First Federal Bank
                      Employee Severance Compensation Plan



Section 1.01 Purpose.

The purpose of this First Federal Bank Employee Severance Compensation Plan (the
"Plan") is to assure the  services  of  employees  of the Bank in the event of a
Change in  Control  (as  defined  in Section  2.01 of the  Plan).  The  benefits
contemplated  by the Plan  recognize  the value to the Bank of its employees and
the potential effect upon the Bank resulting from the uncertainties of continued
employment,  reduced employee benefits,  management changes and relocations that
may arise in the event of a Change in  Control.  The Board of  Directors  of the
Bank believes  that the Plan will also aid the Bank in attracting  and retaining
the qualified  individuals  essential to the success of the Bank and will reduce
the  distractions  and other adverse  effects on the performance of employees in
the event of a Change in Control.

Section 2.01 Definitions.

In this Plan,  whenever  the context so  indicates,  the  singular or the plural
number and the  masculine  or  feminine  gender  shall be deemed to include  the
other,  the terms  "he,"  "his," and "him,"  shall refer to a  Participant  and,
except as otherwise  provided,  or unless the context  otherwise  requires,  the
capitalized terms shall have the following meanings:

(a)  "Annual  Compensation"  of a  Participant  means and includes all wages and
     salary paid or accrued by the Employer  with  respect to the  Participant's
     service  during the 12  consecutive-month  period ending on the last day of
     the month preceding the date the Participant's employment terminates.

(b)  "Bank" means First Federal Bank, Colchester,  Illinois and any successor to
     First Federal Bank.

(c)  "Board of Directors" means the Board of Directors of the Bank.

(d)  "Change in Control" of the Holding  Company or the Bank shall mean an event
     of a nature that:  (i) would be required to be reported in response to Item
     1(a) 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, as
     amended (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,  the Federal Deposit  Insurance Act, and the Rules
     and Regulations promulgated by the Office of Thrift Supervision ("OTS") (or
     its predecessor agency), as in effect on the date hereof (provided, that in
     applying the  definition  of change in control as set forth under the rules
     and  regulations  of the OTS, the Board of Directors  shall  substitute its
     judgment  for that of the OTS);  or (iii)  without  limitation  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 voting  securities  of the Bank or the
     Holding  Company  representing  20% or more of the  Bank's  or the  Holding
     Company's



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outstanding voting securities or right to acquire such securities except for any
voting  securities of the Bank  purchased by the Holding  Company and any voting
securities  purchased by any employee benefit plan of the Holding Company or its
subsidiaries,  or (B)  individuals  who constitute the 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 Holding  Company's  stockholders  was  approved by a  Nominating
Committee  solely composed of members which are Incumbent  Board members,  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 is  effectuated  in which the Bank or Holding
Company  is not the  resulting  entity;  provided,  however,  that such an event
listed above will be deemed to have  occurred or to have been  effectuated  upon
the receipt of all required federal regulatory approvals not including the lapse
of any statutory waiting periods,  or (D) a proxy statement has been 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 such  plan or  transaction  are
exchanged for or converted into cash or property or securities not issued by the
Bank or the Holding Company shall be distributed,  or (E) a tender offer is made
by a  person  other  than  the  Holding  Company  for 20% or more of the  voting
securities of the Bank or Holding Company then outstanding.

(e)  "Disability" means the permanent and total inability by reason of mental or
     physical infirmity, or both, of an employee to perform the work customarily
     assigned to him. Additionally, a medical doctor selected or approved by the
     Board of Directors must advise the Board of Directors that it is either not
     possible to determine if or when such  Disability will terminate or that it
     appears  probable  that  such  Disability  will  be  permanent  during  the
     remainder of the employee's lifetime.

(f)  "Effective Date" means the date of the Bank's mutual to stock conversion.

(g)  "Employer"  means  (i) the  Bank,  (ii) the  Holding  Company  or (iii) any
     subsidiary  of the Bank or the  Holding  Company  that has adopted the Plan
     pursuant to the provision of Article VI.

(h)  "Holding Company" means First Federal Bancshares, Inc., the holding company
     of the Bank.

(i)  "Participant"  means an employee of an Employer  who meets the  eligibility
     requirements of Article III.

(j)  "Plan" means this First Federal Bank Employee Severance Compensation Plan.

