Document:

FIRST FEDERAL BANCSHARES, INC.
                              EMPLOYMENT AGREEMENT

         This AGREEMENT ("Agreement"),  is entered into and made effective as of
September 27, 2000 by and between  First Federal Bancshares, Inc.  (the "Holding
Company"),  a  corporation  organized  under  the  laws of  Delaware,  with  its
principal administrative offices at 109 East Depot Street, Colchester,  Illinois
62326, and James J. Stebor ("Executive").  Any reference to the "Institution" in
this  Agreement  shall mean First Federal Bank or any successor to First Federal
Bank.

         WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and

         WHEREAS,  Executive  is willing  to serve in the employ of the  Holding
Company  and  its  subsidiaries  on a  full-time  basis  for  the  term  of this
Agreement.

         NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  herein
contained,  and upon the other terms and conditions  hereinafter  provided,  the
parties hereby agree as follows:

1. POSITION AND RESPONSIBILITIES.

         During the period of Executive's employment hereunder, Executive agrees
to serve as  President  and Chief  Executive  Officer  of the  Holding  Company.
Executive  shall render  administrative  and management  services to the Holding
Company  such as are  customarily  performed  by persons in a similar  executive
capacity.  During the term of this Agreement,  Executive also agrees to serve an
officer and  director of the  Institution,  as well as a director of the Holding
Company.

2. TERMS.

         (a) The period of Executive's  employment under this Agreement shall be
deemed to have  commenced as of the date first written above and shall  continue
for a period of thirty-six (36) full calendar months from that date.  Commencing
on the date of execution of this Agreement,  the term of this Agreement shall be
extended for one day each day, so that a constant thirty-six (36) calendar month
term shall  remain in effect,  until such time as the Board of  Directors of the
Holding Company (the "Board") or Executive  elects not to extend the term of the
Agreement by giving written notice to the other party, in which case the term of
this Agreement shall be fixed and shall end on the third anniversary of the date
of such written notice.

         (b) During the period of Executive's  employment hereunder,  except for
periods of absence occasioned by illness, vacation periods, and other reasonable
leaves of absence,  Executive  shall  devote  substantially  all of his business
time,  attention,  skill, and efforts to the faithful  performance of his duties
hereunder,  including  activities  and  services  related  to the  organization,
operation  and  management  of the  Holding  Company  and its direct or indirect
subsidiaries ("Subsidiaries") and participation in industry, community and civic
organizations;  provided,  however,  that,  with the  approval of the Board,  as
evidenced by a resolution of the Board, from time to time,  Executive may serve,
or continue to serve,  on the boards of directors of, and hold any other offices
or positions in,  companies or  organizations,  which, in the Board's  judgment,
will not present

<PAGE>

any  conflict  of  interest  with the Holding  Company or its  Subsidiaries,  or
materially  affect  the  performance  of  Executive's  duties  pursuant  to this
Agreement.

         (c) Notwithstanding anything in this Agreement to the contrary,  either
Executive or the Holding Company may terminate  Executive's  employment with the
Holding  Company at any time during the term of this  Agreement,  subject to the
terms and conditions of this Agreement.

3. COMPENSATION AND REIMBURSEMENT.

         (a) The  compensation  specified under this Agreement shall  constitute
consideration  paid by the Holding Company in exchange for the duties  described
in Section 1 of this  Agreement.  The Holding  Company shall pay  Executive,  as
compensation,  a salary of not less than $110,000  ("Base Salary").  Base Salary
shall  include  any amounts of  compensation  deferred  by  Executive  under any
tax-qualified   retirement  or  welfare  benefit  plan  or  any  other  deferred
compensation  arrangement maintained by the Holding Company or its Subsidiaries.
Base Salary shall be payable in accordance with the normal payroll  practices of
the  Holding  Company.  During the period of this  Agreement,  Executive's  Base
Salary  shall be reviewed at least  annually.  Such review shall be conducted by
the Board or by a committee of the Board  delegated such  responsibility  by the
Board.  The committee or the Board may increase  Executive's  Base Salary at any
time. Any increase in Base Salary shall thereafter  become the new "Base Salary"
for purposes of this Agreement.

         (b) Executive shall be entitled to participate in any employee  benefit
plans,  arrangements and perquisites  substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement,  and the Holding Company and its
Subsidiaries  will not,  without  Executive's  prior written  consent,  make any
changes in such plans,  arrangements or perquisites (or any plans,  arrangements
or perquisites with respect to which Executive begins to participate at any time
during the term of this  Agreement)  which would  adversely  affect  Executive's
rights or benefits  thereunder,  without separately providing for an arrangement
that  ensures  Executive  receives  or will  receive  the  economic  value  that
Executive would  otherwise lose as a result of such adverse effect,  unless such
change is  general in nature and  applies in a  nondiscriminatory  manner to all
employees covered by the plan,  arrangement or perquisite.  Without limiting the
generality of the foregoing  provisions of this Subsection 3(b), Executive shall
be entitled to  participate in and receive  benefits under any employee  benefit
plans including,  but not limited to, retirement plans (such as pension,  profit
sharing and employee stock  ownership  plans),  supplemental  retirement  plans,
incentive plans, health and welfare plans and any other employee benefit plan or
arrangement  made available by the Holding Company or its Subsidiaries now or in
the  future  to  full-time  employees  of  the  Holding  Company  and/or  senior
executives  and  key  management   employees  of  the  Holding  Company  or  its
Subsidiaries,  subject to and on a basis  consistent with the terms,  conditions
and  overall  administration  of such plans and  arrangements.  Nothing  paid to
Executive under any such plans or  arrangements  will be deemed to be in lieu of
other  compensation  and  benefits to which  Executive  is  entitled  under this
Agreement.

         (c) The  Holding  Company  shall  pay or  reimburse  Executive  for all
reasonable  expenses  incurred by Executive in performing his obligations  under
this Agreement.

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4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.

         (a) Upon the occurrence of an Event of Termination  (as herein defined)
during  Executive's term of employment  under this Agreement,  the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following:  (i) the termination by
the Holding Company of Executive's full-time employment hereunder for any reason
other  than  termination  governed  by  Subsection  5(a) of this  Agreement,  or
Termination for Cause, as defined in Section 7 of this Agreement,  or Retirement
or  Disability,  as  defined  in  paragraph  (e)  of  this  Section  4 or;  (ii)
Executive's resignation from the Holding Company's employ, upon, any (A) failure
to re-elect or re-appoint  Executive as President and Chief Executive Officer of
the Holding Company or failure to nominate or re-elect Executive to the Board of
Directors of the Holding Company or of the  Institution,  unless consented to by
Executive,   (B)  material   change  in   Executive's   function,   duties,   or
responsibilities  with the Holding  Company or its  Subsidiaries,  which  change
would  cause  Executive's  position  to  become  one of  lesser  responsibility,
importance,  or scope from the  position  and  attributes  thereof  described in
Section 1 of this  Agreement  (and any such  material  change shall be deemed as
continuing  breach of this  Agreement),  unless  consented to by Executive,  (C)
relocation of  Executive's  principal  place of employment by more than 25 miles
from its location at the effective date of this Agreement,  unless  consented to
by  Executive,   (D)  material  reduction  in  the  benefits,   arrangements  or
perquisites  to  Executive  which is not general in nature and  applicable  on a
nondiscriminatory basis to all employees covered by such benefits, arrangements,
or  perquisites  or,  pursuant to Subsection  3(b) of this  Agreement,  to which
Executive does not consent or for which Executive is not or will not be provided
the economic  benefit,  (E) liquidation or dissolution of the Holding Company or
the Institution,  or (F) breach of this Agreement by the Holding  Company.  Upon
the occurrence of any event described in clauses (A), (B), (C), (D), (E),or (F),
above,  Executive  shall have the right to elect to terminate  employment  under
this Agreement by  resignation  upon not less than sixty (60) days prior written
notice given within six full calendar months after the event giving rise to said
right to elect.

