<PAGE>
 
                                                                    EXHIBIT 10.1
 
                                  APPENDIX "A"
 
                          1997 OMNIBUS INCENTIVE PLAN
 
                            AVONDALE FINANCIAL CORP.
 
                                 JANUARY, 1997
<PAGE>
 
                            AVONDALE FINANCIAL CORP.
 
                          1997 OMNIBUS INCENTIVE PLAN
 
                               TABLE OF CONTENTS
 
<TABLE>
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  SECTION                                                                  PAGE
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 <C>      <S>                                                              <C>
 ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
    1.1   Establishment of the Plan......................................    4
    1.2   Purpose of the Plan............................................    4
    1.3   Duration of the Plan...........................................    4
 ARTICLE 2. DEFINITIONS AND CONSTRUCTION
    2.1   Definitions....................................................    4
    2.2   Gender and Number..............................................    6
    2.3   Severability...................................................    6
 ARTICLE 3. ADMINISTRATION
    3.1   The Committee..................................................    6
    3.2   Authority of the Committee.....................................    6
    3.3   Decisions Binding..............................................    6
 ARTICLE 4. SHARES SUBJECT TO THE PLAN; ANNUAL AWARDS TO DIRECTORS
    4.1   Number of Shares...............................................    6
    4.2   Maximum Awards.................................................    6
    4.3   Annual Awards to Directors.....................................    6
    4.4   Lapsed Awards..................................................    7
    4.5   Adjustments in Authorized Shares...............................    7
 ARTICLE 5. ELIGIBILITY AND PARTICIPATION
    5.1   Eligibility....................................................    7
    5.2   Actual Participation...........................................    7
 ARTICLE 6. STOCK OPTIONS
    6.1   Grant of Options...............................................    7
    6.2   Option Agreement...............................................    7
    6.3   Option Price...................................................    7
    6.4   Duration of Options............................................    7
    6.5   Exercise of Options............................................    7
    6.6   Payment........................................................    7
    6.7   Restrictions on Share Transferability..........................    8
            Termination of Employment or Service Due to Death, Disability
    6.8   or Retirement..................................................    8
    6.9   Termination of Employment for Other Reasons....................    8
 ARTICLE 7. STOCK APPRECIATION RIGHTS
    7.1   Grant of SARs..................................................    9
    7.2   Exercise of SARs...............................................    9
    7.3   SAR Agreement..................................................    9
    7.4   Term of SARs...................................................    9
    7.5   Payment of SAR Amount..........................................    9
            Termination of Employment or Service Due to Death, Disability
    7.6   or Retirement .................................................    9
    7.7   Termination of Employment for Other Reasons....................   10
</TABLE>
 
                                     10-1-2
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<TABLE>
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  SECTION                                                                  PAGE
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 ARTICLE 8. RESTRICTED STOCK
    8.1   Grant of Restricted Stock......................................   10
    8.2   Restricted Stock Agreement.....................................   10
    8.3   Other Restrictions.............................................   10
    8.4   Certificate Legend.............................................   10
    8.5   Removal of Restrictions........................................   10
    8.6   Voting Rights..................................................   10
    8.7   Dividends and Other Distributions..............................   11
            Termination of Employment or Service Due to Death, Disability
    8.8   or Retirement..................................................   11
    8.9   Termination of Employment for Other Reasons....................   11
 ARTICLE 9. TRANSFERABILITY...............................................  11
 ARTICLE 10. BENEFICIARY DESIGNATION......................................  11
 ARTICLE 11. RIGHTS OF EMPLOYEES AND DIRECTORS
    11.1  Employment or Service..........................................   11
    11.2  Participation..................................................   11
 ARTICLE 12. CHANGE IN CONTROL
    12.1  In General.....................................................   12
    12.2  Definition.....................................................   12
 ARTICLE 13. AMENDMENT, MODIFICATION AND TERMINATION
    13.1  Amendment, Modification and Termination........................   12
    13.2  Awards Previously Granted......................................   12
 ARTICLE 14. WITHHOLDING
    14.1  Tax Withholding................................................   12
    14.2  Share Withholding..............................................   12
 ARTICLE 15. INDEMNIFICATION..............................................  12
 ARTICLE 16. SUCCESSORS...................................................  13
 ARTICLE 17. REQUIREMENTS OF LAW
    17.1  Requirements of Law............................................   13
    17.2  Governing Law..................................................   13
</TABLE>
 
                                     10-1-3
<PAGE>
 
                           AVONDALE FINANCIAL CORP.
 
