SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-12
First Federal Bancshares, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transactions applies:
N/A
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
N/A
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(4) Proposed maximum aggregate value of transaction:
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(5) Total Fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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[First Federal Bancshares, Inc. Logo]
April 17, 2001
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders
of First Federal Bancshares, Inc. We will hold the meeting at the Days Inn
located at 200 Maine Street, Quincy, Illinois on May 22, 2001 at 2:00 p.m.,
local time. This will be the first annual meeting since First Federal Bank
converted from the mutual to stock form of organization on September 27, 2000.
The notice of annual meeting and proxy statement appearing on the
following pages describe the formal business to be transacted at the meeting.
During the meeting, we will also report on the operations of the Company.
Directors and officers of the Company, as well as a representative of Crowe,
Chizek and Company, LLP, the Company's independent auditors, will be present to
respond to appropriate questions of stockholders.
It is important that your shares are represented at this meeting,
whether or not you attend the meeting in person and regardless of the number of
shares you own. To make sure your shares are represented, we urge you to
complete and mail the enclosed proxy card. If you attend the meeting, you may
vote in person even if you have previously mailed a proxy card.
We look forward to seeing you at the meeting.
Sincerely,
/s/ James J. Stebor
James J. Stebor
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIRST FEDERAL BANCSHARES, INC.
109 EAST DEPOT STREET
COLCHESTER, ILLINOIS 62326
(309) 776-3225
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
On May 22, 2001, First Federal Bancshares, Inc. will hold its annual
meeting of stockholders at the Days Inn located at 200 Maine Street, Quincy,
Illinois. The meeting will begin at 2:00 p.m., local time. At the meeting,
stockholders will consider and act on the following:
1. The election of two directors to serve for a term of three years;
2. The approval of the First Federal Bancshares, Inc. 2001
Stock-Based Incentive Plan;
3. The ratification of the appointment of Crowe, Chizek and Company
LLP as independent auditors for the Company for the fiscal year
ending December 31, 2001; and
4. Such other business that may properly come before the meeting.
NOTE: The Board of Directors is not aware of any other business to come
before the meeting.
The Board of Directors set April 2, 2001 as the record date for the
meeting. This means that owners of First Federal Bancshares common stock at the
close of business on that date are entitled to receive notice of the meeting and
to vote at the meeting and any adjournments or postponements of the meeting.
Please complete and sign the enclosed form of proxy, which is solicited
by the Board of Directors, and mail it promptly in the enclosed envelope. The
proxy will not be used if you attend the meeting and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Ronald A. Feld
Ronald A. Feld
CORPORATE SECRETARY
Colchester, Illinois
April 17, 2001
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
FIRST FEDERAL BANCSHARES, INC.
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PROXY STATEMENT
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This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of First Federal Bancshares, Inc. ("First
Federal Bancshares" or the "Company") to be used at the annual meeting of
stockholders of the Company. First Federal Bancshares is the holding company for
First Federal Bank ("First Federal" or the "Bank"). The annual meeting will be
held at the Days Inn located at 200 Maine Street, Quincy, Illinois on May 22,
2001 at 2:00 p.m., local time. This proxy statement and the enclosed proxy card
are being first mailed to stockholders of record on or about April 17, 2001.
VOTING AND PROXY PROCEDURE
WHO CAN VOTE AT THE MEETING
You are entitled to vote your First Federal Bancshares common stock only
if the records of the Company show that you held your shares as of the close of
business on April 2, 2001. As of the close of business on April 2, 2001, a total
of 2,242,500 shares of First Federal Bancshares common stock were outstanding.
Each share of common stock has one vote. The Company's Certificate of
Incorporation provides that record holders of the Company's common stock who
beneficially own, either directly or indirectly, in excess of 10% of the
Company's outstanding shares are not entitled to any vote in respect of the
shares held in excess of the 10% limit.
ATTENDING THE MEETING
If you are a beneficial owner of First Federal Bancshares common stock
held by a broker, bank or other nominee (I.E., in "street name"), you will need
proof of ownership to be admitted to the meeting. A recent brokerage statement
or letter from a bank or broker are examples of proof of ownership. If you want
to vote your shares of First Federal Bancshares common stock held in street name
in person at the meeting, you will have to get a written proxy in your name from
the broker, bank or other nominee who holds your shares.
VOTE REQUIRED
The annual meeting will be held only if there is a quorum. A quorum
exists if a majority of the outstanding shares of common stock entitled to vote
is represented at the meeting. If you return valid proxy instructions or attend
the meeting in person, your shares will be counted for purposes of determining
whether there is a quorum, even if you abstain from voting. Broker non-votes
also will be counted for purposes of determining the existence of a quorum. A
broker non-vote occurs when a broker, bank or other nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power with respect to that item and has not
received voting instructions from the beneficial owner.
In voting on the election of directors, you may vote in favor of all
nominees, withhold votes as to all nominees, or withhold votes as to specific
nominees. There is no cumulative voting for the election of directors. Directors
must be elected by a plurality of the votes cast at the annual meeting. This
means that the nominees receiving the greatest number of votes will be elected.
Votes that are withheld and broker non-votes will have no effect on the outcome
of the election. In voting on the approval of the
First Federal Bancshares, Inc. 2001 Stock-Based Incentive Plan and the
ratification of the appointment of Crowe, Chizek and Company, LLP as independent
auditors, you may vote in favor of the proposal, vote against the proposal or
abstain from voting. The adoption of the plan and the ratification of Crowe,
Chizek and Company LLP as independent auditors will be decided by the
affirmative vote of a majority of the votes cast at the annual meeting. On these
matters abstentions and broker non-votes will have no effect on the voting.
VOTING BY PROXY
The Board of Directors of First Federal Bancshares is sending you this
proxy statement for the purpose of requesting that you allow your shares of
First Federal Bancshares common stock to be represented at the annual meeting by
the persons named in the enclosed proxy card. All shares of First Federal
Bancshares common stock represented at the annual meeting by properly executed
and dated proxies will be voted according to the instructions indicated on the
proxy card. If you sign, date and return a proxy card without giving voting
instructions, your shares will be voted as recommended by the Company's Board of
Directors. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES FOR
DIRECTOR, FOR APPROVAL OF THE FIRST FEDERAL BANCSHARES, INC. 2001 STOCK-BASED
INCENTIVE PLAN AND FOR RATIFICATION OF CROWE, CHIZEK AND COMPANY LLP AS
INDEPENDENT AUDITORS.
If any matters not described in this proxy statement are properly
presented at the annual meeting, the persons named in the proxy card will use
their own best judgment to determine how to vote your shares. This includes a
motion to adjourn or postpone the annual meeting in order to solicit additional
proxies. If the annual meeting is postponed or adjourned, your First Federal
Bancshares common stock may be voted by the persons named in the proxy card on
the new annual meeting date as well, unless you have revoked your proxy. The
Company does not know of any other matters to be presented at the annual
meeting.
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must either advise the Secretary of the
Company in writing before your common stock has been voted at the annual
meeting, deliver a later dated proxy, or attend the meeting and vote your shares
in person. Attendance at the annual meeting will not in itself constitute
revocation of your proxy.
If your First Federal Bancshares common stock is held in "street name,"
you will receive instructions from your broker, bank or other nominee that you
must follow in order to have your shares voted. Your broker, bank or other
nominee may allow you to deliver your voting instructions via the telephone or
the Internet. Please see the instruction form provided by your broker, bank or
other nominee that accompanies this proxy statement.
PARTICIPANTS IN THE FIRST FEDERAL BANK ESOP
If you participate in the First Federal Bank Employee Stock Ownership
Plan (the "ESOP"), you will have received with this proxy statement a voting
instruction form that reflects all shares you may vote under the plan. Under the
terms of the ESOP, the ESOP trustee votes all shares held by the ESOP, but each
participant in the ESOP may direct the trustee how to vote the shares of common
stock allocated to his or her account. The ESOP trustee, subject to the exercise
of its fiduciary duties, will vote all unallocated shares of common stock held
by the ESOP and allocated shares for which no voting instructions are received
in the same proportion as shares for which it has received timely voting
instructions. The deadline for returning your voting instructions to the ESOP
trustee is May 15, 2001.
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STOCK OWNERSHIP
The following table provides information as of April 2, 2001 about the
persons known to First Federal Bancshares to be the beneficial owners of more
than 5% of the Company's outstanding common stock. A person may be considered to
beneficially own any shares of common stock over which he or she has, directly
or indirectly, sole or shared voting or investing power.
PERCENT OF
NUMBER OF COMMON STOCK
NAME AND ADDRESS SHARES OWNED OUTSTANDING
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First Federal Bank................... 179,400(1) 8.0%
Employee Stock Ownership Plan
109 East Depot Street
Colchester, Illinois 62326
Wellington Management Company, LLP... 200,600(2) 8.9%
75 State Street
Boston, Massachusetts 02109
First Financial Fund, Inc............ 170,000(3) 7.6%
Gateway Center Three
100 Mulberry Street
Newark, New Jersey
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(1) Under the terms of the ESOP, the ESOP trustee will vote shares allocated
to participants' accounts in the manner directed by the participants.
Subject to its fiduciary responsibility, the trustee will vote
unallocated shares and allocated shares for which no timely voting
instructions are received in the same proportion as shares for which they
have received voting instructions from participants. As of April 2, 2001,
8,970 shares had been allocated under the ESOP. The trustee of the ESOP
is First Bankers Trust Company, N.A.
(2) Based on a Schedule 13G filed February 13, 2001. According to this
filing, Wellington Management Company, LLP has no voting power over these
shares and shares dispositive power over these shares with its advisory
clients.
(3) Based on a Schedule 13G filed February 12, 2001. According to this
filing, First Financial Fund, Inc. has sole voting power and shared
dispositive power with respect to these shares. These shares are also
shown as beneficially owned by Wellington Management Company LLP, which
shares dispositive power over these shares.
