469,452 989,753 585,882 813,689
Full-service customer
service facilities 22 20 20 13 13
STOCK PRICE AND DIVIDEND
INFORMATION:
High $ 35.38 23.50 18.00 14.47 14.85
Low 22.25 14.83 13.79 10.91 10.71
Close 35.38 23.17 16.33 14.24 13.94
Cash dividends per share .27 .12 .213 .194 -
Dividend payout ratio 11.34% 22.22% 11.59% 11.46% -
</TABLE>
- ---------------------------------
(1) The extraordinary item in the year ended June 30, 1996 represents a $474,000
extraordinary charge for the early extinguishment of debt.
(2) Ratios for the six months ended December 31, 1996 are annualized.
(3) Excludes the effect of the special SAIF assessment of $14.2 million ($8.7
million after tax) for the six months ended December 31, 1996. Including the
impact of the special SAIF assessment, the Company's actual ratios were as
follows: Return on average assets of .56%; Return on average equity of
7.12%; Non-interest expense to average assets of 2.60%; Non-interest expense
to average assets and average loans serviced for others of 1.95%; Efficiency
ratio of 73.09%; Ratio of earnings to fixed charges including interest on
deposits of 1.20x; and Ratio of earnings to fixed charges excluding interest
on deposits of 1.67x.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As of December 31, 1996, the Company changed its fiscal year to coincide with
the calendar year, compared to the June 30 fiscal year it followed in the past.
Management's discussion and analysis of financial condition and results of
operations will discuss the year ended December 31, 1997, the six month
transition period ended December 31, 1996, and the fiscal years ended June 30,
1996 and 1995.
OVERVIEW
Net income for the Company was $37.9 million, or $2.38 per diluted share,
compared to $8.8 million, or $.54 per diluted share for the six months ended
December 31, 1996. The six month period included an after-tax charge of $8.7
million, or $.53 per share for the one-time special SAIF assessment, which was
assessed to all SAIF-insured savings institutions. Without this charge,
operating earnings were $17.4 million, or $1.07 per share. For the year ended
June 30, 1996, net income was $17.2 million, or $1.84 per diluted share,
compared to $15.0 million, or $1.70 per diluted share for the year ended June
30, 1995. The Company earned $1.89 per diluted share for the year ended June 30,
1996, before consideration of a $474,000 or $.05 per share extraordinary loss on
the early repayment of subordinated capital notes.
Highlights of results for the Company's performance in calendar 1997 are as
follows:
. Net interest income improved to $93.7 million, compared to $44.2 million for
the six months ended December 31, 1996, primarily due to a 5.2% increase in
average interest-earning assets. The Company's net interest margin remained
relatively steady at 2.98% for the year ended December 31, 1997, compared to
2.96% for the six months ended December 31, 1996, despite a flattening yield
curve.
. Fee income from deposit accounts increased to $7.2 million for the year
ended December 31, 1997, compared to $3.2 million for the six months ended
December 31, 1996, due to continued increases in the Bank's checking account
base, and increased fees from debit cards.
. Income from real estate operations remained strong at $6.9 million for the
year ended December 31, 1997, due to strong sales in the Harmony Grove
subdivision, as well as in the Woodbridge project, where the development had
its strongest year of sales ever at 133 homes.
. The Company maintained its non-interest expense to average assets ratio at
1.65% for the year ended December 31, 1997, compared to 1.70% for the six
months ended December 31, 1996, exclusive of the effect of the special SAIF
assessment, despite the opening of two new branches, increases in data
processing infrastructure and marketing initiatives during the current year.
ACQUISITION
On May 30, 1996, the Company completed its acquisition of NSBI, and its
wholly-owned subsidiary, Northwestern, for cash and stock totaling $269.7
million. The Company paid $41.18 per share of NSBI in the form of $20.1799 cash
and .8549 shares of the Company's common stock. The Company issued 7.8 million
shares in the acquisition. The cash portion of the purchase was made from
existing cash, as well as funds from NSBI due to their excess capital position
as of the acquisition date. Additionally, the Company obtained a $35.0 million
unsecured term bank loan with a local commercial bank. The transaction was
accounted for under the purchase method. As such, the Company valued the assets
and liabilities of NSBI at fair value, and created goodwill and core deposit
intangible assets aggregating $35.9 million as a result of the transaction.
11
<PAGE>
NET INTEREST INCOME
Net interest income is the principal source of earnings for the Company, and
consists of interest income on loans receivable, mortgage-backed and investment
securities, offset by interest expense on deposits and borrowed funds. Net
interest income fluctuates due to a variety of reasons, most notably due to the
size of the balance sheet, changes in interest rates, and to a lesser extent
asset quality. The Company seeks to increase net interest income without
materially mismatching maturities of the interest-earning assets it invests in
compared to the interest-bearing liabilities which fund such investments.
Net interest income before the provision for loan losses was $93.7 million,
$44.2 million and $49.9 million for the year ended December 31, 1997, six months
ended December 31, 1996 and year ended June 30, 1996, respectively. The net
interest margin (net interest income divided by average interest-earning assets)
for the same periods were 2.98%, 2.96%, and 2.62%, respectively. The increase in
the margin during the current year is primarily due to an increase in net
interest-earning assets, as overall interest rates remained relatively stable.
The large increase in the net interest margin for the six months ended December
31, 1996 is due to the NSBI acquisition which dramatically decreased the average
cost of deposits. The margin remained constant at 2.62% for the years ended June
30, 1996 and 1995. The stability in the net interest margin between the years
ended June 30, 1996 and 1995 was primarily due to a 28 basis point increase in
the yield on average interest-earning assets, offset by an increase in the
average cost of funds of 33 basis points. Although the net interest spread
declined by 5 basis points, this was offset by growth in the balance of
interest-earning assets over interest-bearing liabilities, due to the increased
capital level of the Bank.
RATE/VOLUME ANALYSIS
The table below describes the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Bank's interest income and interest expense on a
fully taxable equivalent basis during the periods indicated. Information is
provided in each category with respect to (i) changes attributable to changes in
volume (changes in volume multiplied by prior rate), (ii) changes attributable
to changes in rate (changes in rates multiplied by prior volume), and (iii) the
net change. Changes attributable to the combined impact of volume and rate have
been allocated proportionately to the changes due to volume and the changes due
to rate.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1997 VS. 1996 DECEMBER 31, 1996 VS. 1995 JUNE 30, 1996 VS. 1995
----------------------------- --------------------------- --------------------------
TOTAL DUE TO TOTAL DUE TO TOTAL DUE TO
----------------- ----------------- ----------------
CHANGE VOLUME RATE CHANGE VOLUME RATE CHANGE VOLUME RATE
--------- -------- ------ ------- ------- ------- ------- ------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable $44,863 43,891 972 38,466 39,293 (827) 28,955 27,454 1,501
Mortgage-backed securities (427) (1,614) 1,187 4,242 3,273 969 (1,456) (1,961) 505
Investment securities 1,870 1,194 676 2,374 2,178 196 1,129 859 270
Interest-bearing deposits 1,635 1,875 (240) 890 1,180 (290) (4) (593) 589
Federal funds sold 1,900 1,944 (44) 38 197 (159) (475) (771) 296
------- ------ ----- ------ ------ ------ ------ ------ -----
49,841 47,290 2,551 46,010 46,121 (111) 28,149 24,988 3,161
------- ------ ----- ------ ------ ------ ------ ------ -----
INTEREST-BEARING LIABILITIES:
Deposits 17,740 17,855 (115) 17,516 20,213 (2,697) 7,531 4,699 2,832
Borrowed funds 10,252 11,062 (810) 6,487 7,360 (873) 12,323 12,871 (548)
------- ------ ----- ------ ------ ------ ------ ------ -----
27,992 28,917 (925) 24,003 27,573 (3,570) 19,854 17,570 2,284
------- ------ ----- ------ ------ ------ ------ ------ -----
Net change $21,849 18,373 3,476 22,007 18,548 3,459 8,295 7,418 877
======= ====== ===== ====== ====== ====== ====== ====== =====
</TABLE>
12
<PAGE>
The average yield on interest-earning assets increased for the year ended
December 31, 1997 to 7.57% compared to 7.53% for the six months ended December
31, 1996. The average yield on loans receivable decreased 1 basis point,
however, the average balance increased 8.3% to $2.6 billion for the year ended
December 31, 1997. The average yield on investment securities increased 37 basis
points primarily due to accelerated amortization of purchase accounting
discounts on investment securities called prior to maturity.
The average cost of deposits increased 6 basis points to 4.44% for the year
ended December 31, 1997 compared to the six months ended December 31, 1996.
Average deposits increased $47.7 million, of which $37.9 million was
attributable to certificates of deposit which carry average rates in excess of
the overall cost of deposits. The average balance of borrowed funds increased
$97.4 million, with a 15 basis point decline in average cost of borrowings due
to generally lower interest rates during the current year. The increase in the
average balance of borrowed funds is primarily due to funding for the increase
in mortgage loans held for investment purposes.
The average yield on interest-earning assets increased 4 basis points for the
six months ended December 31, 1996 from the year ended June 30, 1996 with a $1.1
billion increase in net interest-earning assets primarily due to the acquisition
of NSBI. The yield on loans receivable decreased 3 basis points offset by a 58
basis point increase in mortgage-backed securities and a 20 basis point increase
in investment securities. These increases are attributable to the longer term
maturities of the mortgage-backed securities and investment securities acquired
from NSBI.
The average cost of deposits decreased 31 basis points accompanying a $819.7
million increase in average balance for the six months ended December 31, 1996
compared to the year ended June 30, 1996. The significant change is due to the
addition of low cost deposits from the NSBI acquisition. The average cost of
borrowed funds decreased 33 basis points although the average balance increased
$180.6 million. The increase in the average balance is primarily due to
borrowings for the acquisition, as well as funding for the increase in loan
originations.
The average yield on interest-earning assets improved during the year ended
June 30, 1996 to 7.49% compared to 7.21% for the year ended June 30, 1995. The
improvement was primarily due to a 13 basis point increase in the average yield
on loans receivable and a 16 basis point increase in the average yield on
mortgage-backed securities, due to upward repricing of adjustable-rate loans and
mortgage-backed securities owned by the Bank. Average loans receivable
increased by $352.6 million, or 31.1% for the year ended June 30, 1996, while
average mortgage-backed securities decreased $31.3 million, as the Bank was able
to increase earning assets with higher loan originations held for investment
purposes rather than through the purchase of mortgage-backed securities. The
average balance of investment securities, interest-bearing deposits and federal
funds sold was relatively consistent for the year ended June 30, 1996 compared
to 1995.
The average cost of deposits increased 22 basis points during the year ended
June 30, 1996, compared to the year ended June 30, 1995, primarily due to
increased rates on certificates of deposits. Because of the inability to
increase savings deposits during the years ended June 30, 1996 and 1995, the
increase in interest-earning assets was funded with borrowed funds, primarily
FHLB of Chicago advances. Average borrowings increased $183.3 million during the
year ended June 30, 1996. These additional borrowings did lead to a decrease in
the average cost of borrowings by 22 basis points, although this is somewhat
attributable to the lower rates on adjustable-rate advances from the FHLB of
Chicago, and short-term reverse repurchase agreements. Included in the increase
in borrowed funds for the year ended June 30, 1996 is a $35.0 million unsecured
term bank loan which was obtained for funding the acquisition of NSBI.
13
<PAGE>
AVERAGE BALANCE SHEETS
The following table sets forth certain information relating to the Company's
consolidated statements of financial condition and reflects the average yield on
assets and average cost of liabilities for the periods indicted. Such yields and
costs are derived by dividing income or expense, on a tax equivalent basis, by
the average balance of assets or liabilities. Average balances are derived from
average daily balances, and include non-performing loans. The yield/cost at
December 31, 1997 includes fees which are considered adjustments to yield.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
--------------------------------- ---------------------------------
1997 1996
--------------------------------- ---------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
----------- -------- -------- ----------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans receivable 2,568,736 198,805 7.73% 2,372,072 91,783 7.74%
Mortgage-backed securities 316,617 22,106 6.98 388,237 13,368 6.89
Investment securities/(1)/ 151,640 10,626 6.91 161,275 5,390 6.54
Interest-bearing deposits 70,297 4,589 6.44 55,020 1,805 6.42
Federal funds sold 46,427 3,059 6.50 20,099 659 6.41
---------- -------- ----------- --------
Total interest-earning assets 3,153,717 239,185 7.57 2,996,703 113,005 7.53
Non-interest earning assets 162,947 163,984
---------- -----------
Total assets 3,316,664 $ 3,160,687
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposits 2,217,908 98,581 4.44 2,170,234 47,967 4.38
Borrowed funds and subordinated debt 702,451 46,635 6.56 605,083 20,664 6.71
---------- -------- ----------- --------
Total interest-bearing liabilities 2,920,359 145,216 4.95 2,775,317 68,631 4.89
---- ----
Non-interest bearing deposits 73,109 70,462
Other liabilities 64,838 68,378
---------- -----------
Total liabilities 3,058,306 2,914,157
Stockholders' equity 258,358 246,530
---------- -----------
Liabilities and stockholders' equity 3,316,664 $ 3,160,687
========== ===========
Net interest income/interest rate spread 93,969 2.62% $ 44,374 2.64%
======== ==== ======== ====
Net earning assets/net yield on average
interest-earning assets $ 233,358 2.98% $ 221,386 2.96%
========== ==== =========== ====
Ratio of interest-earning assets to
interest-bearing liabilities 107.99% 107.98%
========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------- AT DECEMBER 31,
1996 1995 1997
--------------------------------------------------------- --------------------
AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE COST
----------- -------- -------- ----------- -------- ----- ----------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans receivable $1,485,309 115,466 7.77% $1,132,669 86,511 7.64% $2,722,602 7.75%
Mortgage-backed securities 289,759 18,291 6.31 321,074 19,747 6.15 283,008 6.98
Investment securities/(1)/ 100,671 6,382 6.34 86,932 5,253 6.04 177,803 6.20
Interest-bearing deposits 24,128 2,064 8.55 32,205 2,068 6.42 57,197 5.45
Federal funds sold 14,088 1,121 7.96 24,389 1,596 6.54 50,000 5.41
---------- -------- ---------- -------- ----------
Total interest-earning
assets 1,913,955 143,324 7.49 1,597,269 115,175 7.21 3,290,610 7.52
Non-interest earning assets 104,543 75,098 167,054
---------- ---------- ----------
Total assets $2,018,498 $1,672,367 $3,457,664
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities :
Deposits 1,350,501 63,325 4.69 1,248,513 55,794 4.47 2,251,321 4.44
Borrowed funds and subordinated debt 424,461 29,896 7.04 241,141 17,573 7.26 796,792 6.56
---------- -------- ---------- -------- ----------
Total interest-bearing liabilities 1,774,962 93,221 5.25 1,489,654 73,367 4.92 3,048,113 5.00
-------- ---- -------- ----
Non-interest bearing deposits 57,665 47,576 85,692
Other liabilities 64,729 36,320 60,448
---------- ---------- ----------
Total liabilities 1,897,356 1,573,550 3,194,253
Stockholders' equity 121,142 98,817 263,411
---------- ---------- ----------
Liabilities and stockholders' equity $2,018,498 $1,672,367 $3,457,664
========== ========== ==========
Net interestincome/interest rate spread $ 50,103 2.24% $ 41,808 2.29% 2.52%
======== ==== ======== ==== ====
Net earning assets/net yield on average
interest-earning assets $ 138,993 2.62% $ 107,615 2.62% $ 242,497 N/A
========== ==== ========== ==== ========== ====
Ratio of interest-earning assets to
interest-bearing liabilities 107.83% 107.22% 107.96%
========== ========== ==========
</TABLE>
- ------------------------------------
/(1)/ Includes $28.9 million, $30.7 million, $18.7 million, $10.4 million, and
$33.0 million of Stock in Federal Home Loan Bank of Chicago for the year
ended December 31, 1997, six months ended December 31, 1996, years ended
June 30, 1996, 1995, and at December 31, 1997, respectively. Income on a
tax equivalent basis is computed assuming an effective tax rate of
40.0%.
14
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses is recorded to provide coverage for losses
inherent in the Bank's loan portfolio. Over the past three and one half years,
the Bank has maintained consistent and historically low levels of non-performing
loan balances, as well as adequate coverage percentages of the allowance for
loan losses to non-performing loans. The Company recorded a provision for loan
losses of $1.2 million for the year ended December 31, 1997, compared to
$700,000 for the six months ended December 31, 1996. The increase in the
provision in 1997 is due to increased charge-off activity in the Bank's single-
family loan portfolio, as well as a $2.9 million charge-off on a commercial real
estate loan. See "Asset Quality" for additional information regarding this
charge-off. For the years ended June 30, 1996 and 1995, the Company recorded a
provision of $700,000 and $475,000, respectively.
NON-INTEREST INCOME
Non-interest income is another significant source of revenue for the Company.
It consists of fees earned on products and services, gains and losses from loan
sale activity and income from real estate operations. Although changes in
interest rates can have an impact on earnings from these sources, the impact is
generally not nearly as dramatic as the impact on net interest income. Non-
interest income was $22.7 million for the year ended December 31, 1997, $12.0
million for the six months ended December 31, 1996, $17.1 million and $16.7
million for the years ended June 30, 1996 and 1995, respectively. The table
below shows the composition of non-interest income for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED JUNE 30,
DECEMBER 31, ------------------ ---------------------
1997 1996 1995 1996 1995
------------- -------- ------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Gain (loss) on sale and writedown of:
Loans receivable $ 419 264 178 203 (56)
Mortgage-backed securities 13 (296) 57 (5) --
Investment securities 404 251 45 188 (231)
Foreclosed real estate 17 161 21 50 181
Income from real estate operations 6,876 4,133 2,820 4,786 7,497
Deposit account service charges 7,217 3,219 2,370 4,894 3,347
Loan servicing fee income 2,278 1,249 1,164 2,394 2,373
Brokerage commissions 2,050 924 750 1,711 1,383
Mortgage loan late charges and other loan fees 1,337 666 459 948 759
Insurance commissions 447 235 211 412 432
Safe deposit box fees 275 143 140 273 271
Loss on real estate owned operations, net (47) (51) (11) (17) (5)
Other 1,431 1,061 550 1,263 699
------- ------ ----- ------ ------
$22,717 11,959 8,754 17,100 16,650
======= ====== ===== ====== ======
</TABLE>
The Bank recorded a net gain on the sale of loans receivable and mortgage-
backed securities for the year ended December 31, 1997 of $432,000 compared to a
net loss of $32,000 for the six months ended December 31, 1996. The Bank sold
loans totaling $107.2 million during the current year compared to $65.6 million
for the six months ended December 31, 1996. The loss during the six months ended
December 31, 1996 was primarily due to the sale of $16.9 million of adjustable-
rate and fixed-rate CMOs, which were classified as available for sale, at a loss
of $301,000. The Bank recorded a net gain on the sale of loans receivable and
mortgage-backed securities of $198,000 for the year ended June 30, 1996 and a
loss of $56,000 for the year ended June 30, 1995. During the year ended June 30,
1996, due to refinance activity, loan sale volume doubled compared to the prior
year period. Although loan sale
15
<PAGE>
volume increased, between the two periods, margins on loan sales remained thin
due to competitive pricing in the origination market, which often led to the
Bank originating loans at or near break even.
The gains and losses on mortgage-backed securities included in the above
figures represent the sale of loans originated by the Bank and swapped into
mortgage-backed securities prior to sale. The Bank swapped and sold $3.4 million
during the year ended December 31, 1997 compared to $8.2 million during the six
months ended December 31, 1996. For the year ended June 30, 1996, the Bank
swapped and sold $41.2 million of loans into mortgage-backed securities. The
Bank had no swap activity during the year ended June 30, 1995.
The Company had net gains on the sale of investment securities during the year
ended December 31, 1997 of $404,000, compared to $251,000 during the six months
ended December 31, 1996, primarily due to the sale of marketable equity
securities. The Company had net gains on the sale of investment securities
during the year ended June 30, 1996 of $188,000, primarily due to the sale of
marketable equity securities, and net losses of $231,000 for the year ended June
30, 1995 primarily from the write-off of a $159,000 equity investment in a local
community housing organization and from the sale of investment securities
available for sale whose values deteriorated in the wake of rising interest
rates. These losses were offset by gains on the sale of marketable equity
securities.
Income from real estate operations was $6.9 million for the year ended
December 31, 1997, $4.1 million for the six months ended December 31, 1996, $4.8
million for the year ended June 30, 1996 and $7.5 million for the year ended
June 30, 1995. A summary of income from real estate operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -----------------------------------
1997 1996 1996 1995
--------------- --------------- --------------- ---------------
LOTS LOTS LOTS INCOME LOTS
SOLD INCOME SOLD INCOME SOLD (LOSS) SOLD INCOME
---- ------ ---- ------ ---- ------ ---- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Woodbridge 133 $3,452 26 $ 349 10 $ 85 - $ -
Harmony Grove 120 1,588 75 760 - - - -
Clow Creek Farm 18 700 10 261 145 3,537 81 1,711
Reigate Woods 11 610 15 826 2 98 - -
Fields of Ambria 9 - 13 156 2 17 - -
Ashbury 8 290 23 1,624 34 1,392 134 5,364
Creekside of Remington 8 16 - - 27 81 6 9
Woods of Rivermist 5 220 3 157 - - 6 374
Other - - - - - (424) 1 39
--- ------ --- ------ --- ------ --- ------
312 $6,876 165 $4,133 220 $4,786 228 $7,497
=== ====== === ====== === ====== === ======
</TABLE>
During the year ended December 31, 1997, sales accelerated in the Woodbridge
subdivision due to an improvement in the identification of the subdivision's
target market. At December 31, 1997, only 15 lots remain unsold and management
expects this project to be sold out in 1998. Harmony Grove continued to have
solid lot sales during 1997; the initial lots were sold during the six months
ended December 31, 1996. There were 54 lots under contract at December 31, 1997.
The Company sold its final lots in the 1,115-lot Ashbury subdivision during
1997. Only six lots remain in the 260-lot Clow Creek Farm subdivision. Reduced
sales over the past eighteen months reflect the near completion of this
subdivision. Sales continued to be slow in the Creekside subdivision in 1997. To
date, a total of 41 lots have been sold in this 170-lot project. Eight lots are
under contract at December 31, 1997.
16
<PAGE>
Deposit account service charges were $7.2 million for the year ended December
31, 1997 compared to $3.2 million for the six months ended December 31, 1996.
The results are a function of an increase of over 11,000 checking accounts since
December 31, 1996, an overall increase in fees per account and increased usage
of debit cards which were introduced in January 1996.
Loan servicing fee income is generated from loans which the Bank has
originated and sold, or from purchased servicing. For the year ended December
31, 1997 servicing fee income was $2.3 million compared to $1.2 million for the
six months ended December 31, 1996. High refinance activity, along with a
decrease in loan sale activity, led to a small decline in the balance of loans
serviced for others during the current year. For the year ended June 30, 1996,
loan servicing fee income was $2.4 million, consistent with the results for the
year ended June 30, 1995. The average balance of loans serviced for others was
$1.02 billion, $1.05 billion, $963.8 million and $881.0 million for the year
ended December 31, 1997, six months ended December 31, 1996 and years ended June
30, 1996 and 1995, respectively. The decline in the average balance during the
current year reflects the Bank's strategy of holding more loan originations for
its own portfolio. The increase in average loans serviced during the six months
ended December 31, 1996 and the year ended June 30, 1996 was due to a greater
percentage of loan originations being sold. Since July 1, 1996, upon the
adoption of SFAS No. 122, mortgage servicing rights are capitalized when a loan
is sold. Prior to July 1, 1996, the Bank was only able to capitalize mortgage
servicing rights on wholesale originations. The amortization of mortgage
servicing rights is charged against loan servicing fee income. Amortization of
mortgage servicing rights totaled $427,000 for the year ended December 31, 1997,
$156,000 for the six months ended December 31, 1996, and $253,000 for the year
ended June 30, 1996, compared to $109,000 for the year ended June 30, 1995. The
increase during the current year reflects faster prepayment speeds than
originally estimated which required the Bank to increase its amortization.
Through the Bank's affiliation with INVEST, the Bank offers non-traditional
investment products to its customers such as mutual funds, annuities and other
brokerage services. Commission revenue improved to $2.1 million for the year
ended December 31, 1997 compared to $924,000 for the six months ended December
31, 1996. Commissions were $1.7 million for the year ended June 30, 1996, and
$1.4 million for the year ended June 30, 1995. The improvement in commissions is
due to increased sales of mutual funds and other non-traditional products, an
increase in the number of locations which provide INVEST services, as well as
sharing a greater percentage of current commission revenue and trailer fee
income with INVEST than in the past.
17
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense was $54.6 million for the year ended December 31, 1997,
compared to $41.1 million for the six months ended December 31, 1996. Included
in the six month ended December 31, 1996 total is the impact of the one-time
assessment to recapitalize the SAIF of $14.2 million. Non-interest expense for
the year ended June 30, 1996 increased $4.4 million, or 13.1% from non-interest
expense for the year ended June 30, 1995. The table below shows the composition
of non-interest expense for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED JUNE 30,
DECEMBER 31, ---------------- -------------------
1997 1996 1995 1996 1995
------------ ------- ------ -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Compensation $23,898 11,657 7,645 16,790 14,474
Employee benefits 6,574 2,846 2,052 4,419 3,783
------- ------ ------ ------ ------
Total compensation and benefits 30,472 14,503 9,697 21,209 18,257
Occupancy expense 4,554 1,715 1,056 2,469 2,274
Furniture, fixture and equipment expense 1,649 937 699 1,305 1,248
Federal deposit insurance premiums 1,468 2,338 1,523 3,255 3,003
Special SAIF assessment - 14,216 - - -
Advertising and promotion 2,737 1,025 916 1,746 1,760
Data processing 2,098 1,032 760 1,683 1,473
Professional fees 1,154 449 362 904 751
OTS assessment fees 483 164 148 305 281
Postage 1,042 509 342 872 659
Stationery, brochures and supplies 1,045 514 425 857 618
ATM network fees 569 277 266 527 523
Telephone 666 274 200 413 349
Correspondent banking services 462 233 138 283 279
Insurance costs 413 254 137 260 298
Amortization of goodwill 1,341 679 - 113 -
Amortization of core deposit intangible 1,296 709 - 122 -
Other 3,162 1,250 604 1,463 1,639
------- ------ ------ ------ ------
$54,611 41,078 17,273 37,786 33,412
======= ====== ====== ====== ======
</TABLE>
Compensation and benefits was $30.5 million for the year ended December 31,
1997, a 5.1% increase on an annualized basis compared to the six months ended
December 31, 1996, primarily due to the addition of two new branch locations,
normal salary increases and higher loan officer commissions resulting from
record loan volume. Employee benefits expense increased primarily due to
increased medical insurance costs and a higher profit sharing contribution. The
$3.0 million, or 16.2% increase during the year ended June 30, 1996 was
primarily due to an increase in loan related compensation, including incentives
and overtime, as well as the addition of employees, primarily to staff a new
branch and to handle increased loan volume. In addition, the acquisition of NSBI
increased compensation and benefits for one month in 1996 by approximately
$600,000. Benefit costs increased $636,000 in 1996 due to additional FICA tax
expense, as well as higher profit sharing and supplemental retirement plan
benefit expenses.
18
<PAGE>
Occupancy and equipment costs increased to $6.2 million for the year ended
December 31, 1997, primarily due to costs related to two new branch locations
opening this year as well as costs related to the Bank's permanent Ashbury
branch. Occupancy and equipment costs increased during the six months ended
December 31, 1996 primarily due to the acquisition of NSBI which had six branch
locations. Occupancy and equipment costs remained relatively constant between
the years ended June 30, 1996 and 1995.
The decrease in FDIC premiums to $1.5 million during the year ended December
31, 1997 reflects the reduction in the premium rate the Bank pays on deposits as
a result of legislation which recapitalized the SAIF. During the six months
ended December 31, 1996, a one-time special assessment of 65.7 basis points on
deposit balances as of March 31, 1995 was imposed on all savings institutions.
This charge equaled $14.2 million for the Bank. Without this assessment, FDIC
insurance premiums were $2.3 million for the six month period ended December 31,
1996. FDIC insurance premiums increased slightly during the year ended June 30,
1996, compared to the year ended June 30, 1995, due to deposit growth.
Advertising and promotion expenses increased to $2.7 million for the year
ended December 31, 1997, a 33.5% increase compared to the annualized expense for
the six months ended December 31, 1996. The increase was primarily due to the
higher marketing costs expended in introducing the Bank's products and services
in the NSBI offices beginning in calendar 1997 and costs related to the new
Downers Grove, Super K-Mart and Ashbury branches which opened in 1997.
Advertising costs remained basically unchanged between the years ended June 30,
1996 and 1995.
Data processing expense was $2.1 million during the current year, compared to
$1.0 million for the six months ended December 31, 1996. Data processing expense
rose $210,000, or 14.3% in 1996, due to the upgrading of data processing systems
during the year ended June 30, 1996. The Bank utilizes personal computers in
many of its operations as a means of controlling general operating expenses as
well as providing the means to improve the speed of processing transactions,
loan originations, and other back office productivity.
As a result of the merger with NSBI, the Bank established a core deposit
intangible on non-maturity deposit liabilities, and goodwill as required under
the purchase method of accounting. During the year ended December 31, 1997, the
Company amortized $1.3 million of core deposit intangible, and $1.3 million of
goodwill against operations. The Bank is amortizing its core deposit intangible
on an accelerated method over 10 years, while amortizing goodwill on the
straight-line method over a 20 year period. For the six months ended December
31, 1996 $709,000 was amortized for core deposit premium and $679,000 for
goodwill. The amounts for the year ended June 30, 1996 represent one month's
amortization.
Other expense increased to $3.2 million for the year ended December 31, 1997,
compared to $1.3 million for the six months ended December 31, 1996. The
increase was primarily due to a higher incidence of check losses incurred due to
the increased checking account base and higher title, credit report and
appraisal fees due to the higher loan volumes. Other expense was down slightly
between the years ended June 30, 1996 and 1995.
The other operating expenses categories not discussed above increased to $5.8
million for the year ended December 31, 1997, a 9.1% increase compared to the
annualized expense for the six months ended December 31, 1996 and is due to the
additional branches and growth in the balance sheet and customer activity
levels. The $663,000 increase in other operating expenses during the year ended
June 30, 1996 was due to the higher expenses due to the NSBI acquisition which
closed on May 30, 1996 and higher postage and stationary and supplies expenses.
19
<PAGE>
INCOME TAXES
For the year ended December 31, 1997, income tax expense totaled $22.7
million, equal to an effective income tax rate of 37.4%, compared to income tax
expense of $5.6 million for the six months ended December 31, 1996, or an
effective income tax rate of 39.0%. The decrease in the effective income tax
rate was primarily due to the recognition in 1997 of $1.0 million in income tax
benefits related to the resolution of certain prior years' income tax issues.
For the year ended June 30, 1996, income tax expense attributable to income from
continuing operations totaled $10.8 million, equal to an effective income tax
rate of 37.9%, compared to $9.3 million, or an effective income tax rate of
38.2% for the year ended June 30, 1995.
REVIEW OF FINANCIAL CONDITION
Total assets increased $227.3 million, or 7.0% to $3.5 billion at December 31,
1997, compared to $3.2 billion at December 31, 1996. The increase was primarily
due to a $277.0 million increase in loans receivable, which were funded
primarily with borrowed funds and increased savings deposits.
Cash, interest-bearing deposits and federal funds sold increased a combined
$21.2 million to $146.9 million at December 31, 1997. During the year, the Bank
used most of its available cash, in addition to outside borrowings, to fund
increased mortgage loans held for investment purposes.
Investment securities classified as held to maturity decreased $46.7 million,
to $25.3 million as of December 31, 1997. The decrease is due to maturities and
calls prior to maturity of $54.5 million of U.S. Government and agency
securities, offset by $6.9 million of purchases of U.S. Government and short-
term securities.
Investment securities available for sale increased $50.5 million to $119.5
million at December 31, 1997. Increases due to purchases of $115.2 million of
U.S. Government Agency and asset-backed securities, were offset by sales of $8.1
million of marketable equity securities and maturities of $59.1 million. Net
unrealized gains in the available for sale portfolio were $2.6 million at
December 31, 1997.
Mortgage-backed securities classified as held to maturity decreased $51.2
million to $215.4 million as of December 31, 1997. The decrease is primarily due
to amortization and prepayments. Due to the Bank's ability to originate
sufficient amounts of mortgage loans for its own portfolio, the Bank did not
purchase any mortgage-backed securities during the year ended December 31, 1997.
Mortgage-backed securities classified as available for sale decreased $25.4
million to $67.6 million at December 31, 1997, from $92.9 at December 31, 1996.
The decrease is due to normal amortization and prepayments. At December 31,
1997, net unrealized gains in the available for sale portfolio were $19,000.
Included in total mortgage-backed securities at December 31, 1997 are $134.4
million of CMO's which have 3-5 year weighted average lives, and are primarily
collateralized by the Federal National Mortgage Association ("FNMA"), the
Federal Home Loan Mortgage Corporation ("FHLMC") and the Government National
Mortgage Association ("GNMA") mortgage-backed securities, and to a lesser extent
by whole loans. Also included in mortgage-backed securities as of December 31,
1997 are $11.1 million, and $19.4 million of FHLMC securities with an average
yield of 8.70%, and 8.95% which collateralize a similar amount of CMO bonds
issued by the Bank's special purpose finance subsidiaries, Mid America Finance
Corporation ("MAFC") and Northwestern Acceptance Corporation ("NWAC"),
respectively. Principal repayments and prepayments on these securities are
available exclusively for the repayment of the CMO bonds which they
collateralize.
20
<PAGE>
Investment securities and mortgage-backed securities acquired and classified
as available-for-sale represent a secondary source of liquidity to the Bank and
the Company. The market value of these securities fluctuates with interest rate
movements. Net interest income in future periods may be adversely impacted to
the extent interest rates increase and these securities are not sold with the
proceeds reinvested at the higher market rates. The decision whether to sell
the available for sale securities or not, is based on a number of factors,
including but not limited to projected funding needs, reinvestment alternatives
and the relative cost of alternative liquidity sources. Investments and
mortgage-backed securities classified as held to maturity cannot be sold except
under extraordinary and very restrictive circumstances. Generally, these
investments are acquired for investment after taking into account the Bank's
cash flow needs, the investment's projected cash flows, the Bank's overall
interest rate and maturity structure of the liability base used to fund these
investment's and the net interest spread obtained. To the extent the Bank has
been able to maintain funding costs below a market rate of interest, the
potential negative impact from rising interest rates on investments and
mortgage-backed securities held to maturity on net interest income in future
periods has been substantially mitigated.
Loans receivable increased 11.4%, or $277.0 million to $2.7 billion at
December 31, 1997. Loan originations were $1.1 billion, offset by amortization
and prepayments of $706.6 million, as well as sales of $107.2 million during the
year December 31, 1997. The loans sold represent long-term fixed-rate mortgages,
which are sold as a means of limiting borrowings and interest-rate risk. During
the current year, the Bank held for investment a substantial portion of its
fixed-rate loan originations, in an effort to grow its loan portfolio.
The allowance for loan losses decreased to $15.5 million as of December 31,
1997, due to net charge-offs of $3.6 million offset by the current period
provision for loan losses of $1.2 million. As of December 31, 1997, the Bank's
ratio of the allowance for loan losses to total non-performing loans was 145.2%,
compared to 133.1% as of December 31, 1996. In addition, the ratio of the
allowance for loan losses to total loans decreased to .57% at December 31, 1997,
compared to .73% at December 31, 1996. During the year ended December 31, 1997,
the Bank charged off $2.9 million on a second mortgage on a commercial real
estate loan, which had been previously restructured and was on non-accrual
status. The Bank obtained title to the collateral in January 1998.
Real estate held for development or sale increased $3.1 million to
$31.2 million at December 31, 1997. A summary of real estate held for
development or sale is as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1996
------- ------
(In thousands)
<S> <C> <C>
MAF Developments, Inc.:
Harmony Grove $ 4,856 4,164
Clow Creek Farm 128 717
Creekside of Remington 1,662 1,760
Tallgrass of Naperville 14,292 4,392
------- ------
20,938 11,033
------- ------
Mid America Developments, Inc.:
Ashbury 50 122
Woods of Rivermist 154 546
------- ------
204 668
------- ------
NW Financial, Inc.:
Reigate Woods 5,314 6,263
Woodbridge 3,498 8,348
Fields of Ambria 1,243 1,800
------- ------
10,055 16,411
------- ------
$31,197 28,112
======= ======
</TABLE>
21
<PAGE>
Activity at MAF Developments, which is owned by the Company, was primarily in
the Harmony Grove subdivision, as the Company sold 120 lots of the development,
which were offset in part by continued development costs of the project. As of
December 31, 1997, the Company is developing the remaining units for sale in
1998. At December 31, 1997, 54 lots are under contract. The decrease in Clow
Creek Farm is due to the successful sale of a majority of the lots in this
project. At December 31, 1997, there are 6 lots remaining of this 260-lot
subdivision. Creekside of Remington's investment decreased slightly due to
eight lot sales, and marginal development costs incurred during 1997. There are
eight lots pending sale in Creekside at December 31, 1997. Tallgrass of
Naperville is currently planned as a 1,098-lot joint venture in Naperville,
Illinois. The increase in the investment is due to the acquisition of a second
parcel of land for $7.0 million and the last installment payment for the first
parcel of land for $1.8 million. Development has begun as of December 31, 1997.
The Company expects the first lots to be delivered to builders in late 1998.
Mid America Developments is nearing the completion of its land development
operations. As of December 31, 1997, all residential lots in the 1,115-lot
Ashbury subdivision have been sold. The remaining investment relates to a small
commercial parcel which is under contract at December 31, 1997. Two lots remain
unsold in the Woods of Rivermist development.
NW Financial's projects continued to be developed during the twelve months
ended December 31, 1997, with additional funds disbursed for home construction
offset by sales activity. Sales activity in Reigate Woods and Fields of Ambria
led to a decline in each development's investment balance. Substantially all
public improvements are complete in these two projects. Significant progress in
the sell-out of the Woodbridge subdivision was made in 1997, with 133 home
sales. Seven of the remaining 15 homesites are under contract at December 31,
1997. Included in the project's investment is 48 acres of commercially-zoned
land, with a cost basis of $2.2 million, which is currently being marketed for
sale in bulk, or separate parcels.
Premises and equipment increased $3.5 million to $35.8 million at December 31,
1997, due to purchases of $6.8 million, offset by depreciation and amortization
of $3.1 million. Acquisitions in 1997 were directed toward continued upgrading
of the Company's data processing system, building improvements to the new
Downers Grove branch and the construction of a permanent Ashbury branch.
Cost in excess of fair value of net assets acquired (goodwill) decreased to
$24.6 million at December 31, 1997 from $26.3 million at December 31, 1996,
primarily due to amortization of $1.3 million. Goodwill is being amortized over
a 20 year period using the straight-line method.
Deposits increased $74.8 million to $2.34 billion as of December 31, 1997.
The increase is primarily due to interest credited on deposits of $94.9 million,
offset by net outflows of deposits of $20.0 million during the year ended
December 31, 1997 and $128,000 in amortization of purchase accounting premiums
on certificates of deposits.
Borrowed funds, which consist primarily of FHLB of Chicago advances, as well
as CMO bonds payable, and reverse repurchase agreements, increased $137.1
million, to $770.0 million at December 31, 1997. During the current twelve
month period, the Bank borrowed an additional $180.0 million (net) of FHLB of
Chicago advances, primarily to fund loan volume held for investment purposes.
As of December 31, 1997, the Bank has $660.5 million of FHLB of Chicago advances
at a weighted average rate and term of 6.37%, and 2.4 years, respectively,
compared to $480.5 million of FHLB of Chicago advances at a weighted average
rate and term of 6.44%, and 2.7 years, respectively, as of December 31, 1996.
The Bank's reverse repurchase agreements decreased by $35.0 million to $44.8
million at December 31, 1997 due to current year maturities. At December 31,
1997, the remaining reverse repurchase agreements have an average life of 12
months and an average cost of 6.31%. CMO bonds payable issued by MAFC and NWAC,
had repayments of $5.0 million during the year ended December 31, 1997.
22
<PAGE>
LENDING ACTIVITIES
General. The Bank's lending activities reflect its focus as a consumer
banking institution serving its local market area by concentrating on
residential mortgage lending. Reflective of this focus, the Bank has been one
of the largest originators of residential mortgages in its market area for
years. In addition to traditional retail originations, the Bank also operates a
wholesale lending operation that purchases loans from brokers and
correspondents. In connection with these activities, the Bank emphasizes the
origination of adjustable-rate or shorter-term loans for its portfolio and sells
a portion of its long-term fixed-rate loans directly into the secondary market.
It is the Bank's general policy that approximately 60-70% of its loan portfolio
have adjustable rates or terms to repricing or maturity of seven years or less.
The Bank originates and purchases long-term fixed-rate mortgage loans in
response to customer demand; however, the Bank sells selected conforming long-
term fixed-rate mortgage loans and a limited amount of ARM loans in the
secondary market, primarily to the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). The volume
of current loan originations sold into the secondary market varies over time
based on the Bank's available cash or borrowing capacity, as well as in response
to the Bank's asset/liability management strategy.
During the year ended December 31, 1997, the Bank originated and purchased
$517.2 million in fixed-rate one- to four-family residential mortgage loans, of
which $399.2 million, or 77.2%, conformed to the requirements for sale to FNMA
and FHLMC and $118.0 million, or 22.8%, did not conform to the requirements of
these agencies. During the year ended December 31, 1997, the Bank sold $107.2
million of these loans in the secondary market. The Bank's "nonconforming"
loans are generally designated as such because the principal loan balance
exceeds $214,600 ($227,150 as of January 1, 1998), which is the FHLMC and FNMA
purchase limit, and not because the loans present increased risk of default to
the Bank. Generally, nonconforming loans are held in the Bank's loan portfolio.
Loans with such excess balances carry interest rates from one-eighth to three-
eighths of one percent higher than similar, conforming fixed-rate loans.
As a result of its acquisition of NSBI, the Bank acquired a $749.7 million
loan portfolio. Included in the portfolio as of the acquisition date was a
$670.5 million nationwide portfolio of single-family residential mortgage loans
which had been purchased through brokers as part of NSBI's loan strategy.
Collateral for this portfolio is spread throughout 43 states, Puerto Rico and
the District of Colombia. Currently, it is not management's intent to continue
the purchase strategy utilized successfully by NSBI, rather management intends
to manage this purchased loan portfolio through its maturity. Due to normal
amortization and prepayments, this portfolio has a balance of $437.2 million at
December 31, 1997.
While the Bank has primarily focused its lending activities on the origination
of loans secured by first mortgages on owner-occupied one- to four-family
residences, the Bank, to a lesser extent, also originates multi-family mortgage
loans, residential construction loans, land acquisition and development loans,
commercial real estate loans and a variety of consumer loans. At December 31,
1997, the Bank's net loans receivable amounted to $2.7 billion, excluding $283.0
million in mortgage-backed securities.
23
<PAGE>
LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition of
the Bank's loan and mortgage-backed securities portfolio in dollar amounts and
in percentages at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------------- ----------------------
1997 1996 1996
----------------------- ----------------------- ----------------------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
---------- ---------- ---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family:
Held for investment $2,408,393 88.27% 2,160,525 87.93% $2,032,102 87.57%
Held for sale 6,537 0.24 6,495 0.26 9,314 0.40
Multi-family 105,051 3.85 92,968 3.78 94,713 4.08
Commercial 35,839 1.31 46,313 1.89 46,101 1.99
Construction 17,263 0.63 17,263 0.70 16,090 0.69
Land 24,425 0.90 25,685 1.05 26,644 1.15
---------- --------- ---------- --------- ---------- ---------
Total real estate
loans 2,597,508 95.20 2,349,249 95.61 2,224,964 95.88
---------- --------- ---------- --------- ---------- ---------
Other loans:
Consumer loans:
Equity lines of credit 88,106 3.23 86,614 3.53 79,193 3.41
Home equity loans 34,447 1.26 14,251 0.58 10,525 0.45
Other 5,793 .21 5,009 0.20 4,110 0.18
---------- --------- ---------- --------- ---------- ---------
Total consumer loans 128,346 4.70 105,874 4.31 93,828 4.04
Commercial business
loans 2,659 0.10 1,871 0.08 1,821 0.08
---------- --------- ---------- --------- ---------- ---------
Total other loans 131,005 4.80 107,745 4.39 95,649 4.12
---------- --------- ---------- --------- ---------- ---------
Total loans receivable 2,728,513 100.00% 2,456,994 100.00% 2,320,613 100.00%
========= ========= =========
Less:
Loans in process 6,683 7,620 6,715
Unearned discounts,
premiums and
deferred loan
fees, net (772) 1,347 3,245
Allowance for loan
losses 15,475 17,914 17,254
---------- ---------- ---------
Loans receivable, net 2,707,127 $2,430,113 $2,293,399
========== ========== =========
Mortgage-backed securities:
GNMA held to maturity $ 2,442 3,248 3,637
FHLMC held to maturity 108,037 138,963 157,468
FHLMC available for sale 5,706 7,425 8,052
FNMA held to maturity 22,796 29,343 32,044
FNMA available for sale 9,610 12,029 13,565
CMOs held to maturity 82,174 95,104 100,232
CMOs available for sale 52,243 73,475 103,104
---------- ---------- ---------
Total mortgage-backed
securities $ 283,008 359,587 418,102
========== ========== =========
<CAPTION>
JUNE 30,
------------------------------------------------
1995 1994
----------------------- ----------------------
PERCENT PERCENT
OF OF
AMOUNT TOTAL AMOUNT TOTAL
---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family:
Held for investment $1,032,233 80.25% $ 835,369 81.28%
Held for sale 24,984 1.94 8,739 0.85
Multi-family 67,248 5.23 49,864 4.85
Commercial 47,273 3.68 52,090 5.07
Construction 19,984 1.55 13,860 1.35
Land 19,281 1.50 15,453 1.50
---------- --------- ---------- ---------
Total real estate
loans 1,211,003 94.15 975,375 94.90
---------- --------- ---------- ---------
Other loans:
Consumer loans:
Equity lines of credit 66,710 5.19 46,451 4.52
Home equity loans 4,335 0.34 1,112 0.11
Other 2,652 0.20 2,471 0.24
---------- --------- ---------- ---------
Total consumer loans 73,697 5.73 50,034 4.87
Commercial business
loans 1,560 0.12 2,341 0.23
---------- --------- ---------- ---------
Total other loans 75,257 5.85 52,375 5.10
---------- --------- ---------- ---------
Total loans receivable 1,286,260 100.00% 1,027,750 100.00%
========= =========
Less:
Loans in process 8,728 5,161
Unearned discounts, premiums
and deferred loan fees, net 882 2,818
Allowance for loan losses 9,197 8,779
---------- ----------
Loans receivable, net $1,267,453 $1,010,992
========== ==========
Mortgage-backed securities:
GNMA held to maturity -- --
FHLMC held to maturity 31,560 38,789
FHLMC available for sale -- --
FNMA held to maturity 16,296 19,283
FNMA available for sale -- --
CMOs held to maturity 196,096 289,830
CMOs available for sale 63,438 --
--------- ----------
Total mortgage-backed
securities 307,390 347,902
========= ==========
</TABLE>
24
<PAGE>
The following table shows the composition of the Bank's fixed- and adjustable-
rate loan portfolio as well as the Bank's mortgage-backed securities portfolio
as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1997 1996 June 30, 1996
------------------------ ------------------------- -----------------------
Amount Percent Amount Percent Amount Percent
----------- ---------- ----------- ----------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Adjustable-rate loans:
Real estate:
One-to four-family $1,489,757 54.59% $1,534,435 62.45% $1,513,732 65.23%
Multi-family 75,562 2.77 67,762 2.76 68,058 2.93
Commercial 16,128 .60 20,424 .83 20,178 .87
Construction 16,041 .59 15,749 .64 11,812 .51
Land 16,268 .59 16,430 .67 14,872 .64
---------- --------- ---------- ---------- ---------- ---------
Total adjustable-rate
real estate loans 1,613,756 59.14 1,654,800 67.35 1,628,652 70.18
Consumer 89,992 3.30 88,368 3.60 79,883 3.44
Commercial business 2,080 .08 1,257 .05 911 .04
---------- --------- ---------- ---------- ---------- ---------
Total adjustable-rate
loans receivable 1,705,828 62.52 1,744,425 71.00 1,709,446 73.66
---------- --------- ---------- ---------- ---------- ---------
Fixed-rate loans:
Real estate:
One-to four-family 918,636 33.67 626,090 25.48 518,370 22.34
One-to four-family held for
sale 6,537 .24 6,495 .26 9,314 .40
Multi-family 29,489 1.08 25,206 1.03 26,655 1.15
Commercial 19,711 .72 25,889 1.05 25,923 1.12
Construction 1,222 .04 1,514 .06 4,278 .18
Land 8,157 .30 9,255 .38 11,772 .51
---------- --------- ---------- ---------- ---------- ---------
Total fixed-rate real
estate loans 983,752 36.05 694,449 28.26 596,312 25.70
Consumer 38,354 1.40 17,506 .71 13,945 .60
Commercial business 579 .03 614 .03 910 .04
---------- --------- ---------- ---------- ---------- ---------
Total fixed-rate loans
receivable 1,022,685 37.48 712,569 29.00 611,167 26.34
---------- ---------- ---------- ---------- ---------
Total loans receivable 2,728,513 100.00% 2,456,994 100.00% 2,320,613 100.00%
========= ========== =========
Less:
Loans in process 6,683 7,620 6,715
Unearned discounts, premiums
and deferred loan fees, net (772) 1,347 3,245
Allowance for loan losses 15,475 17,914 17,254
---------- ---------- ----------
Loans receivable, net $2,707,127 $2,430,113 $2,293,399
========== ========== ==========
Mortgage-backed securities:
Adjustable-rate $ 125,195 44.35% $ 149,919 41.80% $ 165,905 39.77%
Fixed-rate held by the Bank 126,638 44.86 170,686 47.59 207,032 49.63
Fixed-rate held by finance
subsidiaries (1) 30,467 10.79 38,073 10.61 44,202 10.60
---------- --------- ---------- ---------- ---------- ---------
Total mortgage-backed
securities 282,300 100.00% 358,678 100.00% 417,139 100.00%
========= ========== =========
Plus unamortized premiums 708 909 963
---------- ---------- ----------
Mortgage-backed securities,
net $ 283,008 $ 359,587 $ 418,102
========== ========== ==========
Summary:
Adjustable rate loans:
Loans receivable $1,705,828 57.24% $1,744,425 62.80% $1,709,446 63.46%
Mortgage-backed securities 125,195 4.20 149,919 5.40 165,905 6.16
---------- --------- ---------- ---------- ---------- ---------
Total adjustable-rate
loans 1,831,023 61.44 1,894,344 68.20 1,875,351 69.62
Fixed-rate loans:
Loans receivable 1,022,685 34.31 712,569 25.65 611,167 22.69
Mortgage-backed securities (2) 126,638 4.25 170,686 6.15 207,032 7.69
---------- --------- ---------- ---------- ---------- ---------
Total fixed-rate loans 1,149,323 38.56 883,255 31.80 818,199 30.38
---------- --------- ---------- ---------- ---------- ---------
Total loan portfolio (2) $2,980,386 100.00% $2,777,599 100.00% $2,693,550 100.00%
========== ========= ========== ========= ========== =========
- ---------------------------
</TABLE>
(1) See "Subsidiary activities - Mid America Finance Corporation and
Northwestern Acceptance Corporation."
(2) Excludes the fixed-rate mortgage-backed securities held by MAFC and NWAC,
which are duration matched.
25
<PAGE>
LOAN MATURITY
The following table shows the contractual maturity of the Bank's loan
portfolio at December 31, 1997. The table does not include principal repayments.
Principal repayments and prepayments on mortgage loans totaled $706.6 million,
$266.0 million and $394.3 million, for the year ended December 31, 1997, the six
months ended December 31, 1996, and the year ended June 30, 1996, respectively.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-------------------------------------------------------------------------------------
REAL ESTATE MORTGAGE LOANS OTHER LOANS
-------------------------------------------------- ------------------
ONE-TO COM-
FOUR- MULTI- COM- CON- MERCIAL
FAMILY FAMILY MERCIAL STRUCTION LAND CONSUMER BUSINESS TOTAL
--------- ------- ------- --------- ------ -------- -------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amount due:
One year or less $ 227 540 762 15,306 1,396 4,054 1,456 23,741
---------- ------- ------ ------ ------ ------- -------- ----------
After one year:
1 year to 2 years 198 315 536 1,957 7,794 796 77 11,673
2 years to 3 years 15,521 3,543 978 -- 10,098 2,540 195 32,875
3 years to 5 years 26,464 6,430 3,194 -- 65 26,846 17 63,016
5 years to 10 years 307,671 13,235 8,425 -- 695 72,963 614 403,603
10 years to 20 years 271,924 35,951 19,452 -- 3,626 21,147 300 352,400
Over 20 years 1,786,388 45,037 2,492 -- 751 -- -- 1,834,668
---------- ------- ------ ------ ------ ------- -------- ----------
Total after 1 year 2,408,166 104,511 35,077 1,957 23,029 124,292 1,203 2,698,235
---------- ------- ------ ------ ------ ------- -------- ----------
Total amount due $2,408,393 105,051 35,839 17,263 24,425 128,346 2,659 2,721,976
========== ======= ====== ====== ====== ======= ========
Less:
Loans in process 6,683
Deferred yield adjustments (772)
Allowance for loan losses 15,475
----------
Total loans held for investment 2,700,590
Mortgage loans held for sale 6,537
----------
Total loans, net $2,707,127
==========
</TABLE>
The following table sets forth at December 31, 1997 the dollar amount of gross
loans receivable held for investment due after December 31, 1998, and whether
such loans have fixed or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER DECEMBER 31, 1998
--------------------------------
FIXED ADJUSTABLE TOTAL
------- ---------- ---------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One-to four-family $904,513 1,503,653 2,408,166
Multi-family 30,257 74,254 104,511
Commercial 16,431 18,646 35,077
Construction 1,957 1,957
Land 7,135 15,894 23,029
Consumer 36,442 87,850 124,292
Commercial business 161 1,042 1,203
-------- --------- ---------
Total loans receivable $994,939 1,703,296 2,698,235
======== ========= =========
</TABLE>
26
<PAGE>
Retail Residential Mortgage Lending. The Bank focuses its lending efforts
primarily on the retail origination of loans secured by first mortgages on
owner-occupied, one-to four-family residences. Residential loan originations are
generated by the Bank's marketing efforts, its present customers, walk-in
customers and referrals from real estate brokers and builders. The Bank's loan
officers are compensated primarily through commissions, based on the level of
loans originated in accordance with the Bank's lending standards. At December
31, 1997, the Bank's one- to four-family residential mortgage loans totaled $2.4
billion, or 88.5% of the Bank's total loans receivable. The Bank emphasizes the
origination of conventional ARM loans and shorter-term to maturity or repricing
and jumbo loans for retention in its portfolio and fixed-rate conforming loans
for both portfolio purposes as well as for sale in the secondary market. The
Bank's retail residential mortgage originations are predominantly in the Bank's
market area. During the twelve months ended December 31, 1997, the Bank
originated $277.8 million of residential ARM loans, representing 37.6% of the
total loans originated by the Bank during that period. During the same period,
the Bank originated $396.8 million of fixed-rate residential mortgage loans,
representing 53.8% of the total mortgage loans originated by the Bank during
that period.
The Bank currently makes adjustable-rate one- to four-family residential
mortgage loans. The Bank also offers FHA and VA guaranteed loans, although at
December 31, 1997, such loans represented less than 1.7% of the Bank's total
loans receivable. The Bank currently offers a number of ARM loan programs under
which the interest rate may be fixed for the initial one-, three-, five- or
seven-year period. Most of the Bank's residential ARM loans adjust on an annual
basis following the initial one-, three- or five-year fixed-rate period. The
Bank also offered, until recently, ARM loans that are fixed for an initial five-
or seven-year period that reprice once at the end of the initial period for the
remaining 25 or 23 year term based on a spread above the weekly average of U.S.
Treasury securities adjusted to a constant maturity of ten years (the "ten year
Treasury constant maturity index"). The Bank's ARM loans generally carry an
initial interest rate which is less than the fully indexed rate for the loan.
The initial discount rate is determined by the Bank in accordance with market
and competitive factors. After the initial fixed-rate period, the interest
rates on the ARM loans that adjust annually reprice based on a spread above the
published weekly average yield on United States Treasury securities, adjusted to
a constant maturity of one year (the "one-year Treasury constant maturity
index"). Interest rates and origination fees on ARM loans are priced to be
competitive in the local market. These loans are subject to limitations on
annual interest rate adjustments of 2%, as well as a lifetime interest rate cap
adjustment of either 6% or 7%, and are originated for terms of up to 40 years.
At December 31, 1997, the weighted average term to repricing of the Bank's ARM
loan portfolio was 2.47 years.
The Bank also offers fixed-rate mortgage loans with terms to maturity of 10,
15, 20 and 30 years and fixed-rate balloon loans that mature after seven years.
The Bank's fixed-rate loan products generally offer a monthly repayment option.
Interest rates charged on fixed-rate loans are competitively priced on a daily
basis based on secondary market prices and market conditions. The Bank
generally originates its fixed-rate and adjustable-rate mortgage loans in a
form consistent with secondary market standards.
In early 1997, the Bank started offering its loan products with prepayment
penalties in an effort to mitigate interest rate and prepayment risks in a
declining rate environment. The borrower receives a lower interest rate in
return for accepting prepayment penalties based on the original loan balance.
The penalty is 2% for the initial three years on ARM loans that are fixed for
the initial three-year period. The penalty for 10, 15, 20 and 30 year fixed
rate loans, seven year balloon loans and ARM loans that are fixed for the
initial five-year period is 3% for the first three years, 2% in year four and 1%
in year five.
The Bank's residential mortgage loans customarily include due-on-sale clauses
giving the Bank the right to declare the loan immediately due and payable in the
event, among other things, the borrower sells or otherwise disposes of the
property subject to the mortgage and the loan is not repaid. The Bank has
enforced due-on-sale clauses in its mortgage contracts for the purpose of
increasing its loan portfolio yield, often through the authorization of
assumptions of existing loans at higher rates of interest and the
27
<PAGE>
imposition of assumption fees. ARM loans may be assumed provided home buyers
meet the Bank's underwriting standards and the applicable fees are paid.
Loan applications are reviewed in accordance with the underwriting standards
approved by the Bank's Board of Directors and which generally conform to FNMA
standards. Loans in excess of $1.5 million must be approved by the Loan
Committee of the Board of Directors. In underwriting residential real estate
loans, the Bank evaluates both the borrower's ability to make monthly payments
and the value of the property securing the loan. Potential borrowers are
qualified for ARM loans and fixed-rate loans based on the initial or stated rate
of the loan, except for one-year ARM loans with a loan-to-value ratio in excess
of 70% and a term greater than 15 years, in which case the borrower is qualified
at 2% above the initial note rate.
Upon receipt of a completed loan application from a prospective borrower,
credit reports are ordered and income, employment and financial information is
verified in accordance with FNMA standards. An appraisal of the real estate
intended to secure the proposed loan is undertaken by a Bank appraiser or an
independent appraiser previously approved by the Bank. It is the Bank's policy
to obtain title insurance on all mortgage loans. Borrowers also must obtain
hazard (including fire) insurance prior to closing. The Bank also requires
flood insurance on a property located in special flood hazard areas. Borrowers
are generally required to advance funds on a monthly basis together with each
payment of principal and interest through a mortgage escrow account from which
the Bank makes disbursements for items such as real estate taxes and hazard
insurance premiums as they become due. The Bank has adopted a policy of
limiting the loan-to-value ratio on originated loans and refinanced loans to 97%
and requiring that loans exceeding 80% of the appraised value of the property or
its purchase price, whichever is less, generally be insured by a mortgage
insurance company approved by the FNMA in an amount sufficient to reduce the
Bank's exposure to no greater than the 75% level. Despite the benefits of ARM
loans to the Bank's asset/liability management program, they do pose potential
additional risks, primarily because as interest rates rise, the underlying
payment requirements of the borrower rise, thereby increasing the potential risk
of default.
Wholesale Residential Lending. In 1994, the Bank commenced a wholesale loan
origination division which purchases loans from brokers and correspondents for a
fee generally ranging from 1.25% to 1.50%. Generally, the Bank offers the same
type of loan products, both fixed-rate and adjustable-rate loans, at interest
rates similar to those it offers on retail originations. The purchase of these
loans does not necessitate the Bank to incur the processing costs associated
with its retail originations. The Bank acts as the supplier of funds for the
mortgage broker who is responsible for the processing and closing of the loan.
The Bank performs its normal underwriting procedures on wholesale originated
loans similar to retail loans, and can refuse to purchase any loan which does
not meet its underwriting criteria. Wholesale originations were $254.2 million
for the year ended December 31, 1997 compared to $171.5 million for the six
months ended December 31, 1996, and $360.9 million, and $156.3 million for the
years ended June 30, 1996 and 1995, respectively.
Purchased Loans. At December 31, 1997, the Bank had $437.2 million, compared
to $595.0 million at December 31, 1996, of purchased residential mortgage loans,
nearly all of which were acquired in the acquisition of NSBI. The decrease in
the balance is primarily due to prepayments and amortization, as the Bank does
not currently purchase loans outside of its market area as part of its loan
origination strategy. The vast majority of purchased loans are adjustable-rate
loans secured by properties which serve as the primary residence of the
borrower, and which are located primarily in metropolitan areas located in 43
states, Puerto Rico and the District of Columbia. At December 31, 1997,
purchased loans were being serviced by 107 companies, the largest of which
serviced $94.8 million, or 21.7% of total purchased loans. The loans in this
portfolio were underwritten with substantially the same underwriting standards
as those of the Bank. One variation from these guidelines is that loans
exceeding FNMA and FHLMC limits could be purchased up to $400,000 with a loan-
to-value-ratio of 80% or less, and up to $300,000 with a loan-to-value ratio of
90% or less with private mortgage insurance. At December 31, 1997, $247.9
million, or 56.7% of the loans in the purchased loan portfolio are in excess of
the current FNMA limit of $214,600. In addition to these
28
<PAGE>
underwriting guidelines, original executed promissory notes with proper
endorsements are in the possession of the Bank.
Construction and Land Lending. The Bank originates loans to finance the
construction of one- to four-family residences, primarily in its market area. At
December 31, 1997, the Bank had $17.3 million of loans to finance the
construction of one- to four-family residences. The Bank also originates loans
for the acquisition and development of unimproved property to be used primarily
for residential purposes in cases where the Bank is to provide the construction
funds to improve the properties. At December 31, 1997, the Bank's construction
and land loans totaled $41.7 million, or 1.5%, of total loans receivable.
The Bank finances the construction of primarily individual, owner-occupied
houses where qualified contractors are involved and on the basis of underwriting
and construction loan guidelines. Construction loans are structured either to
be converted to permanent loans at the end of the construction phase or to be
paid off upon receiving financing from another financial institution.
Construction loans are based on the appraised value of the property, as
determined by an independent appraiser, and an analysis of the potential
marketability and profitability of the project. Construction loans generally
have terms of up to 12 months, with extensions as needed. Loan proceeds are
disbursed in increments as construction progresses and as inspections warrant.
Land loans include loans to developers for the development of residential
subdivisions in the Bank's market area. At December 31, 1997, the Bank had land
loans to developers totaling $11.5 million. At December 31, 1997, the largest
aggregate amount of land acquisition and development loans to a single developer
amounted to $10.7 million. Loans to developers are short-term loans with terms
of three to five years. The loan-to-value ratio may not exceed 80% and
generally is less than 75%. The majority of such loans are based on the prime
rate. Loans generally are made to customers of the Bank and developers with
whom the Bank has had long-standing relationships. The Bank requires an
independent appraisal of the property and feasibility studies may be required to
determine the profit potential of the development project.
Land loans are also made to local builders for the purchase of improved lots.
At December 31, 1997, the Bank had land loans outstanding to local builders
totaling $8.1 million. Such loans are generally for terms of up to three years
and are made at the prevailing fixed interest rates quoted for 30-year fixed-
rate residential mortgage loans. The loan-to-value ratio on such loans is
limited to 80%. Land loans for the purchase of fully improved lots are also
made to individuals. At December 31, 1997, the Bank had land loans to
individuals totaling $4.8 million. Such loans are made for up to 15-year terms
with adjustable interest rates which are generally higher than those granted for
one- to four-family residential ARM loans. The loans adjust in accordance with
the one-year Treasury constant maturity index and are underwritten in accordance
with the same standards used for residential ARM loans.
Construction and land loans afford the Bank the opportunity to increase the
interest rate sensitivity of its loan portfolio and to receive yields higher
than those obtainable on ARM loans secured by existing residential properties.
These higher yields correspond to the higher risks associated with construction
lending. Construction loans involve additional risks attributable to the fact
that loan funds are advanced upon the security of the project under
construction, which is of uncertain value prior to its completion. Because of
the uncertainties inherent in estimating construction costs as well as the
market value of the completed project and the effects of governmental regulation
of real property, it is relatively difficult to evaluate accurately the total
funds required to complete a project and the related loan-to-value ratio. As a
result of the foregoing, construction lending often involves the disbursement of
substantial funds with repayment dependent, in part, on the success of the
ultimate project rather than the ability of the borrower or guarantor to repay
principal and interest. If the Bank is forced to foreclose on a project prior
to or at completion due to a default, there can be no assurance that the Bank
will be able to recover all of the unpaid balance of, and accrued interest on,
the loan as well as related foreclosure and holding costs. In addition, the
Bank may be required to fund additional amounts to complete the project and may
have to hold the property for an unspecified period of time. The Bank has
attempted to address these risks through its
29
<PAGE>
underwriting procedures and its limited amount of construction lending on multi-
family and commercial real estate properties.
Multi-family Lending. The Bank originates multi-family residential mortgage
loans in its market area. At December 31, 1997, the Bank had multi-family loans
of $105.1 million, including a portfolio of purchased participating interests of
$2.2 million related to low-income housing. Multi-family loans represent 3.9%
of total loans receivable at December 31, 1997. ARM loans represented 71.9% of
the multi-family residential loan portfolio at December 31, 1997. Such loans
are offered with initial fixed-rate periods of one, three, five, seven and ten
years. Multi-family residential mortgage loans are made for terms to maturity
of up to 30 years and carry a loan-to-value ratio not greater than 80%. The
Bank requires a positive net operating income to debt service ratio for loans
secured by multi-family residential property. Loans secured by non-owner
occupied properties of more than six units are qualified on the basis of rental
income generated by the property. On loans secured by owner-occupied properties
of six units or less, the Bank will qualify the borrower on the basis of the
borrower's personal income and rental income generated by the property.
Commercial Real Estate Lending. In connection with the Bank's policy of
maintaining an interest-rate sensitive loan portfolio, the Bank has originated
loans secured by commercial real estate, which generally carry a higher yield
and are made for a shorter term than fixed-rate one- to four-family residential
loans. At December 31, 1997, the Bank had $35.8 million of commercial real
estate loans. The Bank's policy has been to curtail the origination of
additional commercial real estate loans. Commercial real estate loans are
generally granted in amounts up to 80% of the appraised value of the property,
as determined by an independent appraiser previously approved by the Bank. The
Bank's commercial real estate loans are secured by improved properties located
in the Chicago metropolitan area. The Bank often requires borrowers to provide
their personal guarantees on loans made for commercial real estate.
Loans secured by commercial real estate properties are generally larger and
involve a greater degree of risk than residential mortgage loans. Because
payments on loans secured by commercial real estate properties are often
dependent on the successful operation or management of the properties, repayment
of such loans may be subject to adverse conditions in the real estate market or
the economy. The Bank seeks to minimize these risks by lending primarily on
existing income-producing properties and generally restricting such loans to
properties in the Chicago area. The Bank analyzes the financial condition of
the borrower and the reliability and predictability of the net income generated
by the security property in determining whether to extend credit. In addition,
the Bank generally requires a net operating income to debt service ratio of at
least 1.15 times.
A loan with an outstanding balance of $6.3 million at December 31, 1997
represents the Bank's largest single commercial real estate loan to one
borrower. The loan is on a shopping center located in Carol Stream, Illinois
and is current as to the payment of principal and interest at December 31, 1997.
At December 31, 1997, the Bank's ten largest commercial real estate loans
totaled $29.0 million, all of which are current and performing in accordance
with their original terms.
Other Lending. The Bank's other lending activities consist of consumer
lending, primarily home equity lines of credit, and to a lesser extent,
commercial business lending. On December 31, 1997, outstanding balances on home
equity lines represented $88.1 million or 3.2% of the Bank's total loan
portfolio. Home equity lines of credit are generally extended up to 80% of the
appraised value of the property, less existing liens, generally at an interest
rate of the designated prime rate plus 1.0% (prime plus .5% for balances in
excess of $50,000), some of which are subject to floors. To a lesser extent,
the Bank offers home equity lines of credit at greater than 80% to 100% of the
appraised value of the property. The interest rate on greater than 80% loan-to-
value lines of credit is the designated prime rate plus 3.5%. The Bank uses the
same underwriting standards for home equity lines of credit as it uses for
residential mortgage loans. Other home equity loans consist of primarily $34.4
million of fixed-rate, second mortgage loans which amortize over a five year
period.
30
<PAGE>
At December 31, 1997, the Bank's loan portfolio included other loans amounting
to $8.5 million, which consisted of $1.6 million of automobile loans, $1.5
million of savings account loans, and $5.4 million of commercial business loans,
student loans and other loans. In addition, at December 31, 1997, the Bank had
$16.0 million in standby letters of credit, one of which totals $6.5 million to
enhance a developer's industrial revenue bond financing of commercial real
estate located in the Bank's market area. The Bank's second mortgage on this
commercial real estate parcel is in the process of foreclosure. See "Asset
Quality and Allowance for Loan Losses"
Environmental Issues. The Bank encounters certain environmental risks in its
lending activities. Under federal and state environmental laws, lenders may
become liable for the costs of cleaning up hazardous materials found on security
property. Although environmental risks are usually associated with industrial
and commercial loans, risks may be substantial for residential lenders like the
Bank if environmental contamination makes security property unsuitable for use.
This could also have effect on nearby property values. In accordance with FNMA
and FHLMC guidelines, appraisals for single-family residences on which the Bank
lends include comments on environmental influences. The Bank attempts to
control its risk by training its appraisers and underwriters to be cognizant of
signs indicative of environmental hazards. No assurance can be given, however,
that the values of properties securing loans in the Bank's portfolio will not be
adversely affected by unforeseen environmental risks, although the Bank is
unaware of any environmental issues which would subject it to liability at this
time.
Originations, Purchases, Sales, Swaps of Mortgage Loans and Mortgage-Backed
Securities. The Bank originates and purchases both ARM and fixed-rate loans.
Its ability to originate loans is dependent upon the relative customer demand
for fixed-rate or ARM loans in the origination and purchase market, which is
affected by the term structure (short-term compared to long-term) of interest
rates as well as the current and expected future level of interest rates. The
Bank sells selected conforming fixed-rate mortgage loans in the secondary
mortgage market to manage its interest rate risk exposure. Substantially all of
these loans are sold without recourse. These loan sales also allow the Bank to
continue to make loans when deposit flows decline or funds are not otherwise
available for lending. Generally, the loans are sold for cash or securitized
and sold in the secondary mortgage market to investors such as FNMA and FHLMC,
as well as investment banks and other financial institutions.
The Bank has also exchanged or swapped loans out of its portfolio for
mortgage-backed securities primarily with FNMA and FHLMC. Generally, the
mortgage-backed securities are used to collateralize borrowings and deposits or
are sold in the secondary market to raise additional funds. Swap activity by
the Bank is governed by pricing levels in the secondary mortgage market for
whole mortgage loans versus securitized mortgage loans, as well as the level of
rates for collateralized borrowings. During the current year, the Bank swapped
and sold $3.4 million of loans originated, compared to $8.2 million for the six
months ended December 31, 1996, and $41.2 million during the year ended June 30,
1996. There was no swap activity during the year ended June 30, 1995.
The Bank has purchased mortgage-backed securities and collateralized mortgage
obligations from time to time that coincide with its ongoing asset/liability
management objectives. Purchases have been minimal during the last 2 1/2 years
due to the Bank's ability to originate and hold mortgage loans for it portfolio.
All of the mortgage-backed securities and CMOs in the Bank's portfolio are
issued by or have collateral backed by FNMA, FHLMC or GNMA, or are backed with
whole loan collateral and have an investment grade rating. Coupon rates at
December 31, 1997, ranged from 4.83% to 16.25%. At December 31, 1997, mortgage-
backed securities, net, totaled $283.0 million, or 8.2% of total assets,
including $30.5 million which collateralized CMOs issued by the Bank's special
purpose finance subsidiaries. At December 31, 1997, the Bank's mortgage-backed
securities portfolio had a market value of $284.4 million, including $32.2
million related to the CMO's issued by the Bank's special-purpose finance
subsidiaries.
31
<PAGE>
The following table sets forth the Bank's originations, purchases, sales,
swaps and principal repayments of loans receivable and mortgage-backed
securities for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------------
1997 1996 1996 1995
------------ ----------------- --------- --------
(In thousands)
<S> <C> <C> <C> <C>
Loans receivable:
Loans originated:
Adjustable-rate:
Real estate:
One- to four-family $ 277,788 108,468 120,747 184,874
Multi-family 16,803 1,632 16,061 20,425
Commercial 260 300 340 190
Construction 22,739 13,632 20,642 9,142
Land 8,156 7,628 19,134 12,528
Other loans:
Commercial business 811 898 811 450
Consumer 63,572 35,642 63,795 57,803
---------- ------- --------- -------
Total adjustable-rate 390,129 168,200 241,530 285,412
Fixed-rate:
Real estate:
One- to four-family 396,823 113,770 348,629 101,100
Multi-family 7,503 1,215 10,847 1,989
Commercial 133 170 1,052 571
Construction 890 1,908 6,890 25,171
Land 6,738 3,754 7,439 8,433
Other loans - consumer 35,079 8,805 10,301 5,861
---------- ------- --------- -------
Total fixed-rate 447,166 129,622 385,158 143,125
---------- ------- --------- -------
Total loans originated 837,295 297,822 626,688 428,537
Loans purchased:
Fixed-rate one- to four-family real estate 120,385 99,438 93,270 31,221
Adjustable-rate one- to four-family real estate 133,791 72,109 267,645 125,054
Other 353 83 2,151 1,070
---------- ------- --------- -------
Total loans purchased 254,529 171,630 363,066 157,345
---------- ------- --------- -------
Total loans originated and purchased 1,091,824 469,452 989,754 585,882
---------- ------- --------- -------
Loans acquired through merger -- -- 749,740 --
Loans sold:
One- to four-family (fixed rate) 102,459 57,276 267,352 92,725
Consumer loans 1,354 82 1,805 2,466
---------- ------- --------- -------
Total loans sold 103,813 57,358 269,157 95,191
FHLMC and FNMA mortgage loan swaps 3,358 8,213 41,195 --
Transfer to foreclosed real estate and charge-offs 6,526 1,518 880 1,073
Amortization and prepayments 706,608 265,982 393,909 231,108
---------- ------- --------- -------
Total loans sold, loan swaps,
amortization and prepayments 820,305 333,071 705,141 327,372
---------- ------- --------- -------
Net increase during period $ 271,519 136,381 1,034,353 258,510
========== ======= ========= =======
Mortgage-backed securities:
Mortgage-backed securities purchased $ -- -- -- 10,000
Mortgage-backed securities acquired in merger -- -- 181,144 --
Mortgage-backed securities swaps 3,358 8,213 41,195 --
Mortgage-backed securities sold (3,358) (25,172) (41,195) --
Amortization and prepayments (76,750) (42,808) (69,790) (49,583)
---------- ------- --------- -------
Net increase (decrease) during period $ (76,750) (59,767) 111,354 (39,583)
========== ======= ========= =======
</TABLE>
32
<PAGE>
Servicing of Mortgage Loans. Upon sale, the Bank normally retains the
responsibility for collecting and remitting loan payments, inspecting properties
securing the loans, assuring that real estate tax payments are made on behalf of
borrowers, and otherwise servicing the loans. Typically, the Bank receives a
servicing fee for performing the aforementioned services equal to at least 1/4
of 1% for fixed-rate mortgages and at least 3/8 of 1% for ARM loans on the
outstanding principal balance of the sold loan being serviced.
The following table sets forth information as to the Bank's loan servicing
portfolio, excluding loans owned by the Bank which are serviced by others. The
decrease in loans serviced for others for the year ended December 31, 1997 was
due to the reduction in sales activity during this period, as the Bank has been
retaining a greater percentage of fixed-rate loan originations. This is also
reflected in the small increase in loans serviced for others from June 30, 1996
to December 31, 1996.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1997 1996 JUNE 30, 1996
---------------------- ----------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- -------- ---------- ---------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans owned by the Bank $2,284,748 69.62% $1,855,505 63.96% $1,646,710 61.28%
Loans serviced for others 997,204 30.38 1,045,740 36.04 1,040,260 38.72
---------- ------- ---------- ------- ---------- ------
Total loans serviced $3,281,952 100.00% $2,901,245 100.00% $2,686,970 100.00%
========== ======= ========== ======= ========== ======
</TABLE>
Information regarding the Bank's servicing fee income from loans serviced for
others is summarized in the following table for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------------
1997 1996 1996 1995
------------- ----------------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Average balance of loans serviced for others $1,024,720 $1,053,486 $963,757 $881,050
Loan servicing fee income 2,278 1,249 2,394 2,373
Net servicing spread during the period (1) .22% .24% .25% .27%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loan servicing fee income divided by the average daily balance of loans
serviced for others. Loan servicing fee income includes amortization of
capitalized mortgage servicing rights.
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
When a borrower fails to make a required payment by the end of the month in
which the payment is due, the Bank generally institutes collection procedures.
The Bank will send a late notice, and in most cases, delinquencies are cured
promptly; however, if a loan has been delinquent for more than 60 days, the Bank
contacts the borrower in order to determine the reason for the delinquency and
to effect a cure, and, where appropriate, reviews the condition of the property
and the financial circumstances of the borrower. Based upon the results of any
such investigation, the Bank may: (1) accept a repayment program for the
arrearage from the borrower; (2) seek evidence, in the form of a listing
contract, of efforts by the borrower to sell the property if the borrower has
stated that he is attempting to sell; (3) request a deed in lieu of foreclosure;
or (4) initiate foreclosure proceedings. When a loan payment is delinquent for
three or more monthly installments, the Bank will initiate foreclosure
proceedings. Interest income on loans is reduced by the full amount of accrued
and uncollected interest on loans which are in process of foreclosure or
otherwise determined to be uncollectible.
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<PAGE>
On July 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan,"
and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures," which impose certain requirements on the
identification and measurement of impaired loans. A loan is considered impaired
when, based on current information and events, it is probable that a creditor
will be unable to collect all amounts due according to the contractual terms of
the loan. For loans which are not individually significant (i.e. loans under
$750,000), and represent a homogeneous population, the Bank evaluates impairment
collectively based on management reports on the level and extent of
delinquencies, as well as historical loss experience for these types of loans.
The Bank uses this criteria on one- to four-family residential loans, consumer
loans, multi-family residential loans, and land loans. Impairment for loans
considered individually significant and commercial real estate loans are
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate, or the fair value of the collateral if the
loan is collateral dependent. Charge-offs of principal occur when a loss has
deemed to have occurred as a result of the book value exceeding the fair value.
The Company's policy for recognition of interest income on impaired loans is
unchanged as a result of the adoption of SFAS No. 114 and 118. A loan (whether
considered impaired or not) is classified as non-accrual when collectibility is
in doubt, and is normally analyzed upon the borrower becoming 90 days past due
on contractual principal or interest payments. When a loan is placed on non-
accrual status, or in the process of foreclosure, previously accrued but unpaid
interest is reversed against interest income. Income is subsequently recorded
to the extent cash payments are received, or at a time when the loan is brought
current in accordance with its original terms.
Classified Assets. The federal regulators have adopted a classification
system for problem assets of insured institutions which covers all problem
assets. Under this classification system, problem assets of insured
institutions are classified as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified, "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
When an insured institution classifies problem assets as either substandard or
doubtful, it is required to establish general allowances for loan losses in an
amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge off such an amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the institution's Principal Supervisory Agent of the OTS,
who can order the establishment of additional general or specific loss
allowances.
In connection with the filing of its periodic reports with the OTS, the Bank
regularly reviews the problem loans in its portfolio to determine whether any
loans require classification in accordance with applicable regulations. At
December 31, 1997, all of the Bank's non-performing loans were classified as
substandard, while at December 31, 1996, the Bank had classified $1.5 million of
a $2.9 million commercial real estate loan as "loss" and allocated $1.5 million
of its allowance for loan losses to a specific allowance against the loan.
34
<PAGE>
Delinquent Loans. At December 31, 1997 and 1996, and June 30, 1996,
delinquencies in the Bank's portfolio were as follows:
<TABLE>
<CAPTION>
61-90 Days 91 or More Days
--------------------- ----------------------
Principal Principal
Number Balance of Percent Number Balance of Percent
Of Delinquent Of Of Delinquent Of
Loans Loans Total(1) Loans Loans Total(1)
------ ---------- -------- ------ ----------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997 32 $2,697 .10% 86 $10,134 .37%
== ====== === == ======= ===
December 31, 1996 48 $6,834 .28% 76 $ 9,780 .40%
== ====== === == ======= ===
June 30, 1996 24 $3,107 .14% 38 $ 5,504 .24%
== ====== === == ======= ===
- ---------------------
</TABLE>
(1) Percentage represents principal balance of delinquent loans to total loans
outstanding.
The following table sets forth information regarding non-accrual loans, loans
which are 91 days or more delinquent but on which the Bank is accruing interest,
non-accrual investment securities, and foreclosed real estate held by the Bank
at the dates indicated.
<TABLE>
<CAPTION>
December 31, June 30,
----------------- -----------------------------
1997 1996 1996 1995 1994
------- ------- ------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
One- to four-family and multi-family loans:
Non-accrual loans (1) $ 7,039 7,680 5,415 1,972 2,933
Accruing loans 91 or more days overdue 2,071 896 1,940 555 482
------- ------ ------ ----- ------
Total 9,110 8,576 7,355 2,527 3,415
------- ------ ------ ----- ------
Commercial real estate, construction and land loans:
Non-accrual loans (1) 1,240 3,762 433 -- 312
Accruing loans 91 or more days overdue 699 459 100 118
Restructured or renegotiated -- -- 4,299 4,379 4,464
------- ------ ------ ----- ------
Total 1,240 4,461 5,191 4,479 4,894
------- ------ ------ ----- ------
Other loans:
Non-accrual loans (1) 181 353 287 168 163
Accruing loans 91 or more days overdue 124 74 -- -- 24
------- ------ ------ ----- ------
Total 305 427 287 168 187
------- ------ ------ ----- ------
Total non-performing loans:
Non-accrual loans (1) 8,460 11,795 6,135 2,140 3,408
Accruing loans 91 or more days overdue 2,195 1,669 2,399 655 624
Restructured or renegotiated -- -- 4,299 4,379 4,464
------- ------ ------ ----- ------
Total $10,655 13,464 12,833 7,174 8,496
======= ====== ====== ===== ======
Non-accrual loans to total loans .31% .48% .27% .17% .33%
Accruing loans 91 or more days overdue to total loans .08 .07 .10 .05 .06
Restructured or renegotiated to total loans -- -- .19 .35 .44
------- ------ ------ ----- ------
Non-performing loans to total loans .39% .55% .56% .57% .83%
======= ====== ====== ===== ======
Foreclosed real estate:
One- to four-family $ 489 1,257 888 311 1,379
Commercial real estate -- -- -- 25 2,090
------- ------ ------ ----- ------
Total foreclosed real estate, net of related reserves $ 489 1,257 888 336 3,469
======= ====== ====== ===== ======
Total non-performing assets $11,144 14,721 13,721 7,510 11,965
======= ====== ====== ===== ======
Total non-performing assets to total assets .32% .46% .44% .42% .75%
====== ====== ====== ===== ======
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists of loans in the process of foreclosure or for which interest is
otherwise deemed uncollectible.
35
<PAGE>
For the year ended December 31, 1997, the six months ended December 31,1996,
and the years ended June 30, 1996, 1995, and 1994, the amount of interest income
that would have been recorded on non-accrual loans amounted to $663,000,
$573,000, $631,000, $468,000, and $168,000, respectively, if the loans had been
current. For the year ended December 31, 1997, interest income on non-accrual
loans that was included in net income amounted to $120,000.
Non-performing commercial real estate, construction and land loans declined to
$1.2 million at December 31, 1997, from $4.5 million at December 31, 1996,
primarily due to a $2.9 million charge-off on a second mortgage collateralized
by a commercial real estate parcel, which has been classified as non-accrual.
The Bank had a specific reserve against this loan at December 31, 1996 of $1.5
million, representing the expected loss on the loan at that date. Subsequently,
the Bank funded an additional $500,000 of debt in 1997, and reassessed the
collateral's fair value upon obtaining updated financial information. During
the fourth quarter of 1997, the Bank charged-off $2.9 million of the loan. The
Bank's remaining $500,000 investment in this second mortgage is subordinate to a
$6.0 million industrial revenue bond. The Bank has issued a standby letter of
credit against the industrial revenue bond. Upon taking title to the property
on January 29, 1998, the Bank assumed the responsibility for the bond principal
and interest, and recorded foreclosed real estate for a total of $6.5 million.
With this additional foreclosed real estate, the Bank's ratio of non-performing
assets to total assets increased to approximately .49%. The industrial revenue
bond is current as to interest payments as of December 31, 1997, and carries an
interest rate of 4.13%. The industrial revenue bond is assumable by any
purchaser of the underlying collateral.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity. Such evaluation, which includes a review of all loans of which full
collectibility may not be reasonably assured, considers among other matters, the
estimated fair value of the underlying collateral, economic conditions,
historical loan loss experience and other factors that warrant recognition in
providing for an adequate loan loss allowance.
36
<PAGE>
The following table sets forth the Bank's allowance for loan losses at the
dates indicated. The balances below represent general loan loss reserves and
are not allocable to any one type of loan in the Bank's loan portfolio, except
for $1.5 million at December 31, 1996, which was allocated as a specific reserve
against a commercial real estate loan.
<TABLE>
<CAPTION>
YEAR SIX
ENDED MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 17,914 17,254 9,197 8,779 7,993
Charge-offs:
One-to four-family (637) (49) (376) (72) (223)
Commercial (2,994) - - (7) -
Construction - - - - (112)
Land - - - - -
Consumer (81) (17) - (31) (82)
-------- ------- ------- ------- -------
(3,712) (66) (376) (110) (417)
-------- ------- ------- ------- -------
Recoveries:
One-to four-family 106 25 - - -
Commercial 5 - 10 - -
Construction - - - 49 -
Consumer 12 1 1 4 3
-------- ------- ------- ------- -------
123 26 11 53 3
-------- ------- ------- ------- -------
Net charge-offs (3,589) (40) (365) (57) (414)
Provision for loan losses 1,150 700 700 475 1,200
Balance related to acquisition - - 7,722 - -
-------- ------- ------- ------- -------
Balance at end of period $ 15,475 17,914 17,254 9,197 8,779
======== ======= ======= ======= =======
Ratio of net charge-offs to
average loans outstanding .14% - .03 .01 .04
Ratio of allowance for loan losses
to total loans receivable .57 .73 .75 .73 .86
Ratio of allowance for loan losses
to total non-performing loans 145.24 133.05 134.45 128.20 103.33
Ratio of allowance for loan losses
to total non-performing assets 138.86 121.69 125.75 122.46 73.37
======== ======= ======= ======= =======
</TABLE>
At December 31, 1997, the Bank maintained no specific reserves on its loan
portfolio. As such, the $15.5 million allowance for loan losses, based on
currently available information, is a general reserve. As of December 31, 1997,
management is unaware of any specifically identifiable charge-offs in its loan
portfolio. Assuming no significant adverse changes in existing market
conditions, management anticipates charge-offs in 1998 to decrease
significantly, due to the $2.9 million charge-off taken on one commercial loan
during 1997. However, no assurances can be made that charge-offs will not be
less than or exceed this estimate if facts or circumstances change in the
future.
37
<PAGE>
At December 31, 1997, the Bank's loan portfolio consists of 88.5% of one-to
four-family real estate loans, with an additional 4.5% being equity lines of
credit or home equity loans on one-to four-family real estate. Based on the
Bank's historical high asset quality, low charge-off experience and
concentration on one-to four-family lending in its market area, management
considers the risk of loss due to these loans as minimal. The remaining 7.0% of
the Bank's portfolio, or $191.0 million, consists of multi-family mortgage,
commercial real estate, construction, land, and other loans. These loans
generally tend to exhibit greater risk of loss than do one-to four-family loans,
primarily because such loans typically carry higher loan balances and repayment
is dependent, in large part, on sufficient income to cover operating expenses.
In addition, economic events and government regulations, which are outside the
control of the Bank and the borrower, could impact the security of the loan or
the future cash flow of affected properties. Management has addressed these
risks through its underwriting standards.
With respect to multi-family loans, the Bank has traditionally limited its
lending to small apartment buildings, which management believes have lower risk
than larger properties. At December 31, 1997, in the Bank's $105.1 million
multi-family portfolio, only eight loans are on properties greater than 36 units
and the average multi-family loan size is $260,000. In addition, almost all of
the Bank's construction and land loans are on one- to four- family residential
property. All of the Bank's multi-family, construction and land loans are
secured by properties located in the Chicago metropolitan area.