(k)  "Termination  for Cause" means  termination  of  employment  because of the
     Participant's personal dishonesty, incompetence, willful misconduct, breach
     of fiduciary duty involving personal profit,


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     intentional failure to perform stated duties, willful violation of any law,
     rule  or  regulation  (other  than  traffic  violations  or  other  similar
     offenses) or any final cease-and-desist order.

Section 3.01 Eligibility.

(a)  Every employee of an Employer shall be eligible to participate in this Plan
     upon the  completion  of a 12  consecutive-month  period  during  which the
     employee has been credited with at least 500 hours of service.

(b)  Notwithstanding  paragraph (a) of this Section  3.01,  any employee who has
     entered into an employment or change in control  agreement with an Employer
     that is in effect at the time the employee's  employment  terminates  shall
     not be entitled to participate in this Plan.

Section 4.01 Right to Benefits.

(a)  If a Change in Control occurs,  a Participant  shall be entitled to receive
     benefits  under this Plan from his Employer if,  within one (1) year of the
     Change  in  Control,  he  terminates  employment  for any of the  following
     reasons:

     (i)  Dismissal  by the  Employer or the  successor  to the Employer for any
          reason other than Termination for Cause;

     (ii) A reduction of the  Participant's  base salary or rate of compensation
          from that in effect immediately prior to the Change in Control or from
          any increase that occurs subsequent to the Change in Control;

    (iii) A  material  change  in  the   Participant's   functions,   duties  or
          responsibilities  which would cause the  Participant's  position to be
          one of lesser responsibility, importance or scope;

     (iv) A relocation  of the  Participant's  principal  place of employment by
          more  than   twenty-five   (25)  miles  from  the   location   of  the
          Participant's  principal place of employment  immediately prior to the
          Change in Control; provided that the place of relocation is not closer
          to the Participant's primary residence;

     (v)  A material reduction in the benefits and perquisites  available to the
          Participant immediately prior to the Change in Control;

     (vi) A successor to the Employer  fails or refuses to assume the Employer's
          obligations under this Plan, as required by Article VII; or

    (vii) The  Employer,  or  any  successor  to  the  Employer,   breaches  any
          provisions of this Plan.


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Section 4.02 Determination of Benefits.

(a)  Each  Participant  entitled to a Payment under this Plan shall receive from
     his  Employer or any  successor  to his  Employer,  a lump sum cash payment
     equal  to  one-twenty-sixth  of his or her  Annual  Compensation  for  each
     calendar year or fraction thereof during which he or she was employed by an
     Employer or any  successor to an Employer.  Notwithstanding  the  preceding
     sentence,  a Participant shall not receive a severance benefit in excess of
     100% of his or her Annual Compensation.

(b)  Notwithstanding  the  provisions  of paragraph (a) of this Section 4.02, if
     any of the payments and benefits  provided to a Participant under this Plan
     or  otherwise  constitute  an "excess  parachute  payment"  for purposes of
     Sections  280G and 4999 of the Internal  Revenue Code of 1986,  as amended,
     then the  benefits  provided  under this Plan to the  Participant  shall be
     reduced to the extent that they no longer  constitute  an excess  parachute
     payment.

(c)  A Participant shall not be required to mitigate the benefits provided under
     this Plan in any way, including seeking other employment.

(d)  The benefits provided under this Plan shall not be in lieu of or reduced by
     any  compensation  earned  by the  Participant  as a result  of  employment
     following his termination of employment with his Employer.

(e)  Neither the  provisions  of this Plan nor the  benefits  provided for under
     this Plan shall reduce any amounts otherwise payable to a Participant under
     any plan or arrangement of the Participant's Employer.

Section 4.03 Time of Payment.

Any  Participant  entitled to benefits under this Plan shall receive  payment of
those  benefits from the Employer or the successor to the Employer,  in cash and
in full,  not later than thirty (30) business days after the  termination of the
Participant's  employment. If any Participant should die after becoming entitled
to benefits under this Plan but before he has received  payment of the benefits,
then the Employer or the successor to the Employer  shall pay the  benefits,  in
full, to the Participant's  named beneficiary,  if living, or, if not living, to
the Participant's personal representative on behalf of or for the benefit of the
Participant's estate.

Section 4.04 Suspension of Payment.