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The following table provides information as of April 2, 2001 about the
shares of Company common stock that may be considered to be beneficially owned
by each nominee for director and by all directors and executive officers of the
Company as a group. Unless otherwise indicated, each of the named individuals
has sole voting power and sole investment power with respect to the number of
shares shown.
PERCENT OF
NUMBER OF COMMON STOCK
NAME SHARES OWNED OUTSTANDING(1)
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Franklin M. Hartzell............................. 17,500(2) *
Murrel Hollis.................................... 15,000(3) *
Gerald L. Prunty................................. 15,000(4) *
Dr. Stephan L. Roth.............................. 13,000(5) *
Eldon M. Snowden................................. 3,500 *
James J. Stebor.................................. 5,537(6) *
Richard D. Stephens.............................. 15,000 *
All directors and executive officers
as a group (12 persons)........................ 99,109 4.4%
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*Does not exceed 1.0% of the Company's voting securities.
(1) Based on 2,242,500 shares of Company common stock outstanding and entitled
to vote as of April 2, 2001.
(2) Includes 2,500 shares held by Mr. Hartzell's spouse.
(3) Includes 3,750 shares held by Mr. Hollis's spouse.
(4) Includes 3,550 shares held in trust by Mr. Prunty's spouse.
(5) Includes 3,000 shares held in trust by Dr. Roth's spouse.
(6) Includes 25 shares held by Mr. Stebor as custodian for his daughter and 512
shares allocated to Mr. Stebor's account under the ESOP as to which he has
voting but not dispositive power.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Company's Board of Directors consists of seven members. Six directors
are independent and one is a member of management. The Board is divided into
three classes with three-year staggered terms, with approximately one-third of
the directors elected each year. The Board of Directors' nominees for election
this year, to serve for a three-year term, or until their respective successors
have been elected and qualified, are Dr. Stephan L. Roth and Richard D.
Stephens, both of whom are currently directors of First Federal Bancshares and
First Federal Bank.
The Board of Directors intends that the proxies solicited by it will be
voted for the election of the nominees named above. If any nominee is unable to
serve, the persons named in the proxy card would vote your shares to approve the
election of any substitute proposed by the Board of Directors. Alternatively,
the Board of Directors may adopt a resolution to reduce the size of the Board.
At this time, the Board of Directors knows of no reason why any nominee might be
unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF BOTH NOMINEES.
Information regarding the Board of Directors' nominees and the directors
continuing in office is provided below. Unless otherwise stated, each individual
has held his current occupation for the last five years. The age indicated for
each individual is as of December 31, 2000. The indicated period of service as a
director includes the period of service as a director of First Federal.
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BOARD NOMINEES FOR ELECTION OF DIRECTORS
DR. STEPHAN L. ROTH is a retired family physician. Age 75. Director since
1976.
RICHARD D. STEPHENS is a retired attorney serving as Of Counsel to the
law firm of Flack, McRaven & Stephens in Macomb, Illinois. Age 73. Director
since 1966.
DIRECTORS CONTINUING IN OFFICE
THE FOLLOWING DIRECTORS HAVE TERMS ENDING IN 2002:
FRANKLIN M. HARTZELL is a partner in the law firm of Hartzell, Glidden,
Tucker & Hartzell in Carthage, Illinois. Mr. Hartzell also serves as Director
and Secretary of Pioneer Lumber Company, located in Dallas City, Illinois. Mr.
Hartzell serves as Chairman of the Board of Directors of First Federal
Bancshares. Age 77. Director since 1965.
MURREL HOLLIS is a partner and funeral director of Martin-Hollis Funeral
Home in Bushnell, Illinois. Age 59. Director since 1992.
THE FOLLOWING DIRECTORS HAVE TERMS ENDING IN 2003:
GERALD L. PRUNTY served as President of First Federal Bank from 1969
until his retirement in 1994. Mr. Prunty serves as Chairman of the Board of
Directors of First Federal. Age 72. Director since 1967.
ELDON M. SNOWDEN is a retired General Manager and Chief Operating Officer
of McDonough Telephone Cooperative. Age 81. Director since 1967.
JAMES J. STEBOR has served as President and Chief Executive Officer of
the Company since April 2000 and as President of First Federal since 1994. Mr.
Stebor has been employed by First Federal since 1977. Age 51. Director since
1990.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company and First Federal conduct business through meetings and
activities of their Boards of Directors and their committees. During the year
ended December 31, 2000, the Board of Directors of the Company held four regular
meetings and four special meetings and the Board of Directors of First Federal
held ten regular meetings and five special meetings. No director attended fewer
than 75% of the total meetings of the Boards of Directors and committees on
which he served.
The Audit Committee, consisting of Gerald L. Prunty, Murrel Hollis and
Eldon M. Snowden, meets periodically with independent accountants and management
to review accounting, auditing, internal control structure and financial
reporting matters. This committee met three times during the year ended December
31, 2000.
The Compensation Committee, consisting of Dr. Stephan L. Roth, Richard D.
Stephens, Murrell Hollis, Franklin M. Hartzell, Gerald L. Prunty and Eldon M.
Snowden, is responsible for all matters regarding the Company's and the Bank's
employee compensation and benefit programs. This committee met once during the
year ended December 31, 2000.
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The Executive Committee, consisting of Franklin M. Hartzell, Gerald L.
Prunty, Eldon M. Snowden and James J. Stebor, evaluates issues of major
importance to the Company between regularly scheduled Board meetings and reviews
and approves loan applications that do not require the approval of the full
Board of Directors. Designated members of management sit on this committee for
the purpose of reviewing and approving loan applications. This committee met 50
times during the year ended December 31, 2000.
The Nominating Committee, consisting of Franklin M. Hartzell, Murrel
Hollis, Gerald L. Prunty and Richard D. Stephens, selects annually the nominees
for election as directors. This committee met once to select management's
nominees for election as directors at this annual meeting. The Company's Bylaws
provide for shareholder nominations of directors. See "STOCKHOLDER PROPOSALS AND
NOMINATIONS."
DIRECTORS' COMPENSATION
First Federal pays a fee of $700 to each of its directors for attendance
at each regular board meeting. First Federal Bancshares pays an annual fee of
$1,200 to each member of its Board of Directors plus the Chairman of the Board
receives an additional annual fee of $5,000. In addition, First Federal
Bancshares pays a fee of $50 to each member of the Audit Committee for each
committee meeting attended and a fee of $25 to each member of the Executive
Committee for each committee meeting attended.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following information is furnished for Mr. Stebor. No other executive
officer of First Federal Bancshares or First Federal received a salary and bonus
of $100,000 or more during the ten months ended December 31, 2000.
ANNUAL COMPENSATION
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OTHER ANNUAL ALL OTHER
NAME AND POSITION YEAR(1) SALARY(2) BONUS COMPENSATION(3) COMPENSATION
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James J. Stebor......................... 2000(5) $101,952 $11,000 $ -- $6,857(4)
President and Chief Executive Officer 2000(6) 113,940 10,379 -- --
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(1) Compensation information for the fiscal year ended February 28, 1999 has
been omitted as First Federal Bancshares was neither a public company nor
a subsidiary of a public company at that time.
(2) Includes board of directors and board committee fees.
(3) Does not include the aggregate amount of perquisites and other personal
benefits, which was less than $50,000 or 10% of the total annual salary
and bonus reported.
(4) Consists of employer contribution to the employee stock ownership plan of
$6,857.
(5) For the ten months ended December 31, 2000.
(6) For the fiscal year ended February 29, 2000.
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EMPLOYMENT AGREEMENTS
EMPLOYMENT AGREEMENTS. Effective September 27, 2000, First Federal and
First Federal Bancshares each entered into employment agreements with Mr.
Stebor. The employment agreements provide for a three-year term. The term of the
First Federal Bancshares employment agreement extends on a daily basis until
written notice of non-renewal is given by the Board of Directors or Mr. Stebor.
The term of the First Federal employment agreement is renewable on an annual
basis. The employment agreements provide that Mr. Stebor's base salary will be
reviewed annually. The current base salary under the employment agreements for
Mr. Stebor is $130,000. In addition to the base salary, the employment
agreements provide for, among other things, participation in stock and employee
benefits plans and fringe benefits applicable to executive personnel. The
employment agreements provide for termination by First Federal or First Federal
Bancshares for cause, as defined in the employment agreements, at any time. If
First Federal or First Federal Bancshares chooses to terminate Mr. Stebor's
employment for reasons other than for cause, or if Mr. Stebor resigns from First
Federal or First Federal Bancshares after specified circumstances that would
constitute constructive termination, Mr. Stebor or, if Mr. Stebor dies, his
beneficiary, would be entitled to receive an amount equal to the benefit plan
base salary payments that would have been paid to Mr. Stebor for the remaining
term of the employment agreement and the contributions that would have been made
on Mr. Stebor's behalf to any employee benefit plans of First Federal and First
Federal Bancshares during the remaining term of the employment agreement. First
Federal and First Federal Bancshares would also continue to pay for Mr. Stebor's
health and welfare benefit plan coverage for the remaining term of the
employment agreement. Upon termination of Mr. Stebor's employment for reasons
other than cause or a change in control, Mr. Stebor must adhere to a one-year
non-competition agreement.
Under the employment agreements, if, following a change in control of
First Federal or First Federal Bancshares, Mr. Stebor's employment is
involuntarily terminated or if Mr. Stebor voluntarily terminates his employment
in connection with circumstances specified in the agreement, then Mr. Stebor or,
if Mr. Stebor dies, his beneficiary, would be entitled to a severance payment
equal to the greater of the payments and benefits that would have been paid for
the remaining term of the agreement or three times the average of Mr. Stebor's
five preceding taxable years' annual compensation. First Federal and First
Federal Bancshares would also continue Mr. Stebor's health and welfare benefits
coverage for thirty-six months. Even though both employment agreements provide
for a severance payment if a change in control occurs, Mr. Stebor would not
receive duplicate payments or benefits under the agreements. Under applicable
law, an excise tax would be triggered by change in control-related payments that
equal or exceed three times Mr. Stebor's average annual compensation over the
five years preceding the change in control. The excise tax would equal 20% of
the amount of the payment in excess of one times Mr. Stebor's average
compensation over the preceding five-year period. In the event that payments
related to a change in control of First Federal Bancshares are subject to this
excise tax, First Federal Bancshares will provide Mr. Stebor with an additional
amount sufficient to enable Mr. Stebor to retain the full value of his change in
control benefits as if the excise tax had not applied.
