<Page>
[FIRST FEDERAL BANCSHARES OF ARKANSAS, INC. LETTERHEAD]
April 1, 2002
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of First Federal Bancshares of Arkansas, Inc. The meeting will be held at the
Comfort Inn located at 1210 Highway 62-65 North, Harrison, Arkansas 72601, on
Thursday, April 25, 2002 at 10:00 a.m., Central Time. The matters to be
considered by stockholders at the Annual Meeting are described in the
accompanying materials.
It is very important that you be represented at the Annual Meeting
regardless of the number of shares you own or whether you are able to attend the
meeting in person. We urge you to mark, sign, and date your proxy card today and
return it in the envelope provided, even if you plan to attend the Annual
Meeting. This will not prevent you from voting in person, but will ensure that
your vote is counted if you are unable to attend. FOR THE REASONS SET FORTH IN
THE PROXY STATEMENT, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" EACH
MATTER TO BE CONSIDERED.
Your continued support of and interest in First Federal Bancshares of
Arkansas, Inc. are sincerely appreciated.
Sincerely,
/s/ Larry J. Brandt
Larry J. Brandt
President/CEO
<Page>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
200 WEST STEPHENSON
HARRISON, ARKANSAS 72601
(870) 741-7641
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 25, 2002
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Annual
Meeting") of First Federal Bancshares of Arkansas, Inc. (the "Company") will be
held at the Comfort Inn located at 1210 Highway 62-65 North, Harrison, Arkansas
72601, on Thursday, April 25, 2002 at 10:00 a.m., Central Time, for the
following purposes, all of which are more completely set forth in the
accompanying Proxy Statement:
(1) To elect two directors for a term of three years and until their
successors are elected and qualified;
(2) To ratify the appointment by the Board of Directors of Deloitte &
Touche LLP as the Company's independent auditors for the year ending December
31, 2002; and
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof. Management is not aware of any other such
business.
The Board of Directors has fixed March 18, 2002 as the voting record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting. Only those stockholders of record as of the close of
business on that date will be entitled to vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Tommy W. Richardson
Tommy W. Richardson
Secretary
Harrison, Arkansas
April 1, 2002
- --------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING
OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
- --------------------------------------------------------------------------------
1
<Page>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
APRIL 25, 2002
This Proxy Statement is furnished to holders of common stock, $.01 par
value per share ("Common Stock"), of First Federal Bancshares of Arkansas, Inc.
(the "Company"), the holding company of First Federal Bank of Arkansas, FA (the
"Bank"). The Company acquired all of the Bank's common stock issued in
connection with the conversion of the Bank from mutual to stock form in May
1996. Proxies are being solicited on behalf of the Board of Directors of the
Company to be used at the Annual Meeting of Stockholders ("Annual Meeting") to
be held at the Comfort Inn located at 1210 Highway 62-65 North, Harrison,
Arkansas 72601, on April 25, 2002 at 10:00 a.m., Central Time, for the purposes
set forth in the Notice of Annual Meeting of Stockholders. This Proxy Statement
is first being mailed to stockholders on or about April 1, 2002.
The proxy solicited hereby, if properly signed and returned to the
Company and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted FOR the matters described below and, upon the
transaction of such other business as may properly come before the meeting, in
accordance with the best judgment of the persons appointed as proxies. Any
stockholder giving a proxy has the power to revoke it at any time before it is
exercised by (i) filing with the Secretary of the Company written notice thereof
(Tommy Richardson, Secretary, First Federal Bancshares of Arkansas, Inc., P.O.
Box 550, Harrison, Arkansas 72602); (ii) submitting a duly-executed proxy
bearing a later date; or (iii) appearing at the Annual Meeting and giving the
Secretary notice of his or her intention to vote in person. Proxies solicited
hereby may be exercised only at the Annual Meeting and any adjournment thereof
and will not be used for any other meeting.
VOTING
Only stockholders of record at the close of business on March 18, 2002
("Voting Record Date") will be entitled to vote at the Annual Meeting. On the
Voting Record Date, there were 3,017,359 shares of Common Stock outstanding and
the Company had no other class of equity securities outstanding. Each share of
Common Stock is entitled to one vote at the Annual Meeting on all matters
properly presented at the meeting. Directors are elected by a plurality of the
votes cast with a quorum present. Abstentions are considered in determining the
presence of a quorum and will not affect the plurality vote required for the
election of directors. The affirmative vote of the holders of a majority of the
total votes present in person or by proxy is required to ratify the appointment
of the independent auditors. Under rules of the New York Stock Exchange, the
proposal for ratification of the auditors is considered a "discretionary" item
upon which brokerage firms may vote in their discretion on behalf of their
clients if such clients have not furnished voting instructions and for which
there will not be "broker non-votes."