                          1997 OMNIBUS INCENTIVE PLAN
 
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
 
  1.1 Establishment of the Plan. Avondale Financial Corp., a Delaware
corporation (the "Company"), hereby establishes an incentive compensation plan
to be known as the "Avondale Financial Corp. 1997 Omnibus Incentive Plan" (the
"Plan"), as set forth in this document. The Plan permits the granting of
Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights
and Restricted Stock.
 
  Upon approval by the Board of Directors of the Company, subject to
ratification by an affirmative vote of holders of a majority of Shares present
and entitled to vote at the 1997 Annual Meeting of the Company at which a
quorum is present, the Plan shall become effective as of January 1, 1997 (the
"Effective Date"), and shall remain in effect as provided in Section 1.3
herein.
 
  1.2 Purpose of the Plan. The purpose of the Plan is to promote the success,
and enhance the value, of the Company by linking the personal interests of
Employees and Directors with those of Company shareholders.
 
  The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Employees and
Directors upon whose judgment, interest, and special effort the successful
conduct of its operation largely is dependent.
 
  1.3 Duration of the Plan. Subject to approval by the Board of Directors of
the Company and ratification by the shareholders of the Company, the Plan
shall commence on the Effective Date, as described in Section 1.1 herein, and
shall remain in effect, subject to the right of the Board of Directors to
terminate the Plan at any time pursuant to Article 13 herein. However, in no
event may an Award be granted under the Plan on or after the fifteenth
anniversary of the Plan's Effective Date.
 
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
 
  2.1 Definitions. Whenever used in the Plan, the following terms shall have
the meanings set forth below:
 
    (a) "Award" means, individually or collectively, a grant under this Plan
  of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
  Rights or Restricted Stock.
 
    (b) "Board" or "Board or Directors" means the Board of Directors of the
  Company.
 
    (c) "Cause" means Participant's personal dishonesty, incompetence,
  willful misconduct, breach of fiduciary duty involving personal profit,
  intentional failure to perform stated duties or willful violation of any
  law, rule, regulation (other than traffic violations or similar offenses)
  or final cease-and-desist order. For purposes of this subsection, no act,
  or failure to act, on Participant's part shall be considered "willful"
  unless done, or omitted to be done, not in good faith and without
  reasonable belief that the action or omission was in the best interest of
  the Company. In determining incompetence, the acts or omissions shall be
  measured against standards generally prevailing in the financial
  institutions industry. A Participant may be terminated for Cause only upon
  the affirmative vote of not less than 50% of the quorum of the Board at a
  meeting of the Board called and held for that purpose, which vote shall be
  recorded in the minutes of such meeting.
 
    (d) "Change in Control" of the Company shall be defined in accordance
  with Section 12.2 herein.
 
    (e) "Code" means the Internal Revenue Code of 1986, as amended from time
  to time, or any successor code thereto, and the rules and regulations
  thereunder.
 
    (f) "Committee" means the Committee, as specified in Article 3, appointed
  by the Board to administer the Plan.
 
    (g) "Company" means Avondale Financial Corp., a Delaware corporation
  (including any and all Subsidiaries), or any successor thereto as provided
  in Article 16 herein.
 
                                    10-1-4
<PAGE>
 
    (h) "Director" means any individual who is a member of the Board of
  Directors or an advisory director of the Company or Subsidiary who is not
  currently an Employee of the Company or Subsidiary.
 
    (i) "Disability" means a permanent and total disability, within the
  meaning of Code Section 22(e)(3), as determined by the Committee in good
  faith, upon receipt of sufficient competent medical advice from one or more
  individuals, selected by the Committee, who are qualified to give
  professional medical advice.
 
    (j) "Employee" means a full-time, nonunion, salaried employee of the
  Company. Directors who are not otherwise employed by the Company shall not
  be considered Employees under this Plan.
 