         (b) Upon the  occurrence  of an  Event of  Termination,  on the Date of
Termination,  as defined in Section 8 of this  Agreement,  the  Holding  Company
shall be obligated to pay Executive,  or, in the event of Executive's subsequent
death, his beneficiary or beneficiaries,  or his estate, as the case may be, the
amount of the remaining  payments and benefits that Executive  would have earned
if he had continued his employment with the Holding Company during the remaining
unexpired  term of this  Agreement,  based on  Executive's  Base  Salary and the
benefits  provided to Executive as of the date of the Event of  Termination,  as
set forth in Subsections 3(a) and (b) of this Agreement, as the case may be, and
the amount  still due  Executive  under any  paragraph of Section 3 for services
rendered  through the Date of  Termination.  Except as provided for below and in
paragraph (c) of this Section 4, the determination of Executive's benefits as of
the date of the Event of Termination shall be made based on (i) the value of the
allocation  attributable to employer contributions for the most recent plan year
under any defined  contribution  type plan;  (ii) the amount of any incentive or
bonus  payment  for the most  recently-completed  fiscal  year;  and  (iii)  the
employer-provided  cost of any  other  benefit  for the most  recently-completed
fiscal  year.  In  addition,  for  purposes of  determining  his vested  accrued
benefit,  Executive  shall be credited  either under any defined benefit

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pension plan maintained by the Institution (whether or not tax-qualified) or, if
not permitted under such plan, under a separate arrangement, with the additional
"years of service"  that he would have  earned for  vesting and benefit  accrual
purposes  for  the  remaining  term of the  Agreement  had  his  employment  not
terminated.  At the election of Executive,  which  election is to be made within
thirty (30) days of the Date of  Termination,  such payments  shall be made in a
lump sum  (without  discount  for early  payment)  or paid  monthly  during  the
remaining term of the agreement following Executive's termination.  In the event
that no election is made,  payment to Executive will be made in a lump sum. Such
payments shall not be reduced in the event  Executive  obtains other  employment
following  termination of employment.  Notwithstanding  anything to the contrary
elsewhere in this  Agreement,  to the extent  Executive is entitled to continued
coverage or benefit  accrual under any retirement or welfare benefit plan during
the remaining  unexpired term of this  Agreement,  the amount payable under this
Subsection  4(b)  shall  be  adjusted  to the  extent  necessary  to  avoid  any
duplication of such benefits.

         (c) To the extent that the Holding Company or its Subsidiaries continue
to offer any life,  medical,  health,  disability  or dental  insurance  plan or
arrangement in which Executive participates in on the last day of his employment
(each  being a  "Welfare  Plan"),  after  an  Event of  Termination  (as  herein
defined),  Executive and his  dependents  shall continue  participating  in such
Welfare  Plans,  subject  to the  same  premium  contributions  on the  part  of
Executive as were required  immediately  prior to the Event of Termination until
the earlier of: (i) his death;  (ii) his  employment by another  employer  other
than one of which he is the majority  owner;  or (iii) the end of the  remaining
term of this  Agreement.  If the Holding  Company or its  Subsidiaries  does not
offer the Welfare Plans (or if for any reason Executive's  participation in said
plans is prohibited)  after the Event of  Termination,  then the Holding Company
shall provide Executive with a payment equal to the  employer-paid  premiums for
such benefit for the period which runs until the earlier of: (i) his death; (ii)
his  employment by another  employer  other than one of which he is the majority
owner; or (iii) the end of the remaining term of this Agreement.

         (d) In the event that Executive is receiving  monthly payments pursuant
to Subsection 4(b) of this Agreement,  on an annual basis,  thereafter,  between
the dates of  January 1 and  January  31 of each  year,  Executive  shall  elect
whether  the balance of the amount  payable  under the  Agreement  for that year
shall be paid in a lump  sum or on a pro  rata  basis.  Such  election  shall be
irrevocable for the year for which such election is made.

         (e)  Termination  of  Executive   based  on  "Retirement"   shall  mean
termination by written notice to the Holding  Company or its  Subsidiaries  from
Executive  specifying an exact retirement date or termination in accordance with
any retirement  arrangement  established with  Executive's  written consent with
respect to him.  Termination of Executive based on Disability shall mean written
notice to the Holding  Company or its  Subsidiaries  by Executive  specifying an
exact  date  as of  which  he is  unable  to  perform  all  of  the  duties  and
responsibilities of his position. Upon termination of Executive upon Disability,
Executive  shall be entitled to all benefits  under any  disability  plan of the
Holding  Company or its  Subsidiaries or any other plans in which Executive is a
participant in accordance with the terms of the plan or  arrangement.  Executive
shall be entitled

                                     Page 4

<PAGE>

to all  compensation  and benefits  provided for in Section 3 of this  Agreement
through the date of his  termination  of  employment  as specified in the notice
provided by him.

5. CHANGE IN CONTROL.

         (a) For  purposes  of this  Agreement,  a "Change  in  Control"  of the
Holding  Company or the  Institution  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 (the "Exchange  Act"); or (ii) results in a
Change in Control of the  Institution 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 (or its predecessor agency) ("OTS"), 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  shall  substitute  its
judgment  for that of the OTS);  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 voting  securities of the Institution or the Holding
Company  representing 20% or more of the  Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting  securities of the  Institution  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 members who
were nominated by the Incumbent  Board), or whose nomination for election by the
Company's stockholders was approved by a Nominating Committee solely composed of
members which are Incumbent  Board members (or members who were nominated by the
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
Institution  or  the  Holding  Company  or  similar  transaction  occurs  or  is
effectuated  in which the  Institution  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 Institution
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  Institution
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 Institution or Holding Company then outstanding.

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<PAGE>

         (b) If any of the events described in Subsection 5(a) of this Agreement
constituting a Change in Control have occurred, or the Board has determined that
a Change in Control has  occurred,  Executive  shall be entitled to the benefits
provided  in  paragraphs  (c),  (d),  (e)  and (f) of this  Section  5 upon  his
termination  of employment on or after the date the Change in Control occurs due
to (i) Executive's  dismissal at any time during the term of this Agreement,  or
(ii) Executive's  resignation  following any demotion,  loss of title, office or
significant authority or responsibility, reduction in the annual compensation or
benefits or relocation of Executive's principal place of employment by more than
25 miles from its location  immediately  prior to the Change in Control,  unless
such  termination is because of  Executive's  Termination  for Cause;  provided,
however,  Executive may consent in writing to any such demotion, loss, reduction
or  relocation.  The  effect of any  written  consent  of  Executive  under this
Subsection 5(b) shall be strictly limited to the terms specified in such written
consent.  Under no circumstances can a termination of employment during the term
of this  Agreement on or after the date a Change in Control occurs be considered
a termination on account of retirement or disability for purposes of determining
Executive's  rights to the payment of benefits  provided in paragraphs (c), (d),
(e), and (f) of this Section 5.

         (c) Upon Executive's entitlement to payment pursuant to Subsection 5(b)
of this Agreement,  the Holding Company shall pay Executive,  or in the event of
Executive's  subsequent  death,  Executive's  beneficiary or  beneficiaries,  or
estate, as the case may be, as severance pay or liquidated  damages,  or both, a
sum equal to the greater of: (i) the payments and benefits  that would have been
due  pursuant  to  Section 3 of this  Agreement  for the  remaining  term of the
Agreement  (determined in the same manner set forth in paragraphs (b) and (c) of
Section 4 of this Agreement;  or (ii) three (3) times Executive's average annual
compensation  for the five most recently  completed  taxable years of Executive.
For purposes of this Subsection  5(c),  annual  compensation  shall include Base
Salary  and  any  other  taxable  income  paid  by the  Holding  Company  or its
Subsidiaries,  including  but not  limited to amounts  related to the  granting,
vesting or exercise of  restricted  stock or stock option  awards,  commissions,
bonuses, severance payments, retirement benefits, director or committee fees and
fringe benefits paid or to be paid to Executive or paid for Executive's  benefit
during any such year, as well as profit  sharing,  employee stock ownership plan
and other retirement  contributions or benefits,  including any tax-qualified or
non-tax-qualified  plan or arrangement  (whether or not taxable) made or accrued
on behalf of  Executive  for such year.  At the  election  of  Executive,  which
election  is to be made  prior  to or  within  thirty  (30)  days of the Date of
Termination  on or following a Change in Control,  such payment may be made in a
lump sum (without  discount for early payment) on or  immediately  following the
Date of Termination  (which may be the date a Change in Control  occurs) or paid
in equal  monthly  installments  during the  thirty-six  (36)  months  following
Executive's  termination.  In the event  that no  election  is made,  payment to
Executive  will be made in a lump sum. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.