INVESTMENT ACTIVITIES
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally, the investment policy of the Bank is to invest funds among various
categories of investments and maturities based upon the Bank's asset/liability
management policies, investment quality and marketability, liquidity needs and
performance objectives.
The Bank is required to maintain liquid assets at minimum levels. See
"Regulation and Supervision - Federal Savings Institution Regulation -
Liquidity." The Bank's liquid investments include interest-bearing deposits,
primarily at the Federal Home Loan Bank of Chicago, federal funds sold and U.S.
Government and federal agency obligations. The Bank invests overnight federal
funds with two large commercial banks in Chicago, based upon periodic review of
these institutions' financial condition. The Bank generally limits overnight
federal funds sold investments to $50.0 million at any one institution.
38
<PAGE>
The table below sets forth information regarding the carrying value, weighted
average yields and maturities of the Company's investment securities.
<TABLE>
<CAPTION>
At December 31, 1997
-----------------------------------------------------------------------------------------
One Year 1 to 5 to More than
or Less 5 Years 10 Years 10 Years
-------------------- -------------------- -------------------- --------------------
Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
-------- --------- -------- --------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and agency
securities:
Held to maturity $ 10,000 4.25% $ - -% $ 14,844 7.29% $ - -%
Available for sale 15,855 5.50 5,052 6.06 30,045 6.79 9,981 7.26
Marketable equity
securities (1):
Common stock - - - - - - 7,810 2.32
Preferred stock - - - - - - 6,213 5.86
Other investment
securities:
Held to maturity 423 5.91 - - - - 1 5.00
Available for sale - - - - 20,551 6.59 24,003 6.26
-------- ------- -------- ------- --------
Total $ 26,278 5.03% $ 5,052 6.06% $ 65,440 6.84% $ 48,008 5.77%
======== ======== ======= ====== ======== ======= ======== =======
<CAPTION>
------------------------------------------
Total Investment Securities
-------------------------------------------
Average
Life Weighted
in Carrying Market Average
Years Value Value Yield
------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Government and agency
securities:
Held to maturity 4.12 $ 24,844 $ 25,798 6.03%
Available for sale 5.55 60,933 60,933 6.48
Marketable equity
securities (1):
Common stock - 7,810 7,810 2.32
Preferred stock - 6,213 6,213 5.86
Other investment
securities:
Held to maturity .08 424 424 5.91
Available for sale 14.32 44,554 44,554 6.41
--------- ---------
Total 8.28 $ 144,778 $ 145,732 6.13%
======= ========= ========= ========
</TABLE>
- -------------------------
(1) Marketable equity securities with no stated maturity are included in
the "More than 10 Years" category.
39
<PAGE>
The following table sets forth certain information regarding the book value of
the Company's and the Bank's liquidity and investment securities portfolio at
the dates indicated. At December 31, 1997 and December 31, 1996, the fair value
of the investment securities portfolio was $145.7 million and $141.9 million,
respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1997 1996 1996
------- ------- --------
(In thousands)
<S> <C> <C> <C>
Interest-bearing deposits $ 57,197 55,285 37,496
========= ======= =======
Federal funds sold $ 50,000 24,700 5,700
========= ======= =======
Investment securities:
Available for sale:
U.S. Government and agency securities $ 60,933 35,813 23,821
Marketable equity securities 14,023 13,904 12,572
Other investment securities 44,554 19,332 1,903
--------- ------- -------
Total investments available for sale 119,510 69,049 38,296
--------- ------- -------
Held to maturity:
U.S. Government and agency securities 24,844 71,438 101,268
Other investment securities 424 602 958
--------- ------- -------
Total investments held to maturity 25,268 72,040 102,226
--------- ------- -------
Total investment securities $ 144,778 141,089 140,522
========= ======= =======
</TABLE>
The classification of investments as available for investment, available for
sale, or for trading purposes is made at the time of purchase based upon
management's intent at that time. At December 31, 1997, $119.5 million of
investment securities were classified as available for sale and recorded at fair
value (cost basis of $117.0 million). At December 31, 1996, $69.0 million were
classified as available for sale (cost basis of $68.5 million), while at June
30, 1996, $38.3 million were classified as available for sale (cost basis of
$38.0 million). All balances exclude the Bank's required investment of stock in
the Federal Home Loan Bank of Chicago, which was $33.0 million, $30.7 million,
and $30.7 million at December 31, 1997, 1996, and June 30, 1996, respectively.
SOURCES OF FUNDS
The Bank's primary sources of funds are deposits, amortization and prepayment
of loan principal (including mortgage-backed securities), borrowings, sales of
mortgage loans, sales or maturities of investment securities, mortgage-backed
securities and short-term investments, and funds provided from operations.
Deposits. The Bank offers a variety of deposit accounts having a wide range
of interest rates and terms. The Bank's deposits consist of passbook accounts,
NOW and checking accounts, money market and certificate accounts. The Bank only
solicits deposits from its market area and does not use brokers to obtain
deposits. The Bank relies primarily on competitive pricing policies,
advertising, and customer service to attract and retain these deposits. The
flow of deposits is influenced significantly by general economic conditions,
changes in money market and prevailing interest rates and competition.
The net increase in deposits during the year ended December 31, 1997 is
primarily due to interest credited to deposits, as outflows exceeded inflows
during this period, primarily due to competitive pressure for certificate of
deposits. The large increase in deposits during the year ended June 30, 1996
was primarily due to the acquisition of NSBI, as well as the Bank generating net
deposit inflows of $6.3 million. The increase in deposits during the year ended
June 30, 1995 was primarily due to interest credited to deposits, which offset
savings outflows during that period.
40
<PAGE>
Deposit Portfolio. The following table sets forth the distribution and the
weighted average nominal interest rates of the Bank's average deposit
accounts at the dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------------------- -------------------------------------
PERCENT WEIGHTED PERCENT WEIGHTED
OF AVERAGE OF AVERAGE
AVERAGE TOTAL NOMINAL AVERAGE TOTAL NOMINAL
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
------------ ----------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Passbook accounts $ 659,391 28.79% 2.85% $ 671,766 29.99% 2.86%
Interest bearing NOW accounts 153,842 6.71 1.56 136,748 6.10 1.66
Non-interest bearing checking 39,280 1.71 - 40,844 1.82 -
Commercial checking accounts 31,075 1.36 - 26,304 1.17 -
----------- ---------- ----------- ----------
Total passbook, NOW and checking accounts 883,588 38.57 2.40 875,662 39.08 2.46
----------- ---------- ----------- ----------
Money market accounts 132,875 5.80 3.65 128,343 5.73 3.63
Jumbo deposits 22,035 .96 5.47 25,018 1.12 5.37
Certificate accounts with original maturities
of:
91 days or less 23,660 1.03 4.81 15,386 .69 4.78
6 months 292,638 12.77 5.21 297,089 13.26 5.01
8 months - - - 1,868 .08 5.25
9 months 1,558 .07 5.19 29,464 1.32 5.18
10 months 5,964 .26 5.64 - - -
----------- ---------- ----------- ----------
Total jumbo certificates of deposits and
7-day to 10 month certificate accounts 345,855 15.09 5.21 368,825 16.47 4.68
----------- ---------- ----------- ----------
Certificate accounts with original
maturities of:
12 months 211,686 9.24 5.39 234,587 10.46 5.24
13 month 8,914 .39 5.83 5,648 .25 5.81
18 months 128,695 5.62 5.77 91,625 4.09 5.77
19 months 176,418 7.70 5.91 86,881 3.88 5.89
24 months 42,685 1.86 5.64 75,355 3.36 5.82
30 months 103,031 4.50 6.15 107,661 4.81 6.09
36 months 16,355 .71 5.56 23,280 1.04 5.17
42 months 30,445 1.33 6.15 29,198 1.30 5.94
60 months 143,108 6.25 6.01 141,163 6.30 5.97
61 months to 120 months 67,362 2.94 7.52 72,468 3.23 7.60
----------- ---------- ----------- ----------
Total 12-month to 120-month certificate
accounts and other certificate accounts 928,699 40.54 5.92 867,866 38.72 5.86
----------- ---------- ----------- ----------
Total deposits $ 2,291,017 100.00% 4.32% $ 2,240,696 100.00% 4.27%
=========== ========== ======= =========== ====== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
------------------------------
PERCENT WEIGHTED
OF AVERAGE
AVERAGE TOTAL NOMINAL
BALANCE DEPOSITS RATE
------------ ----------- -----------
<S> <C> <C> <C>
Passbook accounts $ 288,389 20.48% 3.10%
Interest bearing NOW accounts 121,187 8.61 1.69
Non-interest bearing checking 27,508 1.95 -
Commercial checking accounts 30,157 2.14 -
----------- ----------
Total passbook, NOW and checking accounts 467,241 33.18 2.35
----------- ----------
Money market accounts 138,837 9.86 3.09
Jumbo deposits 29,993 2.13 5.55
Certificate accounts with original maturities
of:
91 days or less 10,104 .71 4.78
6 months 137,525 9.77 4.45
8 months 13,890 .99 5.58
9 months 8,020 .57 5.25
10 months 6 - 3.13
----------- ----------
Total jumbo certificates of deposits and
7-day to 10 month certificate accounts 199,538 14.17 5.43
----------- ----------
Certificate accounts with original
maturities of:
12 months 120,316 8.54 5.65
13 month - - -
18 months 92,600 6.58 5.86
19 months 4,313 .31 5.89
24 months 48,596 3.45 5.96
30 months 118,505 8.41 5.89
36 months 2,065 .15 5.12
42 months 30,713 2.18 5.90
60 months 101,004 7.17 6.11
61 months to 120 months 84,438 6.00 8.04
----------- ----------
Total 12-month to 120-month certificate
accounts and other certificate accounts 602,550 42.79 6.18
----------- ----------
Total deposits $ 1,408,166 100.00% 4.50%
============ ========== ==========
</TABLE>
41
<PAGE>
The following table presents the deposit activity of the Bank for
the periods indicated:
<TABLE>
<CAPTION>
Year Ended Six Months Ended Year Ended June 30,
December 31, December 31, ------------------------
1997 1996 1996 1995
------------ ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Deposits $ 6,274,850 4,557,273 4,458,404 3,547,326
Withdrawals (6,294,936) (4,593,918) (4,452,055) (3,577,181)
----------- ---------- ---------- -----------
Deposits greater (less) than
withdrawals (20,086) (36,645) 6,349 (29,855)
Deposits acquired, net - (257) 872,419 -
Interest credited on deposits 94,873 45,028 62,026 50,630
----------- ---------- ---------- -----------
Net increase in deposits $ 74,787 8,126 940,794 20,775
=========== ========== ========== ===========
</TABLE>
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at December 31, 1997 and 1996, and at June 30,
1996, and the periods to maturity of the certificate accounts outstanding at
December 31, 1997.
<TABLE>
<CAPTION>
Period to Maturity December 31, 1997
December 31, -----------------------------------------
---------------------- June 30, Within 1 to 3 Over
1997 1996 1996 One Year Years 3 Years Total
---------- --------- --------- -------- ------- ------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
3.99% or less $ 774 2,968 1,080 767 7 -- 774
4.00% to 4.99% 30,512 47,897 192,338 29,825 671 16 30,512
5.00% to 5.99% 939,265 886,984 746,819 753,513 167,349 18,403 939,265
6.00% to 6.99% 286,476 244,510 217,707 158,372 97,483 30,621 286,476
7.00% to 7.99% 12,048 25,918 30,581 4,118 7,342 588 12,048
8.00% to 8.99% 26,834 39,072 41,779 24,779 2,055 -- 26,834
9.00% to 9.99% 1,302 1,258 1,191 160 1,142 -- 1,302
----------- --------- --------- ------- ------- ------- ---------
Total $ 1,297,211 1,248,607 1,231,495 971,534 276,049 49,628 1,297,211
=========== ========= ========= ======= ======= ====== =========
</TABLE>
At December 31, 1997, the Bank had outstanding $159.8 million in certificate
accounts in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
Period to Maturity Amount
------------------ -------
(In thousands)
<S> <C>
Three months or less $ 50,046
Over three through six months 29,493
Over six through 12 months 38,310
Over 12 months 41,974
---------
Total $ 159,823
=========
</TABLE>
Borrowings. Although deposits are the Bank's primary source of funds, the
Bank's policy has been to utilize borrowings, such as advances from FHLB of
Chicago, and reverse repurchase agreements, when they are a less costly source
of funds or can be invested at a positive rate of return.
The Bank obtains advances from the FHLB of Chicago upon the security of its
capital stock in the FHLB of Chicago and a blanket pledge of certain of its
mortgage loans. See "Regulation and Supervision - Federal Home Loan Bank
System." Such advances are made pursuant to several different credit programs,
each of which has its own interest rate and range of maturities. The maximum
amount that the FHLB of Chicago will advance to member institutions, including
the Bank, for purposes other than meeting withdrawals, fluctuates from time to
time in accordance with the policies of the OTS and the FHLB of Chicago. The
maximum amount of FHLB of Chicago advances to a member institution generally is
42
<PAGE>
reduced by borrowings from any other source. At December 31, 1997, the Bank's
FHLB of Chicago advances totaled $660.5 million, representing 19.1% of total
assets.
A summary of the Company's borrowed funds at December 31, 1997, 1996 and June
30, 1996 is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
INTEREST RATE AMOUNT
------------------------ --------------------------------
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
-------------- --------------------
1997 1996 1996 1997 1996 1996
------ ----- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed rate advances from FHLB of Chicago due:
Within 12 months 6.72% 6.28 7.15 $ 95,000 55,000 50,000
13 to 24 months 6.31 6.77 6.38 190,000 70,000 50,000
25 to 36 months 6.63 6.30 8.27 105,000 115,000 15,000
37 to 48 months 6.41 6.63 6.64 165,000 105,000 80,000
49 to 60 months 5.97 6.50 6.45 55,000 90,000 65,000
61 to 72 months 6.39 6.10 6.13 500 5,000 30,000
Greater than 72 months -- 6.39 6.13 -- 500 5,500
-------- ------- -------
Total fixed rate advances 6.43 6.49 6.66 610,500 440,500 295,500
Adjustable rate advances from FHLB of Chicago due:
Within 12 months -- 5.86 5.79 -- 40,000 125,000
13 to 24 months 5.79 -- -- 25,000 -- --
Greater than 24 months 5.69 -- -- 25,000 -- --
-------- ------- -------
Total adjustable rate advances 5.74 5.86 5.79 50,000 40,000 125,000
-------- ------- -------
Total advances from FHLB of Chicago 6.37 6.44 6.40 660,500 480,500 420,500
-------- ------- -------
Collateralized mortgage obligations:
Issued by MAFC due 2018 (1) 11,204 14,087 15,928
Unamortized discount (654) (1,021) (1,202)
-------- ------- -------
12.08 10.90 11.42 10,550 13,066 14,726
Issued by NWAC due 2018 (2) 19,480 24,304 27,419
Unamortized premium 179 223 247
-------- ------- -------
8.05 8.30 8.05 19,659 24,527 27,666
-------- ------- -------
Total collateralized mortgage obligations, net 30,209 37,593 42,392
-------- ------- -------
Fixed-rate reverse repurchase agreements 6.31 6.55 6.74 44,804 79,804 39,804
Unsecured term bank loan 6.72 6.63 6.47 34,500 35,000 35,000
-------- ------- -------
6.51% 6.63 6.65 $770,013 632,897 537,696
===== ===== ===== ======== ======= =======
</TABLE>
- ----------------------------------------
(1) See "Subsidiary Activities - Mid America Finance Corporation."
(2) See "Subsidiary Activities - Northwestern Acceptance Corporation."
Subordinated Capital Notes. In November, 1995, the Company refinanced its
$20.9 million of 10% Subordinated Capital Notes due June 30, 2002 with $27.6
million of 8.32% Subordinated Notes due September 30, 2005. The payment of
principal and interest on the current notes is subordinated at all times to any
indebtedness or liability of the Company outstanding or incurred after the date
of issuance. Costs incurred in the refinance transaction amounted to $1.0
million and are being accreted over the life of the notes yielding an effective
interest rate of 8.85%. The capital notes are callable at the discretion of the
Company at any time after September 30, 1998, at par plus any accrued interest.
The indenture provides for restrictions on the amounts of additional
indebtedness the Company may incur as well as the amount of dividends and other
distributions it may pay with respect to its equity securities, depending on
the Company's capital ratio. The refinance transaction resulted in a $474,000,
or $0.05 per share extraordinary charge to earnings due to the early
extinguishment of debt as a result of writing-off the remaining unamortized
transaction costs of $774,000, net of income taxes of $300,000.
43
<PAGE>
ASSET/LIABILITY MANAGEMENT
The Bank's overall asset/liability management strategy is directed toward
reducing the Bank's exposure to interest rate risk over time in changing
interest rate environments. Asset/liability management is a daily function of
the Bank's management due to continual fluctuations in interest rates and
financial markets.
As part of its asset/liability strategy, the Bank has implemented a policy to
maintain its cumulative one-year interest sensitivity gap ratio within a range
of (15)% to 15% of total assets, which helps the Bank to maintain a more stable
net interest rate spread in various interest rate environments. The gap ratio
fluctuates as a result of market conditions and management's expectation of
future interest rate trends. Under OTS Thrift Bulletin 13, the Bank is required
to measure its interest rate risk assuming various increases and decreases in
general interest rates, and the effect on net interest income and market value
of portfolio equity. An interest rate risk policy has been approved by the
Board of Directors setting the limits to changes in net interest income and
market value of portfolio equity at the various rate scenarios required. In
addition, the OTS has added an interest rate risk component to its regulatory
capital requirements which could require an additional amount of capital based
on the level of adverse change in a savings institution's market value of
portfolio equity, resulting from changes in interest rates. Management
continually reviews its interest rate risk policies in light of potentially
higher capital requirements that could result from the adoption of an interest
rate risk component to the OTS capital requirements.
The Bank's asset/liability management strategy emphasizes the origination of
one- to four-family adjustable-rate loans and other loans which have shorter
terms to maturity or reprice more frequently than fixed-rate mortgage loans,
yet, provide a positive margin over the Bank's cost of funds. In response to
customer demand, the Bank originates fixed-rate mortgage loans, but has
historically generally sold the conforming loans in the secondary market in
order to maintain its interest rate sensitivity levels. During the last eighteen
months, the Bank has been retaining the majority of the retail fixed-rate
originations in portfolio for investment purposes to help utilize the Bank's
higher capital base resulting from the merger with NSBI.
In conjunction with the strategy discussed above, management has also hedged
the Bank's exposure to interest rate risk primarily by committing to sell fixed-
rate mortgage loans for future delivery. Under these commitments, the Bank
agrees to sell fixed-rate loans at a specified price and at a specified future
date. The sale of fixed-rate mortgage loans for future delivery has enabled the
Bank to continue to originate new mortgage loans, and to generate gains on sale
of these loans as well as loan servicing fee income, while maintaining its gap
ratio within the parameters discussed above. Most of these forward sale
commitments are conducted with FNMA and FHLMC with respect to loans that conform
to the requirements of these government agencies. The forward commitment of
mortgage loans presents a risk to the Bank if the Bank is not able to deliver
the mortgage loans by the commitment expiration date. If this should occur, the
Bank would be required to pay a fee to the buyer. The Bank attempts to mitigate
this risk by charging potential retail borrowers a 1% fee to fix the interest
rate, or by requiring the interest rate to float at market rates until shortly
before closing. In its wholesale lending operation, there is more risk due to
the competitive inability to charge a rate lock fee to the mortgage brokers,
which the Bank tries to offset by using higher assumed fallout rates. In
addition, the Bank uses U.S. Treasury bond futures contracts to hedge some of
the mortgage pipeline exposure. These futures contracts are used to hedge
mortgage loan production in those circumstances where loans are not sold forward
as described above.
44
<PAGE>
The table below sets forth the scheduled repricing or maturity of the Bank's
assets and liabilities at December 31, 1997, based on the assumptions used by
the FHLB of Chicago with respect to NOW, checking and passbook account
withdrawals as well as loan and mortgage-backed securities prepayment
percentages. In a departure from the FHLB of Chicago assumptions, which assume a
0% prepayment for other borrowings, the Bank assumes that the collateralized
mortgage obligations included in other borrowings prepay at the same rate used
for the mortgage-backed securities collateralizing these obligations, while the
NWAC collateralized mortgage obligations are adjustable-rate and included in the
6 months or less category.
The effect of these assumptions is to quantify the dollar amount of items that
are interest-sensitive and may be repriced within each of the periods specified.
The table does not necessarily indicate the impact of general interest rate
movements on the Bank's net interest yield because the repricing of certain
categories of assets and liabilities is subject to competitive and other
pressures beyond the Bank's control. As a result, certain assets and liabilities
indicated as maturing or otherwise repricing within a stated period may, in
fact, mature or reprice at different times and at different volumes.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------------------
LESS THAN
1/2 YR. 1/2 - 1 YR. 1 - 3 YRS. 3 - 5 YRS. 5+ YRS. TOTAL
----------- ------------ ---------- ----------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 650,902 434,655 822,998 291,431 521,844 2,721,830
Mortgage-backed securities 122,000 28,445 41,138 25,856 64,861 282,300
Investment securities (1) 91,467 5,863 5,052 10,033 65,522 177,937
Interest-bearing deposits 57,197 - - - - 57,197
Federal funds sold 50,000 - - - - 50,000
---------- ------- ------- ------- ------- ---------
Total interest-earning assets 971,566 468,963 869,188 327,320 652,227 3,289,264
Less yield adjustments, net 494 328 326 (172) 370 1,346
Impact of hedging activities (2) 6,537 - - - (6,537) -
---------- ------- -------- ------- ------- ---------
Total net interest-earning assets,
adjusted for impact of hedging activities 978,597 469,291 869,514 327,148 646,060 3,290,610
Interest-bearing liabilities:
NOW and checking accounts 13,896 12,718 46,545 28,913 61,439 163,511
Money market accounts 140,281 - - - - 140,281
Passbook accounts 55,277 50,578 185,117 114,990 244,354 650,316
Certificate accounts 640,322 332,634 274,865 35,439 13,953 1,297,213
FHLB advances 85,000 60,000 295,000 220,000 500 660,500
Other borrowings and subordinated debt 82,417 2,549 24,547 - 26,779 136,292
---------- ------- ------- ------- ------- ---------
Total interest-bearing liabilities 1,017,193 458,479 826,074 399,342 347,025 3,048,113
---------- ------- ------- ------- ------- ---------
Interest sensitivity gap $ (38,596) 10,812 43,440 (72,194) 299,035 242,497
========== ======= ======= ======= ======= =========
Cumulative gap $ (38,596) (27,784) 15,656 (56,538) 242,497
========== ======= ======= ======= =======
Cumulative gap as a percentage
of total assets (1.12)% (.80) .45 (1.64) 7.01
Cumulative net interest-earning assets as
a percentage of interest-bearing liabilities 96.21% 98.12 100.68 97.91 107.96
</TABLE>
- ----------------------
(1) Includes $33.0 million of stock in FHLB of Chicago in 6 months or less.
(2) Represents forward commitments to sell long-term fixed-rate mortgage loans.
45
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash dividends paid by the Bank
and MAF Developments, and liquidity generated by the issuance of common stock,
preferred stock, or borrowings. During the year ended December 31, 1997, the
Company received cash dividends from the Bank of $34.5 million, while it
received $-0- during the six months ended December 31, 1996. The Company's
principal uses of funds are interest payments on the Company's borrowed funds,
cash dividends to shareholders, loans to and investments in MAF Developments,
stock repurchases, as well as investment purchases with excess cash flow. The
Company declared $.27 per share in cash dividends to common shareholders during
the twelve months ended December 31, 1997, compared to $.12 per share in the six
months ended December 31, 1996. In addition, the Company repurchased 786,411
shares of its common stock for a total of $22.6 million during the year ended
December 31, 1997.
The Company obtained a $35.0 million unsecured term bank loan in conjunction
with its acquisition of NSBI. The loan provides for an interest rate of the
prime rate or 1% over one, two or three-month LIBOR at management's discretion
adjustable and payable at the end of the repricing period. The loan currently
carries an interest rate of 1% over three-month LIBOR. The loan is convertible
all or in part, with certain limitations at the end of any repricing period, at
management's election to a fixed rate at 1.25% over the U.S. Treasury rate with
a maturity corresponding to the remaining term of the loan. The loan requires
increasing annual principal payments starting in December 1997 with $9.2 million
due at the final maturity of the loan on December 31, 2003. The Company made
its first principal payment on the loan on December 31, 1997 in the amount of
$500,000. Prepayments of principal are allowed, but fixed-rate portions are
subject to penalty. In conjunction with the term bank loan, the Company also
maintains a $15.0 million one year unsecured revolving line of credit which
matures on April 30, 1998, and is generally renewable annually thereafter. The
interest rate on the line of credit is currently the prime rate or 1% over one,
two, or three-month LIBOR, at management's discretion with interest payable at
the end of the repricing period. At December 31, 1997, no balance is
outstanding on the line of credit. The financing agreements contain covenants
that, among other things, requires the Company to maintain a minimum
stockholders' equity balance and to obtain certain minimum operating results, as
well as requiring the Bank to maintain "well capitalized" regulatory capital
levels and certain non-performing asset ratios. In addition, the Company has
agreed not to pledge any stock of the Bank or MAF Developments for any purpose.
At December 31, 1997, the Company was in compliance with these covenants.
The Bank's principal sources of funds are deposits, advances from the FHLB of
Chicago, reverse repurchase agreements, principal repayments on loans and
mortgage-backed securities, proceeds from the sale of loans and funds provided
by operations. While scheduled loan and mortgage-backed securities amortization
and maturing interest-bearing deposits are a relatively predictable source of
funds, deposit flows and loan and mortgage-backed securities prepayments are
greatly influenced by economic conditions, the general level of interest rates
and competition. The Bank utilizes particular sources of funds based on
comparative costs and availability. The Bank generally manages the pricing of
its deposits to maintain a steady deposit balance, but has from time to time
decided not to pay rates on deposits as high as its competition, and when
necessary, to supplement deposits with longer term and/or less expensive
alternative sources of funds, such as advances from the FHLB of Chicago and
reverse repurchase agreements. During the twelve months ended December 31, 1997,
the Bank borrowed $180.0 million (net) in FHLB of Chicago advances to primarily
fund mortgage loan volume held for investment by the Bank.
46
<PAGE>
The Bank is required by regulation to maintain specific minimum levels of
liquid investments. Regulations currently require the Bank to maintain liquid
assets at least equal to 4.0% of the sum of its average daily balance of net
withdrawable accounts and borrowed funds due in one year or less. This
regulatory requirement may be changed from time to time to reflect current
economic conditions. During the year ended December 31, 1997, the Bank's average
liquidity ratio was 6.70%. At December 31, 1997, total liquidity was $157.9
million, or 6.45%, which was $59.9 million in excess of the 4.0% regulatory
requirement. This excess liquidity has provided the Bank with the flexibility
needed to maintain its short-term gap ratios within strategic limits, as well as
most recently, to fund the increased loan volume.
During the year ended December 31, 1997, the Bank originated and purchased
loans totaling $1.1 billion compared to $469.5 million for the six months ended
December 31, 1996, and $989.8 million during the year ended June 30, 1996. The
Bank has outstanding commitments to originate loans of $173.9 million and sell
loans of $7.1 million at December 31, 1997. The Company expects to fund current
and future loan commitments using principal repayments on loans and mortgage-
backed securities, as well as outside funding sources.
SUBSIDIARY ACTIVITIES
MID AMERICA DEVELOPMENTS, NW FINANCIAL AND MAF DEVELOPMENTS. The Company
engages in the business of purchasing unimproved land for development into
residential subdivisions of single family lots through three wholly-owned
subsidiaries. MAF Developments is a wholly-owned subsidiary of the Company,
while Mid America Developments and NW Financial are wholly-owned subsidiaries of
the Bank. The subsidiaries have been engaged in this activity since 1974, and
since that time have developed and sold over 4,700 lots in 23 different
subdivisions in the western suburbs of Chicago. These subsidiaries acts as sole
principal or as a joint venture partner in their developments. The subsidiaries
historically have provided essentially all of the capital for a joint venture
and receive in exchange an ownership interest in the joint venture which
entitles it to a percentage of the profit or loss generated by the project,
generally 50%, with the exact percentage based upon a number of factors,
including characteristics of the venture, the perceived risks involved, and the
time to completion. The net profits are generally defined in the joint venture
agreement as the gross profits of the joint venture from sales, less all
expenses, loan repayments and capital contributions.
In the acquisition of NSBI, the Bank acquired NW Financial, which is active in
the development of unimproved land for development into residential
subdivisions, as well as the construction of single-family homesites on the
improved lots. NW Financial currently has three projects whereby it and a
developer share in the profits of the projects on a 50/50 basis. NW Financial
also provides the funds, via loans, to the projects. The projects are located
in the north and northwest suburbs of Chicago.
OTS regulations imposed restrictions on the Bank's participation in real
estate development activities through Mid America Developments. See "Regulation
and Supervision - Federal Savings Institution Regulation - Capital
Requirements." In response to the restrictions imposed by the OTS, Mid America
Developments' activities, since 1989, have been limited to the completion of
then-existing projects. Mid America Developments has not initiated any new
projects since 1989. In 1993, the Company formed a wholly-owned subsidiary, MAF
Developments, to continue its land development activities. As a subsidiary of
the Company, the activities of MAF Developments are not restricted by OTS
regulations as they are for the Bank. The Bank also plans to limit the activity
of NW Financial to the completion of the three existing projects in process as
of the acquisition.
47
<PAGE>
The following is a summary as of December 31, 1997, of the residential real
estate projects Mid America Developments, NW Financial and MAF Developments
currently has an interest in:
<TABLE>
<CAPTION>
Lots
Date Number of Number Available For
Land Lots Sold but Development Total Investment
Description of Project Acquired Sold Not Closed or Sale Lots Balance
- ------------------------ -------- --------- ---------- ------------- ----- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
MID AMERICA DEVELOPMENTS:
ASHBURY 1/87-6/87 1,115 - - 1,115 $ 50
1,115 residential lots
2.3-acre commercial parcel
WOODS OF RIVERMIST 6/86 29 - 2 31 154
31 residential lots
NW FINANCIAL:
WOODBRIDGE 2/90 516 7 8 531 3,498
531 single-family homes
48-acre commercial parcel
REIGATE WOODS 10/93 44 9 32 85 5,314
85 single-family homes
FIELDS OF AMBRIA 9/89-5/91 234 - 6 240 1,243
240 single-family homes
MAF DEVELOPMENTS:
CLOW CREEK FARM 6/93 254 - 6 260 128
260 residential lots
CREEKSIDE OF REMINGTON N/A 41 8 121 170 1,662
170 residential lots
HARMONY GROVE 11/94 195 54 137 386 4,856
386 residential lots
TALLGRASS OF NAPERVILLE 11/96-1/97 - - - 1,098 14,292
-------
1,098 residential lots
$31,197
=======
</TABLE>
The following table is a summary of the Bank's investment in and advances to
Mid America Developments and NW Financial at the dates indicated:
<TABLE>
<CAPTION>
December 31,
---------------- June 30,
1997 1996 1996
------- ------ --------
(In thousands)
<S> <C> <C> <C>
Common stock $ 1,657 1,657 1,657
Retained earnings 12,285 10,642 12,308
Intercompany advances 1,409 7,885 7,729
------- ------ ------
$15,351 20,184 21,694
======= ====== ======
</TABLE>
During the year ended December 31, 1997, six months ended December 31, 1996
and the year ended June 30, 1996, Mid America Developments and NW Financial paid
aggregate dividends of $1.2 million, $3.0 million, and $2.0 million,
respectively, to the Bank. The remaining investment at December 31, 1997 is a
deduction for the Bank in computing its regulatory capital requirements.
48
<PAGE>
The following is a description of the projects at Mid America Developments:
Ashbury
The Ashbury subdivision is located in Naperville, Illinois, and consists of
1,115 lots. A venture partner participates in 50% of the profits on 482 of the
total lots under a joint venture agreement. As of December 31, 1997, all
residential lots are sold. A remaining 2.3-acre parcel is under contract, and
is expected to close in 1998.
Woods of Rivermist
Mid America Developments is a participant in a joint venture in this 31-lot
development in Naperville, Illinois. Mid America Developments receives 50% of
the profits from the development. At December 31, 1997, Mid America
Development's investment in the Woods of Rivermist joint venture was $154,000.
At December 31, 1997, 29 of the 31 lots of this development were sold. The
Company expects the remaining two lots to be sold during 1998.
The following is a summary of projects at MAF Developments:
Clow Creek Farm
MAF Developments, Inc. purchased a 103 acre parcel of land in 1993 for the
development of 260 lots in Naperville, Illinois, adjacent to the Ashbury
subdivision. As of December 31, 1997, the Company's investment was $128,000.
The development is substantially complete, and 254 lot sales have been closed to
date. The Company expects to be sold out of Clow Creek Farm by the end of
1998.
Creekside of Remington
MAF Developments, Inc. entered into a joint venture agreement to develop 170
lots in Bolingbrook, Illinois. The joint venture partner contributed the land
while MAF Developments contributes development costs. Development commenced in
late fiscal 1994 in the first unit which consists of 91 lots. There were eight
sales during the year ended December 31, 1997, with eight lots under contract as
of December 31, 1997. Due to the slow absorption in this development, the
Company has not begun development of the next phase of the project. At December
31, 1997, the Company's investment in Creekside of Remington was $1.7 million.
Harmony Grove
MAF Developments, Inc. entered into a joint venture to develop 386 lots in
Naperville, Illinois by purchasing, from its venture partner, 160 acres of land,
which included a 5-acre commercial parcel. The Company's investment at December
31, 1997 was $4.9 million. During the year ended December 31, 1997, the Company
sold 120 lots in the subdivision. In addition, the commercial parcel closed in
February, 1997, resulting in a pre-tax profit of $228,000. Of the remaining
developed lots, 54 lots are under contract as of December 31, 1997. The
remainder of the available lots are scheduled to be available for purchase
during 1998.
The following is a summary of projects at NW Financial:
Fields of Ambria
Fields of Ambria consists of approximately 80 acres of land in Mundelein,
Illinois. The subdivision was developed into 240 lots for single-family home
construction in conjunction with a developer, who shares in the profits of the
project. The project was funded solely by funds from NW Financial, which have
all been repaid. During the year ended December 31, 1997, a total of nine
homesites were sold. At December 31, 1997, the Company's investment was $1.2
million, representing six homesites.
49
<PAGE>
Reigate Woods
Reigate Woods consists of approximately 106 acres of land in Green Oaks,
Illinois. The subdivision was developed into 85 lots for single-family home
construction in conjunction with a developer, who shares in the profits of the
project. The project is funded solely by funds from NW Financial. During the
year ended December 31, 1997, a total of 11 homesites were sold. At December
31, 1997, the Company has an investment of $5.3 million, representing 41
homesites, of which nine are under contract.
Woodbridge
Woodbridge consists of 341 acres of land in Elgin, Illinois. The project is
being developed with a developer who shares in the projects profits. The land
includes 232 acres for the construction of 531 single-family homes. During the
year ended December 31, 1997, a total of 133 homesites were sold. At December
31, 1997, seven of the remaining 15 homesites are under contract. The project
also includes 55 acres of property zoned for multi-family use, which has been
sold, as well as 48 acres of commercially-zoned property. At December 31, 1997,
the combined investment in the residential and commercial property is $3.5
million.
MID AMERICA FINANCE CORPORATION. In 1988, the Bank issued CMOs through MAFC,
a wholly-owned special purpose finance subsidiary. The Bank contributed $149.8
million of mortgage-backed securities to MAFC which, in turn, pledged the
securities to an independent trustee as collateral for the CMOs. The issuance of
the CMOs resulted in net proceeds to the Bank of $130.9 million which were
ultimately used to fund loan originations. Substantially all of the payments of
principal and interest on the underlying collateral are paid through to the
holders of the CMOs.
The CMOs were issued in four maturity classes. The actual maturity of each
class of CMO varies according to the timing of the cash receipts from the
underlying collateral. The CMOs are accounted for as a financing transaction
and are reflected as borrowed funds in the consolidated financial statements of
the Company. At December 31, 1997, the CMOs had an outstanding balance of $10.6
million. The mortgage-backed securities securing the CMOs had a carrying value
and market value of $11.1 million and $11.7 million, respectively, at December
31, 1997.
The CMO bonds and the mortgage-backed securities which collateralize them both
carry fixed interest rates, adjusted for amortization of discounts based upon
prepayment assumptions. The mortgage-backed securities yield averaged 8.25% for
the year ended December 31, 1997, compared to 8.39% for the six months ended
December 31, 1996, while the cost of the CMO bonds averaged 11.72% for the year
ended December 31, 1997, compared to 11.07% for the six months ended December
31, 1996. This negative spread led to a $337,000 reduction to net interest
income for the year ended December 31, 1997.
NORTHWESTERN ACCEPTANCE CORPORATION. In 1986, Northwestern issued $300
million of CMOs through NWAC, a special purpose finance subsidiary. The CMOs
were issued in two classes. Class A-1 CMOs, with an original face of $200
million, have an interest rate that is indexed to LIBOR for three-month
eurodollar deposits, with a maximum rate of 13.5% per year. The Class A-2 CMOs,
originally issued for $100 million, have an interest rate that adjusts in
inverse proportion to the LIBOR rate, but in no event may be less than 0% per
year or greater than 23.89% per year. The CMOs have a stated maturity of
February 20, 2018, although actual maturity of each class of CMO will vary due
to prepayments in the underlying mortgage collateral. The CMOs are also subject
to mandatory and optional redemption provisions, depending on the repayment of
the underlying collateral and the amount of CMOs outstanding.
At December 31, 1997, the CMOs had an outstanding balance of $19.7 million.
The CMOs are collateralized by 9.0% fixed-rate FHLMC mortgage-backed securities
which had a carrying value and market value of $19.4 million and $20.5 million,
respectively at December 31, 1997. In addition to the mortgage-backed
securities, cash and investment securities totaling $425,000 were held by the
trustee to
50
<PAGE>
pay principal and interest on the CMOs. The mortgage-backed securities pledged,
as well as the cash and investment securities held by the trustee are solely for
the repayment of the CMOs.
MID AMERICA INSURANCE AGENCY. Mid America Insurance Agency, Inc. ("Mid
America Insurance") is a wholly-owned subsidiary of the Bank which provides
insurance brokerage services, including personal and commercial insurance
products, to the Bank's customers. For the year ended December 31, 1997, six
months ended December 31, 1996 and the years ended June 30, 1996 and 1995, Mid
America Insurance generated pre-tax income of $77,000, $50,000, $97,000 and
$102,000, respectively.
INVEST. On June 23, 1983, the Bank, through Mid America Developments, entered
into an agreement to become a subscriber to INVEST, a registered broker-dealer
and provides certain securities brokerage and investment advisory services under
its INVEST service mark to the general public. Through this program and
licensed dual employees, these services are offered to customers of the Bank.
Presently nine brokers are employed and operate from eight Bank locations.
Revenues are generated from the sales of securities products in the form of
commissions which are apportioned between INVEST and the Bank. For the year
ended December 31, 1997, six months ended December 31, 1996 and the years ended
June 30, 1996 and 1995, pre-tax income from INVEST operations was $852,000,
$349,000, $711,000 and $460,000, respectively.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed without considering the impact of the
upcoming change in the century. If not corrected, many computer applications
and systems could fail or create erroneous results by or at the year 2000. The
Bank has prepared a comprehensive "Year 2000" plan, which has identified both
internal and external computer systems and software, that have the potential to
create an operational problem at the turn of the century. Although the Bank
owns all of its computer hardware, including its mainframe computer which
processes customer transactions, it relies on outside vendors who write and
support the software applications which run on its mainframe and PCs. The
Bank's Year 2000 plan indicates that some of the software applications supported
by outside vendors are "year 2000" compliant, or are in the process of upgrading
their software to be "year 2000" compliant in the near future. Many of these
software upgrades will be integrated into the Bank's mainframe and PC network
systems in the normal course of business over the next 12 months, and are not
currently seen as material costs to the Bank. The Bank plans to vigorously
test, on its own, the integrity of any software's "year 2000" compliance. In
the event that any of the Bank's significant outside vendors do not successfully
and timely achieve "year 2000" compliance, the Bank's business or operations
could be adversely affected. The cost, if any, that may arise from outside
vendors not achieving successful or timely "year 2000" compliance is not
currently determinable.
REGULATION AND SUPERVISION
GENERAL
The Company, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of the
OTS under the Home Owners' Loan Act of 1933, as amended (the "HOLA"). In
addition, the activities of savings institutions, such as the Bank, are governed
by the HOLA and the Federal Deposit Insurance Act ("FDI Act").
The Bank is subject to extensive regulation, examination and supervision by
the OTS, as its primary federal regulator, and the FDIC, as the deposit insurer.
The Bank is a member of the Federal Home Loan Bank ("FHLB") System and its
deposit accounts are insured up to applicable limits by the Savings Association
Insurance Fund ("SAIF") managed by the FDIC. The Bank must file reports with
the OTS and the FDIC concerning its activities and financial condition in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with, or acquisitions of, other
51
<PAGE>
savings institutions. The OTS and/or the FDIC conduct periodic examinations to
test the Bank's compliance with various regulatory requirements. This regulation
and supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such regulatory
requirements and policies, whether by the OTS, the FDIC or the Congress could
have a material adverse impact on the Company, the Bank and their operations.
Certain of the regulatory requirements applicable to the Bank and to the Company
are referred to below or elsewhere herein. The description of statutory
provisions and regulations applicable to savings institutions and their holding
companies set forth in this Form 10-K does not purport to be a complete
description of such statutes and regulations and their effects on the Bank and
the Company.
HOLDING COMPANY REGULATION
The Company is a nondiversified unitary savings and loan holding company
within the meaning of the HOLA. As a unitary savings and loan holding company,
the Company generally will not be restricted under existing laws as to the types
of business activities in which it may engage, provided that the Bank continues
to be a qualified thrift lender ("QTL"). See "Federal Savings Institution
Regulation - QTL Test." Upon any non-supervisory acquisition by the Company of
another savings institution or savings bank that meets the QTL test and is
deemed to be a savings institution by the OTS, the Company would become a
multiple savings and loan holding company (if the acquired institution is held
as a separate subsidiary) and would be subject to extensive limitations on the
types of business activities in which it could engage. The HOLA limits the
activities of a multiple savings and loan holding company and its non-insured
institution subsidiaries primarily to activities permissible for bank holding
companies under Section 4(c)(8) of the Bank Holding Company Act of 1956, as
amended ("BHC Act"), subject to the prior approval of the OTS, and activities
authorized by OTS regulation and no multiple savings and loan holding company
may acquire more than 5% of the voting stock of a company engaged in
impermissible activities.
The HOLA prohibits a savings and loan holding company, directly or indirectly,
or through one or more subsidiaries, from acquiring more than 5% of the voting
stock of another savings institution or holding company thereof, without prior
written approval of the OTS; or acquiring or retaining control of a depository
institution that is not insured by the FDIC. In evaluating applications by
holding companies to acquire savings institutions, the OTS must consider the
financial and managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk to the insurance
funds, the convenience and needs of the community and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, HOLA does prescribe such restrictions on subsidiary
savings institutions, as described below. The Bank must notify the OTS 30 days
before declaring any dividend to the Company. In addition, the financial impact
of a holding company on its subsidiary institution is a matter that is evaluated
by the OTS and the agency has authority to order cessation of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.
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FEDERAL SAVINGS INSTITUTION REGULATION
Capital Requirements. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 3% leverage (core capital) ratio and an 8% risk-based capital ratio.
In addition, the prompt corrective action standards discussed below also
establish, in effect, a minimum 2% tangible capital standard, a 4% leverage
(core) capital ratio (3% for institutions receiving the highest rating on the
CAMEL financial institution rating system), and, together with the risk-based
capital standard itself, a 4% Tier I risk-based capital standard. Core capital
is defined as common stockholder's equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus, and minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain purchased mortgage servicing rights and credit card relationships.
The OTS regulations also require that, in meeting the leverage ratio, tangible
and risk-based capital standards, institutions must generally deduct investments
in and loans to subsidiaries engaged in activities as principal that are not
permissible for a national bank. For the Bank, this includes its $15.4 million
investment in Mid America Developments and NW Financial at December 31, 1997,
which the Bank must deduct from regulatory capital for purposes of calculating
its capital requirements.
The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight of
0% to 100%, as assigned by the OTS capital regulation based on the risks OTS
believes are inherent in the type of asset. The components of Tier I (core)
capital are equivalent to those discussed earlier. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock and the general allowance for loan losses,
limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
supplementary capital included as part of total capital cannot exceed 100% of
core capital.
The OTS regulatory capital requirements also incorporate an interest rate risk
component. Savings institutions with "above normal" interest rate risk exposure
are subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings institution's interest rate risk is
measured by the decline in the net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200 basis point increase or decrease in market interest rates
divided by the estimated economic value of the institution's assets. In
calculating its total capital under the risk-based capital rule, a savings
institution whose measured interest rate risk exposure exceeds 2% must deduct an
amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
institution's assets. The Director of the OTS may waive or defer a savings
institution's interest rate risk component on a case-by-case basis. A savings
institution with assets of less than $300 million and risk-based capital ratios
in excess of 12% is not subject to the interest rate risk component, unless the
OTS determines otherwise. For the present time, the OTS has deferred
implementation of the interest rate risk component. If the Bank had been
subject to an interest rate risk capital component as of December 31, 1997 and
1996, the Bank's total risk-weighted capital would not have been subject to a
deduction based on interest rate risk. At December 31, 1997 and 1996, the Bank
met each of its capital requirements on a fully phased-in basis.
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At December 31, 1997 and 1996, the Bank was in compliance with the current
capital requirements as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------- ----------------------
Percent of Percent of
Amount Assets Amount Assets
----------- ----------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Stockholder's equity of the Bank $ 279,165 8.15% 273,545 8.52%
======== ========= =========
Tangible capital $ 232,109 6.88% 219,080 6.96%
Tangible capital requirement 50,605 1.50 47,202 1.50
---------- -------- --------- ----------
Excess $ 181,504 5.38% 171,878 5.46%
========== ======== ========= ==========
Core capital 232,109 6.88% 219,080 6.96%
Core capital requirement 101,210 3.00 94,404 3.00
---------- -------- --------- ----------
Excess 130,899 3.88% 124,676 3.96%
========== ======== ========= ==========
Core and supplementary capital $ 247,280 14.34% 235,057 15.05%
Risk-based capital requirement 137,906 8.00 124,943 8.00
---------- -------- --------- ----------
Excess $ 109,374 6.34% 110,114 7.05%
========== ======== ========= ==========
Total Bank assets $3,424,182 3,209,058
Adjusted total Bank assets 3,373,667 3,146,788
Total risk-weighted assets 1,774,644 1,624,489
Adjusted total risk-weighted assets 1,723,824 1,561,782
Investment in Bank's real estate subsidiaries 15,351 20,184
Goodwill and core deposit intangible 31,330 34,368
</TABLE>
The following table reflects the Bank's regulatory capital as of December 31,
1997 as it relates to these three capital requirements:
<TABLE>
<CAPTION>
Risk-
Tangible Core Based
---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Stockholder's equity of the Bank $ 279,165 279,165 279,165
Goodwill and core deposit intangible (31,330) (31,330) (31,330)
Non-permissible subsidiary deduction (15,351) (15,351) (15,351)
Non-includible purchased mortgage servicing rights (249) (249) (249)
Regulatory capital adjustment for available for sale securities (126) (126) (126)
Land loans greater than 80% loan-to-value - - (304)
General allowance for loan losses - - 15,475
---------- --------- ----------
Regulatory capital $ 232,109 232,109 247,280
========== ========= ==========
</TABLE>
Prompt Corrective Regulatory Action. Under the OTS prompt corrective action
regulations, the OTS is required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the
institution's degree of undercapitalization. Generally, a savings institution
is considered "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10%, its ratio of Tier I (core) capital to risk-weighted
assets is at least 6%, its ratio of core capital to total assets is at least 5%,
and it is not subject to any order or directive by the OTS to meet a specific
capital level. A savings institution generally is considered "adequately
capitalized" if its ratio of total capital to risk-weighted assets is at least
8%, its ratio of Tier I (core) capital to risk-weighted assets is at least 4%,
and its ratio of core capital to total assets is at least 4% (3% if the
institution receives the highest CAMEL rating). A savings institution that has
a ratio of total capital to weighted assets of less of than 8%, a ratio of Tier
I (core) capital to risk-weighted assets of less than 4% or a ratio of core
capital to total assets of less than
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4% (3% or less for institutions with the highest examination rating) is
considered to be "undercapitalized." A savings institution that has a total
risk-based capital ratio less than 6%, a Tier 1 risk-based capital ratio of less
than 3% or a leverage ratio that is less than 3% is considered to be
"significantly undercapitalized," and a savings institution that has a tangible
capital to assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
"critically undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date a savings
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
Insurance of Deposit Accounts. The FDIC has adopted a risk-based deposit
insurance system that assesses deposit insurance premiums according to the level
of risk involved in an institution's activities. An institution's risk category
is based upon whether the institution is classified as "well capitalized,"
"adequately capitalized" or "undercapitalized" and one of three supervisory
subcategories within each capital group. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation and information
which the FDIC determines to be relevant to the institution's financial
condition and the risk posed to the deposit insurance fund. Based on its
capital and supervisory subgroups, each Bank Insurance Fund ("BIF") and SAIF
member institution is assigned an annual FDIC assessment rate, with an
institution in the highest category (i.e., well-capitalized and healthy)
receiving the lowest rates and an institution in the lowest category (i.e.,
undercapitalized and posing substantial supervisory concern) receiving the
highest rates. The FDIC has authority to further raise premiums if deemed
necessary. If such action is taken, it could have an adverse effect on the
earnings of the Bank.
On September 30, 1996, the President signed the Deposit Insurance Funds Act of
1996 (the "Funds Act"), which, among other things, imposed a special one-time
assessment on SAIF members, including the Bank, to recapitalize the SAIF. The
SAIF was undercapitalized due primarily to a statutory requirement that SAIF
members make payments on bonds issued in the late 1980's by the Financing
Corporation ("FICO") to recapitalize the predecessor to SAIF. As required by
the Funds Act, the FDIC imposed a special assessment of 65.7 basis points on
SAIF assessable deposits held as of March 31, 1995, payable November 27, 1996.
The special assessment recorded by the Bank amounted to $14.2 million on a pre-
tax basis, and $8.7 million on an after-tax basis, and was reflected in the
quarter ended September 30, 1996.
The Funds Act also spreads the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits
were assessed for a FICO payment of 1.3 basis points, while SAIF deposits paid
6.48 basis points. Full pro rata sharing of the FICO payments between BIF and
SAIF members will occur on the earlier of January 1, 2000 or the date the BIF
and SAIF are merged. The Funds Act specifies that the BIF and SAIF will be
merged on January 1, 1999, provided no savings associations remain as of that
time.
As a result of the Funds Act, the FDIC Act, the FDIC voted to effectively
lower SAIF assessments to 0 to 27 basis points as of January 1, 1997. The
Bank's assessment rate for the year ended December 31, 1997 was the lowest
available to well-capitalized financial institutions. The premium paid for this
period was $1.5 million. A significant increase in SAIF insurance premiums
would likely have an adverse effect on the operating expenses and results of
operations of the Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC
55
<PAGE>
or the OTS. The management of the Bank does not know of any practice, condition
or violation that might lead to termination of deposit insurance.
Thrift Rechartering Legislation. The Funds Act provides that the BIF and
SAIF will merge on January 1, 1999 if there are no more savings associations as
of that date. Various proposals to eliminate the federal thrift charter, create
a uniform financial institutions charter and abolish the OTS have been
introduced in Congress. Some bills would require federal savings institutions
to convert to a national bank or some type of state charter by a specified date,
or they would automatically become national banks. Under some proposals,
converted federal thrifts would generally be required to conform their
activities to those permitted for the charter selected and divestiture of
nonconforming assets would be required over a two year period, subject to two
possible one year extensions. State charted thrifts would become subject to the
same federal regulation as applies to state commercial banks. A more recent
bill passed by the House Banking Committee would allow federal savings
institutions to continue to exercise activities being conducted when they
convert to a bank regardless of whether a national bank could engage in the
activity. Holding companies for savings institutions would become subject to
the same regulation as holding companies that control commercial banks, with
some limited grandfathering, including for savings and loan holding company
activities. The grandfathering would be lost under certain circumstances such
as a change in control of the Company. The Company is unable to predict whether
such legislation would be enacted or the extent to which the legislation would
restrict or disrupt its operations.
Loans to One Borrower. Under the HOLA, savings institutions are generally
subject to the limits on loans to one borrower applicable to national banks.
Generally, savings institutions may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if such loan is secured by readily-marketable collateral, which is
defined to include certain financial instruments and bullion. At December 31,
1997, the Bank's limit on loans to one borrower was $34.8 million. At December
31, 1997, the Bank's largest aggregate outstanding balance of loans to any one
borrower was $16.2 million.
QTL Test. The HOLA requires savings institutions to meet a QTL test. Under
the QTL test, a savings and loan association is required to either qualify as a
"domestic building and loan association" under the Internal Revenue Code or
maintain at least 65% of its "portfolio assets" (total assets less (i) specified
liquid assets up to 20% of total assets; (ii) intangibles, including goodwill;
and (iii) the value of property used to conduct business) in certain "qualified
thrift investments" (primarily residential mortgages and related investments,
including certain mortgage-backed securities) in at least 9 months out of each
12 month period. A savings institution that fails the QTL test is subject to
certain operating restrictions and may be required to convert to a bank charter.
As of December 31, 1997, the Bank maintained 93.2% of its portfolio assets in
qualified thrift investments and, therefore, met the QTL test.
Limitation on Capital Distributions. OTS regulations impose limitations upon
all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in capital requirements before and after a proposed capital
distribution ("Tier 1 Bank") and has not been advised by the OTS that it is in
need of more than normal supervision, could, after prior notice but without
obtaining approval of the OTS, make capital distributions during a calendar year
equal to the greater of (i) 100% of its net earnings to date during the calendar
year plus the amount that would reduce by one-half its "surplus capital ratio"
(the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year or (ii) 75% of its net income for the previous
four quarters. Any additional capital distributions would require prior
regulatory approval. In the event the Bank's capital fell below its regulatory
requirements or the OTS notified it that it was in need of more than normal
supervision, the Bank's ability to make
56
<PAGE>
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice. At December 31, 1997, the Bank is
considered a Tier 1 Bank.
Liquidity. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage of its net withdrawable deposit accounts plus short-term borrowings.
This liquidity requirement was 5% for 1997 but was recently lowered to 4% and
may be changed from time to time by the OTS to any amount within the range of 4%
to 10% depending upon economic conditions and the savings flows of member
institutions. OTS regulations also required each member savings institution to
maintain an average daily balance of short-term liquid assets at a specified
percentage (1% during 1997) of the total of its net withdrawable deposit
accounts and borrowings payable in one year or less. Monetary penalties may be
imposed for failure to meet these liquidity requirements. This short term
liquid asset requirement was recently eliminated. The Bank's liquidity and
short-term liquidity ratios for December 31, 1997 were 6.4% and 5.68%
respectively, which exceeded the then applicable requirements. The Bank has
never been subject to monetary penalties for failure to meet its liquidity
requirements.
Assessments. Savings institutions are required to pay assessments to the OTS
to fund the agency's operations. The general assessment, paid on a semi-annual
basis, is computed upon the savings institution's total assets, including
consolidated subsidiaries, as reported in the Bank's latest quarterly thrift
financial report. The assessments paid by the Bank for the twelve months ended
December 31, 1997 totaled $483,000.
Branching. OTS regulations permit nationwide branching by federally
chartered savings institutions to the extent allowed by federal statute. This
permits federal savings institutions to establish interstate networks and to
geographically diversify their loan portfolios and lines of business. The OTS
authority preempts any state law purporting to regulate branching by federal
savings institutions.
Transactions with Related Parties. The Bank's authority to engage in
transactions with related parties or "affiliates" (e.g., any company that
controls or is under common control with an institution, including the Company
and its non-savings institution subsidiaries) is limited by Sections 23A and 23B
of the Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of
covered transactions with any individual affiliate to 10% of the capital and
surplus of the savings institution. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in Section 23A, and
the purchase of low quality assets from affiliates is generally prohibited.
Section 23B generally provides that certain transactions with affiliates,
including loans and asset purchases, must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to the institution as those prevailing at the time for comparable
transactions with non-affiliated companies. In addition, savings institutions
are prohibited from lending to any affiliate that is engaged in activities that
are not permissible for bank holding companies and no savings institution may
purchase the securities of any affiliate other than a subsidiary.
The Bank's authority to extend credit to executive officers, directors and 10%
shareholders, as well as entities such persons control, is governed by Sections
22(g) and 22(h) of the FRA and Regulation O thereunder. Among other things,
such loans are generally required to be made on terms substantially the same as
those offered to unaffiliated individuals and to not involve more than the
normal risk of repayment. Regulation O also places individual and aggregate
limits on the amount of loans the Bank may make to such persons based, in part,
on the Bank's capital position and requires certain board approval procedures to
be followed.
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<PAGE>
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all "institution-affiliated parties," including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of proceedings for receivership, conservatorship or
termination of deposit insurance. Civil penalties cover a wide range of
violations and may amount to $25,000 per day, or even $1 million per day in
especially egregious cases. Under the FDI Act, the FDIC has the authority to
recommend to the Director of the OTS enforcement action to be taken with respect
to a particular savings institution. If action is not taken by the Director,
the FDIC has authority to take such action under certain circumstances. Federal
law also establishes criminal penalties for certain violations.
Standards for Safety and Soundness. The federal banking agencies have adopted
Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") and a final rule to implement safety and soundness standards
required under the FDI Act. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The
standards set forth in the Guidelines address internal controls and information
systems; internal audit system; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; asset quality; earnings and
compensation, fees and benefits. If the appropriate federal banking agency
determines that an institution fails to meet any standard prescribed by the
Guidelines, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance with the standard, as required by the FDI
Act. The final rule establishes deadlines for the submission and review of such
safety and soundness compliance plans when such plans are required.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of 12 regional FHLBs.
The FHLB provides a central credit facility primarily for member institutions.
The Bank, as a member of the FHLB of Chicago, is required to acquire and hold
shares of capital stock in that FHLB in an amount at least equal to 1% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB-Chicago, whichever is greater. At December 31, 1997, the Bank was
in compliance with this requirement, with an investment in FHLB of Chicago stock
of $33.0 million. FHLB of Chicago advances must be secured by specified types
of collateral and may be obtained primarily for the purpose of providing funds
for residential housing finance.
The FHLBs are required to provide funds to cover certain obligations on bonds
issued to fund the resolution of insolvent thrifts and to contribute funds for
affordable housing programs. These requirements could reduce the amount of
dividends that the FHLBs pay to their members and could also result in the FHLBs
imposing a higher rate of interest on advances to their members. For the year
ended December 31, 1997, six months ended December 31, 1996, and the years ended
June 30, 1996 and 1995, dividends from the FHLB of Chicago to the Bank amounted
to $2.0 million, $1.1 million, $1.3 million and $656,000, respectively. If FHLB
dividends were reduced, or interest on future FHLB advances increased, the
Bank's net interest income might also be reduced.
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<PAGE>
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to maintain
non-interest earning reserves against their transaction accounts (primarily NOW
and regular checking accounts). The Federal Reserve Board regulations generally
require that reserves be maintained against aggregate transaction accounts as
follows: for accounts aggregating $47.8 million or less (subject to adjustment
by the Federal Reserve Board) the reserve requirement is 3%; and for accounts
greater than $47.8 million, the reserve requirement is $1.5 million plus 10%
(subject to adjustment by the Federal Reserve Board between 8% and 14%) against
that portion of total transaction accounts in excess of $47.8 million. The
first $4.7 million of otherwise reservable balances (subject to adjustments by
the Federal Reserve Board) are exempted from the reserve requirements. The Bank
is in compliance with the foregoing requirements. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy liquidity requirements imposed by the OTS.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
This Statement supersedes FASB Statements No. 76, "Extinguishment of Debt," No.
77, "Reporting by Transferors for Transfers of Receivables with Recourse," and
amends No. 122, "Accounting for Mortgage Servicing Rights," No. 65, "Accounting
for Certain Mortgage Banking Activities," and No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 125 provides standards
based on the application of a "financial-components approach" to transfers and
servicing of financial assets and extinguishments of liabilities. The approach
is focused on control of assets and liabilities existing after transfers of
financial assets whereby an entity recognizes the assets it controls and the
liabilities it has incurred and derecognizes the assets it no longer controls
and the liabilities it has extinguished. SFAS No. 125 provides standards to
determine whether transfers of financial assets are to be accounted for as sales
or secured borrowings. The Company adopted the provisions of SFAS No. 125, as
amended by SFAS No. 127, "Deferral of the Effective Date of Certain Provisions
of FASB Statement No. 125," in 1997. The adoption did not have a significant
impact on the Company's consolidated financial condition or results of
operations.
In February 1997, FASB issued SFAS No. 128, "Earnings Per Share." SFAS No.
128 supersedes APB Opinion No. 15, "Earnings Per Share," and specifies the
computation, presentation, and disclosure requirements for earnings per share
(EPS). It replaces the presentations of primary EPS with a presentation of
basic EPS, and replaces fully-diluted EPS with diluted EPS, and requires a
reconciliation of the numerator and denominator of the two EPS computations.
The Company adopted the provisions of SFAS No. 128 as of December 31, 1997, and
as required, restated all prior period EPS data to conform with the provisions
of SFAS No. 128.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 is effective for both interim and annual
periods beginning after December 15, 1997, and is not expected to have a
material impact on the consolidated financial statements of the Company.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to shareholders. SFAS No. 131 is effective for financial periods
beginning after December 15, 1997, and is not expected to have a material impact
on the consolidated financial statements of the Company.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As part of its normal operations, the Bank is subject to interest-rate risk on
the interest-sensitive assets it invests in and the interest-sensitive
liabilities it borrows. The Bank's asset/liability management committee
("ALCO"), which includes members of senior management, monitors and determines
the strategy of managing the rate and sensitivity repricing characteristics of
the individual asset and liability portfolios the Bank maintains. The overall
goal is to manage this interest rate risk to most efficiently utilize the Bank's
capital, as well as to maintain an acceptable level of change to its net
portfolio value ("NPV"), and net interest income. The Bank's strategy is to
minimize the impact of sudden and sustained changes in interest rates on NPV and
its net interest margin.
The Bank's exposure to interest rate risk is reviewed at least quarterly by
the ALCO and the Board of Directors of the Company. Interest rate risk exposure
is measured using interest rate sensitivity analysis to determine the Bank's
change in NPV in the event of hypothetical changes in interest rates, as well as
interest rate sensitivity gap analysis, which monitors the repricing
characteristics of the Bank's interest-earning assets and interest-bearing
liabilities. The Board of Directors has established limits to changes in NPV
and net interest income across a range of hypothetical interest rate changes. If
estimated changes to NPV and net interest income are not within these limits,
the Board may direct management to adjust its asset/liability mix to bring its
interest rate risk within Board limits.
In an effort to reduce its interest rate risk, the Bank has focused on
strategies limiting the average maturity of its assets by emphasizing the
origination of adjustable-rate mortgage loans, consumer loans and to a lesser
extent, variable-rate mortgage and asset-backed securities. The Bank, from time
to time, also invests in long-term fixed-rate mortgages to the extent it can
adequately match such investments against liabilities, provided it is
compensated with an acceptable spread. Because the Bank's loans are generally
underwritten within the guidelines of FNMA, the Bank can quickly change its
investment strategy with longer-term fixed rate mortgage loans by selling them
into the secondary market without disrupting its origination operations.
Interest rate sensitivity analysis is used to measure the Bank's interest rate
risk by calculating the estimated change in the NPV of its cash flows from
interest sensitive assets and liabilities, as well as certain off-balance sheet
items, in the event of a series of sudden and sustained changes in interest
rates ranging from 100 to 400 basis points. Management assumes that a 200 basis
point movement up or down is considered reasonable and plausible for purposes of
managing its interest-rate risk on a day-to-day basis. NPV is the market value
of portfolio equity and is computed as the difference between the market value
of assets and the market value of liabilities, adjusted for the value of off-
balance sheet items. The following table presents the Bank's projected change
in NPV for the various rate shocks as of December 31, 1997. The Bank does not
maintain any securities for trading purposes.
<TABLE>
<CAPTION>
ESTIMATED INCREASE
(DECREASE) IN NPV
CHANGE IN ESTIMATED ---------------------
INTEREST RATE NPV AMOUNT PERCENT
- --------------------------------- --------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C>
400 basis point rise $185,672 $(153,924) (45)%
300 basis point rise 235,063 (104,533) (31)
200 basis point rise 280,016 (59,580) (18)
100 basis point rise 316,590 (23,006) (7)
Base scenario 339,596 -- --
100 basis point decline 351,081 11,485 3
200 basis point decline 357,262 17,666 5
300 basis point decline 366,087 26,491 8
400 basis point decline 384,357 44,761 13
</TABLE>
60
<PAGE>
The NPV is calculated by the Bank using guidelines established by the OTS
related to interest rates, loan prepayment rates, deposit decay rates and market
values of certain assets under the various interest rate scenarios. These
assumptions should not be relied upon as indicative of actual results due to the
inherent shortcomings of the NPV analysis. These shortcomings include (i) the
possibility that actual market conditions could vary from the assumptions used
in the computation of NPV, (ii) certain assets, including adjustable-rate loans,
have features which affect the potential repricing of such instruments, which
may vary from the assumptions used, and (iii) the likelihood that as interest
rates are changing, the ALCO would likely be changing strategies to limit the
indicated changes in NPV as part of its management process.
In addition to the NPV analysis above, the Bank utilizes an interest rate
sensitivity gap analysis to monitor the relationship of maturing or repricing
interest-earning assets and interest-bearing liabilities, while maintaining an
acceptable interest rate spread. Interest rate sensitivity gap is defined as
the difference between the amount of interest-earning assets maturing or
repricing within a specific period of time and the amount of interest-bearing
liabilities maturing or repricing within that same period of time, and is
usually analyzed at a period of one year. Generally, a negative gap, where more
interest-bearing liabilities are repricing or maturing than interest-earning
assets, would tend to result in a reduction in net interest income in a period
of rising interest rates. Conversely, during a period of falling interest
rates, a negative gap would likely result in an improvement in net interest
income. Management's goal is to maintain its cumulative one-year gap within the
range of (15)% to 15%. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Asset/Liability Management" for further
analysis.
The Bank does not currently engage in trading activities or use derivative
instruments in a material amount to control interest rate risk. In addition,
interest rate risk is the most significant market risk affecting the Bank.
Other types of market risk, such as foreign currency exchange risk and commodity
price risk, do not arise in the normal course of the Company's business
activities and operations.
61
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MAF BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------- -------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 39,721 45,732
Interest-bearing deposits 57,197 55,285
Federal funds sold 50,000 24,700
Investment securities, at amortized cost (fair value of $26,222
at December 31, 1997 and $72,855 at December 31, 1996) 25,268 72,040
Investment securities available for sale, at fair value 119,510 69,049
Stock in Federal Home Loan Bank of Chicago, at cost 33,025 30,729
Mortgage-backed securities, at amortized cost (fair value of
$216,867 at December 31, 1997 and $266,340 at December 31, 1996) 215,449 266,658
Mortgage-backed securities available for sale, at fair value 67,559 92,929
Loans receivable held for sale 6,537 6,495
Loans receivable, net of allowance for loan losses of $15,475
at December 31, 1997, and $17,914 at December 31, 1996 2,700,590 2,423,618
Accrued interest receivable 20,970 20,457
Foreclosed real estate 489 1,257
Real estate held for development or sale 31,197 28,112
Premises and equipment, net 35,820 32,302
Goodwill 24,606 26,347
Other assets 29,726 34,631
---------- ---------
$3,457,664 3,230,341
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits 2,337,013 2,262,226
Borrowed funds 770,013 632,897
Subordinated capital notes, net 26,779 26,709
Advances by borrowers for taxes and insurance 22,679 18,442
Accrued expenses and other liabilities 37,769 39,442
---------- ---------
Total liabilities 3,194,253 2,979,716
Stockholders' equity:
Preferred stock, $.01 par value; authorized
5,000,000 shares; none issued or outstanding - -
Common stock, $.01 par value; authorized 60,000,000 shares;
16,947,536 shares issued and 15,012,857 outstanding at
December 31, 1997; 16,878,302 shares issued and 15,734,733
outstanding at December 31, 1996 169 112
Additional paid-in capital 172,201 171,732
Retained earnings, substantially restricted 129,002 95,412
Unrealized gain on securities available for sale, net of tax 1,552 138
Treasury stock, at cost; 1,934,679 shares at December 31, 1997
and 1,143,569 shares at December 31, 1996 (39,513) (16,769)
---------- ---------
Total stockholders' equity 263,411 250,625
Commitments and contingencies ---------- ---------
$3,457,664 3,230,341
========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
62
<PAGE>
MAF BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, Year Ended June 30,
December 31, --------------------- ---------------------
1997 1996 1995 1996 1995
-------- ------- ------ ------- --------
(unaudited)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $198,805 91,783 53,317 115,466 86,511
Mortgage-backed securities 16,934 9,830 4,079 11,187 15,705
Mortgage-backed securities available for sale 5,172 3,538 5,047 7,104 4,042
Investment securities 5,213 3,772 2,055 4,171 3,674
Investment securities available for sale 5,143 1,440 855 1,982 1,367
Interest-bearing deposits and federal funds sold 7,648 2,464 1,536 3,185 3,664
-------- ------- ------ ------- --------
Total interest income 238,915 112,827 66,889 143,095 114,963
Interest expense:
Deposits 98,581 47,967 30,451 63,325 55,794
Borrowed funds and subordinated capital notes 46,635 20,664 14,177 29,896 17,573
-------- ------- ------ ------- --------
Total interest expense 145,216 68,631 44,628 93,221 73,367
-------- ------- ------ ------- --------
Net interest income 93,699 44,196 22,261 49,874 41,596
Provision for loan losses 1,150 700 250 700 475
-------- ------- ------ ------- --------
Net interest income after provision for loan losses 92,549 43,496 22,011 49,174 41,121
Non-interest income:
Gain (loss) on sale and writedown of:
Loans receivable 419 264 178 203 (56)
Mortgage-backed securities 13 (296) 57 (5) -
Investment securities 404 251 45 188 (231)
Foreclosed real estate 17 161 21 50 181
Income from real estate operations 6,876 4,133 2,820 4,786 7,497
Deposit account service charges 7,217 3,219 2,370 4,894 3,347
Loan servicing fee income 2,278 1,249 1,164 2,394 2,373
Brokerage commissions 2,050 924 750 1,711 1,383
Other 3,443 2,054 1,349 2,879 2,156
-------- ------- ------ ------- --------
Total non-interest income 22,717 11,959 8,754 17,100 16,650
Non-interest expense:
Compensation and benefits 30,472 14,503 9,697 21,209 18,257
Office occupancy and equipment 6,203 2,652 1,755 3,774 3,522
Federal deposit insurance premiums 1,468 2,338 1,523 3,255 3,003
Special SAIF assessment - 14,216 - - -
Advertising and promotion 2,737 1,025 916 1,746 1,760
Data processing 2,098 1,032 760 1,683 1,473
Amortization of goodwill 1,341 679 - 113 -
Other 10,292 4,633 2,622 6,006 5,397
-------- ------- ------ ------- --------
Total non-interest expense 54,611 41,078 17,273 37,786 33,412
-------- ------- ------ ------- --------
Income before income taxes and extraordinary item 60,655 14,377 13,492 28,488 24,359
Income taxes 22,707 5,602 5,203 10,805 9,316
-------- ------- ------ ------- --------
Income before extraordinary item 37,948 8,775 8,289 17,683 15,043
Extraordinary item-loss on early extinguishment
of debt, net of tax benefit of $300 - - (474) (474) -
-------- ------- ------ ------- --------
Net income $ 37,948 8,775 7,815 17,209 15,043
======== ======= ====== ======= ========
Basic earnings per share:
Income before extraordinary item $ 2.46 .56 1.00 2.02 1.80
Extraordinary item, net of tax - - (.05) (.05) -
-------- ------- ------ ------- --------
Net income $ 2.46 .56 .95 1.97 1.80
======== ======= ====== ======= ========
Diluted earnings per share:
Income before extraordinary item $ 2.38 .54 .94 1.89 1.70
Extraordinary item, net of tax - - (.05) (.05) -
-------- ------- ------ ------- --------
Net income $ 2.38 .54 .89 1.84 1.70
======== ======= ====== ======= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
63
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
gain
(loss) on
securities
Additional available Common stock Common stock
Common paid-in Retained for sale, Treasury acquired by acquired by
stock capital earnings net of tax stock ESOP MRPs Total
------ ---------- -------- ------------- -------- ------------ ------------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 $ 54 27,347 72,117 -- (4,038) (146) (184) 95,150
Net income -- -- 15,043 -- -- -- -- 15,043
Exercise of 21,036 stock
options -- 78 -- -- -- -- -- 78
Purchase of treasury
shares -- -- -- -- (3,741) -- -- (3,741)
Tax benefits from
stock-related
compensation -- 219 -- -- -- -- -- 219
Principal payment on ESOP
loan -- -- -- -- -- 146 -- 146
Distribution of MRP stock
awards -- -- -- -- -- -- 184 184
Cumulative effect of
change in accounting for
securities available
for sale, net of tax -- -- -- (739) -- -- -- (739)
Change in unrealized gain
(loss) on securities
available for sale, net
of tax -- -- -- 691 -- -- -- 691
Cash dividends declared,
$0.194 per share -- -- (1,612) -- -- -- -- (1,612)
10% stock dividend 5 12,096 (12,101) -- -- -- -- --
--- ------- ------ --- ------ --- --- -------
Balance at June 30, 1995 59 39,740 73,447 (48) (7,779) -- -- 105,419
Net income --- -- 17,209 -- -- -- -- 17,209
Issuance of 7,791,850 shares,
including value of option
carryovers, for acquisition
of N.S. Bancorp 52 131,186 -- -- -- -- -- 131,238
Exercise of 4,830 stock
options -- 17 -- -- -- -- -- 17
Purchase of treasury
shares -- -- -- -- (8,761) -- -- (8,761)
Tax benefits from
stock-related
compensation -- 13 -- -- -- -- -- 13
Change in unrealized gain
(loss) on securities
available for sale, net
of tax -- -- -- (777) -- -- -- (777)
Cash dividends declared,
$0.213 per share -- -- (2,121) -- -- -- -- (2,121)
10% stock dividend
related to fractional
shares --- -- (11) -- -- -- -- (11)
-- ------- ------ --- ------ --- --- -------
Balance at June 30, 1996 111 170,956 88,524 (825) (16,540) -- -- 242,226
Net income -- -- 8,775 -- -- -- -- 8,775
Exercise of 237,492 stock
options 1 763 -- -- (229) -- -- 535
Tax benefits from
stock-related
compensation -- 13 -- -- -- -- -- 13
Change in unrealized gain
(loss) on securities
available for sale, net
of tax -- -- -- 963 -- -- -- 963
Cash dividends declared,
$0.12 per share -- -- (1,887) -- -- -- -- (1,887)
--- ------- ------ --- ------ --- --- -------
Balance at December 31,
1996 $112 171,732 95,412 138 (16,769) -- -- 250,625
--- ------- ------ --- ------ --- --- -------
(Continued)
</TABLE>
64
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(CONTINUED)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON SECURITIES
ADDITIONAL AVAILABLE COMMON STOCK COMMON STOCK
COMMON PAID-IN RETAINED FOR SALE, TREASURY ACQUIRED BY ACQUIRED BY
STOCK CAPITAL EARNINGS NET OF TAX STOCK ESOP MRPS TOTAL
------ ---------- -------- ------------- --------- ------------ ------------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $112 171,732 95,412 138 (16,769) - - 250,625
Net income - - 37,948 - - - - 37,948
Exercise of 77,861 stock
options, and reissuance
of treasury stock 1 409 (146) - (86) - - 178
Purchase of treasury shares - - - - (22,658) - - (22,658)
Tax benefits from stock-
related compensation - 60 - - - - - 60
Change in unrealized gain
(loss) on securities
available for sale, net
of tax - - - 1,414 - - - 1,414
Cash dividends declared,
$0.27 per share - - (4,143) - - - - (4,143)
50% stock dividend, including
impact of fractional shares 56 - (69) - - - - (13)
--- ------- ------- ----- -------- --- --- -------
Balance at December 31, 1997 $169 172,201 129,002 1,552 (39,513) - - 263,411
=== ======= ======= ===== ======== === === =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
65
<PAGE>
MAF BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------------
1997 1996 1996 1995
------------- ----------------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Operating activities:
Net income $37,948 8,775 17,209 15,043
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,117 1,395 1,996 1,825
Amortization of goodwill and core deposit intangible 2,637 1,388 235 --
Amortization of premiums, discounts and deferred loan fees (30) (989) (60) 632
Distribution of MRP awards -- -- -- 184
Provision for loan losses 1,150 700 700 475
FHLB of Chicago stock dividends -- -- -- (156)
Deferred income tax expense (benefit) 2,846 (314) 1,572 1,423
Extraordinary item, net of tax -- -- 474 --
Net gain on sale of loans, mortgage-backed securities,
and real estate held for development or sale (7,308) (4,101) (4,984) (7,441)
(Gain) loss on sale of investment securities, net (404) (251) (188) 231
Increase in accrued interest receivable (513) (483) (1,849) (777)
Net (increase) decrease in other assets and liabilities, net of
effects from purchase of NSBI (7,753) (5,485) 5,357 4,898
Loans originated for sale (29,109) (40,261) (157,961) (77,307)
Loans purchased for sale (74,746) (14,195) (93,271) (31,221)
Sale of mortgage-backed securities available for sale 3,371 8,232 41,188 --
Sale of loans originated and purchased for sale 102,718 57,428 267,394 92,246
--------- -------- -------- --------
Net cash provided by operating activities 33,924 11,839 77,812 55
--------- -------- -------- --------
Investing activities:
Loans originated for investment (812,117) (258,230) (473,257) (348,553)
Principal repayments on loans receivable 706,608 265,982 393,909 231,108
Principal repayments on mortgage-backed securities 76,750 42,808 69,790 49,583
Proceeds from maturities of investment securities available for sale 59,070 7,211 34,002 137
Proceeds from maturities of investment securities held to maturity 54,518 32,360 101,194 27,507
Proceeds from sale of:
Loans receivable 1,354 82 1,805 2,466
Investment securities available for sale 8,073 1,956 1,155 6,516
Mortgage-backed securities available for sale -- 16,603 -- --
Stock in Federal Home Loan Bank of Chicago 6,299 -- 300 --
Real estate held for development or sale 47,339 25,194 16,184 19,455
Premises and equipment 174 28 1 55
Purchases of:
Loans receivable held for investment (178,781) (157,351) (269,796) (126,124)
Investment securities available for sale (115,175) (39,330) (31,111) (6,960)
Investment securities held to maturity (6,866) (1,502) (21,715) (16,938)
Mortgage-backed securities available for sale -- -- -- (10,003)
Stock in Federal Home Loan Bank of Chicago (8,595) -- (8,300) (3,122)
Real estate held for development or sale (33,966) (18,137) (7,297) (12,588)
Premises and equipment (6,832) (2,452) (4,282) (2,599)
Payment for purchase of NSBI, net of cash acquired -- -- (174,730) --
--------- --------- -------- --------
Net cash used in investing activities (202,147) (84,778) (372,148) (190,060)
--------- -------- -------- --------
(Continued)
</TABLE>
66
<PAGE>
MAF BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------------
1997 1996 1996 1995
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Financing activities:
Proceeds from:
FHLB of Chicago advances $275,000 230,000 205,000 150,000
Unsecured term bank loan -- -- 35,000 --
Issuance of subordinated capital
notes, net -- -- 26,629 --
Repayments of:
FHLB of Chicago advances (95,000) (170,000) (45,000) --
Unsecured term bank loan (500) -- -- --
Subordinated capital notes -- -- (20,900) --
Collateralized mortgage obligations (7,700) (5,566) (6,038) (6,477)
Net increase (decrease) in
reverse repurchase agreements (35,000) 40,000 (56,910) 15,000
Net decrease in other borrowings -- -- -- (3,518)
Net increase in deposits 74,915 8,383 68,375 20,775
Increase in advances by borrowers
for taxes and insurance 4,237 1,386 809 2,901
Issuance of common stock in
conjunction with acquisition -- -- 131,238 --
Proceeds from exercise of stock options 178 535 17 78
Purchase of treasury stock (22,658) -- (6,299) (3,741)
Cash dividends paid (4,048) (943) (2,531) (1,213)
-------- -------- ------- -------
Net cash provided by
financing activities 189,424 103,795 329,390 173,805
-------- -------- ------- -------
Increase (decrease) in cash and
cash equivalents 21,201 30,856 35,054 (16,200)
Cash and cash equivalents at
beginning of year 125,717 94,861 59,807 76,007
-------- -------- ------- -------
Cash and cash equivalents at end
of year $146,918 125,717 94,861 59,807
======== ======= ======= ======
Supplemental disclosure of cash
flow information:
Cash paid during the year for:
Interest on deposits and
borrowed funds $146,102 68,986 96,294 72,426
Income taxes 23,535 5,400 9,150 6,450
Summary of non-cash transactions:
Transfer of loans receivable to
foreclosed real estate 2,937 1,478 515 1,016
Loans receivable swapped into
mortgage-backed securities 3,358 8,213 41,195 --
Investment securities
transferred to available for
sale -- -- 17,999 16,004
Mortgage-backed securities
transferred to available for
sale -- -- 108,743 77,827
Investment securities of NSBI
transferred to treasury stock -- -- 2,462 --
Treasury stock received for
option exercises 262 229 -- --
======== ======== ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
67
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, DECEMBER 31, 1996, JUNE 30, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include
the accounts of MAF Bancorp, Inc. ("Company") and its two wholly-owned
subsidiaries, Mid America Bank, fsb ("Bank") and MAF Developments, Inc., as well
as the Bank's wholly-owned subsidiaries, Mid America Development Services, Inc.
("Mid America Developments"), Mid America Finance Corporation ("MAFC"), Mid
America Insurance Agency, Inc., Mid America Mortgage Securities, Inc., NW
Financial, Inc. ("NW Financial"), and Northwestern Acceptance Corporation
("NWAC"). All significant intercompany balances and transactions have been
eliminated in consolidation. As of December 31, 1996, the Company changed its
year-end to coincide with a calendar year, as opposed to the June 30 year-end it
followed in the past.
Use of Estimates. The preparation of the 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.
Investment and Mortgage-Backed Securities. All investment securities and
mortgage-backed securities are classified in one of three categories: trading,
held to maturity, or available for sale. Trading securities include investment
and mortgage-backed securities which the Company has purchased and holds for the
purpose of selling in the future. These investments are carried at fair value,
with unrealized gains and losses reflected in income in the current period. Held
to maturity securities include investment and mortgage-backed securities which
the Company has the positive intent and ability to hold to maturity. These
investments are carried at amortized cost, with no recognition of unrealized
gains or losses in the financial statements. All other investment and mortgage-
backed securities are classified as available for sale. These investments are
carried at fair value, with unrealized gains and losses reflected in
stockholders' equity, net of tax.
Amortization of premiums, accretion of discounts, and the amortization of
purchase accounting adjustments for investment and mortgage-backed securities
acquired are recognized in interest income over the period to maturity for
investment securities, or the estimated life of mortgage-backed securities using
the level-yield method. Gains and losses on sales of investment securities,
mortgage-backed securities, and equity securities are determined using the
specific identification method.
The Bank arranges for "swap" transactions with the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC")
which involve the exchange of whole mortgage loans originated by the Bank for
mortgage-backed securities. These securities are generally categorized as
available for sale as they are usually sold in conjunction with the Bank's
mortgage banking strategy.
Upon adoption of Statement of Financial Accounting Standards ("SFAS") No. 115
as of July 1, 1994, the Company transferred $16.0 million of investment
securities and $77.8 million of mortgage-backed securities into the available
for sale category. The unrealized loss at the date of transfer was $1.2
million. In accordance with an implementation guide to SFAS No. 115 issued in
November 1995, the Company transferred $18.0 million of investment securities
and $108.7 million of mortgage-backed securities on December 31, 1995, from held
to maturity to available for sale. The unrealized loss was $267,000 at the date
of transfer. The transfers in both years were made to provide additional
flexibility for the Company in managing its investment and liquidity positions.
68
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Loans receivable held for sale. The Bank sells, generally without recourse,
whole loans and participation interests in mortgage loans which it originates.
Loans originated are identified as either held for investment or sale upon
origination. Loans which the Bank intends to sell before maturity are
classified as held for sale, and are carried at the lower of cost, adjusted for
applicable deferred loan fees or expenses, or estimated market value in the
aggregate.
The Bank enters into forward commitments to sell mortgage loans primarily with
FNMA to deliver mortgage loans originated by the Bank at a specific time and
specific price in the future. Loans subject to forward sales are classified as
held for sale. Unrealized losses, if any, on forward commitments are included
in gain (loss) on sale of mortgage loans in the period the loans are committed.
Loans Receivable. Loans receivable are stated at unpaid principal balances
less unearned discounts, deferred loan origination fees, loans in process and
allowance for loan losses.
Discounts on loans receivable are amortized to interest income using the
level-yield method over the remaining period to contractual maturity, adjusted
for anticipated prepayments. Amortization of purchase accounting discounts are
being amortized over the contractual term of loans receivable acquired, adjusted
for anticipated prepayments, using the level-yield method.
Loan fees and certain direct loan origination costs are deferred, and the net
deferred fee or cost is recognized as an adjustment to yield using the level-
yield method over the contractual life of the loans.
The Bank considers a loan impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan. For loans which are not
individually significant (i.e. loans under $750,000), and represent a
homogeneous population, the Bank evaluates impairment collectively based on
management reports on the level and extent of delinquencies, as well as
historical loss experience for these types of loans. The Bank uses this
criteria on one-to four-family residential loans, consumer loans, multi-family
residential loans, and land loans. Impairment for loans considered individually
significant and commercial real estate loans are measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate, or the fair value of the collateral if the loan is collateral dependent.
One commercial real estate loan was classified as impaired under the Company's
impairment criteria as of December 31, 1997. The same loan was considered
impaired at December 31, 1996. Charge-offs of principal occur when a loss has
deemed to have occurred as a result of the book value exceeding the fair value
or net realizable value.
A loan (whether considered impaired or not) is classified as non-accrual when
collectibility is in doubt, and is normally analyzed upon the borrower becoming
90 days past due on contractual principal or interest payments. When a loan is
placed on non-accrual status, or in the process of foreclosure, previously
accrued but unpaid interest is reversed against interest income. Income is
subsequently recorded to the extent cash payments are received, or at a time
when the loan is brought current in accordance with its original terms.
Allowance for Loan Losses. The allowance for loan losses is increased by
charges to operations and decreased by charge-offs, net of recoveries. The
allowance for loan losses reflects management's estimate of the reserves needed
to cover the risks inherent in the Bank's loan portfolio. In determining a
proper level of loss reserves, management periodically evaluates the adequacy of
the allowance based on the Bank's past loan loss experience, known and inherent
risks in the loan portfolio, adverse situations that may affect the borrower's
ability to repay, estimated value of any underlying collateral, and current and
prospective economic conditions.
69
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Foreclosed Real Estate. Real estate properties acquired through, or in lieu
of, loan foreclosure to be sold and are initially recorded at the lower of
carrying value or fair value less the cost to sell at the date of foreclosure,
establishing a new cost basis. Valuations are periodically performed by
management and an allowance for loss is established by a charge to operations if
the carrying value of a property exceeds its estimated fair value less cost to
dispose.
Real Estate Held for Development or Sale. Real estate properties held for
development or sale, are carried at the lower of cost, including capitalized
holding costs or net realizable value. Gains and losses on individual lot sales
in a particular development are based on cash received less the estimated cost
of sales per lot. Cost of sales is calculated as the current investment in the
particular development plus anticipated costs to complete the development, which
includes interest capitalized, divided by the remaining number of lots to be
sold. Periodic estimates are made as to a development's cost to complete. Per
unit cost of sales estimates are adjusted on a prospective basis when, and if,
estimated costs to complete change.
Premises and Equipment. Land is carried at cost. Buildings, leasehold
improvements, furniture, fixtures, and equipment are carried at cost, less
accumulated depreciation and amortization. Buildings, furniture, fixtures, and
equipment are depreciated using the straight-line method over the estimated
useful lives of the assets. Useful lives are 20 to 50 years for office
buildings, 10 to 15 years for parking lot improvements, and 2 to 10 years for
furniture, fixtures, and equipment. The cost of leasehold improvements is being
amortized using the straight-line method over the lesser of the life of the
leasehold improvement or the term of the related lease.
Intangibles. Included in other assets is an identifiable core deposit
intangible established in the acquisition of N.S. Bancorp in May 1996, with an
original value of $8.8 million, which was established due to the application of
the purchase method of accounting and is being amortized over a 10 year period
on an accelerated method of amortization. The remaining core deposit intangible
was $6.7 million, and $8.0 million, as of December 31, 1997 and 1996,
respectively. Amortization expense amounted to $1.3 million for the year ended
December 31, 1997, $709,000 for the six months ended December 31, 1996, and
$122,000 for the year ended June 30, 1996.
The excess of cost over fair value of net assets and identified intangible
assets acquired (goodwill), with an original value of $27.0 million, is being
amortized over 20 years using the straight-line method. The remaining goodwill
balance was $24.6 million, and $26.3 million, as of December 31, 1997 and 1996,
respectively. Amortization expense amounted to $1.3 million for the year ended
December 31, 1997, $679,000 for the six months ended December 31, 1996, and
$113,000 for the year ended June 30, 1996.