    (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended
  from time to time, or any successor statute thereto, and the rules and
  regulations thereunder.
 
    (l) "Fair Market Value" means the closing market price per share of one
  Share on the relevant date, according to a stock quotation source selected
  by the Committee. If the Shares did not trade on the relevant date, then
  Fair Market Value is determined as of the most recent date for which a
  quoted price is available, or as of the most recent date for which quoted
  bid and asked prices are available, whichever is most recent. Should Fair
  Market Value be determined at the time of the most recent quoted bid and
  asked prices, Fair Market Value shall be equal to the bid price.
 
    (m) "Grant Price" means the stock price above which a SAR entitles the
  recipient to any increase in value, as determined by the Committee.
 
    (n) "Incentive Stock Option" or "ISO" means an option to purchase Shares,
  granted under Article 6 herein, which is designated as an Incentive Stock
  Option and is intended to meet the requirements of Section 422 of the Code.
 
    (o) "Insider" shall mean an Employee who is, at the time an Award is made
  under this Plan, an officer, Director, or holder of more than 10% of the
  Shares.
 
    (p) "Nonqualified Stock Option" or "NQSO" means an option to purchase
  Shares, granted under Article 6 herein, which is not intended to be an
  Incentive Stock Option.
 
    (q) "Option" means an Incentive Stock Option or a Nonqualified Stock
  Option.
 
    (r) "Option Price" means the price at which a Share may be purchased by a
  Participant pursuant to an Option, as determined by the Committee.
 
    (s) "Participant" means an Employee or Director of the Company who has
  outstanding an Award granted under the Plan.
 
    (t) "Period of Restriction" means the period during which the transfer of
  Shares of Restricted Stock is limited in some way (based on the passage of
  time, the achievement of performance goals, or upon the occurrence of other
  events as determined by the Committee, at its discretion), and the Shares
  are subject to a substantial risk of forfeiture, as provided in Article 8
  herein.
 
    (u) "Person" shall have the meaning ascribed to such term in Section
  3(a)(9) of the Exchange Act.
 
    (v) "Retirement" means termination of a Participant's employment with the
  Company after the Participant attains age 65.
 
    (w) "Related" means (i) in the case of a SAR or other right, a SAR or
  other right which is granted in connection with, and to the extent
  exercisable, in whole or in part, in lieu of, an Option or another right
  and (ii) in the case of an Option, an Option with respect to which and to
  the extent a SAR or other right is exercisable, in whole or in part, in
  lieu thereof.
 
    (x) "Restricted Stock" means an Award granted pursuant to Article 8
  herein.
 
    (y) "Shares" means shares of the common stock of the Company.
 
    (z) "Stock Appreciation Right" or "SAR" means an Award, designated as a
  SAR, granted pursuant to Article 7 herein.
 
                                    10-1-5
<PAGE>
 
    (aa) "Subsidiary" means any corporation in which the Company owns
  directly, or indirectly through subsidiaries, at least 50% of the total
  combined voting power of all classes of stock, or any other entity
  (including, but not limited to, partnerships and joint ventures) in which
  the Company owns at least 50% of the combined equity thereof.
 
  2.2 Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
 
  2.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
 
ARTICLE 3. ADMINISTRATION
 
  3.1 The Committee. The Plan shall be administered by a Committee, consisting
of two or more members of the Board of Directors of the Company, each of whom
(i) shall be an outside director as defined under Section 162(m) of the Code
and (ii) shall be a Non-Employee Director as defined under Rule 16(b) of the
Exchange Act. The members of the Committee shall be appointed by the Board of
Directors.
 
  3.2 Authority of the Committee. The Committee shall have full power except
as limited by law or by the Certificate of Incorporation or Bylaws of the
Company or by resolutions adopted by the Board of Directors, and subject to
the provisions herein, to determine the size and types of Awards; to determine
the terms and conditions of such Awards in a manner consistent with the Plan;
to construe and interpret the Plan and any agreement or instrument entered
into under the Plan; to establish, amend, or waive rules and regulations for
the Plan's administration; and (subject to the provisions of Article 13
herein) to amend the terms and conditions of any outstanding Award to the
extent such terms and conditions are within the discretion of the Committee as
provided in the Plan. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of
the Plan. As permitted by law, the Committee may delegate its authorities as
identified hereunder.
 