         (d) Upon the occurrence of a Change in Control  followed by Executive's
termination  of employment,  Executive will be entitled to receive  benefits due
him under or  contributed  by the  Holding  Company or its  Subsidiaries  on his
behalf pursuant to any  retirement,  incentive,  profit sharing,  employee stock
ownership,  bonus,  performance,  disability or other  employee  benefit plan or
other  arrangement  maintained  by the  Institution  or the  Holding  Company on
Executive's behalf

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<PAGE>

to the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement. In addition, for purposes of determining his vested
accrued  benefit,  Executive  shall be credited either under any defined benefit
pension plan maintained by the Institution (whether or not tax-qualified) or, if
not permitted under such plan, under a separate arrangement, with the additional
"years of service"  that he would have  earned for  vesting and benefit  accrual
purposes  for  the  remaining  term of the  Agreement  had  his  employment  not
terminated.

         (e)  Upon  the  occurrence  of a  Change  in  Control  and  Executive's
termination of employment  pursuant to the provisions of Subsection 5(b) of this
Agreement  in  connection  therewith,  the  Holding  Company  will  cause  to be
continued  any welfare Plan benefit (as  described  in  Subsection  4(d) of this
Agreement)  substantially  identical to the benefits coverage  maintained by the
Holding  Company or its  Subsidiaries  for Executive  and any of his  dependents
covered  under such plans prior to the Change in Control.  Such  coverage  shall
cease upon the expiration of thirty-six (36) full calendar months  following the
Date  of  Termination.  In the  event  Executive's  or  Executive's  dependent's
participation  in any such plan or program is barred,  the Holding Company shall
arrange  to  provide   Executive  and  his  dependents  with  benefits  coverage
substantially  similar  to  those  which  Executive  and  his  dependents  would
otherwise  have been  entitled  to  receive  under such  plans and  programs  by
operation of this  provision or provide their  economic  equivalent to executive
and his dependents.

         (f) In the event that Executive is receiving  monthly payments pursuant
to Subsection 5(c) of this Agreement,  on an annual basis,  thereafter,  between
the dates of  January 1 and  January  31 of each  year,  Executive  shall  elect
whether  the balance of the amount  payable  under the  Agreement  for that year
shall be paid in a lump sum pursuant to such  provision.  Such election shall be
irrevocable for the year for which such election is made.

6. CHANGE IN CONTROL RELATED PROVISIONS.

         (a)  Notwithstanding  the  preceding  provisions  of  Section 5 of this
Agreement,  for any  taxable  year in which  Executive  shall be liable  for the
payment of an excise tax under Section 4999 of the Internal Revenue Code (or any
successor provision  thereto),  with respect to any payment in the nature of the
compensation  made by the  Holding  Company or its  Subsidiaries  to (or for the
benefit of)  Executive  pursuant to this  Agreement  or  otherwise,  the Holding
Company (or any successor  thereto) shall pay to Executive an amount  determined
under the following formula:

         An amount equal to:  (E x P) + X

WHERE:

         X  =               E x P
             ------------------------------------------------------------
             1 - [(FI x (1 - SLI)) + SLI + E + M]
and
         E  =  the rate at which the excise tax is assessed under Section
               4999 of the Code;

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          P  = the amount  with  respect to which such  excise tax is  assessed,
               determined without regard to this Section 6;

          FI = the highest  marginal  rate of federal  income,  employment,  and
               other taxes (other than taxes  imposed  under Section 4999 of the
               Code)  applicable  to Executive  for the taxable year in question
               with respect to such payment (including any effective increase in
               Executive's tax rate  attributable to the resultant  disallowance
               of any  deduction or the  phase-out of any personal  exemption or
               similar items);

        SLI  = the sum of  the highest marginal  rates of income and payroll tax
               applicable to Executive under applicable state and local laws for
               the taxable year in question (including any effective increase in
               Executive's tax rate  attributable to the resultant  disallowance
               of any  deduction or the  phase-out of any personal  exemption or
               similar items);

          M  =  highest marginal rate of Medicare tax; and

With  respect to any payment in the nature of  compensation  that is made to (or
for the benefit of) Executive under the terms of this Section 6 or otherwise and
on which an excise tax under  Section  4999 of the Code may or will be assessed,
the payment  determined  under this  Section 6 shall be made to Executive on the
earliest of (i) the date the Holding  Company is required to withhold  such tax,
(ii) the date the tax is required to be paid by Executive,  or (iii) at the time
of termination  resulting from the Change in Control. It is the intention of the
parties  that the Holding  Company  provide  Executive  with a full tax gross-up
under the  provisions of this Section 6, so that on a net after-tax  basis,  the
result to  Executive  shall be the same as if the excise tax under  Section 4999
(or any successor provisions) of the Code had not been imposed. The tax gross-up
may be adjusted, as appropriate, if alternative minimum tax rules are applicable
to Executive.

         (b) Notwithstanding the foregoing, if it is (i) initially determined by
the Holding  Company's tax advisors that no excise tax under Section 4999 of the
Code is due with  respect  to any  payment  or  benefit  described  in the first
paragraph of Subsection 6(a) and thereafter it is determined in a final judicial
determination or  administrative  settlement that the Section 4999 excise tax is
due with respect to such  payments or benefits or  subsequently  determined in a
final  judicial  determination  or a final  administrative  settlement  to which
Executive  is a party that the excise tax under  Section 4999 of the Code is due
or that the excess  parachute  payment as defined in Section 4999 of the Code is
more than the amount determined as "P", above (such revised  determination under
(i) or (ii) above  thereafter  being  referred to as the  "Determinative  Excess
Parachute  Payment"),  then the tax  advisors  of the  Holding  Company  (or any
successor  thereto) shall determine the amount (the  "Adjustment  Amount"),  the
Holding  Company (or any successor  thereto) must pay to Executive,  in order to
put  Executive in the same  position as Executive  would have been if the amount
determined  as "P" above had been equal to the  Determinative  Excess  Parachute
Payment.  In determining the Adjustment Amount, the tax advisors shall take into
account any and all taxes (including any penalties and interest) paid or payable
by Executive in connection with such final

                                     Page 8

<PAGE>

judicial   determination  or  final  administrative   settlement.   As  soon  as
practicable  after the  Adjustment  Amount has been so  determined,  the Holding
Company shall pay the Adjustment Amount to Executive.

         (c) The Holding  Company (or its  successor)  shall  indemnify and hold
Executive  harmless  from any and all  losses,  costs  and  expenses  (including
without limitation,  reasonable attorney's fees,  reasonable  accountant's fees,
interest, fines and penalties of any kind) which Executive incurs as a result of
any  administrative  or judicial  review of Executive's  liability under Section
4999 of the Code by the Internal  Revenue Service or any comparable state agency
through and including a final  judicial  determination  or final  administrative
settlement of any dispute  arising out of Executive's  liability for the Section
4999 excise tax or  otherwise  relating to the  classification  for  purposes of
Section 280G of the Code of any payment or benefit in the nature of compensation
made or provided to Executive by the Holding  Company or any successor  thereto.
Executive  shall  promptly  notify  the  Holding  Company  in  writing  whenever
Executive  receives notice of the commencement of any judicial or administrative
proceeding, formal or informal, in which the federal tax treatment under Section
4999 of the Code of any amount paid or payable under this Supplemental Agreement
is being reviewed or is in dispute (including a notice of audit or other inquiry
concerning  the reporting of  Executive's  liability  under Section  4999).  The
Holding  Company (or its  successor)  may assume control at its expense over all
legal and accounting  matters  pertaining to such federal or state tax treatment
(except to the extent necessary or appropriate for Executive to resolve any such
proceeding  with  respect to any  matter  unrelated  to amounts  paid or payable
pursuant to this contract) and Executive  shall cooperate fully with the Holding
Company in any such proceeding. Executive shall not enter into any compromise or
settlement  or  otherwise  prejudice  any rights  the  Holding  Company  (or its
successor) may have in connection therewith without prior consent to the Holding
Company  (or its  successor).  In the event  that the  Holding  Company  (or any
successor  thereto) elects not to assume control over such matters,  the Holding
Company (or any successor  thereto) shall promptly  reimburse  Executive for all
expenses  related thereto as and when incurred upon  presentation of appropriate
documentation relating thereto.