2
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INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTORS
AND EXECUTIVE OFFICERS
ELECTION OF DIRECTORS
The Bylaws of the Company presently provide that the Board of Directors
shall consist of five members, and the Articles of Incorporation and Bylaws of
the Company presently provide that the Board of Directors shall be divided into
three classes as nearly equal in number as possible. The members of each class
are to be elected for a term of three years or until their successors are
elected and qualified, with one class of directors to be elected annually. There
are no arrangements or understandings between the Company and any person
pursuant to which such person has been elected a director. Stockholders of the
Company are not permitted to cumulate their votes for the election of directors.
Other than Larry J. Brandt, who is the father of Jeffrey L. Brandt, no
director or executive officer of the Company is related to any other director or
executive officer of the Company by blood, marriage or adoption, and each of the
nominees currently serve as a director of the Company.
Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted for the election of the nominees for director listed
below. If the person or persons named as nominee should be unable or unwilling
to stand for election at the time of the Annual Meeting, the proxies will
nominate and vote for one or more replacement nominees recommended by the Board
of Directors. At this time, the Board of Directors knows of no reason why the
nominees listed below may not be able to serve as directors if elected. Ages are
reflected as of December 31, 2001.
NOMINEES FOR DIRECTOR FOR THREE-YEAR TERM EXPIRING IN 2005
<Table>
<Caption>
Positions Held with Director
Name Age the Company Since
- -------------------------------------- ---------- ---------------------------------------- -----------------
James D. Heuer 84 Director 1957
Kenneth C. Savells 49 Director 2000
</Table>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
ABOVE NOMINEES FOR DIRECTOR.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
DIRECTORS WHOSE TERMS EXPIRE IN 2003
<Table>
<Caption>
Positions Held with Director
Name Age the Company Since
- -------------------------------------- ---------- ---------------------------------------- -----------------
Jeffrey L. Brandt 31 Senior Vice 2001
President/Regional Manager
and Director
John P. Hammerschmidt 79 Chairman of the Board 1966
</Table>
3
<Page>
DIRECTOR WHOSE TERM EXPIRES IN 2004
<Table>
<Caption>
Positions Held with Director
Name Age the Company Since
- -------------------------------------- ---------- ---------------------------------------- -----------------
Larry J. Brandt 53 President, Chief Executive Officer and 1979
Director
</Table>
Set forth below is information with respect to the principal
occupations of the above listed individuals during at least the last five years.
LARRY J. BRANDT. Mr. Brandt is President, Chief Executive Officer and a
director of the Company and the Bank. He became President and Managing Officer
of the Bank in 1987, its Chief Operating Officer in 1984 and its Chief Executive
Officer in 2001. Mr. Brandt initially was employed by the Bank in 1973.
JOHN P. HAMMERSCHMIDT. Mr. Hammerschmidt is Chairman of the Board of
the Company and the Bank. He is a former United States Congressman from Arkansas
(1966-1993).
JAMES D. HEUER. Mr. Heuer is a director of the Company and the Bank. He
is engaged in the raising of cattle in Harrison, Arkansas.
KENNETH C. SAVELLS. Mr. Savells is currently employed, since August
1999, as a registered representative with AXA Advisors, LLC, a registered
brokerage firm located in Oklahoma City, Oklahoma. Mr. Savells resides in
Harrison, Arkansas. Mr. Savells previously held the position of Vice President
of Management Information Services for Millbrook Distribution Services, a
consumer products distribution company located in Harrison, Arkansas, where he
was employed from 1981 to 1999.
JEFFREY L. BRANDT. Mr. Brandt is Senior Vice President/Regional Manager
and a director of the Company and the Bank. Mr. Brandt initially was employed by
the Bank in 1993. He was elected in 2001 to fill the unexpired term of Frank L.
Coffman, Jr.
STOCKHOLDER NOMINATIONS
Article VII.D of the Company's Articles of Incorporation governs
nominations for election to the Board of Directors and requires all such
nominations, other than those made by the Board, to be made at a meeting of
stockholders called for the election of directors, and only by a stockholder who
has complied with the notice provisions in that section. The Articles of
Incorporation set forth specific requirements with respect to stockholder
nominations.
COMMITTEES AND MEETINGS OF THE BOARD OF THE COMPANY AND THE BANK
The Board of Directors of the Company meets on a monthly basis and may
have additional special meetings. During the year ended December 31, 2001, the
Board of Directors of the Company met 15 times. No director attended fewer than
75% of the total number of Board meetings or committee meetings on which he
served that were held during this period.
4
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The Audit Committee currently consists of Messrs. Hammerschmidt, Heuer
and Savells (Chairman). The Audit Committee reviews the records and affairs of
the Company, meets with the Bank's internal auditor or the accounting firm
performing such function quarterly, engages the Company's external auditors and
reviews their reports. The Board meets with the Company's external auditors
quarterly. The Board of Directors of the Company adopted an Audit Committee
charter which was attached as Appendix A to the Company's Proxy Statement dated
March 30, 2001. The members are independent as defined in Rule 4200 (a)(15) of
the listing standards of the Nasdaq Stock Market.
The Compensation Committee currently consists of Messrs. Hammerschmidt,
Heuer and Savells. The Compensation Committee, which reviews and recommends
compensation and benefits for the Company's employees, met once in 2001.