First Federal Bancshares guarantees the payments to Mr. Stebor under
First Federal's employment agreement if they are not paid by First Federal.
First Federal Bancshares will also make all payments due under the First Federal
Bancshares' employment agreement. First Federal or First Federal Bancshares will
pay or reimburse all reasonable costs and legal fees incurred by Mr. Stebor
under any dispute or question of interpretation relating to the employment
agreements, if Mr. Stebor is successful on the merits in a legal judgment,
arbitration or settlement. The employment agreements also provide that First
Federal and First Federal Bancshares will indemnify Mr. Stebor to the fullest
extent legally allowable for all expenses and liabilities he may incur in
connection with any suit or proceeding in which
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he may be involved by reason of his having been a director or officer of First
Federal Bancshares or First Federal.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. First Federal maintains a
supplemental executive retirement plan to provide for supplemental retirement
benefits with respect to the employee stock ownership plan. The plan provides
participating executives with benefits otherwise limited by other provisions of
the Internal Revenue Code or the terms of the employee stock ownership plan
loan. Specifically, the plan provides benefits to eligible individuals (those
designated by the Board of Directors of First Federal or its affiliates) that
cannot be provided under the employee stock ownership plan as a result of the
limitations imposed by the Internal Revenue Code, but that would have been
provided under the employee stock ownership plan but for such limitations. In
addition to providing for benefits lost under tax-qualified plans as a result of
limitations imposed by the Internal Revenue Code, the plan also provides
supplemental benefits to designated individuals upon a change of control before
the complete scheduled repayment of the employee stock ownership plan loan.
Generally, upon such an event, the supplemental executive retirement plan
provides the individual with a benefit equal to what the individual would have
received under the employee stock ownership plan had he or she remained employed
throughout the term of the employee stock ownership plan loan less the benefits
actually provided under the employee stock ownership plan on behalf of the
individual. An individual's benefits under the supplemental executive retirement
plan generally become payable upon the change in control of First Federal or
First Federal Bancshares. The Board of Directors has designated Mr. Stebor as a
participant in the supplemental executive retirement plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10% of
any registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Executive officers, directors and greater than 10% stockholders are required by
regulation to furnish the Company with copies of all Section 16(a) reports they
file.
Based solely on the Company's review of copies of the reports it has
received and written representations provided to it from the individuals
required to file the reports, the Company believes that each of its executive
officers and directors has complied with applicable reporting requirements for
transactions in First Federal Bancshares common stock during the year ended
December 31, 2000.
TRANSACTIONS WITH MANAGEMENT
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee, and must not involve more than the normal risk of repayment or present
other unfavorable features. First Federal currently makes new loans and
extensions of credit to First Federal's executive officers, directors and
employees at different rates than those offered to the general public; however,
First Federal does not give preference to any director or officer over any other
employee, and such loans do not involve more than the normal risk of repayment
or present other unfavorable features. In addition, loans made to a director or
executive officer in an amount that, when aggregated with the amount of all
other loans to the person and his or her related interests, are in excess of the
greater of $25,000 or 5% of First Federal's capital and surplus, up to a
8
maximum of $500,000, must be approved in advance by a majority of the
disinterested members of the board of directors.
PROPOSAL 2 -- APPROVAL OF THE FIRST FEDERAL BANCSHARES, INC.
2001 STOCK-BASED INCENTIVE PLAN
The Board of Directors of the Company is presenting for stockholder
approval the First Federal Bancshares, Inc. 2001 Stock-Based Incentive Plan, in
the form attached to this proxy statement as Appendix A. The purpose of the plan
is to attract and retain qualified personnel in key positions, provide officers,
employees and non-employee directors of the Company and the Bank with a
proprietary interest in the Company as an incentive to contribute to the success
of the Company, promote the attention of management to other stockholder's
concerns, and reward employees for outstanding performance. The following is a
summary of the material terms of the plan which is qualified in its entirety by
the complete text of the plan.
GENERAL
The plan authorizes both the grant of options to purchase common stock of
the Company and awards of restricted shares of common stock. Subject to certain
adjustments to prevent dilution of awards to participants, the number of shares
of common stock reserved for awards under the plan is 313,950 shares, consisting
of 224,250 shares reserved for options and 89,700 shares reserved for restricted
stock awards. All employees and non-employee directors of the Company and its
affiliates are eligible to receive awards under the plan. The plan will be
administered by a committee (the "Committee") consisting of members of the Board
of Directors who are not employees of the Company or its affiliates. Authorized
but unissued shares or shares previously issued and reacquired by the Company
may be used to satisfy awards under the plan. If authorized but unissued shares
are used to satisfy restricted stock awards and the exercise of options granted
under the plan, the number of outstanding shares will increase and will have a
dilutive effect on the ownership interests of existing stockholders. The Company
may establish a trust under which the trustee will purchase, with contributions
from the Company or the Bank, previously issued shares to fund the Company's
obligation for restricted stock awards. As of the date of this proxy statement,
no awards have been granted under the plan.
TYPES OF AWARDS
GENERAL. The plan authorizes the grant of awards in the form of: (1)
options intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code (options which provide certain tax benefits to the
recipients upon compliance with applicable requirements, but which do not result
in tax deductions to the Company); (2) options that do not so qualify (options
which do not provide the same income tax benefits to recipients, but which may
provide tax deductions to the Company), referred to as "non-statutory stock
options"; and (3) grants of restricted shares of common stock. Each type of
award may be subject to certain vesting or service requirements or other
conditions imposed by the Committee.
OPTIONS. Subject to the terms of the plan, the Committee has the
authority to determine the amount of options granted to any individual and the
date or dates on which each option will become exercisable and any other
conditions applicable to an option. The exercise price of all options will be
determined by the Committee but will be at least 100% of the fair market value
of the underlying
9
common stock at the time of grant. The exercise price of any option may be paid
in cash, common stock, or any other form permitted by the Committee at its
discretion. The term of options will be determined by the Committee, but in no
event will an option be exercisable more than ten years from the date of grant
(or five years from date of grant for a 10% owner with respect to incentive
stock options).
All options granted under the plan to officers and employees may, at the
discretion of the Committee, qualify as incentive stock options to the extent
permitted under Section 422 of the Internal Revenue Code. Under certain
circumstances, incentive stock options may be converted into non-statutory stock
options. In order to qualify as incentive stock options under Section 422 of the
Internal Revenue Code, the option must generally be granted only to an employee,
must not be transferable (other than by will or the laws of descent and
distribution), the exercise price must not be less than 100% of the fair market
value of the common stock on the date of grant, the term of the option may not
exceed ten years from the date of grant, and no more than $100,000 of options
may become exercisable for the first time in any calendar year. Notwithstanding
the foregoing requirements, incentive stock options granted to any person who is
the beneficial owner of more than 10% of the outstanding voting stock of the
Company may be exercised only for a period of five years from the date of grant
and the exercise price must be at least equal to 110% of the fair market value
of the underlying common stock on the date of grant. Each non-employee director
of the Company or its affiliates, as well as employees, will be eligible to
receive non-statutory stock options.
Unless the Committee determines otherwise, upon termination of an option
holder's services for any reason other than death, disability, retirement,
change in control or termination for cause, all then exercisable options will
remain exercisable for three months following termination, or if sooner, the
expiration of the term of the option. If an option holder dies or becomes
disabled all unexercisable options will become exercisable and remain
exercisable for one year, or if sooner, the expiration of the term of the
option. In the event of termination for cause, all exercisable and unexercisable
options held by the option holder will be canceled. If an option holder retires,
all unvested options will be canceled and all vested options will remain
exercisable for one year following retirement. However, the Committee may permit
all unvested stock options to continue to vest provided the option holder
remains employed by the Company or the Bank as a consultant or advisor or
continues to serve the Company or the Bank as a director, advisory director or
director emeritus. Upon the occurrence of a change in control (except as
otherwise provided by applicable law or regulation), all unexercisable options
held by an option holder will become fully exercisable and remain exercisable
for the term of the option. Incentive stock options exercised more than three
months after an option holder has terminated service in connection with a change
in control or retirement will be treated as non-statutory stock options for tax
purposes.
Under generally accepted accounting principles, compensation expense is
generally not recognized with respect to the award of stock options.
RESTRICTED STOCK AWARDS. Subject to the terms of the plan and applicable
regulation, the Committee has the authority to determine the amounts of
restricted stock awards granted to any individual and the dates on which
restricted stock awards granted will vest or any other conditions which must be
satisfied before vesting. Stock award recipients may also receive amounts equal
to accumulated cash and stock dividends or other distributions (if any) with
respect to shares awarded in the form of restricted stock. In addition, before
vesting, recipients of restricted stock awards may also direct the voting of
shares of common stock granted to them.
10
Unless the Committee determines otherwise, upon termination of the
services of a holder of a stock award for any reason other than death,
disability or retirement, all the holder's rights in unvested restricted stock
awards will be canceled. If the holder of the stock award dies or becomes
disabled, all unvested restricted stock awards held by such individual will
become fully vested. If the holder of a stock award retires, all unvested
restricted stock awards held by such individual will be canceled. However, the
Committee may permit all unvested stock awards to continue to vest provided the
holder of a stock award remains employed by the Company or the Bank as a
consultant or advisor or continues to serve the Company or the Bank as a
director, advisory director or director emeritus. Upon the occurrence of a
change in control, all unvested restricted stock awards held by a recipient will
become immediately vested and any further restrictions shall lapse.