  3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive, and binding
on all Persons, including the Company, its shareholders, Employees,
Participants, and their respective successors.
 
ARTICLE 4. SHARES SUBJECT TO THE PLAN; ANNUAL AWARDS TO DIRECTORS
 
  4.1 Number of Shares. Subject to adjustment as provided in Section 4.3
herein, the total number of Shares available for grant under the Plan may not
exceed 350,000. These Shares may be either authorized but unissued, or Shares
that have been reacquired by the Company. The grant of an Option, Stock
Appreciation Right or Restricted Stock Award shall reduce the Shares available
for grant under the Plan by the number of Shares subject to such Award.
 
  4.2 Maximum Awards. During any calendar year, no Participant may be granted
Awards under the Plan with respect to more than 35,000 Shares, subject to
adjustment as provided in Section 4.3.
 
  During the term of the Plan, Awards with respect to no more than 75,000
Shares may be in the form of Restricted Stock, subject to adjustment as
provided in Section 4.3.
 
  4.3 Annual Awards to Directors. Directors who shall have served as such for
at least 12 consecutive months, including those who participate on the
Committee, shall receive a Non-Qualified Stock Option with respect to up to
3,000 Shares (subject to adjustment as provided in Section 4.3) on January 2
of each year. The Option Price with respect to any such Non-Qualified Stock
Option shall equal the Fair Market Value of one Share as of December 31
immediately prior to such January 2.
 
 
                                    10-1-6
<PAGE>
 
  4.4 Lapsed Awards. If any Award granted under this Plan terminates, expires,
or lapses for any reason, any Shares subject to such Award again shall be
available for the grant of an Award under the Plan, with the exception of
Restricted Stock Awards upon which dividends have been paid to the
Participants.
 
  4.5 Adjustments in Authorized Shares. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation,
stock dividend, split-up, Share combination, or other change in the corporate
structure of the Company affecting the Shares, such adjustment shall be made
in the number and class of Shares which may be delivered under the Plan, and
in the number and class of and/or price of Shares subject to outstanding
Options, SARs and Restricted Stock granted under the Plan, as may be
determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights; and provided that
the number of Shares subject to any Award shall always be a whole number.
 
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
 
  5.1 Eligibility. Persons eligible to participate in this Plan include all
Employees of the Company, including Employees who are members of the Board,
and all Directors, including Directors of the Company's Subsidiaries.
 
  5.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees and
Directors, those to whom Awards shall be granted and shall determine the
nature and amount of each Award. Subject to Section 4.1, no Employee or
Director shall be entitled to be granted an Award under this Plan.
 
ARTICLE 6. STOCK OPTIONS
 
  6.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Employees and Directors at any time and from time to
time as shall be determined by the Committee. Subject to Section 4.1, the
Committee shall have complete discretion in determining the number of Shares
subject to Options granted to each Participant. Options granted to Directors
shall consist only of NQSOs and not ISOs.
 
  6.2 Option Agreement. Each Option grant shall be evidenced by an Option
agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, the percentage of the Option
that becomes exercisable on specified dates in the future, and such other
provisions as the Committee shall determine. The Option agreement also shall
specify whether the Option is intended to be an ISO or a NQSO.
 
  6.3 Option Price. The Option Price for each grant of an Option shall be
determined by the Committee, provided that the Option Price shall not be less
than 100% of the Fair Market Value of a Share on the date the Option is
granted. In the event any holder of 10% or more of the Shares receives a grant
of ISOs, the Option Price shall be not less than 110% of the Fair Market Value
of a Share on the date of grant. Once an Option has been granted, the Option
Price with respect thereto may not be changed.
 
  6.4 Duration of Options. Each Option granted shall expire at such time as
the Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the fifteenth anniversary date of its
grant.
 
  6.5 Exercise of Options. Options granted under the Plan shall be exercisable
at such times and be subject to such restrictions and conditions as the
Committee shall in each instance approve, which need not be the same for each
grant.
 
  6.6 Payment. Options shall be exercised by the delivery of a written notice
of exercise to the Chief Financial Officer of the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by payment in full of the Option Price.
 