The Board of Directors of the Bank met 15 times during 2001. The Bank
has established an Audit Committee and a Compensation Committee, which currently
consist of Messrs. Hammerschmidt, Heuer and Savells.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Set forth below is information with respect to the principal
occupations during at least the last five years for the current executive
officers of the Company and the Bank who do not serve as a director.
TOMMY W. RICHARDSON. Mr. Richardson is the Executive Vice President and
Chief Operating Officer. He became Executive Vice President for the Bank in
2001, Chief Financial Officer for the Bank in 1993, and its Chief Operating
Officer in 2002. Mr. Richardson initially was employed by the Bank in 1984.
SHERRI R. BILLINGS. Mrs. Billings is the Executive Vice President and
Chief Financial Officer. She became Senior Vice President for the Bank in 1993,
its Treasurer in 1986 and its Executive Vice President/Chief Financial Officer
in 2002. Mrs. Billings initially was employed by the Bank in 1979.
ROSS MALLIOUX. Mr. Mallioux was promoted to Executive Vice President,
Chief Lending Officer and Regional Manager in January 2002. He became a Senior
Vice President in 1994, and initially was employed by the Bank in 1984.
SCOTT H. TENNYSON. Mr. Tennyson was promoted to Executive Vice
President and Chief Retail Officer in January 2002. He became a Senior Vice
President for the Bank in 1994, its Corporate Loan Manager in 1996 and initially
was employed by the Bank in 1983.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), requires the Company's officers and directors, and persons who own
more than 10% of the Company's Common Stock, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC") and the
National Association of Securities Dealers, Inc. Officers, directors and greater
than 10% stockholders are required by regulation to furnish the Company with
copies of all Section 16(a) forms they file. The Company knows of no person who
owns 10% or more of the Company's Common Stock.
Based solely on review of the copies of such forms furnished to the
Company, or written representations from its officers and directors, the Company
believes that during, and with respect to, the year ended December 31, 2001, the
Company's officers and directors satisfied the reporting requirements
promulgated under Section 16(a) of the 1934 Act.
5
<Page>
BENEFICIAL OWNERSHIP OF COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Voting Record Date, certain
information as to the Common Stock beneficially owned by (i) each person or
entity, including any "group" as that term is used in Section 13(d)(3) of the
1934 Act, who or which was known to the Company to be the beneficial owner of
more than 5% of the issued and outstanding Common Stock, (ii) the directors of
the Company, (iii) those executive officers of the Company whose salary and
bonus exceeded $100,000 in 2001, and (iv) all directors and executive officers
of the Company and the Bank as a group.
<Table>
<Caption>
Common Stock
Beneficially Owned as of
Name of Beneficial Owner March 18, 2002(1)
- -------------------------------------------------------------------------- -----------------------------------------
No. %
-------------------------- ------------
First Federal Bancshares of Arkansas, Inc. 402,922(2) 13.4%
Employee Stock Ownership Trust
200 West Stephenson
Harrison, Arkansas 72601
Dimensional Fund Advisors, Inc. 199,200(3) 6.6
1299 Ocean Avenue
Santa Monica, CA 90401
Estate of Frank L. Coffman, Jr. 181,426(4) 5.9
P. O. Box 1289
Harrison, AR 72602
First Manhattan Co. 290,850(3) 9.6
437 Madison Avenue
New York, New York 10002
Directors:
Larry J. Brandt 138,253(5) 4.5
John P. Hammerschmidt 43,577(6) 1.4
James D. Heuer 53,777(7) 1.8
Kenneth C. Savells 8,557(8) *
Jeffrey L. Brandt 27,333(9) *
Certain other executive officers:
Tommy W. Richardson 76,441(10) 2.5
Sherri R. Billings 79,260(11) 2.6
All directors and executive officers of the Company and the 498,516(2)(12) 15.2%
Bank as a group (9 persons)
</Table>
- ---------------------
* Represents less than 1% of the outstanding Common Stock.
(1) Based upon information provided by the respective beneficial owners and
filings with the SEC made pursuant to the 1934 Act. For purposes of
this table, pursuant to rules promulgated under the 1934 Act, an
individual is considered to beneficially own shares of Common Stock if
he or she directly or indirectly has or shares (1) voting power, which
includes the power to vote or to direct the voting of the shares, or
(2) investment power, which includes the power to dispose or direct the
disposition of the shares. Unless otherwise indicated, an individual
has sole voting power and sole investment power with respect to the
indicated shares.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
6
<Page>
- ---------------
(2) The First Federal Bancshares of Arkansas, Inc. Employee Stock Ownership
Trust ("Trust") was established pursuant to the First Federal
Bancshares of Arkansas, Inc. Employee Stock Ownership Plan ("ESOP") by
an agreement between the Bank and Messrs. Brandt and Richardson and
Mrs. Billings, directors and/or officers of the Company and the Bank,
who act as trustees of the plan ("Trustees"). As of the Voting Record
Date, 226,106 shares held in the Trust had been allocated to the
accounts of participating employees. The Trustees must vote the
allocated shares held in the ESOP in accordance with the instructions
of the participating employees. Under the terms of the ESOP,
unallocated shares held in the ESOP will be voted by the ESOP Trustees
in the same proportion for and against proposals to stockholders of the
Company as participating employees actually vote shares of Common Stock
which have been allocated to their accounts. The amount of Common Stock
beneficially owned by directors who serve as trustees of the ESOP and
by all directors and executive officers as a group does not include the
unallocated shares held by the Trust.