7. TERMINATION FOR CAUSE.

         The term  "Termination  for Cause"  shall mean  termination  because of
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,  regulation  (other than traffic
violations or similar offenses), final cease and desist order or material breach
of any provision of this  Agreement.  In determining  incompetence,  the acts or
omissions shall be measured  against the standards for  professional  competence
generally  prevailing for executive officers having comparable  positions in the
savings institution industry. Notwithstanding the foregoing, Executive shall not
be deemed to have been  terminated  for cause  unless and until there shall have
been delivered to Executive a Notice of  Termination  which shall include a copy
of a  resolution  duly  adopted  by  the  affirmative  vote  of  not  less  than
three-fourths  of the members of the Board at a meeting of the Board  called and
held for that purpose (after  reasonable  notice to Executive and an opportunity
for  Executive,  together with  counsel,  to be heard before the Board and which
such meeting  shall be held not more than 30 days from the date of notice during
which period Executive

                                     Page 9

<PAGE>

may be suspended with pay), 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. Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause except
for  compensation  and benefits  already  vested.  Any stock options and related
limited rights granted to Executive under any stock option plan, or any unvested
awards  granted to  Executive  under any  restricted  stock  benefit plan of the
Holding Company or its  Subsidiaries,  shall become null and void effective upon
Executive's  receipt of a Notice of  Termination  pursuant  to Section 8 of this
Agreement, and shall not be exercisable by or delivered to Executive at any time
subsequent to such  Termination for Cause except all benefits shall be deemed to
have remained in effect if Executive is reinstated.

8. NOTICE.

         (a) Any purported  termination  by the Holding  Company or by Executive
shall be communicated by a 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 reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's  employment  under the
provision so indicated.

         (b)  Except  as  otherwise  provided  for in this  Agreement,  "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).

         (c) 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  reasonable  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  therefrom  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.
Notwithstanding  the  pendency of any such  dispute,  the Holding  Company  will
continue to pay  Executive's  Base Salary and continue to cover  Executive under
each Welfare  Benefit Plan in which  Executive  participated at the time of such
notice in effect when the notice  giving rise to the dispute was given until the
dispute is finally  resolved in  accordance  with this  Agreement.  Amounts paid
under this  Subsection  8(c) are in addition to all other amounts due under this
Agreement and shall not be offset  against or reduce any other amounts due under
this Agreement.

                                    Page 10

<PAGE>

9. POST-TERMINATION OBLIGATIONS.

All payments and benefits to Executive  under this Agreement shall be subject to
Executive's  compliance  with this  Section 9 for two (2) full  years  after the
earlier of the  expiration  of this  Agreement  or  termination  of  Executive's
employment with the Holding Company.  Executive shall,  upon reasonable  notice,
furnish such  information  and assistance to the Holding  Company with regard to
matters as to which he has personal  knowledge and as may reasonably be required
by the Holding  Company in connection  with any litigation in which it or any of
its  Subsidiaries or affiliates is, or may become,  a party. The Holding Company
shall  reimburse  Executive for all  out-of-pocket  expenses  incurred and at an
hourly rate  equivalent to the hourly rate (based on an eight-hour  work day) of
his Base Salary in effect at the time of his termination from employment for any
time incurred in connection with services rendered pursuant to this Section 9.

10. NON-COMPETITION.

         (a) Upon any termination of Executive's  employment  hereunder pursuant
to Section 4 of this Agreement, Executive agrees not to compete with the Holding
Company  or its  Subsidiaries  for a  period  of one  (1)  year  following  such
termination in any city,  town or county in which  Executive's  normal  business
office is located  and the  Holding  Company or any of its  Subsidiaries  has an
office or has filed an  application  for  regulatory  approval to  establish  an
office,  determined  as of the  effective  date of such  termination,  except as
agreed to pursuant to a resolution duly adopted by the Board.  Executive  agrees
that during such period and within said cities,  towns and  counties,  Executive
shall not work for or advise,  consult or  otherwise  serve  with,  directly  or
indirectly,  any entity whose business  materially competes with the depository,
lending or other business activities of the Holding Company or its Subsidiaries.
The  parties  hereto,  recognizing  that  irreparable  injury will result to the
Holding Company or its  Subsidiaries,  its business and property in the event of
Executive's  breach of this Subsection 10(a) agree that in the event of any such
breach by Executive, the Holding Company or its Subsidiaries,  will be entitled,
in addition to any other  remedies and damages  available,  to an  injunction to
restrain  the  violation  hereof by  Executive,  Executive's  partners,  agents,
servants,  employees  and all  persons  acting  for or under  the  direction  of
Executive.  Executive represents and admits that in the event of the termination
of  his  employment  pursuant  to  Section  4  of  this  Agreement,  Executive's
experience and capabilities  are such that Executive can obtain  employment in a
business  engaged in other lines  and/or of a different  nature than the Holding
Company  or its  Subsidiaries,  and that the  enforcement  of a remedy by way of
injunction will not prevent Executive from earning a livelihood.  Nothing herein
will be construed as prohibiting  the Holding Company or its  Subsidiaries  from
pursuing any other remedies available to the Holding Company or its Subsidiaries
for such breach or  threatened  breach,  including  the recovery of damages from
Executive.

         (b) Executive  recognizes  and  acknowledges  that the knowledge of the
business activities and plans for business activities of the Holding Company and
its  Subsidiaries as it may exist from time to time, is a valuable,  special and
unique  asset of the  business  of the  Holding  Company

                                    Page 11

<PAGE>

and  its  Subsidiaries.  Executive  will  not,  during  or  after  the  term  of
Executive's employment,  disclose any knowledge of the past, present, planned or
considered  business  activities  of the Holding  Company  and its  Subsidiaries
thereof to any  person,  firm,  corporation,  or other  entity for any reason or
purpose  whatsoever  unless  expressly  authorized  by the Board of Directors or
required by law.  Notwithstanding  the  foregoing,  Executive  may  disclose any
knowledge of banking,  financial and/or economic  principles,  concepts or ideas
which  are not  solely  and  exclusively  derived  from the  business  plans and
activities of the Holding Company. In the event of a breach or threatened breach
by Executive of the  provisions of this Section 10, the Holding  Company will be
entitled to an injunction restraining Executive from disclosing,  in whole or in
part,  the  knowledge  of the past,  present,  planned  or  considered  business
activities  of the Holding  Company or its  Subsidiaries  or from  rendering any
services to any person, firm, corporation,  other entity to whom such knowledge,
in whole or in  part,  has been  disclosed  or is  threatened  to be  disclosed.
Nothing  herein  will be  construed  as  prohibiting  the Holding  Company  from
pursuing any other remedies  available to the Holding Company for such breach or
threatened breach, including the recovery of damages from Executive.

11. SOURCE OF PAYMENTS.

         (a) All payments provided for in this Agreement shall be timely paid in
cash,  check or other mutually  agreed upon method from the general funds of the
Holding Company subject to Subsection 11(b) of this Agreement.

         (b) Notwithstanding any provision herein to the contrary, to the extent
that  payments  and  benefits,  as  provided by this  Agreement,  are paid to or
received by Executive under an employment  agreement in effect between Executive
and the Institution,  such payments and benefits paid by the Institution will be
subtracted  from any  amount  due  simultaneously  to  Executive  under  similar
provisions  of this  Agreement.  Payments  pursuant  to this  Agreement  and the
Institution  Agreement shall be allocated in proportion to the level of activity
and the time  expended on such  activities  by  Executive as  determined  by the
Holding Company and the  Institution on a quarterly  basis;  provided,  however,
that except for the reduction  provided by the first sentence of this Subsection
11(b),  the Holding  Company  will be  obligated  to pay 100% of the amounts due
Executive hereunder.

12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.

         This Agreement  contains the entire  understanding  between the parties
hereto and supersedes any prior employment agreement between the Holding Company
or any  predecessor  of the  Holding  Company  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.

                                    Page 12

<PAGE>

13. 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 and the Holding Company and their respective successors and assigns.

14. 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 as to any act other than that specifically
waived.

15. 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.

16. HEADINGS FOR REFERENCE ONLY.

         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.

17. GOVERNING LAW.

         This Agreement  shall be governed by the laws of the State of Delaware,
unless otherwise specified in this Agreement.

                                    Page 13

<PAGE>

18. ARBITRATION.

         Any dispute or  controversy  arising under or in  connection  with this
Agreement shall be settled exclusively by arbitration,  conducted before a panel
of three  arbitrators  sitting in a location  selected by Executive within fifty
(50) miles from the location of the Association, 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 Executive's 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.