FEDERAL INCOME TAX TREATMENT
OPTIONS. An option holder will generally not recognize taxable income
upon grant or exercise of any incentive stock option, provided that shares
transferred in connection with the exercise are not disposed of by the optionee
for at least one year after the date the shares are transferred in connection
with the exercise of the option and two years after the date of grant of the
option. If these holding periods are satisfied, upon disposal of the shares, the
aggregate difference between the per share option exercise price and the fair
market value of the common stock is recognized as long-term capital gains. No
compensation deduction may be taken by the Company as a result of the grant or
exercise of incentive stock options, assuming these holding periods are met.
In the case of the exercise of a non-statutory stock option, an option
holder will recognize ordinary income upon exercise of the option in an amount
equal to the aggregate amount by which the fair market value of the common stock
exceeds the exercise price of the option. If shares received through the
exercise of an incentive stock option are disposed of before the satisfaction of
the holding periods (a "disqualifying disposition"), the exercise of the option
will essentially be treated as the exercise of a non-statutory stock option,
except that the option holder will recognize the ordinary income for the year in
which the disqualifying disposition occurs. The amount of any ordinary income
recognized by an optionee upon the exercise of a non-statutory stock option or
due to a disqualifying disposition will be a deductible expense of the Company
for federal income tax purposes.
RESTRICTED STOCK AWARDS. A participant who has been awarded restricted
stock under the plan and does not make an election under Section 83(b) of the
Internal Revenue Code will not recognize taxable income at the time of the
award. At the time any transfer or forfeiture restrictions applicable to the
restricted stock award lapse, the recipient will recognize ordinary income and
the Company will be entitled to a corresponding deduction equal to the fair
market value of the stock at such time over the amount paid, if any, therefor.
Any dividend paid to the recipient on the restricted stock at or before such
time will be ordinary compensation income to the recipient and deductible as
such by the Company.
A recipient of a restricted stock award who makes an election under
Section 83(b) of the Code will recognize ordinary income at the time of the
award and the Company will be entitled to a corresponding deduction equal to the
fair market value of the stock at such time over the amount paid, if any,
therefor. Any dividends subsequently paid to the recipient on the restricted
stock will be dividend income to the recipient and not deductible by the
Company. If the recipient makes a Section 83(b) election, there are no federal
income tax consequences either to the recipient or the Company at the time any
transfer or forfeiture restrictions applicable to the restricted stock award
lapse.
11
ALTERNATE OPTION PAYMENTS
Subject to the terms of the plan, the Committee has discretion to
determine the form of payment for the exercise of an option. The Committee may
indicate acceptable forms in the award agreement covering such options or may
reserve its decision to the time of exercise. An option will not be considered
exercised until payment in full is accepted by the Committee. Any shares of
common stock tendered in payment of the exercise price of an option will be
valued at the fair market value of the common stock on the date before the date
of exercise.
AMENDMENTS
Subject to certain restrictions contained in the plan, the Board of
Directors or the Committee may amend the plan in any respect, at any time,
provided that no amendment may affect the rights of the holder of an award
without his or her permission and such amendment must comply with applicable law
and regulation.
ADJUSTMENTS
If there is any change in the outstanding shares of common stock of the
Company by reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares, or
other similar corporate change, or other increase or decrease in such shares
without receipt or payment of consideration by the Company, or if an
extraordinary capital distribution is made, including the payment of an
extraordinary dividend, the Committee may make such adjustments to previously
granted awards, to prevent dilution, diminution or enlargement of the rights of
the holder; provided, however, that in case of an extraordinary dividend, the
Committee may be required to obtain approval of the Office of Thrift Supervision
before any such adjustment. All awards under the plan will be binding upon any
successors or assigns of the Company.
NONTRANSFERABILITY
Unless the Committee determines otherwise, awards under the plan will not
be transferable by the recipient other than by will or the laws of intestate
succession or pursuant to a domestic relations order. With the consent of the
Committee, a recipient may permit transferability or assignment for valid estate
planning purposes of a non-statutory stock option as permitted under the
Internal Revenue Code or federal securities laws and a participant may designate
a person or his or her estate as beneficiary of any award to which the recipient
would then be entitled, if the participant dies.
STOCKHOLDER APPROVAL, EFFECTIVE DATE OF PLAN AND REGULATORY COMPLIANCE
The plan shall become effective on September 28, 2001, subject to prior
approval of the plan by the Company's stockholders. The effective date has been
delayed until September 28, 2001, to ensure compliance with federal regulations
that would otherwise limit the terms of awards under the plan and, specifically,
the circumstances in which the vesting of outstanding awards may be accelerated.
Accordingly, assuming stockholder approval, the plan may not be implemented and
no awards may be made before September 28, 2001. Implementation of the plan is
subject to the regulations of the Office of Thrift Supervision. The Office of
Thrift Supervision has not endorsed or approved the plan.
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NEW PLAN BENEFITS
As of the date of this proxy statement, no decisions have been made
regarding the granting of any options or stock awards under the plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE
FIRST FEDERAL BANCSHARES, INC. 2001 STOCK-BASED INCENTIVE PLAN.
PROPOSAL 3 -- RATIFICATION OF INDEPENDENT AUDITORS
Prior to fiscal year ended February 29, 2000, First Federal's
consolidated financial statements were audited by Clifton Gunderson L.L.C. On
December 22, 1999, First Federal dismissed the former accountant and engaged
Crowe, Chizek and Company LLP, which continues as the independent auditors of
First Federal. The decision to change auditors was approved by the Board of
Directors on December 8, 1999.
For the fiscal year ended February 28, 1999 and up to the date of the
replacement of First Federal's former accountant, there were no disagreements
with the former accountant on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which, if not
resolved to the satisfaction of the former accountant, would have caused it to
make a reference to the subject matter of the disagreement in connection with
its reports. The independent auditor's report on the consolidated financial
statements for the fiscal year ended February 28, 1999 did not contain an
adverse opinion or a disclaimer of opinion, and was not qualified or modified as
to uncertainty, audit scope, or accounting principles.
The Board of Directors has appointed Crowe, Chizek and Company LLP to be
the Company's independent auditors for the 2001 fiscal year, subject to
ratification by stockholders. A representative of Crowe, Chizek and Company LLP
is expected to be present at the annual meeting to respond to appropriate
questions from stockholders and will have the opportunity to make a statement
should he desire to do so.
If the ratification of the appointment of the independent auditors is not
approved by a majority of the votes cast by stockholders at the annual meeting,
the Board of Directors will consider other independent auditors. THE BOARD OF
DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT AUDITORS.
AUDIT FEES
The aggregate fees billed to the Company by Crowe, Chizek and Company LLP
for the annual audit and for the review of the Company's Forms 10-QSB for the
fiscal year 2000 totaled $28,500.
ALL OTHER FEES
The aggregate fees billed to the Company by Crowe, Chizek and Company LLP
for all other non-audit services, including fees for tax-related services,
during fiscal year 2000 totaled $93,825.
13
The Audit Committee believes that the provision of non-audit services by
Crowe, Chizek and Company LLP are compatible with maintaining Crowe, Chizek and
Company LLP's independence.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is responsible for
exercising independent, objective oversight of First Federal Bancshares'
independent auditors, accounting functions and internal controls. The Audit
Committee is comprised of three directors, each of whom is independent under The
Nasdaq Stock Market, Inc.'s listing standards. The Audit Committee acts under a
written charter adopted by the Board of Directors, a copy of which is attached
to this proxy statement as Appendix B.
The Audit Committee reviewed and discussed the annual financial
statements with management and the independent accountants. As part of this
process, management represented to the Audit Committee that the financial
statements were prepared in accordance with generally accepted accounting
principles. The Audit Committee also received and reviewed written disclosures
and a letter from the accountants concerning their independence as required
under applicable standards for auditors of public companies. The Audit Committee
discussed with the accountants the contents of such materials, the accountant's
independence and the additional matters required under Statement on Auditing
Standards No. 61. Based on such review and discussion, the Audit Committee
recommended that the Board of Directors include the audited consolidated
financial statements in First Federal Bancshares' Transition Report on Form
10-KSB for the year ended December 31, 2000 for filing with the Securities and
Exchange Commission.
Members of the Audit Committee:
Gerald L. Prunty
Murrel Hollis
Eldon M. Snowden
STOCKHOLDER PROPOSALS AND NOMINATIONS
The Company must receive proposals that stockholders seek to include in
the proxy statement for the Company's next annual meeting no later than December
18, 2001. If next years annual meeting is held on a date more than 30 calendar
days from May 22, 2002, a stockholder proposal must be received by a reasonable
time before the Company begins to print and mail its proxy solicitation for such
annual meeting. Any stockholder proposals will be subject to the requirements of
the proxy rules adopted by the Securities and Exchange Commission.
The Company's Bylaws provides that in order for a stockholder to make
nominations for the election of directors or proposals for business to be
brought before the annual meeting, a stockholder must deliver notice of such
nominations and/or proposals to the Secretary not less than 90 nor more than 120
days prior to the date of the annual meeting; provided that if less than 100
days' notice or prior public disclosure of the date of the annual meeting is
given to stockholders, such notice must be received not later than the close of
the tenth day following the day on which notice of the date of the annual
meeting was mailed to stockholders or prior public disclosure of the meeting
date was made. A copy of the Bylaws may be obtained from the Company.
14
MISCELLANEOUS
The Company will pay the cost of this proxy solicitation. The Company
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of First Federal Bancshares common stock. In addition to
soliciting proxies by mail, directors, officers and regular employees of the
Company may solicit proxies personally or by telephone without receiving
additional compensation. The Company has retained Georgeson Shareholder
Communications Inc. to assist in soliciting proxies for a fee of $3,500 plus
expenses.
The Company's Annual Report to Stockholders has been mailed to persons
who were stockholders as of the close of business on April 2, 2001. Any
stockholder who has not received a copy of the Annual Report may obtain a copy
by writing to the Secretary of the Company. The Annual Report is not to be
treated as part of the proxy solicitation material or as having been
incorporated in this proxy statement by reference.