                                    10-1-7
<PAGE>
 
  Upon exercise of any Option, the Option Price shall be payable to the
Company in full either (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time
of exercise equal to the aggregate Option Price, or (c) by a combination of
(a) and (b). In addition, the Company may establish a cashless exercise
program in accordance with Federal Reserve Board Regulation G.
 
  As soon as practicable after receipt of a written notification of exercise
and payment in full of the Option Price, the Company shall deliver to the
Participant, in the Participant's name, Share certificates in an appropriate
amount based upon the number of Shares purchased under the Option(s).
 
  6.7 Restrictions on Share Transferability. The Committee shall impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
under the Plan as it may deem advisable, including, without limitation,
restrictions under applicable Federal securities laws, under the requirements
of any stock exchange or market upon which such Shares are then listed and/or
traded, and under any blue sky or state securities laws applicable to such
Shares.
 
  6.8 Termination of Employment or Service Due to Death, Disability or
Retirement.
 
    (a) Termination by Death. In the event the employment or service of a
  Participant is terminated by reason of death, any outstanding Options
  granted to that Participant that are not exercisable as of the date of
  termination shall immediately become exercisable. Unless otherwise set
  forth in the Option agreement provided for in Section 6.2 herein, all
  Options granted to such Participant shall remain exercisable until their
  respective expiration dates, or for one year after the date of death,
  whichever period is shorter, by such Person or Persons as shall have
  acquired the Participant's rights under the Option by will or by the laws
  of descent and distribution.
 
    (b) Termination by Disability. In the event the employment or service of
  a Participant is terminated by reason of Disability, any outstanding
  Options granted to that Participant that are not exercisable as of the date
  of termination shall immediately become exercisable. Unless otherwise set
  forth in the Option agreement provided for in Section 6.2 herein, all
  Options granted to such Participant shall remain exercisable until their
  respective expiration dates, or for one year after the date that the
  Participant's Disability is determined by the Committee to be total and
  permanent, whichever period is shorter. Unless otherwise set forth in the
  Option agreement provided for in Section 6.2 herein, should the Participant
  die during this period, exercisability of the Participant's Options shall
  be permitted for a period of one year following the date of death.
 
    (c) Termination by Retirement. In the event the employment of an Employee
  is terminated by reason of Retirement, or the service of a Director on the
  Board is terminated after age 65, any outstanding Options granted to that
  Employee or Director that are not exercisable as of the date of termination
  shall immediately become exercisable. Unless otherwise set forth in the
  Option agreement provided for in Section 6.2 herein, all Options granted to
  such Participant shall remain exercisable until their respective expiration
  dates, or for one year after the date of termination, whichever period is
  shorter.
 
    (d) Exercise Limitations on ISOs. In the case of ISOs, the tax treatment
  prescribed under Section 422 of the Code may not be available if the
  Options are not exercised within the time periods provided by Section 422
  for each of the various types of employment termination.
 
  6.9 Termination of Employment for Other Reasons. If the employment of an
Employee or the service of a Director shall terminate for any reason other
than the reasons set forth in Section 6.8 herein, except for Cause, all
outstanding Options that are not exercisable as of the date of termination
immediately shall be forfeited to the Company (and shall once again become
available for grant under the Plan). However, the Committee, in its sole
discretion, shall have the right to waive such termination and to immediately
make exercisable all or any portion of such Options. Thereafter, unless
otherwise set forth in the Option agreement provided for in Section 6.2
herein, all such exercisable Options shall remain exercisable until their
respective expiration dates, or for one year after the date of termination,
whichever period is shorter.
 
 
                                    10-1-8
<PAGE>
 
  If the employment of the Employee or the service of the Director shall
terminate for Cause, all outstanding Options immediately shall be forfeited to
the Company and no additional exercise period shall be allowed, regardless of
the exercisability status of the Options.
 
ARTICLE 7. STOCK APPRECIATION RIGHTS
 
  7.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs may
be granted to Employees and Directors at any time and from time to time as
shall be determined by the Committee. A SAR may be Related to an Option or may
be granted independently of any Option as the Committee shall from time to
time in each case determine. In the case of a Related Option, such Related
Option shall cease to be exercisable to the extent of the Shares with respect
to which the Related SAR was exercised. Upon the exercise or termination of a
Related Option, any Related SAR shall terminate to the extent of the Shares
with respect to which the Related Option was exercised or terminated.
 