         In the event any dispute or controversy  arising under or in connection
with  Executive's  termination  is  resolved in favor of  Executive,  whether by
judgment, arbitration or settlement,  Executive shall be entitled to the payment
of all  back-pay,  including  salary,  bonuses and any other cash  compensation,
fringe  benefits and any  compensation  and benefits  due  Executive  under this
Agreement.

19. 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 Holding Company,  if Executive is successful  pursuant to a
legal judgment, arbitration or settlement.

20. INDEMNIFICATION.

         The Holding  Company shall  provide  Executive  (including  Executive's
heirs,  executors and administrators)  with coverage under a standard directors'
and  officers'  liability  insurance  policy at its expense and shall  indemnify
Executive (and Executive's heirs,  executors and  administrators) to the fullest
extent  permitted  under  Delaware  law against  all  expenses  and  liabilities
reasonably  incurred  by  Executive  in  connection  with or arising  out of any
action,  suit or  proceeding  in which  Executive  may be  involved by reason of
Executive  having  been a  director  or officer  of the  Holding  Company or its
Subsidiaries  (whether or not Executive continues to be a director or officer at
the  time  of  incurring  such  expenses  or  liabilities),  such  expenses  and
liabilities  to include,  but not to be limited to,  judgments,  court costs and
attorneys' fees and the cost of reasonable settlements.

21. SUCCESSOR TO THE HOLDING COMPANY.

         The Holding  Company shall  require 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,  to
expressly and unconditionally  assume and agree to perform the Holding Company's
obligations under this Agreement, in the same manner and to the same extent that
the  Holding  Company  would be  required  to perform if no such  succession  or
assignment had taken place.

                                     Page 14

<PAGE>

                                   SIGNATURES

         IN WITNESS  WHEREOF,  First  Federal  Bancshares,  Inc. has caused this
Agreement,  to be  executed  and its  seal to be  affixed  hereunto  by its duly
authorized  officer and  Executive  has signed this  Agreement,  on November 13,
2000.

ATTEST:                                    FIRST FEDERAL BANCSHARES, INC.

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

                  [SEAL]

WITNESS:                                   EXECUTIVE

/s/ Cathy D. Pendell                       By:  /s/ James J. Stebor
--------------------------                      --------------------------------
Executive                                       James J. Stebor
                                                President and Chief Executive
                                                 Officer

                                     Page 15FIRST FEDERAL BANK
                              EMPLOYMENT AGREEMENT

         This AGREEMENT ("Agreement"),  is entered into and made effective as of
September 27, 2000 by and between  First Federal Bank (the "Bank"),  a federally
chartered savings institution,  with its principal administrative offices at 109
East Depot Street, Colchester, Illinois 62326, First Federal Bancshares, Inc., a
corporation  organized  under the laws of the  state of  Delaware,  the  holding
company of the Bank (the "Holding Company") and James J. Stebor ("Executive").

         WHEREAS,  the Bank wishes to assure itself of the services of Executive
for the period provided in this Agreement; and

         WHEREAS,  Executive  is  willing to serve in the employ of the Bank and
its subsidiaries on a full-time basis for the term of this Agreement.

         NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  herein
contained,  and upon the other terms and conditions  hereinafter  provided,  the
parties hereby agree as follows:

1. POSITION AND RESPONSIBILITIES.

         During the period of Executive's employment hereunder, Executive agrees
to serve as President of the Bank.  Executive  shall render  administrative  and
management services to the Bank such as are customarily  performed by persons in
a similar executive capacity. During the term of this Agreement,  Executive also
agrees to serve as a director of the Bank.

2. TERMS.

         (a) The period of Executive's  employment under this Agreement shall be
deemed to have  commenced as of the date first written above and shall  continue
for a period of thirty-six (36) full calendar months from that date.  Commencing
on the  first  anniversary  date  of  this  Agreement,  and  continuing  on each
anniversary  thereafter,  the disinterested members of the board of directors of
the Bank  ("Board") may extend the  Agreement an  additional  year such that the
remaining  term of the  Agreement  shall be three (3)  years,  unless  Executive
elects not to extend the term of this  Agreement by giving written notice to the
Bank. The Board will review the Agreement and Executive's  performance  annually
for purposes of  determining  whether to extend the  Agreement and the rationale
and results thereof shall be included in the minutes of the Board's meeting. The
Board shall give notice to Executive as soon as possible after such review as to
whether the Agreement is to be extended.

         (b) During the period of Executive's  employment hereunder,  except for
periods of absence occasioned by illness, vacation periods, and other reasonable
leaves of absence,  Executive  shall  devote  substantially  all of his business
time,  attention,  skill, and efforts to the faithful  performance of his duties
hereunder,  including  activities  and  services  related  to the  organization,
operation and management of the Bank and  participation  in industry,  community
and civic  organizations;  provided,  however,  that,  with the  approval of the
Board, as evidenced by a resolution of the Board,  from time to time,  Executive
may serve, or continue to serve, on the boards of directors

<PAGE>

of, and hold any other  offices or positions  in,  companies  or  organizations,
which, in the Board's  judgment,  will not present any conflict of interest with
the Bank, or materially affect the performance of Executive's duties pursuant to
this Agreement.

         (c) Notwithstanding anything in this Agreement to the contrary,  either
Executive or the Bank may terminate Executive's  employment with the Bank at any
time during the term of this  Agreement,  subject to the terms and conditions of
this Agreement.

3. COMPENSATION AND REIMBURSEMENT.

         (a) The  compensation  specified under this Agreement shall  constitute
consideration paid by the Bank in exchange for the duties described in Section 1
of this Agreement.  The Bank shall pay Executive,  as compensation,  a salary of
not less than $110,000 ("Base Salary"). Base Salary shall include any amounts of
compensation deferred by Executive under any tax-qualified retirement or welfare
benefit plan or any other deferred  compensation  arrangement  maintained by the
Bank.  Base  Salary  shall be payable  in  accordance  with the  normal  payroll
practices of the Bank.  During the period of this  Agreement,  Executive's  Base
Salary  shall be reviewed at least  annually.  Such review shall be conducted by
the Board or by a committee of the Board  delegated such  responsibility  by the
Board.  The committee or the Board may increase  Executive's  Base Salary at any
time. Any increase in Base Salary shall thereafter  become the new "Base Salary"
for purposes of this Agreement.

         (b) Executive shall be entitled to participate in any employee  benefit
plans,  arrangements and perquisites  substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this  Agreement  and the Bank will not,  without
Executive's prior written consent, make any changes in such plans,  arrangements
or perquisites (or any plans,  arrangements or perquisites with respect to which
Executive  begins to participate at any time during the term of this  Agreement)
which would adversely affect Executive's rights or benefits thereunder,  without
separately  providing for an arrangement that ensures Executive receives or will
receive the economic  value that Executive  would  otherwise lose as a result of
such  adverse  effect,  unless such change is general in nature and applies in a
nondiscriminatory  manner to all employees  covered by the plan,  arrangement or
perquisite.  Without limiting the generality of the foregoing provisions of this
Subsection  3(b),  Executive  shall be  entitled to  participate  in and receive
benefits  under any  employee  benefit  plans  including,  but not  limited  to,
retirement  plans (such as pension,  profit sharing and employee stock ownership
plans), supplemental retirement plans, incentive plans, health and welfare plans
and any other employee  benefit plan or  arrangement  made available by the Bank
now or in the future to full-time employees of the Bank and/or senior executives
and key management  employees of the Bank,  subject to and on a basis consistent
with  the  terms,  conditions  and  overall  administration  of such  plans  and
arrangements.  Nothing  paid to Executive  under any such plans or  arrangements
will be  deemed  to be in lieu of  other  compensation  and  benefits  to  which
Executive is entitled under this Agreement.

         (c) The  Bank  shall  pay or  reimburse  Executive  for all  reasonable
expenses  incurred  by  Executive  in  performing  his  obligations  under  this
Agreement.

                                     Page 2

<PAGE>

4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.