(3) Based on filings made with the SEC as of December 31, 2001.
(4) Includes 1,500 shares held in trust, 9,557 shares held in Mr. Coffman's
account in the ESOP, 49,100 shares held in Mr. Coffman's individual
retirement accounts, and 51,538 shares which may be acquired pursuant
to the exercise of stock options exercisable within 60 days of the
Voting Record Date.
(5) Includes 29,999 shares held jointly with Mr. Brandt's spouse, 1,300
shares held jointly with Mr. Brandt's children, 10,785 shares held in
Mr. Brandt's account in the ESOP, and 51,538 shares which may be
acquired pursuant to the exercise of stock options exercisable within
60 days of the Voting Record Date.
(6) Includes 15,308 shares held jointly with Mr. Hammerschmidt's spouse,
2,500 shares held by a company owned by Mr. Hammerschmidt, and 25,769
shares which may be acquired pursuant to the exercise of stock options
exercisable within 60 days of the Voting Record Date.
(7) Includes 15,000 shares held jointly with Mr. Heuer's children, and
25,769 shares which may be acquired pursuant to the exercise of stock
options exercisable within 60 days of the Voting Record Date.
(8) Includes 1,380 shares held jointly with Mr. Savells' spouse and 4,989
shares held by Mr. Savells' spouse as custodian for their children.
(9) Includes 500 shares held jointly with Mr. Brandt's father, 3,333 shares
held in Mr. Brandt's account in the ESOP, and 3,000 shares which may be
acquired pursuant to the exercise of stock options exercisable within
60 days of the Voting Record Date.
(10) Includes 14,491 shares held jointly with Mr. Richardson's spouse, 9,616
shares held in Mr. Richardson's account in the ESOP, and 51,538 shares
which may be acquired pursuant to the exercise of stock options
exercisable within 60 days of the Voting Record Date.
(11) Includes 16,116 shares held jointly with Mrs. Billings' spouse, 1,000
shares held individually by Mrs. Billings' spouse, 1,000 shares held
jointly with Mrs. Billings' children, 9,606 shares held in Mrs.
Billings' account in the ESOP, and 51,538 shares which may be acquired
pursuant to the exercise of stock options exercisable within 60 days of
the Voting Record Date.
(12) Includes 43,490 shares allocated to the accounts of executive officers
as a group in the ESOP and 260,690 shares which may be acquired by all
directors and executive officers as a group upon the exercise of stock
options exercisable within 60 days of the Voting Record Date.
7
<Page>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of certain information
concerning the compensation paid by the Bank for services rendered in all
capacities during the years ended December 31, 2001, 2000 and 1999 to the Chief
Executive Officer of the Bank and the other executive officers of the Bank whose
total compensation during the year exceeded $100,000.
<Table>
<Caption>
===================================================================================================================================
Annual Compensation Long Term Compensation
------------------------------------------- ----------------------------------
Awards Payouts
--------------------- --------
Name and Other Annual Stock Number of LTIP All Other
Principal Position Year Salary(1) Bonus Compensation(2) Grants Options Payouts Compensation(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Frank L. Coffman, Jr. (4) 2001 $154,100 $ -- $ -- -- -- -- $11,960
2000 $296,540 $15,221 -- -- -- -- $34,067
1999 $354,080 $15,221 -- -- -- -- $30,300
- -----------------------------------------------------------------------------------------------------------------------------------
Larry J. Brandt 2001 $258,780 $18,265 $ -- -- -- -- $40,204
Chief Executive 2000 $258,780 $16,743 -- -- -- -- $34,067
Officer and President 1999 $247,280 $16,743 -- -- -- -- $30,300
- -----------------------------------------------------------------------------------------------------------------------------------
Carolyn M. Thomason (5) 2001 $217,200 $13,699 $ -- -- -- -- $40,204
Executive Vice 2000 $216,100 $12,684 -- -- -- -- $34,067
President 1999 $206,930 $12,684 -- -- -- -- $30,300
- -----------------------------------------------------------------------------------------------------------------------------------
Tommy W. Richardson 2001 $132,000 $13,191 $ -- -- -- -- $38,640
Executive Vice 2000 $108,600 $17,250 -- -- -- -- $33,054
President and Chief 1999 $90,600 $8,118 -- -- -- -- $28,928
Operating Officer
- -----------------------------------------------------------------------------------------------------------------------------------
Sherri R. Billings 2001 $126,000 $12,177 $ -- -- -- -- $38,614
Executive Vice 2000 $108,000 $10,147 -- -- -- -- $33,045
President and Chief 1999 $90,000 $8,524 -- -- -- -- $28,916
Financial Officer
===================================================================================================================================
</Table>
(1) Includes director's fees from the Company and the Bank with respect to
Messrs. Coffman and Brandt. Also includes fees for Mrs. Thomason for
acting as Secretary.