The Company reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The impairment is measured based on the
present value of expected future cash flows from the use of the asset and its
eventual disposition. If expected future cash flows are less than the carrying
amount of the asset, an impairment loss is recognized based on current fair
values.
70
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Mortgage Servicing Rights. SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." provides
guidance for the recognition of mortgage servicing rights as a separate asset,
regardless of how these rights are acquired. SFAS No. 125 also requires the
measurement of impairment of servicing rights based on the difference between
carrying value and fair value. Previous to July 1, 1996, the Company recognized
mortgage servicing rights for only those rights which it purchased.
Mortgage servicing rights are initially capitalized upon acquisition, and are
subsequently amortized over the estimated life of the loan servicing income
stream, using the level-yield method. The Bank conducts periodic impairment
analysis by evaluating the present value of the future economic benefit to be
derived from the servicing rights using current information regarding interest
rates, prepayment assumptions, and the cost to service such loans. For purposes
of measuring impairment, the mortgage servicing rights are stratified based on
the predominant risk characteristics of the underlying loans. The Bank
stratifies loans by interest rate, maturity, and whether the loans are fixed or
adjustable rate. An impairment is recognized in the amount by which the
capitalized servicing rights for a specific stratum exceeds its fair value.
Borrowed Funds. Discounts and premiums on collateralized mortgage obligations
are amortized using the level-yield method over the remaining contractual
maturities of the underlying mortgage-backed security collateral, adjusted for
estimated prepayments. The discount on subordinated capital notes is amortized
using the level-yield method over the life of the notes.
Income Taxes. The Company and its subsidiaries file a consolidated federal
income tax return. Deferred income taxes are provided for all significant items
of income and expense that are recognized in different periods for financial
reporting purposes and income tax reporting purposes. The asset and liability
approach is used for the financial accounting and reporting of income taxes.
This approach requires companies to take into account changes in the tax rates
when valuing the deferred income tax accounts recorded on the balance sheet. In
addition, it provides that a deferred tax liability or asset shall be recognized
for the estimated future tax effects attributable to "temporary differences" and
loss and tax credit carryforwards. Temporary differences include differences
between financial statement income and tax return income which are expected to
reverse in future periods as well as differences between tax bases of assets and
liabilities and their amounts for financial reporting purposes which are also
expected to be settled in future periods. To the extent a deferred tax asset is
established which more likely than not is not expected to be realized, a
valuation allowance shall be established against such asset.
Derivative Financial Instruments. The Company utilizes forward commitments to
sell mortgage loans and interest rate futures contracts, primarily U.S. Treasury
bond futures, as part of its mortgage loan origination hedging strategy. Gains
and losses on open and closed futures positions are deferred and recognized as
an adjustment to gain (loss) on the sale of loans receivable when the underlying
loan being hedged is sold into the secondary market.
Restrictions on Cash. Based on the types and amounts of deposits received,
the Bank maintains vault cash and non-interest bearing cash balances in
accordance with Federal Reserve Bank reserve requirements. The Bank's reserve
requirement was $-0- and $2.9 million at December 31, 1997 and 1996,
respectively.
71
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Earnings Per Share. SFAS No. 128, "Earnings per Share," was issued in February
1997. This statement was effective in the fourth quarter of 1997. All periods
presented have been adjusted to conform to SFAS No. 128. In accordance with SFAS
No. 128, earnings per share is determined by dividing net income for the period
by the weighted average number of shares outstanding. Stock options are regarded
as common stock equivalents and are considered in the earnings per share
calculations, and are the only adjustment made to average shares outstanding in
computing diluted earnings per share. Common stock equivalents are computed
using the treasury stock method. Weighted average shares used in calculating
earnings per share are summarized below for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Six Months Ended December 31, 1996
------------------------------------------------- ---------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------- --------------- -------------- ------------ ---------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item $ 37,948 $ 8,775
Extraordinary item, net of tax - -
Basic earnings per share: -------- --------
Income available to
common shareholders 37,948 15,421,606 $ 2.46 8,775 15,663,066 $ .56
Effect of dilutive securities: ====== ======
Options 511,029 619,407
Diluted earnings per share: ---------- ----------
Income available to common
shareholders plus assumed
conversions $ 37,948 15,932,635 $ 2.38 $ 8,775 16,282,473 $ .54
======== ========== ====== ======== ========== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1996 Year Ended June 30, 1995
------------------------------------------------- ---------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------- --------------- -------------- ------------ ---------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item $ 17,683 $15,043
Extraordinary item, net of tax (474) -
-------- -------
Basic earnings per share:
Income available to
common shareholders 17,209 8,738,010 $ 1.97 15,043 8,335,818 $ 1.80
====== ======
Effect of dilutive
securities:
Options 619,415 532,493
---------- ------------
Diluted earnings per share:
Income available to common
shareholders plus assumed
conversions $ 17,209 9,357,425 $ 1.84 $15,043 8,868,311 $ 1.70
======== ========== ====== ======= ============ ======
</TABLE>
Statement of Cash Flows. For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks, interest-bearing deposits and
federal funds sold. Generally, federal funds are sold for one-day periods and
interest-bearing deposits mature within one day to three months.
Reclassifications. Certain reclassifications of prior year amounts have been
made to conform with the current year presentation.
72
<PAGE>
MAF BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. INVESTMENT SECURITIES
Investment securities available for sale and held to maturity are
summarized below:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------------------------ ----------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
------------ ---------- ---------- ------- --------- ---------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY:
United States government
and agency obligations due:
Within one year $ 10,000 - (9) 9,991 17,445 - (10) 17,435
After one year to five years - - - - 10,000 - (215) 9,785
After five years to ten years 14,844 963 - 15,807 19,659 662 - 20,321
Ten or more years - - - - 24,334 378 - 24,712
Other investment securities 424 - - 424 602 - - 602
-------- ------- -------- --------- ------- ------- ------ -------
$ 25,268 963 (9) 26,222 72,040 1,040 (225) 72,855
======== ======= ======== ========= ======= ======= ====== =======
AVAILABLE FOR SALE:
United States government
and agency obligations due:
Within one year $ 15,870 2 (17) 15,855 22,983 - (84) 22,899
After one year to five years 5,010 42 - 5,052 12,998 - (84) 12,914
After five to ten years 29,985 60 - 30,045 - - - -
After ten or more years 10,000 - (19) 9,981 - - - -
Marketable equity securities 11,622 2,401 - 14,023 13,140 779 (15) 13,904
Asset-backed securities 43,973 88 (6) 44,055 18,274 5 - 18,279
Other investment securities 500 - (1) 499 1,061 - (8) 1,053
-------- ------- -------- --------- ------- ------- ------ -------
$116,960 2,593 (43) 119,510 68,456 784 (191) 69,049
======== ======= ======== ========= ======= ======= ====== =======
Weighted average yield 6.13% 6.53%
======== =======
</TABLE>
Proceeds from the sale of investment securities available for sale were $8.1
million, $2.0 million, $1.2 million, and $6.5 million for the year ended
December 31, 1997, six months ended December 31,1996, and years ended June 30,
1996 and 1995, respectively. For the year ended December 31, 1997, and six
months ended December 31, 1996, and year ended June 30, 1996, gross realized
gains were $404,000, $251,000, and $188,000, respectively. For the year ended
June 30,1995, gross realized gains were $199,000, and gross realized losses were
$430,000.
3. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities available for sale and held to maturity are
summarized below:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------------------------------- ---------------------------------------------
Gross Gross Gross Gross
Book Unrealized Unrealized Fair Book Unrealized Unrealized Fair
Value Gains Losses Value Value Gains Losses Value
--------- ---------- ----------- ------- -------- ---------- ----------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY:
GNMA pass-through certificates $ 2,442 161 (2) 2,601 3,248 156 (11) 3,393
FHLMC pass-through certificates 108,037 3,257 (335) 110,959 138,963 3,108 (981) 141,090
FNMA pass-through certificates 22,796 583 (296) 23,083 29,343 645 (307) 29,681
Collateralized mortgage obligations 82,174 25 (1,975) 80,224 95,104 55 (2,983) 92,176
-------- ----- ------ ------- ------- ----- ------ -------
$215,449 4,026 (2,608) 216,867 266,658 3,964 (4,282) 266,340
======== ===== ====== ======= ======= ===== ====== =======
AVAILABLE FOR SALE:
FHLMC pass-through certificates $ 5,617 113 (24) 5,706 7,336 100 (11) 7,425
FNMA pass-through certificates 9,264 347 (1) 9,610 11,642 393 (6) 12,029
Collateralized mortgage obligations 52,659 153 (569) 52,243 74,303 52 (880) 73,475
-------- ----- ------ ------- ------- ----- ------ -------
$ 67,540 613 (594) 67,559 93,281 545 (897) 92,929
======== ===== ====== ======= ======= ===== ====== =======
Weighted average yield 6.98% 6.95%
======== =======
</TABLE>
73
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Bank swaps certain loans it originates into mortgage-backed securities.
Included in mortgage-backed securities at December 31, 1997 and December 31,
1996, are $16.0 million, and $20.0 million, respectively, of loans originated by
the Bank. During the year ended December 31, 1997, six months ended December
31, 1996, and the year ended June 30, 1996, the Bank swapped $3.4 million, $8.2
million and $41.2 million, respectively, all of which were sold in the same
period swapped. There was no swap activity for the year ended June 30, 1995.
Proceeds from the sale of mortgage-backed securities available for sale
(exclusive of the above swap activity) were $-0-, and $16.6 million for the year
ended December 31, 1997, and six months ended December 31, 1996, respectively.
Gross realized losses were $301,000 for the six months ended December 31, 1996.
There were no sales during the years ended June 30, 1996 and 1995.
4. LOANS RECEIVABLE
<TABLE>
<CAPTION>
Loans receivable are summarized as follows:
DECEMBER 31,
--------------------------
1997 1996
----------- ----------
(Dollars in thousands)
<S> <C> <C>
Real estate loans:
One-to-four family residential $2,408,393 2,160,525
Multi-family 105,051 92,968
Commercial 35,839 46,313
Construction 17,263 17,263
Land 24,425 25,685
---------- ---------
Total real estate loans 2,590,971 2,342,754
Unearned discounts, premiums, and deferred loan fees, net 772 (1,347)
Loans in process (6,256) (7,312)
---------- ---------
2,585,487 2,334,095
Other loans:
Consumer loans:
Equity lines of credit 88,106 86,614
Home equity loans 34,447 14,251
Other 5,793 5,009
---------- ---------
Total consumer loans 128,346 105,874
Commercial business loans 2,659 1,871
---------- ---------
Total other loans 131,005 107,745
Loans in process (427) (308)
---------- ---------
130,578 107,437
---------- ---------
2,716,065 2,441,532
Allowance for loan losses (15,475) (17,914)
---------- ---------
$2,700,590 2,423,618
========== =========
Weighted average yield 7.75% 7.79%
========== =========
</TABLE>
Adjustable-rate loans totaled $1.7 billion at December 31, 1997 and 1996.
74
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Activity in the allowance for loan losses is summarized as follows for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------
1997 1996 1996 1995
------- ------------ ------ ------
(In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $17,914 17,254 9,197 8,779
Provision for loan losses 1,150 700 700 475
Balance acquired in merger -- 7,722 --
Charge-offs (3,712) (66) (376) (110)
Recoveries 123 26 11 53
------ ------ ------ -------
Balance at end of period $15,475 17,914 17,254 9,197
====== ====== ====== =======
</TABLE>
At December 31, 1997 and 1996, June 30, 1996 and 1995, the Bank had
$8.5 million, $11.8 million, $6.1 million and $2.1 million, respectively, of
loans which were on non-accrual status. Interest income that would have been
recorded on non-accrual loans amounted to $663,000, $573,000, $631,000 and
$468,000 for the year ended December 31, 1997, six months ended December 31,
1996 and the years ended June 30, 1996 and 1995, respectively, had these loans
been accruing under their contractual terms. Interest income that was included
in net income was $120,000, $150,000, $313,000, and $285,000, for the year ended
December 31, 1997, six months ended December 31, 1996 and the years ended June
30, 1996 and 1995, respectively.
At December 31, 1996, the Bank had a $2.9 million second mortgage on a
commercial office park, which it considered impaired, and a corresponding
specific allowance for loan loss of $1.5 million. Subsequently, the Bank funded
an additional $500,000 of debt in 1997, and reassessed the collateral's fair
value upon obtaining updated financial information. During 1997, the Bank
charged-off $2.9 million of this loan, leaving a balance of $500,000. In
addition to the second mortgage, the Bank has issued a standby letter of credit
that collateralizes the first mortgage on this property, which is a long-term
industrial revenue bond for $6.5 million. Upon receipt of title, the Bank will
assume the obligations of the first mortgage. At December 31, 1997 and 1996,
this was the Bank's only impaired loan.
The Bank services loans for its own account and for the benefit of others
pursuant to loan servicing agreements. Pursuant to these agreements, the Bank
typically collects from the borrower monthly payments of principal and interest,
as well as funds for the payment of real estate taxes and insurance. The Bank
retains its loan servicing fee from these payments and remits the balance of the
principal and interest payments to the various investors. Mortgage loans
serviced for others are not included in the accompanying consolidated statements
of financial condition. The unpaid principal balances of these loans were $997.2
million, $1.05 billion, $1.04 billion and $887.9 million at December 31, 1997,
December 31, 1996, June 30, 1996 and 1995, respectively. Non-interest bearing
custodial balances maintained in connection with mortgage loans serviced for
others and included in deposits were $21.6 million and $16.0 million at December
31, 1997 and 1996, respectively.
Activity in mortgage servicing rights is as follows for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------------
1997 1996 1996 1995
--------- -------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $2,028 1,840 1,160 119
Additions 904 344 933 1,150
Amortization (438) (156) (253) (109)
------ ----- ----- --------
Balance at end of period $2,494 2,028 1,840 1,160
====== ===== ===== ========
</TABLE>
75
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1997 1996
----------------- ------------------
(In thousands)
<S> <C> <C>
Investment securities $ 1,826 1,975
Mortgage-backed securities 2,060 2,633
Loans receivable 17,940 16,899
Reserve for uncollected interest (856) (1,050)
------- ------
$20,970 20,457
======= ======
</TABLE>
6. REAL ESTATE HELD FOR DEVELOPMENT OR SALE
Real estate held for development or sale is summarized by project as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1997 1996
----------------- ------------------
(In thousands)
<S> <C> <C>
Woodbridge $ 3,498 8,348
Reigate Woods 5,314 6,263
Harmony Grove 4,856 4,164
Fields of Ambria 1,243 1,800
Creekside of Remington 1,662 1,760
Ashbury 50 122
Clow Creek Farm 128 717
Woods of Rivermist 154 546
Tallgrass of Naperville 14,292 4,392
------- ------
31,197 28,112
======= ======
</TABLE>
Income from real estate operations is summarized by project for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1997 1998 1996 1995
------------ ------------ --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Woodbridge $ 3,452 349 86 --
Reigate Woods 610 826 98 --
Harmony Grove 1,588 760 -- --
Fields of Ambria -- 156 17 --
Creekside of Remington 16 -- 81 9
Ashbury 290 1,624 1,392 5,364
Clow Creek Farm 700 261 3,536 1,711
Woods of Rivermist 220 157 -- 374
Scott's Crossing -- -- -- 39
Other -- -- (424) --
------- ---------- --------- --------
6,876 4,133 4,786 7,497
======= ========== ========= ========
</TABLE>
The loss of $424,000 in the year ended June 30, 1996 represents the write-off
of capitalized costs on a parcel of land which the Company decided not to
exercise its option to purchase.
76
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Information regarding revenues, expenses, and minority interest in earnings is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------------
1997 1996 1996 1995
---------- ----------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Gross lot sale revenues $43,167 23,885 15,688 15,584
Cost of sales 34,419 18,091 10,220 7,584
------- ------ ------ ------
Gross margin from lot sales 8,748 5,794 5,468 8,000
Other -- -- (424) --
Minority interest in gross margin (1,872) (1,661) (258) (503)
------- ------ ------ ------
$ 6,876 4,133 4,786 7,497
======= ====== ====== ======
</TABLE>
Non-interest expense related to real estate operations was $505,000, $306,000,
$446,000, and $325,000, for the year ended December 31, 1997, six months ended
December 31, 1996, and years ended June 30, 1996 and 1995, respectively.
Interest capitalized to real estate held for development or sale amounted to
$308,000, $271,000, $579,000 and $665,000, for the year ended December 31, six
months ended December 31, 1996 and years ended June 30, 1996 and 1995,
respectively.
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- --------
(In thousands)
<S> <C> <C>
Land $ 6,371 6,458
Office buildings 25,986 23,712
Furniture, fixtures and equipment 20,499 17,456
Parking lot improvements 687 685
Leasehold improvements 1,248 816
-------- -------
Total office properties and equipment, at cost 54,791 49,127
Less: accumulated depreciation and amortization (18,971) (16,825)
-------- -------
$ 35,820 32,302
======== =======
</TABLE>
Depreciation and amortization of premises and equipment, included in data
processing expense and office occupancy and equipment expense was $3.1 million,
$1.4 million, $2.0 million and $1.8 million, for the year ended December 31,
1997, six months ended December 31, 1996 and years ended June 30, 1996 and 1995,
respectively.
77
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. DEPOSITS
Deposit account balances by interest rate are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------------------------------ ---------------------------------------------
WEIGHTED WEIGHTED
% OF AVERAGE % OF AVERAGE
AMOUNT TOTAL RATE AMOUNT TOTAL RATE
----------------- ------------- ------------- ------------------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial checking accounts $ 40,016 1.7% --% $ 30,789 1.4% --%
Non-interest bearing checking 45,787 2.0 --% 35,552 1.6 --
Interest bearing NOW accounts 163,403 7.0 1.42 151,457 6.7 1.64
Money market accounts 140,280 6.0 3.46 130,200 5.8 3.34
Passbook accounts 650,316 27.8 2.80 665,493 29.4 2.86
---------- --------- ---------- ----------
1,039,802 44.5 2.44 1,013,491 44.9 2.55
---------- --------- ---------- ----------
Certificate accounts:
3.00% to 3.99% 774 0.1 2.86 2,968 0.1 3.00
4.00% to 4.99% 30,512 1.2 4.83 47,897 2.1 4.77
5.00% to 5.99% 939,265 40.2 5.55 886,984 39.2 5.39
6.00% to 6.99% 286,476 12.3 6.21 244,510 10.8 6.35
7.00% to 7.99% 12,048 0.5 7.21 25,918 1.1 7.18
8.00% to 8.99% 26,834 1.1 8.53 39,072 1.7 8.54
9.00% to 10.99% 1,302 0.1 9.03 1,258 0.1 9.03
---------- --------- ---------- ----------
1,297,211 55.5 5.76 1,248,607 55.1 5.69
---------- --------- ---------- ----------
Unamortized premium -- -- 128 --
---------- --------- ---------- ----------
Total deposits 2,337,013 100.0% 2,262,226 100.0%
========= ====== ========== ==========
Weighted average
interest rate at period end 4.28% 4.28%
===== =====
<CAPTION>
Scheduled maturities of certificate accounts at December 31, 1997 are as follows (in thousands):
<S> <C>
12 months or less $ 971,534
13 to 24 months 205,303
25 to 36 months 70,746
Over 36 months 49,628
----------
$1,297,211
==========
<CAPTION>
Interest expense on deposit accounts is summarized as follows for the periods indicated:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED JUNE 30,
1997 1996 1996 1995
---------- --------- ---------- --------
(In thousands)
NOW and money market accounts $ 6,834 3,286 6,376 6,393
Passbook accounts 18,765 9,683 8,967 8,289
Certificate accounts 72,982 34,998 47,982 41,112
---------- --------- ------ --------
$ 98,581 47,967 63,325 55,794
========== ========= ====== ========
</TABLE>
78
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $159.8 million, $142.5 million, $136.2 million and $90.8 million at
December 31, 1997 and 1996, June 30, 1996 and 1995, respectively.
At December 31, 1997, U.S. Treasury Notes, FHLMC and FNMA mortgage-backed
securities, as well as mortgage loans with an aggregate carrying value and
market value of $16.3 million, were pledged as collateral for certain jumbo
certificates.
9. BORROWED FUNDS
<TABLE>
<CAPTION>
Borrowed funds are summarized as follows:
WEIGHTED AVERAGE
INTEREST RATE AMOUNT
---------------- -----------
DECEMBER 31, DECEMBER 31,
---------------- ------------
1997 1996 1997 1996
----- ----- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Fixed rate advances from FHLB of Chicago due:
Within 12 months 6.72% 6.28 $ 95,000 55,000
13 to 24 months 6.31 6.77 190,000 70,000
25 to 36 months 6.63 6.30 105,000 115,000
37 to 48 months 6.41 6.63 165,000 105,000
49 to 60 months 5.97 6.50 55,000 90,000
61 to 72 months 6.39 6.10 500 5,000
Greater than 72 months -- 6.39 -- 500
-------- -------
Total fixed rate advances 6.43 6.49 610,500 440,500
Adjustable rate advances from FHLB of Chicago due:
Within 12 months -- 5.86 -- 40,000
13 to 24 months 5.79 -- 25,000 --
Greater than 24 months 5.69 -- 25,000 --
-------- -------
Total adjustable rate advances 5.74 5.86 50,000 40,000
-------- -------
Total advances from FHLB of Chicago 6.37 6.44 660,500 480,500
-------- -------
Collateralized mortgage obligations:
Issued by MAFC due 2018 11,204 14,087
Unamortized discount (654) (1,021)
-------- -------
12.08 10.90 10,550 13,066
-------- -------
Issued by NWAC due 2018 19,480 24,304
Unamortized premium 179 223
-------- -------
8.05 8.30 19,659 24,527
-------- -------
Total collateralized mortgage obligations, net 30,209 37,593
-------- -------
Fixed-rate reverse repurchase agreements 6.31 6.55 44,804 79,804
Unsecured term bank loan 6.72 6.63 34,500 35,000
-------- -------
Total borrowed funds 6.51% 6.63 770,013 632,897
===== ===== ======== =======
</TABLE>
79
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Bank has adopted a collateral pledge agreement whereby the Bank has agreed
to at all times keep on hand, free of all other pledges, liens, and
encumbrances, first mortgages with unpaid principal balances aggregating no less
than 167% of the outstanding secured advances from the Federal Home Loan Bank
("FHLB") of Chicago. All stock in the FHLB of Chicago is pledged as additional
collateral for these advances. At December 31, 1997, adjustable rate advances
adjust at the three month London interbank offering rate ("LIBOR") less .12%.
The Bank issued collateralized mortgage obligations ("CMOs") in 1988 through
MAFC. The CMOs are collateralized by mortgage-backed securities of the Bank.
Substantially all of the collections of principal and interest from the
underlying collateral are paid through to the holders of the CMOs. The CMOs
were issued in four traunches. The actual maturity of each traunche of the CMO
varies depending upon the timing of cash receipts from the underlying
collateral. At December 31, 1997 and 1996, the CMOs are secured by mortgage-
backed securities of the Bank with a carrying value of $11.1 million and $14.0
million and a fair value of $11.7 million and $14.5 million, respectively. For
the year ended December 31, 1997, the six months ended December 31, 1996, and
the years ended June 30, 1996 and 1995, the effective annual cost of the CMOs
was approximately 11.72%, 11.07%, 11.24% and 11.13%, respectively.
Through acquisition, the Bank has CMOs which were issued by NWAC in 1988. The
CMOs were issued in two classes, which have floating interest rates tied to
LIBOR. The CMOs are collateralized by mortgage-backed securities of the Bank.
Substantially all of the collections of principal and interest from the
underlying collateral are paid through to the holders of the CMOs. At December
31, 1997, and 1996, the CMOs are secured by mortgage-backed securities of the
Bank with a carrying value of $19.4 million and $24.1 million and fair value of
$20.5 million and $25.2 million, respectively. For the year ended December 31,
1997, the six months ended December 31, 1996, and the year ended June 30, 1996,
the effective annual cost of the CMOs was approximately 8.24%, 8.30% and 8.05%,
respectively.
The Bank enters into sales of securities under agreements to repurchase the
identical securities ("reverse repurchase agreements") with nationally
recognized primary securities dealers and are treated as financings. The
securities underlying the agreements are delivered to the dealers who arrange
the transaction and are reflected as assets. The following table presents
certain information regarding reverse repurchase agreements as of and for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31 -------------------
1997 1996 1996 1995
------------- ---------------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Balance at end of period $44,804 79,804 39,804 27,675
Maximum month-end balance 79,804 79,804 78,826 27,675
Average balance 72,571 68,717 18,619 16,626
Weighted average rate at end of period 6.31% 6.55 6.74 5.96
Weighted average rate on average balance 6.43 6.50 7.25 5.79
======= ====== ====== ======
</TABLE>
At December 31, 1997 and 1996, reverse repurchase agreements were
collateralized by investment and mortgage-backed securities with a carrying
value of $48.2 million and $84.1 million and a market value of $48.7 million and
$83.6 million, respectively. At December 31, 1997, the reverse repurchase
agreements have maturities ranging from 5 to 20 months.
80
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company obtained a $35.0 million unsecured term bank loan in conjunction
with its acquisition of NSBI. The loan provides for an interest rate of the
prime rate or 1% over one, two or three-month LIBOR at management's discretion
adjustable and payable at the end of the repricing period. The loan currently
carries an interest rate of 1% over three-month LIBOR. The loan is convertible
all or in part, with certain limitations at the end of any repricing period, at
management's election to a fixed rate at 1.25% over the U.S. Treasury rate with
a maturity corresponding to the remaining term of the loan. At December 31,
1997, the balance of the unsecured term loan is $34.5 million. Prepayments of
principal are allowed, but fixed-rate portions are subject to penalty. In
conjunction with the term bank loan, the Company also maintains a $15.0 million
one year unsecured revolving line of credit which is renewable annually on April
30. The interest rate on the line of credit is the prime rate or 1% over one,
two, or three-month LIBOR, at management's discretion with interest payable at
the end of the repricing period. The financing agreements contain covenants
that, among other things, requires the Company to maintain a minimum
stockholders' equity balance and to obtain certain minimum operating results, as
well as requiring the Bank to maintain "well capitalized" regulatory capital
levels and certain non-performing asset ratios. In addition, the Company has
agreed not to pledge any stock of the Bank or MAF Developments for any purpose.
At December 31, 1997, the Company was in compliance with these covenants.
Scheduled principal repayments of the unsecured term bank loan are as follows
as of December 31, 1997 (in thousands):
<TABLE>
<S> <C>
December 31, 1998 $ 1,500
December 31, 1999 3,100
December 31, 2000 4,500
December 31, 2001 7,000
December 31, 2002 9,200
December 31, 2003 9,200
-------
$34,500
=======
</TABLE>
Interest expense on borrowed funds and subordinated capital notes is
summarized as follows for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------
1997 1996 1996 1995
------------ ------------ ------ ------
(In thousands)
<S> <C> <C> <C> <C>
FHLB of Chicago advances $34,086 14,082 23,741 12,267
Collateralized mortgage obligations 3,163 1,822 2,058 2,236
Reverse repurchase agreements 4,642 2,393 1,466 971
Unsecured bank term loan 2,387 1,186 163
Subordinated capital notes 2,357 1,181 2,468 2,099
------- ------ ------ ------
$46,635 20,664 29,896 17,573
======= ====== ====== ======
</TABLE>
10. SUBORDINATED CAPITAL NOTES
During the year ended June 30, 1996, the Company refinanced its $20.9
million of 10% Subordinated Capital Notes due June 30, 2002 with $27.6 million
of 8.32% Subordinated Notes due September 30, 2005. The payment of principal and
interest on the current notes is subordinated at all times to any indebtedness
or liability of the Company outstanding or incurred after the date of issuance.
Costs incurred in the refinance transaction amounted to $1.0 million which were
deferred and are being accreted over the life of the notes to yield an effective
interest rate of 8.85%. The capital notes are
81
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
callable at the discretion of the Company at any time after September 30, 1998,
at par plus any accrued interest. The indenture provides for restrictions on
the amounts of additional indebtedness the Company may incur as well as the
amount of dividends and other distributions it may pay with respect to its
equity securities, depending on the Company's capital ratio. The refinance
transaction resulted in a $474,000, or $0.05 per share extraordinary charge to
earnings due to the early extinguishment of debt as a result of writing-off the
remaining unamortized transaction costs of $774,000, net of income taxes of
$300,000.
11. INCOME TAXES
Total income tax expense was allocated as follows for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1997 1996 1996 1995
------------ ---------------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Income from continuing operations $ 22,707 5,602 10,805 9,316
Extraordinary item -- -- (300) --
Stockholders' equity, for compensation
expense recognized for tax purposes in excess
of amounts for financial reporting purposes (60) (13) (13) (219)
Stockholders' equity, for change in unrealized
gain (loss) on marketable securities 916 605 (471) (32)
-------- ----- ------ -----
$ 23,563 6,194 10,021 9,065
======== ===== ====== =====
</TABLE>
Retained earnings at December 31, 1997, include $53.9 million of tax bad
debt reserves for which no provision for income taxes has been made. If in the
future this amount, or a portion thereof, is used for certain purposes other
than to absorb losses on bad debts, an income tax liability will be imposed on
the amount so used at the then current corporate income tax rate. If deferred
taxes were required to be provided on this item, the amount of this deferred tax
liability would be approximately $21.0 million.
Income tax expense (benefit) attributable to income from continuing
operations for periods indicated is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1997 1996 1996 1995
------------ ---------------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Current:
Federal $ 18,312 5,189 8,139 6,613
State 1,549 727 1,094 1,280
-------- ----- ------ -----
19,861 5,916 9,233 7,893
Deferred:
Federal 2,472 (257) 1,268 1,285
State 374 (57) 304 138
-------- ----- ------ -----
2,846 (314) 1,572 1,423
-------- ----- ------ -----
Total income tax expense attributed to
income from continuing operations $ 22,707 5,602 10,805 9,316
======== ===== ====== =====
</TABLE>
82
<PAGE>
MAF BANCORP INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The reasons for the differences between the effective income tax rate
attributable to income from continuing operations and the corporate federal
income tax rate are summarized in the following table:
<TABLE>
<CAPTION>
PERCENTAGE OF
INCOME BEFORE INCOME TAXES
---------------------------------------------------------------
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------------
1997 1996 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Federal income tax rate 35.0% 35.0 35.0 35.0
Items affecting effective income tax rate:
State income taxes, net of federal benefit 2.0 3.0 3.2 4.4
Other items, net 0.4 1.0 (0.3) (1.2)
---- ---- ---- ----
Effective income tax rate 37.4% 39.0 37.9 38.2
==== ==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Loan origination fees $ 549 593
Deferred compensation 2,729 2,485
Book general loan loss reserves 6,170 6,736
Book versus tax basis of real estate held for sale 512 1,325
Book versus tax state income tax expense 235 674
Book versus tax basis of loans receivable 1,663 2,466
Book versus tax basis of securities 71 403
Other 274 254
-------- -------
Total deferred tax assets 12,203 14,936
Deferred tax liabilities:
Loan origination fees (2,334) (1,589)
Excess of tax bad debt reserve over base year amount (1,666) (1,711)
Book versus tax state income tax expense (64) (55)
Book versus tax basis of real estate held for sale (137) (167)
Book versus tax basis of land and fixed assets (1,830) (1,787)
Book versus tax basis of capitalized servicing (870) (755)
Book versus tax basis of intangible assets (2,689) (3,208)
Book versus tax basis of securities (1,827) (1,119)
Other (176) (173)
-------- -------
Total deferred tax liabilities (11,593) (10,564)
Net deferred tax asset $ 610 4,372
======== =======
</TABLE>
The Company believes that it is more likely than not that the net
deferred tax asset will be realized, based on historical taxable income levels
and anticipated future earnings and taxable income levels. The Company has
reported federal taxable income and pre-tax book income amounts totaling
approximately $64 million and $75 million over the past 18 months respectively.
83
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES
The Bank is a defendant in various legal proceedings arising in the normal
course of business. In the opinion of management, based on the advise of legal
counsel, the ultimate resolution of these matters will not have a material
adverse effect on the Company's financial position.
The Bank is obligated under non-cancelable leases primarily for office
space. Rent expense under these leases for the year ended December 31, 1997,
the six months ended December 31, 1996, and the years ended June 30, 1996 and
1995, approximated $1.1 million, $265,000, $260,000 and $226,000, respectively.
The projected minimum rentals under existing leases (excluding lease
escalations) as of December 31, 1997, are as follows (in thousands):
1998 $1,143
1999 911
2000 907
2001 862
2002 852
Thereafter 2,875
------
Total $7,550
======
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires the disclosure of estimated fair values of all asset, liability and
off-balance sheet financial instruments. The estimated fair value amounts under
SFAS No. 107 have been determined as of a specific point in time utilizing
various available market information, assumptions and appropriate valuation
methodologies. Accordingly, the estimated fair values presented herein are not
necessarily representative of the underlying value of the Company. Rather the
disclosures are limited to reasonable estimates of the fair value of only the
Company's financial instruments. The use of assumptions and various valuation
techniques, as well as the absence of secondary markets for certain financial
instruments, will likely reduce the comparability of fair value disclosures
between financial institutions. The Company does not plan to sell most of its
assets or settle most of its liabilities at these fair values.
84
<PAGE>
MAF BANCORP INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The estimated fair values of the Company's financial instruments as of
December 31, 1997 and 1996 are set forth in the following table below.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ------------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 146,918 146,918 125,717 125,717
Investment securities 177,803 178,757 171,818 172,633
Mortgage-backed securities 283,008 284,426 359,587 359,269
Loans receivable 2,707,127 2,733,216 2,430,113 2,441,195
Interest receivable 20,970 20,970 20,457 20,457
---------- --------- --------- ---------
Total financial assets $3,335,826 3,364,287 3,107,692 3,119,271
========== ========= ========= =========
Financial liabilities:
Non-maturity deposits $1,039,802 1,039,802 1,013,491 1,013,491
Deposits with stated maturities 1,297,211 1,300,951 1,248,735 1,252,946
Borrowed funds 796,792 799,261 659,606 660,689
Interest payable 4,054 4,054 4,940 4,940
---------- --------- --------- ---------
Total financial liabilities $3,137,859 3,144,068 2,926,772 2,932,066
========== ========= ========= =========
</TABLE>
The following methods and assumptions are used by the Company in estimating
the fair value amounts for its financial instruments.
Cash and cash equivalents. The carrying value of cash and cash equivalents
approximates fair value due to the relatively short period of time between the
origination of the instruments and their expected realization.
Investment securities and mortgage-backed securities. The fair value of
these financial instruments were estimated using quoted market prices, when
available. If quoted market prices were not available, fair value was estimated
using quoted market prices for similar assets. The fair value of FHLB of
Chicago stock is based on its redemption value.
Loans receivable. The fair value of loans receivable held for investment
is estimated based on contractual cash flows adjusted for prepayment
assumptions, discounted using the current rate at which similar loans would be
made to borrowers with similar credit ratings and remaining terms to maturity.
The fair value of mortgage loans held for sale are based on estimated values
that could be obtained in the secondary market.
Interest receivable and payable. The carrying value of interest
receivable, net of the reserve for uncollected interest, and interest payable
approximates fair value due to the relatively short period of time between
accrual and expected realization.
Deposits. The fair value of deposits with no stated maturity, such as
demand deposit, passbook savings, NOW and money market accounts, are disclosed
as the amount payable on demand. The fair value of fixed-maturity deposits is
the present value of the contractual cash flows discounted using interest rates
currently being offered for deposits with similar remaining terms to maturity.
85
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Borrowed funds. The fair value of FHLB of Chicago advances and reverse
repurchase agreements is the present value of the contractual cash flows,
discounted by the current rate offered for similar remaining maturities. The
carrying value of the unsecured term bank loan approximates fair value due to
the short term to repricing and adjustable rate nature of the loan.
The fair values of the subordinated capital notes and CMO bonds payable were
estimated using quoted market prices.
Commitments to extend credit and standby letters of credit. The fair value
of commitments to extend credit is estimated based on current levels of interest
rates versus the committed rates. As of December 31, 1997 and 1996, the fair
value of the Bank's mortgage loan commitments of $173.9 million and $125.1
million, respectively, was $512,000 and $308,000, respectively, which represents
the differential between the committed value and value at current rates. The
fair value of the standby letters of credit approximate the recorded amounts of
related fees and are not material at December 31, 1997 and 1996.
Mortgage servicing rights. The fair value of mortgage servicing rights is
estimated based on the contractual terms of the servicing agreements and the
underlying mortgage loans, the current levels of interest rates, and assumed
prepayment rates on the underlying mortgage loans. As of December 31, 1997 and
1996, the estimated fair value of the Bank's purchased mortgage servicing rights
of $2.5 million and $2.0 million, was $2.8 million, and $2.4 million,
respectively. In addition, the estimated value of the mortgage servicing rights
related to the remaining loans serviced for others totaling $741.5 million and
$847.0 million as of December 31, 1997 and 1996, respectively, for which there
is no recorded balance, was $8.2 million and $11.1 million, respectively.
14. REGULATORY CAPITAL
The bank is subject to regulatory capital requirements under the OTS.
Failure to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions by regulators which could have a
material impact on the Bank's financial statements. under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance sheet items as calculated
under the regulatory accounting practices.
Quantitative measures established by the OTS to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios ( as set forth in the
table below) of three capital requirements: a tangible capital (as defined in
the regulations) to adjusted total assets ratio, a core capital (as defined) to
adjusted total assets ratio, and a risk-based capital (as defined) to total
risk-weighted assets ratio. Management believes, as of December 31, 1997, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997 and 1996, the most recent notification from the OTS
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain a minimum core capital to adjusted total assets, risk-based capital to
adjusted risk-weighted assets, and core capital to adjusted risk-weighted 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.
86
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Bank's actual capital amounts and ratios, as well as minimum amounts
and ratios required for capital adequacy and prompt corrective action provisions
are presented below:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------------ ------------------------ -------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Tangible capital
(to total assets) $232,109 6.88% *$ 50,605 *1.50% N/A
Core capital
(to total assets) $232,109 6.88% *$101,210 *3.00% *$168,683 * 5.00%
Total capital
(to risk-weighted assets) $247,280 14.34% *$137,906 *8.00% *$172,382 *10.00%
Core capital
(to risk-weighted assets) $232,109 13.46% N/A *$103,429 * 6.00%
As of December 31, 1996:
Tangible capital
(to total assets) $219,080 6.96% *$ 47,202 *1.50% N/A
Core capital
(to total assets) $219,080 6.96% *$ 94,404 *3.00% *$157,339 * 5.00%
Total capital
(to risk-weighted assets) $235,057 15.05% *$124,943 *8.00% *$156,178 *10.00%
Core capital
(to risk-weighted assets) $219,080 14.03% N/A *$ 93,707 * 6.00%
</TABLE>
- -------------------
* Denotes greater than or equal to.
OTS regulations require that in meeting the tangible, core and risk-based
capital standards, institutions must generally deduct investments in and loans
to subsidiaries engaged in activities not permissible for a national bank. For
the Bank, this includes its $15.4 million investment in Mid America Developments
and NW Financial at December 31, 1997, all of which the Bank must deduct from
regulatory capital for purposes of calculating its capital requirements.
The Bank is subject to certain annual restrictions on the amount of
dividends it may declare to the Company without prior regulatory approval, based
on its earnings and its excess capital over the minimum required for capital
adequacy purposes. At December 31, 1997, $58.0 million of the Bank's retained
earnings were available for dividend declaration without prior regulatory
approval.
87
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. OFFICER, DIRECTOR AND EMPLOYEE PLANS
Employee Stock Ownership Plan (ESOP)/Profit Sharing Plan/401(k) Plan. The
Mid America Bank, fsb ESOP covers substantially all employees with more than one
year of employment who have attained the age of 21. The ESOP borrowed $1.7
million form an unaffiliated third party bank and purchased 482,625 common
shares of the Company in the initial public offering. The ESOP loan was paid off
during the year ended June 30, 1995. Contributions to the ESOP by the Bank are
made to fund the principal and interest payments on any debt of the ESOP or to
purchase additional common shares of the Company's stock. For the year ended
December 31, 1997, six months ended December 31, 1996, and the years ended June
30, 1996 and 1995, total contributions to the ESOP were $750,000, $598,000,
$360,000, and $146,000, respectively. The company purchased 23,500, 34,500 , and
21,386 of its own shares on behalf of the ESOP during the year ended December
31, 1997, six months ended December 31, 1996, and year June 30, 1996,
respectively. No purchases of shares were made during the year ended June 30,
1995.
The Company also maintains the Mid America Bank, fsb Profit Sharing/401(k)
Plan. Employees are allowed to make pre-tax contributions of up to 15% of their
compensation and after-tax contributions of up to 10% of compensation, subject
to certain limitations. The Bank matches the pre-tax contributions of employees
at a rate equal to 35% of the first 4% of salary deferral up to $30,000 of
annual compensation, and 25% of the first 2% of salary deferral for annual
compensation over $30,000. The Bank, at its discretion, may make additional
contributions. Employees contributions vest immediately while the Bank's
contributions vest gradually based on an employee's years of service. The Bank
made discretionary and matching contributions of $700,000, $62,000, $360,000 and
$450,000 for the year ended December 31, 1997, six months ended December 31,
1996, and the years ended June 30, 1996 and 1995, respectively.
Stock Option Plans. The Company and its shareholders have adopted an incentive
stock option plan ("Incentive Plan") and a premium price stock option plan
("Premium Plan") for the benefit of employees and directors of the Bank.
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its stock option
plans. Accordingly, no compensation cost has been recognized for its Incentive
and Premium stock option plans. Had compensation cost for the Company's stock
option plans been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1997 1996 1996
------------ --------------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income As reported $37,948 8,775 17,209
Pro-forma 37,041 8,533 17,144
Basic earnings per share As reported 2.46 .56 1.97
Pro-forma 2.40 .54 1.96
Diluted earnings per share As reported 2.38 .54 1.84
Pro-forma 2.33 .52 1.82
======= ===== ======
</TABLE>
88
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The fair value of each option grant after June 30, 1995 was estimated using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the year ended December 31, 1997, the six
months ended December 31, 1996 and the year ended June 30, 1996, respectively:
dividend yield of 1.05%, 1.33% and 1.38%; expected volatility of 17.9%, 18.6%
and 27.5%; risk-free interest rates of 6.72%, 6.34% and 6.82%; expected life of
10 years for each period.
The number of shares of common stock authorized under the Incentive Plan is
1,085,194. The option exercise price must be at least 100% of the fair market
value of the common stock on the date of grant, and the option term cannot
exceed 10 years. A summary of the stock option activity and related information
in the Incentive Plan follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
YEAR ENDED SIX MONTHS ENDED --------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996 1996 1995
-------------------- -------------------- --------------------- --------------------
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of period 799,845 $ 4.87 746,745 $ 3.97 751,575 $ 3.96 772,613 $ 3.96
Granted 61,500 22.83 59,250 16.17 - - - -
Exercised (64,413) 5.13 (6,150) 4.49 (4,830) 3.48 (21,038) 3.71
-------- -------- -------- --------
End of period 796,932 $ 6.23 799,845 $ 4.87 746,745 $ 3.97 751,575 $ 3.96
======== ====== ======== ====== ======== ====== ======== ======
Options exercisable 755,114 $ 5.47 760,346 $ 4.28 746,745 $ 3.97 751,575 $ 3.96
======== ====== ======== ====== ======== ====== ======== ======
Fair value of options
granted during period $ 9.49 $6.52 $ - $ -
======== ======== ======== ========
</TABLE>
At December 31, 1997, options for 179,370 shares were available for grant
under the Incentive Plan.
The number of shares of common stock authorized under the Premium Plan is
371,250. The option exercise price equals 133% of the fair market value of the
common stock on the date of grant with respect to executive officers, 110% with
respect to directors and 100% with respect to non-executive officers. The
option term cannot exceed 10 years. A summary of the stock option activity and
related information in the Premium Plan follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
YEAR ENDED SIX MONTHS ENDED -----------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996 1996 1995
------------------- ------------------- -------------------- ------------------
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of period 225,878 $ 19.31 144,122 $ 18.03 79,086 $ 17.48 40,464 $ 17.53
Granted 34,297 30.07 81,756 21.56 65,036 18.69 38,622 17.43
Exercised (4,481) 17.84 - - - - - -
-------- -------- -------- -------
End of period 255,694 $ 20.78 225,878 $ 19.31 144,122 $ 18.03 79,086 $ 17.48
======== ======= ======== ======= ======== ======= ======= =======
Options exercisable 221,638 $ 20.70 140,945 $ 18.46 39,851 $ 17.50 13,490 $ 17.53
======== ======= ======== ======= ======== ======= ======= =======
Fair value of options
granted during period $ 8.10 $ 5.16 $5.35 $6.65
======== ======== ======== =======
</TABLE>
At December 31, 1997, options for 111,075 shares were available for grant
under the Premium Plan.
89
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Pursuant to the terms of the acquisition of NSBI, a total of 100,000 options
previously granted to employees of Northwestern were converted into options to
purchase 250,850 shares of the Company's common stock at an exercise price of
$3.19 per share. The value of these options was included in the purchase price
and added to additional paid-in capital in the consolidated statement of
financial condition. A total of 8,967 and 231,348 of these options were
exercised during the year ended December 31, 1997 and the six months ended
December 31, 1996, respectively, leaving 10,535 options outstanding at December
31, 1997.
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YRS.) PRICE EXERCISABLE PRICE
- --------------------------------- ----------- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3.19 to $ 5.66 675,522 2.44 $ 3.77 675,522 $ 3.77
9.19 to 18.64 208,785 6.85 16.94 186,785 16.99
21.50 to 30.37 178,854 8.61 23.63 124,980 24.28
---------- --------
1,063,161 4.34 $ 9.70 987,287 $ 8.87
========== ====== ======= ======== ========
</TABLE>
Management Recognition / Retention Plans. In conjunction with the Bank's
conversion, the Company formed two Management Recognition and Retention Plans
and Trusts ("MRPs"), each of which purchased 120,656 common shares of the
Company. The funds used to acquire the MRPs' shares were contributed by the
Bank. These shares are available for issuance to employees in key management
positions with the Bank. At December 31, 1997, there were no plan share awards
outstanding. An additional 220 shares owned by the MRPs have not yet been
awarded. For the year ended December 31, 1997, six months ended December 31,
1996 and the years ended June 30, 1996 and 1995, -0-, -0-, -0-, and 53,276
shares, respectively, were vested and distributed to employees. For the year
ended December 31, 1997, six months ended December 31, 1996 and the years ended
June 30, 1996 and 1995, $-0-, $-0-, $-0-, and $59,000, respectively, was
reflected as an expense.
Supplemental Executive Retirement Plan. During the year ended June 30, 1995,
the Bank adopted a supplemental executive retirement plan ("SERP") for the
purpose of providing certain retirement benefits to executive officers and other
corporate officers approved by the Board of Directors. The annual retirement
plan benefit under the SERP is calculated equal to 2% of final average salary
times the years of service after 1994. Ten additional years of service are
credited to participants in the event of a change in control transaction
although in no event may total years of service exceed 20 years. The maximum
annual retirement is equal to 40% of final average salary. Benefits are payable
in various forms in the event of retirement, death, disability and separation
from service, subject to certain conditions defined in the plan. The SERP also
provides for certain death benefits to the extent such amounts exceed a
participant's accrued benefit at the time of death. The Company has life
insurance policies which are intended to be used to satisfy obligations of the
SERP. For the year ended December 31, 1997, six months ended December 31, 1996
and the years ended June 30, 1996 and 1995, $360,000, $147,000, $258,000 and
$120,000, respectively, was reflected as an expense in the consolidated
financial statements for the SERP. The vested liability under the SERP was
approximately $461,000 and $264,000 at December 31, 1997 and 1996, respectively.
90
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Bank is a party to various financial instruments with off-balance sheet
risk in the normal course of its business. These instruments include
commitments to extend credit, standby letters of credit, and forward commitments
to sell loans. These financial instruments carry varying degrees of credit and
interest-rate risk in excess of amounts recorded in the financial statements.
Commitments to originate and purchase loans of $173.9 million at December 31,
1997, represent amounts which the Bank plans to fund within the normal
commitment period of 30 to 90 days of which $106.3 million were fixed-rate, with
rates ranging from 6.38% to 9.50%, and $67.6 million were adjustable-rate loans.
Because the credit worthiness of each customer is reviewed prior to extension of
the commitment, the Bank adequately controls their credit risk on these
commitments, as it does for loans recorded on the balance sheet. As part of its
effort to control interest-rate risk on these commitments, the Bank generally
sells fixed-rate mortgage loan commitments, for future delivery, at a specified
price and at a specified future date. Such commitments for future delivery
present a risk to the Bank, in the event it cannot deliver the loans during the
delivery period. This could lead to the Bank being charged a fee for non-
performance, or being forced to reprice the mortgage loans at a lower rate,
causing a loss to the Bank. The Bank seeks to mitigate this potential loss by
charging potential borrowers, at the time of application, a fee to fix the
interest rate, or by requiring the interest rate to float at market rates until
shortly before closing. At December 31, 1997, forward commitments to sell
mortgage loans for future delivery were $7.1 million, of which $6.5 million are
related to loans held for sale, and $600,000 are unfunded as of December 31,
1997.
Additionally, the Bank has approved, but unused, home equity lines of credit
of $79.3 million at December 31, 1997. Approval of equity lines is based on
underwriting standards that generally do not allow total borrowings, including
the equity line of credit to exceed 80% of the current appraised value of the
customer's home, which is similar to guidelines used when the Bank originates
first mortgage loans, and are a means of controlling its credit risk on the
loan. However, the Bank offers home equity lines of credit up to 100% of the
homes current appraised value, less existing liens, at a commensurate higher
interest rate.
At December 31, 1997, the Bank had standby letters of credit totaling $16.0
million. Two of these standby letters of credit total $13.3 million, and
enhance a developer's industrial revenue bond financings of commercial real
estate in the Bank's market. One of these, in the amount of $6.5 million, is
related to the impaired loan of the Bank. At December 31, 1997, the Bank had
pledged mortgage-backed securities and investment securities with an aggregate
carrying value and market value of $24.6 million and $25.4 million respectively,
as collateral for these two standby letters of credit. Standby letters of
credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. The credit risk involved in these
transactions is essentially the same as that involved in extending a loan to a
customer, as performance under the letters of credits creates a first position
lien in favor of the Bank. Additionally, at December 31, 1997, the Company had
11 standby letters of credit totaling $6.1 million, which insure the completion
of land development improvements on behalf of MAF Developments, Inc.
The contractual amounts of credit-related financial instruments such as
commitments to extend credit, and letters of credit represent the amounts of
potential accounting loss should the contract be fully drawn upon, the customer
default, and the value of any existing collateral become worthless.
91
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In addition to financial instruments with off-balance sheet risk, the Bank is
exposed to varying risks with concentrations of credit. Concentrations of credit
include significant lending activities in specific geographical areas and large
extensions of credit to individual borrowers. During the year ended June 30,
1996, with the acquisition of NSBI, the Bank obtained a purchased loan
portfolio, consisting of primarily single-family, owner-occupied residential
loans located in 45 states, Puerto Rico and the District of Columbia. The
following tables identifies the geographic distribution of the Bank's collateral
on real estate loans at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------------------------------------------
PURCHASED BANK ORIGINATED TOTAL
REAL ESTATE LOANS REAL ESTATE LOANS REAL ESTATE LOANS
---------------------- ----------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Alabama $ 22,803 5.2% $ - -% $ 22,803 0.9%
California 101,815 23.3 3,002 0.1 104,817 4.0
Colorado 13,383 3.1 2,012 0.1 15,395 0.6
Georgia 39,867 9.1 1,434 0.1 41,301 1.6
Illinois 80,384 18.4 2,119,135 98.3 2,199,519 84.9
Minnesota 14,446 3.3 729 0.1 15,175 0.6
New Jersey 23,366 5.3 2,302 0.1 25,668 1.0
New York 16,751 3.8 1,858 0.1 18,609 0.7
Texas 18,927 4.3 952 0.1 19,879 0.8
Utah 13,143 3.0 - - 13,143 0.5
All other 92,343 21.2 22,319 1.0 114,662 4.4
--------- ------- ----------- ------ ---------- ------
Total $ 437,228 100.0% $ 2,153,743 100.0% $ 2,590,971 100.0%
========= ======= =========== ====== =========== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------------------------
PURCHASED BANK ORIGINATED TOTAL
REAL ESTATE LOANS REAL ESTATE LOANS REAL ESTATE LOANS
--------------------- --------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Alabama $ 37,829 6.4% $ - -% $ 37,829 1.6%
California 130,636 22.0 493 - 131,129 5.6
Colorado 27,552 4.6 1,376 0.1 28,928 1.2
Georgia 60,584 10.2 1,233 0.1 61,817 2.6
Illinois 96,177 16.2 1,718,622 98.3 1,814,799 77.5
Minnesota 19,129 3.2 899 0.1 20,028 0.8
New Jersey 30,409 5.1 2,907 0.2 33,316 1.4
New York 21,038 3.5 1,645 0.1 22,683 1.1
Texas 25,242 4.2 1,295 0.1 26,537 1.1
Utah 22,833 3.8 - - 22,833 1.0
All other 123,565 20.8 19,290 1.0 142,855 6.1
--------- ------- ----------- -------- ---------- ------
Total $ 594,994 100.0% $ 1,747,760 100.0% $ 2,342,754 100.0%
========= ======= =========== ======== =========== ======
</TABLE>
92
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. DERIVATIVE FINANCIAL INSTRUMENTS
The Bank enters into forward commitments to sell mortgage loans for future
delivery as a means of limiting exposure to changing interest rates between the
date a loan customer commits to a given rate, or closes the loan, whichever is
sooner, and the sale date, which is generally 10 to 60 days after the closing
date. These commitments to sell require the Bank to deliver mortgage loans at
stated coupon rates within the specified forward sale period, and subject the
Bank to risk to the extent the loans do not close. The Bank attempts to
mitigate this risk by collecting a non-refundable commitment fee, where
possible, and by estimating a percentage of fallout when determining the amount
of forward commitments to sell.
The following is a summary of the Bank's forward sales commitment activity for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ----------------------------
1997 1996 1996 1995
-------- ---------- ------------ -------------
(In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of year 8,676 39,431 42,100 10,595
New forward commitments to deliver loans 104,229 34,734 305,488 123,638
Loans delivered to satisfy forward
commitments (105,817) (65,489) (308,157) (92,133)
-------- ------- -------- -------
Balance at end of year 7,088 8,676 39,431 42,100
======== ======= ======== =======
</TABLE>
The Bank also enters into interest rate futures contracts to hedge its
exposure to price fluctuations on firm commitments to originate loans intended
for sale, that have not been covered by forward commitments to sell loans for
future delivery. Included in gain (loss) on sale of mortgage loans for the year
ended December 31, 1997, six months ended December 31, 1996 and the years ended
June 30, 1996 and 1995 are $-0-, $22,000 of net futures losses, $75,000 of net
futures gains and $437,000 of net futures losses, respectively, from hedging
activities. At December 31, 1997 the Bank had $2,000 of deferred gains. At
December 31, 1996, the Bank had no deferred gains or losses on futures
contracts.
The following is a summary of the notional amount of interest rate futures
contract activity for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ----------------------
1997 1996 1996 1995
-------- ---------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of year 1,500 6,500 2,700 5,000
Interest rate futures contracts sold 33,700 29,300 116,800 57,500
Interest rate futures contracts closed (35,200) (34,300) (113,000) (59,800)
------- ------- -------- -------
Balance at end of year -- 1,500 6,500 2,700
======= ======= ======== =======
</TABLE>
93
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
18. PARENT COMPANY ONLY FINANCIAL INFORMATION
The information as of December 31, 1997, and 1996, and for the year ended
December 31, 1997, six months ended December 31, 1996, and the years ended June
30, 1996 and 1995 presented below should be read in conjunction with the other
Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
CONDENSED STATEMENTS OF FINANCIAL CONDITION 1997 1996
(In thousands) --------- --------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 15,010 19,067
Investment securities 10,734 6,161
Equity in net assets of subsidiaries 285,906 279,356
Other assets 15,898 10,302
--------- -------
$ 327,548 314,886
========= =======
Liabilities and Stockholders' Equity:
Unsecured term bank loan 34,500 35,000
Subordinated capital notes, net 26,779 26,709
Accrued expenses 2,858 2,552
--------- -------
Total liabilities 64,137 64,261
--------- -------
Stockholders' equity:
Common stock 169 112
Additional paid-in capital 172,201 171,732
Retained earnings 129,002 95,412
Unrealized gain on marketable securities, net of tax 1,552 138
Treasury stock (39,513) (16,769)
--------- -------
Total stockholders' equity 263,411 250,625
--------- -------
$ 327,548 314,886
========= =======
</TABLE>
94
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Year Ended December 31, June 30,
December 31, --------------------- -------------------
Condensed Statements of Operations 1997 1996 1995 1996 1995
-------- ------- ------- -------- -------
(In thousands) (unaudited)
<S> <C> <C> <C> <C> <C>
Interest income $ 1,795 822 715 1,231 1,056
Interest expense 4,766 2,367 1,297 2,641 2,163
-------- ------- ------ -------- -------
Net interest expense (2,971) (1,545) (582) (1,410) (1,107)
Gain (loss) on sale of investments, net 404 251 45 188 (72
Non-interest expense 1,931 843 720 1,446 1,256
Extraordinary item, net of tax - - (474) (474) -
-------- ------- ------ -------- -------
Net loss before income tax benefit and
equity in earnings of subsidiaries (4,498) (2,137) (1,731) (3,142) (2,435)
Income tax benefit (1,872) (890) (528) (1,107) (999)
-------- ------- ------ -------- -------
Net loss before equity in earnings of subsidiaries (2,626) (1,247) (1,203) (2,035) (1,436)
Equity in earnings of subsidiaries 40,574 10,022 9,018 19,244 16,479
-------- ------- ------ -------- -------
Net income $ 37,948 8,775 7,815 17,209 15,043
======== ======= ====== ======== =======
<CAPTION>
Year Ended Six Months Ended Year Ended June 30,
December 31, December 31, -----------------------
Condensed Statements of Cash Flows 1997 1996 1996 1995
-------- -------- -------- -------
(In thousands)
<S> <C> <C> <C> <C>
Operating activities:
Net income $ 37,948 8,775 17,209 15,043
Equity in earnings of subsidiaries (40,574) (10,022) (19,244) (16,479)
Dividends received from the Bank 34,500 - 69,000 10,000
Extraordinary item, net of tax - - 474 -
(Gain) loss on sale of investment securities (404) (251) (188) 72
Amortization of premiums and discounts 78 36 (28) 80
Net decrease (increase) in other assets and liabilities
net of effects from purchase of NSBI (6,052) (4,139) 7,284 (9,156)
Decrease in ESOP loan - - - 146
-------- -------- -------- -------
Net cash provided by (used in) operating activities 25,496 (5,601) 74,507 (294)
Investing activities:
Proceeds from sale of investment securities 3,073 1,956 1,155 6,516
Proceeds from maturity of investment securities 559 - 44,000 53
Repayment of loans receivable - 514 18,432 -
Purchases of investment securities (6,157) (2,798) (26,367) (960)
Investment in and loans to subsidiary - (91) (320) 1,275
Payment for purchase of NSBI, net of cash acquired - - (257,437) -
-------- -------- -------- -------
Net cash provided by (used in) investing activities (2,525) (419) (220,537) 6,884
Financing activities:
Proceeds from issuance of common stock - 535 131,255 78
Proceeds from borrowings - - 61,629 -
Repayment of borrowings (500) - (20,900) (146)
Purchases of treasury stock (22,493) (6,299) (3,741)
Cash dividends paid (4,035) (943) (2,531) (1,213)
-------- -------- -------- -------
Net cash provided by (used in) financing
activities (27,028) (408) 163,154 (5,022)
-------- -------- -------- -------
Increase (decrease) in cash and cash equivalents (4,057) (6,428) 17,124 1,568
Cash and cash equivalents at beginning of of year 19,067 25,495 8,371 6,803
-------- -------- -------- -------
Cash and cash equivalents at end of year $ 15,010 19,067 25,495 8,371
======== ======== ======== =======
</TABLE>
95
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following are the consolidated results of operations on a quarterly basis:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------- ----------- ---------- --------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income $ 57,967 58,841 60,473 61,634
Interest expense 34,415 35,567 37,241 37,993
-------- ------ ------ --------
Net interest income 23,552 23,274 23,232 23,641
Provision for loan losses 300 300 250 300
-------- ------ ------ --------
Net interest income after provision for loan losses 23,252 22,974 22,982 23,341
Net gain on sale of assets 170 49 202 432
Income from real estate operations 1,416 1,558 2,114 1,788
Other income 3,423 3,803 3,769 3,993
Non-interest expense 13,023 13,320 13,977 14,291
-------- ------ ------ --------
Income before income taxes 15,238 15,064 15,090 15,263
Income tax expense 5,952 4,854 5,894 6,007
-------- ------ ------ --------
Net income $ 9,286 10,210 9,196 9,256
======== ====== ====== ========
Basic earnings per share $ .59 .66 .60 .61
======== ====== ====== ========
Diluted earnings per share $ .57 .64 .58 .59
======== ====== ====== ========
Cash dividends declared per share $ .06 .07 .07 .07
======== ====== ====== ========
Stock price range:
High $ 27.83 28.42 34.75 35.38
Low 22.25 24.83 27.92 30.50
Close 26.00 27.92 32.38 35.38
======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1996
---------------------------
FIRST SECOND
QUARTER QUARTER
------------ -----------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
Interest income $ 55,592 57,235
Interest expense 33,503 35,128
-------- ------
Net interest income 22,089 22,107
Provision for loan losses 350 350
-------- ------
Net interest income after provision for loan losses 21,739 21,757
Net gain on sale of assets 315 65
Income from real estate operations 1,663 2,470
Other income 3,563 3,883
Non-interest expense 13,599 13,263
Special SAIF assessment 14,216 -
-------- ------
Income (loss) before income taxes (535) 14,912
Income taxes (197) 5,799
-------- ------
Net income (loss) $ (338) 9,113
======== ======
Basic earnings (loss) per share $ (.02) .58
======== ======
Diluted earnings (loss) per share $ (.02) .56
======== ======
Cash dividends declared per share $ .06 .06
======== ======
Stock price range:
High $ 17.67 23.50
Low 14.83 17.33
Close 17.17 23.17
======== ======
</TABLE>
96
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MAF Bancorp, Inc.
We have audited the accompanying consolidated statements of financial
condition of MAF Bancorp, Inc. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the year ended December 31, 1997, the
six months ended December 31, 1996 and for each of the years in the two-year
period ended June 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MAF Bancorp,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the year ended December 31, 1997, the six
months ended December 31, 1996, and for each of the years in the two-year period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 29, 1998
97
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the registrant is included in the
Registrant's proxy statement under the heading "Election of Directors" and the
information included therein is incorporated herein by reference. Information
regarding the executive officers of the registrant and the Bank is included in
Part I. Business.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of executive officers and directors is
included in the registrant's proxy statement under the headings "Directors
Compensation," "Executive Compensation - Summary Compensation Table,"
"Employment and Special Termination Agreements," "Supplemental Executive
Retirement Plan," "Option Plans," and "Long Term Incentive Plan," and the
information included therein is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is included in the registrant's proxy statement under the headings
"Voting Securities" and "Security Ownership of Certain Beneficial Owners," and
"Information With Respect to Nominees, Continuing Directors and Others," and the
information included therein is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
included in the registrant's proxy statement under the heading "Transactions
with Certain Related Persons," and the information included therein is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of the registrant and its
subsidiaries are filed as a part of this document under Item 8.
Financial Statements and Supplementary Data
Consolidated Statements of Financial Condition at December 31, 1997 and
1996.
Consolidated Statements of Operations for the year ended December 31,
1997, the six months ended December 31, 1996 and 1995 (unaudited) and the
years ended June 30, 1996 and 1995.
98
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Consolidated Statements of Changes in Stockholders' Equity for the year
ended December 31, 1997, the six months ended December 31, 1996 and the
years ended June 30, 1996 and 1995.
Consolidated Statements of Cash Flows for the year ended December 31,
1997, the six months ended December 31, 1996 and the years ended June 30,
1996 and 1995.
Notes to Consolidated Financial Statements.
Independent Auditors' Report
(a)(2) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not required or are not
applicable or the required information is shown in the consolidated
financial statements or notes thereto.
(a)(3) EXHIBITS
The following exhibits are either filed as part of this report or are
incorporated herein by reference:
Exhibit No. 3. Certificate of Incorporation and By-laws.
(i) Certificate of Incorporation, as amended. (Incorporated herein by
reference to exhibit No. 3 to Registrant's June 30, 1996 Form 10-K).
(ii) Bylaws of Registrant, as amended. (Incorporated herein by reference
to exhibit No. 3 to Registrant's June 30, 1990 Form 10-K).
Exhibit No. 4. Instruments Defining the Rights of Security Holders.
Indenture between MAF Bancorp, Inc. and Harris Trust and Savings
Bank (Trustee) dated as of September 27, 1995, for the 8.32%
Subordinated Notes due September 30, 2005. (Incorporated by
reference to Exhibit No. 4 to Registrant's Form S-3 Registration
Statement No. 33-96754).
Exhibit No. 10. Material Contracts
(i) Mid America Bank, fsb Employee Stock Ownership Plan; as amended.
(ii) Mid America Bank, fsb Employee Stock Ownership Trust Loan and
Security Agreement. (Incorporated herein by reference to Exhibit
No. 10 to Registrant's June 30, 1990 Form 10-K).
(iii) Trust Agreement between Mid America Bank, fsb and LaSalle National
Bank, Trustee (as successor to NBD Bank, N.A., INB National Bank
and Chesterton State Bank) for the Mid America Bank, fsb Employee
Stock Ownership Trust. (Incorporated herein by reference to
Exhibit No. 10 to Registrant's June 30, 1990 Form 10-K).
(iv) Mid America Bank, fsb Management Recognition and Retention Plan
and Trust Agreement. (Incorporated herein by reference to Exhibit
No. 10 to Registrant's June 30, 1992 Form 10-K).
99
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(v) MAF Bancorp, Inc. 1990 Incentive Stock Option Plan, as amended.
(Incorporated herein by reference to Exhibit No. 10 to
Registrant's December 31, 1996 Form 10-K).
(vi) MAF Bancorp, Inc. 1993 Amended and Restated Premium Price Stock
Option Plan. (Incorporated herein by reference to Exhibit No. 10
to Registrant's December 31, 1996 Form 10-K).
(vii) Credit Agreement dated as of May 22, 1996, as amended, between
MAF Bancorp, Inc. and Harris Trust and Savings Bank.
(viii) Mid America Bank, fsb Employees' Profit Sharing Plan, as amended.
(ix) Mid America Federal Savings and Loan Association Deferred
Compensation Trust Agreement. (Incorporated herein by reference
to Exhibit No. 10 to Registrant's June 30, 1990 Form 10-K).
(x) Mid America Bank, fsb Directors' Deferred Compensation Plan.
(xi) Mid America Bank, fsb Executive Deferred Compensation Plan.
(xii) MAF Bancorp, Inc. Executive Annual Incentive Plan. (Incorporated
herein by reference to Exhibit No. 10 to Registrant's June 30,
1994 Form 10-K).
(xiii) MAF Bancorp, Inc. Shareholder Value Long-Term Incentive Plan.
(xiv) Mid America Bank, fsb Supplemental Executive Retirement Plan.
(xv) Form of Employment Agreement, as amended, between MAF Bancorp,
Inc. and various officers. (Incorporated herein by reference to
exhibit No. 10 to Registrant's June 30, 1996 Form 10-K).
(xvi) Form of Employment Agreement, as amended, between Mid America
Bank, fsb and various officers. (Incorporated herein by reference
to exhibit No. 10 to Registrant's June 30, 1996 Form 10-K).
(xvii) Form of Special Termination Agreement, as amended, between MAF
Bancorp, Inc. and various officers. (Incorporated herein by
reference to exhibit No. 10 to Registrant's June 30, 1996 Form
10-K).
(xviii) Form of Special Termination Agreement, as amended, between Mid
America Bank, fsb and various officers.
(xix) Consultant Agreement dated October 23, 1997 between Mid America
Bank, fsb and Nicholas J. DiLorenzo, Sr.
(xx) Consultant Agreement dated January 3, 1997 between Mid America
Bank, fsb and Lois B. Vasto, as amended.
100
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(xxi) N.S. Bancorp, Inc. 1990 Incentive Stock Option Plan, as amended
(Incorporated by reference to Registrant's Form S-8 Registration
Statement No. 333-06593).
Exhibit No. 11. Statement re: Computation of Per Share Earnings for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------------
1997 1996 1996 1995
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 37,948,000 8,775,000 17,209,000 15,043,000
============ ========== ========== ==========
Weighted average common shares outstanding 15,421,606 15,663,066 8,738,010 8,335,818
============ =========== ========== ==========
Basic earnings per share $ 2.46 .56 1.97 1.80
============ ========== ========== ==========
Weighted average common shares outstanding 15,421,606 15,663,066 8,738,010 8,335,818
Common stock equivalents due to dilutive
effect on stock options 511,029 619,407 619,415 532,493
------------ ---------- ---------- ----------
Total weighted average common shares
and equivalents outstanding for
diluted computation 15,932,635 16,282,473 9,357,425 8,868,311
=========== ========== ========== ==========
Diluted earnings per share $ 2.38 .54 1.84 1.70
=========== ========== ========== ==========
</TABLE>
Exhibit No. 12. Statements re: computation of ratio of earnings to fixed
charges.
Exhibit No. 21. Subsidiaries of the Registrant
A list of the Company's and Mid America Bank's subsidiaries is
included as an exhibit to this report.
Exhibit No. 23. Consent of KPMG Peat Marwick LLP
(b) REPORTS ON FORM 8-K
None.
101
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
MAF Bancorp, Inc.
--------------------
(Registrant)
By: /s/ Allen H. Koranda
--------------------
Allen H. Koranda
Chairman of the Board and
Chief Executive Officer
March 3, 1998
--------------------
(Date)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Allen H. Koranda or Kenneth Koranda or either of them,
his true and lawful attorney-in-fact and agents, with full power of substitution
and re-substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto, and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming said attorneys-in-fact and agents or their substitutes or substitute
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Allen H. Koranda March 3, 1998
------------------------------ --------------
Allen H. Koranda (Date)
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Jerry A. Weberling March 3, 1998
------------------------------ -------------
Jerry A. Weberling (Date)
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Gerard J. Buccino March 3, 1998
------------------------------ -------------
Gerard J. Buccino (Date)
Senior Vice President
and Controller
(Principal Accounting Officer)
102
<PAGE>
MAF BANCORP INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
By: /s/ Robert Bowles, M.D. March 3, 1998
-------------------------------- -------------
Robert Bowles, M.D. (Date)
Director
By: /s/ Nicholas J. DiLorenzo, Sr. March 3, 1998
--------------------------------- -------------
Nicholas J. DiLorenzo, Sr. (Date)
Director
By: /s/ Terry Ekl March 3, 1998
--------------------------------- -------------
Terry Ekl (Date)
Director
By: /s/ Joe F. Hanauer March 3, 1998
------------------ -------------
Joe F. Hanauer (Date)
Director
By: /s/ Kenneth Koranda March 3, 1998
------------------- -------------
Kenneth Koranda (Date)
Director
By: /s/ Henry Smogolski March 3, 1998
------------------- -------------
Henry Smogolski (Date)
Director
By: /s/ F. William Trescott March 3, 1998
----------------------- -------------
F. William Trescott (Date)
Director
By: /s/ Lois B. Vasto March 3, 1998
----------------- -------------
Lois B. Vasto (Date)
Director
By: /s/ Andrew J. Zych March 3, 1998
------------------ -------------
Andrew J. Zych (Date)
Director
103
<PAGE>
Exhibit 10(i)
Exhibit No. 10 Mid America Federal Savings Bank Employee Stock Ownership Plan;
as amended.
<PAGE>
MID AMERICA FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
(Adopted effective July 1, 1989, and conformed to amendments made
effective July 1, 1991, January 28, 1992, January 1, 1993,
July 1, 1993, July 1, 1994 and July 1, 1995.)
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
Section 1. Plan Identity...................................... 1
1.1 Name............................................... 1
1.2 Purpose............................................ 1
1.3 Effective Date..................................... 1
1.4 Fiscal Period...................................... 1
1.5 Single Plan for All Employers...................... 1
1.6 Interpretation of Provisions....................... 1
Section 2. Definitions........................................ 2
Section 3. Eligibility for Participation...................... 14
3.1 Initial Eligibility................................ 14
3.2 Definition of Eligibility Year..................... 15
3.3 Terminated or Part-Time Employees.................. 15
3.4 Certain Employees Ineligible....................... 15
3.5 Waiver of Participation............................ 15
3.6 Participation and Reparticipation.................. 16
Section 4. Employer Contributions and Credits................. 16
4.1 Discretionary Contributions........................ 16
4.2 Contributions for Stock Obligations................ 16
4.3 Definitions Related to Contribution................ 18
4.4 Conditions as to Contributions..................... 19
Section 5. Limitations on Contributions and Allocations....... 20
5.1 Limitation on Annual Additions..................... 20
5.2 Coordinated Limitation With Other Plans............ 20
5.3 Effect of Limitations.............................. 22
5.4 Limitations as to Certain Participants............. 22
Section 6. Trust Fund and Its Investment...................... 23
6.1 Creation of Trust Fund............................. 23
6.2 Stock Fund and Investment Fund..................... 24
6.3 Acquisition of Stock............................... 24
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
6.4 Participants' Option to Diversify.......................25
Section 7. Voting Rights and Dividends on Stock....................26
7.1 Voting of Stock.........................................26
7.2 Dividends on Stock......................................27
Section 8. Adjustments to Accounts.................................27
8.1 Adjustments for Transactions............................27
8.2 Valuation of Investment Fund............................28
8.3 Adjustments for Investment Experience...................28
Section 9. Vesting of Participants' Interests......................29
9.1 Deferred Vesting in Accounts............................29
9.2 Computation of Vesting Years............................29
9.3 Full Vesting Upon Certain Events........................30
9.4 Full Vesting Upon Plan Termination......................30
9.5 Forfeiture. Repayment, and Restoral.....................30
9.6 Accounting for Forfeitures..............................31
9.7 Vesting and Nonforfeitability...........................31
Section 10. Payment of Benefits.....................................32
10.1 Benefits for Participants...............................32
10.2 Benefits on a Participant's Death.......................33
10.3 Marital Status..........................................34
10.4 Delay in Benefit Determination..........................34
10.5 Accounting for Benefit Payments.........................34
10.6 Options to Receive and Sell Stock.......................34
10.7 Restrictions on Disposition of Stock....................35
10.8 Deemed Distribution.....................................36
10.9 Type of Payment.........................................36
Section 11. Rules Governing Benefit Claims and Review of Appeals....37
11.1 Claim for Benefits......................................37
11.2 Notification by Committee...............................37
11.3 Claims Review Procedure.................................38
Section 12. The Committee and Its Function..........................38
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
12.1 Authority of Committee........................................... 38
12.2 Identity of Committee............................................ 39
12.3 Duties of Committee.............................................. 39
12.4 Valuation of Stock............................................... 40
12.5 Compliance with ERISA............................................ 41
12.6 Action by Committee.............................................. 41
12.7 Execution of Documents........................................... 41
12.8 Adoption of Rules................................................ 41
12.9 Responsibilities to Participants................................. 42
12.10 Alternative Payees in Event of Incapacity........................ 42
12.11 Indemnification by Employers..................................... 42
12.12 Nonparticipation by Interested Member............................ 42
Section 13. Adoption. Amendment, or Termination of the....................... 43
13.1 Adoption of Plan by Other Employers.............................. 43
13.2 Adoption of Plan by Successor.................................... 43
13.3 Plan Adoption Subject to Qualification........................... 44
13.4 Right to Amend or Terminate...................................... 44
Section 14. Miscellaneous Provisions......................................... 45
14.1 Plan Creates No Employment Rights................................ 45
14.2 Nonassignability of Benefits..................................... 46
14.3 Limit of Employer Liability...................................... 46
14.4 Treatment of Expenses............................................ 46
14.5 Number and Gender................................................ 46
14.6 Nondiversion of Assets........................................... 47
14.7 Separability of Provisions....................................... 47
14.8 Service of Process............................................... 47
14.9 Governing State Law.............................................. 47
14.10 Special Rules for Persons Subject to Section 16(b) Requirements.. 47
Section 15. Top-Heavy Provisions............................................. 48
15.1 Determination of Top-Heavy Status................................ 48
15.2 Minimum Contributions............................................ 50
15.3 Minimum Vesting.................................................. 51
15.4 Maximum Compensation............................................. 52
</TABLE>
iii
<PAGE>
MID AMERICA FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. Plan Identity.
1.1 Name. The name of this Plan is "Mid America Federal Savings Bank
Employee Stock Ownership Plan".
1.2 Purpose. The purpose of this Plan is to describe the terms and
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is July 1, 1989.
1.4 Fiscal Period. This Plan shall be operated on the basis of a July 1 -
June 30 fiscal year for the purpose of keeping the Plan's books and records and
distributing or filing any reports or returns required by law.
1.5 Single Plan for All Employers. This Plan shall be treated as a single
plan with respect to all participating Employers for the purpose of crediting
contributions and forfeitures and distributing benefits, determining whether
there has been any termination of Service, and applying the limitations set
forth in Section 5.
1.6 Interpretation of Provisions. The Employers intend this Plan and the
Trust to be a qualified stock bonus plan under Section 401(a) of the Code and an
employee stock ownership plan within the meaning of Section 407(d)(6) of ERISA
and Section 4975(e)(7) of the Code. The Plan is intended to have its assets
invested primarily in qualifying employer securities of one or more Employers
within the meaning of Section 407(d)(3) of ERISA, and to satisfy any requirement
under ERISA or the Code applicable
iv
<PAGE>
to such a plan. Accordingly, the Plan and Trust Agreement shall be interpreted
and applied in a manner consistent with this intent and shall be administered at
all times and in all respects in a nondiscriminatory manner.
Section 2. Definitions. The following capitalized words and phrases shall
have the meanings specified when used in this Plan and in the Trust Agreement,
unless the context clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated
under this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"Active Participant" means any Employee who has satisfied the
eligibility requirements of Section 3 and who qualifies as an Active Participant
for a particular Plan Year under Section 4.3.
"Beneficiary" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the Participant's Beneficiary shall be his surviving spouse, if any, or
his estate if he is not survived by a spouse. The Committee may rely upon the
advice of the Participant's executor or administrator as to the identify of the
Participant's spouse.
"Break in Service" means any five or more consecutive 12-month periods
beginning July 1 in which an Employee has 500 or fewer Hours of Service per
period.
v
<PAGE>
Solely for this purpose, an Employee shall be considered employed for his normal
hours of paid employment during a Recognized Absence, unless he does not resume
his Service at the end of the Recognized Absence. Further, if an Employee is
absent for any period beginning on or after January 1, 1985, (i) by reason of
the Employee's pregnancy, (ii) by reason of the birth of the Employee's child,
(iii) by reason of the placement of a child with the Employee in connection with
the Employee's adoption of the child, or (iv) for purposes of caring for such
child for a period beginning immediately after such birth or placement, the
Employee shall be credited with the Hours of Service which would normally have
been credited but for such absence, up to a maximum of 501 Hours of Service, in
the first 12-month period which would otherwise be counted toward a Break in
Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the administration of this Plan
in accordance with Section 12.
"Company" means Mid America Federal Savings Bank, and any entity which
succeeds to the business of Mid America Federal Savings Bank and adopts this
Plan as its own pursuant to Section 14.2.
"Direct Rollover" means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
"Disability" means only a disability which renders the Participant
unable, as a result of bodily or mental disease or injury, to perform the duties
for an Employer for which he was responsible prior to the occurrence of such
bodily or mental disease or
vi
<PAGE>
injury, which disability is expected to be permanent or of long and indefinite
duration. However, this term shall not include any disability directly or
indirectly resulting from or related to habitual drunkenness or addiction to
narcotics, a criminal act occurring while compensation to the Participant is
suspended, or any injury which is intentionally self-inflicted. Further, this
term shall apply only if (i) the Participant is sufficiently disabled to qualify
for the payment of disability benefits under the federal Social Security Act or
Veterans Disability Act; or (ii) the Participant's disability is certified by a
physician selected by the Committee.
Unless the Participant is sufficiently disabled to qualify for
disability benefits under the federal Social Security Act or Veterans Disability
Act, the Committee may require the Participant to be appropriately examined from
time to time by one or more physicians chosen by the Committee, and no
Participant who refuses to be examined shall be treated as having a disability.
In any event, the Committee's good faith decision as to whether a Participant's
Service has been terminated by disability shall be final and conclusive.
"Distributee" means an Employee or former Employee. In addition, the
Employee's or former Employee's surviving Spouse and the Employee's or former
Employee's Spouse or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(q) of the Code, are
Distributees with regard to the interest of the Spouse or former spouse.
"Early Retirement" means retirement on or after a Participant's
attainment of age 55.
vii
<PAGE>
"Effective Date" means July 1, 1989.
"Eligible Retirement Plan" means an individual retirement account described
in Section 408(a) of the Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan described in Section 403(a) of the
Code, that accepts the Distributee's Eligible Rollover Distribution. However, in
the case of an Eligible Rollover Distribution to the surviving Spouse, an
Eligible Retirement Plan is an individual retirement account or an individual
retirement annuity.
"Eligible Rollover Distribution" means any distribution of all or any
portion of the balance to the credit of the distributee, except that an Eligible
Rollover distribution may not include:
(a) 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 and the
Distributee's designated Beneficiary; or
(b) any distribution for a specified period of ten years or
more; or
(c) any distribution to the extent such distribution is required
under Section 401(a)(9) of the Code; or
(d) 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 Stock).
"Employee" means any individual who is or has been employed or
self-employed by an Employer. "Employee" also means an individual employed by a
viii
<PAGE>
leasing organization who, pursuant to an agreement between an Employer and the
leasing organization, has performed services for the Employer and any related
persons (within the meaning of Section 414(n)(6) of the Code) on a substantially
full-time basis for more than one year, if such services are of a type
historically performed by employees in the Employer's business field. However,
such a "leased employee" shall not be considered an Employee if (i) he
participates in a money purchase pension plan sponsored by the leasing
organization which provides for immediate participation, immediate full vesting,
and an annual contribution of at least 10 percent of the Employee's Total
Compensation, and (ii) leased employees do not constitute more than 20 percent
of the Employer's total work force (including leased employees, but excluding
Highly Paid Employees and any other employees who have not performed services
for the Employer on a substantially full-time basis for at least one year).
"Employer" means the Company or any affiliate within the purview of
section 414(b), (c) or (m) and 415(h) of the Code, any other corporation,
partnership, or proprietorship which adopts this Plan with the Company's consent
pursuant to Section 13.1, and any entity which succeeds to the business of any
Employer and adopts the Plan pursuant to Section 13.2.
"Entry Date" means January 1 and July 1 of each Plan Year.
"ERISA" means the Employee Retirement Income Security Act of 1974
(P.L. 93-406, as amended).
"Highly Paid Employee" for any Plan Year means an Employee who, during
either of that or the immediately preceding Plan Year, (i) owned more than five
ix
<PAGE>
percent of the outstanding equity interest or the outstanding voting interest in
any Employer, (ii) had Total Compensation exceeding $75,000 (as adjusted
pursuant to section 415(d) of the Code), (iii) had Total Compensation exceeding
$50,000 (as adjusted pursuant to section 415(d) of the Code) and was among the
most highly compensated one-fifth of all Employees, or (iv) was at any time an
officer of an Employer and had Total Compensation exceeding $45,000 (or 1.5
times the currently applicable dollar limit under Section 415(b)(1)(A) of the
Code). For this purpose:
(a) "Total Compensation" shall include any amount which is excludable
from the Employee's gross income for tax purposes pursuant to Sections 125,
402(a)(8), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all individuals
working for all related employer entities described in the definition of
"Service", but excluding any individual who has not completed six months of
Service, who normally works fewer than 17-1/2 hours per week or in fewer than
six months per year, who has not reached age 21, whose employment is covered by
a collective bargaining agreement, or who is a nonresident alien who receives no
earned income from United States sources.
(c) The number of individuals counted as "officers" shall not be more
than the lesser of (i) 50 individuals and (ii) the greater of 3 individuals or
10 percent of the total number of Employees. If no officer earns more than
$45,000 (or the adjusted limit), then the highest paid officer shall be a Highly
Paid Employee.
(d) A former employee shall be treated as a highly compensated
employee
x
<PAGE>
if such employee was a highly paid employee when such employee separated from
service, or if such employee was a highly paid employee at any time after
attaining age 55.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual compensation of each Employee
taken into account under the Plan shall not exceed the 1993 Omnibus Budget
Reconciliation Act (OBRA '93) annual compensation limit. the OBRA '93 annual
compensation limit is $150,000, as adjusted by the Commissioner for increases in
the cost of living in accordance with Section 401(a) (17) of the Internal
Revenue Code. the cost-of-living adjustment in effect for a calendar year
applies to any period, not exceeding 12 months, over which compensation is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93 annual
compensation limit will be multiplied by a fraction, the numerator of which is
the number of months in the determination period, and the denominator of which
is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into account is
determining an Employee's benefits accruing in the current Plan Year, the
compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year
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beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is
$150,000.
"Hours of Service" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid
for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or
is entitled to be paid for a period of vacation, holidays, illness, disability,
lay-off, jury duty, temporary military duty, or leave of absence is an Hour of
Service. However, except as otherwise specifically provided, no more than 501
Hours of Service shall be credited for any single continuous period which an
Employee performs no duties. Further, no Hours of Service shall be credited on
account of payments made solely under a plan maintained to comply with worker's
compensation, unemployment compensation, or disability insurance laws, or to
reimburse an Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of damages)
is either awarded or agreed to by an Employer is an Hour of Service. However, no
more than 501 Hours of Service shall be credited for any single continuous
period during which an Employee would not have performed any duties.
(d) Hours of Service shall be credited in any one period only under
one of the foregoing paragraphs (a), (b) and (c); an Employee may not get double
credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of
Service
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for any class or group of non-hourly Employees, each Employee in that class or
group shall be credited with 45 Hours of Service for each weekly pay period in
which he has at least one Hour of Service. However, an Employee shall be
credited only for his normal working hours during a paid absence.
(f) Hours of Service to be credited on account of a payment to an
Employee (including back pay) shall be recorded in the period of Service for
which the payment was made. If the period overlaps two or more Plan Years, the
Hours of Service credit shall be allocated in proportion to the respective
portions of the period included in the several Plan Years. However, in the case
of periods of 31 days or less, the Administrator may apply a uniform policy of
crediting the Hours of Service to either the first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be counted as
required by Section 2530.200b-2(b) and (c) of the Department of Labor's
regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund consisting of
assets other than Stock.
"Normal Retirement Date" means a Participant's 65th birthday.
"Participant" means any Employee who is participating in the Plan, or
who has previously participated in the Plan and still has a balance credited to
his Account.
"Plan Year" means each period of 12 consecutive months beginning on
July 1 of 1989 and each succeeding year.
"Recognized Absence" means a period for which -
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(a) an Employer grants and Employee a leave of absence for a limited
period, but only if an Employer grants such leaves on a nondiscriminatory basis;
or
(b) an Employee is temporarily laid off by an Employer because of a
change in business conditions; or
(c) an Employee is on active military duty, but only to the extent
that his employment rights are protected by the Military Selective Service Act
of 1967 (38 U.S.C. sec. 2021).
"Service" means an Employee's period(s) of employment or self-
employment with an Employer, excluding for initial eligibility purposes any
period in which the individual was a nonresident alien and did not receive from
an Employer any earned income which constituted income from sources within the
United States. An Employee's Service shall include any service which constitutes
service with a predecessor employer within the meaning of Section 414(a) of the
Code. An Employee's Service shall also include any service with an entity which
is not an Employer, but only either (i) for a period after 1975 in which the
other entity is a member of a controlled group of corporations or is under
common control with other trades and businesses within the meaning of Section
414(b) or 414(c) of the Code, and a member of the controlled group or one of the
trades and businesses is an Employer, or (ii) for a period after 1979 in which
the other entity is a member of an affiliated service group within the meaning
of Section 414(m) of the Code, and a member of the affiliated service group is
an Employer.
"Spouse" means the individual, if any, to whom a Participant is
lawfully married on the date benefit payments to the Participant are to begin,
or on the date of the
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Participant's death, if earlier.
"Stock" means shares of the Company's voting common stock or preferred
stock meeting the requirements of Section 409(e)(3) of the Code issued by an
Employer or an affiliated corporation.
"Stock Fund" means that portion of the Trust Fund consisting of Stock.
"Stock Obligation" means an indebtedness arising from any extension of
credit to the Plan or the Trust which was obtained for the purpose of buying
Stock and which satisfies the requirements set forth in Section 6.3.
"Total Compensation" means a Participant's wages, salary, overtime,
bonuses, commissions, and any other amounts received for personal services
rendered while in Service from any Employer or an affiliate (within the purview
of Section 414(b), (c), and (m) of the Code), plus his earned income from any
such entity as defined in Section 401(c)(2) of the Code if he is self-employed.