A COPY OF THE COMPANY'S TRANSITION REPORT FOR FORM 10-KSB, WITHOUT
EXHIBITS, FOR THE TEN MONTHS ENDED DECEMBER 31, 2000, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WILL BE FURNISHED WITHOUT CHARGE TO PERSONS
WHO WERE STOCKHOLDERS AS OF THE CLOSE OF BUSINESS ON APRIL 2, 2001 UPON WRITTEN
REQUEST TO CATHY D. PENDELL, CORPORATE SECRETARY, FIRST FEDERAL BANCSHARES,
INC., 109 EAST DEPOT STREET, COLCHESTER, ILLINOIS 62326.
Whether or not you plan to attend the annual meeting, please vote by
marking, signing, dating and promptly returning the enclosed proxy card in the
enclosed envelope.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Ronald A. Feld
Ronald A. Feld
CORPORATE SECRETARY
Colchester, Illinois
April 17, 2001
15
APPENDIX A
FIRST FEDERAL BANCSHARES, INC.
2001 STOCK-BASED INCENTIVE PLAN
1. DEFINITIONS.
(a) "Affiliate" means any "parent corporation" or "subsidiary corporation" of
the Holding Company, as such terms are defined in Sections 424(e) and
424(f) of the Code.
(b) "Bank" means First Federal Bank, Colchester, Illinois.
(c) "Board of Directors" means the board of directors of the Holding Company.
(d) "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(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"); (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 of this Agreement
(provided, that in applying the definition of change in control as set
forth under the rules and regulations of the OTS, the Board of Directors
shall substitute its judgment for that of the OTS); or (iii) without
limitation 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 20% 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 Holding Company or its
Subsidiaries, (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 a Nominating Committee solely composed of members which are
Incumbent Board members (or members nominated by the Incumbent Board),
shall be, for purposes of this clause (B), considered as though he were a
member of the Incumbent Board, (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Bank or
the Holding Company or similar transaction occurs or is effectuated in
which the Bank or Holding Company is not the resulting entity; provided,
however, that such an event listed above will be deemed to have occurred
or to have been effectuated upon the receipt of all required federal
regulatory approvals not including the lapse of any statutory waiting
periods; or (D) a proxy statement has been distributed soliciting proxies
from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Holding
Company or Bank with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to such plan
or transaction are exchanged for or converted into cash or property or
securities not issued by the Bank or the Holding Company shall be
distributed, or (E) a tender offer is made by a person other than the
Holding Company for 20% or more of the voting securities of the Bank or
Holding Company then outstanding.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means the committee designated, pursuant to Section 3 of the
Plan, to administer the Plan.
(g) "Common Stock" means the common stock of the Holding Company, par value
$.01 per share.
(h) "Disability" means any mental or physical condition, with respect to
which an individual qualifies for and receives benefits under a long-term
disability plan of the Holding Company or an Affiliate, or in the absence
of such a long-term disability plan or coverage under such a plan,
"Disability" shall mean a physical or mental condition which, in the sole
discretion of the Committee, is reasonably expected to be of indefinite
duration and to substantially prevent the individual from fulfilling his
duties or responsibilities to the Holding Company or an Affiliate.
(i) "Employee" means any person employed by the Holding Company or an
affiliate. Directors who are also employed by the Holding Company or an
Affiliate shall be considered Employees under the Plan.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(k) "Exercise Price" means the price at which an individual may purchase a
share of Common Stock pursuant to a Stock Option.
(l) "Fair Market Value" means the market price of Common Stock, determined by
the Committee as follows:
(i) If the Common Stock was traded on the date in question on the
Nasdaq Stock Market, then the Fair Market Value shall be equal to
the closing price reported for such date;
(ii) If the Common Stock was traded on a stock exchange for the date in
question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite transactions report for
such date; and
(iii) If neither of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in the WALL STREET
JOURNAL. The Committee's determination of Fair Market Value shall be
conclusive and binding on all persons.
(m) "Holding Company" means First Federal Bancshares, Inc.
(n) "Incentive Stock Option" means an option to purchase stock that is
intended to meet the requirements of Section 422 of the Code.
(o) "Just Cause" means termination because of an individual's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or material breach of any provision of
any employment agreement between the Holding Company and/or any
Affiliate.
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(p) "Non-Statutory Stock Option" means an option to purchase stock that is
not intended to be and is not identified as an Incentive Stock Option, or
an option granted under the Plan that is intended to be and is identified
as an Incentive Stock Option, but which does not meet the requirements of
Section 422 of the Code.
(q) "Outside Director" means a member of the board(s) of directors of the
Holding Company or an Affiliate who is not also an Employee of the
Holding Company or an Affiliate.
(r) "Plan" means this First Federal Bancshares, Inc. 2001 Stock-Based
Incentive Plan.
(s) "Restricted Stock Award" means an award of restricted stock granted to an
individual pursuant to Section 6 of the Plan.
(t) "Retirement" means a termination of employment (i) from the Holding
Company or an Affiliate at an age and with employment service that would
entitle the individual to a retirement benefit under the "early" or
"normal" retirement age provisions of any tax-qualified retirement plan
sponsored by the Holding Company or an Affiliate or (ii) under
circumstances designated as Retirement by the Committee. "Retirement"
with respect to an Outside Director means the termination of service from
the Board of Directors of the Holding Company and any Affiliate following
written notice to the Board of Directors of such Outside Director's
intention to retire.
(u) "Stock Option" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2. PURPOSE.
The implementation of the Plan allows the Committee to grant Employees, Outside
Directors and independent contractors of the Holding Company and its Affiliates
certain forms of equity compensation. The Plan specifically provides the
Committee the ability to grant Incentive Stock Options, Non-Statutory Stock
Options and Restricted Stock Awards, subject to the limitations imposed by the
terms of the Plan.
3. ADMINISTRATION.
(a) The Committee shall administer the Plan. The Committee shall consist of
two (2) or more disinterested directors of the Holding Company, whom the
Board of Directors shall appoint. A member of the Board of Directors
shall be deemed "disinterested" only if he satisfies requirements the
Securities and Exchange Commission may establish for non-employee
directors administering plans intended to qualify for exemption under
Rule 16b-3 (or its successor) of the Exchange Act. The Board of Directors
may also appoint one or more separate committees, each composed of one or
more directors of the Holding Company or an Affiliate, who need not be
disinterested, that may make grants and administer the Plan with respect
to individuals who are not considered officers or directors of the
Holding Company under Section 16 of the Exchange Act.
(b) The Committee shall:
(i) select the individuals who are to receive grants under the Plan;
(ii) determine the type, number, vesting requirements and other
features and conditions of grants made under the Plan;
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(iii) interpret the Plan and Award Agreements (as defined below); and
(iv) make all other decisions related to the operation of the Plan.
The Committee shall adopt any rules or guidelines that it deems
appropriate to implement and administer the Plan. The Committee's
determinations under the Plan shall be final and binding on all persons.
(c) The Committee shall document each grant under the Plan by a written
notice ("Award Agreement"). Each Award Agreement shall constitute a
binding contract between the Holding Company or an Affiliate and the
grant holder, and every grant holder, upon acceptance of an Award
Agreement, shall be bound by the terms and restrictions of the Plan and
the Award Agreement. The terms of each Award Agreement shall be
established in accordance with the Plan, but each Award Agreement may
include any additional provisions and restrictions determined by the
Committee. In particular, and at a minimum, the Committee shall set forth
in each Award Agreement:
(i) the type of award granted;
(ii) the Exercise Price of any Stock Option;
(iii) the number of shares subject to the grant;
(iv) the expiration date of the grant;
(v) the manner, time and rate (cumulative or otherwise) of exercise or
vesting of the grant; and
(vi) the restrictions, if any, placed upon the grant or upon shares
that may be issued upon exercise or vesting of the grant.
The Chairman of the Committee and such other directors and officers as
shall be designated by the Committee are authorized to execute Award
Agreements on behalf of the Holding Company or an Affiliate and to
deliver them to the recipients of grants.
(d) The Committee may delegate all authority for the determination of forms
of payment to be made or received by the Plan and for the execution of
any Award Notice. The Committee may rely on the descriptions,
representations, reports and estimates provided to it by the management
of the Holding Company or an Affiliate for determinations made pursuant
to the Plan.
4. STOCK SUBJECT TO THE PLAN.
Subject to adjustment under Section 11 of the Plan, the number of shares
reserved for grants under the plan is 313,950. Of this number, 224,250 shares
are reserved for purchase pursuant to the exercise of Stock Options (Incentive
Stock Options and Non-Statutory Stock Options) granted under the Plan and 89,700
shares are reserved for grants of Restricted Stock Awards. The shares of Common
Stock issued under the Plan may be either authorized but unissued shares or
authorized shares previously issued and acquired or reacquired by the Holding
Company. The shares underlying grants under the Plan will be unavailable for any
other use, including future grants under the Plan, except that, to the extent
the grants
A-4
terminate, expire or are forfeited without vesting or without having been
exercised, new grants of a similar kind may be granted with respect to these
shares.
5. STOCK OPTIONS.
The Committee may, subject to the limitations of this Plan and the availability
of shares of Common Stock reserved but not previously awarded under the Plan,
grant options to purchase Common Stock. The Committee may grant Non-Statutory
Stock Options and/or Incentive Stock Options, subject to terms and conditions as
it may determine, to the extent that such terms and conditions are consistent
with the following provisions:
(a) EXERCISE PRICE. The Exercise Price shall not be less than one hundred
percent (100%) of the Fair Market Value of the Common Stock on the date
of grant.
(b) TERMS OF STOCK OPTIONS. In no event may an individual exercise a Stock
Option, in whole or in part, more than ten (10) years from the date of
grant.