(2) Does not include amounts attributable to miscellaneous benefits
received by the named executive officers. In the opinion of management
of the Company, the costs to the Company of providing such benefits to
the named executive officer during the indicated periods did not exceed
the lesser of $50,000 or 10% of the total of annual salary and bonus
reported for the individual.
(3) Consists of amounts allocated pursuant to the ESOP based on the market
price per share on the allocation date of December 31, 2001, 2000, and
1999.
(4) Mr. Frank L. Coffman, Jr. served as the Chief Executive Officer of the
Bank until his death in May 2001.
(5) Mrs. Thomason retired January 1, 2002.
8
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DIRECTORS' FEES
Members of the Board of Directors of the Bank receive $1,300 per month.
The Chairman of the Board receives an additional $200 per month for serving in
such capacity. Directors receive the normal monthly payment regardless of
attendance. Members of the Board serving on committees do not receive any
additional compensation for serving on such committees. Members of the Board of
Directors of the Company receive $400 per month. The Chairman of the Board
receives an additional $100 per month for serving in such capacity.
EMPLOYMENT AGREEMENTS
Currently, the Company and the Bank (the "Employers") have an
employment agreement with Larry J. Brandt, the Company and the Bank's Chief
Executive Officer and President (the "Executive"). The Employers have agreed to
employ the Executive for a term of three years, in his current positions. The
employment agreement is reviewed annually by the Boards of Directors of the
Employers, and the term of the Executive's employment agreement is extended each
year for a successive additional one-year period upon approval of the Employers'
Board of Directors, unless either party elects, not less than 30 days prior to
the annual anniversary date, not to extend the employment term.
The employment agreement is terminable with or without cause by the
Employers. The Executive has no right to compensation or other benefits pursuant
to the employment agreement for any period after voluntary termination or
termination by the Employers for cause, disability or retirement. The agreement
provides for certain benefits in the event of the Executive's death. In the
event that (i) the Executive terminates his employment because of failure of the
Employers to comply with any material provision of the employment agreement or
the Employers change the Executive's title or duties or (ii) the employment
agreement is terminated by the Employers other than for cause, disability,
retirement or death or by the Executive as a result of certain adverse actions
which are taken with respect to the Executive's employment following a change in
control of the Company, as defined below, the Executive will be entitled to a
cash severance amount equal to 3.0 times the Executive's average annual
compensation, as defined in the Agreement, over the most recent five taxable
years.
A change in control is generally defined in the employment agreement to
include any change in control of the Company required to be reported under the
federal securities laws, as well as (i) the acquisition by any person of 25% or
more of the Company's outstanding voting securities and (ii) a change in a
majority of the directors of the Company during any two-year period without the
approval of at least two-thirds of the persons who were directors of the Company
at the beginning of such period.
The employment agreement provides that in the event that any of the
payments to be made thereunder or otherwise upon termination of employment are
deemed to constitute "excess parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), then such
payments and benefits received thereunder shall be reduced, in the manner
determined by the Executive, by the amount, if any, which is the minimum
necessary to result in no portion of the payments and benefits being
non-deductible by the Employers for federal income tax purposes. Excess
parachute payments generally are payments in excess of three times the
recipient's average annual compensation from the employer includable in the
recipient's gross income during the most recent five taxable years ending before
the date on which a change in control of the employer occurred. Recipients of
excess parachute payments are subject to a 20% excise tax on the amount by which
such payments exceed the base amount, in addition to regular income taxes, and
payments in excess of the base amount are not deductible by the employer as
compensation expense for federal income tax purposes.
Although the above-described employment agreement could increase the
cost of any acquisition of control of the Company, management of the Company
does not believe that the terms thereof would have a significant anti-takeover
effect.
9
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CHANGE IN CONTROL AGREEMENTS
The Company and the Bank entered into change in control severance
agreements with Tommy W. Richardson, the Company's and the Bank's Executive Vice
President and Chief Operating Officer, and Sherri R. Billings, the Bank's
Executive Vice President and Chief Financial Officer.
The agreements provide for a three-year term, and subject to
satisfactory performance reviews, shall extend on each anniversary date for an
additional year so that the remaining term will be three years, unless either
the Boards of Directors of the Company and the Bank or the executive provides
contrary written notice to the other not less than 30 days in advance of such
anniversary date. The agreements provide for payments in the event that certain
adverse actions are taken with respect to the executive's employment subsequent
to a change in control in an amount equal to three times the respective
executive's annual compensation, as defined.