         (a) Upon the occurrence of an Event of Termination  (as herein defined)
during  Executive's term of employment  under this Agreement,  the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following:  (i) the termination by
the Bank or the Holding Company of Executive's  full-time  employment  hereunder
for any reason  other  than  termination  governed  by  Subsection  5(a) of this
Agreement,  or Termination for Cause, as defined in Section 7 of this Agreement,
or Retirement or  Disability,  as defined in paragraph (e) of this Section 4 or;
(ii) Executive's  resignation  from the Bank's employ,  upon, any (A) failure to
re-elect or re-appoint Executive as President of the Bank or failure to nominate
or re-elect Executive to the Board of Directors of the Bank, unless consented to
by  Executive,   (B)  material  change  in  Executive's  function,   duties,  or
responsibilities with the Bank, which change would cause Executive's position to
become one of lesser responsibility,  importance, or scope from the position and
attributes  thereof  described  in  Section  1 of this  Agreement  (and any such
material change shall be deemed as continuing breach of this Agreement),  unless
consented to by Executive,  (C)  relocation of  Executive's  principal  place of
employment by more than 25 miles from its location at the effective date of this
Agreement,  unless  consented to by  Executive,  (D)  material  reduction in the
benefits,  arrangements  or  perquisites  to  Executive  which is not general in
nature and applicable on a  nondiscriminatory  basis to all employees covered by
such benefits,  arrangements,  or perquisites or, pursuant to Subsection 3(b) of
this  Agreement,  to which  Executive does not consent or for which Executive is
not or will not be provided the economic benefit, (E) liquidation or dissolution
of the Bank or the Holding Company, or (F) breach of this Agreement by the Bank.
Upon the  occurrence of any event  described in clauses (A), (B), (C), (D), (E),
or (F), above,  Executive shall have the right to elect to terminate  employment
under this  Agreement  by  resignation  upon not less than sixty (60) days prior
written notice given within six full calendar months after the event giving rise
to said right to elect.

         (b) Upon the  occurrence  of an  Event of  Termination,  on the Date of
Termination,  as  defined  in  Section 8 of this  Agreement,  the Bank  shall be
obligated to pay Executive,  or, in the event of Executive's  subsequent  death,
his beneficiary or beneficiaries,  or his estate, as the case may be, the amount
of the remaining  payments and benefits that  Executive  would have earned if he
had continued his employment  with the Bank during the remaining  unexpired term
of this Agreement, based on Executive's Base Salary and the benefits provided to
Executive  as of  the  date  of the  Event  of  Termination,  as  set  forth  in
Subsections  3(a) and (b) of this Agreement,  as the case may be, and the amount
still due  Executive  under any  paragraph  of Section 3 for  services  rendered
through the Date of  Termination.  Except as provided for below and in paragraph
(c) of this Section 4, the determination of Executive's  benefits as of the date
of the  Event  of  Termination  shall  be made  based  on (i) the  value  of the
allocation  attributable to employer contributions for the most recent plan year
under any defined  contribution  type plan; (ii) the percentage of salary of any
incentive or bonus  payment for the most  recently-completed  fiscal  year;  and
(iii)  the   employer-provided   cost  of  any  other   benefit   for  the  most
recently-completed  fiscal year. In addition,  for purposes of  determining  his
vested accrued  benefit,  Executive  shall be credited  either under the defined
benefit pension plan maintained by the Bank (whether or not  tax-qualified)  or,
if not  permitted  under  such  plan,  under a  separate  arrangement,  with the
additional "years of service" that he would have earned for vesting

                                     Page 3

<PAGE>

and benefit  accrual  purposes for the  remaining  term of the Agreement had his
employment not terminated. At the election of Executive, which election is to be
made within thirty (30) days of the Date of Termination,  such payments shall be
made in a lump sum (without  discount for early  payment) or paid monthly during
the remaining term of the agreement following  Executive's  termination.  In the
event that no election is made, payment to Executive will be made in a lump sum.
Such  payments  shall  not be  reduced  in the  event  Executive  obtains  other
employment following termination of employment.  Notwithstanding anything to the
contrary  elsewhere  in this  Agreement  to the extent  Executive is entitled to
continued  coverage or benefit  accrual under any retirement or welfare  benefit
plan during the remaining  unexpired term of this Agreement,  the amount payable
under this  Subsection  4(b) shall be adjusted to the extent  necessary to avoid
any duplication of such benefits.

         (c) To the extent that the Bank  continues to offer any life,  medical,
health,  disability or dental  insurance plan or arrangement in which  Executive
participates in on the last day of his employment (each being a "Welfare Plan"),
after an Event of Termination (as herein defined),  Executive and his dependents
shall continue  participating in such Welfare Plans, subject to the same premium
contributions on the part of Executive as were required immediately prior to the
Event of Termination until the earlier of: (i) his death; (ii) his employment by
another  employer other than one of which he is the majority owner; or (iii) the
end of the  remaining  term of this  Agreement.  If the Bank  does not offer the
Welfare Plans (or if for any reason  Executive's  participation in said plans is
prohibited)  after  the  Event  of  Termination,  then the  Bank  shall  provide
Executive  with a payment equal to the  employer-paid  premiums for such benefit
for the  period  which  runs  until the  earlier  of:  (i) his  death;  (ii) his
employment by another employer other than one of which he is the majority owner;
or (iii) the end of the remaining term of this Agreement.

         (d) In the event that Executive is receiving  monthly payments pursuant
to Subsection 4(b) of this Agreement,  on an annual basis,  thereafter,  between
the dates of  January 1 and  January  31 of each  year,  Executive  shall  elect
whether  the balance of the amount  payable  under the  Agreement  for that year
shall be paid in a lump  sum or on a pro  rata  basis.  Such  election  shall be
irrevocable for the year for which such election is made.

         (e)  Termination  of  Executive   based  on  "Retirement"   shall  mean
termination  by written  notice to the Bank from  Executive  specifying an exact
retirement  date or  termination in accordance  with any retirement  arrangement
established with Executive's written consent with respect to him. Termination of
Executive based on Disability shall mean written notice to the Bank by Executive
specifying  an exact date as of which he is unable to perform  all of the duties
and  responsibilities  of his  position.  Upon  termination  of  Executive  upon
Disability,  Executive  shall be entitled to all benefits  under any  disability
plan of the Bank or any  other  plans in which  Executive  is a  participant  in
accordance  with  the  terms  of the  plan or  arrangement.  Executive  shall be
entitled to all  compensation  and  benefits  provided  for in Section 3 of this
Agreement  through the date of his termination of employment as specified in the
notice provided by him.

                                     Page 4

<PAGE>

5. CHANGE IN CONTROL.

         (a) For purposes of this  Agreement,  a "Change in Control" of the Bank
or the  Holding  Company  shall  mean 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,  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 or presumptive
change in control or acting in concert or  presumptive  acting in concert as set
forth under the rules and  regulations  of the OTS,  ownership  by a person or a
group, including a presumptive group, of at least 15% of the voting stock of the
Bank or the  Holding  Company  shall be  required,  and  provided  further  that
ownership of stock by a tax-qualified  employee  benefit plan of the Bank or the
Holding  Company  shall not be subject to  presumptions  of control or acting in
concert);  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 voting securities of the Bank or the Holding Company representing
25% or more of the Bank's or the Holding Company's 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 Bank or the Holding Company, 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 members who were nominated by the Incumbent Board), or whose
nomination for election by the Holding  Company's  stockholders  was approved by
the same Nominating  Committee  serving under an Incumbent Board (or members who
were  nominated by the 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 in which
the Bank or the 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 regulatory  approvals not including
the lapse of any statutory waiting periods.

         (b) If any of the events described in Subsection 5(a) of this Agreement
constituting a Change in Control have occurred, or the Board has determined that
a Change in Control has  occurred,  Executive  shall be entitled to the benefits
provided  in  paragraphs  (c),  (d),  (e)  and (f) of this  Section  5 upon  his
termination  of employment on or after the date the Change in Control occurs due
to (i) Executive's dismissal at any time during the term of this Agreement, (ii)
Executive's  resignation  following  any  demotion,  loss of  title,  office  or
significant authority or responsibility, reduction in the annual compensation or
benefits or relocation of Executive's principal place of employment by more than
25 miles from its location  immediately  prior to the Change in Control,  unless
such  termination is because of  Executive's  Termination  for Cause;  provided,
however,

                                     Page 5

<PAGE>

Executive  may  consent in  writing to any such  demotion,  loss,  reduction  or
relocation. The effect of any written consent of Executive under this Subsection
5(b) shall be strictly  limited to the terms specified in such written  consent.
Under no circumstances  can a termination of employment  during the term of this
Agreement  on or after  the date a Change in  Control  occurs  be  considered  a
termination  on account of retirement or disability  for purposes of determining
Executive's  rights to the payment of benefits  provided in paragraphs (c), (d),
(e) and (f) of this Section 5.