(c) NON-TRANSFERABILITY. An individual may not transfer, assign, hypothecate,
or dispose of a Stock Option in any manner, other than by will or the
laws of intestate succession. The Committee may, however, in its sole
discretion, permit transfer or assignment of a Non-Statutory Stock
Option, if it determines that the transfer or assignment is for valid
estate planning purposes and is permitted under the Code and Rule 16b-3
of the Exchange Act. For purposes of this Section 5(c), a transfer for
valid estate planning purposes includes, but is not limited to,
transfers:
(i) to a revocable inter vivos trust, as to which an individual is
both settlor and trustee; or
(ii) for no consideration to: (1) any member of the individual's
Immediate Family; (2) a trust solely for the benefit of members of
the individual's Immediate Family; (3) any partnership whose only
partners are members of the individual's Immediate Family; or (4)
any limited liability corporation or other corporate entity whose
only members or equity owners are members of the individual's
Immediate Family.
For purposes of this Section 5(c), "Immediate Family" includes, but is
not necessarily limited to, an individual's parents, grandparents,
spouse, children, grandchildren, siblings (including half brothers and
sisters), and individuals who are family members by adoption. Nothing
contained in this Section 5(c) shall be construed to require the
Committee to approve the transfer or assignment of any Non-Statutory
Stock Option, in whole or in part. Receipt of the Committee's approval to
transfer or assign a Non-Statutory Stock Option, in whole or in part,
does not mean that the Committee must approve a transfer or assignment of
any other Non-Statutory Stock Option, or portion thereof. The transferee
or assignee of any Non-Statutory Stock Option shall be subject to all
terms and conditions applicable to the Option immediately prior to
transfer or assignment, and shall remain subject to any other conditions
proscribed by the Committee with respect to the Stock Option.
(d) SPECIAL RULES FOR INCENTIVE STOCK OPTIONS. Notwithstanding foregoing
provisions, the following rules shall apply to the grant of Incentive
Stock Options:
(i) If an Employee owns or is treated as owning, for purposes of
Section 422 of the Code, Common Stock representing more than ten
percent (10%) of the total combined voting
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securities of the Holding Company at the time the Committee grants
the Incentive Stock Option (a "10% Owner"), the Exercise Price
shall not be less than one hundred and ten percent (110%) of the
Fair Market Value of the Common Stock on the date of grant.
(ii) An Incentive Stock Option granted to a 10% Owner shall not be
exercisable more than five (5) years from the date of grant.
(iii) To the extent the aggregate Fair Market Value of shares of Common
Stock with respect to which Incentive Stock Options are
exercisable for the first time by an Employee during any calendar
year, under the Plan or any other stock option plan of the Holding
Company, exceeds $100,000, or such higher value as may be
permitted under Section 422 of the Code, Options in excess of the
limit shall be treated as Non-Statutory Stock Options. Fair Market
Value shall be determined as of the date of grant for each
Incentive Stock Option.
(iv) Each Award Notice for an Incentive Stock Option shall require the
individual to notify the Committee within ten (10) days of any
disposition of shares of Common Stock under the circumstances
described in Section 421(b) of the Code (relating to certain
disqualifying dispositions).
(e) ACCELERATION UPON A CHANGE IN CONTROL. Upon a Change in Control, all
Stock Options held by an individual as of the date of the Change in
Control shall immediately become exercisable and shall remain exercisable
until the expiration of the Stock Option term.
(f) TERMINATION OF EMPLOYMENT OR OTHER SERVICE. The following rules apply
upon the termination of an individual's employment or other service:
(i) IN GENERAL. Unless the Committee determines otherwise, upon
termination of employment or service for any reason other than
Retirement, Disability or death, or Just Cause, the individual may
exercise only those Stock Options that were immediately
exercisable by the individual at the date of termination and only
for a period of three (3) months from the date of termination or,
if sooner, until the expiration of the Stock Option term.
(ii) RETIREMENT. Unless the Committee determines otherwise, upon an
individual's Retirement, the individual may exercise only those
Stock Options that were immediately exercisable by the individual
at the date of Retirement and only for a period of one (1) year
from the date of Retirement or, if sooner, until the expiration of
the Stock Option term.
(iii) DISABILITY OR DEATH. Unless the Committee determines otherwise,
upon termination of an individual's employment or service due to
Disability or death, all Non-Statutory Stock Options shall become
immediately exercisable and shall remain exercisable for a period
of one (1) year from the date of termination or, if sooner, until
the expiration of the Stock Option term.
(iv) JUST CAUSE. Unless the Committee determines otherwise, upon
termination of employment or service for Just Cause, all rights
related to the individual's Stock Options shall expire immediately
upon the effective date of the termination.
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6. RESTRICTED STOCK AWARDS.
The Committee may make grants of Restricted Stock Awards, which shall consist of
the grant of some number of shares of Common Stock to an individual upon such
terms and conditions as it may determine to the extent such terms and conditions
are consistent with the following provisions:
(a) GRANTS OF STOCK. Restricted Stock Award grants may only be made in whole
shares of Common Stock.
(b) NON-TRANSFERABILITY. Except to the extent permitted by the Code, the
rules promulgated under Section 16(b) of the Exchange Act or any
successor statutes or rules:
(i) The recipient of a Restricted Stock Award grant shall not sell,
transfer, assign, pledge, or otherwise encumber shares subject to
the grant until full vesting of such shares has occurred. For
purposes of this section, the separation of beneficial ownership
and legal title through the use of any "swap" transaction is
deemed to be a prohibited encumbrance.
(ii) Unless determined otherwise by the Committee and except in the
event of the Participant's death or pursuant to a domestic
relations order, a Restricted Stock Award grant is not
transferable and may be earned in his or her lifetime only by the
individual to whom it is granted. Upon the death of an individual,
a Restricted Stock Award grant is transferable by will or the laws
of descent and distribution. The designation of a beneficiary
shall not constitute a transfer.
(iii) If a recipient of Restricted Stock Award is subject to the
provisions of Section 16 of the Exchange Act, shares of Common
Stock subject to the grant may not, without the written consent of
the Committee (which consent may be given in the Award Agreement),
be sold or otherwise disposed of within six (6) months following
the date of grant.
(c) ACCELERATION OF VESTING UPON A CHANGE IN CONTROL. Upon a Change in
Control, all Restricted Stock Awards held by an individual as of the date
of the Change in Control shall immediately become vested and any further
restrictions shall lapse.
(d) TERMINATION OF EMPLOYMENT OR SERVICE. The following rules will govern the
treatment of a Restricted Stock Award upon the termination of an
individual's termination of employment or other service:
(i) IN GENERAL. Unless the Committee determines otherwise, upon the
termination of an individual's employment or service for any
reason other than Retirement, Disability or death or Just Cause,
any Restricted Stock Award in which the individual has not become
vested as of the date of such termination shall be forfeited and
any rights the individual had to such Restricted Stock Award shall
become null and void.
(ii) RETIREMENT. Unless the Committee determines otherwise, upon an
individual's Retirement, any Restricted Stock Award in which the
Participant has not become vested as of the date of Retirement
shall be forfeited and any rights the individual had to such
unvested Restricted Stock Awards shall become null and void.
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(iii) DISABILITY OR DEATH. Unless otherwise determined by the Committee,
in the event of a termination of the individual's service due to
Disability or death all unvested Restricted Stock Awards held by
such Participant shall immediately vest as of the date of such
termination.
(iv) JUST CAUSE. Unless otherwise determined by the Committee, in the
event of the individual's termination for Just Cause, all
Restricted Stock Awards in which the individual had not become
vested as of the effective date of such termination shall be
forfeited and any rights such individual had to such unvested
Restricted Stock Awards shall become null and void.
(e) ISSUANCE OF CERTIFICATES. Unless otherwise held in trust and registered
in the name of the trustee of the trust, reasonably promptly after the
date of grant with respect to shares of Common Stock pursuant to a
Restricted Stock Award, the Holding Company shall cause to be issued a
stock certificate, registered in the name of the individual to whom the
Restricted Stock Award was granted, evidencing such shares; provided,
that the Holding Company shall not cause a stock certificate to be issued
unless it has received a stock power duly endorsed in blank with respect
to such shares. Each such stock certificate shall bear the following
legend:
"The transferability of this certificate and the shares
of stock represented hereby are subject to the
restrictions, terms and conditions (including forfeiture
provisions and restrictions against transfer) contained
in the First Federal Bancshares, Inc. 2001 Stock-Based
Incentive Plan and Award Agreement entered into between
the registered owner of such shares and First Federal
Bancshares, Inc. or its Affiliates. A copy of the Plan
and Award Agreement is on file in the office of the
Corporate Secretary of First Federal Bancshares, Inc.,
109 East Depot Street, Colchester, Illinois 62326.
This legend shall not be removed until the individual becomes vested in
such shares pursuant to the terms of the Plan and Award Agreement. Each
certificate issued pursuant to this Section 6(e) shall be held by the
Holding Company or its Affiliates, unless the Committee determines
otherwise.
(f) TREATMENT OF DIVIDENDS. Whenever shares of Common Stock underlying a
Restricted Stock Award are distributed to an individual or beneficiary
thereof under the Plan (or at such other time as the Committee may
determine with respect to an individual), the recipient or beneficiary
shall also be entitled to receive, with respect to each such share
distributed, a payment equal to any cash dividends or other distributions
and the number of shares of Common Stock equal to any stock dividends,
declared and paid with respect to a share of the Common Stock if the
record date for determining shareholders entitled to receive such
dividends or other distributions falls between the date the relevant
Restricted Stock Award was granted and the date the relevant Restricted
Stock Award or installment thereof is issued. There shall also be
distributed an appropriate amount of net earnings, if any, of the trust
with respect to any dividends paid out on the shares related to the
Restricted Stock Award.
(g) VOTING OF RESTRICTED STOCK AWARDS. After a Restricted Stock Award has
been granted but for which the shares covered by such Restricted Stock
Award have not yet been vested, earned and distributed to the individual
pursuant to the Plan, the individual shall be entitled to vote or to
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direct the trustee to vote, as the case may be, such shares of Common
Stock which the Restricted Stock Award covers subject to the rules and
procedures adopted by the Committee for this purpose and in a manner
consistent with the trust agreement.
(h) PAYMENT. Payment due to a Participant upon the redemption of a Restricted
Stock Award shall be made in the form of shares of Common Stock.