BENEFITS
RETIREMENT PLAN. The Bank has a defined benefit pension plan
("Retirement Plan") for all full time employees who have attained the age of 21
years and have completed one year of service with the Bank. In general, the
Retirement Plan provides for annual benefits payable monthly upon retirement at
age 65 in an amount equal to 1.5% of an employee's career average annual salary
during benefit service ("Career Average Compensation") multiplied by his number
of years of service. The Retirement Plan benefit percent of salary was reduced
from 2% to 1.5% during the year 2001. Retirement benefits were based on an
employee's average annual salary for the five consecutive years of highest
salary during benefit service prior to February 2001. Under the Retirement Plan,
an employee's benefits are fully vested after five years of service. A year of
service is any year in which an employee works a minimum of 1,000 hours. Members
who have reached age 65 are automatically 100% vested, regardless of completed
years of employment. The Retirement Plan also provides for an early retirement
option with reduced benefits. The Retirement Plan also provides for death
benefits depending on the age of the participant and the years of service. Death
benefits are paid in a lump sum distribution. For the year ended December 31,
2001, there was no net pension cost due to the Retirement Plan being currently
fully funded.
The following table illustrates annual pension benefits for retirement
at age 65 under various levels of compensation and years of service. The figures
in the table assume that the Retirement Plan continues in its present form and
that the participants elect a straight life annuity form of benefit with a
twelve year certain death benefit.
<Table>
<Caption>
CAREER AVERAGE 15 YEARS OF 20 YEARS OF 25 YEARS OF 30 YEARS OF 35 YEARS OF
COMPENSATION SERVICE SERVICE SERVICE SERVICE SERVICE
------------ ------- ------- ------- ------- -------
$ 80,000 $18,000 $24,000 $30,000 $36,000 $42,000
90,000 20,250 27,000 33,750 40,500 47,250
100,000 22,500 30,000 37,500 45,000 52,500
110,000 24,750 33,000 41,250 49,500 57,750
120,000 27,000 36,000 45,000 54,000 63,000
140,000 31,500 42,000 52,500 63,000 73,500
160,000 36,000 48,000 60,000 72,000 84,000
180,000 40,500 54,000 67,500 81,000 94,500
200,000 45,000 60,000 75,000 90,000 105,000
220,000 49,500 66,000 82,500 99,000 115,500
</Table>
10
<Page>
The maximum annual compensation which may be taken into account under
the Code (as adjusted from time to time by the Internal Revenue Service) for
calculating contributions under qualified defined benefit plans currently is
$170,000 and the maximum annual benefit permitted under such plans currently is
$127,273.
At December 31, 2001, Messrs. Brandt, Richardson and Mrs. Thomason and
Mrs. Billings had 28, 17, 38 and 20 years, respectively, of credited service
under the Retirement Plan.
STOCK OPTIONS
The following table sets forth certain information concerning exercises
of stock options by the named executive officers during the year ended December
31, 2001 and stock options held at December 31, 2001.
Aggregated Option Exercise in Last Fiscal Year
and Year End Option Values
<Table>
<Caption>
===================================================================================================================
Number of Value of
Shares Unexercised Unexercised
Acquired on Value Options at Year End Options at
Name Exercise Realized Year End(1)
- -------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------
Larry J. Brandt -- -- 51,538 -- $193,268 $--
- -------------------------------------------------------------------------------------------------------------------
Carolyn M. Thomason -- -- 51,538 -- $193,268 $--
- -------------------------------------------------------------------------------------------------------------------
Tommy Richardson -- -- 51,538 -- $193,268 $--
- -------------------------------------------------------------------------------------------------------------------
Sherri R. Billings -- -- 51,538 -- $193,268 $--
===================================================================================================================
</Table>
(1) Based on a per share market price of $23.00 at December 31, 2001 and an
exercise price of $19.25.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Bank's policy provides that all loans made by the Bank to its
directors and officers are made in the ordinary course of business, on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons. The
Bank's policy provides that such loans may not involve more than the normal risk
of collectibility or present other unfavorable features. As of December 31,
2001, mortgage and consumer loans to directors and officers aggregated $1.9
million or 2.6% of the Company's stockholders' equity as of such date. All such
loans were made by the Bank in accordance with the aforementioned policy.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Bank
determines the salary and bonus of the Bank's Chief Executive Officer. The
Committee also reviews and approves the salaries and bonuses for the Bank's
other officers and employees as prepared and submitted to the Committee by the
Bank's senior executive officers. During 2001, the members of the committee were
Messrs. Hammerschmidt (Chairman), Heuer and Savells. No member of the Committee
was a former or current full-time officer or employee of the Bank or the
Company. The Compensation Committee met once during 2001. The report of the
Compensation Committee with respect to compensation for the Chief Executive
Officer and all other Bank officers and employees for the year ended December
31, 2001 is set forth on the following page.
11
<Page>
REPORT OF THE COMPENSATION COMMITTEE
The purpose of the Committee is to assist the Bank in attracting and
retaining qualified management, motivating executives to achieve performance
goals as outlined in the Bank's business plan and to ensure that executive
compensation is related to and supports the Bank's overall objective of
enhancing stockholder value.