"Total Compensation" shall include (i) severance payments and amounts paid as a
result of termination, (ii) amounts excludable from gross income under Section
911 or deductible under Section 913 of the Code, (iii) amounts described in
Sections 104(a)(3), 105(a), and 105(h) of the Code to the extent includable in
gross income, (iv) amounts described in Section 105(d) of the Code, (v) amounts
received from an Employer for moving expenses which are not deductible under
Section 217 of the Code, (vi) amounts includable in gross income in the year of,
and on account of, the grant of a nonqualified stock option, (vii) amounts
includable in gross income pursuant to Section 83(b) of the Code, and (viii)
amounts includable in gross income under an unfunded nonqualified plan of
deferred compensation, but shall
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exclude (ix) Employer contributions to or amounts received from a funded or
qualified plan of deferred compensation, (x) Employer contributions to a
simplified employee pension account to the extent deductible under Section 219
of the Code, (xi) Employer contributions to a Section 403(b) annuity contract,
(xii) amounts includable in gross income pursuant to Section 83(a) of the Code,
(xiii) amounts includable in gross income upon the exercise of nonqualified
stock option or upon the disposition of stock acquired under any stock option,
and (xiv) any other amounts expended by the Employer on the Participant's behalf
which are excludable from his income or which receive special tax benefits. A
Participant's Total Compensation shall exclude any compensation in any
limitation year beginning after 1988 in excess of $200,000 (or the limit
currently in effect under Section 401(a)(17) of the Code).
"Trust" or "Trust Fund" means the trust fund created under this Plan.
"Trust Agreement" means the agreement between the Company and the
Trustee concerning the Trust Fund. If any assets of the Trust Fund are held in a
co-mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that co-
mingled trust fund. With respect to the allocation of investment responsibility
for the assets of the Trust Fund, the provisions of Section 2.2 of the Trust
Agreement are incorporated herein by reference.
"Trustee" means one or more corporate persons and individuals selected
from time to time by the Company to serve as trustee or co-trustees of the Trust
Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund
consisting
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of the Plan's holding of stock which have been acquired in exchange for one or
more Stock obligations and which have not yet been allocated to the
Participant's Accounts in accordance with Section 4.2.
"Valuation Date" means the last day of the Plan Year and each other
date as of which the committee shall determine the investment experience of the
Investment Fund and adjust the Participants' accounts accordingly.
"Valuation Period" means the period following a Valuation Date and
ending with the next Valuation Date.
"Vesting Year" means a unit of Service credited to a Participant
pursuant to Section 9.2 for purposes of determining his vested interest in his
Account. Section 3. Eligibility for Participation.
3.1 Initial Eligibility. An Employee shall first be eligible to
participate in the Plan as of the Entry Date coinciding with or next following
the later of the following dates: (a) the last day of the Employee's first
Eligibility Year, and (b) the Employee's 21st birthday. However, if an Employee
is not in active Service with an Employer on the date he would otherwise first
be eligible to participate in the Plan, his eligibility to participate shall be
deferred until the next day he is in Service.
The Employer shall notify all Employees when they become eligible to
participate in the Plan and shall instruct them that they may elect not to
participate. Upon request, the Committee shall provide eligible Employees with
an Agreement of Non-Participation. An eligible Employee may elect not to become
a Participant in the Plan by signing and delivering to the Committee the
Agreement of Non-Participation within ninety (90) days
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after receiving it. Any Employee who elects not to become a Participant as of
the first Entry Date on which he was eligible may become a Participant as of any
succeeding Entry Date if he is still eligible by executing a revocation of the
Agreement of Non-Participation and delivering the same to the Committee within
ninety (90) days of any succeeding Entry Date. Any Employee who first met the
provisions of the eligibility on or before July 23, 1991 has ninety days from
such date to elect not to become a Participant or continue participation in the
Plan by executing an Agreement of Non-Participation and delivering the same to
the Committee. However, such execution of an Agreement of Non-Participation
shall not affect any contribution credited to the Employee's account prior to
July 23, 1991.
3.2 Definition of Eligibility Year. An "Eligibility Year" means an
applicable eligibility period (as defined below) in which the Employee has at
least 1,000 Hours of Service. For this purpose,
(a) an Employee's first "eligibility period" is the 12-consecutive
month period beginning on the first day on which he has an Hour of
Service, and
(b) his subsequent eligibility periods will be 12-consecutive month
periods beginning on each July 1 after that first day of Service.
3.3 Terminated or Part-Time Employees. No Employee shall have any interest
or rights under this Plan if (i) he is never in active Service with an Employer
on or after the Effective Date, or (ii) he had 500 or fewer hours of Service in
any eligibility period beginning before the Effective Date and he never has an
Eligibility Year after such period.
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<PAGE>
3.4 Certain Employees Ineligible. No Employee shall participate in the
Plan while his Service is covered by a collective bargaining agreement between
an Employer and the Employee's collective bargaining representative if (i)
retirement benefits have been the subject of good faith bargaining between the
Employer and the representative and (ii) the collective bargaining agreement
does not provide for the Employee's participation in the Plan. No Employee shall
participate in the Plan while he is actually employed by a leasing organization
rather than an Employer.
3.5 Waiver of Participation. Any eligible employee who does not wish to
participate in the Plan shall file with the Committee a waiver of participation
on a form provided for this purpose. A waiver shall be effective until the first
day of the Plan Year following the Employee's revocation of the waiver.
3.6 Participation and Reparticipation. Subject to the satisfaction of the
foregoing requirements, an Employee shall participate in the Plan during each
period of his Service from the date on which he first becomes eligible until his
termination. For this purpose, an Employee returning within five years of his or
her termination who previously satisfied the initial eligibility requirements
shall re-enter the Plan as of the date of his return to Service with an
Employer.
Section 4. Employer Contributions and Credits.
4.1 Discretionary Contributions. Each Employer shall from time to time
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. An Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employers'
contributions and available
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forfeitures for a Plan Year shall be credited as of the last day of the year to
the Accounts of the Active Participants in proportion to their amounts of Cash
Compensation.
4.2 Contributions for Stock Obligations. If the Trustee, upon instructions
from the Committee, incurs any Stock obligation upon the purchase of Stock, the
Employers shall contribute for each Plan Year an amount sufficient to cover all
payments of principal and interest as they come due under the terms of the Stock
Obligation. If there is more than one Stock Obligation, the Employers shall
designate the one to which any contribution is to be applied. The Employers'
obligation to make contributions under this Section 4.2 shall be reduced to the
extent of any investment earnings realized on such contributions and any
dividends paid by the Employers on Stock held in the Unallocated Stock Account,
which earnings and dividends shall be applied to the Stock Obligation related to
that Stock.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.
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At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
For these purposes, each Stock Obligation, the Stock purchased with it, and
any dividends on such Stock, shall be considered separately. The Stock released
from the Unallocated Stock Fund in any Plan Year shall be credited as of the
last day of the year to the Accounts of the Active Participants in proportion to
their amounts of Cash Compensation.
4.3 Definitions Related to Contribution. For the purposes of this Plan,
the following terms have the meanings specified:
"Active Participant" means a Participant who has satisfied the
eligibility requirements under Section 3 and who has at least 1,000 Hours of
Service during the current Plan Year. However, a Participant shall not qualify
as an Active Participant unless (i) he is in active Service with an Employer on
the last day of the Plan Year, or (ii) his Service terminated during the Plan
Year by reason of death.
"Cash Compensation" means a Participant's compensation from his
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Employer with respect to that portion of a Plan Year in which he is an Active
Participant. A Participant's compensation shall be based upon the cash method of
accounting; overtime pay, bonuses, stock bonuses, commissions, taxable sick pay,
severance pay, any compensation deferred under a qualified cash or deferred
arrangement, and similar items shall be included, but any compensation income
realized under a stock option, amounts paid by or received from an Employer to
cover travel, entertainment, moving or similar expenses, and the value of any
fringe benefits not received in cash shall be excluded.
Notwithstanding anything herein to the contrary, if the Cash Compensation
of any Participant consists of or includes commissions, then the Participant's
Cash Compensation eligible for the allocation of Contributions and Forfeitures
shall exclude any Cash Compensation in any Plan Year in excess of $75,000,
effective with the Plan Year beginning July 1, 1992, with adjustment for cost of
living increases identical to the cost of living increases announced by the
Internal Revenue Service for retirement plan limitations.
A Participant's Cash Compensation shall exclude any compensation in any
Plan Year beginning after 1988 and in subsequent Plan Years up to and including
the Plan Year beginning in 1993 in excess of $200,000 (or the limit currently in
effect under Section 401(a)(17) of the Code).
For any Plan Year beginning after 1993, a Participant's Cash Compensation
shall exclude any compensation in excess of the OBRA '93 annual compensation
limit of $150,000, as adjusted for increases in cost of living in accordance
with Section 401(a)(17)(B) of the Code. For any Plan Year beginning after 1994,
a Participant's Cash
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Compensation shall exclude any compensation paid to a Participant which results
from the sale of any vacation benefits.
4.4 Conditions as to Contributions. Employers' contributions shall in all
event be subject to the limitation set forth in Section 5. Contributions may be
made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be reduced
to take account of any adverse investment experience within the Trust Fund in
order that the balance credited to each Participant's Account is not less that
it would have been if the contribution had never been made.
Section 5. Limitations on Contributions and Allocations.
5.1 Limitation on Annual Additions. Notwithstanding the provisions of
Section 4, the annual addition to a Participant's accounts under this and any
other defined contribution plans maintained by the Employers or an affiliate
(within the purview of Section 414(b), (c), and (m) and Section 415(h) of the
Code, which affiliate shall be deemed an Employer for this purpose) shall not
exceed for any limitation year an amount
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equal to the lesser of --
5.1-1 $30,000, or the dollar limitation currently in effect; or
5.1-2 25 percent of the Participant's Total Compensation for such
limitation year. For purposes of this Section 5.1 and the following Section 5.2,
the "annual addition" to a Participant's accounts means the sum of (i) the
Employer contributions and Employee forfeitures credited to a Participant's
accounts with respect to a limitation year, plus (ii) the Participant's total
voluntary contributions for that year. The $30,000 and $90,000 limitations
referred to shall, for each limitation year ending after 1988, be automatically
adjusted to the new dollar limitations determined by the Commissioner of
Internal Revenue for the calendar year beginning in that limitation year.
Notwithstanding the foregoing, if the special limitations on annual additions
described in section 415(c)(6) of the Code applies, the limitations described in
this section shall be adjusted accordingly. A "limitation year" means each 12
consecutive month period beginning July 1.
5.2 Coordinated Limitation With Other Plans. Aside from the
limitation prescribed by Section 5.1 with respect to the annual addition to a
Participant's accounts for any single limitation year, if a Participant has ever
participated in one or more defined benefit plans maintained by an Employer or
an affiliate, then the annual additions to his accounts shall be limited on a
cumulative basis so that the sum of his defined contribution plan fraction and
his defined benefit plan fraction does not exceed one. For this purpose:
5.2-1 A Participant's defined contribution plan fraction with
respect to a Plan Year shall be a fraction, (i) the numerator of which is the
sum of the annual
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additions to his accounts through the current year, and (ii) the denominator of
which is the sum of the lesser of the following amounts -A- and -B- determined
for the current limitation year and each prior limitation year of Service with
an Employer: -A- is 1.25 times $30,000, or 1.0 times such dollar limitation if
the Plan is top-heavy, and -B- is 35 percent of the Participant's Total
Compensation for such year. Further, if the Participant participated in any
related defined contribution plan in any years beginning before 1976, any excess
of the sum of the actual annual additions to the Participant's accounts for
those years over the maximum annual additions which could have been made in
accordance with Section 5.1 shall be ignored, and voluntary contributions by the
Participant during those years shall be taken into account as to each such year
only to the extent that his average annual voluntary contribution in those years
exceeded 10 percent of his average annual Total Compensation in those years.
5.2-2 A Participant's defined benefit plan fraction with respect to
a limitation year shall be a fraction, (i) the numerator of which is his
projected annual benefit payable at normal retirement under the Employers'
defined benefit plans, and (ii) the denominator of which is the lesser of (a)
1.25 times $90,000, or 1.0 times such dollar limitation if the Plan is top-
heavy, and (b) 1.4 times the Participant's average Total Compensation during his
highest-paid three consecutive limitation years.
5.3 Effect of Limitations. The Committee shall take whatever action may be
necessary from time to time to assure compliance with the limitations set forth
in Section 5.1 and 5.2. Specifically, the Committee shall see that each Employer
restrict its contributions for any Plan Year to an amount which, taking into
account the amount of
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available forfeitures, may be completely allocated to the Participants
consistent with those limitations. Where the limitations would otherwise be
exceeded by any Participant, further allocations to the Participant shall be
curtailed to the extent necessary to satisfy the limitations. Where an excessive
amount is contributed on account of a mistake as to one or more Participants'
compensation, or there is an amount of forfeitures which may not be credited in
the Plan Year in which it becomes available, the amount shall be held in a
suspense account to be allocated in lieu of any Employer contributions in future
years until it is eliminated, and to be returned to the Employer if it cannot be
credited consistent with these limitations before the termination of the Plan.
5.4 Limitations as to Certain Participants. Aside from the limitations set
forth in Section 5.1 and 5.2, if the Plan acquires any Stock in a transaction as
to which a selling shareholder or the estate of a deceased shareholder is
claiming the benefit of Section 1042 or 1057 of the Code, the Committee shall
see that none of such Stock, and no other assets in lieu of such Stock, are
allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns (taking
into account the attribution rules under Section 318(a) of the Code, without
regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i) more
than 25 percent of any class of stock of a corporation which issued the Stock
acquired by the Plan, or another corporation within the same controlled group,
as defined in Section 409(1)(4) of the Code (any such class of stock hereafter
called a "Related Class"). For this purpose, a Participant who owns more than 25
percent of any Related Class at any time within the one year
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preceding the Plan's purchase of the Stock shall be subject to the restriction
as to all allocations of the Stock, but any other Participant shall be subject
to the restriction only as to allocations which occur at a time when he owns
more than 25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder claiming
the benefit of Section 1042, the deceased shareholder whose estate is claiming
the benefit of Section 2057, and any other Participant who is related to such a
shareholder within the meaning of Section 267(b) of the Code, during the period
beginning on the date on which the Plan purchases the Stock and ending 10 years
after the later of (i) the date of such purchase, and (ii) the date of the
allocation under Section 4.2 attributable to the final payment on whatever Stock
Obligations were incurred with the purchase.
This restriction shall not apply to any Participant who is a lineal
descendant of a deceased shareholder if the aggregate amounts allocated under
the Plan for the benefit of all such descendants do not exceed five percent of
the Stock acquired from the shareholder's estate.
Section 6. Trust Fund and Its Investment.
6.1 Creation of Trust Fund. All amounts received under the Plan from
Employers and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Company and the Trustee. The
benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Company, any other Employer, its board of directors
or trustees, its stockholders, its officers, its employees, the Committee, and
the Trustee shall be liable for payment of any
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benefit under this Plan except from the Trust Fund.
6.2 Stock Fund and Investment Fund. The Trust Fund held by the
Trustee shall be divided into the Stock Fund, consisting entirely of Stock, and
the Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee. The Trustee shall have full
responsibility for the investment of the Investment Fund, except to the extent
such responsibility may be delegated from time to time to one or more investment
managers pursuant to Section 2.2 of the Trust Agreement.
6.3 Acquisition of Stock. From time to time the Committee may, in its
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders,including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for
such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may direct
the Trustee to finance the acquisition of Stock by incurring or assuming
indebtedness to the seller or another party (including the Internal Revenue
Service in the case of Stock acquired from a deceased shareholder's estate in
accordance with Section 2210 of the Code), which indebtedness shall be called a
"Stock Obligation". Any Stock Obligation shall be subject to the following
conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall not be
payable
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on demand except in the event of default, and shall bear a reasonable rate of
interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the Stock
Obligation, or the Stock previously pledged in connection with a prior Stock
Obligation which is being repaid with the proceeds of the current Stock
Obligation. No other assets of the Plan and Trust may be used as collateral for
a Stock Obligation, and no creditor under a Stock Obligation shall have any
right or recourse to any Plan and Trust assets other than Stock remaining
subject to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must provide
for the release of pledged Stock in connection with payments on the Stock
Obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock Obligation
shall be made by the Trustee only from Employer cash contributions designated
for such payments, from earnings on such contributions, and from cash dividends
received on Stock held in the Unallocated Stock Fund.
6.4 Participants' Option to Diversify. The Committee shall provide
for a procedure under which each Participant may, during the first five years of
a certain six-year period, elect to have up to 25 percent of the value of his
Account committed to alternative investment options within the Investment Fund.
For the sixth year in this period, the Participant may elect to have up to 50
percent of the value of his Account committed to other investments. The six-year
period shall begin with the Plan Year following the first Plan Year in which the
Participant has both reached aged 55 and
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completed 10 years of participation in the Plan; a Participant's election to
diversify his Account must be made within the 90-day period immediately
following the last day of each of the six Plan Years. The Committee shall see
that the Investment fund includes a sufficient number of investment options to
comply with Section 401(a)(28)(B) of the Code. The Trustee shall comply with any
investment directions received from Participants in accordance with the
procedures adopted from time to time by the Committee under this Section 6.4.
Section 7. Voting Rights and Dividends on Stock.
7.1 Voting of Stock. The Trustee generally shall vote all shares of
Stock held under the Plan in accordance with the written instructions of the
Committee. However, if any Employer has registration-type class of securities
within the meaning of Section 409(e)(4) of the Code, or if a matter submitted to
the holders of the Stock involves a merger, consolidation, recapitalization,
reclassification, liquidation, dissolution, or sale of substantially all assets
of an entity, then (i) the shares of Stock which have been allocated to
Participants' Accounts shall be voted by the Trustee in accordance with the
Participants' written instructions, (ii) the Trustee shall not vote any
allocated Stock for which it has no written instructions, and (iii) the Trustee
shall vote any unallocated Stock in a manner calculated to most accurately
reflect the instructions it has received from Participants regarding the
allocated Stock. Whenever such voting rights are to be exercised, the Employers,
the Committee, and the Trustee shall see that all Participants are provided with
the same notices and other materials as are provided to other holders of the
Stock, and are provided with adequate opportunity to deliver their
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instructions to the Trustee regarding the voting of Stock allocated to their
Accounts.
7.2 Dividends on Stock. Dividends on Stock which are received by the
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Employer paying the dividends, either (i) be credited to the Accounts in
accordance with their holdings of the Stock and invested as part of the
Investment Fund, (ii) be distributed immediately to the Participants in
accordance with the holdings of the Stock credited to their Accounts or (iii) be
distributed to the Participants within 90 days of the close of the Plan Year in
which paid in accordance with the holdings of the Stock credited to their
Accounts. Dividends on Stock held in the Unallocated Stock Fund which are
received by the Trustee in the form of cash shall be applied as soon as
practicable to payments of principal and interest under the Stock Obligation
incurred with the purchase of the Stock.
Section 8. Adjustments to Accounts.
8.1 Adjustments for Transactions. An Employer contribution pursuant
to Section 4.1 shall be credited to the Participants' Accounts as of the last
day of the Plan Year for which it is contributed. Stock released from the
Unallocated Stock Fund upon the Trust's repayment of a Stock Obligation pursuant
to Section 4.2 shall be credited to the Participants' Accounts as of the last
day of the Plan Year in which the repayment occurred. Any excess amounts
remaining from the use of proceeds of a sale of Stock from
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the Unallocated Stock Fund to repay a Stock Obligation shall be allocated as of
the last day of the Plan Year in which the repayment occurred among the
Participants' Accounts in proportion to the opening balance in each Account. Any
benefit which is paid to a Participant or Beneficiary pursuant to Section 10
shall be charged to the Participant's Account as of the first day of the
Valuation Period in which it is paid. Any forfeiture or restoral shall be
charged or credited to the Participant's Account as of the first day of the
Valuation Period in which the forfeiture or restoral occurs pursuant to Section
9.6.
8.2 Valuation of Investment Fund. As of each Valuation Date, the
Trustee shall prepare a balance sheet of the Investment Fund, recording each
asset (including any contribution receivable from an Employer) and liability at
its fair market value. Any liability with respect to short positions or options
and any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
8.3 Adjustments for Investment Experience. Any net gain or loss of
the Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall
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<PAGE>
be allocated as of the last day of the Valuation Period among the Participants'
Accounts in proportion to the opening balance in each Account, as adjusted for
benefit payments and forfeitures during the Valuation Period, without regard to
whatever Stock may be credited to an Account.
Section 9. Vesting of Participants' Interests.
9.1 Deferred Vesting in Accounts. A Participant's vested interest in his
Account shall be based on his Vesting Years in accordance with the following
Table, subject to the balance of this Section 9:
<TABLE>
<CAPTION>
<S> <C>
Vesting Percentage of
Years Interest Vested
fewer than 3 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
</TABLE>
9.2 Computation of Vesting Years. For purposes of this Plan, a "Vesting
Year" means each 12-month period beginning July 1, in which an Employee has at
least 1,000 Hours of Service, beginning with his initial Service with any
Employer, and including certain Service with other employers as provided in the
definition of "Service". However, a Participant's Vesting Years shall be
computed subject to the following conditions and qualifications:
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<PAGE>
(a) A Participant's Vesting Years shall not include any Service prior
to the 12-month period in which the Participant reached age 18.
(b) A Participant's vested interest in his Account accumulated before
a Break in Service shall be determined without regard to any Service after the
Break. Further, if a Participant has a Break in Service before his interest in
his Account has become vested to some extent, he shall lose credit for any
Vesting Year before the Break.
(c) Unless otherwise specifically excluded, a Participant's Vesting
Years shall include any period of active military duty to the extent required by
the Military Selective Service Act of 1967 (38 U.S.C. Section 2021).
9.3 Full Vesting Upon Certain Events. Notwithstanding Section 9.1, a
Participant's interest in his Account shall fully vest on the Participant's
Normal Retirement Date, provided the Participant is in Service on or after that
date. The Participant's interest shall also fully vest in the event that his
Service is terminated by Early Retirement, Disability or by death.
9.4 Full Vesting Upon Plan Termination. Notwithstanding Section 9.1, a
Participant's interest in his Account shall fully vest if he is in active
Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each Participant who is in Service shall fully vest
with respect to that part of the Plan which is terminated.
9.5 Forfeiture. Repayment, and Restoral If a Participant's Service
terminates before his interest in his Account is fully vested, that portion
which has not vested shall
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<PAGE>
be forfeited when he has a 1-Year Break in Service. In the case of a terminated
Participant who does not receive a distribution of his entire vested interest
and whose Service resumes before a Break in Service occurs, any undistributed
vested balance from his prior participation shall be maintained as a fully
vested sub-account with his Account.
If any former Participant shall be reemployed by an Employer before five
consecutive 1-Year Breaks in Service have occurred, and such former Participant
has received a distribution of all his vested assets in the Plan, the unvested
portion of his assets shall be reinvested to his Account if he repays the full
amount distributed to him within the earlier of five years after the first date
on which he is reemployed by an Employer or the close of the first period of
five consecutive 1-Year Breaks in Service commencing after the distribution.
Upon repayment of the entire distribution within the required time period, the
forfeited unvested assets shall be restored in full.
9.6 Accounting for Forfeitures. A forfeiture shall be charged to the
Participant's Account as of the first day of the first Valuation Period in which
the forfeiture becomes certain pursuant to Section 9.5. Except as otherwise
provided in that Section, a forfeiture shall be added to the contributions of
the terminated Participant's Employer which are to be credited to other
Participants pursuant to Section 4.1 as of the last day of the Plan Year in
which the forfeiture becomes certain.
9.7 Vesting and Nonforfeitability. A Participant's interest in his Account
which has become vested shall be nonforfeitable for any reason.
Section 10. Payment of Benefits.
10.1 Benefits for Participants. A Participant whose Service ends for any
reason
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<PAGE>
shall receive the vested portion of his Account in a single payment on a date
selected by the Committee. That date shall be on or before the 60th day after
the end of the Plan Year in which his Service ends. Notwithstanding the
foregoing, if the balance credited to his Account exceeds $3,500, his benefits
shall not be paid before the latest of his 65th birthday or the tenth
anniversary of the year in which he commenced participation in the Plan unless
he elects an early payment date in a written election filed with the Committee.
A Participant may modify such an election at any time, provided any new benefit
payment date is at least 30 days after a modified election is delivered to the
Committee. In all events, a Participant's benefits shall be paid by April 1st of
the calendar year in which he reaches age 71- 1/2. A Participant's benefits from
that portion of his Account committed to the Investment Fund shall be calculated
on the basis of the most recent Valuation Date before the day of payment.
10.2 Benefits on a Participant's Death. If a Participant dies before his
benefits are paid pursuant to Section 10.1, the balance credited to his Account
shall be paid to his Beneficiary in a single distribution on or before the 60th
day after the end of the Plan Year in which he died. The benefits from that
Portion of the Account committed to the Investment Fund shall be calculated on
the basis of the most recent Valuation Date before the date of payment.
If a married Participant dies before his benefit payments begin, than
unless he has specifically elected otherwise the Committee shall cause the
balance in his Account to be paid to his Spouse. No election by a married
Participant of a different Beneficiary shall be valid unless the election is
accompanied by the Spouse's written consent, which (i) must
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<PAGE>
acknowledge the effect of the election, (ii) must explicitly provide either that
the designated beneficiary may not subsequently be changed by the Participant
without the Spouse's further consent, or that it may be changed without such
consent, and (iii) must be witnessed by the Committee, its representative, or a
notary public. (This requirement shall not apply if the Participant establishes
to the Committee's satisfaction that the Spouse may not be located.)
10.3 Marital Status. The Committee shall from time to time take whatever
steps it deems appropriate to keep informed of each Participant's marital
status. Each Employer shall provide the Committee with the most reliable
information in the Employer's possession regarding its Participants' marital
status, and the Committee may, in its discretion, require a notarized affidavit
from any Participant as to his marital status. The Committee, the Plan, the
Trustee, and the Employers shall be fully protected and discharged from any
liability to the extent of any benefit payments made as a result of the
Committee's good faith and reasonable reliance upon information obtained from a
Participant and his Employer as to his marital status.
10.4 Delay in Benefit Determination. If the Committee is unable to
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 Accounting for Benefit Payments. Any benefit payment shall be charged
to the Participant's Account as of the first day of the Valuation Period in
which the payment
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<PAGE>
is made.
10.6 Options to Receive and Sell Stock. Unless ownership of virtually all
Stock is restricted to active Employees and qualified retirement plans for the
benefit of Employees pursuant to the certificates of incorporation or by-laws of
the Employers issuing Stock, a terminated Participant or the Beneficiary of a
deceased Participant may instruct the Committee to distribute the Participant's
entire vested interest in his Account in the form of Stock. In that event, the
Committee shall apply the Participant's vested interest in the Investment Fund
to purchase sufficient Stock from the Stock Fund or from any owner of stock to
make the required distribution. In all other cases, the Participant's vested
interest in the Stock Fund shall be distributed in shares of Stock, and his
vested interest in the Investment Fund shall be distributed in cash.
Any Participant who receives Stock pursuant to Section 10.1, an any person
who has received Stock from the Plan or from such a Participant by reason of the
Participant's death or incompetency, by reason of divorce or separation from the
Participant, or by reason of a rollover contribution described in Section
402(a)(5) of the Code, shall have the right to require the Employer which issued
the Stock to purchase the Stock for its current fair market value (hereinafter
referred to as the "put right"). The put right shall be exercisable by written
notice to the Committee during the first 60 days after the Stock is distributed
by the Plan, and, if not exercised in that period, during the first 60 days in
the following Plan Year after the Committee has communicated to the Participant
its determination as to the Stock's current fair market value. However, the put
right shall not apply to the extent that the Stock, at the time the put right
would otherwise be
xxxviii
<PAGE>
exercisable, may be sold on an established market in accordance with federal and
state securities laws and regulations. If the put right is exercised, the
Trustee may, if so directed by the Committee in its sole discretion, assume the
Employer's rights and obligations with respect to purchasing the Stock.
The Employer or the Trustee, as the case may be, may elect to pay for the
Stock in equal periodic installments, not less frequently than annually, over a
Period not longer than five years from the 30th day after the put right is
exercised, with adequate security and interest at a reasonable rate on the
unpaid balance, all such terms to be set forth in a promissory note delivered to
the seller with normal terms as to acceleration upon any uncured default.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right be nonterminable. The put right for Stock acquired
through a Stock Obligation shall continue with respect to such Stock after the
Stock Obligation is repaid or the Plan ceases to be an employee stock ownership
plan.
10.7 Restrictions on Disposition of Stock. Except in the case of Stock
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by
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<PAGE>
reason of a rollover contribution described in Section 402(a)(5) of the Code,
shall, prior to any sale or other transfer of the Stock to any other person,
first offer the Stock to the issuing Employer and to the Plan at its current
fair market value. This restriction shall apply to any transfer, whether
voluntary, involuntary, or by operation of law, and whether for consideration or
gratuitous. Either the Employer or the Trustee may accept the offer within 14
days after it is delivered. Any Stock distributed by the Plan shall bear a
conspicuous legend describing the right of first refusal under this Section
10.7, as well as any other restrictions upon the transfer of the Stock imposed
by federal and state securities laws and regulations.
10.8 Deemed Distribution. For purposes of this section, if a Participant
terminates service and the value of the Participant's vested account balance is
zero, the Participant shall be deemed to have received a distribution of such
vested account balance.
10.9 Type of Payment. This Section 10.8 applies to distributions made on
or after January 1, 1993, pursuant to Section 401(a)(31) of the Code and the
regulations thereunder.
(a) Direct Rollover.
Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this section, a
Distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an Eligible Rollover Distribution
processed as a Direct
xl
<PAGE>
Rollover and paid directly to an Eligible Retirement Plan selected by
the Distributee.
(b) Payment to Participant or Beneficiary. If a distribution is an
Eligible Rollover Distribution, and the Participant or Beneficiary
elects to have payment made to himself, then the distribution will be
subject to mandatory 20% federal income tax withholding, unless the
distribution is less than $200 or consists solely of Employer Stock
and $200 or less in cash.
(c) Limitations.
If the Distributee requests that an Eligible Rollover Distribution be
processed as a Direct Rollover, all the assets shall be processed as a
Direct Rollover to a single Eligible Retirement Plan.
Section 11. Rules Governing Benefit Claims and Review of Appeals.
11.1 Claim for Benefits. Any Participant or Beneficiary who qualifies for
the payment of benefits shall file a claim for his benefits with the Committee
on a form provided by the Committee. The claim, including any election of an
alternative benefit form, shall be filed at least 30 days before the date on
which the benefits are to begin. If a Participant or Beneficiary fails to file a
claim by the 30th day be!fore the date on which benefits become payable, he
shall be presumed to have filed a claim for payment for the Participant's
benefits in the standard form prescribed by Sections 10.1 or 10.2.
11.2 Notification by Committee. Within 90 days after receiving a claim for
benefits (or within 180 days, if special circumstances require an extension of
time and
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<PAGE>
written notice of the extension is given to the Participant or Beneficiary
within 90 days after receiving the claim for benefits), the Committee shall
notify the Participant or Beneficiary whether the claim has been approved or
denied. If the Committee denies a claim in any respect, the Committee shall set
forth in a written notice to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on which
the denial is based;
(iii) a description of any additional material or information which
could be submitted by the Participant or Beneficiary to support his
claim, with an explanation of the relevance of such information; and
(iv) an explanation of the claims review procedures set forth in
Section 11.3.
11.3 Claims Review Procedure. Within 60 days after a Participant or
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination. In
connection with his appeal the Participant or Beneficiary or his representative
may inspect or purchase copies of pertinent documents and records to the extent
not inconsistent with other Participants' and Beneficiaries' rights of privacy.
Within 60 days after receiving a notice of appeal from a prior determination (or
within 120 days, if special circumstances require an extension of time and
written notice of the extension is given to the Participant or Beneficiary and
his
xlii
<PAGE>
representative within 60 days after receiving the notice of appeal), the
Committee shall furnish to the Participant or Beneficiary and his
representative, if any, a written statement of the Committee's final decision
with respect to his claim, including the reasons for such decision and the
Particular Plan provisions upon which it is based.
Section 12. The Committee and Its Functions.
12.1 Authority of Committee. The Committee shall be the "plan administrator"
within the meaning of ERISA and shall have exclusive responsibility and
authority to control and manage the operation and administration of the Plan,
including the interpretation and application of its provisions, except to the
extent such responsibility and authority are otherwise specifically (i)
allocated to the Company, the Employers, or the Trustee under the Plan and Trust
Agreement, (ii) delegated in writing to other persons by the Company, the
Employers, the Committee, or the Trustee, or (iii) allocated to other parties by
operation of law. The Committee shall have no investment responsibility with
respect to the Investment Fund except to the extent, if any, specifically
provided in the Trust Agreement. In the discharge of its duties, the Committee
may employ accountants, actuaries, legal counsel, and other agents (who also may
be employed by an Employer or the Trustee in the same or some other capacity)
and may pay their reasonable expenses and compensation.
12.2 Identity of Committee. The Committee shall consist of three or more
individuals selected by the Company. Any individual, including a director,
trustee, shareholder, officer, or employee of an Employer, shall be eligible to
service as a member of the Committee. The Company shall have the power to remove
any individual serving
xliii
<PAGE>
on the Committee at any time without cause upon 10 days written notice, and any
individual may resign from the Committee at any time upon 10 days written notice
to the Company. The Company shall notify the Trustee of any change in membership
of the Committee.
12.3 Duties of Committee. The Committee shall keep whatever records may be
necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Company. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer the Trust.
The Committee shall see to the filing with the appropriate government agencies
of all reports and returns required of the plan Committee under ERISA and other
laws.
Further, the Committee shall have exclusive responsibility and authority with
respect to the Plan's holdings of Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of Stock
and the creation and satisfaction of Stock Obligations. The Committee shall at
all times act consistently with the Company's long-term intention that the Plan,
as an employee stock ownership plan, be invested primarily in Stock. Subject to
the direction of the Board as to the application of Employer contributions to
Stock Obligations, and subject to the provisions of Sections 6.4 and 10.6 as to
Participant's rights under certain circumstances to have their Accounts invested
in Stock or in assets other than Stock, the Committee shall determine in its
sole discretion the extent to which assets of the Trust shall be used to repay
Stock Obligations, to purchase Stock, or to invest in other assets to be
selected by the Trustee or an investment manager. No provision of the Plan
relating to the allocation
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<PAGE>
or vesting of any interests in the Stock Fund or the Investment Fund shall
restrict the Committee from changing any holdings of the Trust, whether the
changes involve an increase or a decrease in the Stock or other assets credited
to Participants' Accounts. In determining the proper extent of the Trust's
investment in Stock, the Committee shall be authorized to employ investment
counsel, legal counsel, appraisers, and other agents to pay their reasonable
expenses and compensation.
12.4 Valuation of Stock. If the valuation of any Stock is not established by
reported trading on a generally recognized public market, the Committee shall
have the exclusive authority and responsibility to determine its value for all
purposes under the Plan. Such value shall be determined as of each Valuation
Date, and on any other date as of which the Plan purchases or sells such Stock.
The Committee shall use generally accepted methods of valuing stock of similar
corporations for purposes of arm's length business and investment transactions,
and in this connection the Committee shall obtain, and shall be protected in
relying upon, the valuation of such Stock as determined by an independent
appraiser experienced in preparing valuations of similar businesses.
12.5 Compliance with ERISA. The Committee shall perform all acts necessary
to comply with ERISA. Each individual member or employee of the Committee shall
discharge his duties in good faith and in accordance with the applicable
requirements of ERISA.
12.6 Action by Committee. All actions of the Committee shall be governed by
the affirmative vote of a number of members which is a majority of the total
number of members currently appointed, including vacancies. The members of the
Committee may
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<PAGE>
meet informally and may take any action without meeting as a group.
12.7 Execution of Documents. Any instrument executed by the Committee shall
be signed by any member or employee of the Committee.
12.8 Adoption of Rules. The Committee shall adopt such rules and regulations
of uniform applicability as it deems necessary or appropriate for the proper
administration and interpretation of the Plan.
12.9 Responsibilities to Participants. The Committee shall determine which
Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.
12.10 Alternative Payees in Event of Incapacity. If the Committee finds at
any time that an individual qualifying for benefits under this Plan is a minor
or is incompetent, the Committee may direct the benefits to be paid, in the case
of a minor, to
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<PAGE>
his parents, his legal guardian, a custodian for him under the Uniform Gifts to
Minors Act, or the person having actual custody of him, or, in the case of an
incompetent, to his spouse, his legal guardian, or the person having actual
custody of him, the payments to be used for the individual's benefit. The
Committee and the Trustee shall not be obligated to inquire as to the actual use
of the funds by the person receiving them under this Section 12.10, and any such
payment shall completely discharge the obligations of the Plan, the Trustee, the
Committee, and the Employers to the extent of the payment.
12.11 Indemnification by Employers. Except as separately agreed in writing,
the Committee, and any member or employee of the Committee, shall be indemnified
and held harmless by the Employers, jointly and severally, to the fullest extent
permitted by law against any and all costs, damages, expenses, and liabilities
reasonably incurred by or imposed upon it or him in connection with any claim
made against it or him or in which it or he may be involved by reason of its or
his being, or having been,the Committee, or a member or employee of the
Committee, to the extent such amounts are not paid by insurance.
12.12 Nonparticipation by Interested Member. Any member of the Committee who
also is a Participant in the Plan shall take no part in any determination
specifically relating to his own participation or benefits, unless his
abstention would leave the Committee incapable of acting on the matter.
Section 13. Adoption. Amendment, or Termination of the Plan.
13.1 Adoption of Plan by Other Employers. With the consent of the Company,
any entity may become a participating Employer under the Plan by (i) taking such
action
xlvii
<PAGE>
as shall be necessary to adopt the Plan, (ii) becoming a party to the Trust
Agreement establishing the Trust Fund, and (iii) executing and delivering such
instruments and taking such other action as may be necessary or desirable to put
the Plan into effect with respect to the entity's Employees.
13.2 Adoption of Plan by Successor. In the event that any Employer shall be
reorganized by way of merger, consolidation, transfer of assets or otherwise, so
that an entity other than an Employer shall succeed to all or substantially all
of the Employer's business, the successor entity may be substituted for the
Employer under the Plan by adopting the Plan and becoming a party to the Trust
Agreement. Contributions by the Employer shall be automatically suspended from
the effective date of any such reorganization until the date upon which the
substitution of the successor entity for the Employer under the Plan becomes
effective. If, within 90 days following the effective date of any such
reorganization, the successor entity shall not have elected to become a party to
the Plan, or if the Employer shall adopt a Plan of complete liquidation other
than in connection with a reorganization, the Plan shall be automatically
terminated with respect to Employees of the Employer as of the close of business
on the 90th day following the effective date of the reorganization, or as of the
close of business on the date of adoption of a plan of complete liquidation, as
the case may be.
13.3 Plan Adoption Subject to Qualification. Notwithstanding any other
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers
xlviii
<PAGE>
may deduct currently for federal income tax purposes their contributions to the
Trust and so that the Participants may exclude the contributions from their
gross income and recognize income only when they receive benefits. In the event
that this Plan is held by the Internal Revenue Service not to qualify initially
under Section 401(a), the Plan, may be amended retroactively to the earliest
date permitted by U.S. Treasury Regulations in order to secure qualification
under Section 401(a). If this Plan is held by the Internal Revenue Service not
to qualify initially under Section 401(a) either as originally adopted or as
amended, each Employer's contributions to the Trust under this Plan (including
any earnings thereon) shall be returned to it and this Plan shall be terminated.
In the event that this Plan is amended after its initial qualification and the
Plan as amended is held by the Internal Revenue Service not to qualify under
Section 401(a), the amendment may be modified retroactively to the earliest date
permitted by U.S. Treasury Regulations in order to secure approval of the
amendment under Section 401(a).
13.4 Right to Amend or Terminate. The Company intends to continue this Plan
as a permanent program. However, each participating Employer separately reserves
the right to suspend, supersede, or terminate the Plan at any time and for any
reason, as it applies to that Employer's Employees, and the Company reserves the
right to-amend, suspend, supersede, merge, consolidate, or terminate the Plan at
any time and for any reason, as it applies to the Employees of all Employers. No
amendment, suspension, supersession, merger, consolidation, or termination of
the Plan shall reduce any Participant's or Beneficiary's proportionate interest
in the Trust Fund, or shall divert any portion of the Trust Fund to purposes
other than the exclusive benefit of the Participants
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<PAGE>
and their Beneficiaries prior to the satisfaction of all liabilities under the
Plan. Except as is required for purposes of compliance with the Code or ERISA,
each as amended from time to time, neither the provisions of Sections 4.1 and
4.2 relating to the crediting of contributions, forfeitures and shares of Stock
released from the Unallocated Stock Fund, nor any other provisions of the Plan
relating to the allocation of benefits to Participants, and be amended more
frequently than once every six months. Moreover, there shall not be any transfer
of assets to a successor plan or merger or consolidation with another plan
unless, in the event of the termination of the successor plan or the surviving
plan immediately following such transfer, merger, or consolidation, each
participant or beneficiary would be entitled to a benefit equal to or greater
than the benefit he would have been entitled to if the plan in which he was
previously a participant or beneficiary had terminated immediately prior to such
transfer, merger, or consolidation. Following a termination of this Plan by the
Company, the Trustee shall continue to administer the Trust and pay benefits in
accordance with the Plan as amended from time to time and the Committee's
instructions.
Section 14. Miscellaneous Provisions.
14.1 Plan Creates No Employment Rights. Nothing in this Plan shall be
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 Nonassignability of Benefits. No assignment, pledge, or other
anticipation
<PAGE>
of benefits from the Plan will be permitted or recognized by the Employers, the
Committee, or the Trustee. Moreover, benefits from the Plan shall not be subject
to attachment, garnishment, or other legal process for debts or liabilities of
any Participant or Beneficiary, to the extent permitted by law. This prohibition
on assignment or alienation shall apply to any judgment, decree, or order
(including approval of a property settlement agreement) which relates to the
provision of child support, alimony, or property rights to a present or former
spouse, child or other dependent of a Participant pursuant to a State domestic
relations or community property law, unless the judgment, decree, or order is
determined by the Committee to be a qualified domestic relations order within
the meaning of Section 414(p) of the Code.
14.3 Limit of Employer Liability. The liability of the Employers with
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 Treatment of Expenses. All expenses incurred by the Committee and the
Trustee in connection with administering this Plan and Trust Fund shall be paid
by the Trustee from the Trust Fund to the extent the expenses have not been paid
or assumed by the Employers or by the Trustee.
14.5 Number and Gender. Any use of the singular shall be interpreted to
include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 Nondiversion of Assets. Except as provided in Sections 5.3 and 13.3,
under no circumstances shall any portion of the Trust Fund be diverted to or
used for any
<PAGE>
purpose other than the exclusive benefit of the Participants and their
Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 Separability of Provisions. If any provision of this Plan is held to
be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
14.8 Service of Process. The agent for the service of process upon the Plan
shall be the president of the Company, or such other person as may be designated
from time to time by the Company.
14.9 Governing State Law. This Plan shall be interpreted in accordance with
the laws of the State of Illinois to the extent those laws are applicable under
the provisions of ERISA.
14.10 Special Rules for Persons Subject to Section 16(b) Requirements.
Notwithstanding anything herein to the contrary, any former Participant who is
subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934, who becomes eligible to again participate in the Plan, may not become a
Participant prior to the date that is six months from the date such former
Participant terminated participation in the Plan.
In addition, any person subject to the provisions of Section 16(b) of the
1934 Act receiving a distribution of Stock from the Plan must hold such Stock
for a period of six months commencing with the date of such distribution.
However, these restrictions will not apply to Stock distributions made in
connection with death, retirement, disability, termination of employment or made
pursuant to the terms of a qualified domestic
<PAGE>
relations order.
Section 15. Top-Heavy Provisions.
15.1 Determination of Top-Heavy Status. The Committee shall determine on a
regular basis whether each Plan Year is or is not a "Top-Heavy Year" for
purposes of implementing the provisions of Sections 15.2, 15.3, 15.4, and 5.2
which apply only to the extent the Plan is top-heavy or super top-heavy within
the meaning of Section 416 and the Treasury Regulations promulgated thereunder.
In making this determination, the Committee shall use the following definitions
and principles:
15.1-1 The "Employer" includes all business entities which are considered
commonly controlled or affiliated within the meaning of Sections 414(b), 414(c),
and 414(m) of the Code.
15.1-2 The "plan aggregation group" includes each qualified retirement plan
maintained by the Employer (i) in which a Key Employee is a Participant during
the Plan Year, or (ii) which enables any plan described in clause (i) to satisfy
the requirements of Section 401(a)(4) or 410 of the Code, or (iii) which
provides contributions or benefits comparable to those of the plans described in
clauses (i) and (ii) and which is designated by the Committee as part of the
plan aggregation group.
15.1-3 The "determination date", with respect to the first Plan Year of any
plan, means the last day of that Plan Year, and with respect to each subsequent
Plan Year, means the last day of the preceding Plan Year. If any other plan has
a determination date which differs from this Plan's determination date, the top-
heaviness of this Plan shall be determined on the basis of the other plan's
determination date falling within the same
<PAGE>
calendar years as this Plan's determination date.
15.1-4 A "Key Employee", with respect to a Plan Year, means an Employee who
at any time during the five years ending on the top-heavy determination date for
the Plan Year has received compensation from an Employer and has been (i) an
officer of the Employer having Total Compensation greater than 150 percent of
the limit then in effect under Section 415(c)(1)(A) of the Code, (ii) one of the
10 Employees owning the largest interests in the Employer having Total
Compensation greater than the limit then in effect under Section 415(c)(1)(A),
(iii) an owner of more than five percent of the outstanding equity interest or
the outstanding voting interest in any Employer, or (iv) an owner of more than
one percent of the outstanding equity interest or the outstanding voting
interest in an Employer whose Total Compensation exceeds $150,000. In
determining which individuals are Key Employees, the rules of Section 415(i) of
the Code and Treasury Regulations promulgated thereunder shall apply. The
Beneficiary of a Key Employee shall also be considered a Key Employee.
15.1-5 A "Nonkey Employee" means an Employee who at any time during the
five years ending on the top-heavy determination date for the Plan Year has
received compensation from an Employer and who has never been a Key Employee,
and the Beneficiary of any such Employee.
15.1-6 The "aggregated benefits" for any Plan Year means (i) the adjusted
account balances in defined contribution plans on the determination date, plus
(ii) the adjusted value of accrued benefits in defined benefit plans, calculated
as of the annual valuation date coinciding with or next preceding the
determination date, with respect to
<PAGE>
key Employees and Nonkey Employees under all plans within the plan aggregation
group which includes this Plan. For this purpose, the "adjusted account balance"
for and the "adjusted value of accrued benefit" for any Employee shall be
increased by all plan distributions made with respect to the Employee during the
five years ending on the determination date. Further, the adjusted account
balance under a plan shall not include any amount attributable to a rollover
contribution or similar transfer to the plan initiated by an Employee and made
after 1983, unless both plans involved are maintained by the Employer, in which
event the transferred amount shall be counted in the transferee plan and ignored
for all purposes in the transferor plan. Finally, the adjusted value of accrued
benefits under any defined benefit plan shall be determined by assuming
whichever actuarial assumptions were applied by the Pension Benefit Guaranty
Corporation to determine the sufficiency of plan assets for plans terminating on
the valuation date.
15.1-7 This Plan shall be "top-heavy" for any Plan Year in which the
aggregated benefits of the Key Employees exceed 60 percent of the total
aggregated benefits for both Key Employees and Nonkey Employee.
15.1-8 This Plan shall be "super top-heavy" for any Plan Year in
which the aggregated benefits of the Key Employees exceed 90 percent of the
total aggregated benefits for both Key Employees and Nonkey Employees.
15.1-9 A "Top-Heavy Year" means a Plan Year in which the Plan is
top-heavy.
15.2 Minimum Contributions. For any Top-Heavy Year, each Employer shall
make a special contribution on behalf of each Participant so that each Non-key
lv
<PAGE>
Employee's allocation of Employer Contributions and Forfeitures shall be equal
to the lesser of (i) 3% of such Non-key Employee's Total Compensation, or (ii)
the highest ratio of such allocation of Employer Contributions and Forfeitures
received by an Key Employee for that Plan Year. For purposes of the special
contribution of this Section 15.2, a Key Employee's Total Compensation shall
include amounts the Key Employee elected to defer under a qualified 401(k)
arrangement. Such a special contribution shall be made on behalf of each
Participant who is employed by the Employer on the last day of the Plan Year,
regardless of his Hours of Service.
For any Plan Year when (i) the Plan is top-heavy and (ii) a Non-key
Employee is a Participant in both this Plan and a defined benefit plan included
in the plan aggregation group which is top heavy, the sum of the Employer
Contributions and Forfeitures allocated to the Account of each such Non-key
Employee shall be equal to at least %5 of such Non-key Employee's Total
Compensation for that Plan Year.
If the Employer has more than one plan, the required minimum Top-Heavy Year
contribution shall be met in the other plan.
15.3 Minimum Vesting. If a Participant's vested interest in his Account is
to be determined in a Top-Heavy Year, it shall be based on the following "top-
heavy table":
<TABLE>
<CAPTION>
Vesting Percentage
Years Interest Vested
----- ---------------
<S> <C>
fewer than 2 0%
2 20%
3 40%
4 60%
</TABLE>
lvi
<PAGE>
<TABLE>
<S> <C>
5 80%
6 or more 100%
</TABLE>
15.4 Maximum Compensation. For any Top-Heavy Year, a Participant's "Cash
Compensation" as defined in Section 4.3, and his "Total Compensation" for
purposes of Section 15.2, shall not exceed $200,000 (or the limit currently in
effect under Section 415(d) of the Code.)
For any Plan Year beginning after 1993, a Participant's "Cash Compensation"
and his "Total Compensation" shall exclude any compensation in excess of the
OBRA '93 annual compensation limit of $150,000, as adjusted for increases in
cost of living in accordance with Section 401(a)(17)(B) of the Code.
lvii
<PAGE>
CERTIFICATE OF RESOLUTION
I, Carolyn Pihera, do hereby certify that I am the duly elected and acting
Secretary of Mid America Federal Savings Bank and that the following is a true
and correct copy of a certain resolution adopted by the Board of Directors of
said Corporation at their regular meeting held March 19, 1996, at which meeting
a quorum of said Corporation were present and acting throughout:
RESOLVED, that the Mid America Federal Savings Bank Employee Stock
Ownership Plan and its related Trust be amended to provide that the Trustee
thereunder shall vote and take other actions with respect to allocated stock for
which no participant instructions are received in a manner calculated to most
accurately reflect the instructions it has received from participants with
respect to allocated stock to the same extent that such proportional rule is
applicable under the Plan and Trust to voting and other actions with respect to
unallocated stock;
FURTHER RESOLVED, that the appropriate officers of the Bank be and hereby
are authorized and directed in the name and on behalf of the Bank and the Board
of Directors to cause to be prepared and to execute such amendments to the Plan
and Trust as deemed necessary or advisable to effectuate the foregoing
resolution and amendment of said Plan and Trust.
I do further certify that the foregoing resolution has not been altered or
amended, but remains in force and effect.
IN WITNESS WHEREOF, I have executed this Certificate and affixed the
Corporation's seal this 29th day of March, 1996.
/s/ Carolyn Pihera
- ------------------
Corporate Secretary
lviii
<PAGE>
Amendment to the Mid America Federal Savings Bank
Employee Stock Ownership Plan
March 19, 1996
Section 7.1 of the Mid America Federal Savings Bank Employee Stock Ownership
Plan is hereby amended, effective March 19, 1996, by deleting subsection (ii) in
its entirety and replacing it with the following:
(ii) the Trustee shall vote any allocated Stock for which no written
instructions have been received, and any unallocated Stock, in a manner
calculated to most accurately reflect the instructions it has received from
Participants regarding the allocated Stock.
lix
<PAGE>
EIGHTH AMENDMENT TO THE
MID AMERICA FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
This Eighth Amendment to the MidAmerica Federal Savings Bank Employee Stock
Ownership Plan was executed on November 26, 1996 by MidAmerica Federal Savings
Bank, an Illinois corporation.
Pursuant to the provisions of Section 13 of the MidAmerica Federal Savings
Bank Employee Stock Ownership Plan (the "Plan"), the Plan is hereby
amended:
Effective date January 1, 1997:
- ------------------------------
SECTION 1 - PLAN IDENTITY
- -------------------------
1.4 Fiscal Period. This Plan shall be operated on the basis of a January 1 -
December 31 fiscal year for the purpose of keeping the Plan's books and
records, and distributing or filing any reports or returns required by law.
Effective date January 1, 1997:
- ------------------------------
SECTION 2 - DEFINITIONS
- -----------------------
The following definition shall be changed:
"Plan Year" means each period of 12 consecutive months beginning on January
1 of 1997 and each succeeding year. Prior to July 1, 1996, the Plan Year
meant each period of 12 consecutive months beginning on July 1 of 1983 and
each succeeding year. The period beginning on July 1, 1996 and ending on
December 31, 1996 was a Short Plan Year.
Effective date July 1, 1996:
- ---------------------------
The following definition shall be added:
"Short Plan Year" means a Plan Year of less than 12 months. In accordance
with Internal Revenue Service Regulation 1.401(a)(17)-1(b)(3)(iii), the
compensation limit for a Short Plan Year shall be an amount equal to the
otherwise applicable annual compensation limit multiplied by a fraction,
the numerator of which is the number of months in the Short Plan Year, and
the denominator of which is 12.
In a Short Plan Year, if the Cash Compensation of any Participant consists
of or includes commissions, then the Participant's Cash Compensation
limitation shall be adjusted, with the exclusion of any Cash Compensation
in excess of $75,000 (with adjustment for cost of living increases
identical to the cost of living increases announced by the Internal Revenue
Service for retirement plan limitations), with the annual Cash Compensation
limitation multiplied by a fraction, the numerator of which is the number
of months in the Short Plan Year, and the denominator of which is 12.
lx
<PAGE>
In a Short Plan Year, the Hours of Service which must be credited to an
Active Participant in order for that Active Participant to receive an
Employer Contribution and Forfeiture allocation shall be adjusted, with the
1,000 Hours of Service requirement multiplied by a fraction, the numerator
of which is the number of months in the Short Plan Year, and the
denominator of which is 12.
lxi
<PAGE>
NINTH AMENDMENT TO THE
MID AMERICA FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
This Ninth Amendment to the MidAmerica Federal Savings Bank Employee Stock
Ownership Plan was executed on December 16, 1997 by MidAmerica Federal Savings
Bank, an Illinois corporation.
Pursuant to the provisions of Section 13 of the MidAmerica Federal Savings Bank
Employee Stock Ownership Plan (the "Plan"), the Plan is hereby amended:
Effective July 1, 1995:
- ----------------------
SECTION 3 - ELIGIBILITY FOR PARTICIPATION
- -----------------------------------------
Section 3 shall be amended by adding Section 3.7:
3.7 Military Service.
----------------
Effective with the Plan Year beginning on July 1, 1995, notwithstanding any
provision of this Plan to the contrary, contributions, benefits, and
service credit with respect to qualified military service will be provided
in accordance with Section 414(u) of the Internal Revenue Code.
Effective January 1, 1996:
- -------------------------
SECTION 10 - PAYMENT OF BENEFITS
- ----------------------------------
Section 10.1 shall be replaced in its entirety with the following:
10.1 Benefits for Participants.
-------------------------
A Participant whose Service ends for any reason shall receive the vested
portion of his Account in a single payment on a date selected by the
Committee. That date shall be on or before the 60th day after the end of
the Plan Year in which his Service ends. Notwithstanding the foregoing, if
the balance credited to his Account exceeds $3,500, his benefits shall not
be paid before the latest of his 65th birthday or the tenth anniversary of
the year in which he commenced participation in the Plan unless he elects
an early payment date in a written election filed with Committee. A
participant may modify such election at any time, provided any new benefit
payment date is at least 30 days after a modified election is delivered to
the Committee. A Participant's benefits from that portion of his Account
committed to the Investment Fund shall be calculated on the basis of the
most recent Valuation Date before the day of payment.
lxii
<PAGE>
Effective January 1, 1997
- -------------------------
Section 10 shall be amended by adding Section 10.1A:
10.1A Distribution Upon Attainment of Age 70 1/2.
Distributions must commence to a terminated Participant no later than the
April 1 following the calendar year in which the Participant attained age
70 1/2.
Effective January 1, 1997, a Participant who is in Service upon the
attainment of age 70 1/2 in 1997 or a subsequent Plan Year, and does not
own more than 5% of the Employer Stock, shall have the option to elect to
receive (or not to receive) an annual minimum distribution. If a
Participant elects not to receive an annual minimum distribution, a
required minimum distribution shall not commence until the calendar year in
which the Participant retires.
Prior to January 1, 1997, if a Participant was in Service upon the
attainment of age 70 1/2, minimum distribution payments had to commence by
April 1 of the calendar year following the calendar year in which the
Participant became 70 1/2.
Effective January 1, 1998
- -------------------------
Section 10.1 shall be replaced in its entirety with the following:
10.1 Benefits for Participants.
-------------------------
A Participant whose Service ends for any reason shall receive the vested
portion of his Account in a single payment on a date selected by the
Committee. That date shall be on or before the 60th day after the end of
the Plan Year in which his Service ends. Notwithstanding the foregoing, if
the balance credited to his Account exceeds $5,000, his benefits shall not
be paid before the latest of his 65th birthday or the tenth anniversary of
the year in which he commenced participation in the Plan, unless he elects
an early payment date in a written election filed with the Committee. A
Participant may modify such election at any time, provided any new benefit
payment date is at least 30 days after a modified election is delivered to
the Committee. A Participant's benefits from that portion of his Account
committed to the Investment Fund shall be calculated on the basis of the
most recent Valuation Date before the day of payment.
Prior to the Plan Year beginning on January 1, 1998, if the balance
credited to a Participant's Account exceeded $3,500, then his benefits were
not paid before the latest of his 65th birthday or the tenth anniversary of
the year in which he commenced participation in the Plan, unless he elected
an early payment date in a written election filed with the Committee.
lxiii
<PAGE>
Effective July 1, 1995:
- ----------------------
Section 10 shall be amended by adding Section 10.10:
10.10 Distribution of Assets Transferred from Money Purchase Pension Plan.
-------------------------------------------------------------------
Effective with the Plan Year beginning on July 1, 1995, notwithstanding any
provision of this Plan to the contrary, to the extent that any optional
form of benefit under this Plan permits a distribution prior to the
Employee's retirement, death, disability, or severance from employment, and
prior to plan termination, the optional form of benefit is not available
with respect to benefits attributable to assets (including the post-
transfer earnings thereon) and liabilities that are transferred, within the
meaning of Section 14(l) of the Internal Revenue Code, to this Plan from a
Money Purchase Pension Plan qualified under Section 401(a) of the Code
(other than any portion of those assets and liabilities attributable to
voluntary employee contributions).
Effective January 1, 1997:
- -------------------------
Section 10 shall be amended by adding Section 10.11:
10.11 In-Service Distribution Upon Attainment of Age 59 1/2.
-----------------------------------------------------
Effective with the Plan Year beginning on January 1, 1997, a Participant
who has attained the age of 59 1/2 may withdraw all or any part of the
balance in his Account.
lxiv
<PAGE>
TENTH AMENDMENT TO THE
MID AMERICA BANK, FSB
EMPLOYEE STOCK OWNERSHIP PLAN
This Tenth Amendment to the Mid America Bank, fsb, Employee Stock Ownership Plan
was executed on January 27, 1998 by Mid America Bank, fsb, an Illinois
corporation.
Pursuant to the provisions of Section 13 of the Mid America Bank, fsb, Employee
Stock Ownership Plan (the "Plan"), the Plan is hereby amended:
Effective January 1, 1998
- -------------------------
SECTION 1 - PLAN IDENTITY
- -------------------------
1.1 Name. The name of this Plan is "Mid America Bank, fsb, Employee Stock
Ownership Plan." The former Plan name was Mid America Federal Savings Bank
Employee Stock Ownership Plan.
SECTION 2 - DEFINITIONS
- -----------------------
The following definition shall be changed:
"Company" means Mid America Bank, fsb, and any entity which succeeds to the
business of Mid America Bank, fsb, and adopts this Plan as its own pursuant
to Section 13.2. Prior to 1998, the legal name of Mid America Bank, fsb was
Mid America Federal Savings Bank.
Effective January 1, 1997
- -------------------------
SECTION 10 - PAYMENT OF BENEFITS
- --------------------------------
Section 10 shall be amended by adding Section 10.1A:
10.1A Distribution Upon Attainment of Age 70 1/2.
Distributions must commence to a terminated Participant no later than the
April 1 following the calendar year in which the Participant attained age
70 1/2.
Effective January 1, 1997, a Participant who is in Service upon the
attainment of age 70 1/2, and who owns more than 5% of the Employer Stock,
shall commence to receive minimum distribution payments by April 1 of the
calendar year following the calendar year in which the Participant attained
age 70 1/2.
Prior to January 1, 1997, a Participant who was in Service upon the
attainment of age 70 1/2 and
lxv
<PAGE>
who did not own more than 5% of the Employer Stock, as well as a
Participant who owned more than 5% of the Employer Stock, had to commence
to receive minimum distribution payments by April 1 of the calendar year
following the calendar year in which the Participant became 70 1/2.
lxvi
<PAGE>
Exhibit 10(vii) Credit Agreement Dated As Of May 22, 1996, As Amended,
Between MAF Bancorp, Inc. And Harris Trust And Savings Bank
<PAGE>
================================================================================
Credit Agreement
Dated as of May 22, 1996,
Between
MAF Bancorp, Inc.
and
Harris Trust and Savings Bank
================================================================================
-2-
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Description Page
<S> <C> <C>
Section 1. The Credits................................................1
Section 1.1. Revolving Credit...........................................1
Section 1.2. Revolving Credit Loans.....................................1
Section 1.3. Letters of Credit..........................................2
Section 1.4. Term Credit................................................4
Section 1.5. Manner and Disbursement of Loans...........................5
Section 2. Interest and Change In Circumstances.......................6
Section 2.1. Interest Rate Options......................................6
Section 2.2. Minimum Fixed Rate Portions................................7
Section 2.3. Computation of Interest....................................7
Section 2.4. Manner of Rate Selection...................................7
Section 2.5. Change of Law..............................................8
Section 2.6. Unavailability of Deposits or Inability to Ascertain
Adjusted LIBOR............................................8
Section 2.7. Taxes and Increased Costs..................................8
Section 2.8. Funding Indemnity..........................................9
Section 2.9. Treasury Rate Portion Prepayment Fee......................10
Section 2.10. Lending Branch............................................11
Section 2.11. Discretion of Lender as to Manner of Funding..............11
Section 3. Fees, Prepayments, Terminations, and Applications.........11
Section 3.1. Fees......................................................11
Section 3.2. Voluntary Prepayments.....................................12
Section 3.3. Mandatory Termination.....................................12
Section 3.4. Voluntary Terminations....................................13
</TABLE>
-1-
<PAGE>
<TABLE>
<S> <C> <C>
Section 3.5. Place and Application of Payments.........................13
Section 3.6. Notations.................................................13
Section 4. Definitions; Interpretation...................................14
Section 4.1. Definitions...............................................14
Section 4.2. Interpretation............................................21
Section 5. Representations and Warranties................................21
Section 5.1. Organization and Qualification............................21
Section 5.2. Subsidiaries..............................................22
Section 5.3. Corporate Authority and Validity of Obligations...........22
Section 5.4. Use of Proceeds; Margin Stock.............................23
Section 5.5. Financial Reports.........................................23
Section 5.6. No Material Adverse Change................................24
Section 5.7. Full Disclosure...........................................24
Section 5.8. Good Title................................................24
Section 5.9. Litigation and Other Controversies........................24
Section 5.10. Taxes.....................................................24
Section 5.11. Approvals.................................................24
Section 5.12. Affiliate Transactions....................................25
Section 5.13. Investment Company; Public Utility Holding Company........25
Section 5.14. ERISA.....................................................25
Section 5.15. Compliance with Laws......................................25
Section 5.16. Other Agreements..........................................26
Section 5.17. Merger....................................................26
Section 5.18. No Default................................................26
Section 6. Conditions Precedent..........................................26
Section 6.1. All Advances..............................................26
Section 6.2. Initial Advance...........................................27
-2-
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 7. Covenants............................................................... 29
Section 7.1. Maintenance of Business............................................. 29
Section 7.2. Maintenance of Properties........................................... 29
Section 7.3. Taxes and Assessments............................................... 30
Section 7.4. Insurance........................................................... 30
Section 7.5. Financial Reports................................................... 30
Section 7.6. Inspection.......................................................... 32
Section 7.7. Non-Performing Assets............................................... 32
Section 7.8. Regulatory Capital Requirements..................................... 32
Section 7.9. Tangible Capital Ratio.............................................. 33
Section 7.10. Adjusted Net Worth.................................................. 33
Section 7.11. Adjusted Net Income................................................. 33
Section 7.12. Indebtedness for Borrowed Money..................................... 33
Section 7.13. Liens............................................................... 34
Section 7.14. Mergers and Consolidations.......................................... 34
Section 7.15. Maintenance of Subsidiaries......................................... 34
Section 7.16. Dividends and Certain Other Restricted Payments..................... 34
Section 7.17. Subordinated Debt................................................... 35
Section 7.18. ERISA............................................................... 35
Section 7.19. Compliance with Laws................................................ 35
Section 7.20. Burdensome Contracts With Affiliates................................ 35
Section 7.21. Change in the Nature of Business.................................... 35
Section 7.22. Regulatory-Mandated Disposition of MAF Developments................. 35
Section 8. Events of Default and Remedies.......................................... 36
Section 8.1. Events of Default................................................... 36
Section 8.2. Non-Bankruptcy Defaults............................................. 38
Section 8.3. Bankruptcy Defaults................................................. 38
Section 8.4. Collateral for Undrawn Letters of Credit............................ 39
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C> <C>
Section 9. Miscellaneous........................................................... 39
Section 9.1. Non-Business Days................................................... 39
Section 9.2. No Waiver, Cumulative Remedies...................................... 39
Section 9.3. Amendments.......................................................... 40
Section 9.4. Costs and Expenses.................................................. 40
Section 9.5. Documentary Taxes................................................... 40
Section 9.6. Survival of Representations......................................... 40
Section 9.7. Participations...................................................... 40
Section 9.8. Notices............................................................. 41
Section 9.9. Confidentiality..................................................... 41
Section 9.10. Headings............................................................ 42
Section 9.11. Severability of Provisions.......................................... 42
Section 9.12. Counterparts........................................................ 42
Section 9.13. Entire Understanding................................................ 42
Section 9.14. Binding Nature, Governing Law, Etc.................................. 42
Section 9.15. Submission to Jurisdiction; Waiver of Jury Trial.................... 42
Signature............................................................................... 43
</TABLE>
Exhibit A - Revolving Credit Note
Exhibit B - Term Note
Exhibit C - Compliance Certificate
Exhibit D-1 - Opinion of Counsel
Exhibit D-2 - Opinion of Company Counsel/Merger
Schedule 5.2 - Subsidiaries
Schedule 7.12 - Existing Indebtedness
-4-
<PAGE>
Credit Agreement
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
The undersigned, MAF Bancorp, Inc., a Delaware corporation (the "Company"),
applies to you (the "Lender") for your commitment, subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth, to extend credit to the Company, all as more fully
hereinafter set forth.
Section 1. The Credits.
Section 1.1. Revolving Credit. Subject to the terms and conditions
hereof, the Lender agrees to extend a revolving credit (the "Revolving Credit")
to the Company which may be availed of by the Company from time to time during
the period from and including the date hereof to but not including the Revolving
Credit Termination Date, at which time the commitment of the Lender to extend
credit under the Revolving Credit shall expire. The Revolving Credit may be
utilized by the Company in the form of Revolving Credit Loans and Letters of
Credit, all as more fully hereinafter set forth, provided that the aggregate
principal amount of Revolving Credit Loans and Letters of Credit outstanding at
any one time shall not exceed the Revolving Credit Commitment. During the
period from and including the date hereof to but not including the Revolving
Credit Termination Date, the Company may use the Revolving Credit Commitment by
borrowing, repaying and reborrowing Revolving Credit Loans in whole or in part
and/or by having the Lender
-5-
<PAGE>
issue Letters of Credit, having such Letters of Credit expire or otherwise
terminate without having been drawn upon or, if drawn upon, reimbursing the
Lender for each such drawing, and having the Lender issue new Letters of Credit,
all in accordance with the terms and conditions of this Agreement. For purposes
of this Agreement, where a determination of the unused or available amount of
the Revolving Credit Commitment is necessary, the Revolving Credit Loans and
Letters of Credit shall be deemed to utilize the Revolving Credit Commitment in
an amount equal to the outstanding principal amounts thereof.
Section 1.2. Revolving Credit Loans. Subject to the terms and conditions
hereof, the Revolving Credit may be availed of by the Company in the form of
loans (individually a "Revolving Credit Loan" and collectively the "Revolving
Credit Loans"). Each Revolving Credit Loan shall be in an amount of $500,000 or
such greater amount which is an integral multiple of $100,000; provided,
however, that a Revolving Credit Loan, or part thereof, which bears interest
with reference to the Adjusted LIBOR shall be in such greater amount as is
required by Section 2.2 hereof. All Revolving Credit Loans made by the Lender
shall be made against and evidenced by a single Revolving Credit Note of the
Company (the "Revolving Credit Note") payable to the order of the Lender in the
amount of its Revolving Credit Commitment, with the Revolving Credit Note to be
in the form (with appropriate insertions) attached hereto as Exhibit A. The
Revolving Credit Note shall be dated the date of issuance thereof, be expressed
to bear interest as set forth in Section 2 hereof, and be expressed to mature on
the Revolving Credit Termination Date. Without regard to the principal amount of
the Revolving Credit Note stated on its face, the actual principal amount at any
time outstanding and owing by the Company on account thereof shall be the sum of
all advances then or theretofore made thereon less all payments of principal
actually
-6-
<PAGE>
received.
Section 1.3. Letters of Credit.
(a) General Terms. Subject to the terms and conditions hereof, the
Revolving Credit may be availed of by the Company in the form of standby
letters of credit issued by the Lender for the account of the Company or,
at the Company's option, for the account of the Company and MAF
Developments, jointly and severally (individually a "Letter of Credit" and
collectively the "Letters of Credit"), provided that the aggregate amount
of Letters of Credit issued and outstanding hereunder shall not at any time
exceed $10,000,000. For purposes of this Agreement, a Letter of Credit
shall be deemed outstanding as of any time in an amount equal to the
maximum amount which could be drawn thereunder under any circumstances and
over any period of time plus any unreimbursed drawings then outstanding
with respect thereto. If and to the extent any Letter of Credit expires or
otherwise terminates without having been drawn upon, the availability under
the Revolving Credit Commitment shall to such extent be reinstated.
(b) Term. Each Letter of Credit issued hereunder shall expire not
later than 18 months from the date of issuance (or be cancelable not later
than 18 months from the date of issuance and each renewal); provided,
however, that for any Letter of Credit with an expiry date extending beyond
the Revolving Credit Termination Date, the Company hereby agrees to (i)
deposit cash with the Lender on or before the Revolving Credit Termination
Date in an amount equal to the aggregate amount of such Letter of Credit or
(ii) deposit with the Lender on or before the Revolving Credit Termination
Date investments in direct obligations of the United States of America or
of any agency or instrumentality thereof whose obligations constitute full
faith and credit
-7-
<PAGE>
obligations of the United States of America in amounts and with such
maturities as are acceptable to the Lender, in each case to be held by the
Lender in the Account referred to in Section 8.4 hereof as collateral
security for any and all Obligations pursuant to the terms of Section 8.4
hereof, provided that if the amount of any such Letter of Credit is
thereafter reduced, and so long as no Default or Event of Default has
occurred and is continuing, at the request of the Company, the Lender will
immediately return any cash or investments in the Account, and any proceeds
or earnings on such cash and investments, in excess of the remaining amount
of such Letter of Credit.
(c) General Characteristics. Each Letter of Credit issued hereunder
shall be payable in U.S. Dollars, conform to the general requirements of
the Lender for the issuance of standby letters of credit as to form and
substance, and be a letter of credit which the Lender may lawfully issue.
(d) Applications. At the time the Company requests each Letter of
Credit to be issued (or prior to the first issuance of a Letter of Credit
in the case of a continuing application), the Company shall execute and
deliver to the Lender an application for such Letter of Credit in the form
then customarily prescribed by the Lender (individually an "Application"
and collectively the "Applications"). Subject to the other provisions of
this subsection, the obligation of the Company to reimburse the Lender for
drawings under a Letter of Credit shall be governed by the Application for
such Letter of Credit. Anything contained in the Applications to the
contrary notwithstanding, (i) in the event the Lender is not reimbursed by
the Company for the amount the Lender pays on any draft drawn under a
Letter of Credit issued hereunder by 2:00 p.m. (Chicago time) on the date
when such drawing is paid, the obligation of the Company to reimburse the
Lender for the amount of such draft paid shall bear interest
-8-
<PAGE>
(which the Company hereby promises to pay on demand) from and after the
date the draft is paid until payment in full thereof at a fluctuating rate
per annum determined by adding 2% to the Domestic Rate as from time to time
in effect (computed on the basis of a year of 360 days for the actual
number of days elapsed), (ii) the Company shall pay fees in connection with
each Letter of Credit as set forth in Section 3 hereof, (iii) except during
the existence of a Default or an Event of Default, the Lender will not call
for additional collateral security for the obligations of the Company under
the Applications except as otherwise provided in Section 1.3(b) hereof, and
(iv) except during the existence of a Default or an Event of Default, the
Lender will not call for the funding of a Letter of Credit by the Company
prior to being presented with a draft drawn thereunder (or, in the event
the draft is a time draft, prior to its due date) except as otherwise
provided in Section 1.3(b) hereof.
(e) Change in Laws. If the Lender shall determine that any change in
any applicable law, regulation or guideline (including, without limitation,
Regulation D of the Board of Governors of the Federal Reserve System) or
any new law, regulation or guideline, or any interpretation of any of the
foregoing by any governmental authority charged with the administration
thereof or any central bank or other fiscal, monetary or other authority
having jurisdiction over the Lender (whether or not having the force of
law), shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against the Letters of Credit, or the
Lender's or the Company's liability with respect thereto; or
(ii) impose on the Lender any penalty with respect to the
foregoing or any other condition regarding this
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<PAGE>
Agreement, the Applications or the Letters of Credit;
and the Lender shall determine that the result of any of the foregoing is to
increase the cost (whether by incurring a cost or adding to a cost) to the
Lender of issuing or maintaining the Letters of Credit hereunder (without
benefit of, or credit for, any prorations, exemptions, credits or other offsets
available under any such laws, regulations, guidelines or interpretations
thereof), then the Company shall pay on demand to the Lender from time to time
as specified by the Lender such additional amounts as the Lender shall determine
are sufficient to compensate and indemnify it for such increased cost. If the
Lender makes such a claim for compensation, it shall provide the Company a
certificate setting forth the computation of the increased cost as a result of
any event mentioned herein in reasonable detail and such certificate shall be
conclusive if reasonably determined (absent manifest error).
Section 1.4. Term Credit. Subject to the terms and conditions hereof, the
Lender agrees to make a loan (the "Term Loan") to the Company in an amount up to
the Lender's Term Loan Commitment. There shall be a single borrowing under the
Term Loan Commitment which shall be made, if at all, on or before August 31,
1996, at which time the commitment of the Lender to make a Term Loan under the
Term Loan Commitment shall expire. There shall be one borrowing under the Term
Loan Commitment, and any portion of the Term Loan Commitment not requested by
the Company on the occasion of such borrowing shall thereupon expire. The Term
Loan made by the Lender to the Company shall be evidenced by a Term Note of the
Company (the "Term Note") payable to the order of the Lender in the amount of
its Term Loan Commitment, with the Term Note to be in the form (with appropriate
insertions) attached hereto as Exhibit B. The Term Note shall be dated the date
of issuance thereof and be
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<PAGE>
expressed to bear interest as set forth in Section 2 hereof. The Company hereby
promises to make principal payments on the Term Note in installments on the
dates set forth in column A below each in an amount equal to the amount set
forth in column B below opposite the relevant due date:
If the original principal amount of the Term Loan is $30,000,000, or less,
then principal payments on the Term Note shall be as follows:
<TABLE>
<CAPTION>
A B
Scheduled Principal Payment
Payment Date on Term Note
<S> <C>
12/31/1997 $ 500,000
12/31/1998 $1,500,000
12/31/1999 $2,600,000
12/31/2000 $3,800,000
12/31/2001 $6,000,000
12/31/2002 $7,800,000
12/31/2003 remaining principal balance of Term
Loan
</TABLE>
If the original principal amount of the Term Loan is more than $30,000,000,
but less than or equal to $35,000,000, then principal payments on the Term Note
shall be as follows:
<TABLE>
<CAPTION>
A B
Scheduled Principal Payment
Payment Date on Term Note
<S> <C>
12/31/1997 $ 500,000
12/31/1998 $1,500,000
12/31/1999 $3,100,000
</TABLE>
-11-
<PAGE>
<TABLE>
<S> <C>
12/31/2000 $4,500,000
12/31/2001 $7,000,000
12/31/2002 $9,200,000
12/31/2003 remaining principal balance of Term
Loan
</TABLE>
If the original principal amount of the Term Loan is more than $35,000,000,
but less than or equal to $40,000,000, then principal payments on the Term Note
shall be as follows:
<TABLE>
<CAPTION>
A B
Scheduled Principal Payment
Payment Date on Term Note
<S> <C>
12/31/1997 $ 500,000
12/31/1998 $ 1,500,000
12/31/1999 $ 3,500,000
12/31/2000 $ 5,500,000
12/31/2001 $ 8,000,000
12/31/2002 $10,500,000
12/31/2003 remaining principal balance of Term
Loan
</TABLE>
Section 1.5. Manner and Disbursement of Loans. The Company shall give
written or telephonic notice to the Lender (which notice shall be irrevocable
once given) by no later than 11:00 a.m. (Chicago time) on the date the Company
requests that any Loan be made to it under the Commitments. Each such notice
shall specify the date of the Loan requested (which must be a Business Day), the
type of Loan being requested, and the amount thereof. Each Loan shall initially
constitute part of the applicable Domestic Rate Portion except to the extent the
Company has otherwise timely elected that such Loan, or any part thereof,
constitute part of a Fixed Rate Portion as provided in
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<PAGE>
Section 2 hereof. The Company agrees that the Lender may rely upon any written
or telephonic notice given by any person the Lender in good faith believes is an
Authorized Representative without the necessity of independent investigation
and, in the event any telephonic notice conflicts with any written confirmation,
such telephonic notice shall govern if the Lender has acted in reliance thereon.
Subject to the provisions of Section 6 hereof, the proceeds of each Loan shall
be made available to the Company at the principal office of the Lender in
Chicago, Illinois, in immediately available funds.
Section 2. Interest and Change In Circumstances.
Section 2.1. Interest Rate Options.
(a) Portions. Subject to the terms and conditions of this Section 2,
portions of the principal indebtedness evidenced by the Notes (all of the
indebtedness evidenced by Notes of the same type bearing interest at the same
rate for the same period of time being hereinafter referred to as a "Portion")
may, at the option of the Company, bear interest with reference to the Domestic
Rate ("Domestic Rate Portions") or with reference to the Adjusted LIBOR ("LIBOR
Portions") or, with respect to indebtedness evidenced by the Term Note, with
reference to the Treasury Rate ("Treasury Rate Portions"). Subject to the terms
and conditions of this Section 2, the Domestic Rate Portion or LIBOR Portions of
Notes of the same type may be converted from time to time from one basis to the
other, and, with reference to the indebtedness evidenced by the Term Note, the
Domestic Rate Portion and any LIBOR Portions thereof may be converted from time
to time during the term of this Agreement into one or more Treasury Rate
Portions. Once a Treasury Rate Portion is selected with respect to all or any
part of the indebtedness evidenced by the Term Note, such Portion shall remain a
Treasury Rate Portion
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<PAGE>
hereunder until paid in full. All of the indebtedness evidenced by a Note which
is not part of a LIBOR Portion or, with reference to the Term Note, a Treasury
Rate Portion shall constitute a single Domestic Rate Portion applicable to such
Note. All of the indebtedness evidenced by a Note which bears interest with
reference to a particular Adjusted LIBOR for a particular Interest Period shall
constitute a single LIBOR Portion applicable to such Note. There shall not be
more than five LIBOR Portions applicable to the Revolving Credit Note
outstanding at any one time. There shall be not more than seven Fixed Rate
Portions applicable to the Term Note outstanding at any one time, and there
shall not be more than five Treasury Rate Portions applicable to the Term Note
during the term of this Agreement. Anything contained herein to the contrary
notwithstanding, the obligation of the Lender to create, continue or effect by
conversion any Fixed Rate Portion shall be conditioned upon the fact that at the
time no Default or Event of Default shall have occurred and be continuing. The
Company hereby promises to pay interest on each Portion at the rates and times
specified in this Section 2.
(b) Domestic Rate Portion. Each Domestic Rate Portion shall bear
interest at the rate per annum determined equal to the Domestic Rate as in
effect from time to time, provided that if a Domestic Rate Portion or any part
thereof is not paid when due (whether by lapse of time, acceleration or
otherwise) such Portion shall bear interest, whether before or after judgment,
until payment in full of the amount then due at the rate per annum determined by
adding 2% to the interest rate which would otherwise be applicable thereto from
time to time. Interest on each Domestic Rate Portion shall be payable quarterly
in arrears on the last day of each March, June, September and December in each
year (commencing September 30, 1996) and at maturity of the applicable Note, and
interest after maturity (whether by lapse
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<PAGE>
of time, acceleration or otherwise) shall be due and payable upon demand. Any
change in the interest rate on the Domestic Rate Portions resulting from a
change in the Domestic Rate shall be effective on the date of the relevant
change in the Domestic Rate.
(c) LIBOR Portions. Each LIBOR Portion shall bear interest for each
Interest Period selected therefor at a rate per annum determined by adding 1% to
the Adjusted LIBOR for such Interest Period, provided that if any LIBOR Portion
is not paid when due (whether by lapse of time, acceleration or otherwise) such
Portion shall bear interest, whether before or after judgment, until payment in
full of the amount then due through the end of the interest period then
applicable thereto at the rate per annum determined by adding 2% to the interest
rate which would otherwise be applicable thereto, and effective at the end of
such Interest Period such LIBOR Portion shall automatically be converted into
and added to the applicable Domestic Rate Portion and shall thereafter bear
interest at the interest rate applicable to such Domestic Rate Portion.
Interest on each LIBOR Portion shall be due and payable on the last day of each
Interest Period applicable thereto, and interest after maturity (whether by
lapse of time, acceleration or otherwise) shall be due and payable upon demand.
The company shall notify the Lender on or before 11:00 a.m. (Chicago time) on
the third Business Day preceding the end of an interest period applicable to a
LIBOR Portion whether such LIBOR Portion is to continue as a LIBOR Portion, in
which event the Company shall notify the Lender of the new Interest Period
selected therefor, and in the event the Company shall fail to so notify the
Lender, such LIBOR Portion shall automatically be converted into and added to
the applicable Domestic Rate Portion as of and on the last day of such Interest
Period.
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<PAGE>
(d) Treasury Rate Portion. EAch Treasury Rate Portion of the Term Note
shall bear interest at a fixed rate per annum determined by adding 1-1/4% to the
Treasury Rate determined with respect to such Portion, provided that if any
Treasury Rate Portion, or any part thereof, is not paid when due (whether by
lapse of time, acceleration or otherwise), such Portion shall bear interest,
whether before or after judgment, until payment in full of the amount then due
at the rate per annum determined by adding 2% to the interest rate which would
otherwise be applicable thereto. Interest on each Treasury Rate Portion of the
Term Note shall be payable quarterly in arrears on the last day of each March,
June, September and December in each year (commencing on the first such date
occurring after such Treasury Rate Portion is selected by the Company Pursuant
to section 2.4 hereof) and at maturity of the Term Note, and interest after
maturity (whether by lapse of time, acceleration or otherwise) shall be due and
payable upon demand.
Section 2.2. Minimum Fixed Rate Portions. Each LIBOR Portion applicable
to the Revolving Credit Note shall be in an amount equal to $1,000,000 or such
greater amount which is an integral multiple of $1,000,000, and each Fixed Rate
Portion applicable to the Term Note shall be in an amount equal to $5,000,000 or
such greater amount which is an integral multiple of $1,000,000.
Section 2.3. Computation of Interest. All interest on the Notes shall be
computed on the basis of a year of 360 days for the actual number of days
elapsed.
Section 2.4. Manner of Rate Selection. The Company shall notify the
Lender by 11:00 a.m. (Chicago time) at least three Business Days prior to the
date upon which the Company requests that (i) any LIBOR Portion be created or
that any part of the applicable Domestic Rate Portion be converted into a LIBOR
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<PAGE>
Portion and (ii) any Treasury Rate Portion be created or that any part of the
Domestic Rate Portion or any part of a LIBOR Portion applicable to the Term Note
be converted into a Treasury Rate Portion (each such notice to specify in each
instance the amount thereof and the Interest Period selected therefor). If any
request is made to convert a LIBOR Portion into another type of Portion
available hereunder, such conversion shall only be made so as to become
effective as of the last day of the Interest Period applicable thereto. All
requests for the creation, continuance and conversion of Portions under this
Agreement shall be irrevocable. Such requests may be written or oral and the
Lender is hereby authorized to honor telephonic requests for creations,
continuances and conversions received by it from any person the Lender in good
faith believes to be an Authorized Representative without the necessity of
independent investigation, the Company hereby indemnifying the Lender from any
liability or loss ensuing from so acting.
Section 2.5. Change of Law. Notwithstanding any other provisions of this
Agreement or any Note, if at any time the Lender shall determine that any change
in applicable laws, treaties or regulations or in the interpretation thereof
makes it unlawful for the Lender to create or continue to maintain any LIBOR
Portion, it shall promptly so notify the Company and the obligation of the
Lender to create, continue or maintain any such LIBOR Portion under this
Agreement shall terminate until it is no longer unlawful for the Lender to
create, continue or maintain such LIBOR Portion. The Company, on demand, shall,
if the continued maintenance of any such LIBOR Portion is unlawful, thereupon
prepay the outstanding principal amount of the affected LIBOR Portion, together
with all interest accrued thereon and all other amounts payable to the Lender
with respect thereto under this Agreement; provided, however, that the Company
may elect to convert the principal amount of the
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<PAGE>
affected LIBOR Portion into another type of Portion available hereunder, subject
to the terms and conditions of this Agreement.
Section 2.6. Unavailability of Deposits or Inability to Ascertain Adjusted
LIBOR. Notwithstanding any other provision of this Agreement or any Note, if
prior to the commencement of any Interest Period, the Lender shall determine
that deposits in the amount of any LIBOR Portion scheduled to be outstanding
during such Interest Period are not readily available to the Lender in the
relevant market or, by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining Adjusted LIBOR, then
the Lender shall promptly give notice thereof to the Company and the obligation
of the Lender to create, continue or effect by conversion any such LIBOR Portion
in such amount and for such Interest Period shall terminate until deposits in
such amount and for the Interest Period selected by the Company shall again be
readily available in the relevant market and adequate and reasonable means exist
for ascertaining Adjusted LIBOR.
Section 2.7. Taxes and Increased Costs. With respect to any LIBOR
Portion, if the Lender shall determine that any change in any applicable law,
treaty, regulation or guideline (including, without limitation, Regulation D of
the Board of Governors of the Federal Reserve System) or any new law, treaty,
regulation or guideline, or any interpretation of any of the foregoing by any
governmental authority charged with the administration thereof or any central
bank or other fiscal, monetary or other authority having jurisdiction over the
Lender or its lending branch or the LIBOR Portions contemplated by this
Agreement (whether or not having the force of law), shall:
(i) impose, increase, or deem applicable any reserve,
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<PAGE>
special deposit or similar requirement against assets held by, or deposits
in or for the account of, or loans by, or any other acquisition of funds or
disbursements by, the Lender which is not in any instance already accounted
for in computing the interest rate applicable to such LIBOR Portion;
(ii) subject the Lender, any LIBOR Portion or a Note to the extent
it evidences any LIBOR Portion to any tax (including, without limitation,
any United States interest equalization tax or similar tax however named
applicable to the acquisition or holding of debt obligations and any
interest or penalties with respect thereto), duty, charge, stamp tax, fee,
deduction or withholding in respect of this Agreement, any LIBOR Portion or
a Note to the extent it evidences any LIBOR Portion, except such taxes as
may be measured by the overall net income or gross receipts of the Lender
or its lending branches and imposed by the jurisdiction, or any political
subdivision or taxing authority thereof, in which the Lender's principal
executive office or its lending branch is located;
(iii) change the basis of taxation of payments of principal and
interest due from the Company to the Lender hereunder or under a Note to
the extent it evidences any LIBOR Portion (other than by a change in
taxation of the overall net income or gross receipts of the Lender or its
lending branches); or
(iv) impose on the Lender any penalty with respect to the foregoing
or any other condition regarding this Agreement, any LIBOR Portion, or a
Note to the extent it evidences any LIBOR Portion;
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<PAGE>
and the Lender shall determine that the result of any of the foregoing is to
increase the cost (whether by incurring a cost or adding to a cost) to the
Lender of creating or maintaining any LIBOR Portion hereunder or to reduce the
amount of principal or interest received or receivable by the Lender (without
benefit of, or credit for, any prorations, exemption, credits or other offsets
available under any such laws, treaties, regulations, guidelines or
interpretations thereof), then the Company shall pay on demand to the Lender
from time to time as specified by the Lender the additional amounts as the
Lender shall reasonably determine are sufficient to compensate and indemnify it
for such increased cost or reduced amount. If the Lender makes such a claim for
compensation, it shall provide to the Company a certificate setting forth the
computation of the increased cost or reduced amount as a result of any event
mentioned herein in reasonable detail and such certificate shall be conclusive
if reasonably determined.