  The Committee shall have complete discretion in determining the number of
SARs granted to each Participant (subject to Section 4.1 herein) and,
consistent with the provisions of the Plan, in determining the terms and
conditions pertaining to such SARs. However, the Grant Price of a SAR shall be
at least equal to 100% of the Fair Market Value of a Share on the date of
grant of the SAR.
 
  7.2 Exercise of SARs. SARs may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, imposes upon the SARs.
 
  7.3 SAR Agreement. Each SAR grant shall be evidenced by a SAR agreement that
shall specify the Grant Price, the term of the SAR, and such other provisions
as the Committee shall determine.
 
  7.4 Term of SARs. The term of a SAR granted under the Plan shall be
determined by the Committee, in its sole discretion, however, such term shall
not exceed fifteen years.
 
  7.5 Payment of SAR Amount. Upon exercise of a SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
 
    (a) The difference between the Fair Market Value of a Share on the date
  of exercise over the Grant Price; and
 
    (b) The number of Shares with respect to which the SAR is exercised.
 
  At the discretion of the Committee, the payment upon SAR exercise may be in
cash, in Shares of equivalent value, or in some combination thereof.
 
  7.6 Termination of Employment or Service Due to Death, Disability or
Retirement.
 
    (a) Termination by Death. In the event the employment or service of a
  Participant is terminated by reason of death, any outstanding SARs granted
  to that Participant that are not exercisable as of the date of termination
  shall immediately become exercisable. Unless otherwise set forth in the SAR
  agreement provided for in Section 7.3 herein, all SARs granted to such
  Participant shall remain exercisable until their respective expiration
  dates, or for one year after the date of death, whichever period is
  shorter, by such Person or Persons as shall have acquired the Participant's
  rights under the SARs by will or by the laws of descent and distribution.
 
    (b) Termination by Disability. In the event the employment or service of
  a Participant is terminated by reason of Disability, any outstanding SARs
  granted to that Participant that are not exercisable as of the date of
  termination shall immediately become exercisable. Unless otherwise set
  forth in the SAR agreement provided for in Section 7.3 herein, all SARs
  granted to such Participant shall remain exercisable until their respective
  expiration dates, or for one year after the date the Participant's
  Disability is determined by the Committee to be total and permanent,
  whichever period is shorter. Unless otherwise set forth in the SAR
  agreement provided for in Section 7.3 herein, in the event the Participant
  dies during this period, exercisability shall be permitted for a period of
  one year following the date of death.
 
                                    10-1-9
<PAGE>
 
    (c) Termination by Retirement. In the event the employment of an Employee
  is terminated by reason of Retirement, or the service of a Director on the
  Board is terminated after age 65, any outstanding SARs granted to that
  Participant that are not exercisable as of the date of termination shall
  immediately become exercisable. Unless otherwise set forth in the SAR
  agreement provided for in Section 7.3 herein, all SARs granted to such
  Participant shall remain exercisable until their respective expiration
  dates, or for one year after the date that employment was terminated,
  whichever period is shorter.
 
  7.7 Termination of Employment for Other Reasons. If the employment of an
Employee or the service of a Director shall terminate for any reason other
than the reasons described in Section 7.6 herein, except for Cause, all
unexercised SARs held by the Participant at that time immediately shall be
forfeited to the Company (and shall once again become available for grant
under the Plan). However, the Committee, in its sole discretion, shall have
the right to waive such termination and to make exercisable all or any portion
of such SARs. Thereafter, unless otherwise set forth in the SAR agreement
provided for in Section 7.3 herein, all such exercisable SARs shall remain
exercisable until their expiration dates, or for one year after the date of
termination, whichever period is shorter.
 
  If the employment or service of the Participant shall terminate for Cause,
all outstanding SARs immediately shall be forfeited to the Company and no
additional exercise period shall be allowed, regardless of the exercisability
status of the SARs.
 