7. DEFERRED PAYMENTS.
The Committee, in its discretion, may permit an individual to elect to defer the
receipt of all or any part of any payment under the Plan or the Committee may
determine to defer receipt, by some or all individuals, of all or a portion of
any payment. The Committee shall determine the terms and conditions of any
permitted deferral, including the period of deferral, the manner of deferral and
the method used to measure appreciation on deferred amounts until paid.
8. METHOD OF EXERCISING STOCK OPTIONS.
Subject to any applicable Award Agreement, an individual may exercise any Stock
Option, in whole or in part, at such time or times as the Committee specifies in
the applicable Award Agreement. The individual may make payment of the Exercise
Price in such form or forms as the Committee specifies in the Award Agreement,
including, without limitation, payment by delivery of cash, Common Stock or
other consideration (including, where permitted by law and the Committee, Stock
Options) having a Fair Market Value equal to the total Exercise Price on the day
immediately preceding the exercise date. The Committee may also allow payment by
any combination of cash, shares of Common Stock and other consideration,
including exercise by means of a cashless exercise arrangement with a qualified
broker- dealer, as the Committee specifies in the applicable Award Agreement.
9. RIGHTS OF INDIVIDUALS.
No individual shall have any rights as a shareholder with respect to any shares
of Common Stock covered by a grant under this Plan until the date of issuance of
a stock certificate for such Common Stock. Nothing contained in this Plan or in
any Option Notice confers on any person the right to continue in the employ or
service of the Holding Company or an Affiliate or interferes in any way with the
right of the Holding Company or an Affiliate to terminate an individual's
services.
10. DESIGNATION OF BENEFICIARY.
With the Committee's consent, an individual may designate a person or persons to
receive, upon the individual's death, any award to which the individual would
then be entitled. This designation shall be made upon forms supplied by and
delivered to the Holding Company and it may be revoked in writing. If an
individual fails to effectively designate a beneficiary, the individual's estate
shall be deemed to be the beneficiary for purposes of the Plan.
11. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding shares of Common Stock, by reason
of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or any other increase or decrease in such shares, without
receipt or payment of consideration by the Holding Company, or in the event an
extraordinary capital
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distribution is made, the Committee may make adjustments to previously granted
Options, to prevent dilution, diminution, or enlargement of the rights of
individuals, including any or all of the following:
(a) adjustments in the aggregate number or kind of shares of Common
Stock or other securities that may underlie future awards under
the Plan;
(b) adjustments in the aggregate number or kind of shares of Common
Stock or other securities that underlie awards already made under
the Plan; and
(c) adjustments in the Exercise Price of outstanding Stock Options.
The Committee, however, shall not make adjustments that materially change the
value of benefits available to an individual under a previously granted award.
All awards under this Plan shall be binding upon any successors or assigns of
the Holding Company. Notwithstanding the above, in the event of an extraordinary
capital distribution, any adjustment under this Section 11 shall be subject to
any required regulatory approval.
12. TAXES.
(a) Under this Plan, whenever cash or shares of Common Stock are to be
delivered, the Committee is entitled to require as a condition of
delivery that:
(i) the individual remit an amount sufficient to satisfy all related
federal, state, and local withholding tax requirements;
(ii) the withholding of such sums may come from compensation otherwise
due to the individual or from shares of Common Stock due to the
individual under this Plan; or
(iii) any combination of (i) and (ii), above; PROVIDED, HOWEVER, that no
amount shall be withheld from any cash payment or shares of Common
Stock related to an award transferred by the individual in
accordance with this Plan.
(b) If any disqualifying disposition, as described in Section 5(d)(iv), is
made with respect to shares of Common Stock acquired under an Incentive
Stock Option granted in accordance with this Plan, or any transfer
described in Section 5(c) is made, or any election described in Section
13 is made, the person making such disqualifying disposition, transfer,
or election shall remit to the Holding Company or its Affiliates an
amount sufficient to satisfy all federal, state, and local withholding
taxes incurred. In lieu of or in addition to the foregoing, however, the
Holding Company or its Affiliates shall have the right to withhold such
sums from compensation otherwise due to the individual, or, except in the
case of any transfer pursuant to Section 5(c), from any shares of Common
Stock due to the individual under this Plan.
13. NOTIFICATION UNDER SECTION 83(b).
The Committee may, on the date of grant or at a later date, prohibit an
individual from making the election described below. If the Committee has not
prohibited an individual from making this election, and the individual shall, in
connection with any award, make the election permitted under Section 83(b) of
the Code, the individual shall notify the Committee of the election within ten
(10) days of filing notice of the election with the Internal Revenue Service.
This requirement is in addition to any filing and notification required under
the regulations issued under the authority of Section 83(b) of the Code.
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14. AMENDMENT OF THE PLAN AND AWARD AGREEMENTS.
(a) Except as provided in paragraph (c) of this Section 14, the Board of
Directors may at any time, and from time to time, modify or amend the
Plan in any respect, prospectively or retroactively; PROVIDED, HOWEVER,
that provisions governing grants of Incentive Stock Options shall be
submitted for shareholder approval to the extent required by law,
regulation, or otherwise. Failure to ratify or approve amendments or
modifications by shareholders shall be effective only as to the specific
amendment or modification requiring shareholder ratification or approval.
Other provisions of this Plan shall remain in full force and effect. No
termination, modification, or amendment of this Plan may adversely affect
the rights of an individual under an outstanding award without the
written permission of the affected individual.
(b) Except as provided in paragraph (c) of this Section 14, the Committee may
amend any Award Agreement, prospectively or retroactively; PROVIDED,
HOWEVER, that no amendment shall adversely affect the rights of an
individual under an outstanding Award Agreement without the written
consent of the affected individual.
(c) In no event shall the Board of Directors amend the Plan or shall the
Committee amend an Award Agreement in any manner that effectively:
(i) Allows any Stock Option to be granted with an Exercise Price below
the Fair Market Value of the Common Stock on the date of grant, or
(ii) Allows the Exercise Price of any Option previously granted under
the Plan to be reduced after the date of grant (except as provided
for pursuant to Section 11 of the Plan).
(d) Notwithstanding anything in this Plan or any Award Agreement to the
contrary, if any award or right under this Plan would, in the opinion of
the Holding Company's accountants, cause a transaction to be ineligible
for pooling of interest accounting that would, but for such award or
right, be eligible for such accounting treatment, the Committee may, in
its discretion, modify, adjust, eliminate or terminate the award or
right, to preserve the availability of pooling of interest accounting.
15. EFFECTIVE DATE AND TERMINATION OF THE PLAN.
The Plan shall become effective on September 28, 2001, but only if, prior to
such date, the Plan is approved by the Holding Company's stockholders. The Plan
will be so approved if at an annual or special meeting of stockholders held
prior to such date a quorum is present and the votes of the holders of a
majority of the Common Stock present or represented by proxy and entitled to
vote on such matter shall be cast in favor of its approval. The right to grant
Stock Options and Restricted Stock Awards under the Plan will terminate upon the
earlier of: (i) ten (10) years after the Plan becomes effective; or (ii) the
issuance of a number of shares of Common Stock pursuant to grants under the Plan
equal to the number of shares reserved under the Plan. The Board of Directors
may suspend or terminate the Plan at any time; PROVIDED, HOWEVER, that no such
action may adversely affect an individual's vested rights under a previously
granted award, without the consent of the affected individual.
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16. APPLICABLE LAW.
The Plan and all actions taken or omitted which related to this Plan will be
governed by the laws of Delaware to the extent not pre-empted by federal law.
17. TREATMENT OF AWARDS BY THE SUCCESSOR UPON A CHANGE IN CONTROL.
In the event of a Change in Control where the Holding Company or the Bank is not
the surviving entity, the Board of Directors of the Holding Company and/or the
Bank, as applicable, shall require that the successor entity take one of the
following actions with respect to all awards held by individuals at the date of
the Change in Control:
(a) Assume the awards with the same terms and conditions as granted to the
individual under this Plan;
(b) Replace the awards with comparable awards, subject to the same or more
favorable terms and conditions as the awards granted to the individual
under this Plan, whereby the individual will be granted common stock or
the option to purchase common stock of the successor entity; or
(c) Replace the awards with an immediate cash payment of equivalent value.
A-12
APPENDIX B
FIRST FEDERAL BANCSHARES, INC.
CHARTER - AUDIT COMMITTEE
MISSION STATEMENT
The committee's role is to assist the board of directors in overseeing
all material aspects of First Federal Bancshares' (the "Company") financial
reporting, internal control, and audit functions, including a particular focus
on the qualitative aspects of financial reporting to stockholders, on compliance
with significant applicable legal, ethical, and regulatory requirements and to
ensure the objectivity of the financial statements. The role also includes
maintenance of strong, positive working relationships with management, external
and internal auditors, counsel, and other committee advisors.
ORGANIZATION
COMMITTEE COMPOSITION. The committee shall consist of at least two board
members, a majority of whom shall be independent of management and the Company.
Committee appointments, including selection of the committee chairperson, shall
be approved annually by the full board.
MEETINGS. The committee shall meet at least quarterly. Additional
meetings shall be scheduled as considered necessary by the committee or
chairperson. A quorum of the committee shall be declared when a majority of the
appointed members of the committee are in attendance.
EXTERNAL RESOURCES. The committee shall be authorized to access internal
and external resources, as the committee requires, to carry out its
responsibilities.
ROLES AND RESPONSIBILITIES
COMMUNICATION WITH THE BOARD OF DIRECTORS AND MANAGEMENT
* The chairperson and others on the committee shall, to the extent
appropriate, have contact throughout the year with senior
management, the board of directors, external auditors and legal
counsel, as applicable, to strengthen the committee's knowledge of
relevant current and prospective business issues, risks and
exposures. This will include requests by the committee that
members of management, counsel, the external auditors, as
applicable, participate in committee meetings, as necessary, to
carry out the committee's responsibilities.