Section 2.8. Funding Indemnity. In the event the Lender shall incur any
loss, cost or expense (including, without limitation, any loss (including loss
of profit), cost or expense incurred by reason of the liquidation or re-
employment of deposits or other funds acquired or contracted to be acquired by
the Lender to fund or maintain its part of any LIBOR Portion or the relending or
reinvesting of such deposits or other funds or amounts paid or prepaid to the
Lender) as a result of:
(i) any payment of a LIBOR Portion on a date other than the last day
of the then applicable Interest Period for any reason, whether before or
after default, and whether or not such payment is required by any
provisions of this Agreement; or
(ii) any failure by the Company to create, borrow,
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<PAGE>
continue or effect by conversion a LIBOR Portion on the date specified in a
notice given pursuant to this Agreement;
then, upon the demand of the Lender, the Company shall pay to the Lender such
amount as will reimburse the Lender for such loss, cost or expense. If the
Lender requests such reimbursement under this Section, it shall provide to the
Company a certificate setting forth the computation of the loss, cost, or
expense giving rise to the request for reimbursement in reasonable detail and
such certificate shall be conclusive if reasonably determined (absent manifest
error).
Section 2.9. Treasury Rate Portion Prepayment Fee. If the Company makes
any prepayment of principal of any Treasury Rate Portion of the Term Note (after
giving effect to any application direction given by the Company in accordance
with Section 3.5 hereof) or is required to pay any Treasury Rate Portion of the
Term Note prior to its stated maturity for any reason (including, without
limitation, payments required after the occurrence of an Event of Default under
Sections 8.2 and 8.3 hereof), the Company shall pay upon demand by the Lender
the amount determined based on this Section 2.9 in good faith by the Lender by
which the Current Value (as hereinafter defined) of the interest which would
have accrued on such Treasury Rate Portion, or portion thereof, to its next
regularly scheduled payment date(s) (for purposes of this determination, each
remaining principal payment of the Term Loan shall be deemed to consist of a
ratable amount of each outstanding Portion of the Term Loan based upon the
principal amounts thereof), exceeds the Current Value (as hereinafter defined)
of the amount which the Lender could earn on an investment in the principal
amount paid or prepaid to the Lender maturing on such date(s), and yielding
interest at the Treasury Yield (as hereinafter defined). The Company hereby
agrees that the amount recoverable under this Section is a
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<PAGE>
reasonable pre-estimate of loss and is not a penalty, and that such amount is
payable as liquidated damages to the Lender for the loss it suffers as a result
of the occurrence of any of the events specified hereunder. Payment of the
amount specified hereunder is without prejudice to the payment of the principal
of and accrued interest on such Treasury Rate Portion, as specified in Section
2.1 hereof, together with all other amounts payable under this Agreement. For
purposes hereof, the following terms shall have the following meanings:
"Current Value" means, with respect to the interest payable on the
relevant Treasury Rate Portion and the amount which the Lender could earn
on the alternative investment referred to above, such amounts discounted on
an annual basis to their current value (computed on the basis of a year of
360 days, as the case may be, and actual days elapsed) from the date such
amounts would have been paid to the date of determination at a discount
rate equal to the Treasury Yield.
"Treasury Yield" means the average of the yields to maturity,
expressed on a bond equivalent basis, which two leading United States
government securities dealers of recognized standing selected by the Lender
reasonably estimate to be the highest yield the Lender could have obtained
if it had purchased on the date of determination United States Treasury
Bonds, Notes or Bills in an aggregate principal amount equal to the
principal amount paid or prepaid to the Lender maturing on a date or dates
reasonably close to the next regularly scheduled payment date(s) of the
Term Note (determined as set forth above in the Section 2.9), and being
traded in the secondary market in reasonable volume at a price reasonably
close to par, all in accordance with United States domestic practice
prevailing
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<PAGE>
as of the date of determination.
If the Lender requests such indemnification under this Section, it shall provide
to the Company a certificate setting forth the computation of the loss, cost or
expense giving rise to the request for indemnification in reasonable detail and
such certificate shall be conclusive if reasonably determined (absent manifest
error).
Section 2.10. Lending Branch. The Lender may, at its option, elect to
make, fund or maintain the Loans hereunder at the branches or offices specified
on the signature pages hereof or at such of its branches or offices as the
Lender may from time to time elect.
Section 2.11. Discretion of Lender as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, the Lender
shall be entitled to fund and maintain its funding of all or any part of the
Notes in any manner it sees fit (provided the same is in accordance with this
Agreement), it being understood, however, that for purposes of this Agreement
all determinations hereunder with respect to LIBOR Portions (including, without
limitation, determinations under Sections 2.6, 2.7 and 2.8 hereof) shall be made
as if the Lender had actually funded and maintained each LIBOR Portion during
each Interest Period applicable thereto through the purchase of deposits in the
relevant market in the amount of such LIBOR Portion, having a maturity
corresponding to such Interest Period, and bearing an interest rate equal to the
LIBOR for such Interest Period.
Section 3. Fees, Prepayments, Terminations, and Applications.
Section 3.1. Fees. (a) Commitment Fee. For the period from
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and including the date hereof to but not including the Revolving Credit
Termination Date, the Company shall pay to the Lender a commitment fee at the
rate of 1/4 of 1% per annum (computed on the basis of a year of 360 days for the
actual number of days elapsed) on the average daily unused portion of the
Revolving Credit Commitment. Such commitment fee shall be payable quarterly in
arrears on the last day of each March, June, September, and December in each
year (commencing September 30, 1996) and on the Revolving Credit Termination
Date.
(b) Letter of Credit Fees. On the date of issuance of each Letter of
Credit, and as condition thereto, and annually thereafter, the Company shall pay
to the Lender a letter of credit fee computed at the rate of 1% per annum
(computed on the basis of a year of 360 days for the actual number of days
elapsed) on the maximum amount of the related Letter of Credit which is
scheduled to be outstanding during the immediately succeeding twelve (12)
months. In addition to the letter of credit fee called for above, the Company
further agrees to pay to the Lender such processing and transaction fees and
charges as the Lender from time to time customarily imposes in connection with
any amendment, cancellation, negotiation and/or payment of letters of credit and
drafts drawn thereunder.
(c) Arrangement Fee. On the date hereof, the Company shall pay to the
Lender a fee as mutually agreed upon by the Company and the Lender.
Section 3.2. Voluntary Prepayments. The Company shall have the privilege
of prepaying the Revolving Credit Loans and the Term Loan in whole or in part
(but if in part, then (i) if such Loans constitute part of a Domestic Rate
Portion, in an amount not less than $100,000, (ii) if such Loan constitutes part
of a LIBOR Portion, in an amount not less than $1,000,000, (iii) if,
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in the case of the Term Loan, such Loan constitutes part of the Treasury Rate
Portion, in an amount not less than $1,000,000, and (iv) in each case, in an
amount such that the minimum amount required for a borrowing of Revolving Credit
Loans, for a LIBOR Portion of the relevant Loans, or for a Treasury Rate Portion
of the Term Loan pursuant to Sections 1.2, 2.2 and 2.4 hereof remains
outstanding) at any time upon 1 Business Day prior notice to the Lender (such
notice if received subsequent to 2:00 p.m. (Chicago time) on a given day to be
treated as though received at the opening of business on the next Business Day),
by paying to the Lender the principal amount to be prepaid and (i) if such a
prepayment prepays the Term Note in whole or in part, accrued interest thereon
to the date of prepayment, (ii) if such a prepayment prepays the Revolving
Credit Note in full and is accompanied by the termination in whole of the
Revolving Credit Commitment, accrued interest thereon to the date of prepayment,
and (iii) any amounts due to the Lender under Sections 2.8 or 2.9 hereof.
Section 3.3. Mandatory Termination. After the occurrence of a Change of
Control, the Lender may, by written notice to the Company at any time on or
before the date occurring 120 days after the date the Company notifies the
Lender of such Change of Control, terminate the remaining Commitments and all
other obligations of the Lender hereunder on the date stated in such notice
(which shall in no event be sooner than 120 days after the occurrence of such
Change of Control). On the date the Commitments are so terminated, all
outstanding Obligations (including, without limitation, all principal of and
accrued interest on the Notes) shall forthwith be due and payable without
further demand, presentment, protest, or notice of any kind and the Company
shall immediately pay to the Lender the full amount then available for drawing
under each Letter of Credit, such amount to be held in the Account referred to
in Section 8.4
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hereof (the Company agreeing to immediately make such payment on the date the
Commitments are so terminated and acknowledging and agreeing that the Lender
would not have an adequate remedy at law for the failure by the Company to honor
any such demand and that the Lender shall have the right to require the Company
to specifically perform such undertaking whether or not any drawings or other
demands for payment have been made under any Letter of Credit).
Section 3.4. Voluntary Terminations. The Company shall have the right at
any time and from time to time, upon 1 Business Day prior notice to the Lender,
to terminate without premium or penalty and in whole or in part (but if in part,
then in an aggregate amount not less than $1,000,000 or such greater amount
which is an integral multiple of $1,000,000) the Revolving Credit Commitment,
provided that the Revolving Credit Commitment may not be reduced to an amount
less than the aggregate principal amount of the Revolving Credit Loans and
Letters of Credit then outstanding. Any termination of the Revolving Credit
Commitment pursuant to this Section may not be reinstated.
Section 3.5. Place and Application of Payments. All payments of principal,
interest, fees and all other Obligations payable hereunder and under the other
Loan Documents shall be made to the Lender at its office at 111 West Monroe
Street, Chicago, Illinois (or at such other place as the Lender may specify) on
the date any such payment is due and payable. Payments received by the Lender
after 2:00 p.m. (Chicago time) shall be deemed received as of the opening of
business on the next Business Day. All such payments shall be made in lawful
money of the United States of America, in immediately available funds at the
place of payment, without set-off or counterclaim and without reduction for, and
free from, any and all present or future
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taxes, levies, imposts, duties, fees, charges, deductions, withholdings,
restrictions and conditions of any nature imposed by any government or any
political subdivision or taxing authority thereof (but excluding any taxes
imposed on or measured by the net income of the Lender). No amount paid or
prepaid on the Term Note may be reborrowed, and partial prepayments of the Term
Note shall be applied in the order of their scheduled maturities. Prior to the
occurrence of a Default or an Event of Default, the Company may direct the
application of all payments and prepayments of the Term Note to the relevant
Portions then outstanding. After the occurrence of a Default or an Event of
Default, unless the Company and the Lender agree otherwise, all payments and
prepayments of the Term Note shall be applied ratably to the outstanding
Portions thereof based on the principal amount of each such Portion at the time
of payment. Unless the Company otherwise directs, principal payments of the
Revolving Credit Notes shall be first applied to the applicable Domestic Rate
Portion until payment in full thereof, with any balance applied to the relevant
LIBOR Portions in the order in which their Interest Periods expire.
Section 3.6. Notations. Each Loan made against a Note, the status of all
amounts evidenced by a Note as constituting part of the Domestic Rate Portion or
a Fixed Rate Portion, and, in the case of any Fixed Rate Portion, the rates of
interest and Interest Periods applicable to such Portions shall be recorded by
the Lender on its books and records or, at its option in any instance, endorsed
on a schedule to its Note and the unpaid principal balance and status, rates and
Interest Periods so recorded or endorsed by the Lender shall, absent manifest
error, be prima facie evidence in any court or other proceeding brought to
enforce such Note of the principal amount remaining unpaid thereon, the status
of the Loan or Loans evidenced thereby and the interest rates and Interest
Periods applicable thereto;
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provided that the failure of the Lender to record any of the foregoing shall not
limit or otherwise affect the obligation of the Company to repay the principal
amount of each Note together with accrued interest thereon. Prior to any
negotiation of a Note, the Lender shall record on a schedule thereto the status
of all amounts evidenced thereby as constituting part of the applicable Domestic
Rate Portion or a Fixed Rate Portion and, in the case of any Fixed Rate Portion,
the rates of interest and the Interest Periods applicable thereto.
Section 4. Definitions; Interpretation.
Section 4.1. Definitions. The following terms when used herein shall have
the following meanings:
"Adjusted LIBOR" means a rate per annum determined by the Lender in
accordance with the following formula:
<TABLE>
<CAPTION>
<S> <C>
Adjusted LIBOR = LIBOR
-------------------------
100%-Reserve Percentage
</TABLE>
"Reserve Percentage" means, for the purpose of computing Adjusted LIBOR, the
maximum rate of all reserve requirements (including, without limitation, any
marginal, emergency, supplemental or other special reserves) imposed by the
Board of Governors of the Federal Reserve System (or any successor) under
Regulation D on Eurocurrency liabilities (as such term is defined in Regulation
D) for the applicable Interest Period as of the first day of such Interest
Period, but subject to any amendments to such reserve requirement by such Board
or its successor, and taking into account any transitional adjustments thereto
becoming effective during such Interest Period. For purposes of this definition,
LIBOR Portions shall be deemed to be Eurocurrency liabilities as defined in
Regulation D without benefit of or credit for
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prorations, exemptions or offsets under Regulation D. "LIBOR" means, for each
Interest Period, (a) the LIBOR Index Rate for such Interest Period, if such rate
is available, and (b) if the LIBOR Index Rate cannot be determined, the
arithmetic average of the rates of interest per annum (rounded upward, if
necessary, to the nearest 1/100th of 1%) at which deposits in U.S. Dollars in
immediately available funds are offered to the Lender at 11:00 a.m. (London,
England time) 2 Business Days before the beginning of such Interest Period by 3
or more major banks in the interbank eurodollar market selected by the Lender
for a period equal to such Interest Period and in an amount equal or comparable
to the applicable LIBOR Portion scheduled to be outstanding during such Interest
Period. "LIBOR Index Rate" means, for any Interest Period, the rate per annum
(rounded upwards, if necessary, to the next higher one hundred-thousandth of a
percentage point) for deposits in U.S. Dollars for a period equal to such
Interest Period which appears on the Telerate Page 3750 as of 11:00 a.m.
(London, England time) on the date 2 Business Days before the commencement of
such Interest Period. "Telerate Page 3750" means the display designated as "Page
3750" on the Telerate Service (or such other page as may replace Page 3750 on
that service or such other service as may be nominated by the British Bankers'
Association as the information vendor for the purpose of displaying British
Banker's Association Interest Settlement Rates for U.S. Dollar deposits). Each
determination of LIBOR made by the Lender shall be conclusive and binding on the
Company absent manifest error.
"Adjusted Net Income" means, with reference to any period, Net Income,
before extraordinary items (including, without limitation, for purposes of this
definition charges relating to SAIF recapitalization and the recapture of tax
bad debt reserves), of the Company and its Subsidiaries for such period computed
on a consolidated basis.
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"Adjusted Net Worth" means, at any time the same is to be determined, Net
Worth of the Company and its Subsidiaries determined on a consolidated basis
minus the sum of (i) investments in, and loans and advances to, MAF Developments
and (ii) goodwill associated with Mid America.
"Affiliate" means any Person directly or indirectly controlling or
controlled by, or under direct or indirect common control with, another Person.
A Person shall be deemed to control another Person for the purposes of this
definition if such Person possesses, directly or indirectly, the power to
direct, or cause the direction of, the management and policies of the other
Person, whether through the ownership of voting securities, common directors,
trustees or officers, by contract or otherwise.
"Agreement" means this Credit Agreement, as the same may be amended,
modified or restated from time to time in accordance with the terms hereof.
"Application" is defined in Section 1.3 hereof.
"Authorized Representative" means those persons shown on the list of
officers provided by the Company pursuant to Section 6.2(a) hereof or on any
update of any such list provided by the Company to the Lender, or any further or
different officer of the Company so named by any Authorized Representative of
the Company in a written notice to the Lender.
"Banking Subsidiary" means any Subsidiary of the Company which is a bank or
thrift organized under the laws of the United States of America or any state
thereof.
"Business Day" means any day other than a Saturday or Sunday on which banks
are not authorized or required to close in
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Chicago, Illinois and, when used with respect to LIBOR Portions, a day on which
banks are also dealing in United States Dollar deposits in London, England and
Nassau, Bahamas.
"Capital Lease" means any lease of Property which in accordance with GAAP
is required to be capitalized on the balance sheet of the lessee.
"Capitalized Lease Obligation" means the amount of the liability shown on
the balance sheet of any Person in respect of a Capital Lease determined in
accordance with GAAP.
"Change of Control" means, during the 12-month period occurring after the
date of this Agreement and each 12-month period occurring thereafter,
individuals who at the beginning of such period were directors of the Company
shall cease for any reason to constitute a majority of the board of directors of
the Company; provided that the two members of the board of directors of the
Company appointed in connection with the N.S. Acquisition at or about the
initial funding of Loans hereunder shall, for purposes hereof, be deemed to have
been members of the Company's board of directors on the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.
"Commitments" means and includes the Revolving Credit Commitment and the
Term Loan Commitment.
"Company" is defined in the introductory paragraph hereof.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently
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liable upon, the obligation or liability of any other Person, or agrees to
maintain the net worth or working capital or other financial condition of any
other Person, or otherwise assures any creditor of such other Person against
loss, including, without limitation, any comfort letter, operating agreement,
take-or-pay contract or application for a letter of credit.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Company or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
"Default" means any event or condition the occurrence of which would, with
the passage of time or the giving of notice, or both, constitute an Event of
Default.
"Domestic Rate" means, for any day, the rate of interest announced by the
Lender from time to time as its prime commercial rate, as in effect on such day
(it being understood and agreed that such rate may not be the Lender's best or
lowest rate).
"Domestic Rate Portions" is defined in Section 2.1(a) hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.
"Event of Default" means any event or condition identified as such in
Section 8.1 hereof.
"Fixed Rate Portions" means and includes the LIBOR Portions and the
Treasury Rate Portions.
"GAAP" means generally accepted accounting principles as in
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effect from time to time, applied by the Company and its Subsidiaries on a basis
consistent with the preparation of the Company's most recent financial
statements furnished to the Lender pursuant to Section 5.5 hereof.
"Indebtedness for Borrowed Money" means for any Person (without
duplication) (i) all indebtedness created, assumed or incurred in any manner by
such Person representing money borrowed (including by the issuance of debt
securities), (ii) all indebtedness for the deferred purchase price of property
or services (other than trade accounts payable arising in the ordinary course of
business), (iii) all indebtedness secured by any Lien upon Property of such
Person, whether or not such Person has assumed or become liable for the payment
of such indebtedness, (iv) all Capitalized Lease Obligations of such Person, (v)
all Contingent Obligations of such Person, (vi) all obligations of such Person
on or with respect to letters of credit, bankers' acceptances and other
extensions of credit whether or not representing obligations for borrowed money,
and (vii) Permitted Banking Subsidiary Indebtedness of such Person.
"Interest Period" means, with respect to any LIBOR Portion, the period
commencing on, as the case may be, the creation, continuation or conversion date
with respect to such LIBOR Portion and ending 1, 2 or 3 months thereafter as
selected by the Company in its notice as provided herein; provided that, all of
the foregoing provisions relating to Interest Periods are subject to the
following:
(i) if any Interest Period would otherwise end on a day which is not a
Business Day, that Interest Period shall be extended to the next succeeding
Business Day, unless the result of such extension would be to carry such
Interest Period into another calendar month in which event such
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Interest Period shall end on the immediately preceding Business Day;
(ii) no Interest Period may extend beyond the final maturity date of
the relevant Note;
(iii) the interest rate to be applicable to each Portion for each
Interest Period shall apply from and including the first day of such
Interest Period to but excluding the last day thereof; and
(iv) no Interest Period may be selected if after giving effect thereto
the Company will be unable to make a principal payment scheduled to be made
during such Interest Period without paying part of a LIBOR Portion on a
date other than the last day of the Interest Period applicable thereto.
For purposes of determining an Interest Period, a month means a period
starting on one day in a calendar month and ending on a numerically
corresponding day in the next calendar month, provided, however, if an
Interest Period begins on the last day of a month or if there is no
numerically corresponding day in the month in which an Interest Period is
to end, then such Interest Period shall end on the last Business Day of
such month.
"Lender" is defined in the introductory paragraph hereof.
"Letter of Credit" is defined in Section 1.3 hereof.
"LIBOR Portions" is defined in Section 2.1(a) hereof.
"Lien" means any mortgage, lien, security interest, pledge, charge or
encumbrance of any kind in respect of any Property,
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including the interests of a vendor or lessor under any conditional sale,
Capital Lease or other title retention arrangement.
"Loan Documents" means this Agreement, the Notes, the Applications, and
each other instrument or document to be delivered hereunder or thereunder or
otherwise in connection therewith.
"Loans" means and includes Revolving Credit Loans and the Term Loan.
"MAF Developments" means MAF Developments, Inc., an Illinois corporation,
and its successors and assigns.
"Merger" means, collectively, the merger of N.S. with and into the Company,
with the Company surviving the merger, and the merger of Northwestern Savings
Bank with and into Mid America, with Mid America surviving the merger.
"Merger Documents" means the Amended and Restated Agreement and Plan of
Reorganization, dated as of November 29, 1995, between the Company and N.S., and
all other instruments and documents executed and delivered in connection
therewith and the consummation of the Merger described therein.
"Mid America" means Mid America Federal Savings Bank, a federally chartered
savings bank.
"N.S." means N.S. Bancorp, Inc., a Delaware corporation.
"N.S. Bancorp Acquisition" means the acquisition by the Company of N.S. and
its subsidiaries pursuant to the Merger Documents.
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"Net Income" means, with reference to a Person for any period, the net
income (or net loss) of such Person for such period, computed in accordance with
GAAP.
"Net Worth" means, with reference to any Person at any time the same is to
be determined, the total shareholders' equity (including capital stock,
additional paid-in capital and retained earnings after deducting treasury stock,
but excluding any minority interests in subsidiaries) which would appear on the
balance sheet of such Person determined in accordance with GAAP or, when such
term is used with respect to the Tangible Capital Ratio of a Banking Subsidiary,
regulatory accounting principles of the applicable bank or thrift regulatory
authority.
"Non-Performing Assets" means with reference to any Person, as of any time
the same is to be determined, the sum of all non-performing assets of such
Person as determined in accordance with regulatory accounting principles
applicable to such Person, but in any event including, without limitation, (i)
loans or other extensions of credit on which any payment (whether principal or
interest or otherwise) is not made within 90 days of its original due date, (ii)
loans which have been placed on a non-accrual basis, (iii) loans restructured so
as to not bear interest at a then market rate or so that other terms thereof
have been compromised, and (iv) property acquired by repossession or foreclosure
and, without duplication, property acquired pursuant to in-substance
foreclosure.
"Notes" means and includes the Revolving Credit Note and the Term Note.
"Obligations" means all obligations of the Company to pay principal and
interest on the Loans, all reimbursement obligations owing under the
Applications, all fees and charges
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payable hereunder, and all other payment obligations of the Company arising
under or in relation to any Loan Document, in each case whether now existing or
hereafter arising, due or to become due, direct or indirect, absolute or
contingent, and howsoever evidenced, held or acquired.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to any or all of its functions under ERISA.
"Permitted Banking Subsidiary Indebtedness" means obligations incurred by
any Banking Subsidiary in the ordinary course of business in such circumstances
as may be incidental or usual in carrying on the banking or trust business of a
bank, thrift or trust company incurred in accordance with applicable laws and
regulations and safe and sound banking practices.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof.
"Plan" means any employee pension benefit plan covered by Title IV of ERISA
or subject to the minimum funding standards under Section 412 of the Code that
either (i) is maintained by a member of the Controlled Group for employees of a
member of the Controlled Group, or (ii) is maintained pursuant to a collective
bargaining agreement or any other arrangement under which more than one employer
makes contributions and to which a member of the Controlled Group is then making
or accruing an obligation to make contributions or has within the preceding five
plan years made contributions.
"Portion" is defined in Section 2.1(a) hereof.
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"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Revolving Credit" is defined in Section 1.1 hereof.
"Revolving Credit Commitment" means $10,000,000, as such amount may be
reduced pursuant hereto.
"Revolving Credit Loan" is defined in Section 1.2 hereof.
"Revolving Credit Note" is defined in Section 1.2 hereof.
"Revolving Credit Termination Date" means January 25, 1997, or such earlier
date on which the Revolving Credit Commitment is terminated in whole pursuant to
Section 3.3, 3.4, 8.2 or 8.3 hereof.
"Subordinated Debt" means indebtedness for borrowed money of the Company
owing pursuant to the terms of that certain Indenture dated as of September 27,
1995, between the Company and Harris Trust and Savings Bank, as trustee, and any
other indebtedness for borrowed money of the Company owing to any other Person
or group of Persons on substantially the same terms and conditions or on such
other terms and conditions which are reasonably acceptable to the Lender, which
is subordinated (subject to applicable standstill provisions) in right of
payment to the prior payment in full of the Obligations.
"Subsidiary" means any corporation or other Person more than 50% of the
outstanding ordinary voting shares or other equity interests of which is at the
time directly or indirectly owned by the Company, by one or more of its
Subsidiaries, or by the Company and one or more of its Subsidiaries.
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"Tangible Capital" means, at any time the same is to be determined, for any
Banking Subsidiary, Net Worth of such Banking Subsidiary minus intangible assets
of such Banking Subsidiary (excluding, however, from the determination of
intangible assets investments of such Banking Subsidiary in any of its real
estate subsidiaries to the extent characterized as an intangible asset).
"Tangible Capital Ratio" means, at any time the same is to be determined,
for any Banking Subsidiary, the ratio of (i) Tangible Capital of such Banking
Subsidiary to (ii) total assets minus intangible assets of such Banking
Subsidiary, all as defined and determined, except as otherwise provided herein,
from time to time by applicable bank or thrift regulatory authorities.
"Term Loan" is defined in Section 1.4 hereof.
"Term Loan Commitment" means $40,000,000.
"Term Note" is defined in Section 1.4 hereof.
"Treasury Rate" means a rate per annum determined by the Lender on the date
on which the Term Loan, or any part thereof, is to be created as, or converted
into, a Treasury Rate Portion to be the average of the yields to maturity,
expressed on a bond equivalent basis, which two leading United States government
securities dealers of recognized standing selected by the Lender reasonably
estimate to be the highest yield the Lender could have obtained if it had
purchased on such day United States Treasury Bonds, Notes or Bills with a
maturity nearest to December 31, 2003, or seven years after the making thereof,
whichever is less, and in an amount comparable to the Treasury Rate Portion
selected by the Company to be outstanding and being traded in the secondary
market in reasonable volume at a price reasonably close to par, all in
accordance with United States domestic practice
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prevailing as of such date. The determination of the Treasury Rate by the Lender
in accordance with this paragraph shall be conclusive and binding on the Company
except in the case of manifest error.
"Treasury Rate Portions" is defined in Section 2.1(a) hereof.
"Unfunded Vested Liabilities" means, for any Plan at any time, the amount
(if any) by which the present value of all vested nonforfeitable accrued
benefits under such Plan exceeds the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of a member of the Controlled Group to the PBGC or the Plan
under Title IV of ERISA.
"Welfare Plan" means a "welfare plan" as defined in Section 3(1) of ERISA.
"Wholly-Owned Subsidiary" means a Subsidiary of which all of the issued and
outstanding shares of capital stock (other than directors' qualifying shares as
required by law) or other equity interests are owned by the Company and/or one
or more Wholly-Owned Subsidiaries within the meaning of this definition.
Section 4.2. Interpretation. The foregoing definitions are equally
applicable to both the singular and plural forms of the terms defined. The words
"hereof", "herein", and "hereunder" and words of like import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All references to time of day herein are references
to Chicago, Illinois time unless otherwise specifically provided. Where the
character or amount of any
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asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for the
purposes of this Agreement, it shall be done in accordance with GAAP except
where such principles are inconsistent with the specific provisions of this
Agreement.
Section 5. Representations and Warranties.
At the time the Company requests the initial extension of credit under this
Agreement and at all times thereafter in accordance with Section 6.1 hereof, the
Company represents and warrants to the Lender as follows:
Section 5.1. Organization and Qualification. The Company is duly organized,
validly existing and in good standing as a corporation under the laws of the
State of Delaware, has full and adequate corporate power to own its Property and
conduct its business as now conducted, and is duly licensed or qualified and in
good standing in each jurisdiction in which the nature of the business conducted
by it or the nature of the Property owned or leased by it requires such
licensing or qualifying, except where the failure to so qualify will not have a
material adverse effect on the financial condition, Properties, business or
operations of the Company. Without limiting the generality of the foregoing, the
Company is a savings and loan holding company and, as such, the Company has
received all necessary approvals from, and has filed all necessary reports with,
all applicable federal and state regulatory authorities.
Section 5.2. Subsidiaries. Each Subsidiary is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated or organized, as the case may be, has full and adequate power to
own its Property
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and conduct its business as now conducted, and is duly licensed or qualified and
in good standing in each jurisdiction in which the nature of the business
conducted by it or the nature of the Property owned or leased by it requires
such licensing or qualifying, except where the failure to so qualify will not
have a material adverse effect on the financial condition, Properties, business
or operations of such Subsidiary. Schedule 5.2 hereto identifies each
Subsidiary, the jurisdiction of its incorporation or organization, as the case
may be, the percentage of issued and outstanding shares of each class of its
capital stock or other equity interests owned by the Company and the
Subsidiaries and, if such percentage is not 100% (excluding directors'
qualifying shares as required by law), a description of each class of its
authorized capital stock and other equity interests and the number of shares of
each class issued and outstanding, in each case after giving effect to the
Merger. All of the outstanding shares of capital stock and other equity
interests of each Subsidiary are validly issued and outstanding and fully paid
and nonassessable and all such shares and other equity interests indicated on
Schedule 5.2 as owned by the Company or a Subsidiary are or will be owned
immediately after giving effect to the Merger, beneficially and of record, by
the Company or such Subsidiary free and clear of all Liens. There are no
outstanding commitments or other obligations of any Subsidiary to issue, and no
options, warrants or other rights of any Person to acquire, any shares of any
class of capital stock or other equity interests of any Subsidiary, except as
disclosed on Schedule 5.2 hereof.
Section 5.3. Corporate Authority and Validity of Obligations. The Company
has full right and authority to enter into this Agreement and the other Loan
Documents, to make the borrowings herein provided for, to issue its Notes in
evidence thereof, and to perform all of its obligations hereunder and under the
other
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Loan Documents. The Loan Documents delivered by the Company have been duly
authorized, executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable in accordance with their terms
except as enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance or similar laws affecting creditors' rights generally and general
principles of equity (regardless of whether the application of such principles
is considered in a proceeding in equity or at law); and this Agreement and the
other Loan Documents do not, nor does the performance or observance by the
Company of any of the matters and things herein or therein provided for,
contravene or constitute a default under any provision of law or any judgment,
injunction, order or decree binding upon the Company or any provision of the
charter, articles of incorporation or by-laws of the Company or any covenant,
indenture or agreement of or affecting the Company or any of its Properties, or
result in the creation or imposition of any Lien on any Property of the Company.
Section 5.4. Use of Proceeds; Margin Stock. The Company shall use the
proceeds of (i) the Revolving Credit Loans and Letters of Credit made available
hereunder for general working capital purposes and (ii) the Term Loan to finance
the N.S. Bancorp Acquisition. No part of the proceeds of any Revolving Credit
Loan or Letter of Credit made hereunder will be used to purchase or carry any
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System), or to extend credit to others for the purpose of
purchasing or carrying any such margin stock. No part of the proceeds of the
Term Loan will be used to purchase or carry any margin stock (as defined above),
or to extend credit to others for the purpose of purchasing or carrying any such
margin stock, in violation of such Regulation U. After giving effect to the
Merger, margin stock (as defined above) constitutes less than 25%
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of those assets of the Company and its Subsidiaries which are subject to any
limitation on sale, pledge, or other restriction hereunder.
Section 5.5. Financial Reports. (a) The consolidated balance sheet of the
Company and its Subsidiaries as of June 30, 1995, and the related consolidated
statements of income, retained earnings and cash flows of the Company and its
Subsidiaries for the fiscal year then ended, and accompanying notes thereto,
which financial statements are accompanied by the audit report of KPMG Peat
Marwick, independent public accountants, and the unaudited interim consolidated
balance sheet of the Company and its Subsidiaries as of March 31, 1996, and the
related consolidated statements of income, retained earnings and cash flows of
the Company and its Subsidiaries for the nine (9) months then ended, heretofore
furnished to the Lender, fairly present the consolidated financial condition of
the Company and its Subsidiaries as at said dates and the consolidated results
of their operations and cash flows for the periods then ended in conformity with
generally accepted accounting principles applied on a consistent basis, subject
to year-end audit adjustments in the case of such interim financial statements.
(b) To the best of the Company's knowledge, the financial statements of
N.S. and its subsidiaries referred to in the Joint Proxy Statement of the
Company and N.S. and Prospectus of the Company dated April 25, 1996, fairly
present the consolidated financial condition of N.S. and its subsidiaries and
the consolidated results of their operations and cash flows as of the dates of
such statements in conformity with generally accepted accounting principles
applied on a consistent basis, subject to year-end audit adjustments in the case
of interim financial statements.
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(c) Neither the Company nor any Subsidiary has contingent liabilities which
are material to the Company and its Subsidiaries on a consolidated basis other
than as indicated on the financial statements referred to in clause (a) above
and, to the best of the Company's knowledge, neither N.S. nor any of its
subsidiaries has contingent liabilities which are material to N.S. and its
subsidiaries on a consolidated basis other than as indicated on the financial
statements referred to in clause (b) above or, in all cases, with respect to
future periods, on the financial statements furnished pursuant to Section 7.5
hereof.
Section 5.6. No Material Adverse Change. Since March 31, 1996, there has
been no material adverse change in the condition (financial or otherwise) or
business prospects of the Company and its Subsidiaries taken as a whole and, to
the best of the Company's knowledge, there has been no material adverse change
in the condition (financial or otherwise) or business prospects of N.S. and its
subsidiaries taken as a whole.
Section 5.7. Full Disclosure. The statements and information furnished to
the Lender in connection with the negotiation of this Agreement and the other
Loan Documents and the commitments by the Lender to provide all or part of the
financing contemplated hereby do not contain any untrue statements of a material
fact or omit a material fact necessary to make the material statements contained
herein or therein not misleading, the Lender acknowledging that as to any
projections furnished to the Lender, the Company only represents that the same
were prepared on the basis of information and estimates the Company believed to
be reasonable.
Section 5.8. Good Title. The Company and its Subsidiaries each have good
and defensible title to their assets as reflected on the most recent
consolidated balance sheet of the Company and
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its Subsidiaries furnished to the Lender (except for assets and Properties
disposed of in the ordinary course of business and assets subject to Liens
which, individually and in the aggregate, do not have a material adverse effect
on the financial condition, Properties, business or operations of the Company or
any Subsidiary) and, in the case of assets consisting of stock or other equity
interests in Subsidiaries, subject to no Liens.
Section 5.9. Litigation and Other Controversies. There is no litigation or
governmental proceeding or labor controversy pending, nor to the knowledge of
the Company threatened, against the Company or any Subsidiary which if adversely
determined would (a) impair the validity or enforceability of, or impair the
ability of the Company to perform its obligations under, this Agreement or any
other Loan Document or (b) result in any material adverse change in the
financial condition, Properties, business or operations of the Company or any
Subsidiary.
Section 5.10. Taxes. All tax returns required to be filed by the Company or
any Subsidiary in any jurisdiction have, in fact, been filed, and all taxes,
assessments, fees and other governmental charges upon the Company or any
Subsidiary or upon any of their respective Properties, income or franchises,
which are shown to be due and payable in such returns, have been paid, except
for taxes, assessments, fees and other governmental charges being contested in
good faith and for which adequate reserves therefor have been established on the
books of the Company or any Subsidiary, as applicable. The Company does not know
of any proposed additional tax assessment against it or its Subsidiaries under
applicable tax laws in effect at the time this representation is made or deemed
made for which adequate provision in accordance with GAAP has not been made on
its accounts. Adequate provisions in accordance with GAAP for taxes on the books
of the Company and each Subsidiary have been made
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for all open years, and for its current fiscal period.
Section 5.11. Approvals. No authorization, consent, license, or exemption
from, or filing or registration with, any court or governmental department,
agency or instrumentality, nor any approval or consent of the stockholders of
the Company or any other Person, is or will be necessary to the valid execution,
delivery or performance by the Company of this Agreement or any other Loan
Document, except for such consents and approvals which have been or will be
obtained prior to the initial extension of credit made under this Agreement.
Section 5.12. Affiliate Transactions. Neither the Company nor any
Subsidiary is a party to any contracts or agreements with any of its Affiliates
on terms and conditions which are less favorable to the Company or such
Subsidiary than would be usual and customary in similar contracts or agreements
between Persons not affiliated with each other.
Section 5.13. Investment Company; Public Utility Holding Company. Neither
the Company nor any Subsidiary is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "public utility holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 5.14. ERISA. To the best of the Company's knowledge, the Company
and each other member of its Controlled Group has fulfilled its obligations
under the minimum funding standards of and is in compliance in all material
respects with ERISA and the Code to the extent applicable to it and has not
incurred any liability to the PBGC or a Plan under Title IV of ERISA other than
a liability to the PBGC for premiums under Section 4007 of
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ERISA. Neither the Company nor any Subsidiary has any material contingent
liabilities with respect to any post-retirement benefits under a Welfare Plan,
other than liability for continuation coverage described in article 6 of Title I
of ERISA.
Section 5.15. Compliance with Laws. To the best of the Company's knowledge,
the Company and each of its Subsidiaries are in compliance with the requirements
of all federal, state and local laws, rules and regulations applicable to or
pertaining to their Properties or business operations, non-compliance with which
could have a material adverse effect on the financial condition, Properties,
business or operations of the Company or any Subsidiary. Neither the Company (or
any of its directors or officers) nor any Banking Subsidiary (or any of its
directors or officers) is a party to, or subject to, any agreement with, or
directive or order issued by, any federal or state bank or thrift regulatory
authority which imposes restrictions or requirements on it which are not
generally applicable to banks or thrifts, or their holding companies (other than
the effect of the Federal Deposit Insurance Corporation's "needs to improve"
rating given to Northwestern Savings Bank in effect prior to the Merger); and no
action or administrative proceeding is pending or, to the Company's knowledge,
threatened against the Company or any Banking Subsidiary or any of their
directors or officers which seeks to impose any such restriction or requirement.
Neither the Company nor any Subsidiary has received written notice to the effect
that its operations are not in compliance with any of the requirements of
applicable federal, state or local environmental, health and safety statutes and
regulations or are the subject of any governmental investigation evaluating
whether any remedial action is needed to respond to a release of any toxic or
hazardous waste or substance into the environment, which non-compliance or
remedial action could have a material adverse effect on the financial condition,
Properties, business or
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operations of the Company or any Subsidiary.
Section 5.16. Other Agreements. Neither the Company nor any Subsidiary is
in default under the terms of any covenant, indenture or agreement of or
affecting the Company, any Subsidiary or any of their Properties, which default
if uncured would have a material adverse effect on the financial condition,
Properties, business or operations of the Company or any Subsidiary.
Section 5.17. Merger. The Company and Mid America each have full right and
authority to enter into the Merger Documents executed by it and, prior to the
Company's request for the initial extension of credit to be made under this
Agreement and at all times thereafter, to perform its obligations under, and
consummate the transactions described in, the Merger Documents executed by it.
The Merger Documents have been duly authorized, executed, and delivered by the
Company and Mid America and constitute valid and binding obligations of the
Company and Mid America enforceable against them in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, or similar laws affecting creditors' rights
generally and general principles of equity (regardless of whether the
application of such principles is considered in a proceeding in equity or at
law); and the Merger Documents do not, nor will the performance or observance by
the Company or Mid America of any of the matters or things therein provided for,
after giving effect to the required consents and approvals referred to in
Section 5.11 hereof, contravene or constitute default under any provision of law
or any judgment, injunction, order or decree binding upon the Company or Mid
America or any provision of the charter, articles of incorporation, or by-laws
of the Company or Mid America or any covenant, indenture, or agreement of or
affecting the Company or
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Mid America or any of their Properties, or result in the creation or imposition
of any Lien on any Property of the Company or Mid America. Prior to or
concurrently with the Company requesting the initial extension of credit under
this Agreement, all conditions to the Merger shall have been satisfied
(including, without limitation, all necessary shareholder and governmental
consents), all filings and other matters necessary to make the Merger effective
shall have been done and performed, and the Merger shall have become effective
in accordance with the terms of the Merger Documents.
Section 5.18. No Default. No Default or Event of Default has occurred and
is continuing.
Section 6. Conditions Precedent.
The obligation of the Lender to make any Loan or to issue any Letter of
Credit under this Agreement is subject to the following conditions precedent:
Section 6.1. All Advances. As of the time of the making of each extension
of credit (including the initial extension of credit) hereunder:
(a) each of the representations and warranties set forth in Section 5
hereof and in the other Loan Documents shall be true and correct in all
material respects as of such time, except to the extent the same expressly
relate to an earlier date;
(b) no Default or Event of Default shall have occurred and be
continuing or would occur as a result of making such extension of credit;
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(c) after giving effect to such extension of credit the aggregate
principal amount of all Revolving Credit Loans and Letters of Credit
outstanding under this Agreement shall not exceed the Revolving Credit
Commitment then in effect;
(d) in the case of the issuance of any Letter of Credit, the Lender
shall have received a properly completed Application therefor together with
the fees called for hereby; and
(e) such extension of credit shall not violate any order, judgment
or decree of any court or other authority or any provision of law or
regulation applicable to the Lender (including, without limitation,
Regulation U of the Board of Governors of the Federal Reserve System) as
then in effect.
The Company's request for any Loan or Letter of Credit shall constitute its
warranty as to the facts specified in subsections (a) through (d), both
inclusive, above.
Section 6.2. Initial Advance. At or prior to the making of the
initial extension of credit hereunder, the following conditions precedent shall
also have been satisfied:
(a) the Lender shall have received the following (each to be properly
executed and completed) and the same shall have been approved as to form
and substance by the Lender:
(i) the Notes;
(ii) copies (executed or certified, as may be appropriate) of
all legal documents or proceedings taken in connection with the
execution and delivery of this Agreement and the other Loan Documents
to the extent the Lender or its counsel may reasonably
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request;
(iii) an incumbency certificate containing the name, title
and genuine signatures of each of the Company's Authorized
Representatives; and
(iv) an arrangement fee letter.
(b) the Lender shall have received for itself the initial fees
called for hereby;
(c) the Lender shall have received the favorable written opinion of
counsel for the Company in substantially the form attached hereto as
Exhibit D-1 (which opinion letter shall be addressed to the Lender);
(d) the Lender shall have received the favorable written opinion of
counsel for the Company in substantially the form attached hereto as
Exhibit D-2 (which opinion letter shall either be addressed to the Lender
or which, by its terms, expressly states the Lender is entitled to rely on
the opinion letter in extending credit to the Company);
(e) the Lender shall have been furnished copies, certified as being
true and correct by the Secretary or other officer of the Company
acceptable to the Lender, of (i) the Joint Proxy and Prospectus stated
April 25, 1996, and all amendments and supplements thereto, (ii) the
Amended and Restated Agreement and Plan of Reorganization between the
Company and N.S., and all amendments and supplements thereto, (iii) the
file-stamped copy of the Certificate of Merger filed with and approved by
the Delaware Secretary of State as to the merger of N.S. with and into the
Company, (iv) the notice letter to NASDAQ effectuating the delisting of
N.S. common stock, (v) approval letters as to the Merger
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from the Office of Thrift Supervision and Illinois Commissioner of Savings
and Residential Finance, (vi) waiver letter from the Federal Reserve Board,
(vii) a no action letter from the Federal Deposit Insurance Corporation as
to the Merger, (viii) evidence of shareholder approval of the Merger from
the shareholders of the Company and of N.S., (ix) the file-stamped copy of
the Certificate of Merger filed with and approved by the Illinois
Commissioner of Savings and Residential Finance as to the merger of
Northwestern Savings Bank with and into Mid America, (x) certified copies
of the Resolutions adopted by the Board of Directors of the Company and of
N.S. authorizing the execution, delivery, and performance of the Merger
Documents and the consummation of the transaction contemplated thereby, and
(xi) the opinion letter delivered by counsel to N.S. to the Company with
respect to the Merger;
(f) the Lender shall have received a good standing certificate for the
Company (dated as of the date no earlier than 30 days prior to the date
hereof) from the office of the secretary of state of the state of its
incorporation and each state in which it is qualified to do business as a
foreign corporation, and a certificate from the Office of Thrift
Supervision as to the registration of the Company as a savings and loan
holding company;
(g) the Lender shall have been furnished a statement by the Company as
to the sources and uses of cash required to finance the Merger;
(h) by signing in the space provided for that purpose below, the
parties agree that the $15,000,000 revolving line of credit established
under that certain Credit Agreement dated as of January 26, 1995, between
the Company and the
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Bank, the loans outstanding under which are evidenced by that certain
promissory note of the Company dated January 26, 1995, payable to the order
of the Bank in the principal amount of $15,000,000 (the "Prior Note"), will
be, effective upon the making of the initial extension of credit hereunder,
terminated and no further borrowings may be made thereunder, and any loans
outstanding and evidenced by the Prior Note shall be repaid in full on the
date thereof; and
(i) the Company shall have, as of the date of the initial extension of
credit under this Agreement, Net Worth of the Company and its Subsidiaries
determined on a consolidated basis in an amount not less than the
difference between (x) $220,000,000 minus (y) the difference between
$40,000,000 minus the original Term Loan amount.
Section 7. Covenants.
The Company agrees that, at the time the initial extension of credit is
made to the Company under this Agreement and thereafter so long as any credit is
available to or in use by the Company hereunder, except to the extent compliance
in any case or cases is waived in writing by the Lender:
Section 7.1. Maintenance of Business. The Company shall, and shall
cause each Subsidiary to, preserve and maintain its existence; provided,
however, that nothing in this Section shall prevent the Company from dissolving
any Subsidiary (other than a Banking Subsidiary or MAF Developments) if such
action is, in the judgment of the Company, desirable in the conduct of its
business and is not disadvantageous in any material respect to the Lender. The
Company shall, and shall cause each Subsidiary to, preserve and keep in force
and effect all licenses, permits and franchises necessary to the proper conduct
of its business; provided,
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however, that nothing in this Section shall prevent the Company or any
Subsidiary (other than a Banking Subsidiary or MAF Developments) from permitting
any license, permit or franchise to lapse if such action is, in the judgment of
the Company, desirable in the conduct of its business and is not disadvantageous
in any material respect to the Lender.
Section 7.2. Maintenance of Properties. The Company shall maintain,
preserve and keep its property, plant and equipment in good repair, working
order and condition (ordinary wear and tear excepted) and shall from time to
time make all needful and proper repairs, renewals, replacements, additions and
betterments thereto so that at all times the efficiency thereof shall be
preserved and maintained in all material respects, and shall cause each
Subsidiary to do so in respect of Property owned or used by it; provided,
however, that nothing in this Section shall prevent (a) the Company or any
Subsidiary (other than a Banking Subsidiary or MAF Developments) from
discontinuing the operation and maintenance of any of its properties if such
discontinuation is, in the judgment of the Company, desirable in the conduct of
its business and is not disadvantageous in any material respect to the Lender or
(b) any Banking Subsidiary from closing or selling a branch office if such
closing or sale is, in the judgment of the Company, desirable in the conduct of
its business and is not disadvantageous in any material respect to the Lender.
Section 7.3. Taxes and Assessments. The Company shall duly pay and
discharge, and shall cause each Subsidiary to duly pay and discharge, all taxes,
rates, assessments, fees and governmental charges upon or against it or its
Properties, in each case before the same become delinquent and before penalties
accrue thereon, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings which prevent enforcement of the
matter under contest and adequate
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reserves are provided therefor.
Section 7.4. Insurance. The Company shall insure and keep insured,
and shall cause each Subsidiary to insure and keep insured, with good and
responsible insurance companies, all insurable Property owned by it which is of
a character usually insured by Persons similarly situated and operating like
Properties against loss or damage from such hazards and risks, and in such
amounts, as are insured by Persons similarly situated and operating like
Properties; and the Company shall insure, and shall cause each Subsidiary to
insure, such other hazards and risks (including employers' and public liability
risks) with good and responsible insurance companies as and to the extent
usually insured by Persons similarly situated and conducting similar businesses.
The Company shall upon request furnish to the Lender a certificate setting forth
in summary form the nature and extent of the insurance maintained pursuant to
this Section.
Section 7.5. Financial Reports. The Company shall, and shall cause
each Subsidiary to, maintain a standard system of accounting in accordance with
GAAP and shall furnish to the Lender and its duly authorized representatives,
subject to Section 9.9 hereof, such information respecting the business and
financial condition of the Company and its Subsidiaries (including non-financial
information and examination reports and supervisory letters to the extent
permitted by applicable regulatory authorities) as the Lender may reasonably
request; and without any request, shall furnish to the Lender:
(a) as soon as available, and in any event within 50 days after the
close of each fiscal quarter of the Company, a copy of the consolidated
balance sheet of the Company and its Subsidiaries as of the last day of
such period and the consolidated statements of income of the Company and
its
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Subsidiaries for the quarter and for the fiscal year-to-date period
then ended and the consolidated statements of stockholders' equity and cash
flows for the fiscal year-to-date period then ended, each in reasonable
detail showing in comparative form the figures for the corresponding date
and period in the previous fiscal year, prepared by the Company in
accordance with GAAP (subject to year-end audit adjustments and the absence
of footnote disclosures) and certified to by the President or chief
financial officer of the Company;
(b) as soon as available, and in any event within 120 days after the
close of each fiscal year of the Company, a copy of the consolidated
balance sheet of the Company and its Subsidiaries as of the close of such
fiscal year and the consolidated statements of income, retained earnings
and cash flows of the Company and its Subsidiaries for such fiscal year,
and accompanying notes thereto, each in reasonable detail showing in
comparative form the figures for the previous fiscal year, accompanied by
an unqualified opinion thereon of KPMG Peat Marwick or another firm of
independent public accountants of recognized national standing selected by
the Company, to the effect that the financial statements have been prepared
in accordance with GAAP and present fairly in accordance with GAAP the
consolidated financial condition of the Company and its Subsidiaries as of
the close of such fiscal year and the results of their operations and cash
flows for the fiscal year then ended and that an examination of such
accounts in connection with such financial statements has been made in
accordance with generally accepted auditing standards and, accordingly,
such examination included such tests of the accounting records and such
other auditing procedures as were considered necessary in the
circumstances;
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(c) as soon as available, and in any event within 50 days after the
close of each fiscal quarter of each Banking Subsidiary, all call reports
and other financial statements required to be delivered by such Banking
Subsidiary to any governmental authority or authorities having jurisdiction
over such Banking Subsidiary and all schedules thereto;
(d) promptly after receipt thereof, any additional written reports,
management letters or other detailed information contained in writing
concerning significant aspects of the Company's or any Subsidiary's
operations and financial affairs given to it by its independent public
accountants;
(e) promptly upon the furnishing thereof to the shareholders of the
Company, copies of all financial statements, reports and proxy statements
so furnished;
(f) promptly upon the filing thereof, copies of all registration
statements, Form 10-K, Form 10-Q and Form 8-K reports and proxy statements
which the Company or any of its Subsidiaries file with the Securities and
Exchange Commission;
(g) promptly upon the receipt or execution thereof, (i) notice by
the Company or any Banking Subsidiary that (1) it has received a request or
directive from any federal or state regulatory agency which requires it to
submit a capital maintenance or restoration plan or restricts the payment
of dividends by any Banking Subsidiary to the Company or (2) it has
submitted a capital maintenance or restoration plan to any federal or state
regulatory agency or has entered into a memorandum or agreement with any
such agency, including, without limitation, any agreement which
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restricts the payment of dividends by any Banking Subsidiary to the Company
or otherwise imposes restrictions or requirements on it which are not
generally applicable to banks or thrifts or their holding companies, and
(ii) copies of any such plan, memorandum, or agreement, unless disclosure
is prohibited by the terms thereof and, after the Company or such Banking
Subsidiary has in good faith attempted to obtain the consent of such
regulatory agency, such agency will not consent to the disclosure of such
plan, memorandum, or agreement to the Lender;
(h) prompt written notice of a Change of Control; and
(i) promptly after knowledge thereof shall have come to the
attention of any responsible officer of the Company, written notice of any
threatened or pending litigation or governmental proceeding or labor
controversy against the Company or any Subsidiary which, if adversely
determined, would materially and adversely effect the financial condition,
Properties, business or operations of the Company or any Subsidiary or of
the occurrence of any Default or Event of Default hereunder.
Each of the financial statements furnished to the Lender pursuant to subsections
(a) and (b) of this Section shall be accompanied by a written certificate in the
form attached hereto as Exhibit C signed by the President or chief financial
officer of the Company to the effect that to the best of such officer's
knowledge and belief no Default or Event of Default has occurred during the
period covered by such statements or, if any such Default or Event of Default
has occurred during such period, setting forth a description of such Default or
Event of Default and specifying the action, if any, taken by the Company to
remedy the same. Such certificate shall also set forth the calculations
supporting
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such statements with respect to Sections 7.7, 7.9, 7.10, and 7.11 of
this Agreement.
Section 7.6. Inspection. Subject to Section 9.9 hereof, the Company
shall, and shall cause each Subsidiary to, permit the Lender and its duly
authorized representatives and agents to visit and inspect any of the
Properties, corporate books and financial records of the Company and each
Subsidiary, to examine and make copies of the books of accounts and other
financial records of the Company and each Subsidiary, and to discuss the
affairs, finances and accounts of the Company and each Subsidiary with, and to
be advised as to the same by, its officers, employees and independent public
accountants (and by this provision the Company hereby authorizes such
accountants to discuss with the Lender the finances and affairs of the Company
and of each Subsidiary) at such reasonable times and reasonable intervals as the
Lender may designate; provided, however, that neither the Company nor any
Subsidiary shall be required to make available to the Lender any customer lists
or other proprietary information unless such information is required by the
Lender to determine the financial condition of the Company or any Subsidiary or
to determine the ability of the Company to meet its obligations hereunder.
Section 7.7. Non-Performing Assets. The Company shall, as of the
last day of each fiscal quarter, maintain on a consolidated basis with its
Subsidiaries, and shall cause each Banking Subsidiary to maintain as of such day
on a consolidated basis with its subsidiaries, a ratio (a) of Non-Performing
Assets of the Company or such Banking Subsidiary on a consolidated basis, as the
case may be, to (b) the sum of (i) stockholders' equity for the Company or core
capital for such Banking Subsidiary, as the case may be, plus (ii) loan loss
reserves established by the Company or such Banking Subsidiary, as the case may
be, on a
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consolidated basis in accordance with regulatory accounting principles
applicable to the Company or such Banking Subsidiary, of not more than .25 to
1.0.
Section 7.8. Regulatory Capital Requirements. (a) Each Banking
Subsidiary shall at all times be at least "well capitalized" as defined in the
Federal Deposit Insurance Corporation Improvement Act of 1991 and any
regulations to be issued thereunder, as such statute or regulations may each be
amended or supplemented from time to time.
(b) The requirements described in subsection (a) above shall be computed
and determined in accordance with the rules and regulations as in effect from
time to time established by the rules and regulations as in effect from time to
time established by the appropriate governmental authority having jurisdiction
over the Company or such Banking Subsidiary. In addition to the provisions set
forth above, the Company shall, and shall cause each Banking Subsidiary to,
comply with any and all capital guidelines and requirements as in effect from
time to time established by the relevant governmental authority or authorities
having jurisdiction over the Company or any Banking Subsidiary.
Section 7.9. Tangible Capital Ratio. If, as of the last day of any
fiscal quarter of Mid America, the Tangible Capital Ratio of Mid America is less
than .07 to 1.0, then in that event the Company agrees to cause Tangible Capital
of Mid America to be increased over the immediately succeeding 12-month period
by an amount not less than 25% of Net Income of Mid America accrued over the
same period unless and until the Tangible Capital Ratio of Mid America increases
to an amount equal to or greater than .07 to 1.0.
Section 7.10. Adjusted Net Worth. The Company shall, as of
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the date hereof and as of the last day of each fiscal quarter of the Company,
maintain Adjusted Net Worth of the Company and its Subsidiaries determined on a
consolidated basis in an amount not less than $150,000,000.
Section 7.11. Adjusted Net Income. As of the last day of each fiscal
year of the Company (commencing with the fiscal year beginning July 1, 1996),
the Company shall have Adjusted Net Income for the year then ended of not less
than $15,000,000.
Section 7.12. Indebtedness for Borrowed Money. The Company shall
not, nor shall it permit any Subsidiary to, issue, incur, assume, create or have
outstanding any Indebtedness for Borrowed Money; provided, however, that the
foregoing shall not restrict nor operate to prevent:
(a) the Obligations of the Company owing to the Lender hereunder and
under the other Loan Documents and any other indebtedness or obligations of
the Company or any Subsidiary owing to the Lender;
(b) Permitted Banking Subsidiary Indebtedness;
(c) indebtedness of the Company or any Subsidiary owing to the
Company or any Subsidiary;
(d) Contingent Obligations incurred with respect to the endorsement
of instruments for deposit or collection in the ordinary course of
business;
(e) Subordinated Debt of the Company in an aggregate principal
amount not to exceed $27,600,000 at any one time outstanding;
(f) obligations of the Company or MAF Developments
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arising under or in connection with letters of credit issued by the Company
or MAF Developments relating to land development activities of the Company
or MAF Developments in an aggregate amount not to exceed $10,000,000 at any
one time outstanding;
(g) currently outstanding indebtedness of the Company and of its
Subsidiaries not otherwise permitted under this Section which is disclosed
on Schedule 7.12(g) attached hereto; and
(h) unsecured indebtedness of the Company or any Subsidiary not
otherwise permitted under this Section in an aggregate amount not to exceed
$5,000,000 at any one time outstanding, except that, in the event the
Revolving Credit Commitment is terminated in whole either at the Revolving
Credit Termination Date or otherwise (except by virtue of an Event of
Default), the limitation on additional indebtedness imposed by this Section
7.12(h) shall be increased to $15,000,000 in the aggregate at any one time
outstanding.
Section 7.13. Liens. The Company shall not, nor shall it permit any
Subsidiary to, create, incur or permit to exist any Lien of any kind on any
stock or other equity interest of any kind in any Subsidiary, whether now or
hereafter owned, directly or indirectly, by the Company or any other Subsidiary.
Section 7.14. Mergers and Consolidations. The Company shall not, nor
shall it permit any Banking Subsidiary or MAF Developments to, be a party to any
merger or consolidation in which the Company, the Banking Subsidiary or MAF
Developments is not the surviving entity unless, at or prior to the consummation
of any such event, the Obligations are paid in full and the Commitments are
terminated in full.
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Section 7.15. Maintenance of Subsidiaries. The Company shall not
assign, sell or transfer, or permit any Banking Subsidiary or MAF Developments
to issue, assign, sell or transfer, any shares of capital stock of a Banking
Subsidiary or MAF Developments unless, at or prior to the consummation of any
such event, the Obligations are paid in full and the Commitments are terminated
in full; provided that the foregoing shall not operate to prevent the issuance,
sale and transfer to any person of any shares of capital stock of a Banking
Subsidiary or MAF Developments solely for the purpose of qualifying, and to the
extent legally necessary to qualify, such person as a director of such Banking
Subsidiary or MAF Developments.
Section 7.16. Dividends and Certain Other Restricted Payments. The
Company shall not during any fiscal year (a) declare or pay any dividends on or
make any other distributions in respect of any class or series of its capital
stock (other than dividends payable solely in its capital stock) or (b) directly
or indirectly purchase, redeem or otherwise acquire or retire any of its capital
stock (collectively, "Restricted Payments"); provided, however, that the Company
may make any such Restricted Payment so long as no Default or Event of Default
then exists or would arise after giving effect thereto.
Section 7.17. Subordinated Debt. The Company shall not amend or modify in
any material respect any of the terms and conditions relating to any
Subordinated Debt nor shall the Company make any voluntary prepayment thereof or
effect any voluntary redemption thereof or make any payment on account of any
Subordinated Debt which is prohibited under the terms of any instrument or
agreement subordinating the same to the Obligations.
Section 7.18. ERISA. The Company shall, and shall cause each Subsidiary
to, promptly pay and discharge all obligations and
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liabilities arising under ERISA of a character which if unpaid or unperformed
might result in the imposition of a Lien against any of its Properties. The
Company shall, and shall cause each Subsidiary to, promptly notify the Lender of
(i) the occurrence of any material adverse reportable event (as defined in
ERISA) with respect to a Plan, (ii) receipt of any notice from the PBGC of its
intention to seek termination of any Plan or appointment of a trustee therefor,
(iii) its intention to terminate or withdraw from any Plan, and (iv) the
occurrence of any event with respect to any Plan which would result in the
incurrence by the Company or any Subsidiary of any material liability, fine or
penalty, or any material increase in the contingent liability of the Company or
any Subsidiary with respect to any post-retirement Welfare Plan benefit.
Section 7.19. Compliance with Laws. The Company shall, and shall
cause each Subsidiary to, comply in all respects with the requirements of all
federal, state and local laws, rules, regulations, ordinances and orders
applicable to or pertaining to their Properties or business operations, non-
compliance with which could have a material adverse effect on the financial
condition, Properties, business or operations of the Company and its
Subsidiaries taken as a whole or could result in a Lien upon any material
portion of their Property.
Section 7.20. Burdensome Contracts With Affiliates. The Company
shall not, nor shall it permit any Subsidiary to, enter into any material
contract, agreement or business arrangement with any of its Affiliates on terms
and conditions which are less favorable to the Company or such Subsidiary than
would be usual and customary in similar contracts, agreements or business
arrangements between Persons not affiliated with each other.
Section 7.21. Change in the Nature of Business. The Company
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shall not, and shall not permit any Subsidiary to, engage in any business or
activity if as a result the general nature of the business of the Company or any
Subsidiary would be changed in any material respect from the general nature of
the business engaged in by the Company or such Subsidiary on the date of this
Agreement (after giving effect to the consummation of the N.S. Bancorp
Acquisition and the Merger).
Section 7.22. Regulatory-Mandated Disposition of MAF Developments.
In the event the Company is required by applicable bank or thrift regulatory
authorities to dispose of MAF Developments, then in that event 40% of the net
proceeds (i.e., gross proceeds net of out-of-pocket expenses incurred in
effecting the sale or other disposition thereof, including reasonable legal
fees) from such disposition shall be applied as and for a mandatory prepayment
of the Obligations (which shall be applied first to the outstanding principal
balance of the Term Note until payment in full thereof, thereafter to be applied
as a mandatory prepayment of the Revolving Credit Note with the Revolving Credit
Commitment being terminated by a like amount notwithstanding anything contained
in Section 3.4 hereof to the contrary) unless the Company and the Lender agree
otherwise. Any prepayment of the Term Note made pursuant to this Section shall
not, however, be subject to the prepayment fee called for by Section 2.9 hereof.
In the event the Company is so required to dispose of MAF Developments as a
result of the events mentioned above, such disposition shall not constitute a
breach of, or a default under, Sections 7.1, 7.2, 7.14, 7.15, 8.1(h), 8.1(j), or
8.1(k) of this Agreement.
Section 8. Events of Default and Remedies.
Section 8.1. Events of Default. Any one or more of the following
shall constitute an "Event of Default" hereunder:
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(a) default in the payment when due of all or any part of the
principal of any Note (whether at the stated maturity thereof or at any
other time provided for in this Agreement) or of any reimbursement
obligation owing under any Application, or default for a period of 5 days
in the payment when due of any interest on any Note or of any fee or other
Obligation payable by the Company hereunder or under any other Loan
Document; or
(b) default in the observance or performance of any covenant set forth
in Sections 7.5(i), 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13, 7.14, or 7.15
hereof; or
(c) default in the observance or performance of any provision of
Section 7.5 hereof (other than Section 7.5(i) referred to in Section 8.1(b)
above) which is not remedied within 5 days after the occurrence thereof, or
default in the observance or performance of any other provision hereof or
of any other Loan Document which is not remedied within 30 days after
written notice thereof is given to the Company by the Lender; or
(d) any representation or warranty made by the Company herein or in
any other Loan Document, or in any statement or certificate furnished by it
pursuant hereto or thereto, or in connection with any extension of credit
made hereunder, proves untrue in any material respect as of the date of the
issuance or making thereof; or
(e) default shall occur under any Indebtedness for Borrowed Money
aggregating more than $5,000,000 issued, assumed or guaranteed by the
Company or any Subsidiary, or under any indenture, agreement or other
instrument under which the same may be issued, and such default shall
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continue for a period of time sufficient to permit the acceleration of the
maturity of any such Indebtedness for Borrowed Money (whether or not such
maturity is in fact accelerated), or any such Indebtedness for Borrowed
Money shall not be paid when due (whether by lapse of time, acceleration or
otherwise); or
(f) any judgment or judgments, writ or writs, or warrant or warrants
of attachment, or any similar process or processes, the aggregate amount of
which (after reduction by the amount covered by insurance) exceeds
$5,000,000, shall be entered or filed against the Company or any Subsidiary
or against any of their Property and which remains unvacated, unbonded,
unstayed or unsatisfied for a period of 45 days; or
(g) the Company or any member of its Controlled Group shall fail to
pay when due an amount or amounts aggregating in excess of $500,000 which
it shall have become liable to pay to the PBGC or to a Plan under Title IV
of ERISA; or notice of intent to terminate a Plan or Plans having aggregate
Unfunded Vested Liabilities in excess of $500,000 (collectively, a
"Material Plan") shall be filed under Title IV of ERISA by the Company or
any other member of its Controlled Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any Material Plan or a proceeding shall be instituted by a
fiduciary of any Material Plan against the Company or any member of its
Controlled Group to enforce Section 515 or 4219(c)(5) of ERISA and such
proceeding shall not have been dismissed within 30 days thereafter; or a
condition shall exist by reason of which the PBGC would be entitled to
obtain a
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decree adjudicating that any Material Plan must be terminated; or
(h) dissolution or termination of the existence of the Company or any
Banking Subsidiary or MAF Developments.; or
(i) any conservator or receiver shall be appointed for the Company or
any Banking Subsidiary under applicable federal or state law applicable to
banks, thrifts, or their holding companies, or any Banking Subsidiary shall
suspend payment of any material portion of its obligations, or any Banking
Subsidiary shall cease to be a federally insured depositary institution, or
a cease and desist order shall be issued against the Company or any Banking
Subsidiary pursuant to applicable federal or state law applicable to banks,
thrifts, or their holding companies which has or is reasonably likely to
have a material adverse effect on the condition (financial or otherwise),
Properties or business prospects of such Persons, or the Company or any
Banking Subsidiary shall enter into any commitment to maintain the capital
of an insured depository institution in a required amount with any federal
or state regulator or any such regulator shall require the Company or any
Banking Subsidiary to submit a capital maintenance or restoration plan; or
(j) the Company, any Banking Subsidiary, or MAF Developments shall (i)
have entered involuntarily against it an order for relief under the United
States Bankruptcy Code, as amended, (ii) not pay, or admit in writing its
inability to pay, its debts generally as they become due, (iii) make an
assignment for the benefit of creditors, (iv) apply for, seek, consent to,
or acquiesce in, the appointment of a receiver, custodian, trustee,
examiner, liquidator or
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similar official for it or any substantial part of its Property, (v)
institute any proceeding seeking to have entered against it an order for
relief under the United States Bankruptcy Code, as amended, to adjudicate
it insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors or fail to file an answer or other pleading denying the
material allegations of any such proceeding filed against it, (vi) take any
corporate action in furtherance of any matter described in parts (i)
through (v) above, or (vii) fail to contest in good faith any appointment
or proceeding described in Section 8.1(k) hereof; or
(k) a custodian, receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Company, any Banking Subsidiary, or MAF
Developments or any substantial part of any of their Property, or a
proceeding described in Section 8.1(j)(v) shall be instituted against the
Company, any Banking Subsidiary, or MAF Developments, and such appointment
continues undischarged or such proceeding continues undismissed or unstayed
for a period of 60 days.
Section 8.2. Non-Bankruptcy Defaults. When any Event of Default
other than those described in subsection (j) or (k) of Section 8.1 hereof has
occurred and is continuing, the Lender may, by written notice to the Company, do
all or any of the following: (a) terminate the remaining Commitments and all
other obligations of the Lender hereunder on the date stated in such notice
(which may be the date thereof); (b) declare the principal of and the accrued
interest on all outstanding Notes to be forthwith due and payable and thereupon
all outstanding Notes,
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including both principal and interest thereon, shall be and become immediately
due and payable together with all other amounts payable under the Loan Documents
without further demand, presentment, protest or notice of any kind; and (c)
demand that the Company immediately pay to the Lender the full amount then
available for drawing under each or any Letter of Credit, and the Company agrees
to immediately make such payment and acknowledges and agrees that the Lender
would not have an adequate remedy at law for failure by the Company to honor any
such demand and that the Lender shall have the right to require the Company to
specifically perform such undertaking whether or not any drawings or other
demands for payment have been made under any Letter of Credit.
Section 8.3. Bankruptcy Defaults. When any Event of Default
described in subsection (j) or (k) of Section 8.1 hereof has occurred and is
continuing, then all outstanding Notes shall immediately become due and payable
together with all other amounts payable under the Loan Documents without
presentment, demand, protest or notice of any kind, the obligation of the Lender
to extend further credit pursuant to any of the terms hereof shall immediately
terminate and the Company shall immediately pay to the Lender the full amount
then available for drawing under all outstanding Letters of Credit, the Company
acknowledging and agreeing that the Lender would not have an adequate remedy at
law for failure by the Company to honor any such demand and that the Lender
shall have the right to require the Company to specifically perform such
undertaking whether or not any draws or other demands for payment have been made
under any of the Letters of Credit.
Section 8.4. Collateral for Undrawn Letters of Credit. (a) If the
prepayment of the amount available for drawing under any or all outstanding
Letters of Credit is required under
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Section 1.3(b), 3.3, 8.2, or 8.3 hereof, the Company shall forthwith pay the
amount required to be so prepaid, to be held by the Lender as provided in
subsection (b) below.
(b) All amounts prepaid pursuant to subsection (a) above shall be held by
the Lender in a separate collateral account (such account, and the credit
balances, properties and any investments from time to time held therein, and any
substitutions for such account, any certificate of deposit or other instrument
evidencing any of the foregoing and all proceeds of and earnings on any of the
foregoing being collectively called the "Account") as security for, and for
application by the Lender (to the extent available) to, the reimbursement of any
payment under any Letter of Credit then or thereafter made by the Lender, and to
the payment, after the occurrence of any Event of Default, of the unpaid balance
of any Loans and all other Obligations. The Account shall be held in the name of
and subject to the exclusive dominion and control of the Lender. If and when
requested by the Company, the Lender shall invest funds held in the Account from
time to time in direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America with a remaining maturity of one year or less, provided that the Lender
is irrevocably authorized to sell investments held in the Account when and as
required to make payments out of the Account for application to amounts due and
owing from the Company to the Lender; provided, however, that if (i) the Company
shall have made payment of all such obligations referred to in subsection (a)
above, (ii) all relevant preference or other disgorgement periods relating to
the receipt of such payments have passed, and (iii) no Letters of Credit,
Commitments, or other Obligations then due and owing remain outstanding
hereunder, then the Lender shall release to the Company, at its request, any
remaining amounts held in the Account.
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Section 9. Miscellaneous.
Section 9.1. Non-Business Days. If any payment hereunder becomes due
and payable on a day which is not a Business Day, the due date of such payment
shall be extended to the next succeeding Business Day on which date such payment
shall be due and payable. In the case of any payment of principal falling due on
a day which is not a Business Day, interest on such principal amount shall
continue to accrue during such extension at the rate per annum then in effect,
which accrued amount shall be due and payable on the next scheduled date for the
payment of interest.
Section 9.2. No Waiver, Cumulative Remedies. No delay or failure on
the part of the Lender or on the part of any holder of any of the Obligations in
the exercise of any power or right shall operate as a waiver thereof or as an
acquiescence in any default, nor shall any single or partial exercise of any
power or right preclude any other or further exercise thereof or the exercise of
any other power or right. The rights and remedies hereunder of the Lender and
any of the holders of the Obligations are cumulative to, and not exclusive of,
any rights or remedies which any of them would otherwise have.
Section 9.3. Amendments. Any provision of this Agreement or the
other Loan Documents may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by the Company and the Lender.
Section 9.4. Costs and Expenses. The Company agrees to pay on demand
the costs and expenses of the Lender in connection with the negotiation,
preparation, execution and delivery of this Agreement, the other Loan Documents
and the other instruments and documents to be delivered hereunder or thereunder,
and in connection with the transactions contemplated hereby or thereby,
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and in connection with any consents hereunder or waivers or amendments hereto or
thereto, including the fees and expenses of Messrs. Chapman and Cutler, counsel
for the Lender, with respect to all of the foregoing (whether or not the
transactions contemplated hereby are consummated). The Company further agrees to
pay to the Lender all costs and expenses (including court costs and attorneys'
fees), if any, incurred or paid by the Lender in connection with any Default or
Event of Default or in connection with the enforcement of this Agreement or any
of the other Loan Documents or any other instrument or document delivered
hereunder or thereunder. The Company further agrees to indemnify and save the
Lender and any security trustee for the Lender harmless from any and all
liabilities, losses, costs and expenses incurred by the Lender, or any such
security trustee, in connection with any action, suit or proceeding brought
against the Lender, or any such security trustee, by any Person which arises out
of the transactions contemplated or financed hereby or out of any action or
inaction by the Lender or any such security trustee hereunder or thereunder,
except for such thereof as is caused by the gross negligence or willful
misconduct of the party seeking to be indemnified. The provisions of this
Section and the protective provisions of Section 2 hereof shall survive payment
of the Obligations.
Section 9.5. Documentary Taxes. The Company agrees to pay on demand
any documentary, stamp or similar taxes payable in respect of this Agreement or
any other Loan Document, including interest and penalties, in the event any such
taxes are assessed, irrespective of when such assessment is made and whether or
not any credit is then in use or available hereunder.
Section 9.6. Survival of Representations. All representations and
warranties made herein or in any of the other Loan Documents or in certificates
given pursuant hereto or
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thereto shall survive the execution and delivery of this Agreement and the other
Loan Documents, and shall continue in full force and effect with respect to the
date as of which they were made as long as any credit is in use or available
hereunder.
Section 9.7. Participations. The Lender may grant participations in
its extensions of credit hereunder to any other bank or other lending
institution (a "Participant"), provided that (i) no Participant shall thereby
acquire any direct rights under this Agreement, (ii) any agreement pursuant to
which such participation is granted shall provide that the Lender shall retain
the sole right and responsibility to enforce the obligations of Company under
this Agreement and the other Loan Documents including, without limitation, the
right to approve any amendment, modification, or waiver of any provision of the
Loan Documents, except that such agreement may provide that the Lender will not
agree to any amendment, modification, or waiver of the Loan Documents without
such participant's consent that would reduce the principal amount of or interest
owing on, or extend the scheduled maturity date of, any Obligation in which such
participant has an interest or that relates to Sections 7.7, 7.8, 7.9, 7.10,
7.11, 7.12, 7.14, 7.17, or 7.21 of this Agreement, and (iii) no sale of a
participation in extensions of credit shall in any manner relieve the Lender of
its obligations hereunder.
Section 9.8. Notices. Except as otherwise specified herein, all
notices hereunder shall be in writing (including, without limitation, notice by
telecopy) and shall be given to the relevant party at its address or telecopier
number set forth below, in the case of the Company, or on the appropriate
signature page hereof, in the case of the Lender, or such other address or
telecopier number as such party may hereafter specify by notice to the other
given by United States certified or registered mail, by telecopy or by other
telecommunication device
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capable of creating a written record of such notice and its receipt. Notices
hereunder to the Company shall be addressed to:
MAF Bancorp., Inc.
55th and Holmes
Clarendon Hills, Illinois 60514
Attention: Mr. Jerry Weberling
Telephone: (708) 887-5999
Telecopy: (708) 325-0407
with a copy of all written notices of default also to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601
Attention: Ms. Jennifer R. Evans
Telephone: (312) 609-7500
Telecopy: (312) 609-5005
Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section and a confirmation of such telecopy has been received
by the sender, (ii) if given by mail, five (5) days after such communication is
deposited in the mail, certified or registered with return receipt requested,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the addresses specified in this Section; provided that any notice given pursuant
to Section 1 or Section 2 hereof shall be effective only upon receipt.
Section 9.9. Confidentiality. The Lender shall hold in confidence
any nonpublic information delivered or made available to it by the Company or
any Subsidiary or their respective officers, employees and independent public
accountants. The foregoing to the contrary notwithstanding, nothing herein shall
prevent the Lender from disclosing any information delivered or made available
to it by the Company or any Subsidiary (i) upon the order of any court or
administrative agency, (ii) upon the request or demand of any regulatory agency
or authority, (iii) which has been publicly disclosed other than as a result of
a
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disclosure by the Lender which is not permitted by this Agreement, (iv) in
connection with any litigation to which the Lender or any of its Affiliates may
be a party, along with the Company, any Subsidiary or any of their respective
Affiliates, (v) to the extent reasonably required in connection with the
exercise of any right or remedy under this Agreement, the other Loan Documents
or otherwise, (vi) to legal counsel and financial consultants and independent
auditors of the Lender, and (vii) to any actual or proposed participant or
assignee of all or part of its rights under the credit contemplated hereby
provided such participant or assignee agrees in writing to be bound by the duty
of confidentiality under this Section to the same extent as if it were the
Lender hereunder.
Section 9.10. Headings. Section headings used in this Agreement are
for convenience of reference only and are not a part of this Agreement for any
other purpose.
Section 9.11. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. All rights, remedies and powers provided in this Agreement and the
other Loan Documents may be exercised only to the extent that the exercise
thereof does not violate any applicable mandatory provisions of law, and all the
provisions of this Agreement and the other Loan Documents are intended to be
subject to all applicable mandatory provisions of law which may be controlling
and to be limited to the extent necessary so that they will not render this
Agreement or the other Loan Documents invalid or unenforceable.
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Section 9.12. Counterparts. This Agreement may be executed in any
number of counterparts, and by different parties hereto on separate counterpart
signature pages, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
Section 9.13. Entire Understanding. This Agreement together with the
other Loan Documents constitute the entire understanding of the parties with
respect to the subject matter hereof and any prior agreements, whether written
or oral, with respect thereto are superseded hereby.
Section 9.14. Binding Nature, Governing Law, Etc. This Agreement
shall be binding upon the Company and its successors and assigns, and shall
inure to the benefit of the Lender and the benefit of its successors and
assigns, including any subsequent holder of an interest in the Obligations. The
Company may not assign its rights hereunder without the written consent of the
Lender. This Agreement and the rights and duties of the parties hereto shall be
governed by, and construed in accordance with, the internal laws of the State of
Illinois without regard to principles of conflicts of laws.
Section 9.15. Submission to Jurisdiction; Waiver of Jury Trial.
The Company hereby submits to the non-exclusive jurisdiction of the United
States District Court for the Northern District of Illinois and of any Illinois
State court sitting in the City of Chicago for purposes of all legal proceedings
arising out of or relating to this Agreement, the other Loan Documents or the
transactions contemplated hereby or thereby. The Company irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum. The Company and the Lender
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each hereby irrevocably waives any and all right to trial by jury in any legal
proceeding arising out of or relating to any Loan Document or the transactions
contemplated thereby.
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this 22nd day of May, 1996.
MAF Bancorp, Inc.
By /s/ Allen Koranda,
------------------ ----------
Allen Koranda,
Chief Executive Officer
Accepted and Agreed to at Chicago, Illinois as of the day and year last
above written.
Harris Trust And Savings Bank
By /s/ Richard L. Loncar,
---------------------- -------
Richard L. Loncar
Vice President
111 West Monroe Street
Chicago, Illinois 60603
Attention: Mr. Michael Cameli
Telephone: (312) 461-2396
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Telecopy: (312) 765-8382
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Exhibit A
MAF Bancorp, Inc.
Revolving Credit Note
Chicago, Illinois
$15,000,000 June 3, 1996
On the Revolving Credit Termination Date, for value received, the
undersigned, MAF Bancorp, Inc., a Delaware corporation (the "Company"), hereby
promises to pay to the order of Harris Trust and Savings Bank (the "Lender"), at
the principal office of the Lender in Chicago, Illinois, the principal sum of
(I) Fifteen Million and no/100 Dollars ($15,000,000), or (ii) such lesser amount
as may at the time of the maturity hereof, whether by acceleration or otherwise,
be the aggregate unpaid principal amount of all Revolving Credit Loans owing
from the Company to the Lender under the Revolving Credit provided for in the
Credit Agreement hereinafter mentioned.
This Note is issued in substitution and replacement for, and evidences
the indebtedness evidenced by, the Revolving Credit Note of the Company dated
May 22, 1996, and, in addition, evidences additional loans constituting part of
a "Domestic Rate Portion" and "LIBOR Portions" as such terms are defined in that
certain Credit Agreement dated as of May 22, 1996, between the Company and the
Lender (said Credit Agreement, as the same may be amended, modified or restated
from time to time, being referred to herein as the "Credit Agreement") made and
to be made to the Company by the Lender under the Revolving Credit provided for
under the Credit Agreement, and the Company hereby promises to pay interest at
the office described above on each loan evidenced
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hereby at the rates and at the times and in the manner specified therefor in the
Credit Agreement.
Each loan made under the Revolving Credit against this Note, any
repayment of principal hereon, the status of each such loan from time to time as
part of the Domestic Rate Portion or a LIBOR Portion and, in the case of any
LIBOR Portion, the interest rate and Interest Period applicable thereto shall be
endorsed by the holder hereof on a schedule to this Note or recorded on the
books and records of the holder hereof (provided that such entries shall be
endorsed on a schedule to this Note prior to any negotiation hereof). The
Company agrees that in any action or proceeding instituted to collect or enforce
collection of this Note, the entries so endorsed on a schedule to this Note or
recorded on the books and records of the holder hereof shall be prima facie
evidence (absent manifest error) of the unpaid principal balance of this Note,
the status of each such loan from time to time as part of the Domestic Rate
Portion or a LIBOR Portion, and, in the case of any LIBOR Portion, the interest
rate and Interest Period applicable thereto.
This Note is issued by the Company under the terms and provisions of
the Credit Agreement, and this Note and the holder hereof are entitled to all of
the benefits and security provided for thereby or referred to therin, to which
reference is hereby made for a statement thereof. This Note may be declared to
be, or be and become, due prior to its expressed maturity, voluntary prepayments
may be made hereon, and certain prepayments are required to be made hereon, all
in the events, on the terms and with the effects provided in the Credit
Agreement. All capitalized terms used herein without definition shall have the
same meanings herein as such terms are defined in the Credit Agreement.
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The Company hereby promises to pay all costs and expenses (including
attorneys' fees) suffered or incurred by the holder hereof in collecting this
Note or enforcing any rights in any collateral therefor. The Company hereby
waives presentment for payment and demand. This Note shall be construed in
accordance with, and governed by, the internal laws of the State of Illinois
without regard to principles of conflicts of laws.
MAF Bancorp, Inc.
By ____________________________________
_____________________, ______________
(Print or Type Name) (Title)
-83-
<PAGE>
First Amendment to Credit Agreement
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of May
22, 1996 (the "Credit Agreement"), between the undersigned, MAF Bancorp, Inc., a
Delaware corporation (the "Company") and you (the "Lender"). All capitalized
terms used herein without definition shall have the same meanings herein as such
terms have in the Credit Agreement.
The Company has requested that the Term Loan to be made to the Company
under the Term Loan Commitment be in the amount of $35,000,000 and, as a result
thereof, has requested that the Lender increase its Revolving Credit Commitment
from $10,000,000 to $15,000,000, and the Lender is willing to do so under the
terms and conditions set forth in this Amendment.
1. Amendments.
Upon your acceptance hereof in the space provided for that purpose below,
the Credit Agreement shall be and hereby is amended as follows:
(a) The definition of "Revolving Credit Commitment" appearing in Section
4.1 of the Credit Agreement shall be amended by deleting the amount "10,000,000"
appearing therein and inserting the amount "$15,000,000" in lieu thereof.
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<PAGE>
(b) Exhibit A to the Credit Agreement shall be amended in its entirety, and
as amended shall be restated to read as set forth on Exhibit A attached hereto.
2. Conditions Precedent.
The effectiveness of this Amendment is subject to the satisfaction of all
of the following conditions precedent:
(a) The Company and the Lender shall have executed and delivered this
Amendment, and the Company shall have executed and delivered to the Lender
a replacement Revolving Credit Note in the form attached hereto as Exhibit
A.
(b) Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Lender and its counsel.
3. Miscellaneous.
(a) Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in the Credit Agreement,
the Notes, or any other instrument or document executed in connection therewith,
or in any certificate, letter or communication issued or made pursuant to or
with respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
(b) This Amendment may be executed in any number of counterparts, and by
the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto
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<PAGE>
may execute this Amendment by signing any such counterpart and each of
such counterparts shall for all purposes be deemed to be an original. This
Amendment shall be governed by the internal laws of the State of Illinois.
Dated as of June 3, 1996.
MAF Bancorp, Inc.
By /s/ Jerry Weberling
--------------------------------
Its Executive Vice President and CFO
--------------------------------
Accepted and agreed to in Chicago, Illinois as of the date and year last
above written.
Harris Trust and Savings Bank
By /s/ Richard Loncar
--------------------------------
Its Vice President
-86-
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of May
22, 1996, as amended (the "Credit Agreement"), between the undersigned, MAF
Bancorp, Inc., a Delaware corporation (the "Company") and you (the "Lender").
All capitalized terms used herein without definition shall have the same
meanings herein as such terms have in the Credit Agreement.
The Company has changed its fiscal year end from June 30 to December 31 and
hereby requests that Section 7.11 of the Credit Agreement (Adjusted Net Income)
be amended to reflect this change, and the Lender is willing to do so under the
terms and conditions set forth in this Second Amendment.
1. AMENDMENT.
Upon your acceptance hereof in the space provided for that purpose below,
Section 7.11 of the Credit Agreement shall be amended and restated in its
entirety to read as follows:
"Section 7.11. Adjusted Net Income. As of December 31, 1996, the
Company shall have Adjusted Net Income for the six-month period then
ended of not less than $7,500,000. Thereafter, as of the last day of
each fiscal year of the Company (commencing with the fiscal year
beginning January 1, 1997), the Company shall have Adjusted Net Income
for the fiscal year then ended of not less than $15,000,000."
2. CONDITIONS PRECEDENT.
The effectiveness of this Second Amendment is subject to the satisfaction
of all of the following conditions precedent:
(a) The Company and the Lender shall have executed and delivered this
Second
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<PAGE>
Amendment.
(b) Legal matters incident to the execution and delivery of this
Second Amendment shall be satisfactory to the Lender and its counsel.
3. MISCELLANEOUS.
(a) Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this Second Amendment need not be made in the Credit Agreement, the
Notes, or any other instrument or document executed in connection therewith, or
in any certificate, letter or communication issued or made pursuant to or with
respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
(b) The Company agrees to pay on demand all costs and expenses of or
incurred by the Lender in connection with the negotiation, preparation,
execution, and delivery of this Second Amendment, including the fees and
expenses of counsel for the Lender.
(c) This Second Amendment may be executed in any number of counterparts,
and by the different parties on different counterpart signature pages, all of
which taken together shall constitute one and the same agreement. Any of the
parties hereto may execute this Second Amendment by signing any such counterpart
and each of such counterparts shall for all purposes be deemed to be an
original. This Second Amendment shall be governed by the internal laws of the
State of Illinois.
Dated as of October 30, 1996.
MAF BANCORP, INC.
By /s/ Jerry A. Weberling
-----------------------------
Its Executive Vice President
Accepted and agreed to in Chicago, Illinois as of the date and year last
above written.
HARRIS TRUST AND SAVINGS BANK
-88-
<PAGE>
By /s/ Michael Cameli
-------------------
Its Vice President
-89-
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of May
22, 1996, as amended (the "Credit Agreement"), between the undersigned, MAF
Bancorp, Inc., a Delaware corporation (the "Company") and you (the "Lender").
All capitalized terms used herein without definition shall have the same
meanings herein as such terms have in the Credit Agreement.
The Company has requested the Lender extend the Revolving Credit
Termination Date from January 25, 1997, to April 30, 1997, and the Lender is
willing to do so under the terms and conditions set forth in this Third
Amendment.
1. AMENDMENT.
Upon your acceptance hereof in the space provided for that purpose below,
the definition of "Revolving Credit Termination Date" set forth in Section 4.1
of the Credit Agreement shall be amended by deleting the date "January 25, 1997"
appearing therein and inserting the date "April 30, 1997" in lieu thereof.
2. CONDITIONS PRECEDENT.
The effectiveness of this Third Amendment is subject to the satisfaction of
all of the following conditions precedent:
(a) The Company and the Lender shall have executed and delivered this
Third Amendment.
(b) Legal matters incident to the execution and delivery of this Third
Amendment shall be satisfactory to the Lender and its counsel.
3. MISCELLANEOUS.
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<PAGE>
(a) Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this Third Amendment need not be made in the Credit Agreement, the
Notes, or any other instrument or document executed in connection therewith, or
in any certificate, letter or communication issued or made pursuant to or with
respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
(b) The Company agrees to pay on demand all costs and expenses of or
incurred by the Lender in connection with the negotiation, preparation,
execution, and delivery of this Third Amendment, including the fees and expenses
of counsel for the Lender.
(c) This Third Amendment may be executed in any number of counterparts, and
by the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto may execute this Third Amendment by signing any such counterpart and each
of such counterparts shall for all purposes be deemed to be an original. This
Third Amendment shall be governed by the internal laws of the State of Illinois.
Dated as of January 15, 1997.
MAF BANCORP, INC.
By /s/ Jerry A. Weberling
-----------------------
Its Executive Vice President
Accepted and agreed to in Chicago, Illinois as of the date and year last
above written.