In order to establish base salary levels and to determine an annual
cash bonus for the Bank's Chief Executive Officer, the Compensation Committee
considered the financial performance of the Bank, including net income of the
Bank and various financial ratios. The Committee also considered the
responsibilities related to being a public company. Further, with respect to the
Bank's other officers and employees, the Committee reviewed and approved the
salary increases and bonuses as submitted by the Bank's senior executive
officers.
Based upon the above factors, the Committee increased Mr. Brandt's base
salary by approximately $23,000 or 9.6% for 2002 and Mr. Brandt was given a cash
bonus of $18,265 for his service during 2001.
John P. Hammerschmidt, Chairman
James D. Heuer, Director
Kenneth C. Savells, Director
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has reviewed and discussed the audited financial
statements with management. The Audit Committee has discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61 "Communication with Audit Committees," as may be
modified or supplemented. The Audit Committee has received the written
disclosures and the letter from the independent accountants required by
Independence Standards Board Standard No. 1, as may be modified or supplemented,
and has discussed with the independent accountant, the independent accountant's
independence. Based on the review and discussions referred to above in this
report, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's Annual Report on Form
10-K for the year ended December 31, 2001 for filing with the SEC.
Kenneth C. Savells, Chairman
James D. Heuer, Director
John P. Hammerschmidt, Director
12
<Page>
PERFORMANCE GRAPH
The following graph demonstrates comparison of the cumulative total
returns for the Common Stock of the Company, the SNL Securities $500 million to
$1 Billion Thrift Asset Size Index, and the Nasdaq Stock Market Index since the
close of trading of the Company's Common Stock on December 31, 1996.
[TOTAL RETURN PERFORMANCE GRAPH]
<Table>
<Caption>
PERIOD ENDING
------------------------------------------------------------------------
INDEX 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
- -----------------------------------------------------------------------------------------------------------------------
First Federal Bancshares of Arkansas, Inc. 100.00 151.22 120.07 103.79 127.75 157.94
NASDAQ - Total US* 100.00 122.48 172.68 320.89 193.01 153.15
SNL $500M-$1B Thrift Index 100.00 177.50 159.33 142.69 172.47 245.89
</Table>
*SOURCE: CRSP, CENTER FOR RESEARCH IN SECURITY PRICES, GRADUATE SCHOOL OF
BUSINESS, THE UNIVERSITY OF CHICAGO 2002. USED WITH PERMISSION. ALL RIGHTS
RESERVED. CRSP.COM.
SNL FINANCIAL LC
(C) 2002
The above graph represents $100 invested in the Company's Common Stock
at $15.88 per share, the closing price per share as of December 31, 1996. The
cumulative total returns do include the payment of dividends by the Company.
13
<Page>
RATIFICATION OF APPOINTMENT OF AUDITORS
GENERAL
The Board of Directors of the Company has appointed Deloitte & Touche
LLP, independent certified public accountants, to perform the audit of the
Company's financial statements for the year ending December 31, 2002, and
further directed that the selection of auditors be submitted for ratification by
the stockholders at the Annual Meeting.
The Company has been advised by Deloitte & Touche LLP that neither that
firm nor any of its associates has any relationship with the Company or its
subsidiaries other than the usual relationship that exists between independent
certified public accountants and clients. Deloitte & Touche LLP will have one or
more representatives at the Annual Meeting who will have an opportunity to make
a statement, if they so desire, and who will be available to respond to
appropriate questions.
AUDIT FEES
The aggregate fees billed by Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu, and their respective affiliates (collectively,
"Deloitte") for professional services rendered for the audit of the Company's
annual financial statements for the fiscal year ended December 31, 2001 and for
the reviews of the financial statements included in the Company's Quarterly
Reports on Form 10-Q for that fiscal year were $127,205.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION
Deloitte rendered no professional services relating to financial
information systems design and implementation for the fiscal year ended December
31, 2001.
ALL OTHER FEES
The aggregate fees billed by Deloitte for services rendered to the
Company, other than the services described above under "Audit Fees" and
"Financial Information Systems Design and Implementation Fees", for the fiscal
year ended December 31, 2001 were $34,867, including audit related services of
approximately $23,417 and non-audit services of $11,450. Audit related services
generally include fees for the audit of the company's employee stock ownership
plan and an attestation engagement regarding internal controls over financial
reporting pursuant to FDICIA. Non-audit services consisted of tax services.
The audit committee has considered whether the provision of non-audit
services is compatible with maintaining the principal accountant's independence.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF
THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR THE YEAR
ENDING DECEMBER 31, 2002.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have included in the proxy
materials of the Company relating to the next annual meeting of stockholders of
the Company, which is scheduled to be held in April 2003, must be received at
the principal executive offices of the Company, P.O. Box 550, Harrison, Arkansas
72602 Attention: Tommy Richardson, Secretary, no later than December 1, 2002. If
such proposal is in compliance with all of the requirements of Rule 14a-8 under
the 1934 Act, it will be included in the proxy statement and set forth on the
form of proxy issued for such annual meeting of stockholders. It is urged that
any such proposals be sent by certified mail, return receipt requested.