Notwithstanding  the  foregoing,  no payments or portions  thereof shall be made
under this Plan,  if such payment or portion would result in the Bank failing to
meet its  minimum  regulatory  capital  requirements  as  required  by 12 C.F.R.
ss.567.2.  Any payments or portions  thereof not paid shall be  suspended  until
such time as their  payment  would not  result in a failure  to meet the  Bank's
minimum


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regulatory capital requirements.  Any portion of benefit payments which have not
been suspended will be paid to  Participants  on an equitable  basis,  pro rata,
based upon amounts due each Participant.

Section 5.01 Participating Employers.

Upon approval by the Board of Directors of this Plan, any subsidiary of the Bank
or the Holding  Company  may adopt this Plan for the  benefit of its  employees.
Upon adoption, the subsidiary shall become an Employer for purposes of this Plan
and the  provisions  of the Plan shall be fully  applicable  to the employees of
that subsidiary.  For this purpose,  the term "subsidiary" means any corporation
in which  the Bank or the  Holding  Company,  directly  or  indirectly,  holds a
majority of the voting power of its outstanding shares of capital stock.

Section 5.02 Successors to the Employers.

The Bank and the Holding  Company  shall require that any successor or assignee,
whether direct or indirect, by purchase, merger,  consolidation or otherwise, to
all or  substantially  all the  business  or assets  of the Bank or the  Holding
Company,  expressly  and  unconditionally  to assume  and agree to  perform  the
obligations of the Employers under this Plan.

Section 6.01 Administration.

The Board of Directors or a committee  appointed by the Board of Directors shall
administer the Plan.  Subject to the specific  provisions of the Plan, the Board
of Directors or the committee  shall have the authority to adopt,  amend,  alter
and repeal any  administrative  rules,  guidelines  or practices it may consider
advisable  with respect to the Plan.  The Board of  Directors  or the  committee
shall also have the  authority to interpret  the  provisions  of the Plan and to
resolve all disputes arising in connection with the Plan. The Board of Directors
or the  committee may correct any defect or supply any omission or reconcile any
inconsistency  in the Plan in the manner and to the extent it deems  appropriate
to carry out the purpose of the Plan. The decisions and  interpretations  of the
Board of Directors or the  committee  shall be final and binding.  Any action of
the Board of Directors or the committee  with respect to the  administration  of
the Plan shall be taken pursuant to a majority vote or by the unanimous  written
consent  of  the  members  of the  Board  of  Directors  or  the  committee,  as
appropriate.

Section 6.02. Claims and Review Procedures.

(a)  Claims  procedure.  If any person  believes  he or she is being  denied any
     rights or benefits under the Plan,  such person may file a claim in writing
     with the Board. If any such claim is wholly or partially denied,  the Board
     will notify such person of its decision in writing.  Such notification will
     be written in a manner  calculated to be understood by such person and will
     contain (i) specific  reasons for the denial,  (ii)  specific  reference to
     pertinent Plan provisions,  (iii) a description of any additional  material
     or  information  necessary  for such  person to  perfect  such claim and an
     explanation  of why such  material or  information  is  necessary  and (iv)
     information as to the steps to be taken if


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     the person wishes to submit a request for review. Such notification will be
     given  within 90 days after the claim is  received  by the Board (or within
     180  days,  if  special  circumstances  require  an  extension  of time for
     processing  the  claim,  and  if  written  notice  of  such  extension  and
     circumstances is given to such person within the initial 90 day period). If
     such  notification  is not given  within  such  period,  the claim  will be
     considered  denied as of the last day of such  period  and such  person may
     request a review of his claim.

(b)  Review procedure.  Within 60 days after the date on which a person receives
     a written notice of a denied claim (or, if applicable, within 60 days after
     the date on which such denial is considered to have  occurred)  such person
     (or his duly authorized representative) may (i) file a written request with
     the Board for a review of his denied claim and of pertinent  documents  and
     (ii) submit written issues and comments to the Board. The Board will notify
     such person of its decision in writing.  Such  notification will be written
     in a manner  calculated  to be  understood  by such person and will contain
     specific  reasons  for  the  decision  as well as  specific  references  to
     pertinent  Plan  provisions.  The decision on review will be made within 60
     days after the  request  for review is received by the Board (or within 120
     days, if special  circumstances require an extension of time for processing
     the  requests  such as an election  by the Board to hold a hearing,  and if
     written notice of such extension and  circumstances is given to such person
     within the initial 60 day  period).  If the  decision on review is not made
     within such period, the claim will be considered denied.

Section 6.03 Named Fiduciary.