HARRIS TRUST AND SAVINGS BANK
By /s/ Michael Cameli
-------------------
Its First Vice President
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<PAGE>
Fourth Amendment To Credit Agreement
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of May
22, 1996, as amended (the "Credit Agreement"), between the undersigned, MAF
Bancorp, Inc., a Delaware corporation (the "Company") and you (the "Lender").
All capitalized terms used herein without definition shall have the same
meanings herein as such terms have in the Credit Agreement.
The Company has requested the Lender extend the Revolving Credit
Termination Date from April 30, 1997, to April 30, 1998, and the Lender is
willing to do so under the terms and conditions set forth in this Fourth
Amendment.
1. Amendment.
Upon your acceptance hereof in the space provided for that purpose below,
the definition of "Revolving Credit Termination Date" set forth in Section 4.1
of the Credit Agreement shall be amended by deleting the date "April 30, 1997"
appearing therein and inserting the date "April 30, 1998" in lieu thereof.
2. Conditions Precedent.
The effectiveness of this Fourth Amendment is subject to the satisfaction
of all of the following conditions precedent:
(a) The Company and the Lender shall have executed and delivered
this Fourth Amendment.
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<PAGE>
(b) Legal matters incident to the execution and delivery of this
Fourth Amendment shall be satisfactory to the Lender and its counsel.
3. Miscellaneous.
(a) Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this Fourth Amendment need not be made in the Credit Agreement, the
Notes, or any other instrument or document executed in connection therewith, or
in any certificate, letter or communication issued or made pursuant to or with
respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
(b) The Company agrees to pay on demand all costs and expenses of or
incurred by the Lender in connection with the negotiation, preparation,
execution, and delivery of this Fourth Amendment, including the fees and
expenses of counsel for the Lender.
(c) This Fourth Amendment may be executed in any number of counterparts,
and by the different parties on different counterpart signature pages, all of
which taken together shall constitute one and the same agreement. Any of the
parties hereto may execute this Fourth Amendment by signing any such counterpart
and each of such counterparts shall for all purposes be deemed to be an
original. This Fourth Amendment shall be governed by the internal laws of the
State of Illinois.
Dated as of April __, 1997.
MAF Bancorp, Inc.
-93-
<PAGE>
By /s/ Jerry Weberling
--------------------
Its Executive Vice
President and CFO
Accepted and agreed to in Chicago, Illinois as of the date and year last
above written.
Harris Trust And Savings Bank
By /s/ Michael Cameli
-------------------
Its Vice President
-94-
<PAGE>
Fifth Amendment To Credit Agreement
Harris Trust and Saving Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of May
22, 1996, as amended (the "Credit Agreement"), between the undersigned, MAF
Bancorp, Inc., a Delaware corporation (the "Company") and you (the "Lender").
All capitalized terms used herein within definition shall have the same meanings
herein as such terms have in the Credit Agreement.
The Company has requested the Lender reduce the Commitment Fee from 1/4 of
1% per annum to 1/8 of 1% per annum, and the Lender is willing to do so under
the terms and conditions set forth in this Fifth Amendment.
1. Amendment.
Section 3.1 of the Credit Agreement shall be amended by deleting the figure
"1/4 of 1%" and inserting in liew thereof the figure "1/8 of 1%"
2. Conditions Precedent.
The effectiveness of the Fifth Amendment is subject to the satisfaction of
all of the following conditions precedent:
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<PAGE>
(a) The Company and the Lender shall have executed and delivered this
Fifth Amendment.
(b) Legal matters incident to the execution and delivery of this Fifth
Amendment shall be satisfactory to the Lender and its counsel.
3. Miscellaneous.
(a) Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this Fifth Amendment need not be made in the Credit Agreement, the
Notes, or any other instrument or document executed in connection therewith, or
in any certificate, letter or communication issued or made pursuant to or with
respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
(b) The Company agrees to pay on demand all costs and expenses of or
incurred by the Lender in connection with the negotiation, preparation,
execution, and delivery of this Fifth Amendment, including the fees and expenses
of counsel for the Lender.
(c) This Fifth Amendment may be executed in any number of counterparts, and
by the different parties on different counterpart signature pages, all of
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<PAGE>
which taken together shall constitute one and the same agreement. Any of the
parties hereto may execute this Fifth Amendment by signing any such counterpart
and each of such counterparts shall for all purposes be deemed to be an
original. This Fifth Amendment shall be governed by the internal laws of the
State of Illinois.
Dated as of October 1, 1997.
MAF Bancorp, Inc.
By /s/ Jerry Weberling
--------------------
Its Executive Vice President
and CFO
Accepted and agreed to in Chicago, Illinois as of the date and year last
above written.
Harris Trust and Savings Bank
By /s/ Michael A. Cameli
----------------------
Its Vice President
-97-
<PAGE>
Exhibit No. 10(viii) Mid America Federal Savings Bank Employees'
Profit Sharing Plan, as amended
1
<PAGE>
MID AMERICA FEDERAL SAVINGS BANK
EMPLOYEES' PROFIT SHARING PLAN
(Adopted effective July 1, 1983, and conformed to amendments made
effective July 1, 1987, July 1, 1989, January 28, 1992, July 1,
1992, January 1, 1993, July 1, 1994, and July 1, 1995.)
2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- -----------------
PAGE NO.
<S> <C>
Section 1. Plan Identity 1
1.1 Name 1
1.2 Purpose 1
1.3 Effective Date 1
1.4 Fiscal Period 1
1.5 Single Plan for All Employers 1
1.6 Interpretation of Provisions 1
Section 2. Definitions 1
Section 3. Eligibility for Participation 11
3.1 Eligibility to Receive Employer Matching and Employer
Discretionary Contributions 11
3.1(a) Initial Eligibility 11
3.1(b) Eligibility Year 12
3.1(c) Recognized Absence 12
3.1(d) Maternity or Paternity Leave 12
3.1(e) Certain Employees Ineligible 12
3.1(f) Enrollment 13
3.1(g) Waiver of Participation 13
3.1(h) Participation and Reparticipation 13
3.2 Eligibility to Make Elective Deferral Contributions 13
3.2(a) Initial Eligibility 13
3.2(b) Enrollment 13
Section 4. Contributions 14
4.1 Contributions by Employer 14
4.1(a) Elective Deferral Contributions 14
4.1(b) Matching Contributions 14
4.1(c) Discretionary Contributions 15
4.1(d) Qualified Matching Contributions 15
4.1(e) Qualified Non-elective Contributions 15
4.2 Contributions by Participants 15
4.2(a) Nondeductible Voluntary Contributions 15
4.2(b) Rollover Contributions 15
4.3 Excess Elective Deferral Contributions 16
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.4 Actual Deferral Percentage Test 16
4.5 Excess Contributions 17
4.6 Recharacterization 18
4.7 Actual Contribution Percentage Test 19
4.8 Excess Aggregate Contributions 20
4.9 Conditions as to Contributions 21
4. Contributions Not Forfeitable 21
Section 5. Allocations 21
5.1 Contributions 21
5.1(a) Employer Contribution Account 22
5.1(b) Voluntary Contribution Account 23
5.1(c) Rollover Contribution Account 23
5.1(d) Elective Deferral Account 23
5.2 Forfeitures 23
5.3 Income on Investments 23
5.3(a) Employer Contribution, Voluntary Contribution,
and Rollover Contribution Accounts 23
5.3(b) Elective Deferral Accounts 24
Section 6. Limitations on Contributions and Allocations 24
6.1 Limitation on Annual Additions 24
6.2 Coordinated Limitation with Other Plans 25
6.3 Effect of Limitations 25
Section 7. Investments 26
7.1 General Fund 26
7.2 Participation Direction of Assets from
General Fund to Employer Stock 26
7.3 Elective Deferral Accounts 26
7.4 Voting of Employer Stock 27
7.5 Restrictions on Insider Trading 27
Section 8. Vesting 28
8.1 Vesting Schedule 28
8.2 Computation of Vesting Years 28
8.3 Full Vesting upon Certain Events 29
8.4 Full Vesting upon Plan Termination 29
8.5 Forfeiture, Repayment, and Restoral 29
8.6 Accounting for Forfeitures 29
8.7 Vesting and Nonforfeitability 29
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 9. Payment of Benefits 30
9.1 Upon Termination of Employment 30
9.2 Upon Death of Participant 30
9.2(a) Distribution Options if Distribution to Participant
Have Not Begun 31
9.2(b) Distribution Options if Distribution to Participant
Have Begun 31
9.3 Upon Attainment of Age 70 1/2 31
9.4 In-Service Distributions 31
9.4(a) Non-deductible Voluntary Contribution 31
9.4(b) Hardship Distribution 32
9.5 Type of Payment 33
9.5(a) Direct Rollover 33
9.5(b) Payment To Participant or Beneficiary 33
9.6 Form of Payment 33
9.6(a) Cash or "In Kind" 33
9.6(b) Employer Stock 33
9.6(c) Annuity 34
9.7 Timing of Distribution 34
9.8 Deemed Distribution 34
9.9 Qualified Domestic Relations Order 35
9.10 Beneficiary Designation 35
9.11 Marital Status of Participant 36
Section 10. Rules Governing Benefit Claims and Review of Appeals 36
10.1 Claim for Benefits 36
10.2 Notification by Committee 36
10.3 Claims Review Procedure 37
Section 11. Administration of Plan 37
11.1 Authority of Committee 37
11.2 Identity of Committee 37
11.3 Duties of Committee 38
11.4 Valuation of Employer Stock 38
11.5 Compliance with ERISA 38
11.6 Action by Committee 38
11.7 Execution of Documents 38
11.8 Adoption of Rules 38
11.9 Responsibilities to Participants 38
11.10 Alternate Payees in Event of Incapacity 39
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
11.11 Indemnification by Employers 39
11.12 Nonparticipation by Interested Member 39
Section 12. Powers and Duties of Plan Trustee 39
12.1 Appointment of Trustees 39
12.2 Basic Responsibilities of Trustees 40
12.3 Investment Powers and Duties 40
12.4 Duties Regarding Payment of Benefits 42
12.5 Execution of Contracts and Payment of Benefits 42
12.6 Trustee Expenses 42
12.7 Trust Fund Annual Report 42
12.8 Audit 43
12.9 Indemnification by Employers 43
12.10 Nonparticipation by Interested Member 43
Section 13. Amendment and Termination of Plan 44
13.1 Adoption of Plan by Other Employers 44
13.2 Adoption of Plan by Successor 44
13.3 Right to Amend or Terminate Plan 44
Section 14. Miscellaneous Provisions 45
14.1 Plan Creates No Employment Rights 45
14.2 Nonassignability of Benefits 45
14.3 Limit of Employer Liability 45
14.4 Treatment of Expenses 45
14.5 Number and Gender 45
14.6 Nondiversion of Assets 45
14.7 Separability of Provisions 46
14.8 Service of Process 46
14.9 Governing State Law 46
Section 15. Top-Heavy Provisions 46
15.1 Determination of Top-Heavy Status 46
15.2 Minimum Contributions 48
15.3 Top-Heavy Vesting Schedule 48
15.4 Maximum Compensation 48
</TABLE>
1.1 Name. The name of this Plan is "MidAmerica Federal Savings Bank Employees'
Profit Sharing Plan".
1.2 Purpose. The purpose of this Plan Document is to describe the terms and
conditions
6
<PAGE>
under which contributions made pursuant to the Plan will be credited and
paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is July 1, 1983.
1.4 Fiscal Period. This Plan shall be operated on the basis of a July 1 - June
30 fiscal year for the purpose of keeping the Plan's books and records, and
distributing or filing any reports or returns required by law.
1.5 Single Plan for All Employers. This Plan shall be treated as a single plan
with respect to all participating Employers for the purpose of crediting
contributions and forfeitures, distributing benefits, determining whether
there has been any termination of Service, and applying the limitations set
forth in Section 6.
1.6 Interpretation of Provisions. The Employers intend this Plan and Trust to
be a qualified profit-sharing plan under Section 401(a) of the Code. The
Plan and Trust shall be interpreted and applied in a manner consistent with
this intent and shall be administered at all times and in all respects in a
nondiscriminatory manner.
SECTION 2 - DEFINITIONS
The following words and phrases, for which the first letter is capitalized,
shall have the meaning specified when used in this Plan, unless the context
clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated under
this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect contributions, the Plan's investment
experience, distributions, and forfeitures.
"Active Participant" means any Employee who has satisfied the eligibility
requirements of Section 3.1 and who qualifies as an Active Participant for
a particular Plan Year under Section 4.1.
"Actual Contribution Percentage" means, for a specified group of
Participants for a Plan Year, the average of the ratios (calculated
separately for each Participant in such group) of (i) Employer Matching
Contributions and Employee Voluntary Contributions actually paid to the
Trust on behalf of such Participant for the Plan Year to (ii) the
Participant's Total Compensation for such Plan Year, as set forth in
Section 4.7.
"Actual Deferral Percentage" means, for a specified group of Participants
for a Plan Year, the average of the ratios (calculated separately for each
Participant in such group) of (i) the amount of Employer contributions
actually paid to the Trust on behalf of such Participant for the Plan Year
to (ii) the Participant's Total Compensation for such Plan Year, as set
forth in Section 4.4. Employer contributions on behalf of any Participant
shall include(i) any Elective Deferrals made pursuant to the Participant's
deferral election (including Excess Elective Deferrals of Highly
Compensated Employees), but excluding (a) Excess Elective Deferrals of Non-
highly Compensated Employees that arise solely from Elective Deferrals made
under the Plan or plans of this Employer and (b) Elective
7
<PAGE>
Deferrals that are taken into account in the Contribution Percentage
test(provided the ADP test is satisfied both with and without exclusion of
these Elective Deferrals); and (ii) at the election of the Employer,
Qualified Non-elective Contributions and Qualified Matching Contributions.
For purposes of computing the Actual Deferral Percentages, an Employee who
would be a Participant but for the failure to make Elective Deferrals shall
be treated as a Participant on whose behalf no Elective Deferrals are made.
"Aggregate Limit" means the sum of (i) 125 percent of the greater of the
ADP of the Non-highly Compensated Employees for the Plan Year or the ACP of
Non-highly Compensated Employees under the Plan subject to Section 401(m)
of the Code for the Plan Year beginning with or within the Plan Year of the
CODA and (ii) the lesser of 200% or two plus the lesser of such ADP or ACP.
"Lesser" is substituted for "greater" in (i) above, and "greater" is
substituted for "lesser" after "two plus the" in (ii) if it would result in
a larger Aggregate Limit.
"Anniversary Date" means the last day of each Plan Year.
"Beneficiary" means the person, persons, or entity designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation, or if all the designated
Beneficiaries shall die before the Participant dies or shall die before all
benefits have been paid, the Participant's Beneficiary shall be his
surviving Spouse, if any, or his estate if he is not survived by a spouse.
The Committee may rely upon the advice of the Participant's executor or
administrator as to the identity of the Participant's Spouse.
"Break in Service" means any five or more consecutive 12-month periods
beginning July 1 in which an Employee has 500 or fewer Hours of Service per
period. Solely for this purpose, an Employee shall be considered employed
for his normal hours of paid employment during a Recognized Absence, unless
he does not resume his Service at the end of the Recognized Absence.
Further, if an Employee is absent for any period beginning on or after
January 1, 1985, (i) by reason of the Employee's pregnancy; (ii) by reason
of the birth of the Employee's child; (iii) by reason of the placement of a
child with the Employee in connection with the Employee's adoption of the
child; or (iv) for purposes of caring for such child for a period beginning
immediately after such birth or placement, the Employee shall be credited
with the Hours of Service which would normally have been credited but for
such absence, up to a maximum of 501 Hours of Service, in the first 12-
month period which would otherwise be counted toward a Break in Service.
"Cash Compensation" means a Participant's compensation from his Employer
with respect to that portion of a Plan Year in which he is an Active
Participant. A Participant's Cash Compensation shall be based upon the cash
method of accounting; overtime pay, bonuses, stock bonuses, commissions,
taxable sick pay, severance pay, any compensation deferred under a
qualified cash or deferred arrangement, and similar items shall be
included, but any compensation income realized under a stock option,
amounts paid by or received from an Employer to cover travel,
entertainment, moving, or similar expenses, and the value of any fringe
benefits not received in cash shall be excluded. Notwithstanding anything
herein to the contrary, if the Cash Compensation of any Participant
consists of or includes commissions, then the Participant's Cash
8
<PAGE>
Compensation eligible for the allocation of contributions and forfeitures
shall exclude any Cash Compensation in any Plan Year in excess of $75,000,
effective with the Plan Year beginning July 1, 1992, with adjustment for
cost of living increases identical to the cost of living increases
announced by the Internal Revenue Service for retirement plan limitations.
A Participant's Cash Compensation shall exclude any compensation in any
Plan Year beginning after 1988 in excess of $200,000 (or the limit
currently in effect under Section 401(a)(17) of the Code).
"Code" means the Internal Revenue Code of 1986, as amended or replaced from
time to time.
"Committee" means the Committee responsible for the administration of this
Plan in accordance with Section 11.
"Company" means MidAmerica Federal Savings Bank, and any entity which
succeeds to the business of MidAmerica Federal Savings Bank and adopts
this Plan as its own pursuant to Section 13.2.
"Contract" means a life insurance policy or annuity contract.
"Contribution Percentage" means the ratio (expressed as a percentage) of
the Participant's Contribution Percentage Amounts to the Participant's
Total Compensation for the Plan Year (whether or not the Employee was a
Participant for the entire Plan Year).
"Contribution Percentage Amounts" means the sum of the Employee Voluntary
Contributions, Matching Contributions, Qualified Matching Contributions
(to the extent not taken into account for purposes of the ADP test), and
Qualified Non-elective Contributions (to the extent not take into account
for purposes of the ADP test) made under the Plan on behalf of the
Participant for the Plan Year. Such Contribution Percentage Amounts
shall not include Matching Contributions that are forfeited either to
correct Excess Aggregate Contributions or because the contributions to
which they relate are Excess Deferrals, Excess Contributions, or Excess
Aggregate Contributions. Elective Deferrals (to the extent not taken into
account for purposes of the ADP test) may be included in the Contribution
Percentage Amounts.
"Direct Rollover" means a payment by the Plan to the Eligible Retirement
Plan specified by the Distributee.
"Disability" means only a disability which renders the Participant unable,
as a result of bodily or mental disease or injury, to perform the duties
for an Employer for which he was responsible prior to the occurrence of
such bodily or mental disease or injury, which disability is expected to
be permanent or of long and indefinite duration. However, this term
shall not include any disability directly or indirectly resulting from
or related to habitual drunkenness or addiction to narcotics, a criminal
act occurring while compensation to the Participant is suspended, or any
injury which is intentionally self-inflicted. Further, this term shall
apply only if (i) the Participant is sufficiently disabled to qualify for
the payment of disability benefits under the federal Social Security Act
or Veterans Disability Act; or (ii) the Participant's disability is
certified by a physician
9
<PAGE>
selected by the Committee.
Unless the Participant is sufficiently disabled to qualify for disability
benefits under the federal Social Security Act or Veterans Disability Act,
the Committee may require the Participant to be appropriately examined from
time to time by one or more physicians chosen by the Committee, and no
Participant who refuses to be examined shall be treated as having a
disability. In any event, the Committee's good faith decision as to
whether a Participant's Service has been terminated by disability shall be
final and conclusive.
"Discretionary Contribution" means an optional Employer Contribution made
to the Plan, with the amount of the contribution, if any, determined by the
Employer each Plan Year.
"Distributee" means an Employee or former Employee. In addition, the
Employee's or former Employee's surviving Spouse and the Employee's or
former Employee's Spouse or former spouse who is the alternate payee under
a qualified domestic relations order, as defined in Section 414(p) of the
Code, are Distributees with regard to the interest of the Spouse or former
spouse.
"Early Retirement" means retirement on or after a Participant's attainment
of age 55.
"Elective Deferral Contribution" means any Employer contribution to the
Plan that is made pursuant to a Participant's Elective Deferral, in lieu of
cash compensation. With respect to any taxable year, an Elective Deferral
Contribution is the sum of all Employer Contributions made on behalf of
such Participant pursuant to Section 4.1(a). The Elective Deferral
Contribution shall not include any deferrals properly distributed as excess
annual additions.
"Elective Deferral Account" means an account established and maintained for
a Participant with respect to his Elective Deferral Contribution made
pursuant to Section 4.1(a).
"Eligible Retirement Plan" means an individual retirement account described
in Section 408(a) of the Code, an individual retirement annuity described
in Section 408(b) of the Code, an annuity plan described in Section 403(a)
of the Code, or a qualified trust described in Section 401(a) of the Code,
that accepts the Distributee's Eligible Rollover Distribution. However, in
the case of an Eligible Rollover Distribution to the surviving Spouse, an
Eligible Retirement Plan is an individual retirement account or an
individual retirement annuity.
"Eligible Rollover Distribution" means any distribution of all or any
portion of the balance to the credit of the Distributee, except that an
Eligible Rollover Distribution may not include:
(a) 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 and the Distributee's
designated Beneficiary; or
(b) any distribution for a specified period of ten years or more; or
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<PAGE>
(c) any distribution to the extent such distribution is required under
section 401(a)(9) of the Code; or
(d) 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 Stock).
"Employee" means any individual who is or has been employed or self-
employed by the Company. "Employee" shall also mean any Employee of the
Company maintaining the Plan or of any other Company required to be
aggregated with such Company under Sections 414(b), (c), (m), or (o) of the
Code. "Employee" also means an individual employed by a leasing
organization who, pursuant to an agreement between the Company and the
leasing organization, has performed services for the Company and any
related persons (within the meaning of Section 414(n) or (o) of the Code)
on a substantially full-time basis for more than one year, if such services
are of a type historically performed by employees in the Company's business
field. However, such a "leased employee" shall not be considered an
Employee if (i) he participates in a money purchase pension plan sponsored
by the leasing organization which provides for immediate participation,
immediate full vesting, and an annual contribution of at least 10 percent
of the Employee's Cash Compensation; and (ii) leased employees do not
constitute more than 20% of the Employer's total work force (including
leased employees, but excluding Highly Paid Employees and any other
employees who have not performed services for the Employer on a
substantially full-time basis for at least one year).
"Employer" means the Company or any affiliate within the purview of Section
414(b), (c), or (m), and 415(h) of the Code, any other corporation,
partnership, or proprietorship which adopts this Plan with the Company's
consent pursuant to Section 13.1, and any entity which succeeds to the
business of any Employer and adopts the Plan pursuant to Section 13.2.
"Employer Contribution Account" means an account established and maintained
for a Participant with respect to Employer Matching Contributions, Employer
Discretionary Contributions, Qualified Employer Matching Contributions, and
Qualified Employer Non-elective Contributions.
"Employer Stock" means shares of the Company's voting common stock or
preferred stock meeting the requirements of Section 409(e)(3) of the Code
issued by an Employer or an affiliated corporation. Such term shall
specifically include the voting common or preferred stock of MAF Bancorp,
Inc., the Company's holding company.
"Entry Date" means January 1 and July 1 of each Plan Year. "ERISA" means
the Employee Retirement Income Security Act of 1974(P.L. 93-406, as
amended).
"Excess Aggregate Contributions" means, with respect to any Plan Year, the
excess of the aggregate amount of the Employer Matching Contributions made
pursuant to Section 4.1(b) and (d), and any Qualified Non-elective
Contributions or Elective Deferral Contributions taken into account
pursuant to Section 4.8 on behalf of Highly Compensated Participants for
such Plan Year, over the maximum amount of such
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<PAGE>
contributions permitted under the limitations as set forth in Section 6.
"Excess Contributions" means, with respect to any Plan Year, the excess
of Elective Deferral Contributions made on behalf of Highly Compensated
Participants for the Plan Year over the maximum amount of such
contributions permitted as set forth in Section 4.5. Excess
Contributions shall be treated as an "annual addition" pursuant to
Section 6.1.
"Excess Elective Deferrals" means those Elective Deferral Contributions
that are includible in a Participant's gross income under Section 402(g)
of the Code to the extent such Participant's Elective Deferral
Contributions for a taxable year exceed the dollar limitation under such
Code section. Excess Elective Deferral Contributions shall be treated as
annual additions under the Plan, unless such amounts are distributed no
later than the first April 15 following the close of the Participant's
taxable year.
"Family Member" means, with respect to an affected Participant, such
Participant's Spouse, such Participant's lineal descendants and
ascendants, and their spouses, as described in Section 414(q)(6)(B) of
the Code.
"Fiscal Year" means the Employer's accounting year of 12 months beginning
on July 1 and ending on June 30 of the following year.
"Forfeiture" means that portion of a Participant's Account that is not
Vested, and occurs after a 1-Year Break in Service.
"General Fund" means all the investments in the Trust, as set forth in
Section 7.1, which have been made with Matching Contributions,
Discretionary Contributions, Qualified Matching Contributions, Qualified
Non-elective Contributions, Employee Voluntary Contributions, and
Employee Rollover Contributions, plus the income (or loss) from these
investments, shall be treated as from a single fund, with the following
exception.
Vested assets which have been directed by Plan Participants to be
invested in Employer Stock, as set forth in Section 7.2, shall be
segregated and held in the Employer Stock Fund.
"Highly Compensated Employee" for any Plan Year means an Employee who,
during either of that or the immediately preceding Plan Year (i) owned
more than five percent of the outstanding equity interest or the
outstanding voting interest in any Employer; (ii) had Total Compensation
exceeding $75,000 (as adjusted pursuant to Section 415(d) of the Code);
(iii) had Total Compensation exceeding $50,000 (as adjusted pursuant to
Section 415(d) of the Code) and was among the most highly compensated
one-fifth of all Employees; or (iv) was at any time an officer of an
Employer and had Total Compensation exceeding $45,000 (or 50% of the
currently applicable dollar limit under Section 415(b)(1)(A) of the
Code).
For this purpose:
(a) "Total Compensation" shall include any amount which is excludable
from the Employee's gross income for tax purposes pursuant to
Sections 125, 402(a)(8),
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401(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated one-fifth of
all Employees" shall be determined by taking into account all
individuals working for all related Employer entities described in the
definition of "Service", but excluding any individual who has not
completed six months of Service, who normally works fewer than 17 1/2
hours per week or in fewer than six months per year, who has not
reached age 21, whose employment is covered by a collective bargaining
agreement, or who is a nonresident alien who receives no earned income
from United States sources.
(c) The number of individuals counted as "officers" shall not be more than
the lesser of (i) 50 individuals; or (ii) the greater of 3 individuals
or 10 percent of the total number of Employees. If no officer earns
more than $45,000 (or the adjusted limit), then the highest paid
officer shall be a Highly Compensated Employee.
(d) A former Employee shall be treated as a Highly Compensated Employee if
such Employee was a Highly Compensated Employee when such Employee
separated from service, or if such Employee was a Highly Compensated
Employee at any time after attaining age 55.
If an Employee is, during a determination year or look-back year, a Family
Member of either a 5 percent owner who is an active or former Employee or
Highly Compensated Employee who is one of the 10 most Highly Compensated
Employees ranked on the basis of Total Compensation paid by the Employer
during such year, then the Family Member and the 5 percent owner or top-ten
Highly Compensated Employee shall be aggregated. In such case, the Family
Member and 5 percent owner or top-ten Highly Compensated Employee shall be
treated as a single Employee receiving compensation and plan contributions
or benefits equal to the sum of such compensation and contributions or
benefits of the Family Member and 5 percent owner or top-ten Highly
Compensated Employee. For purposes of this section, Family Member includes
the Spouse, lineal ascendants and descendants of the Employee or former
Employee, and the spouses of such lineal ascendants and descendants.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid
group, the top 100 Employees, the number of Employees treated as officers,
and the compensation that is considered, will be made in accordance with
Section 414(q) of the Code and the regulations thereunder.
"Hours of Service" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid for
services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or is
entitled to be paid for a period of vacation, holidays, illness,
disability, layoff, jury duty, temporary military duty, or leave of
absence is an Hour of Service. However, except as otherwise
specifically provided, no more than 501 Hours of Service
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<PAGE>
shall be credited for any single continuous period which an Employee
performs no duties. Further, no Hours of Service shall be credited on
account of payments made solely under a plan maintained to comply with
worker's compensation, unemployment compensation, or disability
insurance laws, or to reimburse an Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of damages) is
either awarded or agreed to by the Employer is an Hour of Service.
However, no more than 501 Hours of Service shall be credited for any
single continuous period during which an Employee would not have
performed any duties.
(d) Hours of Service shall be credited in any one period only under one of
the foregoing paragraphs (a), (b), and (c); an Employee may not get
double credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of
Service for any class or group of non-hourly Employees, each Employee
in that class or group shall be credited with 45 Hours of Service for
each weekly pay period in which he has at least one Hour of Service.
However, an Employee shall be credited only for his normal working
hours during a paid absence.
(f) Hours of Service to be credited on account of a payment to an Employee
(including back pay) shall be recorded in the period of Service for
which the payment was made. If the period overlaps two or more Plan
Years, the Hours of Service credit shall be allocated in proportion to
the respective portions of the period included in the several Plan
Years. However, in the case of periods of 31 days or less, the
Committee may apply a uniform policy of crediting the Hours of Service
to either the first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be counted as
required by Section 2530.200b-2(b) and (c) of the Department of
Labor's regulations under Title I of ERISA.
"Investment Manager" means an entity that (i) has the power to manage,
acquire, or dispose of Plan assets, and (ii) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm,
or corporation registered as an investment adviser under the Investment
Advisors Act of 1940 and the Investment Advisor Regulatory Enhancement and
Disclosure Act of 1993.
"Matching Contribution" means an Employer Contribution made to this Plan
for a Participant based on such Participant's Elective Deferral.
"Normal Retirement Date" means a Participant's 65th birthday.
"1-Year Break in Service" means a Plan Year during which an Employee has
not completed more than 500 Hours of Service and is not employed on the
last day of the Plan Year.
"Participant" means any Employee who is participating in the Plan, or who
has
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<PAGE>
previously participated in the Plan and still has a balance credited to his
Account.
"Plan" means this document for the MidAmerica Federal Savings Bank
Employees' Profit Sharing Plan, including all amendments thereto.
"Plan Year" means each period of 12 consecutive months beginning on July 1
of 1983 and each succeeding year.
"Qualified Domestic Relations Order" (QDRO) means a domestic relations
order which relates to an alternate payee's right to receive all or a
portion of the benefits payable to a Participant under this Plan, with the
provision of child support, alimony payments, or marital property rights to
a Spouse, former spouse, child, or other dependent of a Participant, that
the Committee has determined meets the requirements of Section 414(p) of
the Code.
"Qualified Matching Contributions" means the Employer Contributions to the
Plan that are made pursuant to Section 4.1(d), which are subject to the
distribution and nonforfeitability requirements of Section 401(k) of the
Code.
"Qualified Non-elective Contributions" means the Employer contributions to
the Plan that are made pursuant to Section 4.1(e), which are subject to the
distribution and nonforfeitability requirements of Section 401(k) of the
Code.
"Recognized Absence" means a period for which
(a) an Employer grants an Employee a leave of absence for a limited
period, but only if an Employer grants such leaves on a
nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer because of a change
in business conditions; or
(c) an Employee is on active military duty, but only to the extent that
his employment rights are protected by the Military Selective Service
Act of 1967 (38 U.S.C. Section 2021).
"Rollover Contribution Account" means an account established and maintained
for a Participant with respect to his Direct Rollover or Rollover
Contributions made pursuant to Sections 4.2(b) and 5.1(c).
"Service" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in
which the individual was a nonresident alien and did not receive from an
Employer any earned income which constituted income from sources within the
United States. An Employee's Service shall include any service which
constitutes service with a predecessor employer within the meaning of
Section 414(a) of the Code. An Employee's Service shall also include any
service with an entity which is not an Employer, but only either (i) for a
period after 1975 in which the other entity is a member of a controlled
group of corporations or is under common control with other trades and
businesses within the meaning of Section 414(b) or 414(c) of the Code, and
a member of the controlled group or one of the trades
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<PAGE>
and businesses is an Employer; or (ii) for a period after 1979 in which the
other entity is a member of an affiliated service group within the meaning
of Section 414(m) of the Code, and a member of the affiliated service group
is an Employer.
"Spouse" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on
the date of the Participant's death, if earlier.
"Suspense Account" means the total forfeitable portion of all former
Participants' Accounts which have not yet become a Forfeiture during any
Plan Year.
"Total Compensation" means a Participant's wages, salary, overtime,
bonuses, commissions, and any other amounts received for personal services
rendered while in Service from any Employer or an Affiliate (within the
purview of Section 414(b), (c), and (m) of the Code, plus his earned income
from any such entity as defined in Section 401(c)(2) of the Code if he is
self-employed. Total Compensation shall include (i) severance payments and
amounts paid as a result of termination, (ii) amounts excludable from gross
income under Section 911 or deductible under Section 913 of the Code, (iii)
amounts described in Sections 104(a)(3), 105(a), and 105(h) of the Code to
the extent includable in gross income, (iv) amounts described in Section
105(d) of the Code, (v) amounts received from an Employer for moving
expenses which are not deductible under Section 217 of the Code, (vi)
amounts includable in gross income in the year of, and on account of, the
grant of a nonqualified stock option, (vii) amounts includable in gross
income pursuant to Section 83(b) of the Code, (viii) amounts includable in
gross income under an unfunded nonqualified plan of deferred compensation;
but shall exclude (ix) Employer contributions to or amounts received from a
funded or qualified plan of deferred compensation, (x) Employer
contributions to a simplified employee pension account to the extent
deductible under Section 219 of the Code, (xi) Employer contributions to a
Section 403(b) annuity contract, (xii) amounts includable in gross income
pursuant to Section 83(a) of the Code, (xiii) amounts includable in gross
income upon the exercise of nonqualified stock option or upon the
disposition of stock acquired under any stock option, and (xiv) any other
amounts expended by the Employer on the Participant's behalf which are
excludable from his income or which receive special tax benefits.
A Participant's Total Compensation shall exclude any compensation in any
limitation year beginning after 1988 in excess of $200,000 (or the limit
currently in effect under Section 401(a)(17) of the Code).
"Trust" or "Trust Fund" means the trust fund created under this Plan.
"Trustee" means the individuals selected from time to time by the Company
to serve as co-trustees of the Trust Fund.
"Valuation Date" means the last day of the Plan Year (June 30), the last
day of each quarter during the Plan Year (September 30, December 31, March
31, and June 30), and any other dates selected by the Committee, on which
the income (or losses) for the Trust Fund shall be allocated.
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<PAGE>
"Vested" means the nonforfeitable portion of any account maintained on
behalf of a Participant.
"Vesting Year" means a period of Service credited to a Participant pursuant
to Section 8.2 for purposes of determining his Vested interest.
"Voluntary Contribution Account" means an account established and
maintained for a Participant with respect to his nondeductible Voluntary
Contributions made pursuant to Section 4.2(a) and 5.1(b).
"Year of Service" means the computation period of 12 consecutive months
during which an Employee has at least 1000 Hours of Service.
For purposes of eligibility for participation, the initial computation
period shall begin with the date on which the Employee first performs an
Hour of Service. The participation computation period beginning after a 1-
Year Break in Service shall be measured from the date on which an Employee
again performs an Hour of Service. The participation computation period
shall shift to the Plan Year which includes the anniversary of the date on
which the Participant first performed an Hour of Service.
A Year of Service for vesting purposes will begin, for the first 12-month
period, with the date on which the Employee first performs an Hour of
Service. In the subsequent 12-month periods, it will begin on the first day
of the Plan Year containing the first anniversary of the Employee and will
end on the last day of that Plan Year, and each Plan Year thereafter.
SECTION 3 - ELIGIBILITY FOR PARTICIPATION
-----------------------------------------
3.1 Eligibility to Receive Employer Matching Contributions and Employer
Discretionary Contributions.
(a) Initial Eligibility.
An Employee of the Company who
(I) has completed one Year of Service, and
(ii) has attained the age of 21,
shall be eligible to participate in the Plan as of the Entry Date
coinciding with or next following the later of the following dates:
(I) the last date of the Employee's first Eligibility Year, or
(ii) the Employee's 21st birthday.
However, if an Employee is not in active Service with an Employer on
the date he would
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<PAGE>
otherwise first be eligible to participate in the Plan, his
eligibility to participate in the Plan shall be deferred until the
next day he is in Service.
(b) Eligibility Year.
An "Eligibility Year" means an applicable eligibility period (as
defined below) in which the Employee has at least 1,000 Hours of
Service. For this purpose:
(I) an Employee's first "eligibility period" is the 12-consecutive
month period beginning on the first day on which he performs an
Hour of Service, and
(ii) his succeeding 12-consecutive month periods commence with the
first Plan Year which commences prior to the first anniversary
of the Employee's employment commencement date, regardless of
whether the Employee is entitled to be credited with 1,000
Hours of Service during the initial eligibility computation
period.
(c) Recognized Absence.
An Employee shall be considered employed for his normal hours of paid
employment during a Recognized Absence, unless he does not resume his
Service at the end of the Recognized Absence.
(d) Maternity or Paternity Leave.
Beginning on or after January 1, 1985, if any Employee is absent for
any period
(i) by reason of the Employee's pregnancy,
(ii) by reason of the birth of the Employee's child,
(iii) by reason of the placement of a child with the Employee in
connection with the Employee's adoption of the child, or
(iv) for purposes of caring for such child for a period beginning
immediately after such birth or placement,
the Employee shall be credited with the Hours of Service which would
normally have been credited but for such absence, up to a maximum of
501 Hours of Service, in the first 12-month period which would
otherwise be counted toward a Break in Service.
(e) Certain Employees Ineligible.
No Employee shall be eligible to participate while his Service is
covered by a collective bargaining agreement between an Employer and
the Employee's collective bargaining agreement if
(i) retirement benefits have been the subject of good faith
bargaining between the Employer and the representative, and
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<PAGE>
(ii) the collective bargaining agreement does not provide for the
Employee's participation.
(f) Enrollment.
The Employer shall notify all Employees when they become eligible to
participate in the Plan and shall instruct them that they may elect
not to participate. Upon request, the Committee shall provide eligible
Employees with an Agreement of Non-Participation.
(g) Waiver of Participation.
An eligible Employee may elect not to become a Participant in the Plan
by signing and delivering to the Committee the Agreement of Non-
Participation within ninety (90) days after receiving it.
Any Employee who elects not to become a Participant as of the first
Entry Date on which he was eligible may become a Participant as of any
succeeding Entry Date if he is still eligible by executing a
revocation of this Agreement of Non-Participation and delivering the
same to the Committee within ninety (90) days of any succeeding Entry
Date.
(h) Participation and Reparticipation.
Subject to the satisfaction of the foregoing requirements, an Employee
shall participate in the Plan during each period of his Service from
the date on which he first becomes eligible until his termination. For
this purpose, an Employee returning within five years of his
termination who previously satisfied the initial eligibility
requirements for Employer Matching, Employer Discretionary, Qualified
Matching, and Qualified Non-elective Contributions shall re-enter the
Plan as of the date of his return to Service with an Employer.
3.2 Eligibility to Make Elective Deferral Contributions.
(a) Initial Eligibility.
(i) Employees hired or rehired beginning with July 1, 1994.
Effective with the Plan Year beginning on July 1, 1994, an
Employee of the Company who has completed one Year of Service
shall be eligible to elect to defer a portion of his Cash
Compensation as of the Entry Date coinciding with or next
following the completion of one Year of Service. A Year of
Service is a period of 12 consecutive months during which an
Employee has at least 1000 Hours of Service.
However, if an Employee is not in active Service with an
Employer on the date he would otherwise first be eligible to
participate in the Plan, his eligibility to participate in the
Plan shall be deferred until the next day he is in Service.
There is no minimum age requirement for a Participant to be
eligible to defer a portion of his Cash Compensation.
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<PAGE>
(ii) Employees hired or rehired prior to July 1, 1994.
An Employee hired or rehired prior to July 1, 1994 is eligible
to elect to defer a portion of his Cash Compensation, with no
Year of Service requirement and no minimum age requirement.
(b) Enrollment.
An Employee shall elect to become a Participant by signing and
delivering to the Committee an Agreement of Participation.
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SECTION 4 - CONTRIBUTIONS
-------------------------
4.1 Contributions by Employer.
All Employees shall be eligible to defer a portion of their Cash
Compensation as Elective Deferrals.
An Employee shall be eligible to receive an Employer Matching, Employer
Discretionary, Qualified Matching, and Qualified Non-elective Contributions
if he is an Active Participant.
Active Participant means a Participant who has satisfied the eligibility
requirements for these contributions, as set forth in Section 3.1, and who
has at least 1,000 Hours of Service during the current Plan Year. However,
a Participant shall not qualify as an Active Participant unless (i) he is
in active Service with an Employer on the last day of the Plan Year, or
(ii) his Service terminated during the Plan Year by reason of death.
For each Plan Year, the Employer shall contribute to the Plan:
(a) Elective Deferral Contributions.
Effective with the Plan Year beginning on July 1, 1987, an amount
equal to the total Elective Deferrals of all Participants during the
Plan Year.
The balance in each Participant's Elective Deferral Account shall be
100% vested and not subject to Forfeiture for any reason.
(i) Each Employee may elect to defer an amount not to exceed the
lesser of 15% of his Cash Compensation or the dollar limitation
contained in Section 402(g) of the Code in effect at the
beginning of such taxable year.
(ii) A Participant may elect to change the amount of his Elective
Deferral, cancel his Elective Deferral, or resume his Elective
Deferral once each quarter, or more frequently at the
discretion of the Committee.
(iii) The termination of a Participant's Service with an Employer
shall be deemed to revoke any Elective Deferral agreement then
in effect, effective immediately following the close of the pay
period within which such termination occurs.
(iv) A Participant may elect to change his Elective Deferral
investment selections once each quarter, or more frequently at
the discretion of the Committee.
(b) Matching Contributions.
Effective with the Plan Year beginning on July 1, 1987, pursuant to
Section 3.1, an amount equal to 25% of the Elective Deferrals made by
Active Participants after their Entry Date. This contribution shall be
limited to Elective Deferrals which do not exceed 2% of a
Participant's Cash Compensation. The balance in a Participant's
Employer Contribution Account based on Matching Contributions shall be
subject to the vesting schedule set forth in Section 8.1.
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<PAGE>
(c) Discretionary Contributions.
An additional discretionary amount may be contributed from current or
accumulated net earnings by the Employer.
The balance in a Participant's Employer Contribution Account based on
Discretionary Contributions shall be subject to the vesting schedule
set forth in Section 8.1.
(d) Qualified Matching Contributions.
Qualified Matching Contributions may be made to Non-highly Compensated
Active Participants in order to satisfy the ADP and/or the ACP tests.
The Committee shall determine the amount to be allocated in order to
satisfy the ADP and/or the ACP tests.
Qualified Matching Contributions shall be 100% vested and not subject
to Forfeiture for any reason.
(e) Qualified Non-elective Contributions.
Qualified Non-elective Contributions may be made to Non-highly
Compensated Active Participants in order to satisfy the ADP and/or the
ACP tests. The Committee shall determine the amount to be allocated in
order to satisfy the ADP and/or ACP tests. Qualified Non-elective
Contributions shall be 100% vested and not subject to Forfeiture for
any reason.
4.2 Contributions by Participants
(a) Nondeductible Voluntary Contributions.
A Participant may elect to contribute an amount not to exceed 10% of
his Cash Compensation as a nondeductible Voluntary Contribution.
The balance in a Participant's Voluntary Contribution Account shall be
100% vested and not subject to Forfeiture for any reason.
(b) Rollover Contributions.
If a Participant in this Plan receives a distribution from another
qualified retirement plan in which he was a participant, or if a
Participant in this Plan receives a distribution from his Conduit IRA,
other than a required minimum distribution, then a Rollover
Contribution to this Plan may be made on or before the 60th day after
the distribution was received by the Participant.
Effective January 1, 1993, a Participant who is eligible to receive an
Eligible Rollover Distribution from an employee's trust (as described
in Section 401(a) of the Code and tax exempt under Section 501(a) of
the Code); or an annuity plan (as described in Section 403(a) of the
Code); or an individual retirement account (as described in Section
408(a) of the Code); or an individual retirement annuity (as described
in Section 408(b) of the
22
<PAGE>
Code) may, pursuant to Section 401(a)(31) of the Code and with the
consent of the Trustee, have such distribution processed as a Direct
Rollover to this Plan.
The balance in a Participant's Rollover Contribution Account shall be
100% vested and not subject to Forfeiture for any reason.
4.3 Excess Elective Deferral Contributions.
If a Participant's Elective Deferral Contributions under this Plan,
together with any elective deferrals (as defined in Regulation 1.402(g)-
1(b)) made in another qualified cash or deferred arrangement (under Section
401(k) of the Code), a simplified employee pension plan (under Section
408(k) of the Code), a salary reduction arrangement (under Section
3121(a)(5)(D) of the Code), a deferred compensation plan under Section 457
of the Code), or a trust described in Section 501(c)(18) of the Code,
exceed the limitation of Section 402(g) of the Code for such Participant's
taxable year, the Participant may, not later than March 1 following the
close of his taxable year, notify the Committee in writing of such excess,
and request the withdrawal of his Excess Elective Deferrals from this Plan.
Upon proper notification by the Participant, the Committee may direct the
Trustee to distribute the excess amount (including any income attributable
to such excess amount) to the Participant not later than April 15 following
the close of the Participant's taxable year.
4.4 Actual Deferral Percentage Test.
The Actual Deferral Percentage (hereinafter referred to as "ADP") for
Participants who are Highly Compensated Employees for each Plan Year and
the ADP for Participants who are Non-highly Compensated Employees for the
same Plan Year must satisfy one of the following tests:
The average of the ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the average of the ADP
for Participants who are Non-highly Compensated Employees for the same
Plan Year multiplied by 1.25; or
The average of the ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the average of the ADP
for Participants who are Non-highly Compensated Employees for the same
Plan Year multiplied by 2.0, provided that the average of the ADP for
Participants who are Highly Compensated Employees does not exceed the
average of the ADP for Participants who are Non-highly Compensated
Employees by more than two percentage points.
The ADP for any participant who is a Highly Compensated Employee for
the Plan Year and who is eligible to have Elective Deferrals (and Qualified
Non-elective Contributions or Qualified Matching Contributions, or both, if
treated as Elective Deferrals for purposes of the ADP test) allocated to
his account under two or more arrangements described in Section 401(k) of
the code, that are maintained by the Employer, shall be determined as if
such Elective Deferrals (and, if applicable, such Qualified Non-elective
Contributions or Qualified Matching Contributions, or both) were made under
a single arrangement. If a Highly Compensated Employee participates in two
or more cash or deferred arrangements that have different Plan Years, all
cash or deferred arrangements ending with or within the same
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calendar year shall be treated as a single arrangement. Notwithstanding the
foregoing, certain plans shall be treated as separate if mandatorily
disaggregated under regulations under Section 401(k) of the Code.
In the event that this Plan satisfies the requirements of Sections 401(k),
401(a)(4), or 410(b) of the Code only if aggregated with one or more other
plans, or if one or more other plans satisfy the requirements of such
sections of the Code only if aggregated with this Plan, then this section
shall be applied by determining the ADP of employees as if all such plans
were a single plan. For Plan Years beginning after December 31, 1989, plans
may be aggregated in order to satisfy Section 401(k) of the Code only if
they have the same Plan Year.
For purposes of determining the ADP of a Participant who is a 5% owner or
one of the ten most highly-paid Highly Compensated Employees, the Elective
Deferral Contributions (and Qualified Non-elective Contributions or
Qualified Matching Contributions, or both, if treated as Elective Deferral
Contributions for purposes of the ADP test) and Total Compensation of such
Participant shall include the Elective Deferral Contributions (and, if
applicable, Qualified Non-elective Contributions and Qualified Matching
Contributions, or both) and Total Compensation for the Plan Year of Family
Members (as defined in Section 414(q)(6) of the Code). Family Members, with
respect to such Highly Compensated Employees, shall be disregarded as
separate Employees in determining the ADP both for Participants who are
Non-highly Compensated Employees and for Participants who are Highly
Compensated Employees.
For purposes of determining the ADP test, Elective Deferrals, Qualified
Non-elective Contributions, and Qualified Matching Contributions must be
made before the last day of the 12-month period immediately following the
Plan Year to which such contributions relate.
The Employer shall maintain records sufficient to demonstrate satisfaction
of the ADP test and the amount of Qualified Non-elective Contributions or
Qualified Matching Contributions, or both, used in such test.
The determination and treatment of ADP amounts of any Participant shall
satisfy such other requirements as may be prescribed by the Secretary of
the Treasury.
4.5 Excess Contributions.
Notwithstanding any other provision of this Plan, Excess Contributions,
plus any income and minus any loss allocable thereto, shall be distributed
no later than the last day of each Plan Year to Participants to whose
accounts such Excess Contributions were allocated for the preceding Plan
Year. If such excess amounts are distributed more than 2 1/2 months after
the last day of the Plan Year in which such excess amounts arose, a 10%
excise tax will be imposed on the Employer maintaining the Plan with
respect to such amounts. Such distributions shall be made to Highly
Compensated Employees on the basis of the respective portions of the Excess
Contributions attributable to each such Employee. Excess Contributions of
Participants who are subject to Family Member aggregation rules shall be
allocated among the Family Members in proportion to the Elective Deferrals
(and amounts treated as Elective Deferrals) of each Family Member that are
combined to determine the combined ADP.
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Excess Contributions (including the amounts recharacterized) shall be
treated as annual additions under the Plan.
Excess Contributions shall be adjusted for any income or loss up to the
date of distribution. The income or loss allocable to Excess Contributions
is the sum of (i) the income or loss allocable to the Participant's
Elective Deferral Account (and, if applicable, the Qualified Non-elective
Contribution account or the Qualified Matching Contribution account, or
both) for the Plan Year multiplied by a fraction, the numerator of which is
such Participant's Excess Contributions for the Plan Year and the
denominator is the Participant's account balance attributable to Elective
Deferrals (and Qualified Non-elective Contributions or Qualified Matching
Contributions, or both, if any such contributions are included in the ADP
test) without regard to any income or loss occurring during such Plan Year;
and (ii) 10% of the amount determined under (i) multiplied by the number of
whole calendar months between the end of the Plan Year and the date of
distribution, counting the month of distribution if the distribution occurs
after the 15th of such month.
Excess Contributions shall be distributed from the Participant's Elective
Deferral Account and Qualified Matching Contribution Account (if
applicable) in proportion to the Participant's Elective Deferrals and
Qualified Matching Contributions (to the extend used in the ADP test) for
the Plan Year. Excess Contributions shall be distributed from the
Participant's Qualified Non-elective Contribution Account only to the
extent that such Excess Contributions exceed the balance in the
Participant's Elective Deferral Account and Qualified Matching Contribution
Account.
4.6 Recharacterization.
A Participant may treat his Excess Contributions as an amount distributed
to the Participant and then contributed by the Participant to the Plan as a
Voluntary Contribution. Recharacterized amounts will remain nonforfeitable
and subject to the same distribution requirements as Elective Deferrals.
Amounts may not be recharacterized by a Highly Compensated Employee to the
extent that such amount in combination with other Voluntary Contributions
made by that Employee would exceed 10% of his Cash Compensation, as set for
in Sections 4.2(a) and 5.1(b).
Recharacterization must occur no later than 2 1/2 months after the last day
of the Plan Year in which such Excess Contributions arose, and is deemed to
occur no earlier than the date the last Highly Compensated Employee is
informed in writing of the amount recharacterized and the consequences
thereof. Recharacterized amounts will be taxable to the Participant for the
Participant's tax year in which the Participant would have received them in
cash.
Recharacterized amounts will be treated as Employer Contributions for
purposes of Sections 404, 409, 411, 412, 415, 416, and 417 of the Code.
4.7 Actual Contribution Percentage Test.
The Actual Contribution Percentage (hereinafter referred to as "ACP") for
Participants who are Highly Compensated Employees for each Plan Year and
the ACP for Participants who are Non-highly Compensated Employees for the
same Plan Year must satisfy one of the following tests:
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The average of the ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the average of the ACP
for Participants who are Non-highly Compensated Employees for the same
Plan Year multiplied by 1.25; or
The average of the ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the average of the ACP
for Participants who are Non-highly Compensated Employees for the same
Plan Year multiplied by 2.0, provided that the average of the ACP for
Participants who are Highly Compensated Employees does not exceed the
average of the ACP for Participants who are Non-highly Compensated
Employees by more than two percentage points.
Multiple use: If one or more Highly Compensated Employees participate in
both a CODA and a plan subject to the ACP test maintained by the Employer,
and the sum of the ADP and ACP of those Highly Compensated Employees
subject to either or both tests exceeds the Aggregate Limit, then the ACP
of those Highly Compensated Employees who also participate in a CODA will
be reduced (beginning with such Highly Compensated Employee whose ACP is
the highest) so that the limit is not exceeded. The amount by which each
Highly Compensated Employee's Contribution Percentage Amount is reduced
shall be treated as an Excess Aggregate Contribution. The ADP and ACP of
the Highly Compensated Employees are determined after any corrections
required to meet the ADP and ACP tests. Multiple use does not occur if
either the ADP or ACP of the Highly Compensated Employees does not exceed
1.25 multiplied by the ADP and ACP of the Non-highly Compensated Employees.
For purposes of this section, the Contribution Percentage for any
Participant who is a Highly Compensated Employee and who is eligible to
have Contribution Percentage Amounts allocated to his account under two or
more plans described in Section 401(a) of the Code, or arrangements
described in Section 401(k) of the Code that are maintained by the
Employer, shall be determined as if the total of such Contribution
Percentage Amounts was made under each plan. If a Highly Compensated
Employee participates in two or more cash or deferred arrangements that
have different plan years, all cash or deferred arrangements ending with or
within the same calendar year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be treated as separate
plans if mandatorily disaggregated under regulations under Section 401(m)
of the Code.
In the event that this Plan satisfies the requirements of Sections 401(m),
401(a)(4), or 410(b) of the Code only if aggregated with one or more other
plans, or if one or more other plans satisfy the requirements of such
sections of the Code only if aggregated with this Plan, then this section
shall be applied by determining the Contribution Percentage of Employees as
if all such plans were a single plan. For plan years beginning after
December 31, 1989, plans may be aggregated in order to satisfy Section
401(m) of the Code only if they have the same Plan Year. For purposes of
determining the Contribution Percentage of a Participant who is a 5% owner
or one of the ten most highly-paid Highly Compensated Employees, the
Contribution Percentage Amount and Total Compensation of such Participant
shall include the Contribution Percentage Amount and Total Compensation for
the Plan Year of Family Members (as defined in Section 414(q)(6) of the
Code). Family Members, with respect to Highly Compensated Employees, shall
be disregarded as separate employees in determining the Contribution
Percentage both for Participants who are Non-highly Compensated and for
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Participants who are Highly Compensated Employees.
For purposes of the ACP test, Employee Voluntary Contributions are
considered to have been made in the Plan Year in which contributed to the
Trust. Matching Contributions and Qualified Non-elective Contributions will
be considered made for a Plan Year if made no later than the end of the 12-
month period beginning on the day after the close of the Plan Year. The
Employer shall maintain records sufficient to demonstrate satisfaction of
the ACP test, and the amount of Qualified Non-elective or Qualified
Marching Contributions, or both, used in such test. The determination and
treatment of the Contribution Percentage of any Participant shall satisfy
other requirements as may be prescribed by the Secretary of the Treasury.
4.8 Excess Aggregate Contributions.
Notwithstanding any other provision of this Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto, shall
be forfeited, if forfeitable, or if not forfeitable, distributed no later
than the last day of each Plan Year to Participants to whose accounts such
Excess Aggregate Contributions were allocated for the preceding Plan Year.
Excess Aggregate Contributions of Participants who are subject to the
Family Member aggregation rules shall be allocated among the Family Members
in proportion to the Employee Voluntary and Matching Contributions (or
amounts treated as Matching Contributions) of each Family Member that are
combined to determine the combined ACP. If such Excess Aggregate
Contributions are distributed more the 2 1/2 months after the last day of
the Plan Year in which such excess amounts arose, a 10% excise tax will be
imposed on the Employer maintaining the Plan with respect to those amounts.
Excess Aggregate Contributions shall be treated as annual additions under
the Plan.
Excess Aggregate Contributions shall be adjusted for any income or loss up
to the date of distribution. The income or loss allocable to Excess
Aggregate Contributions is the sum of (i) the income or loss allocable to
the Participant's Voluntary Contribution Account, Matching Contribution
Account, Qualified Matching Contribution Account (if any, and if all
amounts therein are not used in the ADP test) and, if applicable, Qualified
Non-elective Contribution Account and Elective Deferral Account for the
Plan Year multiplied by a fraction, the numerator of which is
such Participant's Excess Aggregate Contributions for the Plan Year and the
denominator is the Participant's account balance(s) attributable to
Contribution Percentage Amounts without regard to any income or loss
occurring during such Plan Year; and (ii) 10% of the amount determined
under (i) multiplied by the number of whole calendar months between the end
of the Plan Year and the date of distribution, counting the month of
distribution if distribution occurs after the 15th of such month.
Forfeitures of Excess Aggregate Contributions shall be reallocated to the
accounts of Non-highly Compensated Employees.
Excess Aggregate Contributions shall be forfeited, if forfeitable, or
distributed on a pro-rata basis from the Participant's Voluntary
Contribution Account, Matching Contribution Account, and Qualified Matching
Contribution Account (and, if applicable, the Participant's
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Qualified Non-elective Contribution Account or Elective Deferral Account,
or both).
4.9 Conditions as to Contributions.
Employers' contributions shall in all events be subject to the limitation
set forth in Section 6. Any amount contributed by an Employer due to a good
faith but erroneous determination of its deductibility under Section 404 of
the Code shall be returned to the Employer within one year after the date
on which the contribution was originally made, or within one year after its
nondeductibility has been finally determined. However, the amount to be
returned shall be reduced to take into account any adverse investment
experience within the Trust Fund in order that the balance credited to each
Participant's Account is not less than it would have been if the
contribution had never been made.
4.10 Contributions Not Forfeitable.
The Participant's accrued benefit derived from Elective Deferrals,
Qualified Non-elective Contributions, Qualified Matching Contributions,
Voluntary Contributions, and Rollover Contributions is nonforfeitable.
SECTION 5 - ALLOCATIONS
5.1 Contributions
The Employer shall provide the Committee all information necessary to make
the allocation of Contributions and Forfeitures for each Plan Year. The
Employer shall pay the Employer Contributions to the Trustee for investment
in the Trust Fund for each Plan Year within the time prescribed by law for
the filing of the Employer's federal income tax return, including
extensions, for the Fiscal Year.
Elective Deferral Contributions accumulated through payroll deductions
shall be paid to the Trustee at the earliest date in which such
contributions can reasonably be segregated from the Employer's general
assets, but in any event within 90 days from the date on which such amounts
would otherwise have been payable to the Participant in cash. The
provisions of Department of Labor Regulations 2510.3-102 are incorporated
herein by reference. Furthermore, any additional Employer Contributions
which are allocable to the Participant's Elective Deferral Account for a
Plan Year shall be paid to the Plan no later than the 12-month period
immediately following the close of such Plan Year.
(a) Employer Contribution Account.
Matching Contributions and Discretionary Contributions shall be
maintained for each Participant in the Employer Contribution Account,
subject to the vesting schedule in Section 8.1.
In addition, Qualified Matching and Qualified Non-elective
Contributions, if any, shall be maintained for each Participant in the
Employer Contribution Account, which shall be nonforfeitable.
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If a Participant has satisfied the eligibility requirements for
Matching Contributions, Discretionary Contributions, Qualified
Matching Contributions, and Qualified Non-elective Contributions, is
employed by an Employer on the Anniversary Date, and has at least
1,000 Hours of Service during the Plan Year, his share of these
Contributions shall be determined as follows:
(i) Employer Matching Contributions:
An Active Participant shall receive a Matching Contribution of
25% of Elective Deferrals made after the Participant's Entry
Date, which do not exceed 2% of the Participant's Cash
Compensation, pursuant to Section 4.1(b).
(ii) Employer Discretionary Contributions:
A Discretionary Contribution shall be allocated to the account of
each Active Participant in proportion to the ratio which his Cash
Compensation for the Plan Year bears to the Cash Compensation of
all Active Participants for such Plan Year, pursuant to Section
4.1(c).
(iii) Qualified Matching Contributions:
An optional Qualified Matching Contribution shall be allocated to
the account of each Non-highly Compensated Employee who is an
Active Participant with Elective Deferrals made after the
Participant's Entry Date in such Plan Year, pursuant to Section
4.1(d). The percent of the Qualified Matching Contribution shall
be discretionary.
(iv) Qualified Non-elective Contributions:
An optional Qualified Non-elective contributions shall be
allocated to the account of each Non-highly Compensated Employee
who is an Active Participant in proportion to the ratio which his
Cash Compensation for the Plan Year bears to the Cash
Compensation of all Non-highly Compensated Employees who are
Active Participants for such Plan Year, pursuant to Section
4.1(e).
Employer Contribution Account assets shall be invested by the Plan
Trustee in the Plan's General Fund, together with the Voluntary
Contribution Account assets and the Rollover Contribution Account cash
assets.
(b) Voluntary Contribution Account.
A Participant may elect to contribute a maximum of 10% of his Cash
Compensation each Plan Year as nondeductible Voluntary Contributions.
Voluntary Contributions shall be maintained for each Participant in
the Voluntary Contribution Account.
Voluntary Contribution Account assets shall be invested by the Plan Trustee
in the Plan's General Fund, together with the Employer Contribution Account
assets and the Rollover Contribution Account cash assets.
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(c) Rollover Contribution Account.
Rollover Contributions shall be maintained for each Participant in the
Rollover Contribution Account.
Rollover Contribution Account cash assets shall be invested by the
Plan Trustee in the Plan's General Fund, together with the Employer
Contribution Account assets and the Voluntary Contribution Account
assets.
If a Rollover Contribution consists of property other than cash, such
property shall be considered an earmarked investment for such
Participant.
(d) Elective Deferral Account.
Elective Deferral Contributions shall be maintained for each
Participant in an Elective Deferral Account.
5.2 Forfeitures.
If a Participant has satisfied the eligibility requirements for Employer
Matching and Employer Discretionary Contributions, is employed by the
Company on an Anniversary Date, and has at least 1,000 Hours of Service
during the Plan Year, his share of Forfeitures shall be determined in the
following manner.
Any assets which have become Forfeitures since the last Anniversary Date
shall first be used to reinstate any previously forfeited account balances
of former Participants, if any, pursuant to Section 8.5. The remaining
Forfeitures, if any, shall be allocated to each Active Participant in
proportion to the ratio which his Cash Compensation for the Plan Year bears
to the Cash Compensation of all Active Participants for such Plan Year.
5.3 Income on Investments.
(a) Employer Contribution, Voluntary Contribution, and Rollover
Contribution Accounts.
(i) General Fund. On each Anniversary Date, the income (or loss) for
the Employer Contribution Account, Voluntary Contribution
Account, and Rollover Contribution Account shall be allocated
based on the beginning balance on the first day of the Plan Year
for each Active Participant and former Participant with Vested
assets remaining in the Plan on the Anniversary Date, less an
adjustment for distributions, withdrawals, or forfeitures during
the Plan Year on a time-weighted basis.
(ii) Earmarked Investment. Any income, expense, gain, or loss earned
or incurred with respect to such investment shall be credited
solely to the earmarked investment.
(b) Elective Deferral Accounts.
(i) Pooled Investment. On September 30, December 31, March 31, and
June 30 of each Plan Year, the income (or loss) for each pooled
Elective Deferral Account shall be
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allocated based on the beginning balance on the first day of
every calendar quarter for each Participant with assets remaining
in the Plan on the Valuation Date for such quarter, less an
adjustment for distributions and withdrawals during the quarter
on a time-weighted basis, plus an adjustment for transfers from
other investments on a time-weighted basis, plus one-half of
Elective Deferral Contributions made during the quarter.
(ii) Earmarked Investment. Any income, expense, gain, or loss earned
or incurred with respect to such investment shall be credited
solely to the earmarked investment.
SECTION 6 - LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS
6.1 Limitation on Annual Additions.
Notwithstanding the provisions of Section 5, the annual addition to a
Participant's accounts under this and any other defined contribution plans
maintained by the Employers or an affiliate (within the purview of Section
414(b), (c), and (m) and Section 415(h) of the Code, which affiliate shall
be deemed an Employer for this purpose) shall not exceed for any limitation
year an amount equal to the lesser of (i) $30,000 or if greater, one-fourth
of the defined benefit dollar limitation set forth in Section 415(b)(1) of
the Code as in effect for the limitation year, or (ii) 25% of the
Participant's Total Compensation for such limitation year.
For purposes of this Section 6.1 and the following Section 6.2, the "annual
addition" to a Participant's accounts means the sum of (i) the Employer
Contributions and Forfeitures credited to a Participant's Account with
respect to a limitation year, plus (ii) the Participant's total
nondeductible Voluntary Contributions for that year. The $30,000 and
$90,000 limitations referred to shall, for each limitation year ending
after 1988, be automatically adjusted to the new dollar limitations
determined by the Commissioner of Internal Revenue for the calendar year
beginning in that limitation year. Notwithstanding the foregoing, if the
special limitations on annual additions described in Section 415(c)(6) of
the Code applies, the limitations described in this section shall be
adjusted accordingly. A "limitation year" means each 12 consecutive month
period beginning July 1.
6.2 Coordinated Limitation with Other Plans.
Aside from the limitation prescribed by Section 6.1 with respect to the
annual addition to a Participant's accounts for any single limitation year,
if a Participant has ever participated in one or more defined benefit plans
maintained by an Employer or an affiliate, then the annual additions to his
accounts shall be limited on a cumulative basis so that the sum of his
defined contribution plan fraction and his defined benefit plan fraction
does not exceed one. For this purpose:
(a) A Participant's defined contribution plan fraction with respect to a
Plan Year shall be a fraction, (i) the numerator of which is the sum
of the annual additions to his accounts through the current year Plan
Year, and (ii) the denominator of which is the sum of the lesser of
the following amounts -A- and -B- determined for the current
limitation year and each prior limitation year of Service with an
Employer: -A- is 1.25 times $30,000, or 1.0
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times such dollar limitation if the Plan is top-heavy; and-B- is 35%
of the Participant's Total Compensation for such year. Further, if the
Participant participated in any related defined contribution plan in
any years beginning before 1976, any excess of the sum of the actual
annual additions to the Participant's accounts for those years over
the maximum annual additions which could have been made in accordance
with Section 6.1 shall be ignored, and Voluntary Contributions by the
Participant during those years shall be taken into account as to each
such year only to the extent that his average annual Voluntary
Contribution in those years exceeded 10% of his average annual Total
Compensation in those years.
(b) A Participant's defined benefit plan fraction with respect to a
limitation year shall be a fraction (i) the numerator of which is his
projected annual benefit payable at normal retirement under the
Employers' defined benefit plans, and (ii) the denominator of which is
the lesser of the following amounts -A- and -B- with an Employer: -A-
is 1.25 times $90,000, or 1.0 times such dollar limitation if the Plan
is top-heavy, and -B- 1.4 times the Participant's average Total
Compensation during his highest-paid three consecutive limitation
years.
6.3 Effect of Limitations.
The Committee shall take whatever action may be necessary from time to time
to assure compliance with the limitations set forth in Section 6.1 and 6.2.
Specifically, the Committee shall see that each Employer restrict its
contributions for any Plan Year to an amount which, taking into account the
amount of available Forfeitures, may be completely allocated to the
Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the
Participant shall be curtailed to the extent necessary to satisfy the
limitations. Where an excessive amount is contributed on account of a
mistake as to one or more Participants' compensation, or there is an amount
of Forfeitures which may not be credited in the Plan Year in which it
becomes available, the amount shall be held in a Suspense Account to be
allocated in lieu of any Employer Contributions in future years until it is
eliminated, and to be returned to the Employer if it cannot be credited
consistent with these limitations before the termination of the Plan.
SECTION 7 - INVESTMENTS
7.1 General Fund.
Matching Contributions, Discretionary Contributions, Qualified Matching
Contributions, Qualified Non-elective Contributions, Employee Voluntary
Contributions, and Employee Rollover Contributions shall be held in a
"General Fund".
The Trustees shall have full power and authority to receive, collect,
receipt for, hold, manage, and care for all amounts paid and contributed to
the General Fund, and the proceeds thereof, and the income and profits
therefrom, as a single fund, and to invest and reinvest the same, pursuant
to the provisions of Section 12.3. The Trustees may invest in "qualifying
employer real property" and qualifying employer securities" as defined in
Section 407(d)(4) and (5) of ERISA, including Employer Stock.
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7.2 Participant Direction of Assets from General Fund to Employer Stock.
Effective on July 1, 1989, the Trustees were expressly authorized to
receive from each Participant on an annual basis an irrevocable election
directing the Trustees to have all or a part of the Vested portion of each
such Participant's assets in the General Fund to be invested in Employer
Stock. A Participant's initial election required a minimum investment of
$250.
Effective with the Plan Year beginning on July 1, 1992, this annual
election was rescinded. However, any investments in Employer Stock and any
directions for investment made prior to the Plan Year beginning on July 1,
1992 shall continue to be valid and shall not be affected.
The net income from Employer Stock investments in the Employer Contribution
Account shall be invested primarily in Employer Stock and such cash or
short term investments as the Trustees shall deem necessary to meet any
contingencies.
7.3 Elective Deferral Accounts.
The Trustees shall have full power and authority to receive, collect,
receipt for, hold, manage, and care for all amounts held, paid, and
contributed through Elective Deferrals.
Each Participant shall choose the investments for his Elective Deferrals
from those selected by the Trustees for this purpose. These investments
shall be chosen within the guidelines of ERISA. The investment selections
shall include, but not be limited to, the following:
(a) At least three diversified investments with different goals and
different risk factors.
(b) One or more investments with no market risk, which are fully insured
against loss by the United States or an agency of the United States.
(c) Employer Stock.
7.4 Voting of Employer Stock.
The Participants shall have full voting rights with respect to Employer
Stock purchased with Participant direction. All shares of Employer Stock
purchased through Participant direction shall be voted by the Trustees as
directed by the Participants. The Trustees shall vote shares of Employer
Stock in the General Fund in proportion to the manner in which the shares
of Employer Stock purchased with Participant direction are voted by the
Participants. The Trustees shall adopt such rules and procedures as they
deem necessary to carry out the intent of this provision.
7.5 Restrictions on Insider Transactions.
On January 28, 1992, the following "Restrictions on Insider Transactions"
became effective.
Notwithstanding any other provisions in the Plan to the contrary,
transactions by Participants who are deemed to be insiders within the
meaning of Section 16 of the Securities Exchange Act of 1934 shall also be
restricted by the following provisions:
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(a) For initial or periodic transactions resulting from an election to
participate or change levels of participation with respect to
securities of the issuer:
(i) Officer or director Participants making withdrawals must cease
further purchases in the Plan for six months, or the securities
so distributed must be held by the Participant six months prior
to disposition; provided, however, that extraordinary
distributions of all of the issuer's securities held by the Plan
and distributions in connection with death, retirement,
disability, termination of employment, or a qualified domestic
relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder, are not
subject to this requirement.
(ii) Officer or director Participants who cease participation in the
Plan may not participate again for at least six months.
(b) For intra-plan transfers between an equity securities of the issuer
fund and another fund, the transaction is pursuant to an election made
on a quarterly date at least six months after the date of the previous
intra-plan transfer election relating to an equity securities of the
issuer fund. The quarterly date referred to in the previous sentence
shall begin on the third business day following the public release of
quarterly and annual summary statements of earnings of the Company and
ending on the twelfth business day following such date.
SECTION 8 - VESTING
8.1 Vesting Schedule
(a) Employer Contribution Account for Employer Matching Contributions and
Employer Discretionary Contributions.
Upon termination of employment for any reason other than death, total
or permanent disability, or attainment of the Plan's Early Retirement
age, a Participant's Vested (nonforfeitable) portion of his assets in
the Employer Contribution Account maintained for Employer Matching and
Employer Discretionary Contributions shall be a percentage based on
his Years of Service as determined by the following schedule, and
subject to the provisions in the balance of this Section 8:
<TABLE>
<CAPTION>
Vesting Schedule
----------------
Years of Service Percent Vested Interest
---------------- -----------------------
<S> <C>
Less than 3 years 0%
3 20%
4 40%
5 60%
6 80%
7 or more years 100%
</TABLE>
(b) Accounts for Qualified Matching Contributions, Qualified Non-elective
Contributions,
34
<PAGE>
Elective Deferral Contributions, Employee Voluntary Contributions and
Employee Rollover Contributions.
These Accounts are not subject to the Vesting Schedule in Section
8.1(a), and shall be 100% vested and not forfeitable for any reason.
8.2 Computation of Vesting Years.
For purposes of this Plan, a "Vesting Year" means each 12-month period
beginning July 1, in which an Employee has at least 1,000 Hours of Service,
beginning with his initial Service with any Employer and including certain
Service with other employers as provided in the definition of "Service".
However, a Participant's Vesting Years shall be computed subject to the
following conditions and qualifications:
(a) A Participant's Vested interest in his Account accumulated before a
Break in Service shall be determined without regard to any Service
after the Break. Further, if a Participant has a Break in Service
before his interest in his Account has become Vested to some extent,
he shall lose credit for any Vesting Year before the Break.
(b) Unless otherwise specifically excluded, a Participant's Vesting Years
shall include any period of active military duty to the extent
required by the Military Selective Service Act of 1967 (38 U.S.C.
Section 2021).
8.3 Full Vesting upon Certain Events.
Notwithstanding Section 8.1(a), a Participant's interest in his Account
shall fully vested on the Participant's Normal Retirement Date, provided
the Participant is in Service on or after that date. The Participant's
interest shall also fully vest in the event that his Service is terminated
by Early Retirement, Disability, or death.
8.4 Full Vesting upon Plan Termination.
Notwithstanding Section 8.1(a), a Participant's interest in his Account
shall fully vest if he is in active Service upon termination of this Plan
or upon the permanent and complete discontinuance of contributions by his
Employer. In the event of a partial termination, the interest of each
Participant who is in Service shall fully vest with respect to that part of
the Plan which is terminated.
8.5 Forfeiture, Repayment, and Restoral.
If a Participant's Service terminates before his interest in his Account is
fully Vested, that portion which has not Vested shall be forfeited when he
has a 1-Year Break in Service. In the case of a terminated Participant who
does not receive a distribution of his entire Vested interest and whose
Service resumes before a Break in Service occurs, any undistributed Vested
balance from his prior participation shall be maintained as a fully Vested
sub-account with his Account.
If any former Participant shall be reemployed by an Employer before five
consecutive 1-Year Breaks in Service have occurred, and such former
Participant has received a distribution of
35
<PAGE>
all his Vested assets in the Plan, the unvested portion of his assets shall
be reinstated to his Account if he repays the full amount distributed to
him within the earlier of five years after the first date on which he is
reemployed by an Employer or the close of the first period of five
consecutive 1-Year Breaks in Service commencing after the distribution.
Upon repayment of the entire distribution within the required time period,
the forfeited unvested assets shall be restored in full.
8.6 Accounting for Forfeitures.
A Forfeiture shall be charged to the Participant's Account as of the first
Plan Year in which there is a 1-Year Break in Service. Except as otherwise
provided in Section 8.5, a Forfeiture shall be first used to reinstate any
previously forfeited account balances of former Participants, if any, with
the remaining Forfeitures, if any, allocated to the Active Participants,
pursuant to Section 5.2.
8.7 Vesting and Nonforfeitability.
A Participant's interest in his Account which has become Vested shall be
nonforfeitable for any reason.
SECTION 9 - PAYMENT OF BENEFITS
9.1 Upon Termination of Employment
A Participant whose Service ends for any reason shall receive the Vested
portion of his Account in either: (i) a single payment; or (ii) over a
period not to exceed ten years.
Pursuant to Section 401(a)(31) of the Code, effective January 1, 1993, if a
Participant elects to receive the distribution in a single payment, payment
may be made either to the Participant or to an Eligible Retirement Plan as
a Direct Rollover.
A terminated Participant shall receive information from the Committee
pertaining to his distribution options and the tax consequences of the
distribution. Pursuant of Section 401(a)(31) of the Code and the
regulations thereunder, unless the Participant waives the 30-day waiting
period and elects to make or not to make a Direct Rollover, the
distribution shall not be made until at least 30 days have elapsed after
the Participant has been advised of his distribution options. If the
Participant has not attained the Plan's Normal Retirement age, the
Participant may elect to wait to receive his benefits until he becomes age
65.
A Participant may modify his distribution election at any time, provided
any new benefit payment date is at least 30 days after a modified election
is delivered to the Committee.
A Participant's benefits shall be calculated based on the most recent
Valuation Date before the date of payment.
9.2 Upon Death of Participant.
The Beneficiary of a Participant shall receive information from the
Committee pertaining to
36
<PAGE>
his distribution options and the tax consequences of the
distribution.
Pursuant to Section 401(a)(31) of the Code, effective January 1, 1993, if
the Beneficiary is a surviving Spouse, the distribution is an Eligible
Rollover Distribution, and payment may be made either to the Spouse, or to
the surviving Spouse's IRA as a Direct Rollover. If the Beneficiary is an
alternate payee spouse or former spouse, the distribution is an Eligible
Rollover Distribution, and payment may be made either to the alternate
payee spouse or former spouse, or to an Eligible Retirement Plan of the
alternate payee spouse or former spouse as a Direct Rollover.
If the distribution is an Eligible Rollover Distribution, pursuant to
Section 401(a)(31) of the Code and the regulations thereunder, unless the
Beneficiary waives the 30-day waiting period and elects to make or not to
make a Direct Rollover, the distribution shall not be made until at least
30 days have elapsed after the Beneficiary has been advised of his
distribution options.
A Beneficiary's benefits shall be calculated based on the most recent
Valuation Date before the date of payment.
(a) Distribution options if distribution to Participant have not begun.
If a Participant dies before distribution has begun, his entire
Account shall be distributed to his Beneficiary no later than the
earlier of the Participant's required minimum distribution beginning
date or five years after death, unless one of the following is
applicable:
(i) The Beneficiary elects and begins to receive payment over his
life expectancy by December 31 of the year following the year of
the death of the Participant.
(ii) The Beneficiary is the surviving Spouse. In this circumstance,
the distribution beginning date shall be the Participant's
required minimum distribution beginning date.
(iii) The Beneficiary is a child, and upon the attainment of the
child's majority (or other circumstance permitted in the Code and
the regulations thereunder) the surviving Spouse will become the
recipient of the payment of benefits, then the distribution
beginning date shall be the Participant's required minimum
distribution beginning date.
(b) Distribution options if distribution to Participant has begun.
If a Participant dies after his distribution has begun but before his
entire Account has been paid to him, then the balance of his Account
shall be distributed to his Beneficiary at least as rapidly as under
the distribution schedule elected by the Participant.
9.3 Upon Attainment of Age 70 1/2
Distributions must commence to a terminated Participant no later than the
April 1 following the calendar year in which the Participant attained age
70 1/2.
37
<PAGE>
Effective January 1, 1989, if a Participant is in Service upon the
attainment of age 70 1/2, minimum distribution payments shall commence by
April 1 of the calendar year following the calendar year in which the
Participant attained age 70 1/2. However, any Participant who was in
Service and became age 70 1/2 prior to January 1, 1989, except for a
Participant who was a 5% owner, shall not be subject to minimum
distribution payments until termination from Service with an Employer.
The distribution shall be made based on one of the following
irrevocable elections: (i) over the life of the Participant, or over the
joint lives of the Participant and his designated Beneficiary; or (ii) over
a period certain not to exceed the life expectancy of the Participant, or
the life expectancy of the Participant and his designated Beneficiary.
9.4 In-Service Distributions.
(a) Non-deductible Voluntary Contribution Distribution.
A distribution from a Non-deductible Voluntary Contribution Account
may be made at any time.
(b) Hardship Distribution.
A hardship distribution may be made from the Account of a Participant
subject to the following limitations:
(i) A hardship distribution shall be limited to the amount which is
necessary to satisfy an immediate and heavy financial need of the
Participant. The amount of an immediate and heavy financial need
may include any amounts necessary to pay any federal, state, or
local income taxes or penalties reasonably anticipated to result
from the distribution.
(ii) A distribution may be made to satisfy the financial need if the
Participant's need:
(I) Cannot be met through reimbursement or compensation by
insurance or otherwise; or
(II) Cannot be met by liquidation of the Participant's assets; or
(III) Cannot be met by cessation of Elective Deferral
Contributions under the Plan; or
(IV) Cannot be met by other distributions or nontaxable (at the
time of the loan) loans from plans maintained by an Employer
or any other employer; or
(V) Cannot be met by borrowing from commercial sources on
reasonable commercial terms, in an amount sufficient to
satisfy the need.
(iii) A hardship distribution may be made for one of the following
purposes:
38
<PAGE>
(I) to pay medical expenses incurred by the Participant, the
Participant's Spouse, or any dependents of the Participant;
(II) costs directly related to the purchase of a principal
residence for the Participant (excluding mortgage payments);
(III) payment of tuition and related educational fees for the next
12 months of post-secondary education for the Participant,
the Participant's Spouse, children, or dependents;
(IV) payments necessary to prevent eviction of the Participant
from the Participant's principal residence or foreclosure on
the mortgage of that residence; or
(V) because of other events approved by the Secretary of the
Treasury or his delegate.
(iv) A hardship distribution may not be in excess of the amount needed
to satisfy the immediate and heavy financial need.
(v) For plan years beginning after December 31, 1988, any hardship
distribution from the Participant's Elective Deferral Account
must be limited to the distributable amount. The distributable
amount is equal to the Participant's total Elective Deferral
Contributions as of the date of distribution, reduced by the
amount of previous hardship distributions, plus income earned on
Elective Deferrals which were credited to the Participant's
Elective Deferral Account as of June 30, 1989.
Upon the receipt of a hardship distribution, a Participant is prohibited
from making Elective Deferrals and Voluntary Contributions to this Plan and
all other plans maintained by the Employer for at least 12 months. However,
this prohibition to making contributions to other plans does not include a
health or welfare benefit plan, including one which is part of a cafeteria
plan, pursuant to Section 125 of the Code.
9.5 Type of Payment.
This Section 9.5 applies to distributions made on or after January 1, 1993,
pursuant to Section 401(a)(31) of the Code and the regulations thereunder.
(a) Direct Rollover.
Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this section, a
Distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an Eligible Rollover Distribution
processed as a Direct Rollover and paid directly to an Eligible
Retirement Plan selected by the Distributee.
(b) Payment to Participant or Beneficiary.
If a distribution is an Eligible Rollover Distribution, and the
Participant or Beneficiary elects to have payment made to himself,
then the distribution will be subject to mandatory
39
<PAGE>
20% federal income tax withholding, unless the distribution is less
than $200 or consists solely of Employer Stock and $200 or less in
cash.
9.6 Form of Payment.
(a) Cash or "In Kind".
Distributions shall be made in cash or, if there are investments in
non-cash accounts, distributions may be made, at the election of the
Distributee, in cash and/or in kind.
(b) Employer Stock.
Notwithstanding the foregoing in Section 9.6(a), any earmarked
investments in Employer Stock shall be distributed, to the greatest
extent possible, in the form of whole shares of Employer stock,
provided that Employer Stock is readily tradeable on an established
securities market at the time of distribution.
(c) Annuity.
In lieu of making payments directly from a terminated or deceased
Participant's Account, the Trustees may, in their sole discretion,
invest all or a portion of a Participant's Account in one or more
annuity Contracts and assign such Contract or Contracts to such
Participant or his Beneficiary in such manner as the Trustees deem
advisable. Before assigning any Contract to a terminated Participant
or a Beneficiary of a deceased Participant, the Trustees shall cause
such Contract to be made non-assignable by the assignee. Any Contract
obtained after July 31, 1983 shall be issued on a unisex basis and all
the terms and conditions under any such Contracts, including benefits,
premiums, options, loan values, and cash surrender values, shall be
the same for both male and female.
If any Contract on the life of a terminated or deceased Participant is
purchased, such Contract shall be endorsed to provide for payments
thereunder in accordance with the preceding provisions of this
section.
9.7 Timing of Distribution.
Pursuant to Section 401(a)(31) of the Code and the regulations thereunder,
effective January 1, 1993, a Participant or Beneficiary shall be notified
of all distribution options at least thirty days prior to making a
distribution election. However, a Participant shall be permitted to waive
the 30-day period requirement which is given a Distributee to review all
distribution options, and may elect to make or not to make a Direct
Rollover to an Eligible Retirement Plan sooner.
If the value of a Participant's Vested assets exceeds (or at the time of
any prior distribution exceeded) $3,500, the Participant must consent to
the distribution in writing. However, the consent of the Participant shall
not be required to satisfy the commencement of minimum required
distributions, pursuant to Section 401(a)(9) of the Code.
40
<PAGE>
Unless the Participant elects otherwise, distribution of benefits shall
begin no later than the 90th day after the close of the Plan Year in which
the Participant attains age 65.
A Participant's Vested assets are immediately distributable, subject to the
requirements of Section 401(a)(31) of the Code, if they do not exceed
$3,500. Payment will be made to the Participant or Beneficiary if a
distribution election has not been received within 90 days after
notification of all distribution options.
9.8 Deemed Distribution.
-------------------
For purposes of this section, if a Participant terminates service and the
value of the Participant's vested account balance is zero, the Participant
shall be deemed to have received a distribution of such vested account
balance.
9.9 Qualified Domestic Relations Order.
----------------------------------
Under a Qualified Domestic Relations Order (QDRO), the following shall be
applicable:
(a) The alternate payee may receive a payment of benefits under this
Plan in accordance with the distribution options described in
Section 9.
(b) The alternate payee may receive a payment of benefits under this Plan
prior to the Normal Retirement age if the QDRO specifically provides
for such earlier payment. If the present value of the payment exceeds
$3,500, the alternate payee must consent in writing to such
distribution.
(c) Upon receipt of an order which appears to be a domestic relations
order, the Committee will promptly notify the Participant and each
alternate payee of the receipt of the order, and provide them with a
copy of the procedures established by the Plan for determining whether
the order is a QDRO. While the determination is being made, a separate
accounting will be made with respect to any amounts which would be
payable under the order.
If the Committee or a court determines that the order is a QDRO,
within 18 months after receipt, the Committee will begin making
payments, including the separately accounted for amounts, pursuant to
the order when required or as soon as administratively practical.
If the Committee or court determines that the order is not a QDRO, or
if no determination is made within 18 months after receipt, then the
separately accounted for amounts will be either restored to the
Participant's account or distributed to the Participant, as if the
order did not exist. If the order is subsequently determined to be a
QDRO, such determination shall be applied prospectively to payments
made after the determination.
9.10 Beneficiary Designation.
-----------------------
Each Participant shall designate the person, persons, or entity to receive
benefits payable under the Plan upon the death of the Participant.
No election by a married Participant of a primary Beneficiary who is not
the Participant's
41
<PAGE>
Spouse shall be valid unless the election is accompanied by the Spouse's
written consent, which
(a) must acknowledge the effect of the election,
(b) must explicitly provide either that the designated Beneficiary may
not subsequently be changed by the Participant without the Spouse's
further consent, or that it may be changed without such consent, and
(c) must be witnessed by the Committee, its representative, or a notary
public. (This requirement shall not apply if the Participant
establishes to the Committee's satisfaction that the Spouse may not
be located.)
9.11 Marital Status of Participant.
-----------------------------
The Committee shall from time to time take whatever steps it deems
appropriate to keep informed of each Participant's marital status. Each
Employer shall provide the Committee with the most reliable information in
the Employer's possession regarding its Participants' marital status, and
the Committee may, in its discretion, require a notarized affidavit from
any Participant as to his marital status.
The Committee, the Plan, the Trustee, and the Employers shall be fully
protected and discharged from any liability to the extent of any benefit
payments made as a result of the Committee's good faith and reasonable
reliance upon information obtained from a Participant and his Employer as
to his marital status.
SECTION 10 - RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS
-----------------------------------------------------------------
10.1 Claim for Benefits.
------------------
Any Participant or Beneficiary who qualifies for payment of benefits shall
file a claim for his benefits with the Committee on a form provided by the
Committee. The claim, including any election of an alternative benefit
form, shall be filed at least 30 days before the date on which the
benefits are to be begin. If a Participant or Beneficiary fails to file a
claim by the 30th day before the date on which benefits become payable, he
shall be presumed to have filed a claim for payment for the Participant's
benefits in the standard form prescribed in Section 9.
10.2 Notification by Committee.
-------------------------
Within 90 days after receiving a claim for benefits (or within 180 days,
if special circumstances require an extension of time, and written
notice of the extension is given to the Participant or Beneficiary within
90 days after receiving the claim for benefits), the Committee shall
notify the Participant or Beneficiary whether the claim has been approved
or denied.
If the Committee denies a claim in any respect, the Committee shall set
forth in a written notice to the Participant or Beneficiary:
42
<PAGE>
(a) Each specific reason for the denial;
(b) Specific references to the pertinent Plan provisions on which the
denial is based;
(c) A description of any additional material or information which could
be submitted by the Participant or Beneficiary to support his claim,
with an explanation of the relevance of such information; and
(d) An explanation of the claims review procedures set forth in Section
10.3.
10.3 Claims Review Procedure.
-----------------------
Within 60 days after a Participant or Beneficiary receives notice from the
Committee that his claim for benefits has been denied in any respect, he
may file with the Committee a written notice of appeal setting forth his
reasons for disputing the Committee's determination. In connection with
his appeal, the Participant or Beneficiary or his representative may
inspect or purchase copies of pertinent documents and records to the
extent not inconsistent with other Participants' and Beneficiaries' rights
of privacy.