         (c) Upon Executive's entitlement to payment pursuant to Subsection 5(b)
of this Agreement,  the Bank shall pay Executive, or in the event of Executive's
subsequent death,  Executive's  beneficiary or beneficiaries,  or estate, as the
case may be, as severance  pay or  liquidated  damages,  or both, a sum equal to
three  (3)  times  Executive's  average  annual  compensation  for the five most
recently  completed taxable years of Executive.  In the event the Bank is not in
compliance with its minimum capital requirements or if such payments would cause
the  Bank's  capital  to  be  reduced  below  its  minimum   regulatory  capital
requirements,  such  payments  shall be deferred  until such time as the Bank or
successor  thereto is in capital  compliance.  For  purposes of this  Subsection
5(c), annual compensation shall include Base Salary and any other taxable income
paid by the Bank or its  subsidiaries,  including  but not  limited  to  amounts
related to the granting, vesting or exercise of restricted stock or stock option
awards, commissions,  bonuses, severance payments, retirement benefits, director
or committee  fees and fringe  benefits  paid or to be paid to Executive or paid
for  Executive's  benefit  during  any such  year,  as well as  profit  sharing,
employee stock ownership plan and other  retirement  contributions  or benefits,
including any tax-qualified or non-tax-qualified plan or arrangement (whether or
not  taxable)  made or accrued  on behalf of  Executive  for such  year.  At the
election of  Executive,  which  election is to be made prior to or within thirty
(30) days of the Date of Termination  on or following a Change in Control,  such
payment may be made in a lump sum  (without  discount  for early  payment) on or
immediately following the Date of Termination (which may be the date a Change in
Control  occurs) or paid in equal  monthly  installments  during the thirty- six
(36) months following Executive's termination.  In the event that no election is
made,  payment to Executive  will be made in a lump sum. Such payments shall not
be reduced in the event Executive obtains other employment following termination
of employment.

         (d) Upon the occurrence of a Change in Control  followed by Executive's
termination  of employment,  Executive will be entitled to receive  benefits due
him under or contributed by the Bank on his behalf  pursuant to any  retirement,
incentive,   profit  sharing,  employee  stock  ownership,  bonus,  performance,
disability or other employee benefit plan or other arrangement maintained by the
Bank on Executive's behalf to the extent such benefits are not otherwise paid to
Executive  under a  separate  provision  of this  Agreement.  In  addition,  for
purposes of determining his vested accrued benefit,  Executive shall be credited
either under the defined benefit pension plan maintained by the Bank (whether or
not  tax-qualified)  or, if not  permitted  under  such  plan,  under a separate
arrangement,  with the  additional  "years of service" that he would have earned
for vesting and benefit accrual purposes for the remaining term of the Agreement
had his employment not terminated.

         (e)  Upon  the  occurrence  of a  Change  in  Control  and  Executive's
termination of employment  pursuant to the provisions of Subsection 5(b) of this
Agreement  in  connection  therewith,  the Bank will cause to be  continued  any
Welfare Plan Benefit (as described in Subsection

                                     Page 6

<PAGE>

4(d)  of  this  Agreement)  substantially  identical  to the  benefits  coverage
maintained  by the Bank for Executive  and any of his  dependents  covered under
such plans prior to the Change in Control.  Such  coverage  shall cease upon the
expiration  of  thirty-six  (36)  full  calendar  months  following  the Date of
Termination.  In the event Executive's or Executive's dependent's  participation
in any such plan or  program  is  barred,  the Bank  shall  arrange  to  provide
Executive and his dependents  with benefits  coverage  substantially  similar to
those which  Executive and his dependents  would otherwise have been entitled to
receive under such plans and programs by operation of this  provision or provide
their economic equivalent to Executive and his dependents.

         (f) In the event that Executive is receiving  monthly payments pursuant
to Subsection 5(c) of this Agreement,  on an annual basis,  thereafter,  between
the dates of  January 1 and  January  31 of each  year,  Executive  shall  elect
whether  the balance of the amount  payable  under the  Agreement  for that year
shall be paid in a lump sum pursuant to such  provision.  Such election shall be
irrevocable for the year for which such election is made.

6. CHANGE IN CONTROL RELATED PROVISIONS.

         Notwithstanding  the provisions of Section 5 of this  Agreement,  in no
event  shall the  aggregate  payments  or  benefits  to be made or  afforded  to
Executive  under said  paragraphs  or otherwise  paid or provided by the Bank in
connection with a Change in Control (the "Termination  Benefits")  constitute an
"excess  parachute  payment"  under  Section  280G of the Code or any  successor
thereto,  and in order to avoid such a result, the Termination  Benefits will be
reduced, if necessary, 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.
The  allocation  of any  reduction  required  with  respect  to the  Termination
Benefits shall be determined by Executive.

7. TERMINATION FOR CAUSE.

         The term  "Termination  for Cause"  shall mean  termination  because of
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,  regulation  (other than traffic
violations or similar offenses), final cease and desist order or material breach
of any provision of this  Agreement.  In determining  incompetence,  the acts or
omissions shall be measured  against the standards for  professional  competence
generally  prevailing for executive officers having comparable  positions in the
savings institution industry. Notwithstanding the foregoing, Executive shall not
be deemed to have been  terminated  for cause  unless and until there shall have
been delivered to Executive a Notice of  Termination  which shall include a copy
of a  resolution  duly  adopted  by  the  affirmative  vote  of  not  less  than
three-fourths  of the members of the Board at a meeting of the Board  called and
held for that purpose (after  reasonable  notice to Executive and an opportunity
for  Executive,  together with  counsel,  to be heard before the Board and which
such meeting  shall be held not more than 30 days from the date of notice during
which  period  Executive  may be suspended  with pay),  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.

                                     Page 7

<PAGE>

Executive shall not have the right to receive compensation or other benefits for
any period  after  Termination  for Cause except for  compensation  and benefits
already  vested.  Any stock  options  and  related  limited  rights  granted  to
Executive  under any stock  option  plan,  or any  unvested  awards  granted  to
Executive  under  any  restricted   stock  benefit  plan  of  the  Bank  or  its
subsidiaries, shall become null and void effective upon Executive's receipt of a
Notice of Termination pursuant to Section 8 of this Agreement,  and shall not be
exercisable  by or  delivered  to  Executive  at any  time  subsequent  to  such
Termination  for Cause except all benefits  shall be deemed to have  remained in
effect if Executive is reinstated.

8. NOTICE.

         (a) Any  purported  termination  by the Bank or by  Executive  shall be
communicated by a 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 reasonable detail the facts and circumstances  claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.

         (b)  Except  as  otherwise  provided  for in this  Agreement,  "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).

         (c) 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  reasonable  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  therefrom  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.
Notwithstanding the pendency of any such dispute,  the Bank will continue to pay
Executive's  Base Salary and  continue  to cover  Executive  under each  Welfare
Benefit  Plan in which  Executive  participated  at the time of such  notice  in
effect when the notice giving rise to the dispute was given until the dispute is
finally  resolved in  accordance  with this  Agreement.  Amounts paid under this
Subsection  8(c) are in addition to all other  amounts due under this  Agreement
and shall not be offset  against  or reduce  any other  amounts  due under  this
Agreement.

9. POST-TERMINATION OBLIGATIONS.

         All payments and benefits to Executive  under this  Agreement  shall be
subject to  Executive's  compliance  with this  Section 9 for two (2) full years
after  the  earlier  of the  expiration  of this  Agreement  or  termination  of
Executive's  employment with the Bank.  Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank with regard to matters as to
which he has personal knowledge and as may reasonably be required by the Bank in
connection with

                                     Page 8

<PAGE>

any litigation in which it or any of its  subsidiaries  or affiliates is, or may
become,  a party.  The Bank  shall  reimburse  Executive  for all  out-of-pocket
expenses  incurred and at an hourly rate equivalent to the hourly rate (based on
an  eight-hour  work  day) of his  Base  Salary  in  effect  at the  time of his
termination  from  employment for any time incurred in connection  with services
rendered pursuant to this Section 9.