ARTICLE 8. RESTRICTED STOCK
 
  8.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Employees and Directors in such amounts as the Committee
shall determine.
 
  8.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock agreement that shall specify the Period of
Restriction, the number of Restricted Stock Shares granted, and such other
provisions as the Committee shall determine.
 
  8.3 Other Restrictions. The Committee shall impose such restrictions on any
Shares of Restricted Stock granted pursuant to the Plan as it may deem
advisable including, without limitation, restrictions based upon the
achievement of specific performance goals (Company-wide, Subsidiary, and/or
individual), and/or restrictions under applicable Federal or state securities
laws; and may legend the certificate representing Restricted Stock to give
appropriate notice of such restrictions. The Committee may also require that
Participants make cash payments at the time of grant or upon lapsing of
restrictions. Such cash payments, if imposed, will be in an amount not less
than the par value of the Shares.
 
  8.4 Certificate Legend. In addition to any legends placed on certificates
pursuant to Section 8.3 herein, each certificate representing Shares of
Restricted Stock granted pursuant to the Plan shall bear the following legend:
 
    "The sale or other transfer of the Shares of stock represented by this
  certificate, whether voluntary, involuntary, or by operation of law, is
  subject to certain restrictions on transfer as set forth in the Avondale
  Financial Corp. 1997 Omnibus Incentive Plan and in a Restricted Stock
  agreement dated             . A copy of the Plan and such Restricted Stock
  agreement may be obtained from the Chief Financial Officer of Avondale
  Financial Corp."
 
  8.5 Removal of Restrictions. Except as otherwise provided in this Section,
Shares of Restricted Stock covered by each Restricted Stock grant made under
the Plan shall become freely transferable by the Participant after the last
day of the Period of Restriction. Once the Shares are released from the
restrictions, the Participant shall be entitled to have the legend required by
Section 8.4 herein removed from his or her Share certificate.
 
  8.6 Voting Rights. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
 
                                    10-1-10
<PAGE>
 
  8.7 Dividends and Other Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder shall be
entitled to receive all dividends and other distributions paid with respect to
those Shares while they are so held. If any such dividends or distributions
are paid in Shares, the Shares shall be subject to the same restrictions on
transferability and forfeitability as the Shares of Restricted Stock with
respect to which they were paid.
 
  8.8 Termination of Employment or Service Due to Death, Disability or
Retirement. In the event that a Participant's employment or service with the
Company is terminated by reason of death, Disability or Retirement, the
restrictions on the Participant's Restricted Stock shall lapse as of the date
of termination (in the case of Disability, the restrictions shall lapse on the
date the Participant's Disability is determined by the Committee to be total
and permanent).
 
  8.9 Termination of Employment for Other Reasons. If the employment or
service of the Participant shall terminate for any reason other than those
reasons described in Section 8.8 herein, including a termination for Cause,
all nonvested Shares of Restricted Stock held by the Participant at that time
immediately shall be forfeited and returned to the Company (and shall once
again become available for grant under the Plan, except that Shares upon which
dividends have been paid to a Participant may not become available for re-
grant under the Plan). However, with the exception of a termination of
employment for Cause, the Committee, in its sole discretion, shall have the
right to provide for lapsing of the restrictions on Restricted Stock following
termination, upon such terms and provisions as it deems proper.
 
ARTICLE 9. TRANSFERABILITY
 
  No Award granted under the Plan shall be transferable otherwise than by
will, the laws of descent and distribution or pursuant to a qualified domestic
relations order, except an Award may be transferred by gift to any member of
the Participant's immediate family or to a trust for the benefit of one or
more of such immediate family members if the Committee so specifies in the
Award agreement. During the lifetime of an Award recipient, an Award shall be
exercisable only by the Award recipient unless it has been transferred as
permitted hereby, in which case it shall be exercisable only by such
transferee. For the purpose of this Article 9 a Participant's "immediate
family" shall mean the Participant's spouse, children and grandchildren.
 
ARTICLE 10. BENEFICIARY DESIGNATION
 
  Each Participant under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke
all prior designations by the same Participant, shall be in a form prescribed
by the Company, and will be effective only when filed by the Participant in
writing with the Chief Financial Officer of the Company during the
Participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the Participant's
estate.
 