Within 60 days after receiving a notice of appeal from a prior
determination (or within 120 days, if special circumstances require an
extension of time, and written notice of the extension is given to the
Participant or Beneficiary and his representative within 60 days after
receiving the notice of appeal), the Committee shall furnish to the
Participant or Beneficiary and his representative, if any, a written
statement of the Committee's final decision with respect to his claim,
including the reasons for such decision and the particular Plan provisions
upon which it is based.
SECTION 11 - ADMINISTRATION OF PLAN
-----------------------------------
11.1 Authority of Committee.
----------------------
The Committee shall be the "plan administrator" within the meaning of
ERISA and shall have exclusive responsibility and authority to control and
manage the operation and administration of the Plan, including the
interpretation and application of its provisions, except to the extent
such responsibility and authority are otherwise specifically
(a) allocated to the Company, the Employers, or the Trustees under the
Plan,
(b) delegated in writing to other persons by the Company, the Employers,
the Committee, or the Trustees, or
(c) allocated to other parties by operation of law.
The Committee shall have no investment responsibility with respect to the
Trust Fund. In the discharge of its duties, the Committee may employ
accountants, actuaries, legal counsel, and other agents (who also may be
employed by an Employer or the Trustees in the same or some other
capacity) and may pay their reasonable expenses and compensation.
43
<PAGE>
11.2 Identity of Committee.
---------------------
The Committee shall consist of three or more individuals selected by the
Company. Any individual, including a director, trustee, shareholder,
officer, or employee of an Employer, shall be eligible to serve as a
member of the Committee. The Company shall have the power to remove any
individual serving on the Committee at any time without cause upon 10 days
written notice, and any individual may resign from the Committee at any
time upon 10 days written notice to the Company. The Company shall notify
the Trustee of any change in membership of the Committee.
11.3 Duties of Committee.
-------------------
The Committee shall keep whatever records may be necessary to implement
the Plan and shall furnish whatever reports may be required from time to
time by the Company. The Committee shall furnish to the Trustees whatever
information may be necessary to properly administer the Trust. The
Committee shall see to the filing with the appropriate government agencies
all reports and returns required of the Plan Committee under ERISA and
other laws.
11.4 Valuation of Employer Stock.
---------------------------
If the valuation of any Employer Stock is not established by reported
trading on a generally recognized public market, the Committee shall have
the exclusive authority and responsibility to determine its value for all
purposes under the Plan. Such value shall be determined as of each
Valuation Date, and on any other date the Plan purchases or sells such
Employer Stock. The Committee shall use generally accepted methods of
valuing stock of similar corporations for purposes of arm's length
business and investment transactions, and in this connection, the
Committee shall obtain, and shall be protected in relying upon, the
valuation of such Employer Stock as determined by an independent appraiser
experienced in preparing valuations of similar businesses.
11.5 Compliance with ERISA.
---------------------
The Committee shall perform all acts necessary to comply with ERISA. Each
individual member or employee of the Committee shall discharge his duties
in good faith and in accordance with the applicable requirements of ERISA.
11.6 Action by Committee.
-------------------
All actions of the Committee shall be governed by the affirmative vote of
a number of members which is a majority of the total number of members
currently appointed, including vacancies. The members of the Committee may
meet informally and may take any action without meeting as a group.
11.7 Execution of Documents.
----------------------
Any instrument executed by the Committee shall be signed by any member or
employee of the Committee.
44
<PAGE>
11.8 Adoption of Rules.
The Committee shall adopt such rules and regulations of uniform
applicability as it deems necessary or appropriate for the proper
administration and interpretation of the Plan.
11.9 Responsibilities to Participants.
The Committee shall determine which Employees qualify to enter the Plan.
The Committee shall furnish to each eligible Employee whatever summary plan
descriptions, summary annual reports, and other notices and information may
be required by ERISA. The Committee also shall determine when a Participant
or his Beneficiary qualifies for the payment of benefits under the Plan.
The Committee shall furnish to each such Participant or Beneficiary
whatever information is required under ERISA (or is otherwise appropriate)
to enable the Participant or Beneficiary to make whatever elections may be
available pursuant to Section 9, and the Committee shall provide for the
payment of benefits in the proper form and amount from the assets of the
Trust Fund. The Committee may decide in its sole discretion to permit
modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the
individuals concerned.
11.10 Alternative Payees in Event of Incapacity.
If the Committee finds at any time that an individual qualifying for
benefits under this Plan is a minor or is incompetent, the Committee may
direct the benefits to be paid, in the case of a minor, to his parents, his
legal guardian, a custodian for him under the Uniform Gifts to Minors Act,
or the person having actual custody of him, or, in the case of an
incompetent, to his spouse, his legal guardian, or the person having actual
custody of him, the payments to be used for the individual's benefit. The
Committee and the Trustee shall not be obligated to inquire as to the
actual use of the funds by the person receiving them under this Section
11.10, and any such payment shall completely discharge the obligations of
the Plan, the Trustee, the Committee, and the Employers to the extent of
the payment.
11.11 Indemnification by Employers.
Except as separately agreed in writing, the Committee, and any member or
employee of the Committee, shall be indemnified and held harmless by the
Employers, jointly and severally, to the fullest extent permitted by law
against any and all costs, damages, expenses, and liabilities reasonably
incurred by or imposed upon it or him in connection with any claim made
against it or him or in which it or him may be involved by reason of its or
his being, or having been, the Committee, or a member or employee of the
Committee, to the extent such amounts are not paid by insurance.
11.12 Nonparticipation by Interested Member.
Any member of the Committee who also is a Participant in the Plan shall
take no part in any determination specifically relating to his own
participation or benefits, unless his abstention would leave the Committee
incapable of acting on the matter.
45
<PAGE>
SECTION 12 - POWERS AND DUTIES OF PLAN TRUSTEES
12.1 Appointment of Trustees.
The Board of Directors of the Company shall appoint a minimum of three
individuals to serve as Trustees of the Plan. The Board of Directors of the
Company shall have the right at any time, and from time to time, to remove
any Trustee without cause. An individual may resign as a Trustee at any
time upon 10 days written notice to the Company.
12.2 Basic Responsibilities of the Trustees
The Trustees shall have the following primary responsibilities:
(a) To invest, manage, and control the Plan assets in a manner consistent
with Section 7.
At the discretion of the Trustees, one or more Investment Managers may
be appointed to direct the investment of all or any portion of the
Trust Fund. An Investment Manager shall accept the appointment in
writing, acknowledging that he is a fiduciary pursuant to Section 401
of ERISA, and certifying his registration under the Investment
Advisors Act of 1940 and the Investment Advisor Regulatory Enhancement
and Disclosure Act of 1993. The Investment Manager, as a Plan
fiduciary, is subject to the fidelity bond requirement of Section 412
of ERISA, and shall furnish evidence that this requirement has been
satisfied each Plan Year. The Trustees shall be under no obligation to
review or question any investment decision made by the Investment
Manager, and shall have no liability for losses sustained with respect
to any investments made or retained by the Investment Manager, or for
any acts or omissions of the Investment Manager.
(b) At the direction of the Committee, to pay benefits to Participants in
the Plan and, in the event of their death, to their Beneficiaries.
(c) To maintain records of all receipts and disbursements, and to furnish
to the Employer a written annual report.
12.3 Investment Powers and Duties
The Trustees shall carry out their duties with skill and prudence, giving
due regard to any limitations imposed by the Code or ERISA. The Trustees,
in addition to all power and authority granted to it under common law,
statutory authority, and other provisions of the Plan, shall be empowered:
(a) To purchase, or subscribe for, any securities or other property and to
retain the same. In conjunction with the purchase of securities,
margin accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to purchase, or
otherwise dispose of any securities or other property held by the
Trustees, by private contract or at public auction. No person dealing
with the Trustees shall be bound to see to the application of the
purchase money or to inquire into the validity, expediency or
propriety of any such sale or other disposition, with or without
advertisement;
46
<PAGE>
(c) To vote upon any stocks, bonds, or other securities; to give general
or special proxies or powers of attorney with or without power of
substitution; to exercise any conversion privileges, subscription
rights, or other options, and to make any payments incidental thereto;
to oppose, or to consent to, or otherwise participate in, corporate
reorganizations or other changes affecting corporate securities, and
to delegate discretionary powers, and to pay any assessments or
charges in connection therewith; and generally to exercise any of the
powers of an owner with respect to stocks, bonds, securities, or other
property.
(d) To cause any securities or other property to be registered in the
Trustees' own name, and to hold any investments in bearer form, but
the books and records of the Trustees shall at all times show that all
such investments are part of the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in such amount,
and upon such terms and conditions, as the Trustees shall deem
advisable; and for any sum so borrowed, to issue a promissory note as
Trustees, and to secure the repayment thereof by pledging all, or any
part, of the Trust Fund; and no person lending money to the Trustees
shall be bound to see the application of the money lent or to inquire
into the validity, expediency, or propriety of any borrowing;
(f) To keep such a portion of the Trust Fund in cash or cash balances as
the Trustees may, from time to time, deem to be in the best interests
of the Plan, without liability for interest thereon;
(g) To accept and retain for such time as the Trustees may deem advisable
any securities or other property received or acquired as Trustee
hereunder, whether or not such securities or other property would
normally be purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be
purchased as investments hereunder;
(i) To settle, compromise, or submit to arbitration any claims, debts, or
damages due or owing to or from the Plan, to commence or defend suits
of legal or administrative proceedings, and to represent the Plan in
all suits and legal and administrative proceedings;
(j) To employ suitable agents and counsel and to pay their reasonable
expenses and compensation, and such agent or counsel may or may not be
agent or counsel for the Employer;
(k) To apply for and procure from responsible insurance companies, to be
selected by the Committee, as an investment of the Trust Fund such
annuity, or other Contracts (on the life of any Participant) as the
Committee shall deem proper; to exercise, at any time or from time to
time, whatever rights and privileges may be granted under such annuity
or other Contracts; to collect, receive, and settle for the proceeds
of all such annuity or other Contracts as and when entitled to do so
under the provisions thereof;
(l) To invest funds of the Trust in time deposits or savings accounts
bearing a reasonable
47
<PAGE>
rate of interest in the Trustees' bank;
(m) To invest in Treasury Bills and other forms of United States
government obligations;
(n) To sell, purchase, and acquire put or call options if the options are
traded on and purchased through a national securities exchange
registered under the Securities Exchange Act of 1934, as amended, or,
if the options are not traded on a national securities exchange, are
guaranteed by a member firm of the New York Stock Exchange;
(o) To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations;
(p) To pool all or any of the Trust Fund, from time to time, with assets
belonging to any other qualified employee pension benefit trust
created by the Employer or an affiliated company of the Employer, and
to commingle such assets and make joint or common investments and
carry joint accounts on behalf of this Plan and such other trust or
trusts, allocating undivided shares or interests in such investments
or accounts or any pooled assets of the two or more trusts in
accordance with their respective interests;
(q) To establish and maintain investments as directed by the Participants
for their Elective Deferral Contributions.
(r) To do all such acts and exercise all such rights and privileges,
although not specifically mentioned herein, as the Trustee may deem
necessary to carry out the purposes of the Plan.
12.4 Duties Regarding Payment of Benefits.
At the direction of the Committee, the Trustee shall, in accordance with
the terms of the Plan, make payment of benefits and expenses from the Trust
Fund.
12.5 Execution of Contracts and Payment of Benefits
Execution or endorsement of any contract or check shall require the written
approval of any two Trustees acting together.
12.6 Trustee Expenses.
The Trustees shall be reimbursed for any necessary expenses, including
reasonable fees for legal counsel. Such expenses shall be paid from the
Trust Fund, unless the Company elects to pay all or any portion of such
expenses. All extraordinary expenses and liabilities, such as the cost of
litigation or the payment of adverse claims shall be paid from the Trust
Fund. All taxes of any kind that may be levied or assessed under existing
or future laws upon, or in respect of, the Trust Fund or the income
thereof, shall be paid from the Trust Fund.
12.7 Trust Fund Annual Report.
The Trustees shall maintain detailed and accurate records and accounts of
all transactions, which shall be available for inspection and audit by any
person or persons designated by the
48
<PAGE>
Committee. At the direction of the Committee, the Trustees shall submit any
valuations, reports, or other information that may be required to the
auditors.
Within a reasonable time following the later of the last day of the Plan
Year or receipt by the Trustees of the final Employer Contribution to the
Plan, the Trustees shall furnish to the Company and the Committee a written
account which shall contain: (i) the net income, or loss, of the Trust
Fund; (ii) the gains, or losses, realized by the Trust Fund from the sale
or other disposition of assets; (iii) the increase, or decrease, in the
value of the Trust Fund; (iv) all payments and distributions made from the
Trust Fund; and (v) any additional information that the Company or
Committee deems appropriate.
Upon receipt of the Trust Fund accounting, the Company shall advise the
Trustees of its approval or disapproval within thirty days. If no objection
has been filed by the Company, or if the account has been adjusted pursuant
to agreement between the Company and the Trustees, it shall be deemed to be
approved by the Company except as to matters, if any, covered by written
objections from the Company. The approval by the Company of any statement
of account shall be binding as to all matters embraced therein to the same
extent as if the account of the Trustees had been settled by judgment or
decree in an action for a judicial settlement of its account in a court of
competent jurisdiction in which the Trustees, the Company, and all persons
having or claiming an interest in the Plan were parties; provided, however,
that nothing herein contained shall deprive the Trustees of having its
accounts judicially settled if the Trustees so desires.
12.8 Audit.
If an audit of the Plan's records shall be required by ERISA and the
regulations thereunder for any Plan Year, the Committee shall direct the
Trustees to engage on behalf of all Participants an independent qualified
public accountant for that purpose. Such accountant shall, after an audit
of the books and records of the Plan in accordance with generally accepted
auditing standards, within a reasonable period after the close of the Plan
Year, furnish to the Committee and the Trustees a report of his audit,
setting forth his opinion as to whether any statements or schedules which
are required to be filed by Section 103 of ERISA or by the Secretary of
Labor with the Plan's annual report, are presently fairly in conformity
with generally accepted accounting principles applied consistently.
All auditing and accounting fees shall be an expense of and, at the
election of the Company, paid from the Trust Fund.
12.9 Idemnification by Employers.
Except as separately agreed in writing, the Trustees shall be idemnified
and held harmless by the Employers, jointly and severally, to the fullest
extent permitted by law against any and all costs, damages, expenses, and
liabilities reasonably incurred by or imposed upon them in connection with
any claim made against them or in which they may be involved as Trustees,
to the extent such amounts are not paid by insurance.
12.10 Nonparticipation by Interest Member.
Any Trustee who also is a Participant in the Plan shall take no part in any
determination
49
<PAGE>
specifically relating to his own participation or benefits, unless his
abstention would leave the other Trustees incapable of acting on the
matter.
SECTION 13 - AMENDMENT AND TERMINATION OF PLAN
13.1 Adoption of Plan by Other Employers.
With the consent of the Company, any entity may become a participating
Employer under the Plan by (i) taking such action as shall be necessary to
adopt the Plan, and (ii) executing and delivering such instruments and
taking such other action as may be necessary or desirable to put the Plan
into effect with respect to the entity's Employees.
13.2 Adoption of Plan by Successor.
In the event that any Employer shall be reorganized by way of merger,
consolidation, transfer of assets or otherwise, so that an entity other
than an Employer shall succeed to all or substantially all of the
Employer's business, the successor entity may be substituted for the
Employer under the Plan by adopting the Plan. Contributions by the Employer
shall be automatically suspended from the effective date of any such
reorganization until the date upon which the substitution of the successor
entity for the Employer under the Plan becomes effective. If, within 90
days following the effective date of any such reorganization, the successor
entity shall not have elected to become a part to the Plan, or if the
Employer shall adopt a plan of complete liquidation other than in
connection with a reorganization, the Plan shall be automatically
terminated with respect to Employees of the Employer as of the close of
business on the 90th day following the effective date of the
reorganization, or as of the close of business on the date of adoption of a
plan of complete liquidation, as the case may be.
13.3 Right to Amend or Terminate.
The Company intends to continue this Plan as a permanent program. However,
each participating Employer separately reserves the right to suspend,
supersede, or terminate the Plan at any time and for any reason, as it
applies to that Employer's Employees, and the Company reserves the right to
amend, suspend, supersede, merge, consolidate, or terminate the Plan at any
time and for any reason, as it applies to the Employees of all Employers.
No amendment, suspension, supersession, merger, consolidation, or
termination of the Plan shall reduce any Participant's or Beneficiary's
proportionate interest in the Trust Fund, or shall divert any portion of
the Trust Fund to purposes other than the exclusive benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan. Moreover, there shall not be any transfer of
assets to a successor plan or merger or consolidation with another plan
unless, in the event of the termination of the successor plan or the
surviving plan immediately following such transfer, merger, or
consolidation, each participant or beneficiary would be entitled to a
benefit equal to or greater than the benefit he would have been entitled to
if the plan in which he was previously a participant or beneficiary had
terminated immediately prior to such transfer, merger, or consolidation.
Following a termination of this Plan by the Company, the Trustee shall
continue to administer the Trust and pay benefits in accordance with the
Plan as amended from time to time and the Committee's instructions.
50
<PAGE>
SECTION 14 - MISCELLANEOUS PROVISIONS
-------------------------------------
14.1 Plan Creates No Employment Rights.
---------------------------------
Nothing in this Plan shall be interpreted as giving any Employee the right
to be retained as an Employee by an Employer, or as limiting or affecting
the rights of an Employer to control its Employees or to terminate the
Service of any Employee at any time and for any reason, subject to any
applicable employment or collective bargaining agreements.
14.2 Nonassignability of Benefits.
----------------------------
No assignment, pledge, or other anticipation of benefits from the Plan
will be permitted or recognized by the Employers, the Committee, or the
Trustee. Moreover, benefits from the Plan shall not be subject to
attachment, garnishment, or other legal process for debts or liabilities
of any Participant or Beneficiary, to the extent permitted by law. This
prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement)
which relates to the provision of child support, alimony, or property
rights to a present or former spouse, child, or other dependent of a
Participant pursuant to a State domestic relations or community property
law, unless the judgment, decree, or order is determined by the Committee
to be a Qualified Domestic Relations Order within the meaning of Section
414(p) of the Code.
14.3 Limit of Employer Liability.
---------------------------
The liability of the Employers with respect to Participants under this
Plan shall be limited to making contributions to the Trust from time to
time, in accordance with Section 4.
14.4 Treatment of Expenses.
---------------------
All expenses incurred by the Committee and the Trustee in connection with
administering this Plan and Trust Fund shall be paid by the Trustee from
the Trust Fund to the extent the expenses have not been paid or assumed by
the Employer.
14.5 Number and Gender.
-----------------
Any use of the singular shall be interpreted to include the plural, and
the plural the singular. Any use of the masculine, feminine, or neuter
shall be interpreted to include the masculine, feminine, or neuter, as the
context shall require.
14.6 Nondiversion of Assets.
----------------------
Except as provided in Section 6.3, under no circumstances shall any
portion of the Trust Fund be diverted to or used for any purpose other
than the exclusive benefit of the Participants and their Beneficiaries
prior to the satisfaction of all liabilities under the Plan.
14.7 Separability of Provisions.
--------------------------
51
<PAGE>
If any provision of this Plan is held to be invalid or unenforcable, the
other provisions of the Plan shall not be affected but shall be applied as if
the invalid or unenforcab le provision had not been included in the Plan.
14.8 Service of Process.
------------------
The agent for the service of process upon the Plan shall be the president
of the Company, or such other person as may be designated from time to time
by the Company.
14.9 Governing State Law.
-------------------
This Plan shall be interpreted in according with the laws of the State of
Illinois to the extent those laws are applicable under the provisions of
ERISA.
SECTION 15 - TOP-HEAVY PROVISIONS
---------------------------------
15.1 Determination of Top-Heavy Status.
---------------------------------
The Committee shall determine on a regular basis whether each Plan Year is
or is not a "Top-Heavy Year" for purposes of implementing the provisions of
Sections 15.2, 15.3, and 15.4, which shall apply only to the extent the
Plan is top-heavy or super top-heavy within the meaning of Section 416 of
the Code and the Treasury Regulations promulgated thereunder. In making
this determination, the Committee shall use the following definitions and
principles:
(a) The "Employer" includes all business entities which are considered
commonly controlled or affiliated within the meaning of Sections
414(b), 414(c), and 414(m) of the Code.
(b) The "plan aggregation group" includes each qualified retirement plan
maintained by the Employer (i) in which a Key Employee is a
Participant during the Plan Year, or (ii) which enables any plan
described in clause (i) to satisfy the requirements of Section
401(a)(4) or 410 of the Code, or (iii) which provides contributions or
benefits comparable to those of the plans described in clauses (i) and
(ii) and which is designated by the Committee as part of the plan
aggregation group.
(c) The "determination date", with respect to the first Plan Year of any
plan, means the last day of that Plan Year, and with respect to each
subsequent Plan Year, means the last day of the preceding Plan Year.
If any other plan has a determination date which differs from this
Plan's determination date, the top-heaviness of this Plan shall be
determined on the basis of the other plan's determination date falling
within the same calendar year as this Plan's determination date.
(d) A "Key Employee", with respect to a Plan Year, means an Employee who
at any time during the five years ending on the top-heavy
determination date of the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having Total
Compensation greater than 150 percent of the limit then in effect
under Section 415(c)(1)(A) of the Code, (ii) one of the 10 Employees
owning the largest
52
<PAGE>
interests in the Employer having Total Compensation greater than the
limit then in effect under Section 415(c)(1)(A), (iii) an owner of
more than five percent of the outstanding equity interest or
outstanding voting interest in any Employer, or (iv) an owner of more
than one percent of the outstanding equity interest or the outstanding
voting interest in an Employer whose Total Compensation exceeds
$150,000. In determining which individuals are Key Employees, the
rules of Section 415(i) of the Code and Treasury Regulations
promulgated thereunder shall apply. The Beneficiary of a Key Employee
shall also be considered a Key Employee.
(e) A Non-key Employee means an Employee who at any time during the five
years ending on the top-heavy determination date for the Plan Year has
received compensation from an Employer and who has never been a Key
Employee, and the Beneficiary of any such Employee.
(f) The "aggregated benefits" for any Plan Year means (i) the adjusted
account balances in defined contribution plans on the determination
date, plus (ii) the adjusted value of accrued benefits in defined
benefit plans, calculated as to the annual valuation date coinciding
with or next preceding the determination date, with respect to Key
Employees and Non-key Employees under all plans with the plan
aggregation group which includes this Plan. For this purpose, the
"adjusted account balance" and the "adjusted value of accrued benefit"
for any Employee shall be increased by all plan distributions made
with respect to the Employee during the five years ending on the
determination date. Further, the adjusted account balance under a plan
shall not include any amount attributable to a Rollover Contribution
or similar transfer to the Plan initiated by an Employee and made
after 1983, unless both plans involved are maintained by the Employer,
in which event the transferred amount shall be counted in the
transferee plan and ignored for all purposes in the transferor plan.
Finally, the adjusted value of accrued benefits under any defined
benefit plan shall be determined by assuming whichever actuarial
assumptions were applied by the Pension Benefit Guaranty Corporation
to determine the sufficiency of plan assets for plans terminating on
the valuation date.
(g) This Plan shall be "top-heavy" for any Plan Year in which the
aggregated benefits of the Key Employees exceed 60 percent of the
total aggregated benefits for both Key Employees and Non-key
Employees.
(h) This Plan shall be "super top-heavy" for any Plan Year in which the
aggregated benefits of the Key Employees exceed 90 percent of the
total aggregated benefits for both Key Employees and Non-key
Employees.
(i) A "Top-Heavy Year" means a Plan Year in which the Plan is top-heavy.
15.2 Minimum Contributions.
---------------------
For any Top-Heavy Year, a special contribution shall be made on behalf of
each Participant so that each Non-key Employee's allocation of Employer
Contributions and Forfeitures shall be equal to the lesser of (i) 3% of
such Non-key Employee's Total Compensation, or (ii) the highest ratio of
such allocation of Employer Contributions and Forfeitures received by any
Key Employee for that Plan Year. For purposes of the special contribution
of this
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<PAGE>
Section 15.2, a Key Employee's Total Compensation shall include amounts the
Key Employee elected to defer under a qualified 401(k) arrangement. Such a
special contribution shall be made on behalf of each Participant who is
employed by the Employer on the last day of the Plan Year, regardless of
his Hours of Service.
Neither Elective Deferrals nor Matching Contributions may be taken into
account for the purpose of satisfying the minimum top-heavy contribution
requirement.
For any Plan Year when (i) the Plan is top-heavy and (ii) a Non-key
Employee is a Participant in both this Plan and a defined benefit plan
included in the plan aggregation group which is top heavy, the sum of the
Employer Contributions and Forfeitures allocated to the Account of each
such Non-key Employee shall be equal to at least 5% of such Non-key
Employee's Total Compensation for that Plan Year.
If the Employer has more than one plan, the required minimum Top-Heavy Year
contribution shall be met in this Plan.
15.3 Top-Heavy Vesting Schedule.
--------------------------
In a Top-Heavy Plan Year, a Participant's Vested interest in that portion
of his Employer Contribution Account maintained for Employer Matching and
Employer Discretionary Contributions shall be based on the following top-
heavy vesting schedule:
<TABLE>
<CAPTION>
Vesting Schedule
----------------
Years of Service Percent Vested Interest
---------------- -----------------------
<S> <C> <C>
Less than 2 years 0%
3 40%
4 60%
5 80%
6 or more years 100%
</TABLE>
15.4 Maximum Compensation.
--------------------
For any Top-Heavy Year, a Participant's "Cash Compensation" as defined in
Section 2, and his "Total Compensation" for purposes of Section 15.2, shall
not exceed $200,000 (or the limit currently in effect under Section 415(d)
of the Code).
54
<PAGE>
TENTH AMENDMENT TO THE
MIDAMERICA FEDERAL SAVINGS BANK
EMPLOYEES' PROFIT SHARING PLAN
This Tenth Amendment to the MidAmerica Federal Savings Bank Employees' Profit
Sharing Plan was executed on May 28, 1996 by MidAmerica Federal Savings Bank, an
Illinois corporation.
Pursuant to the provisions of Section 13 of the MidAmerica Federal Savings
Bank Employees' Profit Sharing Plan (the "Plan"), the Plan is hereby
amended, with an effective date of July 1, 1996:
SECTION 2 - DEFINITIONS
- -----------------------
The definition of "General Fund" shall be changed to the following:
"General Fund" means all the investments in the Trust, as set forth in
Section 7.1, which have been made with Matching Contributions,
Discretionary Contributions, Qualified Matching Contributions, Qualified
Non-elective Contributions, Employee Voluntary Contributions, Employee
Rollover Contributions, and Employee Merged Plan Contributions, plus the
income (or loss) from these investments, shall be treated as from a single
fund, with the following exceptions:
(a) Vested assets which have been directed by Plan Participants to be
invested in Employer Stock, as set forth in Section 7.2(a), shall be
segregated and held in the Employer Stock Fund.
(b) Employee Voluntary Contribution Account assets and Employee Merged
Plan Contribution Account assets which have been directed by Plan
Participants into an Earmarked Investment, as set forth in Section
5.1(c)(i) and Section 5.1(e)(i), shall be segregated and held in the
account for the directed investment.
The following definitions shall be added:
Merged Plan Contribution Account means an account established and
maintained for a Participant with respect to assets which were credited to
his name in another qualified plan and which have been merged into this
Plan, pursuant to Section 4.2(c) and Section 5.1(e).
Northwestern Plan means the Northwestern Savings & Loan 401(k) Plan in
effect on June 30, 1996, just prior to its merger into this Plan.
55
<PAGE>
SECTION 3 - ELIGIBILITY FOR PARTICIPATION
- -----------------------------------------
Section 3 shall be amended by adding the following after Section 3.1,
Eligibility to Receive Employer Matching Contributions and Employer
Discretionary Contributions:
3.1A, Special Provision Applicable to Former Northwestern Participants
----------------------------------------------------------------------
Notwithstanding the foregoing provisions of Section 3.1, a Former
Northwestern Participant who is an Employee on July 1, 1996 shall become an
Active Participant as of such date.
Any other Employee of Northwestern who has completed one Year of Service
and has attained the age of 21 shall be eligible to participate in the Plan
as of the Entry Date coinciding with or next following the later of the
following dates: the last date of the Employee's first Year of Service, or
the Employee's 21st birthday. A Year of Service shall include any period
or periods previously credited to that Employee under the Northwestern
Plan.
An individual's satisfaction of the service requirement as of any Entry
Date shall constitute satisfaction thereof as of all subsequent Entry
Dates, regardless of any intervening interruption of his employment.
Section 3 shall be amended by adding the following after Section 3.2,
Eligibility to Make Elective Deferral Contributions:
3.2A, Special Provision Applicable to Former Northwestern Participants
----------------------------------------------------------------------
Notwithstanding the foregoing provisions of Section 3.2, a Former Employee
of Northwestern shall be eligible to elect to defer a portion of his Cash
Compensation on July 1, 1996 if he has completed one Year of Service. A
Year of Service is a period of 12 consecutive months during which an
Employee has at least 1000 Hours of Service. A Year of Service shall
include any period or periods previously credited to that Employee under
the Northwestern Plan.
There is no minimum age requirement for a Former Employee of Northwestern
to be eligible to defer a portion of his Cash Compensation.
56
<PAGE>
SECTION 4 - CONTRIBUTIONS
- -------------------------
Section 4.2, Contributions by Participants, shall be amended by adding the
following:
(c) Merged Plan Contributions.
A Participant in this Plan may have assets merged into this Plan from
a qualified plan of another employer.
The balance in a Participant's Merged Plan Contribution Account shall
be 100% vested and not subject to Forfeiture for any reason.
Section 4.10, Contribution Not Forfeitable, shall be replaced in its entirety
with the following:
The Participant's accrued benefit derived from Elective Deferrals,
Qualified Non-elective Contributions, Qualified Matching Contributions,
Voluntary Contributions, Rollover Contributions, and Merged Plan
Contributions is nonforfeitable.
SECTION 5 - ALLOCATIONS
- -----------------------
The last paragraph of Section 5.1(a), Employer Contribution Account, shall be
replaced with the following:
Employer Contribution Account assets shall be invested by the Plan Trustees
in the Plan's General Fund, together with the Voluntary Contribution
Account assets, Rollover Contribution Account cash assets, and Merged Plan
Contribution Account cash assets.
The last paragraph of Section 5.1(b), Voluntary Contribution Account, shall be
replaced with the following:
Voluntary Contribution Account assets shall be invested by the Plan
Trustees in the Plan's General Fund, together with the Employer
Contribution Account assets, Rollover Contribution Account cash assets, and
Merged Plan Contribution Account cash assets.
Section 5.1(c), Rollover Contribution Account, shall be replaced in its entirety
with the following:
(c) Rollover Contribution Account.
Rollover Contributions shall be maintained for each Participant in the
Rollover Contribution Account.
Rollover Contribution cash assets shall be invested by the Plan
Trustees as follows:
(i) Effective July 1, 1996, a Participant may direct the Plan
Trustees to
57
<PAGE>
establish an Earmarked Account with cash assets, with the
investment selection limited to those chosen by the Plan Trustees
for Elective Deferral Contributions, pursuant to Section 7.3.
(ii) Cash assets which have not been directed by a Participant into an
Earmarked Account shall be invested by the Plan Trustees in the
Plan's General Fund, together with the Employer Contribution
Account assets, Voluntary Contribution Account assets, and Merged
Contribution Account cash assets.
If a Rollover Contribution consists of property other than cash, such
property shall be considered an Earmarked Investment for such
Participant.
Section 5.1, Contributions, shall be amended by adding the following:
(e) Merged Plan Contribution Account.
Merged Plan Contributions shall be maintained with each Participant in
the Merged Plan Contribution Account.
Merged Plan Contribution cash assets shall be invested by the Plan
Trustees as follows:
(i) A Participant may direct the Plan Trustees to establish an
Earmarked Account with cash assets, with the investment selection
limited to those chosen by the Plan Trustees for Elective
Deferral Contributions, pursuant to Section 7.3.
(ii) Cash assets which have not been directed by a Participant into an
Earmarked Account shall be invested by the Plan Trustees in the
Plan's General Fund, together with the Employer Contribution
Account assets, Voluntary Contribution Account assets, and
Rollover Contribution Account cash assets.
If a Merged Plan Contribution consists of property other than cash,
such property shall be considered an Earmarked Investment for such
Participant.
58
<PAGE>
Section 5.3, Income on Investments, shall be amended by replacing (a) in its
entirety with the following:
(a) Employer Contribution, Voluntary Contribution, Rollover Contribution,
and Merged Plan Contribution Accounts.
(i) General Fund. On each Anniversary Date, the income (or loss) for
the Employer Contribution Account, Voluntary Contribution
Account, Rollover Contribution Account, and Merged Plan
Contribution Account shall be allocated based on the beginning
balance on the first day of the Plan Year for each Active
Participant and former Participant with Vested assets remaining
in the Plan on the Anniversary Date, less an adjustment for
distributions, withdrawals, or forfeitures during the Plan Year
on a time-weighted basis.
(ii) Earmarked Investment. Any income, expense, gain, or loss earned
or incurred with respect to such investment shall be credited
solely to the Earmarked Investment.
SECTION 7 - INVESTMENTS
The first paragraph of Section 7.1, General Fund, shall be replaced with the
following:
Matching Contributions, Discretionary Contributions, Qualified Matching
Contributions, Qualified Non-elective Contributions, Employee Voluntary
Contributions, Employee Rollover Cash Contributions, and Employee Merged
Plan Cash Contributions shall be held in a "General Fund."
Section 7.2, Participant Direction of Assets from General Fund to Employer
Stock, shall be replaced in its entirety with the following:
7.2 Participant Direction of Assets from General Fund
(a) Participant Direction of Assets from Employer Contribution,
Employee Voluntary Contribution, and Employee Rollover General
Fund Contribution General Fund Accounts to Employer Stock.
Effective on July 1, 1989, the Trustees were expressly authorized
to receive from each Participant on an annual basis an
irrevocable election directing the Trustees to have all or a part
of the Vested portion of each such Participant's assets in the
General Fund to be invested in Employer Stock. A Participant's
initial election required a minimum investment of $250.
Effective with the Plan Year beginning on July 1, 1992, this
annual election was rescinded. However, any investments in
Employer Stock and any directions for investment made prior to
the Plan
59
<PAGE>
Year beginning on July 1, 1992 shall continue to be valid and
shall not be affected.
The net income from Employer Stock investments in the Employer
Contribution Account shall be invested primarily in Employer
Stock and such cash or short term investments as the Trustees
shall deem necessary to meet any contingencies.
(b) Participant Direction of Cash Assets in Employee Rollover
Contribution and Employee Merged Plan Contribution Accounts from
General Fund to Earmarked Investments
Effective on July 1, 1996, a Participant may direct the Plan
Trustees to establish Earmarked Accounts with cash assets in the
General Fund, with the investment selection limited to those
chosen by the Plan Trustees for Elective Deferral Contributions,
pursuant to Section 7.3.
Section 7 shall be amended by adding the following after Section 7.3,
Elective Deferral Accounts:
Section 7.3A, Assets Held under the Northwestern Plan
Effective as of the close of June 30, 1996, or such later date as the
Committee shall effectuate the merger of the Northwestern Plan into
the Plan, the Trust Fund serving as the funding vehicle for the
Northwestern Plan shall become part of the Trust Fund of the Plan
("the Northwestern Sub-Trust"). The Northwestern Sub-Trust shall
continue to hold those assets attributable to Former Northwestern
Participants until such time as the Former Northwestern Participants
are eligible to elect the investment options available under Section 7
of the Plan.
SECTION 8 - VESTING
Section 8.1, Vesting Schedule, shall be amended by replacing (b) with the
following:
(b) Accounts for Qualified Matching Contributions, Qualified Non-
elective Contributions, Elective Deferral Contributions, Employee
Voluntary Contributions, Employee Rollover Contributions, and
Employee Merged Plan Contributions.
These Accounts are not subject to the Vesting Schedule in Section
8.1(a), and shall be 100% vested and not forfeitable for any
reason.
Section 8 shall be amended by adding the following after Section 8.2,
Computation of Vesting Years:
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Section 8.2A, Recognition of Service under the Northwestern Plan
Solely with respect to Former Northwestern Participants, such period or
periods of employment shall include any period or periods previously
credited to that Employee under the Northwestern Plan.
SECTION 9 - PAYMENT OF BENEFITS
Section 9 shall be amended by adding the following after Section 9.1, Upon
Termination of Employment:
Section 9.1A, Protected Benefits for Former Northwestern Participants
Former Northwestern Participants may, in addition to the optional forms of
payment available under Section 9.1 of the Plan, elect to receive the value
of their Account (accrued through June 30, 1996 or, if later, the date the
Northwestern Plan is merged into the Plan) as follows: (1) over a period
certain in monthly, quarterly, semiannual, or annual cash payments, which
shall not extend beyond the Participant's life expectancy (or the life
expectancy of the Participant and his designated Beneficiary) or (2) in a
nontransferrable annuity contract for a term certain (with no life
contingencies).
Section 9 shall be amended by adding the following section:
Section 9.12, Protected Benefits
In the event the assets and/or liabilities of another plan are merged,
transferred, or consolidated with this Plan, all protected benefits, as
described in IRS Code Section 411(d)(6)(A), early retirement benefits,
retirement-type subsidies, and optional forms of benefit shall be preserved
for those assets merged, transferred, or consolidated with this Plan.
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SECTION 13 - AMENDMENT AND TERMINATION OF PLAN
Section 13.3, Right to Amend or Terminate, shall be replaced in its entirety
with the following:
The Company intends to continue this Plan as a permanent program. However,
each participating Employer separately reserves the right to suspend,
supersede, or terminate the Plan at any time and for any reason, as it
applies to that Employer's Employees, and the Company reserves the right to
amend, suspend, supersede, merge, consolidate, or terminate the Plan at any
time and for any reason, as it applies to the Employees of all Employers.
No amendment, suspension, supersession, merger, consolidation, or
termination of the Plan shall reduce any Participant's or Beneficiary's
proportionate interest in the Trust Fund, or shall divert any portion of
the Trust Fund to purposes other than the exclusive benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan.
Moreover, there shall not be any transfer of assets to a successor plan or
merger or consolidation with another plan unless, in the event of the
termination of the successor plan or the surviving plan immediately
following such transfer, merger, or consolidation, each participant or
beneficiary would be entitled to a benefit equal to or greater than the
benefit he would have been entitled to if the plan in which he was
previously a participant or beneficiary had terminated immediately prior to
such transfer, merger, or consolidation.
Furthermore, except as permitted by the Code and the Regulations
thereunder, as a result of any transfer, merger, or consolidation, there
shall be no elimination or reduction of any IRS Code Section 411(d)(6)
protected benefits which each participant or beneficiary would have been
entitled to if the plan in which he was previously a participant or
beneficiary had terminated immediately prior to such transfer, merger, or
consolidation. Section 411(d)(6) protected benefits are benefits described
in Code Section 411(d)(6)(A), early retirement benefits, retirement-type
subsidies, and optional forms of benefit.
Following a termination of this Plan by the Company, the Trustee shall
continue to administer the Trust and pay benefits in accordance with the
Plan as amended from time to time and the Committee's instructions.
Section 13 shall be amended by adding the following after Section 13.3, Right to
Amend or Terminate:
Section 13.3A, Merger
Effective as of the close of June 30, 1996 or such later date as the
Committee may, in its sole discretion, determine, the Northwestern Plan
shall be merged into the Plan with all accrued benefits under the
Northwestern Plan becoming accrued benefits under this Plan, and such
amounts shall be allocated among the Employer Contribution Account,
Rollover Contribution Account, or Elective Deferral Account of such
Participants as the Committee shall determine. To the
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extent required by law or otherwise appropriate, the applicable provisions
of the Plan shall be deemed to apply retroactively to the Northwestern
Plan.
63
<PAGE>
ELEVENTH AMENDMENT TO THE
MID AMERICA FEDERAL SAVINGS BANK
EMPLOYEES' PROFIT SHARING PLAN
This Eleventh Amendment to the MidAmerica Federal Savings Bank Employees' Profit
Sharing Plan was executed on November 26, 1996 by MidAmerica Federal Savings
Bank, an Illinois corporation.
Pursuant to the provisions of Section 13 of the MidAmerica Federal Savings
Bank Employees' Profit Sharing Plan (the "Plan"), the Plan is hereby
amended:
Effective date January 1, 1997:
SECTION 1 - PLAN IDENTIFY
1.4 Fiscal Period. This Plan shall be operated on the basis of a January 1 -
December 31 fiscal year for the purpose of keeping the Plan's books and
records, and distributing or filing any reports or returns required by law.
Effective date January 1, 1997:
SECTION 2 - DEFINITIONS
The following definitions shall be changed:
"Fiscal Year" means the Employer's accounting year of 12 months beginning
on January 1 and ending on December 31.
Effective date January 1, 1997:
"Plan Year" means each period of 12 consecutive months beginning on January
1 of 1997 and each succeeding year. Prior to July 1, 1996, the Plan Year
meant each period of 12 consecutive months beginning on July 1 of 1983 and
each succeeding year. The period beginning on July 1, 1996 and ending on
December 31, 1996 was a Short Plan Year.
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Effective date July 1, 1996:
"Valuation Date" means the last day of the Plan Year (December 31), the
last day of each quarter during the Plan Year (March 31, June 30, September
30, and December 31), and any other dates selected by the Committee, on
which the income (and losses) for the Trust Fund shall be allocated.
Effective date July 1, 1996:
The following definition shall be added:
"Short Plan Year" means a Plan Year of less than 12 months. In accordance
with Internal Revenue Service Regulation 1.401(a)(17)-1(b)(3)(iii), the
compensation limit for a Short Plan Year shall be an amount equal to the
otherwise applicable annual compensation limit multiplied by a fraction,
the numerator of which is the number of months in the Short Plan Year, and
the denominator of which is 12.
In a Short Plan Year, if the Cash Compensation of any Participant consists
of or includes commissions, then the Participant's Cash Compensation
limitation shall be adjusted, with the exclusion of any Cash Compensation
in excess of $75,000 (with adjustment for cost of living increases
identical to the cost of living increases announced by the Internal Revenue
Service for retirement plan limitations), with the annual Cash Compensation
limitation multiplied by a fraction, the numerator of which is the number
of months in the Short Plan Year, and the denominator of which is 12.
In a Short Plan Year, the Hours of Service which must be credited to an
Active Participant in order for that Active Participant to receive an
Employer Contribution and Forfeiture allocation shall be adjusted, with the
1,000 Hours of Service requirement multiplied by a fraction, the numerator
of which is the number of months in the Short Plan Year, and the
denominator of which is 12.
In a Short Plan Year, the Matching Contribution of 35% of Elective
Deferrals which do not exceed 4% of a Participant's Cash Compensation which
is not in excess of $30,000 shall be adjusted, with the $30,000 Cash
Compensation amount multiplied by a fraction, the numerator of which is the
number of months in the Short Plan Year, and the denominator of which is
12. A Matching Contribution of 25% shall be made to Elective Deferrals
which do not exceed 2% of a Participant's Cash Compensation which is in
excess of the adjusted $30,000 Cash Compensation amount.
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Effective date July 1, 1996:
SECTION 3 - ELIGIBILITY FOR PARTICIPATION
Section 3 shall be amended by adding Section 3.3:
3.3 - Eligibility to Make Employee Rollover Contributions
Upon inception of employment, an Employee may make a Rollover Contribution
to the Plan, since there is no minimum age or Year of Service requirement
which must be satisfied before an Employee is eligible to make a Rollover
Contribution.
Effective date July 1, 1996:
SECTION 7 - INVESTMENTS
Section 7.2(a) shall be replaced in its entirety with the following:
7.2 - Participant Direction of Assets from General Fund
(a) Participant Direction of Assets from Employer Contribution, Employee
Voluntary Contribution, and Employee Rollover General Fund
Contribution General Fund Accounts to Employer Stock.
Effective on July 1, 1989, the Trustees were expressly authorized to
receive from each Participant on an annual basis an irrevocable
election directing the Trustees to have all or a part of the Vested
portion of each such Participant's assets in the General Fund to be
invested in Employer Stock. A Participant's initial election required
a minimum investment of $250.
Effective with the Plan Year beginning on July 1, 1992, this annual
election was rescinded. However, any investments in Employer Stock
and any directions for investment made prior to the Plan Year
beginning on July 1, 1992 shall continue to be valid and shall not be
affected.
Effective with the Plan Year beginning on January 1, 1997, a
Participant may direct the Trustees to sell all or a portion of his
Employer Stock, with the amount received transferred into the General
Fund. The Trustees shall have the option to purchase this Employer
Stock from General Fund assets, or sell it.
The net income from Employer Stock investments in the Employer
Contribution Account shall be invested primarily in Employer Stock and
such cash or short term investments as the Trustees shall deem
necessary to meet any contingencies.
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TWELFTH AMENDMENT TO THE
MID AMERICA FEDERAL SAVINGS BANK
EMPLOYEES' PROFIT SHARING PLAN
This Twelfth Amendment to the MidAmerica Federal Savings Bank Employees' Profit
Sharing Plan was executed on December 16, 1997 by MidAmerica Federal Savings
Bank, an Illinois corporation.
Pursuant to the provisions of Section 13 of the MidAmerica Federal Savings Bank
Employees' Profit Sharing Plan (the "Plan"), the Plan is hereby amended:
Effective January 1, 1997
SECTION 2 - DEFINITIONS
The second to last paragraph of the definition of "Highly Compensated Employee"
shall be replaced with the following:
Prior to the Plan Year beginning on January 1, 1997, if an Employee was,
during a determination year or look-back year, a Family Member of either a
5 percent owner who was an active or former Employee or Highly Compensated
Employee who was one of the 10 most Highly Compensated Employees ranked on
the basis of Total Compensation paid by the Employer during such year, then
the Family Member and the 5 percent owner or top-ten Highly Compensated
Employee were aggregated. In such case, the Family Member and 5 percent
owner or top-ten Highly Compensated Employee were treated as a single
Employee receiving compensation and plan contributions or benefits equal to
the sum of such compensation and contributions or benefits of the Family
Member and 5 percent owner or top-ten Highly Compensated Employee. For
purposes of this section, Family Member included the Spouse, lineal
ascendants and descendants of the Employee or former Employee, and the
spouses of such lineal ascendants and descendants.
Effective July 1, 1995:
SECTION 3 - ELIGIBILITY FOR PARTICIPATION
Section 3 shall be amended by adding Section 3.1(i):
3.1(i) Military Service.
Effective with the Plan Year beginning on July 1, 1995, notwithstanding any
provision of this Plan to the contrary, contributions, benefits, and
service credit with respect to qualified military service will be provided
in accordance with Section 414(u) of the Internal Revenue Code.
Effective January 1, 1997
SECTION 4 - CONTRIBUTIONS
Section 4.4, Actual Deferral Percentage Test, paragraph 4, shall be replaced
with the following:
Prior to the Plan Year beginning on January 1, 1997, for purposes of
determining the ADP of a Participant who was a 5% owner or one of the ten
most highly-paid Highly Compensated
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Employees, the Elective Deferral Contributions (and Qualified Non-elective
Contributions or Qualified Matching Contributions, or both, if treated as
Elective Deferral Contributions for purposes of the ADP test), and Total
Compensation of such Participant, included the Elective Deferral
Contributions (and, if applicable, Qualified Non-elective Contributions and
Qualified Matching Contributions, or both) and Total Compensation for the
Plan Year of Family Members (as defined in Section 414(q)(6) of the Code).
Family Members, with respect to such Highly Compensated Employees, were
disregarded as separate Employees in determining the ADP for Participants
who were Non-highly Compensated Employees and for Participants who were
Highly Compensated Employees.
Effective January 1, 1997
- -------------------------
Section 4.5, Excess Contributions, paragraph 1, shall be replaced with the
following:
Notwithstanding any other provision of this Plan, Excess Contributions,
plus any income and minus any loss allocable thereto, shall be distributed
no later than the last day of each Plan Year to Participants to whose
accounts such Excess Contributions were allocated for the preceding Plan
Year. If such excess amounts are distributed more than 2 1/2 months after
the last day of the Plan Year in which such excess amounts arose, a 10%
excise tax will be imposed on the Employer maintaining the Plan with
respect to such amounts. Such distributions shall be made to Highly
Compensated Employees on the basis of the respective portions of the Excess
Contributions attributable to each such Employee. Prior to the Plan Year
beginning on January 1, 1997, Excess Contributions of Participants who were
subject to Family Member aggregation rules were allocated among the Family
Members in proportion to the Elective Deferrals (and amounts treated as
Elective Deferrals) of each Family Member that were combined to determine
the combined ADP.
Effective January 1, 1997
- -------------------------
Section 4.7, Actual Contribution Percentage Test, paragraph 5, shall be replaced
with the following:
Prior to the Plan Year beginning on January 1, 1997, for purposes of
determining the Contribution Percentage of a Participant who was a 5% owner
or one of the ten most highly-paid Highly Compensated Employees, the
Contribution Percentage Amount and Total Compensation of such Participant
included the Contribution Percentage Amount and Total Compensation for the
Plan Year of Family Members (as defined in Section 414(q)(6) of the Code).
Family Members, with respect to Highly Compensated Employees, were
disregarded as separate employees in determining the Contribution
Percentage both for Participants who were Non-highly Compensated Employees
and for Participants who were Highly Compensated Employees.
Effective January 1, 1997
- -------------------------
Section 4.8, Excess Aggregate Contributions, paragraph 1, shall be replaced with
the following:
Notwithstanding any other provision of this Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto, shall
be forfeited, if forfeitable, or if not forfeitable, distributed no later
than the last day of each Plan Year to Participants to whose accounts such
Excess Aggregate Contributions were allocated for the preceding Plan Year.
If such Excess Aggregate Contributions are distributed more than 2 1/2
months after the last day of the Plan Year in which such excess amounts
arose, a 10% excise tax will be imposed on the Employer maintaining the
Plan with respect to those amounts. Excess Aggregate Contributions shall be
treated as annual additions under the Plan. Prior to the Plan Year
beginning on January 1, 1997, Excess Aggregate Contributions of
Participants who were subject to the Family Member
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aggregation rules were allocated among the Family Members in proportion to
the Employee Voluntary and Matching Contributions (or amounts treated as
Matching Contributions) of each Family Member that were combined to
determine the combined ACP.
Effective January 1, 1997:
- -------------------------
SECTION 9 - PAYMENT OF BENEFITS
- -------------------------------
Section 9.3 shall be replaced in its entirety with the following:
9.3 Upon Attainment of Age 70 1/2.
-----------------------------
Distributions must commence to a terminated Participant no later than the
April 1 following the calendar year in which the Participant attained age
70 1/2.
Effective January 1, 1997, a Participant who is in Service upon the
attainment of age 70 1/2 in 1997 or a subsequent Plan Year, and does not
own more than 5% of the Employer Stock, shall have the option to elect to
receive (or not to receive) an annual minimum distribution. If a
Participant elects not to receive an annual minimum distribution, a
required minimum distribution shall not commence until the calendar year in
which the Participant retires.
Prior to January 1, 1997, with an effective date of January 1, 1989, if a
Participant was in Service upon the attainment of age 70 1/2, minimum
distribution payments had to commence by April 1 of the calendar year
following the calendar year in which the Participant became age 70 1/2.
Prior to January 1, 1989, if a Participant who was in Service became age 70
1/2, and did not own more than 5% of the Employer Stock, that Participant
was not subject to minimum distribution payments until termination of
Service with the Employer.
A minimum distribution upon attainment of age 70 1/2 shall be made based on
one of the following irrevocable elections: (i) over the life of the
Participant, or over the joint lives of the Participant and his designated
Beneficiary; or (ii) over a period certain not to exceed the life
expectancy of the Participant, or the life expectancy of the Participant
and his designated Beneficiary.
Effective January 1, 1997:
- -------------------------
Section 9 shall be amended by adding Section 9.4(c):
9.4 In-Service Distributions.
------------------------
(c) Upon Attainment of Age 59 1/2.
Effective with the Plan Year beginning on January 1, 1997, a
Participant who has attained the age of 59 1/2 may withdraw all or any
part of the balance in his Account.
Effective January 1, 1998:
- -------------------------
Section 9.7 shall be replaced in its entirety with the following:
9.7 Timing of Distribution.
----------------------
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Pursuant to Section 401(a)(31) of the Code and the regulations thereunder,
effective January 1, 1993, a Participant or Beneficiary shall be notified
of all distribution options at least thirty days prior to making a
distribution election.
If the value of a Participant's Vested assets exceeds (or at the time of
any prior distribution exceeded) $5,000, the Participant must consent to
the distribution in writing. However, the consent of the Participant shall
not be required to satisfy the commencement of minimum required
distributions, pursuant to Section 401(a)(9) of the Code.
Unless the Participant elects otherwise, distribution of benefits shall
begin no later than the 90th day after the close of the Plan Year in which
the Participant attains age 65.
A Participant's Vested assets are immediately distributable, subject to the
requirements of Section 401(a)(31) of the Code, if they do not exceed
$5,000. Payment will be made to the Participant or Beneficiary if a
distribution election has not been received within 90 days after
notification of all distribution options.
Prior to the Plan Year beginning on January 1, 1998, if the value of a
Participant's Vested assets exceeded (or at the time of any prior
distribution exceeded) $3,500, the Participant had to consent to the
distribution in writing. A Participant's Vested assets were immediately
distributable, subject to the requirements of Section 401(a)(31) of the
Code, if they did not exceed $3,500.
Effective January 1, 1998:
- -------------------------
Section 9.9(b) shall be replaced in its entirety with the following:
9.9 Qualified Domestic Relations Order.
----------------------------------
(b) The alternate payee may receive a payment of benefits under this Plan
prior to the Normal Retirement Age if the QDRO specifically provides
for such earlier payment. If the present value of the payment exceeds
$5,000, the alternate payee must consent in writing to such
distribution.
Prior to the Plan Year beginning on January 1, 1998, if the present
value of the payment exceeded $3,500, the alternate payee had to
consent in writing to such distribution.
Effective July 1, 1995:
- ----------------------
Section 9 shall be amended by adding Section 9.13:
9.13 Distribution of Assets Transferred from Money Purchase Pension Plan.
-------------------------------------------------------------------
Effective with the Plan Year beginning on July 1, 1995, notwithstanding any
provision of this Plan to the contrary, to the extent that any optional
form of benefit under this Plan permits a distribution prior to the
Employee's retirement, death, disability, or severance from employment, and
prior to plan termination, the optional form of benefit is not available
with respect to benefits attributable to assets (including the post-
transfer earnings thereon) and liabilities that are transferred, within the
meaning of Section 414(l) of the Internal Revenue Code, to this Plan from a
Money Purchase Pension Plan qualified under Section 401(a) of the Code
(other than any portion of those assets and liabilities attributable to
voluntary employee contributions).
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THIRTEENTH AMENDMENT TO THE
MID AMERICA BANK, FSB
EMPLOYEES' PROFIT SHARING PLAN
This Thirteenth Amendment to the Mid America Bank, fsb, Employees' Profit
Sharing Plan was executed on January 27, 1998 by Mid America Bank, fsb, an
Illinois corporation.
Pursuant to the provisions of Section 13 of the Mid America Bank, fsb,
Employees' Profit Sharing Plan (the "Plan"), the Plan is hereby amended:
Effective January 1, 1998
- -------------------------
SECTION 1 - PLAN IDENTITY
- -------------------------
1.1 Name. The name of this Plan is "Mid America Bank, fsb, Employees' Profit
Sharing Plan."
The former Plan name was Mid America Federal Savings Bank Employees' Profit
Sharing Plan.
SECTION 2 - DEFINITIONS
- -----------------------
The following definitions shall be changed:
"Company" means Mid America Bank, fsb, and any entity which succeeds to the
business of Mid America Bank, fsb, and adopts this Plan as its own pursuant
to Section 13.2. Prior to 1998, the legal name of Mid America Bank, fsb was
Mid America Federal Savings Bank.
"Plan" means this document for the Mid America Bank, fsb, Employees' Profit
Sharing Plan, including all amendments thereto.
SECTION 3 - ELIGIBILITY FOR PARTICIPATION
- -----------------------------------------
Section 3.1A, Special Provision Applicable to Former Northwestern Participants,
- ------------------------------------------------------------------------------
shall be replaced with the following:
Notwithstanding the foregoing provisions of Section 3.1, a former
Northwestern Participant who is an Employee on July 1, 1996 shall become an
Active Participant as of such date.
Any other Employee of Northwestern who has completed one Year of Service
and has attained the age of 21 shall be eligible to participate in the Plan
as of the Entry Date coinciding with or next following the later of the
following dates: the last date of the Employee's first Year of Service, or
the Employee's 21st birthday. A Year of Service shall include any period or
periods previously credited to that Employee under the Northwestern Plan.
An individual's satisfaction of the service requirement as of any Entry
Date shall constitute satisfaction thereof as of all subsequent Entry
Dates. A former Employee of Northwestern shall participate in the Plan from
the date on which he first becomes eligible until his termination. For this
purpose, an Employee returning within five years of his termination who
previously
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satisfied the eligibility requirements shall re-enter the Plan as of the
date of his return to Service with an Employer.
Effective January 1, 1997
- -------------------------
SECTION 9 - PAYMENT OF BENEFITS
- -------------------------------
Section 9.3 shall be replaced in its entirety with the following:
9.3 Upon Attainment of Age 70 1/2.
-----------------------------
Distributions must commence to a terminated Participant no later than the
April 1 following the calendar year in which the Participant attained age
70 1/2. Effective January 1, 1997, a Participant who is in Service upon the
attainment of age 70 1/2, and who owns more than 5% of the Employer Stock,
shall commence to receive minimum distribution payments by April 1 of the
calendar year following the calendar year in which the Participant attained
age 70 1/2.
Prior to January 1, 1997, with an effective date of January 1, 1989, a
Participant who was in Service upon the attainment of age 70 1/2 and who
did not own more than 5% of the Employer Stock, as well as a Participant
who owned more than 5% of the Employer Stock, had to commence to receive
minimum distribution payments by April 1 of the calendar year following the
calendar year in which the Participant became age 70 1/2.
Prior to January 1, 1989, if a Participant who was in Service became age 70
1/2, and did not own more than 5% of the Employer Stock, that Participant
was not subject to minimum distribution payments until termination of
Service with the Employer.
A minimum distribution upon attainment of age 70 1/2 shall be made based on
one of the following irrevocable elections: (i) over the life of the
Participant, or over the joint lives of the Participant and his designated
Beneficiary; or (ii) over a period certain not to exceed the life
expectancy of the Participant, or the life expectancy of the Participant
and his designated Beneficiary.
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EXHIBIT 10(X)
Exhibit 10(x) Mid America Bank, fsb Directors' Deferred Compensation Plan
<PAGE>
MID AMERICA FEDERAL SAVINGS BANK
DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
MID AMERICA FEDERAL SAVINGS BANK
DIRECTORS' DEFERRED COMPENSATION PLAN
I. PURPOSE
The purpose of this Mid America Federal Savings Bank Directors' Deferred
Compensation Plan is to provide a further means whereby MAF Bancorp, Inc.
(the "Holding Company"), by and through its wholly-owned subsidiary, Mid
America Federal Savings Bank (the "Company") may afford financial security
to directors who have rendered and continue to render valuable services to
the Holding Company and the Company. By providing directors a means
whereby fees may be deferred to some later period, the Plan will encourage
productive efforts of the Board of Directors.
In lieu of providing defined benefits, compensation reductions made
pursuant to the Plan will be either credited with interest or earn a return
based on the performance of MAF Bancorp, Inc. common stock ("Holding
Company Stock"), for the benefit of each Participant. To provide
additional financial security, and to protect the purpose of the Plan,
certain death benefits are provided to qualifying Participants.
II. DEFINITIONS AND CERTAIN PROVISIONS
2.1 "1987 Plan" means the 1987 Directors' Deferred Compensation Plan.
2.2 "1992 Plan" means the 5-year extension of the 1987 Plan otherwise
referred to as the 1992 Directors' Deferred Compensation Plan.
2.3 "Agreement" means an agreement executed annually between a Participant
and the Company, whereby a Participant agrees to defer a portion of
his Compensation for the next calendar year pursuant to the provisions
of the Plan, and the Company agrees to make benefit payments in
accordance with the provisions of the Plan.
2.4 "Beneficiary" means the person or persons designated by a Participant
pursuant to Section 4.8.
2.5 "Board of Directors" means the Board of Directors of MAF Bancorp, Inc.
2.6 "Committee" means the Plan Committee appointed to administer the Plan
pursuant to Article VI.
2.7 "Company" means Mid America Federal Savings Bank and its successors or
assigns.
1
<PAGE>
2.8 "Compensation" means the directors fees for personal services rendered
by a Participant as a director of the Company during a calendar year.
2.9 "Deferral Year" means any calendar year.
2.10 "Deferred Benefit Account" means the account(s) maintained on the
books of the Company for each Participant pursuant to Article III and
shall consist of a Regular Deferral Sub-Account and a Stock Deferral
Sub-Account. A Participant's Deferred Benefit Account shall not
constitute or be treated as a trust fund of any kind.
2.11 "Determination Date" means the date on which the amount of a
Participant's Deferred Benefit Account is determined as provided in
Article III hereof. The last day of each calendar quarter or the date
of a Participant's Termination of Service shall be a Determination
Date.
2.12 "Holding Company Stock" means the common stock of MAF Bancorp, Inc.
2.13 "Moody's" means the average Corporate Bond Yield for the preceding
calendar year, as determined from the Moody's Bond Record published by
Moody's Investor's Service, Inc. (or any successor thereto).
2.14 "Normal Benefit Date" means the later of (i) date of Termination of
Service of the Participant, or (ii) age 65.
2.15 "Participant" means a member of the Board of Directors of the
Company, who is designated to be eligible pursuant to Section 3.1 and
who enters into an Agreement.
2.16 "Plan" means the Mid America Federal Savings Bank Directors' Deferred
Compensation Plan as amended from time to time.
2.17 "Plan Effective Date" means January 1, 1997.
2.18 "Retirement Interest Yield" means a rate of interest equal to 130
percent of Moody's.
2.19 "Regular Deferral Sub-Account" means that portion of the Deferred
Benefit Account to which the Participant elects to have deferrals
credited and which earns interest in accordance with the provisions of
Section 3.7.
2.20 "Stock Deferral Sub-Account" means that portion of the Deferred
Benefit Account to which the Participant elects to have deferrals
credited and which earns a return based on the performance of the
Holding Company Stock and in accordance with the provisions of Section
3.7.
2
<PAGE>
2.21 "Termination of Service" means the Participant's ceasing his service
with the Company for any reason whatsoever, whether voluntarily or
involuntarily, including by reason of death, disability or a change-
in-control.
2.22 "Total Expected Deferral" means with respect to the 1987 Plan or the
1992 Plan, a Participant's expected deferrals pursuant to either the
1987 Plan or the 1992 Plan, as determined and elected at the beginning
of such plan, subject to reduction for any subsequent decrease in
actual deferral amounts in accordance with the original provisions of
such plans. In calculating a Participant's Total Expected Deferral,
the Participant's Compensation at the time of his deferral election
shall be used.
III. PARTICIPATION AND COMPENSATION REDUCTION
3.1 Participation. Participation in the Plan shall be limited to
-------------
directors of the Company or Holding Company who elect to participate
in the Plan for a calendar year by filing an Agreement with the
Company prior to the date of the first Board of Directors' meeting for
a calendar year. On a Participant's Agreement, executed no later than
one year prior to the events described in Sections 4.1, 4.3 and 4.4,
an election under Sections 4.3, 4.4 and 4.5 shall be made.
3.2 Deferral Amounts
----------------
(i) A Participant's Regular Deferral Sub-Account shall initially be
credited with the December 31, 1996 balance of his deferred
benefit account from the 1987 Plan and the 1992 Plan. Such
amounts shall be governed by the terms of this Plan, which shall
supersede the 1987 Plan and the 1992 Plan and any and all
agreements signed under these plans.
(ii) In addition, Participants may elect to defer any percentage (in 5
percentage point increments) of their Compensation for any
Deferral Year.
3.3 Timing of Deferral Credits. The amount of Compensation that a
--------------------------
Participant elects to defer in the Agreement shall cause an equivalent
reduction in his Compensation, and shall be credited to the
Participant's Deferred Benefit Account throughout each Plan Year as
the Participant is paid, or would have been paid, the non-deferred
portion of Compensation for such Plan Year.
3.4 New Participants. A Participant who first attains such status
----------------
subsequent to January 1, 1997, shall be entitled to participate in the
Plan after being named a Participant and after completing an
Agreement, and such Participant shall be bound by all terms and
conditions of the Plan.
3
<PAGE>
3.5 Alteration of Compensation Deferral. Except as provided in Section
-----------------------------------
3.6, a Participant's election to defer Compensation shall be
irrevocable.
3.6 Emergency Benefit; Waiver of Deferral. In the event that the
-------------------------------------
Committee, upon written petition of the Participant, determines in its
sole discretion, that the Participant has suffered an unforeseeable
financial emergency, the Company shall pay to the Participant as soon
as practicable following such determination, or following a
determination by the Committee that a payout is necessary to preserve
the intended value of the Plan to the Participant, an amount not in
excess of the Participant's Deferred Benefit Account, necessary to
satisfy the emergency or preserve the intended value of the Plan to
the Participant. For purposes of this Plan, an unforeseeable
financial emergency is an unexpected need for cash arising from an
illness, casualty loss, sudden financial reversal, or other such
unforeseeable occurrence. Cash needs arising from foreseeable events,
such as the purchase of a residence or education expenses for children
shall not be considered the result of an unforeseeable financial
emergency. In the event of certain circumstances described in this
paragraph, and upon the request of the Participant, the Committee may
also grant a waiver of the Participant's agreement to defer a stated
amount of Compensation for all or part of the remainder of the
calendar year covered by the Participant's Agreement.
3.7 Determination of Deferred Benefit Account.
-----------------------------------------
(a) A Participant shall annually make an election as to whether
deferrals made pursuant to Section 3.2(ii) shall be invested in
the Regular Deferral Sub-Account or the Stock Deferral Sub-
Account. A Participant may elect to have a portion of his
deferrals invested in each sub-account, in no less than 5
percentage point increments. The Deferred Benefit Account shall
be comprised of the combination of the Regular Deferral Sub-
Account and the Stock Deferral Sub-Account.
(b) The Retirement Interest Yield or Moody's, whichever is
appropriate under the terms of this Plan, shall be credited on
the average daily balance of the Regular Deferral Sub-Account.
(c) Amounts invested in the Stock Deferral Sub-Account shall be
invested in Holding Company Stock on or near the last trading day
of the month in which such deferrals are made based on the
average of the closing bid and offer prices of the Holding
Company Stock on such date if such shares are purchased from the
Company, or based on the best price available, if such shares are
purchased in the open market. Such deferral amounts shall earn a
return based solely on the performance of Holding Company Stock
after such date. Dividends paid on Holding Company Stock shall
be reinvested in Holding Company Stock on or near the last
trading day of the month which includes the dividend payment
date. Notwithstanding any other
4
<PAGE>
provision in this Plan to the contrary, in no event shall any
Participant deferrals be invested in Holding Company Stock if
immediately after such proposed investment, the total number of
shares of Holding Company Stock purchased by all current or
former Participants in this Plan and the Mid America Federal
Savings Bank Executive Deferred Compensation Plan since January
1, 1997, would exceed 25,000 shares (as adjusted for stock splits
and stock dividends). In such case, all deferrals, whether
previously elected by a Participant to be invested in the Regular
Deferral Sub-Account or the Stock Deferral Sub-Account, shall be
invested in the Regular Deferral Sub-Account. Each Participant
shall be entitled to direct the voting of shares allocated to his
or her Stock Deferral Sub-Account.
(d) Each Participant's respective sub-accounts as of each
Determination Date shall consist of the balance of the
Participant's sub-accounts as of the immediately preceding
Determination Date, plus the Participant's elective deferred
Compensation pursuant to Section 3.2(ii) since the immediately
preceding Determination Date. The sub-accounts of each
Participant shall be reduced by the amount of all distributions,
if any, made from such account since the preceding Determination
Date. The Retirement Interest Yield shall be credited on the
average daily balance of the Regular Deferral Sub-Account as of
the Determination Date and since the last preceding Determination
Date, but after the Deferred Benefit Account has been adjusted
for any additions (including interest earnings) or distributions
to be credited or deducted for each such day. Unrealized
appreciation or depreciation shall be credited or charged to a
Participant's Stock Deferral Sub-Account as of the Determination
Date based on the increase or decrease in the value of Holding
Company Stock since the last Determination Date.
3.8 Vesting of Deferred Benefit Account. A Participant shall be 100
-----------------------------------
percent vested in his Deferred Benefit Account.
IV. BENEFITS
4.1 Retirement Benefit. Subject to Section 4.5 and except as described in
------------------
the third sentence of this paragraph, upon a Participant's reaching
the age of 65, he shall be entitled to receive (i) the number of
shares of Holding Company Stock accumulated in his Stock Deferral Sub-
Account; and (ii) the amount of his Regular Deferral Sub-Account, each
as determined under Section 3.7 and payable in the form provided in
Section 4.5 and the Participant's Agreement. In such event, the
Participant shall immediately cease to be eligible for any other
benefit under this Plan, except benefits described in Section 4.4.
Pursuant to an election made not less than one year prior to his 65th
birthday, a Participant may elect to defer receipt of his Deferred
Benefit Account until his Normal Benefit Date.
5
<PAGE>
Upon such election, the Participant will be entitled to continue to
participate in the Plan until his Normal Benefit Date, at which time
he shall receive his Deferred Benefit Account as described in the
first sentence of this paragraph and immediately cease to be eligible
for any other benefit under this Plan, except benefits described in
Section 4.4. For purposes of this paragraph, directors who are age 65
or older on January 1, 1997 will be entitled to receive a retirement
benefit distribution on their Normal Benefit Date.
4.2 Termination Benefit. Upon Termination of Service of the Participant
-------------------
before his Normal Benefit Date for reasons other than his death or
Disability, the Company shall pay to the Participant in a lump sum
within sixty (60) days following his Termination of Service, a benefit
equal to (i) the number of shares of Holding Company Stock accumulated
in his Stock Deferral Sub-Account; and (ii) the balance of his Regular
Deferral Sub-Account as of the date of termination, determined under
Section 3.7 using the Retirement Interest Yield. Upon such
Termination of Service, the Participant shall immediately cease to be
eligible for any other benefit provided for in Sections 4.1 or 4.3 of
this Plan.
4.3 Death Prior to Termination of Service. Upon the death of a
-------------------------------------
Participant prior to his termination of employment, the Beneficiary of
the deceased Participant shall be entitled to receive a death benefit
as provided in the 1987 Plan and the 1992 Plan. Unless otherwise
determined by the original provisions of the 1987 Plan and the 1992
Plan, such death benefits shall be equal to:
the greater of:
(a) the initial contribution to the Regular Deferral Sub-Account made
under section 3.2(i), which is attributable to the 1987 Plan, as
increased in accordance with Section 3.7 for interest earned
based on the Retirement Interest Yield for the period up through
the date of death; or
(b) the Participant's Total Expected Deferrals under the 1987 Plan
multiplied by a factor of five;
plus the greater of:
(a) the initial contribution to the Regular Deferral Sub-Account made
under section 3.2(i), which is attributable to the 1992 Plan, as
increased in accordance with Section 3.7 for interest earned
based on the Retirement Interest Yield for the period up through
the date of death; or
(b) the Participant's Total Expected Deferrals under the 1992 Plan
multiplied by a factor of five, but not to exceed $500,000;
6
<PAGE>
In addition to the death benefit described above, upon the death of a
Participant prior to his termination of employment, the Beneficiary of
the deceased Participant shall be entitled to receive the balance of
the Participant's Stock Deferral Sub-Account plus the balance of the
Participant's Regular Deferral Sub-Account as reduced by the sum of
the amounts determined under (a) and (c) above.
Payment of a Participant's Deferred Benefit Account shall be in
accordance with the form of benefit payment elected by the Participant
in his Agreement. If a Participant elected to have his Deferred
Benefit Account paid out in installment payments, his Regular Deferral
Sub-Account will be credited, during the period in which installment
payments are being made, with an interest rate fixed at the Retirement
Interest Yield in effect at the date of the Participant's death.
4.4 Death Subsequent to Termination of Service. Upon the death of a
------------------------------------------
Participant subsequent to his Termination of Service, the Beneficiary
of the deceased Participant shall receive the Participant's remaining
Deferred Benefit Account. Payment of a Participant's remaining
Deferred Benefit Account shall be in accordance with the form of
benefit payment elected by the Participant in his Agreement. If a
Participant elected to have his remaining Deferred Benefit Account
paid out in installment payments, his Regular Deferral Sub-Account
will be credited, during the period in which installment payments are
being made, with an interest rate fixed at the Retirement Interest
Yield in effect at the date of the Participant's death.
4.5 Form of Retirement Benefit Payment.
----------------------------------
(a) Upon the happening of an event described in Section 4.1, the
Company shall pay to the Participant the amount specified therein
in one of the following forms as elected by the Participant in
his Agreement:
(i) Monthly installments payable in equal amounts over a period
not to exceed fifteen (15) years and payable out of both the
Stock Deferral Sub-Account and Regular Deferral Sub-Account
in proportion to the respective balances of such accounts.
Interest on the unpaid principal balance, equal to the
applicable Retirement Interest Yield, will be added to the
Regular Deferral Sub-Account on each Determination Date; or
(ii) A lump sum payment within sixty (60) days of the
Participant's Normal Benefit Date.
(b) Upon a written request to change the form of payment, filed by
the Participant with the Committee at least one year prior to the
7
<PAGE>
commencement of benefits under the Plan, the Committee may, in
its sole discretion, pay out a benefit in one of the forms set
forth above.
4.6 Withholding; Employment Taxes. To the extent required by the law in
-----------------------------
effect at the time payments are made, the Company shall withhold any
taxes required to be withheld by any Federal, state or local
government. Subject to any limitation which the Committee may in its
discretion impose, the Participant shall be entitled to elect to have
withheld, shares having a fair market value equal to the taxes
required to be withheld from amounts otherwise distributable from his
Stock Deferral Sub-Account in satisfaction of any such withholding.
4.7 Commencement of Payments. Unless otherwise provided, commencement of
------------------------
payments under this Plan shall be within sixty (60) days following
receipt of notice by the Committee of an event which entitles a
Participant or a Beneficiary to payments under this Plan, or at such
earlier date as may be determined by the Committee. All payments
shall be made as of the first day of the month.
4.8 Recipients of Payments; Designation of Beneficiary. All payments to
--------------------------------------------------
be made by the Company under the Plan shall be made to the Participant
during his lifetime, provided that if the Participant dies prior to
the completion of such payments, then all subsequent payments under
the Plan shall be made by the Company to the Beneficiary or
Beneficiaries determined in accordance with this Section 4.8. The
Participant may designate a Beneficiary by filing a written notice of
such designation with the Committee in such form as the Company
requires and may include contingent beneficiaries. The Participant
may from time to time change the designated Beneficiary or
Beneficiaries without the consent of such Beneficiary or Beneficiaries
by filing a new designation in writing with the Committee. If no
designation shall be in effect at the time when any benefits payable
under this Plan shall become due, the Beneficiary shall be the spouse
of the Participant, or if no spouse is then living, the
representatives of the Participant's estate.
V. CLAIMS FOR BENEFITS PROCEDURE
5.1 Claim for Benefits. Any claim for benefits under the Plan shall be
------------------
made in writing to any member of the Committee. If such claim for
benefits is wholly or partially denied by the Committee, the Committee
shall, within a reasonable period of time, but not later than 60 days
after receipt of the claim, notify the claimant of the denial of the
claim. Such notice of denial shall be in writing and shall contain:
(a) The specific reason or reasons for denial of the claim;
(b) A reference to the relevant Plan provisions upon which the denial
is based;
8
<PAGE>
(c) A description of any additional material or information necessary
for the claimant to perfect the claim, together with an
explanation of why such material or information is necessary; and
(d) An explanation of the Plan's claim review procedure.
If no such notice is provided, the claim shall be deemed granted.
5.2 Request for Review of a Denial of a Claim for Benefits. Upon the
------------------------------------------------------
receipt by the claimant of written notice of denial of the claim, the
claimant may within 90 days file a written request to the Committee,
requesting a review of the denial of the claim, which review shall
include a hearing if deemed necessary by the Committee. In connection
with the claimant's appeal of the denial of his claim, he may review
relevant documents and may submit issues and comments in writing.
5.3 Decision Upon Review of Denial of Claim for Benefits. The Committee
----------------------------------------------------
shall render a decision on the claim review promptly, but no more than
sixty (60) days after the receipt of the claimant's request for
review, unless special circumstances (such as the need to hold a
hearing) require an extension of time, in which case the sixty (60)
day period shall be extended to 120 days. Such decision shall:
(a) Include specific reasons for the decision;
(b) Be written in a manner calculated to be understood by the
claimant; and
(c) Contain specific references to the relevant Plan provisions upon
which the decision is based.
The decision of the Committee shall be final and binding in all
respects on both the Company and the claimant.
VI. PLAN COMMITTEE
6.1 Plan Committee. The Plan shall be administered by the Administrative/
--------------
Compensation Committee (the "Plan Committee") of the Board of
Directors; provided, however, that the Board of Directors shall be
entitled to take any action for or on behalf of the Plan Committee.
Members of the Plan Committee or agents of the Plan Committee may be
Participants under the Plan.
6.2 General Rights, Powers, and Duties of Committee. The Plan Committee
-----------------------------------------------
shall be the Plan Administrator and it shall be responsible for the
management, operation, and administration of the Plan. In addition to
any powers, rights and duties set forth elsewhere in the Plan, it
shall have the following powers and duties:
9
<PAGE>
(a) To adopt such rules and regulations consistent with the
provisions of the Plan as it deems necessary for the proper and
efficient administration of the Plan;
(b) To administer the Plan in accordance with its terms and any rules
and regulations it establishes;
(c) To maintain records concerning the Plan sufficient to prepare
reports, returns and other information required by the Plan or by
law;
(d) To construe and interpret the Plan and to resolve all questions
arising under the Plan;
(e) To direct the Company to pay benefits under the Plan, and to give
such other directions and instructions as may be necessary for
the proper administration of the Plan;
(f) To employ or retain agents, attorneys, actuaries, accountants or
other persons, who may also be Participants in the Plan or be
employed by or represent the Company; and
(g) To be responsible for the preparation, filing and disclosure on
behalf of the Plan of such documents and reports as are required
by any applicable Federal or State law.
6.3 Information to be Furnished to Committee. The Company shall furnish
----------------------------------------
the Plan Committee such data and information as it may require. The
records of the Company shall be determinative of each Participant's
period of employment, termination of employment and the reason
therefor, leave of absence, re-employment, years of service, personal
data, and compensation reductions. Participants and their
Beneficiaries shall furnish to the Committee such evidence, data, or
information, and execute such documents as the Committee requests.
6.4 Responsibility. No member of the Committee or of the Board of
--------------
Directors of the Company shall be liable to any person for any action
taken or omitted in connection with the administration of this Plan
unless attributable to his own fraud or willful misconduct; nor shall
the Company be liable to any person for any such action unless
attributable to fraud or willful misconduct on the part of a director,
officer or employee of the Company.
10
<PAGE>
Directors Plan
--------------
VII. AMENDMENT AND TERMINATION
7.1 Amendment. The Plan may be amended in whole or in part by the Holding
---------
Company at any time. Notice of any such amendment shall be given in
writing to the Plan Committee and to each Participant and each
Beneficiary of a deceased Participant. No amendment shall decrease
the value of a Participant's Deferred Benefit Account.
7.2 Company's Right to Terminate. The Holding Company reserves the sole
----------------------------
right to terminate the Plan and/or the Agreement pertaining to a
Participant at any time after the Plan Effective Date and prior to the
commencement of payment of his benefits. In the event of any such
termination, the Participant shall be entitled to the amount of his
Stock Deferral Sub-Account determined under Section 3.7, and his
Regular Deferral Sub-Account, determined under Section 3.7, using the
Retirement Interest Yield as of the date of termination of the Plan
and/or his Agreement.
7.3 Action by Company. Any amendment or other action of the Holding
-----------------
Company pursuant to this Article VII shall be taken by the Board of
Directors or the Plan Committee, or by any person authorized by the
Board of Directors or the Committee to take such action on behalf of
the Holding Company.
VIII. MISCELLANEOUS
8.1 No Implied Rights; Rights on Termination of Service. Neither the
---------------------------------------------------
establishment of the Plan nor any amendment thereof shall be construed
as giving any Participant, Beneficiary, or any other person any legal
or equitable right unless such right shall be specifically provided
for in the Plan or conferred by specific action of the Company in
accordance with the terms and provisions of the Plan. Except as
expressly provided in this Plan, the Company shall not be required or
be liable to make any payment under this Plan.
8.2 No Right to Company Assets. Neither the Participant nor any other
--------------------------
person shall acquire by reason of the Plan any right in or title to
any assets, funds or property of the Company whatsoever including,
without limiting the generality of the foregoing, any specific funds,
assets, or other property which the Company, in its sole discretion,
may set aside in anticipation of a liability hereunder. The Company
may, in its discretion, establish or maintain a grantor trust for the
purpose of holding assets to assist the Company in discharging its
obligations hereunder. Any benefits which become payable hereunder
shall be paid from such trust or from the general assets of the
Company. The Participant shall have only a contractual right to the
amounts, if any, payable hereunder unsecured by any asset of the
Company. Nothing contained in the Plan constitutes a guarantee by the
Company that the assets of the Company or any such trust shall be
sufficient to pay any benefit to any person.
11
<PAGE>
8.3 No Employment Rights. Nothing herein shall constitute a contract of
--------------------
employment or of continuing service or in any manner obligate the
Company to continue the services of the Participant, or obligate the
Participant to continue in the service of the Company, or as a
limitation of the right of the Company to discharge any of its
employees, with or without cause. Nothing herein shall be construed
as fixing or regulating the Compensation payable to the Participant.
8.4 Protective Provisions. In the event of the Participant's suicide
---------------------
during the first two (2) years of his participation, then no death
benefits will be payable to the Participant under the Plan in excess
of the balance of the Participant's Stock Deferral Sub-Account plus
the balance of the Participant's Regular Deferral Sub-Account, or in
the Committee's sole discretion, such death benefits may be payable in
a reduced amount.
8.5 Non-assignability. Neither the Participant nor any other person shall
-----------------
have any voluntary or involuntary right to commute, sell, assign,
pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate or convey in advance of actual receipt the amounts, if
any, payable hereunder, or any part thereof, which are expressly
declared to be unassignable and non-transferable. No part of the
amounts payable shall be, prior to actual payment, subject to seizure
or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by the Participant or any other person, or
be transferable by operation of law in the event of the Participant's
or any other person's bankruptcy or insolvency.
8.6 Gender and Number. Wherever appropriate herein, the masculine may
-----------------
mean the feminine and the singular may mean the plural or vice versa.
8.7 Notice. Any notice required or permitted to be given under the Plan
------
shall be sufficient if in writing and hand delivered, or sent by
registered or certified mail, and if given to the Company, delivered
to the principal office of the Company, directed to the attention of
the Plan Administrator. 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 or the receipt for registration or certification.
8.8 Governing Laws. To the extent not preempted by Federal law, the Plan
--------------
shall be construed and administered according to the laws of the State
of Illinois.
8.9 Holding Company Payments. In the event that the benefits due under
------------------------
this Plan to any Participant or Beneficiary from the Company are not
timely paid by the Company, such benefits shall be promptly paid by
the Holding Company.
12
<PAGE>
IN WITNESS WHEREOF, the Holding Company and the Company have adopted this
Mid America Federal Savings Bank DIRECTORS' DEFERRED COMPENSATION PLAN as of
January 1, 1997.
MID AMERICA FEDERAL SAVINGS BANK
By: /s/ Allen H. Koranda
------------------------------------------------
Its: Chief Executive Officer
---------------------------------------------
MAF BANCORP, INC.
By: /s/ Jerry A. Weberling
-----------------------------------------------
Its: Executive Vice President and Chief Financial
---------------------------------------------
Officer
-------
13
<PAGE>
EXHIBIT 10(XI)
10(xi) Mid America Bank, fsb Executive Deferred Compensation Plan
<PAGE>
MID AMERICA FEDERAL SAVINGS BANK
EXECUTIVE DEFERRED COMPENSATION PLAN
<PAGE>
MID AMERICA FEDERAL SAVINGS BANK
EXECUTIVE DEFERRED COMPENSATION PLAN
I. PURPOSE
The purpose of this Mid America Federal Savings Bank Executive Deferred
Compensation Plan is to provide a further means whereby MAF Bancorp, Inc.
(the "Holding Company"), by and through its wholly-owned subsidiary, Mid
America Federal Savings Bank (the "Company") may afford financial security
to certain employees who have rendered and continue to render valuable
service to MAF Bancorp and the Company. By providing a means whereby
Compensation may be deferred into the future, the Plan will aid in
attracting and retaining executives of exceptional ability.
In lieu of providing defined benefits, compensation reductions made
pursuant to the Plan will be either credited with interest or earn a return
based on the performance of MAF Bancorp, Inc. common stock ("Holding
Company Stock"), for the benefit of each Participant. To provide
additional financial security, and to protect the purpose of the Plan,
miscellaneous death and disability benefits are provided to qualifying
Participants.
This Plan is intended to be an unfunded plan of deferred compensation
maintained for the benefit of a select group of management or highly
compensated employees as described in Section 201(2) of Employee Retirement
Income Security Act of 1974, as amended.
II. DEFINITIONS AND CERTAIN PROVISIONS
2.1 "1987 Plan" means the 1987 Executive Deferred Compensation Plan.
2.2 "1992 Plan" means the 5-year extension of the 1987 Plan otherwise
referred to as the 1992 Executive Deferred Compensation Plan.
2.3 "Agreement" means an agreement executed annually between a Participant
and the Company, whereby a Participant agrees to defer a portion of
his Compensation for the next calendar year pursuant to the provisions
of the Plan, and the Company agrees to make benefit payments in
accordance with the provisions of the Plan.
2.4 "Annual Incentive Plan" means the MAF Bancorp Executive Annual
Incentive Plan.
2.5 "Beneficiary" means the person or persons so designated by a
Participant pursuant to Section 4.11.
2.6 "Board of Directors" means the Board of Directors of MAF Bancorp, Inc.
1
<PAGE>
2.7 "Change in Control" means a Change in Control of the Company or the
Holding Company of a nature that: (i) would be required to be reported
in response to Item 1 of the current report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the
meaning of the Home Owners Loan Act of 1933, as amended, and the Rules
and Regulations promulgated by the Office of Thrift Supervision (or
its predecessor agency), as in effect on the date hereof, including
Section 574 of such regulations; or (iii) without limitation such a
Change in Control shall be deemed to have occurred at such time as (a)
any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities
or makes an offer to purchase securities of the Bank or the Holding
Company representing 20% or more of the Bank's or the Holding
Company's outstanding securities ordinarily having the right to vote
at the election of directors except for any securities of the Bank
purchased by the Holding Company in connection with the conversion of
the Bank to the stock form and any securities purchased by the Bank's
employee stock ownership plan and trust; or (b) individuals who
constitute the Holding Company's or the Bank's Board of Directors on
the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board, or whose nomination for election by
the shareholders was approved by the Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or (c) a
plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or
similar transaction occurs; or (d) a proxy statement shall be
distributed soliciting proxies from stockholders of the Holding
Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan of reorganization,
merger or consolidation of the Holding Company or Bank or similar
transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to such
plan or transaction are exchanged for or converted into cash or
property or securities not issued by the Bank or the Holding Company;
or (e) a tender offer is made for 20% or more of the outstanding
securities of the Bank or the Holding Company.
However, notwithstanding anything contained in this section to the
contrary, a Change in Control shall not be deemed to have occurred as
a result of an event described in (i), (ii) or (iii) (a), (c) or (e)
above which resulted from an acquisition or proposed acquisition of
stock of the Holding Company by a person, as defined in the OTS'
Acquisition of Control Regulations (12 C.F.R. (S) 574) (the "Control
Regulations"), who was an executive officer of the Holding Company on
January 19, 1990 and who has continued to serve as an executive
officer of the Holding Company as of the date of the event described
in (i), (ii) or (iii) (a), (c) or (e) above (an "incumbent officer").
In the event a group of individuals acting in
2
<PAGE>
concert satisfies the definition of "person" under the Control
Regulations, the requirements of the preceding sentence shall be
satisfied and thus a change in control shall not be deemed to have
occurred, if at least one individual in the group is an incumbent
officer.
2.8 "Committee" means the Plan Committee appointed to administer the Plan
pursuant to Article VI.
2.9 "Company" means Mid America Federal Savings Bank and its successors or
assigns.
2.10 "Compensation" for any Deferral Year means (i) the base salary paid
during a calendar year plus (ii) cash bonuses paid under the Annual
----
Incentive Plan and the Long-Term Incentive Plan.
2.11 "Deferral Year" means any calendar year.
2.12 "Deferred Benefit Account" means the account(s) maintained on the
books of the Company for each Participant pursuant to Article III and
shall consist of a Regular Deferral Sub-Account and a Stock Deferral
Sub-Account. A Participant's Deferred Benefit Account shall not
constitute or be treated as a trust fund of any kind.
2.13 "Determination Date" means the date on which the amount of a
Participant's Deferred Benefit Account is determined as provided in
Article III hereof. The last day of each calendar quarter or the date
of a Participant's Termination of Service shall be a Determination
Date.
2.14 "Disability" shall have the same meaning as such term is defined in
the Mid America Federal Savings Bank Employees' Profit Sharing Plan.
2.15 "ESOP" means the Mid America Federal Savings Bank Employee Stock
Ownership Plan.
2.16 "Holding Company Stock" means the common stock of MAF Bancorp, Inc.