14
<Page>
ANNUAL REPORTS
A copy of the Company's Annual Report to Stockholders for the year
ended December 31, 2001 accompanies this Proxy Statement. Such annual report is
not part of the proxy solicitation materials.
UPON RECEIPT OF A WRITTEN REQUEST, THE COMPANY WILL FURNISH TO ANY
STOCKHOLDER WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR 2001 REQUIRED TO BE FILED UNDER THE 1934 ACT. SUCH WRITTEN REQUESTS SHOULD
BE DIRECTED TO TOMMY RICHARDSON, SECRETARY, FIRST FEDERAL BANCSHARES OF
ARKANSAS, INC., P.O. BOX 550, HARRISON, ARKANSAS 72602. THE FORM 10-K IS NOT
PART OF THE PROXY SOLICITATION MATERIALS.
OTHER MATTERS
Each proxy solicited hereby also confers discretionary authority on the
Board of Directors of the Company to vote the proxy with respect to the election
of any person as a director if the nominee is unable to serve or for good cause
will not serve, matters incident to the conduct of the meeting, and upon such
other matters as may properly come before the Annual Meeting. Management is not
aware of any business that may properly come before the Annual Meeting other
than the matters described above in this Proxy Statement. However, if any other
matters should properly come before the meeting, it is intended that the proxies
solicited hereby will be voted with respect to those other matters in accordance
with the judgment of the persons voting the proxies.
The cost of the solicitation of proxies will be borne by the Company.
The Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending the proxy
materials to the beneficial owners of the Company's Common Stock. In addition to
solicitations by mail, directors, officers and employees of the Company may
solicit proxies personally or by telephone without additional compensation.
YOUR VOTE IS IMPORTANT! WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY
CARD AND RETURN IT TODAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
15
<Page>
REVOCABLE PROXY
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
<Table>
<Caption>
FOR WITHHOLD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD 1. ELECTION OF DIRECTORS / / / /
OF DIRECTORS OF FIRST FEDERAL BANCSHARES OF
ARKANSAS, INC. ("COMPANY") FOR USE AT THE ANNUAL Nominees for a three-year term: JAMES D. HEUER
MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 25, KENNETH C. SAVELLS
2002 AND AT ANY ADJOURNMENT THEREOF.
The undersigned, being a stockholder of the Company as of
March 18, 2002, hereby authorizes the Board of Directors
of the Company or any successors thereto as proxies with FOR AGAINST ABSTAIN
full powers of substitution, to represent the undersigned 2. PROPOSAL to ratify the appoint- / / / / / /
at the Annual Meeting of Stockholders of the Company to be held ment by the Board of Directors of
at the Comfort Inn located at 1210 Highway 62-65 North, Harrison, Deloitte & Touche LLP as the
Arkansas 72601, on Thursday, April 25, 2002 at 10:00 a.m., Company's independent auditors
Central Time, and at any adjournment of said meeting, and thereat for the year ending December 31, 2002.
to act with respect to all votes that the undersigned would be
entitled to cast, if then personally present, as follows: In their discretion, the proxies are authorized to
vote with respect to approval of the minutes of the last
meeting of stockholders, the election of any person as a
director if the nominee is unable to serve or for good
cause will not serve, matters incident to the conduct of
the meeting, and upon such other matters as may properly
come before the meeting.
------------------------
Please be sure to sign and date Date
this Proxy in the box below. ------------------------
- ------------------------------------------------------------
- ---Stockholder sign above---Co-holder (if any) sign above---
</Table>
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
- -------------------------------------------------------------------------------
The Board of Directors recommends that you vote FOR the Board of Directors'
nominees listed above and FOR Proposal 2. Shares of common stock of the
Company will be voted as specified. IF NO SPECIFICATION IS MADE, SHARES WILL
BE VOTED FOR THE ELECTION OF THE BOARD OF DIRECTORS' NOMINEES TO THE BOARD OF
DIRECTORS AND FOR PROPOSAL 2 AND OTHERWISE AT THE DISCRETION OF THE PROXIES.
This proxy may not be voted for any person who is not a nominee of the Board
of Directors of the Company. THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT
IS EXERCISED.
The above signed hereby acknowledges receipt of the Notice of the Annual
Meeting of Stockholders of First Federal Bancshares of Arkansas, Inc. called
for April 25, 2002, a Proxy Statement for the Annual Meeting and the 2001
Annual Report to Stockholders.
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR(S) ON THIS PROXY CARD. ONLY ONE
SIGNATURE IS REQUIRED IN THE CASE OF A JOINT ACCOUNT. WHEN SIGNING IN A
REPRESENTATIVE CAPACITY, PLEASE GIVE TITLE.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- -------------------------------------------------------------------------------
IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
- ------------------------------------
- ------------------------------------
- ------------------------------------