10. NON-COMPETITION.

         (a) Upon any termination of Executive's  employment  hereunder pursuant
to Section 4 of this  Agreement,  Executive  agrees not to compete with the Bank
for a period of one (1) year  following such  termination  in any city,  town or
county in which  Executive's  normal business office is located and the Bank has
an office or has filed an application  for  regulatory  approval to establish an
office,  determined  as of the  effective  date of such  termination,  except as
agreed to pursuant to a resolution duly adopted by the Board.  Executive  agrees
that during such period and within said cities,  towns and  counties,  Executive
shall not work for or advise,  consult or  otherwise  serve  with,  directly  or
indirectly,  any entity whose business  materially competes with the depository,
lending  or  other  business   activities  of  the  Bank.  The  parties  hereto,
recognizing  that  irreparable  injury will result to the Bank, its business and
property in the event of Executive's  breach of this Subsection 10(a) agree that
in the event of any such  breach by  Executive,  the Bank will be  entitled,  in
addition  to any other  remedies  and damages  available,  to an  injunction  to
restrain  the  violation  hereof by  Executive,  Executive's  partners,  agents,
servants,  employees  and all  persons  acting  for or under  the  direction  of
Executive.  Executive represents and admits that in the event of the termination
of  his  employment  pursuant  to  Section  4  of  this  Agreement,  Executive's
experience and capabilities  are such that Executive can obtain  employment in a
business  engaged in other lines and/or of a different nature than the Bank, and
that the enforcement of a remedy by way of injunction will not prevent Executive
from earning a livelihood.  Nothing herein will be construed as prohibiting  the
Bank from pursuing any other  remedies  available to the Bank for such breach or
threatened breach, including the recovery of damages from Executive.

         (b) Executive  recognizes  and  acknowledges  that the knowledge of the
business  activities  and  plans  for  business  activities  of the Bank and its
affiliates as it may exist from time to time, is a valuable,  special and unique
asset of the business of the Bank.  Executive will not, during or after the term
of Executive's employment,  disclose any knowledge of the past, present, planned
or considered  business activities of the Bank and its affiliates thereof to any
person, firm, corporation,  or other entity for any reason or purpose whatsoever
unless  expressly  authorized  by the Board of  Directors  or  required  by law.
Notwithstanding the foregoing,  Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively  derived from the business  plans and activities of the Bank. In the
event of a breach or  threatened  breach by Executive of the  provisions of this
Section  10, the Bank will be entitled to an  injunction  restraining  Executive
from  disclosing,  in whole or in part,  the  knowledge  of the  past,  present,
planned or considered  business activities of the Bank or its affiliates or from
rendering any services to any person,  firm,  corporation,  other entity to whom
such  knowledge,  in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting

                                     Page 9

<PAGE>

the Bank from pursuing any other remedies  available to the Bank for such breach
or threatened breach, including the recovery of damages from Executive.

11. SOURCE OF PAYMENTS.

         (a) All payments provided for in this Agreement shall be timely paid in
cash,  check or other mutually  agreed upon method from the general funds of the
Bank  subject  to  Subsection  11(b) of this  Agreement.  The  Holding  Company,
however,  unconditionally  guarantees  payment and  provision of all amounts and
benefits due  hereunder to Executive  and, if such amounts 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 Holding Company.

         (b) Notwithstanding any provision herein to the contrary, to the extent
that  payments  and  benefits,  as  provided by this  Agreement,  are paid to or
received by Executive under an employment  agreement in effect between Executive
and the Holding  Company,  such  payments and benefits  paid by the Bank will be
subtracted  from any  amount  due  simultaneously  to  Executive  under  similar
provisions  of this  Agreement.  Payments  pursuant  to this  Agreement  and the
Holding  Company  agreement  shall be  allocated in  proportion  to the level of
activity and the time expended on such  activities by Executive as determined by
the Holding Company and the Bank on a quarterly basis;  provided,  however, that
except for the  reduction  provided  by the first  sentence  of this  Subsection
11(b),  the Bank will be  obligated  to pay 100% of the  amounts  due  Executive
hereunder.

12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.

         This Agreement  contains the entire  understanding  between the parties
hereto and supersedes  any prior  employment  agreement  between the Bank or any
predecessor  of 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.

13. 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 and the Bank and their respective successors and assigns.

                                     Page 10

<PAGE>

14. 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 as to any act other than that specifically
waived.

15. REQUIRED PROVISIONS.

         (a) The Bank may terminate 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 7 hereinabove.

         (b) If 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) 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 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  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  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)(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 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)(1) of the
Federal Deposit  Insurance Act, 12 U.S.C.  ss.1813(x)(1)  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 Director of
the OTS (or his designee), the FDIC or the Resolution Trust Corporation,  at the
time the FDIC enters into an agreement to provide  assistance to or on behalf of
the Bank under the authority  contained in Section 13(c) of the Federal  Deposit
Insurance Act, 12 U.S.C. ss.1823(c);  or (ii) by the Director of the OTS (or his
designee)  at the time the  Director (or his  designee)  approves a  supervisory
merger to resolve problems related to the operations of the Bank

                                     Page 11

<PAGE>

or when the Bank is  determined  by the  Director  to be in an unsafe or unsound
condition.  Any rights of the parties that have already vested,  however,  shall
not be affected by such action.

         (f) Any  payments  made to  Executive  pursuant to this  Agreement,  or
otherwise,   are   subject  to  and   conditioned   upon   compliance   with  12
U.S.C.ss.1828(k)   and  12  C.F.R.ss.545.121   and  any  rules  and  regulations
promulgated thereunder.

16. 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.

17. HEADINGS FOR REFERENCE ONLY.

         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.

18. GOVERNING LAW.

         This Agreement  shall be governed by the laws of the State of Illinois,
unless otherwise specified in this Agreement.

19. ARBITRATION.

         Any dispute or  controversy  arising under or in  connection  with this
Agreement shall be settled exclusively by arbitration,  conducted before a panel
of three  arbitrators  sitting in a location  selected by Executive within fifty
(50) miles from the location of the Bank,  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 Executive's 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.

         In the event any dispute or controversy  arising under or in connection
with  Executive's  termination  is  resolved in favor of  Executive,  whether by
judgment, arbitration or settlement,  Executive shall be entitled to the payment
of all  back-pay,  including  salary,  bonuses and any other cash  compensation,
fringe  benefits and any  compensation  and benefits  due  Executive  under this
Agreement.

                                     Page 12

<PAGE>

20. 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,  if  Executive  is  successful  pursuant to a legal
judgment, arbitration or settlement.

21. INDEMNIFICATION.

         The  Bank  shall  provide  Executive   (including   Executive's  heirs,
executors and  administrators)  with coverage  under a standard  directors'  and
officers'  liability  insurance  policy  at  its  expense  and  shall  indemnify
Executive (and Executive's heirs,  executors and  administrators) to the fullest
extent  permitted  under  federal  law  against  all  expenses  and  liabilities
reasonably  incurred  by  Executive  in  connection  with or arising  out of any
action,  suit or  proceeding  in which  Executive  may be  involved by reason of
Executive  having  been a director  or  officer of the Bank or its  subsidiaries
(whether or not  Executive  continues to be a director or officer at the time of
incurring  such  expenses or  liabilities),  such  expenses and  liabilities  to
include,  but not to be limited to,  judgments,  court costs and attorneys' fees
and the cost of reasonable settlements.

22. SUCCESSOR TO THE BANK.

         The Bank shall  require 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,  to  expressly  and
unconditionally  assume and agree to perform the Bank's  obligations  under this
Agreement,  in the same  manner  and to the same  extent  that the Bank would be
required to perform if no such succession or assignment had taken place.

                                     Page 13

<PAGE>

                                   SIGNATURES

         IN WITNESS  WHEREOF,  First Federal Bank and First Federal  Bancshares,
Inc.  have caused this  Agreement,  to be executed and their seals to be affixed
hereunto  by their duly  authorized  officers  and  Executive  has  signed  this
Agreement on November 13, 2000.

ATTEST:                                   FIRST FEDERAL BANK

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

                  [SEAL]

ATTEST:                                   FIRST FEDERAL BANCSHARES, INC.

                                          (Guarantor)

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

                  [SEAL]

WITNESS:                                  EXECUTIVE

/s/ Cathy D. Pendell                           /s/ James J. Stebor
-------------------------                      ---------------------------------
                                               James J. Stebor
                                               President

                                     Page 14

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