2.17 "Long-Term Incentive Plan" means the MAF Bancorp Shareholder Value
Long-Term Incentive Plan.
2.18 "Moody's" means the average Corporate Bond Yield for the preceding
calendar year as determined from the Moody's Bond Record published by
Moody's Investor's Service, Inc. (or any successor thereto).
3
<PAGE>
2.19 "Normal Benefit Date" means the later of (i) age 65 or such earlier
age that may qualify as an early retirement age under any tax
qualified plan of the Company or (ii) date of Termination of Service
of the Participant.
2.20 "Participant" means an executive of the Company who is designated to
be eligible pursuant to Section 3.1 and who enters into an Agreement.
2.21 "Plan" means the Mid America Federal Savings Bank Executive Deferred
Compensation Plan as amended from time to time.
2.22 "Plan Effective Date" means January 1, 1997.
2.23 "Profit Sharing Plan" means the Mid America Federal Savings Bank
Employees' Profit Sharing Plan.
2.24 "Regular Deferral Sub-Account" means that portion of the Deferred
Benefit Account to which the Participant elects to have deferrals
credited and which earns interest in accordance with the provisions of
Section 3.9.
2.25 "Retirement Interest Yield" means a rate of interest equal to 130
percent of Moody's.
2.26 "Stock Deferral Sub-Account" means that portion of the Deferred
Benefit Account to which the Participant elects to have deferrals
credited and which earns a return based on the performance of the
Holding Company Stock and in accordance with the provisions of Section
3.9.
2.27 "Termination of Service" means the Participant's cessation of his
service with the Company for any reason whatsoever, whether
voluntarily or involuntarily, including by reason of death, disability
or a change-in-control.
2.28 "Total Expected Deferral" means with respect to the 1987 Plan or the
1992 Plan: (a) a Participant's expected deferrals pursuant to either
the 1987 Plan or the 1992 Plan, as determined and elected at the
beginning of such plan, subject to reduction for any subsequent
decrease in actual deferral amounts in accordance with the original
provisions of such plans, plus (b) the expected Company allocations
pursuant to the 1987 Plan and the 1992 Plan. In calculating a
Participant's Total Expected Deferral, the Participant's Compensation
at the time of his deferral election shall be used.
III. PARTICIPATION AND COMPENSATION REDUCTION
3.1 Participation. Participation in the Plan shall be limited to
-------------
executives of the Company or Holding Company, designated to be
eligible by the Committee and
4
<PAGE>
who elect to participate in the Plan for a calendar year by filing an
Agreement with the Company prior to the beginning of the first day of
the calendar year. On a Participant's Agreement, executed no later
than one year prior to the events described in Sections 4.2, 4.5 and
4.6, an election under Sections 4.5, 4.6 and 4.8 shall be made.
3.2 Deferral Amounts.
----------------
(i) A Participant's Regular Deferral Sub-Account shall initially be
credited with the December 31, 1996 balance of his deferred benefit
account from the 1987 Plan and the 1992 Plan. Such amounts shall be
governed by the terms of this Plan, which shall supersede the 1987
Plan and the 1992 Plan and any and all agreements signed under these
plans.
(ii) In addition, Participants may elect to defer a percentage of
their Compensation for any Deferral Year. A Participant may elect to
defer 5, 10, 15, 20, or 25 percent of his Base Salary, and may make a
similar election with respect to any bonus paid to him under the
Annual Incentive Plan and any bonus paid to him under the Long-Term
Incentive Plan. The deferral percentage in these three elections is
not required to be the same.
3.3 Source of Deferrals. The applicable deferral percentage elected for
-------------------
each source of Compensation (Base Salary, Annual Incentive Plan bonus
and Long-Term Incentive Plan bonus) shall be deducted from
Compensation as earned and otherwise payable.
3.4 Timing of Deferral Credits. The amount of Compensation that a
--------------------------
Participant elects to defer in the Agreement shall cause an equivalent
reduction in his Compensation, and shall be credited to the
Participant's Deferred Benefit Account throughout each Plan year as
the Participant is paid the non-deferred portion of Compensation for
such Plan year.
3.5 New Participants. A Participant who first attains such status
----------------
subsequent to January 1, 1997, shall be entitled to participate in the
Plan after being named a Participant and after completing an
Agreement, and such Participant shall be bound by all terms and
conditions of the Plan.
3.6 Alteration of Compensation Deferral. Except as provided in Section
-----------------------------------
3.7, a Participant's election to defer Compensation shall be
irrevocable.
3.7 Emergency Benefit: Waiver of Deferral. In the event that the
--------------------------------------
Committee, upon written petition of the Participant, determines in its
sole discretion, that the Participant has suffered an unforeseeable
financial emergency, the Company shall pay to the Participant as soon
as practicable following such determination, or following a
determination by the Committee that a payout is necessary to preserve
5
<PAGE>
the intended value of the Plan to the Participant, an amount not in
excess of the Participant's Deferred Benefit Account, necessary to
satisfy the emergency or preserve the intended value of the Plan to
the Participant. For purposes of this Plan, an unforeseeable financial
emergency is an unexpected need for cash arising from an illness,
casualty loss, sudden financial reversal, or other such unforeseeable
occurrence. Cash needs arising from foreseeable events, such as the
purchase of a residence or education expenses for children shall not
be considered the result of an unforeseeable financial emergency. In
the event of certain circumstances described in this paragraph, and
upon the request of the Participant, the Committee may also grant a
waiver of the Participant's agreement to defer a stated amount of
Compensation for all or part of the remainder of the calendar year
covered by the Participant's Agreement.
3.8 Company Allocation. The Company shall allocate an amount equal to a
------------------
certain percentage of the Participant's Compensation reduction, to be
added to a Participant's Deferred Benefit Account on the same date the
Company would have made a contribution to the Company's Profit Sharing
Plan or ESOP on behalf of the Participant. The amount of this Company
allocation shall be equal to the percentage which would have been
contributed to the Profit Sharing Plan or ESOP with respect to such
Compensation reduction, rounded up to the nearest full percentage
point. The amount shall be credited to the Participant's Regular
Deferral Sub-Account.
3.9 Determination of Deferred Benefit Account.
-----------------------------------------
(a) A Participant shall annually make an election as to whether
deferrals made pursuant to Section 3.2(ii) shall be invested in
the Regular Deferral Sub-Account or the Stock Deferral Sub-
Account. A Participant may elect to have a portion of his
deferrals invested in each sub-account, in no less than 5
percentage point increments. The Deferred Benefit Account shall
be comprised of the combination of the Regular Deferral Sub-
Account and the Stock Deferral Sub-Account.
(b) The Retirement Interest Yield or Moody's, whichever is
appropriate under the terms of this Plan, shall be credited on
the average daily balance of the Regular Deferral Sub-Account.
(c) Amounts invested in the Stock Deferral Sub-Account shall be
invested in Holding Company Stock on or near the last trading day
of the month in which such deferrals are made based on the
average of the closing bid and offer prices of the Holding
Company Stock on such date if such shares are purchased from the
Company, or based on the best price available, if such shares are
purchased in the open market. Such deferral amounts shall earn a
return based solely on the performance of Holding Company Stock
after such date. Dividends paid on Holding Company Stock shall
be reinvested
6
<PAGE>
in Holding Company Stock on or near the last trading day of the
month which includes the dividend payment date. Notwithstanding
any other provision in this Plan to the contrary, in no event
shall any Participant deferrals be invested in Holding Company
Stock if immediately after such proposed investment, the total
number of shares of Holding Company Stock purchased by all
current or former Participants in this Plan and the Mid America
Federal Savings Bank Directors' Deferred Compensation Plan since
January 1, 1997, would exceed 25,000 shares (as adjusted for
stock splits or stock dividends). In such case, all deferrals,
whether previously elected by a Participant to be invested in the
Regular Deferral Sub-Account or the Stock Deferral Sub-Account,
shall be invested in the Regular Deferral Sub-Account. Each
Participant shall be entitled to direct the voting of shares
allocated to his or her Stock Deferral Sub-Account.
(d) Each Participant's respective sub-accounts as of each
Determination Date shall consist of the balance of the
Participant's sub-accounts as of the immediately preceding
Determination Date, plus the Participant's elective deferred
Compensation pursuant to Section 3.2(ii) since the immediately
preceding Determination Date. The sub-accounts of each
Participant shall be reduced by the amount of all distributions,
if any, made from such account since the preceding Determination
Date. The Retirement Interest Yield or Moody's, whichever is
appropriate, shall be credited on the average daily balance of
the Regular Deferral Sub-Account as of the Determination Date and
since the last preceding Determination Date, but after the
Deferred Benefit Account has been adjusted for any additions
(including interest earnings) or distributions to be credited or
deducted for each such day. Unrealized appreciation or
depreciation shall be credited or charged to a Participant's
Stock Deferral Sub-Account as of the Determination Date based on
the increase or decrease in the value of Holding Company Stock
since the last Determination Date.
3.10 Vesting of Deferred Benefit Account. Except as provided in Section
-----------------------------------
4.3, a Participant shall be 100 percent vested in his Deferred Benefit
Account.
IV. BENEFITS
4.1 Return of Deferrals. At the time a Participant executes an Agreement,
-------------------
he may elect to receive a return of amounts deferred during the
calendar year covered by the Agreement ("Return of Deferral"). A
Return of Deferral election does not apply to the Company's allocation
or to any interest credited on such deferrals in the Regular Deferral
Sub-Account. Each such Return of Deferral shall be made in a lump sum
from a Participant's Regular Deferral Sub-Account and Stock Deferral
Sub-Account, five (5) years after the end of the year in which the
deferrals are made. Payment shall be made on July 1 of the year in
which the deferral is
7
<PAGE>
returned. A Return of Deferral shall only be paid prior to a
Participant's Termination of Service. Prior to the calendar year
during which a Return of Deferral is to be made, the Participant may
elect to defer payment of the Return of Deferral until his Normal
Benefit Date with the consent of the Committee. Any Return of Deferral
paid shall be deemed a distribution, and shall be deducted from the
Participant's Regular Deferral Sub-Account and Stock Deferral Sub-
Account.
4.2 Retirement Benefit. Subject to Section 4.8 below, upon a
------------------
Participant's Normal Benefit Date, he shall be entitled to receive (i)
the number of shares of Holding Company Stock accumulated in his Stock
Deferral Sub-Account; and (ii) the amount of his Regular Deferral Sub-
Account determined under Section 3.9 using the Retirement Interest
Yield as of the Determination Date coincident with or immediately
following such date. The form of benefit payment shall be as provided
in Section 4.8 and his Agreement. In such event, the Participant
shall immediately cease to be eligible for any other benefit provided
under this Plan except benefits described in Section 4.6.
4.3 Termination Benefit. Upon Termination of Service of the Participant
-------------------
before his Normal Benefit Date for reasons other than his death,
Disability or a Change in Control, the Company shall pay to the
Participant in a lump sum within sixty (60) days following his
Termination of Service, a benefit equal to (i) the number of shares of
Holding Company Stock accumulated in his Stock Deferral Sub-Account;
and (ii) the balance of his Regular Deferral Sub-Account other than
accumulated interest. The Participant's remaining Regular Deferral
Sub-Account shall continue, consisting of pre-Termination interest
earnings on deferrals and Company allocations. The Company shall
retain this remaining Regular Deferral Sub-Account as two (2)
accounts, determined under Section 3.9 using two (2) different yields:
(a) Retirement Interest Yield; and
---
(b) Moody's.
While retained by the Company, these two accounts shall each continue
to accrue interest, determined under Section 3.9 using Moody's. The
Company shall commence payment of the remaining Regular Deferral Sub-
Account no later than one year after the Participant's Termination of
Service. Valuation (a) plus interest accrued post-Termination shall be
paid to the Participant or Beneficiary unless the Participant acts in
competition with the Company, either individually, or as an employee
of a competitor, on which event valuation (b) plus interest accrued
post-Termination shall be paid to the Participant. Payments of this
remaining Regular Deferral Sub-Account shall be made in lump sum. Upon
such Termination of Service, the Participant shall immediately cease
to be eligible for any other benefit provided for in Sections 4.1,
4.2, 4.4, 4.5 or 4.7 of this Plan.
8
<PAGE>
4.4 Change in Control Benefit. Upon Termination of Service of the
-------------------------
Participant within one year of a Change in Control of the Company, the
Company shall pay in a lump sum to the Participant within 60 days of
such termination, (i) the number of shares of Holding Company Stock
accumulated in his Stock Deferral Sub-Account; and (ii) the balance of
his the Regular Deferral Sub-Account as of the date of termination,
determined under Section 3.9 using the Retirement Interest Yield.
4.5 Death Prior to Termination of Service. Upon the death of a
-------------------------------------
Participant prior to his termination of employment, the Beneficiary of
the deceased Participant shall be entitled to receive a death benefit
as provided in the 1987 Plan and the 1992 Plan. Unless otherwise
determined by the original provisions of the 1987 Plan and the 1992
Plan, such death benefits shall be equal to:
the greater of:
(a) the initial contribution to the Regular Deferral Sub-Account made
under section 3.2(i) which is attributable to the 1987 Plan, as
increased in accordance with Section 3.9 for interest earned
based on the Retirement Interest Yield for the period up through
the date of death; or
(b) the Participant's Total Expected Deferrals under the 1987 Plan
multiplied by a factor of five;
plus the greater of:
(c) the initial contribution to the Regular Deferral Sub-Account made
under section 3.2(i) which is attributable to the 1992 Plan, as
increased in accordance with Section 3.9 for interest earned
based on the Retirement Interest Yield for the period up through
the date of death; or
(d) the Participant's Total Expected Deferrals under the 1992 Plan
multiplied by a factor of five, but not to exceed $500,000;
In addition to the death benefit described above, upon the death of a
Participant prior to his termination of employment, the Beneficiary of
the deceased Participant shall be entitled to receive the balance of
the Participant's Stock Deferral Sub-Account plus the balance of the
Participant's Regular Deferral Sub-Account as reduced by the sum of
the amounts amount determined under (a) and (c) above.
Payment of a Participant's Deferred Benefit Account shall be in
accordance with the form of benefit payment elected by the Participant
in his Agreement. If a Participant elected to have his Deferred
Benefit Account paid out in installment
9
<PAGE>
payments, his Regular Deferral Sub-Account will be credited, during
the period in which installment payments are being made, with an
interest rate fixed at the Retirement Interest Yield in effect at the
date of the Participant's death.
4.6 Death Subsequent to Termination of Service. Upon the death of a
------------------------------------------
Participant subsequent to his Termination of Service, the Beneficiary
of the deceased Participant shall receive the Participant's remaining
Deferred Benefit Account. Payment of a Participant's remaining
Deferred Benefit Account shall be in accordance with the form of
benefit payment elected by the Participant in his Agreement. If a
Participant elected to have his remaining Deferred Benefit Account
paid out in installment payments, his Regular Deferral Sub-Account
will be credited, during the period in which installment payments are
being made, with an interest rate fixed at the Retirement Interest
Yield in effect at the date of the Participant's death.
4.7 Disability. In the event of Disability prior to Termination of
----------
Service, which first manifests itself after the Effective Date of his
Agreement and prior to his Normal Benefit Date, a disabled Participant
shall receive a benefit equal to the remaining balance, if any, of the
Participant's Stock Deferral Sub-Account and Regular Deferral Sub-
Account determined under Section 3.9 using the Retirement Interest
Yield. Such benefit shall be paid until the earliest of the following
events: (i) there is no longer any balance in his Deferred Benefit
Account; (ii) the Participant ceases to be disabled and resumes
employment with the Company; (iii) the Participant dies. A disability
benefit shall be paid in monthly installments and shall be equal to
the amount a Participant would have received had he retired on the
date of Disability and elected a 15-year payout. The Committee, in
its sole discretion, may accelerate the payment of any disability
benefit payable under this Section. Disability benefits shall be
treated as distributions from a Participant's Deferred Benefit
Account.
4.8 Form of Retirement Benefit Payment.
----------------------------------
(a) Upon the happening of an event described in Section 4.2, the
Company shall pay to the Participant the amount specified therein
in one of the following forms as elected by Participant in his
Agreement:
(i) Monthly installments payable in equal amounts over a period
not to exceed fifteen (15) years and payable out of both the
Stock Deferral Sub-Account and Regular Deferral Sub-Account
in proportion to the respective balances of such accounts.
Interest on the unpaid principal balance equal to the
applicable Retirement Interest Yield will be added to the
Regular Deferral Sub-Account on each Determination Date; or
10
<PAGE>
(ii) A lump sum payment within sixty (60) days of the
Participant's Normal Benefit Date.
(b) Upon a written request to change the form of payment, filed by
the Participant with the Committee at least one year prior to the
commencement of benefits under the Plan, the Committee may, in
its sole discretion, pay out a benefit in one of the forms set
forth above.
4.9 Withholding; Employment Taxes. To the extent required by the law in
-----------------------------
effect at the time payments are made, the Company shall withhold any
taxes required to be withheld by any Federal, state or local
government. Subject to any limitation which the Committee may in its
discretion impose, the Participant shall be entitled to elect to have
withheld, shares having a fair market value equal to the taxes
required to be withheld from amounts otherwise distributable from his
Stock Deferral Sub-Account in satisfaction of any such withholding.
4.10 Commencement of Payments. Unless otherwise provided, commencement of
------------------------
payments under this Plan shall be within sixty (60) days following
receipt of notice by the Committee of an event which entitles a
Participant or a Beneficiary to payments under this Plan, or at such
earlier date as may be determined by the Committee. All payments
shall be made as of the first day of the month.
4.11 Recipients of Payments; Designation of Beneficiary. All payments to
--------------------------------------------------
be made by the Company under the Plan shall be made to the Participant
during his lifetime, provided that if the Participant dies prior to
the completion of such payments, then all subsequent payments under
the Plan shall be made by the Company to the Beneficiary or
Beneficiaries determined in accordance with this Section 4.11. Unless
the Participant files a written notice of a different Beneficiary
designation with the Committee, the Participant's Beneficiary shall be
the Beneficiary designated in the Company's Profit Sharing Trust. The
Participant may designate a Beneficiary by filing a written notice of
such designation with the Committee in such form as the Company
requires and may include contingent beneficiaries. The Participant
may from time to time change the designated Beneficiary or
Beneficiaries by filing a new designation in writing with the
Committee. If no designation shall be in effect at the time when any
benefits payable under this Plan shall become due, the Beneficiary
shall be the spouse of the Participant, or if no spouse is then
living, the representatives of the Participant's estate.
V. CLAIMS FOR BENEFITS PROCEDURE
5.1 Claim for Benefits. Any claim for benefits under the Plan shall be
------------------
made in writing to any member of the Committee. If such claim for
benefits is wholly or partially denied by the Committee, the Committee
shall, within a reasonable period of time, but not later than 60 days
after receipt of the claim, notify the
11
<PAGE>
claimant of the denial of the claim. Such notice of denial shall be in
writing and shall contain:
(a) The specific reason or reasons for denial of the claim;
(b) A reference to the relevant Plan provisions upon which the denial
is based;
(c) A description of any additional material or information necessary
for the claimant to perfect the claim, together with an
explanation of why such material or information is necessary; and
(d) An explanation of the Plan's claim review procedure.
If no such notice is provided, the claim shall be deemed granted.
5.2 Request for Review of a Denial of a Claim for Benefits. Upon the
------------------------------------------------------
receipt by the claimant of written notice of denial of the claim, the
claimant may within 90 days file a written request to the Committee,
requesting a review of the denial of the claim, which review shall
include a hearing if deemed necessary by the Committee. In connection
with the claimant's appeal of the denial of his claim, he may review
relevant documents and may submit issues and comments in writing.
5.3 Decision Upon Review of Denial of Claim for Benefits. The Committee
----------------------------------------------------
shall render a decision on the claim review promptly, but no more than
sixty (60) days after the receipt of the claimant's request for
review, unless special circumstances (such as the need to hold a
hearing) require an extension of time, in which case the sixty (60)
day period shall be extended to 120 days. Such decision shall:
(a) Include specific reasons for the decision;
(b) Be written in a manner calculated to be understood by the
claimant; and
(c) Contain specific references to the relevant Plan provisions upon
which the decision is based.
The decision of the Committee shall be final and binding in all
respects on both the Company and the claimant.
VI. ADMINISTRATION
6.1 Plan Committee. The Plan shall be administered by the Administrative/
--------------
Compensation Committee (the "Plan Committee") of the Board of
Directors; provided, however that the Board of Directors shall be
entitled to take any action
<PAGE>
for or on behalf of the Plan Committee. Members of the Plan Committee
or agents of the Plan Committee may be Participants under the Plan.
6.2 General Rights, Powers, and Duties of Plan Committee. The Plan
----------------------------------------------------
Committee shall be the Plan Administrator and it shall be responsible
for the management, operation, and administration of the Plan. In
addition to any powers, rights and duties set forth elsewhere in the
Plan, it shall have the following powers and duties:
(a) To adopt such rules and regulations consistent with the
provisions of the Plan as it deems necessary for the proper and
efficient administration of the Plan;
(b) To administer the Plan in accordance with its terms and any rules
and regulations it establishes;
(c) To maintain records concerning the Plan sufficient to prepare
reports, returns and other information required by the Plan or by
law;
(d) To construe and interpret the Plan and to resolve all questions
arising under the Plan;
(e) To direct the Company to pay benefits under the Plan, and to give
such other directions and instructions as may be necessary for
the proper administration of the Plan;
(f) To employ or retain agents, attorneys, actuaries, accountants or
other persons, who may also be Participants in the Plan or be
employed by or represent the Company; and
(g) To be responsible for the preparation, filing and disclosure on
behalf of the Plan of such documents and reports as are required
by any applicable Federal or State law.
6.3 Information to be Furnished to Committee. The Company shall furnish
----------------------------------------
the Plan Committee such data and information as it may require. The
records of the Company shall be determinative of each Participant's
period of employment, termination of employment and the reason
therefor, leave of absence, reemployment, years of service, personal
data, and compensation reductions. Participants and their
Beneficiaries shall furnish to the Committee such evidence, data, or
information, and execute such documents as the Committee requests.
6.4 Responsibility. No member of the Committee or of the Board of
--------------
Directors of the Company shall be liable to any person for any action
taken or omitted in connection with the administration of this Plan
unless attributable to his own
13
<PAGE>
fraud or willful misconduct; nor shall the Company be liable to any
person for any such action unless attributable to fraud or willful
misconduct on the part of a director, officer or employee of the
Company.
VII. AMENDMENT AND TERMINATION
7.1 Amendment. The Plan may be amended in whole or in part by the Holding
---------
Company at any time. Notice of any such amendment shall be given in
writing to the Plan Committee and to each Participant and each
beneficiary of a deceased Participant. No amendment shall decrease
the value of a Participant's Deferred Benefit Account.
7.2 Company's Right to Terminate. The Holding Company reserves the sole
----------------------------
right to terminate the Plan and/or any Agreements pertaining to the
Participant at any time after the Plan Effective Date and prior to
the commencement of payment of his benefits. In the event of any such
termination, the Participant shall be entitled to the amount of his
Stock Deferral Sub-Account determined under Section 3.9, and his
Regular Deferral Sub-Account, determined under Section 3.9 using the
Retirement Interest Yield as of the date of termination of the Plan
and/or his Agreement.
7.3 Action by Company. Any amendment or other action of the Holding
-----------------
Company pursuant to this Article VII shall be taken by the Board of
Directors or the Plan Committee, or by any person authorized by the
Board of Directors or the Committee to take such action on behalf of
the Holding Company.
VIII. MISCELLANEOUS
8.1 No Implied Rights; Rights on Termination of Service. Neither the
---------------------------------------------------
establishment of the Plan nor any amendment thereof shall be
construed as giving any Participant, Beneficiary, or any other person
any legal or equitable right unless such right shall be specifically
provided for in the Plan or conferred by specific action of the
Company in accordance with the terms and provisions of the Plan.
Except as expressly provided in this Plan, the Company shall not be
required or be liable to make any payment under this Plan.
8.2 No Right to Company Assets. Neither the Participant nor any other
--------------------------
person shall acquire by reason of the Plan any right in or title to
any assets, funds or property of the Company whatsoever including,
without limiting the generality of the foregoing, any specific funds,
assets, or other property which the Company, in its sole discretion,
may set aside in anticipation of a liability hereunder. The Company
may, in its discretion, establish or maintain a grantor trust for the
purpose of holding assets to assist the Company in discharging its
obligations
14
<PAGE>
hereunder. Any benefits which become payable hereunder shall be paid
from such trust or the general assets of the Company. The Participant
shall have only a contractual right to the amounts, if any, payable
hereunder unsecured by any asset of the Company, including amounts
held in any grantor trust. Nothing contained in the Plan constitutes a
guarantee by the Company that the assets of the Company, or any such
trust, shall be sufficient to pay any benefit to any person.
8.3 No Employment Rights. Nothing herein shall constitute a contract of
--------------------
employment or of continuing service or in any manner obligate the
Company to continue the services of the Participant, or obligate the
Participant to continue in the service of the Company, or as a
limitation of the right of the Company to discharge any of its
employees, with or without cause. Nothing herein shall be construed
as fixing or regulating the Compensation payable to the Participant.
8.4 Protective Provisions. In the event of the Participant's suicide
---------------------
during the first two (2) years of his participation, then no death
benefits will be payable to the Participant under the Plan in excess
of the balance of the Participant's Stock Deferral Sub-Account plus
the balance of the Participant's Regular Deferral Sub-Account, or in
the Committee's sole discretion, such death benefits may be payable in
a reduced amount.
8.5 Non-assignability. Neither the Participant nor any other person shall
-----------------
have any voluntary or involuntary right to commute, sell, assign,
pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate or convey in advance of actual receipt the amounts, if
any, payable hereunder, or any part thereof, which are expressly
declared to be unassignable and non-transferable. No part of the
amounts payable shall be, prior to actual payment, subject to seizure
or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by the Participant or any other person, or
be transferable by operation of law in the event of the Participant's
or any other person's bankruptcy or insolvency.
8.6 Gender and Number. Wherever appropriate herein, the masculine may
-----------------
mean the feminine and the singular may mean the plural or vice versa.
8.7 Notice. Any notice required or permitted to be given under the Plan
------
shall be sufficient if in writing and hand delivered, or sent by
registered or certified mail, and if given to the Company, delivered
to the principal office of the Company, directed to the attention of
the Plan Administrator. 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 or the receipt for registration or certification.
8.8 Governing Laws. To the extent not preempted by Federal law, the Plan
--------------
shall be construed and administered according to the laws of the State
of Illinois.
15
<PAGE>
8.9 Holding Company Payments. In the event that the benefits due under
------------------------
this Plan to any Participant or Beneficiary from the Company are not
timely paid by the Company, such benefits shall be promptly paid by
the Holding Company.
WITNESS WHEREOF, the Holding Company and the Company have adopted this Mid
America Federal Savings Bank EXECUTIVE DEFERRED COMPENSATION PLAN as of January
1, 1997.
MID AMERICA FEDERAL SAVINGS BANK
By: /s/ Allen H. Koranda
-----------------------------------------------
Its: Chief Executive Officer
---------------------------------------------
MAF BANCORP, INC.
By: /s/ Jerry A. Weberling
-----------------------------------------------
Its: Executive Vice President and Chief Financial
--------------------------------------------
Officer
-------
16
<PAGE>
Exhibit 10(xiii) MAF Bancorp, Inc. Shareholder Value Long-Term Incentive Plan
<PAGE>
MAF Bancorp
SHAREHOLDER VALUE LONG-
TERM INCENTIVE PLAN
Effective July, 1993
1
<PAGE>
I. PURPOSE OF THE PROGRAM
The purpose of the MAF Bancorp (the Company) Shareholder Value Incentive Plan
(the Plan) is to provide executives with financial motivation to act in the
long-term interests of the Company and its shareholders. By providing financial
rewards to executives linked to the achievement of long-term goals, the Company
believes the Plan will promote an increased focus by those people primarily
responsible for its long-term success on the longer-term impact of their
decisions.
II. EFFECTIVE DATE
The Plan will become effective on the first day of the 1994 fiscal year. The
Plan will continue in effect until and unless terminated by the Board of
Directors (the Board).
III. DEFINITIONS
1. "Base Salary", for purposes of this Plan only, is the fixed portion of
executives' compensation. It specifically excludes any amounts paid
pursuant to the Annual Incentive Plan and the Shareholder Value
Incentive Plan.
2. "Performance Period" means a period of three consecutive fiscal years
of the Company.
3. "Participant" means any employee designated by the Chairman/CEO to
participate in the Plan.
4. "Retirement", for purposes of this Plan only, shall be defined as the
first day of the month following the month in which the Participant
attains his or her 65th birthday.
5. "Disability" shall be defined by reference to its definition under
Section 8.02 of the Mid America Federal Savings Bank Profit Sharing
Plan.
6. "Total Shareholder Return" refers to stock price appreciation plus
reinvested dividends.
IV. ELIGIBILITY AND PARTICIPATION
In general, all executives who have the potential to significantly impact
strategic results will participate in the Plan. Other employees may be appointed
to participate in the Plan at the discretion of the Chairman or President, if
determined necessary or desirable to carry out the purpose of the Plan.
Initially there will be three levels (i.e. groups) of participation under the
Plan. These include:
2
<PAGE>
IV. ELIGIBILITY AND PARTICIPATION (continued)
. Group I: The Chairman/CEO and the President
. Group II: Selected executives with company-wide responsibilities.
Initially this includes:
- Chief Financial Officer
- SVP Loan Operations
. Group III: Selected executives with primary accountability for one or
more key functional areas. Initially this includes:
- 1st VP and Controller
- 1st VP Administration/Savings
- 1st VP Investor Relations/Taxation
- VP Secondary Mortgage Marketing
- SVP Loan Administration/Compliance
- President Mid America Development
- SVP Operations/Information Systems
- SVP Retail Banking
The addition of Participants and/or changes in group assignment after July 1,
1993 will be effective upon notification of selection. If notification is given
in the midst of a Performance Period, Participants will receive a pro rata share
of any awards distributed at the end of the Performance Period.
V. OVERALL PLAN ADMINISTRATION
Compensation Committee: The Compensation Committee (the Committee) shall be
responsible for overall Plan administration. The Committee, by majority action,
is authorized to interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to the Plan, to provide 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. The Committee may request the assistance of the Board in making any
determination under the Plan or in carrying out its duties hereunder.
Determinations, interpretations, or other actions made or taken by the Committee
pursuant to the provisions of the Plan shall be final, binding and conclusive
for all purposes and upon all persons whomsoever.
Amendment, Modification, and Termination of the Plan: The Board or its
designated committee may at any time terminate, and from time to time may amend
or modify the Plan, except that no amendment shall increase the amount of an
award payable to a Participant or group of Participants and except that no such
termination shall be effective with respect to the Performance Period(s) then in
effect.
3
<PAGE>
V. OVERALL PLAN ADMINISTRATION (continued)
Expenses of the Plan: The expenses of the Plan shall be allocated
proportionately among the Company and the Bank based on the relative
compensation expense, other than the expense of this Plan, incurred by the
Company and the Bank for each Participant in the Plan.
VI. SHAREHOLDER VALUE PLAN
1. Plan Overview: The shareholder value plan is predicated on the belief that
executives should receive long-term incentive awards commensurate to the
return shareholders receive in stock price appreciation and dividends. If
relative to other companies the Company performs well, this plan will
provide substantial awards to executives. Conversely, if the Company
performs poorly in terms of stock price appreciation and dividends, this
plan will provide no awards.
2. Performance Period: Performance will be measured over a three year period.
A new three-year Performance Period will begin each year. As a result, at
any given time three overlapping shareholder value plans will be in effect.
3. Performance Measure: Before the beginning of each Performance Period, the
Chairman/CEO shall propose the criteria and performance goals upon which
Company performance will be based. These must be approved by the Board. For
the initial Performance Period, the criterion is the Company's Total
Shareholder Return relative to: (1) comparable thrift industry companies,
and (2) the S&P 500 stock index. Specifically, the plan will be activated
if the Company's Total Shareholder Return for the Performance Period is in
the 51st percentile or better when compared to thrift industry companies.
Once activated, the final award size will depend on the Company's
percentile rank in Total Shareholder Return relative to the return of S&P
500 companies over the Performance Period.
4. Award Opportunities: Before the beginning of each Performance Period, the
Chairman/CEO shall propose award opportunities for each Participant group.
As a general guideline, award opportunities will correspond to the
competitive market practices and the relative priority placed by the
Company on achieving annual versus long-term performance goals. These must
be approved by the Board.
Participants will be assigned a "Target" award opportunity stated as a
percent of base salary. The Target level is the amount that will be paid
for exactly achieving Target performance goals.
Initial Target award levels are stated as follows:
. 25 percent of base salaries for Group I positions
. 20 percent of base salaries for Group II positions
. 11 percent of base salaries for Group III positions
4
<PAGE>
VI. SHAREHOLDER VALUE PLAN (continued)
5. Award Distribution: Each Participant will be awarded a number of
Performance Units based on the Participant's base salary and his/her
assigned Target award opportunity. Performance Units will have a Target
value of $100. The number of units awarded will be determined by
multiplying each Participant's base salary by the Target award opportunity,
and the result divided by $100.
At the end of each Performance Period, the value of each Performance Unit
will be determined based on the following schedule:
<TABLE>
<CAPTION>
Performance Performance Company TSR Percentile
Level Unit Value Rank Among S&P 500
----- ---------- ------------------
<S> <C> <C>
Threshold $ 50 50th
$ 75 55th
Target $100 60th
$125 65th
$150 70th
$175 75th
$200 80th
$225 85th
Superior $250 90th
</TABLE>
The calculation of a Participant's award for a Performance Period shall be
made by multiplying the number of Performance Units granted by the
Performance Unit value. The award will be distributed in cash.
6. Timing of Award Payments: Except as outlined in Section VII, all awards
made under the Plan (i.e., cash) shall be paid to Participants within 30
days after the date on which the independent certified public accountants
have determined the Company's percentile rank on a Total Shareholder Return
basis among the S&P 500.
7. Change in Control: Upon the occurrence of a Change in Control of the
company (as such term is defined in the MAF Bancorp 1990 Incentive Stock
Option Plan), Participants' awards for each of the three shareholder value
plans then in effect shall be calculated based on the applicable
performance criteria without regard to whether the full three year
performance period has been completed for each of the overlapping plans. In
such case, the performance period shall be deemed to have ended as of the
end of the latest calendar quarter preceding the closing of any Change in
Control transaction. The award calculated for each of the three overlapping
plans shall then be reduced on a pro rata basis based on the ratio of the
number of months actually completed in the performance period to thirty-six
months.
5
<PAGE>
VII. CHANGES IN EMPLOYEE STATUS
When a Participant's employment is terminated, voluntarily or involuntarily,
prior to vesting of Performance Units for reasons other than death, retirement
or disability, the Participant will forfeit all rights to unvested awards.
Terminating participants are entitled to receive vested Performance Units at the
same time that active Participants receive their awards.
Termination during a Performance Period for reasons of death, retirement or
disability will result in a pro rata payment based on the number of full months
of employment during the Performance Period(s) as a percent of the total months
of the Performance Period(s). Payment of awards, if earned, shall be made at the
same time that active Participants receive their awards.
VIII. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any beneficiary or
beneficiaries (who may be named contingentally or successively) to whom any
benefit under the Plan is to be paid in case of the Participant's death before
he or she 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/her lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the estate of the Participant.
IX. TAX WITHHOLDING
Upon payment of awards under the Plan, the amount of tax required by any
governmental authority to be withheld shall be deducted from each distribution
of cash.
X. RIGHTS OF EMPLOYERS
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.
6
<PAGE>
CERTIFICATE OF RESOLUTION
I, Carolyn Pihera, do hereby certify that I am the duly elected and acting
Secretary of Mid America Federal Savings Bank, and that the following is a true
and correct copy of a certain resolution adopted by the Board of Directors of
said Bank at their regular meeting held June 27, 1995, at which meeting a quorum
of the members of said Bank were present and acting throughout:
NOW THEREFORE BE IT RESOLVED, that the Board amends Section IV, Eligibility
and Participation, and Section VI (4), Award Opportunities, by adding Gail
Brzostek, Vice President - Check Operations and Diane Stutte, Vice
President - Teller Operations as new Group IV participants whose target
award levels will be equal to 6% of base salaries.
I do further certify that the foregoing resolution has not been altered or
amended, but remains in force and effect.
IN WITNESS WHEREOF, I have executed this Certificate and affixed the Bank's seal
this 31st day of August, 1995.
/s/ Carolyn Pihera
- ---------------------
Corporate Secretary
7
<PAGE>
EXTRACT FROM THE RECORDS OF
MID AMERICA FEDERAL SAVINGS BANK
REGULAR MEETING OF THE BOARD OF DIRECTORS
HELD DECEMBER 16, 1997
At the meeting of the Board of Directors of Mid America Federal Savings Bank
duly called and held on the 16th day of December, 1997, a quorum being present,
it was on motion:
Long-Term Incentive Plan
WHEREAS, the Committee and the Board wish to amend Section VI(5) of the Plan to
provide for a revised valuation of performance units granted after June 30,
1998; and
WHEREAS, the Committee and the Board wish to amend Section VI(3) of the Plan to
eliminate the requirement that the Company's Total Shareholder Return be at
least in the 51st percentile of comparable thrift industry companies in order to
activate the plan, with such amendment to be effective for performance units
granted after June 30, 1997; and
WHEREAS, the Committee and the Board wish to amend Section VI(3) of the Plan to
provide for a Total Shareholder Return of an least 15% during a performance
period in order to activate the Plan, with such amendment to be effective for
performance units granted after June 30, 1996;
NOW THEREFORE BE IT RESOLVED, that the above resolutions are approved and
adopted with the following revised performance unit valuation table to be
effective for awards granted after June 30, 1996:
<TABLE>
<CAPTION>
Performance Rank v. New Performance
Level S&P 500 Unit Value
----- ------- ----------
<S> <C> <C>
Threshold 50th $ 50
55th $ 75
Target 60th $100
65th $117
70th $133
75th $150
80th $167
85th $183
Superior 90th $200
</TABLE>
I do further certify that the foregoing resolution has not been altered or
amended, but remains in force and effect.
IN WITNESS WHEREOF, I have executed this Certificate and affixed the Bank's seal
this 14th day of March, 1998.
/s/ Carolyn Pihera
- ---------------------
Corporate Secretary
8
<PAGE>
EXHIBIT 10(XIV)
Exhibit 10(xiv) Mid America Bank, fsb Supplemental Executive Retirement Plan
<PAGE>
MIDAMERICA FEDERAL SAVINGS BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
MIDAMERICA FEDERAL SAVINGS BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
I. PURPOSE
The principal objective of this MidAmerica Federal Savings Bank Supplemental
Executive Retirement Plan (the "Plan") is to ensure the payment of a competitive
level of retirement income in order to attract, retain and motivate selected
executives. The Plan is designed to provide a benefit which, when added to other
retirement income of the executive, will meet the objective described above.
Eligibility for participation in the Plan shall be limited to executives of
MidAmerica Federal Savings Bank (the "Company") who are designated to be
eligible by the Board of Directors.
The Company hereby declares that its intention is to create an unfunded plan
primarily for the purpose of providing a select group of management or highly
compensated employees of the Company with supplemental income. It is also the
intention of the Company that the Plan be an "employee pension benefit plan" as
defined in Section 3(2) of Title I of the Employee Retirement Income Security
Act of 1974 ("ERISA") and that the Plan be the type of plan described in
Sections 201(2), 301(3) and 401(a)(1) of Title I of ERISA. The Committee is the
"named fiduciary" of the Plan for purposes of Section 402(a)(2) of ERISA.
II. DEFINITIONS
2.1 "Actuarial Equivalent" means the equivalence in value of the single-
life annuity based on the UP-84 mortality table and an interest rate
equal to 120% of the Long-Term Applicable Federal Rate in effect at
the end of the month preceding the calculation date.
2.2 "Beneficiary" means the person, persons, or entity who under this Plan
becomes entitled to receive a benefit payable under the Plan as a
result of the death of a Participant.
2.3 "Board of Directors" means the Board of Directors of MidAmerica
Federal Savings Bank or any committee acting within the scope of its
authority.
2.4 "Change in Control" means an event of a nature that:
i) would be required to be reported in response to Item 1 of the
current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"); or
ii) results in a Change in Control of the Bank or the Holding Company
within the meaning of the Home Owners Loan Act of 1933 and the
Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date
hereof, including Section 574 of such regulations; or
1
<PAGE>
iii) without limitation such a Change in Control shall be deemed
to have occurred at such time as:
a) any "person" (as the term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities or makes an offer to
purchase, and completes the purchase, of securities of the
Bank or the Holding Company representing 20% or more of the
Bank's or Holding Company's outstanding securities
ordinarily having the right to vote at the election of
directors except for any securities of the Bank purchased by
the Holding Company in connection with the conversion of the
Bank to the stock form and any securities purchased by the
Bank's employee stock ownership plan and trust; or
b) individuals who constitute the Board of Directors of the
Bank or Holding Company on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose
nomination for election by the stockholders was approved by
the same Nominating Committee serving under an Incumbent
Board, shall be, for purposes of this clause (b), considered
as though he were a member of the Incumbent Board; or
c) a merger, consolidation or sale of all or substantially all
the assets of the Bank or the Holding Company occurs; or
d) a proxy statement shall be distributed soliciting proxies
from stockholders of the Holding Company by someone other
than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Bank with one or
more corporations as a result of which the outstanding
shares of the class of securities then subject to the Plan
are exchanged for or converted into cash or property or
securities not issued by the Bank or the Holding Company,
and such proxy statement proposal is approved by the
shareholders of the Holding Company; or
e) a tender offer is made and completed for 20% or more of the
outstanding securities of the Bank or Holding Company.
2
<PAGE>
However, notwithstanding anything contained in this section to the
contrary, a Change in Control shall not be deemed to have occurred as
a result of an event described in (i), (ii) or (iii) (a), (c) or (e)
above which resulted from an acquisition or proposed acquisition of
stock of the Holding Company by a person, as defined in the OTS'
Acquisition of Control Regulations (12 C.F.R. (S) 574) (the "Control
Regulations"), who was an executive officer of the Holding Company on
January 19, 1990 and who has continued to serve as an executive
officer of the Holding Company as of the date of the event described
in (i), (ii) or (iii) (a), (c) or (e) above (an "incumbent officer").
In the event a group of individuals acting in concert satisfies the
definition of "person" under the Control Regulations, the requirements
of the preceding sentence shall be satisfied, and thus a Change in
Control shall not be deemed to have occurred, if at least one
individual in the group is an incumbent officer.
2.5 "Change in Control Date" means the date a Change in Control occurs.
2.6 "Committee" means the Plan Committee appointed to administer the Plan
pursuant to Article VI.
2.7 "Company" means MidAmerica Federal Savings Bank and its successors or
assigns.
2.8 "Disability" means a condition, as determined by the Company, that
totally and continuously prevents the Participant, for at least six
consecutive months, from engaging in an "occupation" for compensation
or profit. During the first twenty-four (24) months of total
Disability, "occupation" means the Participant's occupation at the
time the Disability began. After that period, "occupation" means any
occupation for which the Participant is or becomes reasonably fitted
by education, training or experience. Notwithstanding the foregoing, a
Disability shall not exist for purposes of this Plan if the
Participant fails to qualify for disability benefits under the Social
Security Act, unless the Company determines, in its sole discretion,
that a Disability exists.
2.9 "Final Average Earnings" means a Participant's monthly average salary
earned during the 60-month period (or shorter period if a Participant
has been employed by the Company for less than 60 months) ending with
the end of the preceding calendar year, multiplied by 12.
2.10 "Long Term Disability Plan" means the MidAmerica Federal Savings Bank
Long-Term Disability Plan.
2.11 "Participant" means an executive of the Company who is designated to
be eligible pursuant to Section 3.1 and Section 3.2.
2.12 "Plan" means this MidAmerica Federal Savings Bank Supplemental
Executive Retirement Plan as amended from time to time.
3
<PAGE>
2.13 "Plan Effective Date" means January 1, 1995.
2.14 "Plan Service" means the number of full calendar years of service with
the Company after December 31, 1994. A year of Plan Service shall be
credited as of each December 31. The maximum number of years of Plan
Service shall not exceed 20 and a year of Plan Service shall not be
credited to a Participant for any calendar year following the year in
which the Participant attains the age of 65.
2.15 "Retirement Date" means the date a Participant terminates service with
the Company on or after the earlier of (i) age 65 or (ii) when the
Participant's age plus total years of service with the Company is
equal to or greater than 70, but not before age 55.
2.16 "Salary" means the Participant's base salary before reductions
pursuant to any salary reduction, deferred compensation or similar
plan or arrangement maintained by the Company.
2.17 "Termination of Service" means the Participant's cessation of service
with the Company for any reason, except death or Disability, prior to
his/her Retirement Date.
III. ELIGIBILITY FOR PARTICIPATION AND BENEFITS
3.1 Participation. Participation in the Plan shall be limited to
-------------
executives of the Company designated to be eligible by the Board of
Directors.
3.2 New Participants. A Participant who first attains such status
----------------
subsequent to January 1, 1995, shall be entitled to participate in the
Plan after being named a Participant and shall be bound by all the
terms and conditions of the Plan.
3.3 Vesting of Plan Benefit. A Participant shall be 100 percent vested in
-----------------------
his or her formula benefit.
IV. PLAN BENEFITS
4.1 Benefit Formula. A Participant's annual benefit under the Plan shall
---------------
equal two percent (2%) of his or her Final Average Earnings multiplied
by his or her years of Plan Service, not to exceed twenty (20) years.
4.2 Retirement Benefit. A Participant who has attained his or her
------------------
Retirement Date shall be entitled to his or her annual benefit payment
beginning at the later of age 60 or actual retirement, without
actuarial adjustment. A Participant who attains his or her Retirement
Date prior to age 60, may elect to receive his or her annual benefit
prior to age 60, however the Participant's accrued annual benefit
shall be reduced by 3% for each year of acceleration. The form of
benefit payment shall be as provided in Section 4.6.
4
<PAGE>
4.3 Termination Benefit. Upon the Termination of Service of a Participant
-------------------
before his or her Retirement Date, a Participant shall be entitled to
his or her annual benefit beginning at age 65. A Participant entitled
to an annual benefit under this Section 4.3 may elect to receive his
or her annual benefit prior to age 65, however the former
Participant's accrued annual benefit shall be reduced by 3% for each
year of acceleration.
4.4 Death Prior to Attainment of Retirement Date. Upon the death of a
--------------------------------------------
Participant prior to his or her Retirement Date, or following his or
her Retirement Date but prior to the commencement of annual benefit
payments, an annual benefit shall immediately be payable to the
Participant's Beneficiary. The annual benefit shall be the greater of
(i) the Participant's annual accrued benefit, assuming a Joint and 50%
Survivor election or (ii) 25% of the Participant's Final Average
Earnings. This benefit shall be payable until the earlier of the
death of the Beneficiary or 15 years. In no event, however, shall the
Actuarial Equivalent (as modified to reflect a Joint and 50% Survivor
Annuity and using the mortality and interest assumptions in accordance
with Section 2.1, provided however, that in no event shall the
mortality period extend beyond a 15-year period) of such annual
benefit be less than the Actuarial Equivalent amount of the annual
benefit the Participant would have been entitled to under Sections 4.2
or 4.3 if he had terminated employment immediately prior to his death.
4.5 Disability Benefit. In the event of Disability prior to his or her
------------------
Retirement Date, a Participant shall remain a Participant in the Plan
until he or she is deemed retired under the Long Term Disability Plan.
Once a Participant is deemed retired under the Long Term Disability
Plan, the benefit available under Section 4.2 shall apply
(notwithstanding any other conditions contained in Section 4.2) and
such benefits shall commence on the first day of the next month in
accordance with Section 4.7. If a Participant begins to receive a
benefit under this Section 4.5 prior to age 60, the Participant's
accrued annual benefit shall be reduced by 3% for each year the
payment of benefit is accelerated. For purposes of this Plan, if a
Participant is disabled, Years of Service shall continue to accrue
until the Participant is deemed retired under the Long Term Disability
Plan. In addition, for purposes of determining a Participant's annual
benefit, in the event a Participant is deemed disabled, the
Participant's Final Average Earnings will be based on the
Participant's pre-disability earnings without adjustment.
4.6 Form of Benefit Payment.
-----------------------
a) The Participant's accrued benefit under this Plan shall be paid
in one of the following forms:
i) Single-life annuity
ii) Joint and Survivor annuity
iii) A period certain annuity
iv) A lump sum
5
<PAGE>
In the event that a payment form other than a single-life annuity is
chosen, the benefit paid to the Participant shall be the Actuarial
Equivalent of the benefit which would have been paid had the single-
life annuity option been chosen. A Participant must elect the form of
his or her benefit payment at least thirty (30) days in advance of,
and in the calendar year prior to, a distribution triggering event.
b) Upon a written request by a Participant or a Beneficiary filed
with the Committee, the Committee may in its sole discretion, pay
out a benefit in a form different than originally elected by the
Participant.
4.7 Commencement of Payments. Benefits payable under this Plan shall
------------------------
commence on the first day of the month following the event which
triggers the payment. Benefits will continue to be paid on the first
day of each succeeding month. Each payment, except for a lump-sum
payment, shall be equal to one-twelfth of the applicable annual
benefit amount determined under this Article IV.
4.8 Lump Sum Withdrawal. A Participant or Beneficiary may elect to
-------------------
receive an immediate lump sum payment equal to the Actuarial
Equivalent of the present value of his or her unpaid accrued benefit
which would otherwise be paid at the Participant's Retirement Date.
The lump sum payment shall be determined in accordance with the
provisions of Section 4.6 and then shall be reduced by a penalty,
which shall be forfeited to the Company, equal to ten percent (10%) of
the lump sum payment. If an active Participant elects to receive a
lump sum payment under this Section 4.8 of the Plan, a year of Plan
Service shall not be credited for the Participant's current year of
service with the Company. In addition, any distribution received by a
Participant under this Section 4.8 of the Plan, shall be offset
against the Participant's annual benefit calculated under Sections
4.1, 4.2, 4.3, 4.4 and 4.5. The amount offset against the
Participant's annual benefit shall be the amount of the lump sum
payment equal to the Actuarial Equivalent of the present value of his
or her unpaid accrued benefit prior to the reduction of the ten
percent (10%) penalty.
4.9 Change in Control. In the event of a Change in Control, a Participant
-----------------
shall be credited with an additional ten (10) years of Plan Service,
however in no event shall the Participant's total years of Plan
Service exceed the lesser of 20 years or the Participant's projected
years of Plan Service at age 65. In addition, in the event of a
Change in Control, a Participant shall be entitled to a lump sum
payment, equal to the Actuarial Equivalent of the present value of his
or her unpaid benefit which would otherwise be paid at the
Participant's Retirement Date. The lump sum payment shall be
determined in accordance with the provisions of Section 4.6 but shall
not be subject to the penalty prescribed in Section 4.8. Such lump
sum payment shall only be available to the Participant if he or she is
terminated involuntarily for reasons other than death, Disability, or
cause, or if the Participant voluntarily terminates his or her
employment with the Company, within one year of the Change in Control.
6
<PAGE>
4.10 Recipients of Payments: Designation of Beneficiary. All payments to be
--------------------------------------------------
made by the Company under the Plan shall be made to the Participant
during his or her lifetime. If a Participant dies and benefit
payments are payable to the Participant's Beneficiary under Sections
4.4 or 4.6 such payments shall be made by the Company to the
Beneficiary or Beneficiaries determined in accordance with this
Section 4.10. Unless the Participant files a written notice of a
different Beneficiary designation with the Committee, the
Participant's Beneficiary shall be the Beneficiary designated for the
MidAmerica Federal Savings Bank Profit Sharing Plan. The Participant
may designate a Beneficiary by filing a written notice of such
designation with the Committee in such form as the Company requires
and may include contingent Beneficiaries. The Participant may from
time to time change the designated Beneficiary or Beneficiaries by
filing a new designation in writing with the Committee. If a
Beneficiary designation is not in effect at the time when any benefits
payable under Sections 4.4 or 4.6 become due, the Beneficiary shall be
the spouse of the Participant, or if no spouse is then living, the
representatives of the Participant's estate.
V. CLAIMS FOR BENEFITS PROCEDURE
5.1 Claim for Benefits. Any claim for benefits under the Plan shall be
------------------
made in writing to any member of the Committee. If such claim for
benefits is wholly or partially denied by the Committee, the Committee
shall, within a reasonable period of time, but not later than sixty
(60) days after receipt of the claim, notify the claimant of the
denial of the claim. Such notice of denial shall be in writing and
shall contain:
a) The specific reason or reasons for the denial of the claim;
b) A reference to the relevant Plan provisions upon which the denial
is based;
c) A description of any additional material or information necessary
for the claimant to perfect the claim, together with an
explanation of why such material or information is necessary; and
d) An explanation of the Plan's claim review procedure.
If no such notice is provided, the claim shall be deemed granted.
5.2 Request for Review of a Denial of a Claim for Benefits. Upon the
------------------------------------------------------
receipt by the claimant of written notice of a denial of the claim,
the claimant may within 90 days file a written request to the
Committee, requesting a review of the denial of the claim, which
review shall include a hearing if deemed necessary by the Committee.
In connection with the claimant's appeal of the denial of his claim,
he may review relevant documents and may submit issues and comments in
writing.
7
<PAGE>
5.3 Decision Upon Review of a Denial of Claim for Benefits. The Committee
------------------------------------------------------
shall render a decision on the claim review promptly, but no more than
sixty (60) days after the receipt of the claimant's request for
review, unless special circumstances (such as the need to hold a
hearing) require an extension of time, in which case the sixty (60)
day period shall be extended to 120 days. Such decision shall:
a) Include specific reasons for the decision;
b) Be written in a manner calculated to be understood by the
claimant; and
c) Contain specific references to the relevant Plan provisions upon
which the decision is based.
The decision of the Committee shall be final and binding in all respects on
both the Company and the claimant.
VI. PLAN COMMITTEE
6.1 Committee. The Plan shall be administered by the
---------
Administrative/Compensation Committee of the Board of Directors.
Members of the Committee or agents of the Committee may be
Participants under the Plan.
6.2 General Rights, Powers, and Duties of Committee. The Committee shall
-----------------------------------------------
be the Named Fiduciary and it shall be responsible for the management,
operation, and administration of the Plan. In addition to any powers,
rights and duties set forth elsewhere in the Plan, the Committee shall
have the following powers and duties:
a) To adopt such rules and regulations consistent with the
provisions of the Plan as it deems necessary for the proper and
efficient administration of the Plan;
b) To enforce the Plan in accordance with its terms and any rules
and regulations it establishes;
c) To maintain records concerning the Plan sufficient to prepare
reports, returns and other information required by the Plan or by
law;
d) To construe and interpret the Plan and to resolve all questions
arising under the Plan;
e) To direct the Company to pay benefits under the Plan, and to give
such other directions and instructions as may be necessary for
the proper administration of the Plan;
f) To employ or retain agents, attorneys, actuaries, accountants or
other persons, who may also be Participants in the Plan or be
employed by or represent the Company; and
8
<PAGE>
g) To be responsible for the preparation, filing and disclosure on
behalf of the Plan of such documents and reports as are required
by any applicable Federal or State law.
6.3 Information to be Furnished to the Committee. The Company shall
--------------------------------------------
furnish the Committee such data and information as it may require.
The records of the Company shall be determinative of each
Participant's period of employment, termination of employment and the
reason therefor, leave of absence, re-employment, years of Plan
Service, and personal data. Participants and their Beneficiaries
shall furnish to the Committee such evidence, data, or information,
and execute such documents as the Committee requests.
6.4 Responsibility. No member of the Committee or of the Board of
--------------
Directors of the Company shall be liable to any person for any action
taken or omitted in connection with the administration of the Plan
unless attributable to his or her own fraud or willful misconduct;
nor shall the Company be liable to any person for any such action
unless attributable to fraud or willful misconduct on the part of a
director, officer or employee of the Company.
VII. AMENDMENT AND TERMINATION
7.1 Amendment. The Plan may be amended in whole or in part by the Company
---------
at any time. Notice of any such amendment shall be given in writing
to the Committee and to each Participant and each Beneficiary of a
deceased Participant. No amendment shall decrease the value of a
Participant's current accrued benefit. Further, no amendment shall be
made following a Change in Control if such amendment would decrease
the benefits or alter the payment form or determination of the amount
thereof, available to a Participant under Section 4.9 if such
Participant's employment were to be terminated immediately prior to
such amendment.
7.2 Company's Right to Terminate. The Company reserves the sole right to
----------------------------
terminate the Plan at any time after the Plan Effective Date. In the
event of any such termination, the Participant shall still be
entitled to his or her accrued benefit at the time of termination of
the Plan in the payment form elected by the Participant under Section
4.6. Notwithstanding the foregoing, in no event may the Company
terminate the Plan following a Change in Control if such termination
would decrease the benefits or alter the payment form or
determination of the amount thereof available to a Participant under
Section 4.9 if such Participant's employment were to be terminated
immediately prior to such Plan termination.
VIII. MISCELLANEOUS
8.1 No Implied Rights; Rights on Termination of Service. Neither the
---------------------------------------------------
establishment of the Plan nor any amendment thereof shall be
construed as giving any Participant, Beneficiary, or any other person
any legal or equitable right unless such right shall be specifically
provided for in the Plan or conferred by specific action of the
Company in accordance with the terms and provisions of the Plan.
9
<PAGE>
8.2 No Right to Company Assets. Neither the Participant nor any other
--------------------------
person shall acquire by reason of the Plan any right in or title to
any assets, funds or property of the Company whatsoever including,
without limiting the generality of the foregoing, any specific funds,
assets, or other property which the Company, in its sole discretion,
may set aside in anticipation of a liability hereunder. Any benefits
which become payable hereunder shall be paid from the general assets
of the Company. The Participant shall have only a contractual right
to the amounts, if any, payable hereunder unsecured by any asset of
the Company. Nothing contained in the Plan constitutes a guarantee by
the Company that the assets of the Company shall be sufficient to pay
any benefit to any person.
8.3 No Employment Rights. Nothing herein shall constitute a contract of
--------------------
employment or of continuing service or in any manner obligate the
Company to continue the services of the Participant, or obligate the
Participant to continue in the service of the Company, or as a
limitation of the right of the Company to discharge any of its
employees, with or without cause.
8.4 Non-assignability. Neither the Participant nor any other person shall
-----------------
have any voluntary or involuntary right to commute, sell, assign,
pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate or convey in advance of actual receipt the amounts, if
any, payable hereunder, or any part thereof, which are expressly
declared to be unassignable and non-transferable. No part of the
amounts payable shall be, prior to actual payment, subject to seizure
or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by the Participant or any other person, or
be transferable by operation of law in the event of the Participant's
or any other person's bankruptcy or insolvency.
8.5 Gender and Number. Wherever appropriate herein, the masculine may
-----------------
mean the feminine and the singular may mean the plural or vice versa.
8.6 Notice. Any notice required or permitted to be given under the Plan
------
shall be sufficient if in writing and hand delivered, or sent by
registered or certified mail, and if given to the Company, delivered
to the principal office of the Company, directed to the attention of
the Committee. 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 or the receipt for registration or certification.
8.7 Governing Laws. The Plan shall be construed and administered
--------------
according to the laws of the State of Illinois.
10
<PAGE>
IN WITNESS WHEREOF, the Company has adopted this MidAmerica Federal
Savings Bank Supplemental Executive Retirement Plan as of January 1, 1995.
MIDAMERICA FEDERAL SAVINGS BANK
By: /s/ Allen Koranda
-------------------------------------
Its: Chief Executive Officer
------------------------------------
11
<PAGE>
Exhibit No. 10(xviii) Form of Special Termination Agreement, as amended,
Between Mid America Federal Savings Bank and various officers
The attached Special Termination Agreement dated April 19, 1990, as amended,
between Mid America Federal Savings Bank and Gerard J. Buccino is substantially
identical in all material respects (except as otherwise noted below) with the
other contracts listed below which are not being filed:
Parties to Special Termination Agreement
----------------------------------------
Mid America Federal Savings Bank and Michael J. Janssen
Mid America Federal Savings Bank and William Haider
Mid America Federal Savings Bank and Thomas Miers
Mid America Federal Savings Bank and Kenneth Rusdal
Mid America Federal Savings Bank and Sharon Wheeler
1
<PAGE>
MID AMERICA FEDERAL SAVINGS BANK
SPECIAL TERMINATION AGREEMENT
This AGREEMENT is made effective as of April 19, 1990 by and between
Mid America Federal Savings Bank (the "Bank"), a federally chartered savings
institution, with its office at 55th & Holmes Street, Clarendon Hills, Illinois,
and Gerard Buccino (the "Executive"). The Bank is the wholly-owned subsidiary of
the Holding Company (the "Company"), a corporation organized under the laws of
the State of Delaware.
WHEREAS, the Bank recognizes the substantial experience and abilities
of the Executive and the Bank wishes to protect his position therewith for the
period provided in this Agreement; and
WHEREAS, Executive has been elected to, and has agreed to serve in the
position of Vice President for the Bank, a position of substantial
responsibility;
NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement and continuing at each anniversary date thereafter, this Agreement
shall automatically renew for an additional year such that the remaining term
shall be three (3) years unless written notice is provided to Executive, at
least ten (10) days and not more than twenty (20) days prior to expiration of
such period, then the term of this Agreement shall cease at the end of twenty-
four (24) months following the next anniversary date, or unless the Executive's
employment is voluntarily or involuntarily terminated with the Bank pursuant to
Section 2 hereof.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Bank or the
Company (as herein defined) followed at any time during the term of this
Agreement by the voluntary or involuntary termination of Executive's employment,
other than for Cause, as defined in Section 2(c) hereof, the provisions of
Section 3 shall apply. Upon the occurrence of a Change in Control, Executive
shall have the right to elect to voluntarily terminate his employment at any
time during the term of this Agreement following any demotion, loss of title,
office or significant authority, reduction in his annual compensation, or
relocation of his principal place of employment by more than 50 miles from its
location immediately prior to the Change in Control.
(b) Definition of a Change in Control. A "Change in Control" of the
Bank or the Company shall mean a change in control of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results
2
<PAGE>
in a Change in Control of the Bank or the Holding Company within the meaning of
the Home Owners Loan Act of 1933 and the Rules and Regulations promulgated by
the Office of Thrift Supervision (or its predecessor agency), as in effect on
the date hereof including Section 574 of such regulations; or (iii) without
limitation, such a Change in Control shall be deemed to have occurred at such
time as (a) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities or makes an offer
to purchase securities of the Bank or Company representing 20% or more of the
Bank's or Company's outstanding securities, except for any securities of the
Bank purchased by the Holding Company in connection with the conversion of the
Bank to the stock form and any securities purchased by the Bank's employee stock
ownership plan and trust; or (b) individuals who constitute the Board of
Directors of the Company or the Bank on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the shareholders was
approved by the Nominating Committee, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or (c) merger,
consolidation or sale of all or substantially all the assets of the Bank or
Company occurs; or (d) a proxy statement shall be distributed soliciting proxies
from stockholders of the Company, by someone other than the current management
of the Company, seeking stockholder approval of the reorganization, merger or
consolidation of the Company or Bank with one or more corporations as a result
of which the outstanding shares of the class of securities then subject to the
Plan are exchanged for or converted into cash or property or securities not
issued by the Bank or Company; or (e) a tender offer is made for 20% or more of
the outstanding securities of the Bank or Holding Company.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of the Executive's personal
dishonesty, incompetence, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
material provision of this Agreement. In determining incompetence, the acts or
omissions shall be measured against standards generally prevailing in the
savings institutions industry. Notwithstanding the foregoing, Executive shall
not be deemed to have been Terminated for Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Board of Directors of the
Bank at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. The Executive shall not have
the right to receive compensation or other benefits for any period after
Termination for Cause. Any stock options or limited rights granted to Executive
under any stock option plan of the Bank, the Company or any subsidiary or
affiliate thereof, shall become null and void effective upon Executive's receipt
of Notice of Termination for Cause and shall not be exercisable by Executive at
any time subsequent to such Termination for Cause.
3
<PAGE>
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Bank and the
Company shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, as severance
pay or liquidated damages, or both, a sum equal to three (3) times the average
annual base salary paid to Executive for the three (3) years immediately
preceding Executive's termination. In the event the Executive has not been
employed by the Bank or Holding Company during all or part of the three
immediately preceding years, the annual base salary paid to Executive for such
periods shall, for purposes of this Section 3, be deemed to be equal to the
Executive's initial base salary upon commencing employment adjusted to reflect
assumed annual base salary increases of ten percent (10%). At the discretion of
Executive, upon an election pursuant to Section 3(e) hereof, such payment may be
made in a lump sum immediately upon severance of Executive's employment or paid,
on a pro rata basis, semi-monthly during the thirty-six (36) months following
the Executive's termination.
(b) Upon the occurrence of a Change in Control of the Bank or the
Company followed at any time during the term of this Agreement by Executive's
voluntary or involuntary termination of employment, other than for Termination
for Cause, the Bank shall cause to be continued life, health and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance. Such coverage shall cease upon the earlier of
Executive's obtaining similar coverage by another employer or twelve (12) months
from the date of Executive's termination. In the event the Executive obtains new
employment and receives less coverage for life, health or disability, the Bank
shall provide coverage substantially identical to the coverage maintained by the
Bank for the Executive prior to termination for a period of twelve (12) months.
(c) Upon the occurrence of a Change in Control, the Executive will
have such rights as specified in the Company's Incentive Stock Option Plan or
any other employee benefit plan with respect to options and such other rights as
may have been granted to Executive under such plans.
(d) Upon the occurrence of a Change in Control, the Executive will be
entitled to the benefits under the Bank's Management Recognition and Retention
Plans.
(e) On an annual basis Executive shall elect whether, in the event
amounts are payable under Sections 3(a) hereof, such amounts shall be paid in a
lump sum or on a pro rata basis pursuant to such sections. Such election shall
be irrevocable for the year for which such election is made.
(f) Notwithstanding the preceding paragraphs of this Section 3, in the
event that:
4
<PAGE>
(i) the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") would be
deemed to include an "excess parachute payment" under Section 280G of
the Internal Revenue Code of 1986 (the "Code") or any successor
thereto, and
(ii) if such Termination Benefits were reduced to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as
determined in accordance with said Section 280G, and the Non-
Triggering Amount would be greater than the aggregate value of the
Termination Benefits (without such reduction) minus the amount of tax
required to be paid by Executive thereon by Section 4999 of the Code,
then the Termination Benefits shall be reduced to the Non-Triggering
Amount. The allocation of the reduction required hereby among the
Termination Benefits provided by the preceding paragraphs of this
Section 3 shall be determined by Executive. In the event that
Executive receives the Non-Triggering Amount pursuant to this
paragraph (f) and it is subsequently determined by the Internal
Revenue Service or judicial authority that Executive is deemed to have
received an amount in excess of the Non-Triggering Amount, the Bank or
Company shall pay to Executive an amount equal to the value of the
payments or benefits in excess of the Non-Triggering Amount he is so
deemed to have received.
4. NOTICE OF TERMINATION.
Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated. "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided that if, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal there from having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in
this Agreement shall be paid in cash or check from the general funds of the
Bank. The Company, however, guarantees payment and provision of all amounts and
benefits due hereunder to Executive, if such amounts
5
<PAGE>
and benefits due from the Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid or provided by the Company.
6. EFFECT ON PRIOR AGREEMENT AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Bank and Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
(a) The Bank may terminate the Executive's employment at any time, but
any termination by the Bank, other than Termination for Cause, shall not
prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as defined in Section 2(c)
hereinabove.
(b) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) (12 USC 1818(e)(3)) or 8(g) (12 USC 1818(g)) of the
Federal Deposit Insurance Act, as amended by
6
<PAGE>
the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the
Bank's obligations under this contract shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may in its discretion (I) pay the Executive all or part
of the compensation withheld while their contract obligations were suspended and
(ii) reinstate (in whole or in part) any of the obligations which were
suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e) (12 USC (S) 1818(e)) or 8(g) (12 USC (S) 1818(g)) of the Federal
Deposit Insurance Act, as amended by the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, all obligations of the Bank under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x) (12 USC
1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of
the Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Federal
Deposit Insurance Corporation, at the time FDIC enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 12(c) (12 USC (S)1823(c))of the Federal Deposit Insurance Act, as
amended by the Financial Institutions Reform, Recovery and Enforcement Act of
1989; or (ii) by the Office of Thrift Supervision ("OTS") at the time the OTS or
its District Director approves a supervisory merger to resolve problems related
to the operations of the Bank or when the Bank is determined by the OTS or FDIC
to be in an unsafe or unsound condition. Any rights of the parties that have
already vested, however, shall not be affected by such action.
10. REINSTATEMENT OF BENEFITS UNDER 9(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 9(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and the Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
11. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
7
<PAGE>
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
13. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by Federal law.
14. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
15. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to
any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank, which payments are guaranteed by the Company
pursuant to Section 5 hereof.
16. SIGNATURES.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
by its duly authorized officer, and Executive has signed this Agreement, on the
19th day of April, 1990.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
/s/ Carolyn Pihera BY: /s/ Allen Koranda
- --------------------------- -------------------------------
Secretary Chief Executive Officer
WITNESS:
/s/ Michael J. Janssen /s/ Gerard Buccino
- --------------------------- -------------------------------
Executive
Seal
8
<PAGE>
AMENDMENT TO SPECIAL TERMINATION AGREEMENT
------------------------------------------
OF GERARD BUCCINO
-----------------
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Special Termination Agreement
of Gerard Buccino dated April 19, 1990 (the "Agreement") by adding the following
two new sentences to the end of Section 2(b) of the Agreement:
However, notwithstanding anything contained in this section to the
contrary, a Change in Control shall not be deemed to have occurred as a
result of an event described in (i), (ii) or (iii) (a), (c) or (e) above
which resulted from an acquisition or proposed acquisition of stock of the
Holding Company by a person, as defined in the OTS' Acquisition of Control
Regulations (12 C.F.R. (S) 574) (the "Control Regulations"), who was an
executive officer of the Holding Company on January 19, 1990 and who has
continued to serve as an executive officer of the Holding Company as of the
date of the event described in (i), (ii) or (iii) (a), (c) or (e) above (an
"incumbent officer"). In the event a group of individuals acting in
concert satisfies the definition of "person" under the Control Regulations,
the requirements of the preceding sentence shall be satisfied, and thus a
change in control shall not be deemed to have occurred, if at least one
individual in the group is an incumbent officer.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this August 28, 1990.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
By: /s/ Carolyn Pihera By: /s/ Allen Koranda
------------------ -----------------
Carolyn Pihera Allen Koranda
Corporate Secretary Chairman of the Board
EMPLOYEE
By: /s/ Gerard Buccino
------------------
Gerard Buccino
9
<PAGE>
Amendment to Special Termination Agreement
of Gerard Buccino
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Special Termination Agreement
of Gerard Buccino dated April 19, 1990, as amended, (the "Agreement"), by
revising the third paragraph of the Agreement as shown below, and by revising
Section 1 to read as shown below, all such amendments to be effective as of the
date shown below.
(Revised third paragraph)
WHEREAS, Executive has been elected to and has agreed to serve in the position
of Vice President and Controller for the Bank, a position of substantial
responsibility which will require Executive to render administrative and
management services to the Bank such as are customarily performed by
persons in a similar executive capacity;
(Revised Section 1)
1. TERM OF AGREEMENT.
The term of this Agreement shall be deemed to have commenced as of the date
first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. At each anniversary date, the board of directors of
the Bank ("Board") may extend the Agreement an additional year. The Board will
review the Agreement and the Executive's performance annually for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting. In the event the Executive
chooses not to renew the Agreement, the Executive shall provide the Bank with
written notice at least ten (10) days and not more than twenty (20) days prior
to such anniversary date. If either the Bank or the Executive chooses not to
renew the Agreement for an additional period, the Agreement shall cease at the
end of its remaining term unless the Executive's employment is voluntarily or
involuntarily terminated with the Bank pursuant to Section 2 hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this August 10, 1992.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
By: /s/ Carolyn Pihera By: /s/ Allen Koranda
------------------ -----------------
Carolyn Pihera Allen Koranda
10
<PAGE>
Corporate Secretary Chairman and CEO
EMPLOYEE
By: /s/ Gerard Buccino
--------------------
Gerard Buccino
11
<PAGE>
Amendment to Special Termination Agreement
of Gerard Buccino
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of Gerard
Buccino dated April 19, 1990, as amended, (the "Agreement"), as shown below.
Such amendments shall be effective as of the date shown below.
1. Section 2(b)(iii)(a) shall be revised to read as follows:
(a) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities or
makes an offer to purchase and completes the purchase of securities of the
Bank or Company representing 20% or more of the Bank's or the Company's
outstanding securities ordinarily having the right to vote at the election
of directors except for any securities of the Bank purchased by the Company
in connection with the conversion of the Bank to the stock form and any
securities purchased by the Bank's employee stock ownership plan and trust:
2. Section 2(b)(iii)(e) shall be revised to read as follows:
(e) a tender offer is made and completed for 20% or more of the outstanding
securities of the Bank or Company.
3. Section 2(b)(iii)(d) shall be revised to read as follows:
(d) a proxy statement shall be distributed soliciting proxies from
stockholders of the Company, by someone other than the current management
of the Company, seeking stockholder approval of a plan of reorganization,
merger or consolidation of the Company or Bank with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the Plan are exchanged for or converted into
cash or property or securities not issued by the Bank or the Company, and
such proxy statement proposal is approved by the shareholders of the
Company.
4. Section 15, "Payment of Legal Fees" shall be amended to read as follows:
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation
12
<PAGE>
relating to this Agreement shall be paid or reimbursed by the Bank, if the
Executive is successful on the merits of such dispute or question pursuant
to any legal judgement, arbitration or settlement. Such payments are
guaranteed by the Company pursuant to Section 5 hereof.
6. Section 3(a) shall be amended by adding the following sentence at the end
of this paragraph:
"Notwithstanding the previous sentence, however, the Bank may, in its sole
discretion, require such payments to be made in a lump sum."
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this December 21, 1993.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
By: /s/ Carolyn Pihera By: /s/ Allen Koranda
------------------ -----------------
Carolyn Pihera Allen Koranda
Corporate Secretary Chairman of the Board and
Chief Executive Officer
EMPLOYEE
By: /s/ Gerard Buccino
------------------
Gerard Buccino
13
<PAGE>
Amendment to Special Termination Agreement
of Gerard Buccino
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of Gerard
Buccino dated April 19, 1990, as amended, (the "Agreement"), as shown below.
Such amendments shall be effective as of the date shown below.
1. Section 3(a) shall be revised to read as follows:
Upon the occurrence of a Change in Control, followed at any time during the
term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Bank and
the Company shall pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to three (3)
times the average annual compensation paid to Executive for the three (3)
years immediately preceding Executive's termination. For purposes of the
preceding sentence, compensation shall include only base salary plus
payments made under the MAF Bancorp Executive Annual Incentive Plan (or
such other annual cash incentive plan in effect with respect to years
ending prior to July 1, 1993). At the discretion of Executive, upon an
election pursuant to Section 3(e) hereof, such payment may be made in a
lump sum immediately upon severance of Executive's employment or paid, on a
pro rata basis, semi-monthly during the thirty-six (36) months following
Executive's termination.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this December 20, 1995.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
By: /s/ Carolyn Pihera By: /s/ Allen Koranda
------------------- ----------------------
Carolyn Pihera Allen Koranda
Corporate Secretary Chief Executive Officer
EMPLOYEE
By: /s/ Gerard Buccino
----------------------
Gerard Buccino
14
<PAGE>
Exhibit No. 10(xix) Consultant Agreement dated October 23, 1997 between Mid
America Federal Savings Bank and Nicholas J. DiLorenzo, Sr.
<PAGE>
NICHOLAS J. DILORENZO, SR.
CONSULTANT AGREEMENT
--------------------
This Consultant Agreement made October 23, 1997 between Nicholas J.
DiLorenzo, Sr., of 3607 Shakespeare Lane, City of Naperville, County of DuPage,
State of Illinois, herein referred to as Consultant, and MidAmerica Federal
Savings Bank, a corporation whose principal place of business is located at 55th
& Holmes, Clarendon Hills, State of Illinois, hereinafter referred to as
Employer.
The parties stipulate and recite that:
A. Nicholas J. DiLorenzo, Sr., has been connected with the corporation
as a Senior Vice President since November 28, 1960.
B. Due to retirement, Nicholas J. DiLorenzo, Sr., resigned from the
Employer on October 23, 1987.
C. Employer is desirous of employing Nicholas J. DiLorenzo, Sr., based
on his extensive experience in the field of land acquisition and
development construction, and based on his knowledge of the savings
and loan industry.
For the reasons recited above, and in consideration of the mutual covenants
contained within this Agreement, Employer and Consultant agree as follows:
SECTION ONE
TERM OF EMPLOYMENT
------------------
MidAmerica Federal Savings Bank hereby retains Nicholas J. DiLorenzo, Sr.,
as a Consultant and Nicholas J. DiLorenzo, Sr., accepts such position with
MidAmerica for a term ending October 31, 1998.
Either party may cancel this Agreement on sixty days notice to the other
2
<PAGE>
party in writing by certified mail or personal delivery.
Furthermore, this Consultant Agreement shall cease upon the death of the
Consultant.
SECTION TWO
DUTIES OF CONSULTANT
--------------------
The Consultant will render advisory and consulting services during the term
of this contract, and will give MidAmerica the benefit of his special knowledge,
skill, contacts and business experience in the fields of land development and
the savings and loan industry. Consultant shall respond to reasonable requests
for advice and consultation on matters connected with land and development
construction during regular business hours.
SECTION THREE
SALARY
------
For his services as a Consultant, Consultant shall be paid compensation at
the rate of Forty Thousand and No/100 Dollars ($40,000.00) per year, in equal
bi-monthly installments commencing November 1, 1997. Consultant shall be
reimbursed by Employer for Consultant's out-of-pocket expenses incurred in
rendering such services. MidAmerica will provide Consultant with and will cover
expenses for secretarial services and a car for business purposes.
SECTION FOUR
PRACTICE BY CONSULTANT
----------------------
Consultant may engage in the practice of advising MidAmerica Federal
Savings Bank and MidAmerica Developments in any capacity, except that Consultant
may not represent in such capacity, any of the clients of Employer, or the
clients of an assignee of this contract, who are such clients at that time.
Consultant shall not provide consulting services to any persons, individuals,
partnerships, corporations, or other entities, including clients of the
Employer, and said Consultant shall not become an employee, officer or director
of another person, individual, partnership, corporation, or other entity unless
consent is granted in writing by Employer.
Provided that the company is not in default hereof, the employee covenants
and agrees that he will not during the term which he is entitled to receive
compensation hereunder, engage directly or indirectly in any business (other
than that of the company) which is competitive with that business in which the
company is now engaged.
3
<PAGE>
SECTION FIVE
ASSIGNMENT
----------
Employer's rights under this contract may be assigned by it to any firm
engaged in financial services or real estate development which Employer may form
or which succeeds Employer in its business. Upon such assignment, the assignee
shall assume and perform all the Employer's obligations under this contract.
SECTION SIX
INDEPENDENT CONTRACTOR
----------------------
Both the Company and the Consultant agree that the Consultant will act as
an independent contractor in the performance of his duties under this Agreement.
Accordingly, the Consultant shall be responsible for payment of all taxes,
including Federal, State Income Tax, Social Security Tax, Unemployment Insurance
Taxes and any other taxes or business license fees as required.
SECTION SEVEN
CONFIDENTIAL INFORMATION
------------------------
The Consultant agrees that any information received by the Consultant
during any furtherance of the Consultant's obligations in accordance with this
contract, which concerns the personal, financial or other affairs of the company
will be treated by the Consultant in full confidence and will not be revealed to
any other persons, firms or organizations.
In witness whereof, the parties have executed this Agreement at Clarendon
Hills, Illinois on October 23, 1997.
/s/ Nicholas J. DiLorenzo, Sr.
- --------------------------------------
Nicholas J. DiLorenzo, Sr., Consultant
/s/ Kenneth Koranda
- --------------------------------------
Kenneth Koranda, President
MidAmerica Federal Savings Bank
4
<PAGE>
Exhibit 10(xx)
Exhibit No. 10(xx) Consultant Agreement dated January 3, 1997 between
Mid America Federal Savings Bank and Lois B. Vasto
1
<PAGE>
LOIS B. VASTO
CONSULTANT AGREEMENT
--------------------
This Consultant Agreement made this 3rd day of January, 1997 between Lois
B. Vasto of 2141 University Drive, City of Naperville, County of Will, State of
Illinois, herein referred to as a Consultant, and Mid America Federal Savings
Bank, a corporation whose principal place of business is located at 55th &
Holmes, Clarendon Hills, State of Illinois, hereinafter referred to as the Bank.
The parties stipulate and recite that:
A. Lois B. Vasto has been employed in various capacities with the Bank
since 1953 including most recently, as a Senior Vice President since
May, 1984.
B. Lois B. Vasto retired as an employee of the Bank on January 3, 1997.
C. The Bank is desirous of retaining the services of Lois B. Vasto for a
period of time based on her extensive experience in the field of
residential lending and based on her knowledge of the banking industry.
For the reasons recited above, and in consideration of the mutual covenants
contained within this Agreement, the Bank and Consultant agree as follows:
SECTION ONE
TERM OF EMPLOYMENT
------------------
The Bank hereby retains Lois B. Vasto as a Consultant and Lois B. Vasto
accepts such position with Mid America for a term beginning on July 4, 1997 and
ending on December 31, 1997.
Either party may cancel this Agreement on sixty days notice to the other
party in writing by certified mail or personal delivery.
Furthermore, this Agreement shall cease upon the death of the Consultant.
2
<PAGE>
SECTION TWO
DUTIES OF CONSULTANT
--------------------
The Consultant will render advisory and consulting services during the term
of this contract, and will give the Bank the benefit of her special knowledge,
skill, contacts and business experience in the fields of residential lending,
mergers and acquisitions and the banking industry. Consultant shall respond to
reasonable requests for advice and consultation on matters connected with
residential lending, mergers and acquisitions, banking and financial services
during regular business hours.
SECTION THREE
FEES
----
For her services as a Consultant for the period covered by this Agreement,
Consultant shall be paid consulting fees equal to Three Thousand and No/100
($3,000.00) per month commencing July 31, 1997.
Consultant shall be reimbursed by the Bank for her out-of-pocket expenses
incurred in rendering such consulting services. The Bank will provide
Consultant with, and will cover the expenses for, secretarial services and a
company car for business purposes.
SECTION FOUR
PRACTICE BY CONSULTANT
----------------------
Consultant may engage in the practice of advising the Bank and its
affiliates, except that Consultant may not represent in such capacity, any of
the clients of the Bank, or the clients of an assignee of this contract, who are
such clients at that time. Consultant shall not provide consulting services to
any persons, individuals, partnerships, corporations, or other entities who are
in
3
<PAGE>
competition with the Bank, including clients of the Bank, and Consultant shall
not become an employee, officer or director of another person, individual,
partnership, corporation, or other entity that operates in competition with the
Bank, unless consent is granted in writing by Employer.
Provided that the Bank is not in default hereof, the Consultant covenants
and agrees that she will not during the term which she is entitled to receive
consulting fees hereunder, engage directly or indirectly in any business (other
than that of the Bank or its affiliates) which is competitive with that business
in which the Bank or its affiliates is now engaged.
SECTION FIVE
ASSIGNMENT
----------
The Bank's rights under this contract may be assigned by it to any firm
engaged in residential lending, banking or financial services which the Bank may
form or which succeeds the Bank in its business. Upon such assignment, the
assignee shall assume and perform all the Bank's obligations under this
contract.
SECTION SIX
INDEPENDENT CONTRACTOR
----------------------
Both the Bank and the Consultant agree that the Consultant will act as an
independent contractor in the performance of her duties under this Agreement.
Accordingly, the Consultant shall be responsible for payment of all taxes,
including federal and state income taxes, social security or self-employment
taxes, unemployment insurance taxes and any other taxes or business license fees
as required.
SECTION SEVEN
CONFIDENTIAL INFORMATION
------------------------
4
<PAGE>
The Consultant agrees that any information received by the Consultant
during any furtherance of the Consultant's obligations in accordance with this
Agreement, which concerns the personal, financial or other affairs of the Bank
or its affiliates will be treated by the Consultant in full confidence and will
not be revealed to any other persons, firms or organizations.
In witness whereof, the parties have executed this Agreement at Clarendon
Hills, Illinois on this 24th day of June, 1997.
/s/ Lois B. Vasto
- ---------------------------------
Lois B. Vasto, Consultant
/s/ Allen H. Koranda
- ---------------------------------
Allen H. Koranda, Chairman of the Board and
Chief Executive Officer
Mid America Federal Savings Bank
5
<PAGE>
Exhibit 12. Statement re:
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, December 31, Year Ended June 30,
--------------------------------------------------------------
1997 1996 (1) 1996 1995 1994
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Inclusive of interest on deposits:
Earnings:
Pre-tax income 60,655 28,593 28,488 24,359 21,216
Add: Fixed charges 146,293 68,896 93,481 73,593 69,867
Less: Interest capitalized (308) (271) (579) (665) (376)
--------------------------------------------------------------
Earnings 206,640 97,218 121,390 97,287 90,707
==============================================================
Fixed charges:
Interest on deposits 98,581 47,967 63,325 55,794 53,004
Interest on borrowed funds 46,635 20,664 29,896 17,573 16,690
Rent expense 1,077 265 260 226 173
--------------------------------------------------------------
Fixed charges 146,293 68,896 93,481 73,593 69,867
==============================================================
Ratio of earnings to fixed charges
inclusive of interest on deposits 1.41 1.41 1.30 1.32 1.30
==============================================================
Exclusive of interest on deposits:
Earnings:
Pre-tax income 60,655 28,593 28,488 24,359 21,216
Add: Fixed charges 47,712 20,929 30,156 17,799 16,863
Loss on equity investments - - - - -
Less: Interest capitalized (308) (271) (579) (665) (376)
--------------------------------------------------------------
Earnings 108,059 49,251 58,065 41,493 37,703
==============================================================
Fixed charges:
Interest on deposits - - - - -
Interest on borrowed funds 46,635 20,664 29,896 17,573 16,690
Rent expense 1,077 265 260 226 173
--------------------------------------------------------------
Fixed charges 47,712 20,929 30,156 17,799 16,863
==============================================================
Ratio of earnings to fixed charges
exclusive of interest on deposits 2.26 2.35 1.93 2.33 2.24
==============================================================
</TABLE>
(1) Excludes the impact of the special SAIF assessment.
<PAGE>
Exhibit 21. Subsidiaries of the Registrant
The Company has two wholly-owned subsidiaries. All others listed are either
direct or indirect subsidiaries of the Bank.
<TABLE>
<CAPTION>
Subsidiaries of the Company State of Incorporation
--------------------------- ----------------------
<S> <C>
Mid America Bank, fsb Illinois
MAF Developments, Inc. Illinois
Subsidiaries of the Bank
------------------------
Mid America Development Services, Inc. Illinois
Mid America Insurance Agency, Inc. Illinois
Mid America Finance Corporation Illinois
Mid America Mortgage Securities, Inc. Illinois
N.W. Acceptance Corporation Delaware
N.W. Financial Corporation Illinois
Route 22 Development Corporation (1) Illinois
Ambria Development Corporation Illinois
Randall Road Development Corporation Illinois
Reigate Woods Development Corporation Illinois
</TABLE>
(1) Dissolved on June 16, 1997
<PAGE>
Exhibit 23. Consent of KPMG Peat Marwick LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors
MAF Bancorp, Inc.
We consent to incorporation by reference in the registration statements (No.'s
33-40932, 33-45790, 33-45794 and 333-06593) on Form S-8 and the registration
statement (No. 33-96754) on Form S-3 of MAF Bancorp, Inc. of our report dated
January 29, 1998, relating to the consolidated statements of financial condition
of MAF Bancorp, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related statements of income, changes in stockholders' equity and cash flows for
the year ended December 31, 1997, the six months ended December 31, 1996 and for
each of the years in the two-year period ended June 30, 1996, which report
appears in the December 31, 1997 annual report on Form 10-K of MAF Bancorp, Inc.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
March 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 39,721
<INT-BEARING-DEPOSITS> 57,197
<FED-FUNDS-SOLD> 50,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 187,069
<INVESTMENTS-CARRYING> 273,742
<INVESTMENTS-MARKET> 276,114
<LOANS> 2,722,602
<ALLOWANCE> 15,475
<TOTAL-ASSETS> 3,457,664
<DEPOSITS> 2,337,013
<SHORT-TERM> 95,000
<LIABILITIES-OTHER> 675,013
<LONG-TERM> 26,779
<COMMON> 169
0
0
<OTHER-SE> 263,411
<TOTAL-LIABILITIES-AND-EQUITY> 3,457,664
<INTEREST-LOAN> 198,805
<INTEREST-INVEST> 32,462
<INTEREST-OTHER> 7,648
<INTEREST-TOTAL> 238,915
<INTEREST-DEPOSIT> 98,581
<INTEREST-EXPENSE> 145,216
<INTEREST-INCOME-NET> 93,699
<LOAN-LOSSES> 1,150
<SECURITIES-GAINS> 404
<EXPENSE-OTHER> 54,581
<INCOME-PRETAX> 60,655
<INCOME-PRE-EXTRAORDINARY> 37,948
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,948
<EPS-PRIMARY> 2.46
<EPS-DILUTED> 2.38
<YIELD-ACTUAL> 2.98
<LOANS-NON> 8,640
<LOANS-PAST> 2,195
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,914
<CHARGE-OFFS> 3,712
<RECOVERIES> 123
<ALLOWANCE-CLOSE> 15,475
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 15,475
</TABLE>