ARTICLE 11. RIGHTS OF EMPLOYEES AND DIRECTORS
 
  11.1 Employment or Service. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any Participant's
employment or service at any time, nor confer upon any Participant any right
to continue in the employ or service of the Company.
 
  For purposes of the Plan, transfer of employment or service of a Participant
between the Company and any one of its Subsidiaries (or between Subsidiaries)
shall not be deemed a termination of employment or service.
 
  11.2 Participation. Subject to Section 4.1, no Employee or Director shall be
entitled to be selected to receive an Award under this Plan, or, having been
so selected, to be selected to receive a future Award.
 
 
                                    10-1-11
<PAGE>
 
ARTICLE 12. CHANGE IN CONTROL
 
  12.1 In General. Unless otherwise set forth in the applicable Award
agreement, in the event of a Change in Control of the Company as defined in
Section 12.2 herein, all Awards granted under this Plan that are still
outstanding and not yet exercisable or vested shall become immediately
exercisable or vested as of the date of the Change in Control and shall remain
exercisable and vested for their term.
 
  12.2 Definition. For purposes of the Plan, a Change in Control shall mean
(i) any third person, including a "group" as defined in Section 13(d)(3) of
the Exchange Act, shall become the beneficial owner of Shares of the Company
with respect to which 25% or more of the total number of votes for the
election of the Board of Directors of the Company may be cast, (ii) as a
result of, or in connection with, any cash tender offer, merger or other
business combination, sale of assets or contested election, or combination of
the foregoing, the persons who were directors of the Company shall cease to
constitute a majority of the Board of Directors of the Company, or (iii) the
stockholders of the Company shall approve an agreement providing either for a
transaction in which the Company will cease to be an independent publicly-
owned corporation or for a sale or other disposition of all or substantially
all the assets of the Company.
 
  The Board has final authority to determine the exact date on which a Change
in Control has been deemed to have occurred.
 
ARTICLE 13. AMENDMENT, MODIFICATION AND TERMINATION
 
  13.1 Amendment, Modification and Termination. The Board may, at any time and
from time to time, terminate, amend, or modify the Plan without the consent of
shareholders or Participants, except that any such action will be subject to
the approval of the Company's shareholders if, when and to the extent such
shareholder approval is necessary or required for purposes of any applicable
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Shares may then be listed or quoted,
or if the Board, in its discretion, determines to seek such shareholder
approval. The Committee may waive any conditions of or rights of the Company
or modify or amend the terms of any outstanding Award. The Committee may not,
however, amend, alter, suspend, discontinue or terminate any outstanding Award
without the consent of the Participant or holder thereof, except as otherwise
herein provided.
 
  13.2 Awards Previously Granted. No termination, amendment, or modification
of the Plan shall in any manner adversely affect any Award previously granted
under the Plan, without the written consent of the Participant.
 
ARTICLE 14. WITHHOLDING
 
  14.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy Federal, state, and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any grant, exercise, or payment made under or as a result of this Plan.
 
  14.2 Share Withholding. With respect to withholding required upon the
exercise of Options, upon the lapse of restrictions on Restricted Stock, or
upon any other taxable event hereunder, Employees may elect, subject to the
approval of the Committee, to satisfy the withholding requirement, in whole or
in part, by having the Company withhold Shares having a Fair Market Value, on
the date the tax is to be determined, equal to the minimum marginal tax which
could be imposed on the transaction.
 
ARTICLE 15. INDEMNIFICATION
 
  Each Person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed
 
                                    10-1-12
<PAGE>
 
upon or reasonably incurred by him or her in connection with or resulting from
any claim, action, suit, or proceeding to which he or she may be a party or in
which he or she may be involved by reason of any action taken or failure to
act under the Plan and against and from any and all amounts paid by him or her
in settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgment in any such action, suit, or proceeding against
him or her, provided he or she shall give the Company an opportunity, at its
own expense, to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such Persons may be entitled under the Company's Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.
 
ARTICLE 16. SUCCESSORS
 
  All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company.
 
ARTICLE 17. REQUIREMENTS OF LAW
 
  17.1 Requirements of Law. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
 
  17.2 Governing Law. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
 
                                    10-1-13