The Board will be a "named fiduciary" for purposes of Section 402(a)(1) of ERISA
with  authority to control and manage the  operation and  administration  of the
Plan,  and will be  responsible  for  complying  with all of the  reporting  and
disclosure requirements of Part 1 of Subtitle B of Title I of ERISA.

Section 7.01 Amendment and Termination.

(a)  At any time prior to a Change in Control,  the Bank may amend or  terminate
     the Plan by a resolution  adopted by a majority of the Board of  Directors.
     Any amendment or termination of the Plan by the Bank shall apply equally to
     all  Employers.  Further,  at any time  prior to a Change in  Control,  any
     Employer  may  terminate  its  participation  in the  Plan by a  resolution
     adopted by a majority of its board of directors.

(b)  The form of any amendment to the Plan shall be a written  instrument signed
     by a duly authorized  officer or officers of the Bank,  certifying that the
     amendment has been approved by the Board of Directors.

Section 7.02 No Attachment.

(a)  Except as  required by law,  no right to receive  benefits  under this Plan
     shall  be  subject  to   anticipation,   commutation,   alienation,   sale,
     assignment, encumbrance, charge, pledge, or


                                     Page 6

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     hypothecation,  or to execution,  attachment,  levy, or similar  process or
     assignment by operation of law, and any attempt,  voluntary or involuntary,
     to affect such action shall be null, void, and of no effect.

(b)  The provisions of this Plan shall be binding upon, and inure to the benefit
     of, each  Participant,  the Employers and their  respective  successors and
     assigns.

Section 7.03 Legal Fees and Expenses.

All  reasonable  legal fees and other expenses paid or incurred by a Participant
or an  Employer  with  respect  to any claim  under  this Plan  shall be paid or
reimbursed  to the  prevailing  party by the other party in any legal  judgment,
arbitration or settlement.

Section 7.04 Applicable Law.

The  laws of the  State of  Illinois  shall be  controlling  law in all  matters
relating to the Plan to the extent not preempted by federal law.

Section 7.05 Severability.

If any  provision of this Plan is held  illegal or invalid,  the  illegality  or
invalidity of that  provision  shall not affect the remaining  provisions of the
Plan and the Plan shall be  construed  and enforced as if the illegal or invalid
provision had not been included.

Section 7.06 Employment Status.

This Plan does not constitute a contract of employment or impose on any Employer
any  obligation  to  retain  a  Participant,  to  maintain  the  status  of  the
Participant's  employment,  or  to  change  the  Employer's  policies  regarding
termination of employment.

Section 8.01 Required Provisions.

(a)  An Employer may terminate a  Participant's  employment at any time, but any
     termination by the Employer,  other than  Termination for Cause,  shall not
     otherwise  prejudice  the  Participant's  right  to  compensation  or other
     benefits under this Plan.

(b)  If  a  Participant  is  suspended   and/or   temporarily   prohibited  from
     participating in the conduct of the Bank's affairs by a notice served under
     Sections 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
     ss.1818(e)(3) or (g)(1),  the Bank's  obligations  under this Plan 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  Participant  all or part of the  compensation
     withheld while the obligations  were suspended and (ii) reinstate (in whole
     or in part) any of the obligations which were suspended.


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(c)  If  a  Participant   is  removed   and/or   permanently   prohibited   from
     participating in the conduct of the Bank's affairs by an order issued under
     Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
     ss.1818(e)(4) or (g)(1),  all obligations of the Bank under this Plan shall
     terminate as of the effective date of the order.

(d)  If the Bank is in  default,  as defined in Section  3(x)(1) of the  Federal
     Deposit Insurance Act, 12 U.S.C. ss.1813(x)(1), all obligations of the Bank
     under  this  Plan  shall  terminate  as of the date of  default;  provided,
     however,  that this  paragraph  shall not affect  any vested  rights of the
     parties to this Plan.

(e)  Any payments made to a Participant pursuant to this Plan, or otherwise, are
     subject to and conditioned upon their compliance with 12 U.S.C.  ss.1828(k)
     and any regulations promulgated thereunder.

Having been  ratified by the Board of Directors on August 9, 2000,  this Plan is
executed by a duly authorized officer of the Bank on this November 13, 2000.

Attest


/s/ Ronald A. Feld                             /s/ James J. Stebor
-------------------------                      ---------------------------------
                                               James J. Stebor
                                               For the Entire Board of Directors


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