* The committee, with input from management and other key committee
advisors, shall develop an annual plan, which shall include an
agenda and procedures for the review of the Company's quarterly
financial data, its year end audit, and the review of the
independence of its accountants.
* The committee, through the committee chairperson, shall report
periodically, as deemed necessary, but at least semi-annually, to
the full board.
* The committee shall make recommendations to the full board
regarding the compensation to be paid to the external auditors and
its views regarding the retention of the auditors for the upcoming
fiscal year.
REVIEW OF THE EXTERNAL AUDIT
* The committee shall meet with the external auditors, at least
annually, who shall report all relevant issues to the committee.
* The external auditors, in their capacity as independent public
accountants, shall be responsible to the board of directors and
the audit committee as representatives of the stockholders.
* The committee shall review the annual financial statements,
including the overall scope and focus of the annual audit. This
review should include a determination of whether the annual
financial statements are complete and consistent with the
information known to committee members. This review shall also
include a review of key financial statement issues and risks,
their impact or potential effect on reported financial
information, the processes used by management to address such
matters, related auditor views, and the basis for audit
conclusions. Any important conclusions on concerning the year-end
audit work should be discussed well in advance of the public
release of the annual financial statements.
* The committee shall annually review the performance
(effectiveness, objectivity, and independence) of the external
auditors. The committee shall ensure receipt of a formal written
statement from the external auditors consistent with standards set
by the Independence Standards Board. Additionally, the committee
shall discuss with the auditor relationships or services that may
affect auditor objectivity or independence. If the committee is
not satisfied with the auditors' assurances of independence, it
shall take or recommend to the full board appropriate action to
ensure the independence of the external auditor.
* The committee shall review any important recommendations on
financial reporting, controls, other matters, and management's
response.
* If the external auditors identify significant issues relative to
the overall board responsibility that have been communicated to
management but, in their judgment, have not been adequately
addressed, they should communicate these issues to the committee.
REPORTING TO STOCKHOLDERS
* The committee should be briefed on the processes used by
management in producing its interim financial statements and
review and discuss with management any questions or issues
concerning the statements. Any important issues on interim
financial statements should be discussed well in advance of the
public release of the interim financial statements.
* The committee will ensure that management requires that the
external auditors review the financial information included in the
Company's interim financial statements before the Company files
its quarterly reports with the Securities and Exchange Commission.
* The committee shall review all major financial reports in advance
of filings or distribution, including the annual report.
* The committee shall annually provide a written report of its
activities and findings, a copy of which shall be included within
the proxy statement for the annual meeting. The report shall
appear over the names of the audit committee. Such report shall be
furnished to and approved by
B-2
the full board of directors prior to its inclusion in the proxy
statement. The report will state whether the committee: (i) has
reviewed and discussed the audited financial statements with
management; (ii) has discussed with the independent auditors the
matters to be discussed by Statement of Auditing Standards No. 61;
(iii) has received the written disclosures and the letter from the
independent auditors regarding the independence required by
Independence Standards Board Standard No. 1; (iv) has discussed
with the auditors their independence; and (iv) based on the review
and discussion of the audited financial statements with management
and the independent auditors, has recommended to the board of
directors that the audited financial statements be included in the
Company's annual report on Form 10-KSB.
* The Company shall disclose that the committee is governed by a
written charter, a copy of which has been approved by the full
board of directors. The committee shall review the charter
annually, assess its adequacy and propose appropriate amendments
to the full board of directors. A copy of the charter shall be
filed as an appendix to the proxy statement at least every three
years.
REGULATORY EXAMINATIONS
* The committee shall review the results of examinations by
regulatory authorities and management's response to such
examinations.
COMMITTEE SELF ASSESSMENT AND EDUCATION
* The committee shall review, discuss, and assess its own
performance as well as the committee role and responsibilities,
seeking input from senior management, the full board, and others.
* The Committee shall review significant accounting and reporting
issues, including recent professional and regulatory
pronouncements and understand their impact on the Company's
business, results of operation and financial statements.
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FIRST FEDERAL BANCSHARES, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 2001
2:00 P.M., LOCAL TIME
-------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints the official proxy committee of First
Federal Bancshares, Inc. (the "Company") with full power of substitution, to act
as proxy for the undersigned, and to vote all shares of common stock of the
Company which the undersigned is entitled to vote only at the annual meeting of
stockholders, to be held on May 22, 2001, at 2:00 p.m., local time, at the Days
Inn, 200 Maine Street, Quincy, Illinois and at any and all adjournments thereof,
with all of the powers the undersigned would possess if personally present at
such meeting as follows:
1. The election as Directors of all nominees listed (unless the "FOR
ALL EXCEPT" box is marked and the instructions below are complied
with).
Dr. Stephan L. Roth and Richard D. Stephens
FOR ALL
FOR VOTE WITHHELD EXCEPT
--- ------------- ------
[ ] [ ] [ ]
INSTRUCTION: To withhold your vote for any individual nominee, mark "FOR ALL
EXCEPT" and write that nominee's name on the line provided below.
- --------------------------------------------------------------------------------
2. The approval of the First Federal Bancshares, Inc. 2001
Stock-Based Incentive Plan.
FOR AGAINST ABSTAIN
--- ------- -------
[ ] [ ] [ ]
3. The ratification of the appointment of Crowe, Chizek and Company
LLP as independent auditors of First Federal Bancshares, Inc. for
the fiscal year ending December 31, 2001.
FOR AGAINST ABSTAIN
--- ------- -------
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSALS
LISTED ONLY IF SIGNED AND DATED. IF ANY OTHER BUSINESS IS PRESENTED AT THE
ANNUAL MEETING, INCLUDING WHETHER OR NOT TO ADJOURN THE MEETING, THIS PROXY WILL
BE VOTED BY THE PROXIES IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD
OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL MEETING.
THIS PROXY ALSO CONFERS DISCRETIONARY AUTHORITY TO VOTE WITH RESPECT TO THE
ELECTION OF ANY PERSON AS DIRECTOR WHERE THE NOMINEES ARE UNABLE TO SERVE OR FOR
GOOD CAUSE WILL NOT SERVE AND WITH RESPECT TO ANY OTHER BUSINESS THAT MAY
PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT THEREOF.
Dated:__________________________________
________________________________________
SIGNATURE OF STOCKHOLDER
________________________________________
SIGNATURE OF CO-HOLDER (IF ANY)
The above signed acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Annual Meeting of Stockholders and of a
Proxy Statement for the Annual Meeting and of an Annual Report to Stockholders.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder may sign but only one signature
is required.
-----------------------------
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
Name:_____________________
Shares:___________________
VOTE AUTHORIZATION FORM
I understand that First Bankers Trust Company, the ESOP Trustee, is the
holder of record and custodian of all shares of First Federal Bancshares, Inc.
(the "Company") common stock attributed to me under the First Federal Bank
Employee Stock Ownership Plan. I understand that my voting instructions are
solicited on behalf of the Company's Board of Directors for the Annual Meeting
of Stockholders to be held on May 22, 2001.
Accordingly, you are to vote my shares as follows:
1. The election as Directors of all nominees listed (unless the "FOR ALL
EXCEPT" box is marked and the instructions below are complied with).
Dr. Stephan L. Roth and Richard D. Stephens
FOR ALL
FOR VOTE WITHHELD EXCEPT
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[ ] [ ] [ ]
INSTRUCTION: To withhold your vote for any individual nominee, mark "FOR ALL
EXCEPT" and write that nominee's name on the line provided below.
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2. The approval of the First Federal Bancshares, Inc. 2001 Stock-Based
Incentive Plan.
FOR AGAINST ABSTAIN
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[ ] [ ] [ ]
3. The ratification of the appointment of Crowe, Chizek and Company LLP as
independent auditors of First Federal Bancshares, Inc. for the fiscal
year ending December 31, 2001.
FOR AGAINST ABSTAIN
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[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED
PROPOSALS.
The ESOP Trustee is hereby authorized to vote any shares attributable to me in
its trust capacity as indicated above.
Date_____________________ Signature______________________________
PLEASE DATE, SIGN AND RETURN THIS FORM IN THE ENCLOSED POSTAGE-PAID ENVELOPE NO
LATER THAN MAY 15, 2001.
First Federal Bank Letterhead
Dear ESOP Participant:
On behalf of the Board of Directors, I am forwarding to you the
attached vote authorization form for the purpose of conveying your voting
instructions to First Bankers Trust Company, N.A. (the "ESOP Trustee") on the
proposals presented at the Annual Meeting of Stockholders of First Federal
Bancshares, Inc. (the "Company") on May 22, 2001. Also enclosed is a Notice and
Proxy Statement for the Company's Annual Meeting of Stockholders and a First
Federal Bancshares, Inc. Annual Report to Stockholders.
As of the Record Date, April 2, 2001, the First Federal Bank Employee
Stock Ownership Plan (the "ESOP") Trust held 179,400 shares of Company common
stock, of which 8,970 shares had been allocated to participants' accounts. These
allocated shares of Company common stock will be voted as directed by the ESOP
participants; provided timely instructions from the participants are received by
the ESOP Trustee. The unallocated shares of Company common stock in the ESOP
Trust and the allocated shares of Company common stock for which instructions
are not timely provided will be voted by the ESOP Trustee in a manner calculated
to most accurately reflect the instructions the ESOP Trustee has received from
participants regarding the shares of Company common stock allocated to their
accounts, so long as such vote is in accordance with the Employee Retirement
Income Security Act of 1974, as amended.
In order to direct the voting of the shares allocated to your account
under the ESOP, please complete and sign the enclosed vote authorization form
and return it in the enclosed postage-paid envelope no later than MAY 15, 2001.
Your vote will not be revealed, directly or indirectly, to any officer, employee
or director of the Company or First Federal Bank. The votes will be tallied by
the ESOP Trustee and the ESOP Trustee will use the voting instructions it
receives to vote the shares of Company common stock in the ESOP Trust.
Sincerely,
/s/ James J. Stebor
James J. Stebor
PRESIDENT AND CHIEF EXECUTIVE OFFICER