SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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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
/X/ Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
First Federal Bancshares of Arkansas, 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): (previously paid by wire
transfer)
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2), or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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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.
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/ / 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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March 24, 1997
Dear Stockholder:
You are cordially invited to attend the first 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 Wednesday, May 7, 1997 at 10:00 a.m., Central Time. The matters to be
considered by stockholders at the Annual Meeting are described in the
accompanying materials.
The Board of Directors of First Federal Bancshares of Arkansas, Inc. has
determined that the matters to be considered at the Annual Meeting are in the
best interests of the Company and its shareholders. For the reasons set forth
in the Proxy Statement, the Board unanimously recommends that you vote "FOR"
each matter to be considered.
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.
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
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
200 West Stephenson
Harrison, Arkansas 72601
(501) 741-7641
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 7, 1997
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 Wednesday, May 7, 1997 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 one director for a term of one year, two directors for terms
of two years and two directors for terms of three years and until their
successors are elected and qualified;
(2) To consider and approve the adoption of the Company's 1997 Stock
Option Plan;
(3) To consider and approve the adoption of the Company's Recognition and
Retention Plan and Trust;
(4) 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, 1997; and
(5) 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 11, 1997 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/ Carolyn M. Thomason
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Carolyn M. Thomason
Secretary
Harrison, Arkansas
March 24, 1997
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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.
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1
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
May 7, 1997
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 Wednesday, May 7, 1997 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 March 24, 1997.
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
(Carolyn M. Thomason, 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 11, 1997
("Voting Record Date") will be entitled to vote at the Annual Meeting. On the
Voting Record Date, there were 4,896,063 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 at the Annual Meeting is required for
approval of the proposals to approve the Company's 1997 Stock Option Plan
("Stock Option Plan") and the Company's Recognition and Retention Plan and Trust
("Recognition Plan"). Because of the required votes, abstentions will have the
same effect as a vote against the proposals with respect to the Stock Option
Plan and Recognition Plan. The proposals to approve the Stock Option Plan and
the Recognition Plan are considered "non-discretionary" for which brokers may
not vote if they have not received instructions from the beneficial owner. 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
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR
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. At the Annual Meeting,
directors of the first class are to be elected to hold office for a term
expiring at the next succeeding annual meeting, directors of the second class
are to be elected to hold office for a term expiring at the second succeeding
annual meeting and directors of the third class are to be elected to hold office
for a term expiring at the third succeeding annual meeting. At each annual
meeting of stockholders thereafter, directors elected to succeed those whose
terms are expiring shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders and when their respective successors
are elected and qualified. Stockholders of the Company are not permitted to
cumulate their votes for the election of directors.
Other than Frank L. Coffman, Jr., who is the father-in-law of Larry J.
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, 1996.
Nominee for Director for One-Year Term Expiring in 1998
Positions Held with Director
Name Age the Company Since
- --------------------- ------- -------------------------------- -------------
Larry J. Brandt 48 President, Chief Operating 1979
Officer and Director
Nominees for Director for Two-Year Term Expiring in 1999
Positions Held with Director
Name Age the Company Since
- --------------------- ------- -------------------------------- -------------
James D. Heuer 79 Director 1957
William F. Smith 83 Director 1962
3
Nominees for Director for Three-Year Term Expiring in 2000
Positions Held with Director
Name Age the Company Since
- --------------------- ------- -------------------------------- -------------
Frank L. Coffman, Jr. 74 Chairman of the Board and Chief 1961
Executive Officer
John P. Hammerschmidt 74 Director 1966
The Board of Directors recommends that you vote FOR the election of the
above nominees for director.
Set forth below is information with respect to the principal occupations of
the above listed individuals during at least the last five years.
Frank L. Coffman, Jr. Mr. Coffman is Chairman of the Board and Chief
Executive Officer of the Company and the Bank. He became Chairman of the Board
of the Bank in 1979 and its Chief Executive Officer in 1968. Mr. Coffman
initially was employed by the Bank in 1961.
Larry J. Brandt. Mr. Brandt is President and Chief Operating Officer and a
director of the Company and the Bank. He became President and Managing Officer
of the Bank in 1987 and its Chief Operating Officer in 1984. Mr. Brandt
initially was employed by the Bank in 1973.
John P. Hammerschmidt. Mr. Hammerschmidt is a director 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.
William F. Smith. Mr. Smith is a director of the Company and the Bank.
Now retired, he was a pharmacist serving the Harrison, Arkansas area.
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, 1996, the Board
of Directors of the Company met 12 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
The entire Board of Directors acts in the capacity of an audit committee.
The Board reviews the records and affairs of the Company, engages the Company's
external auditors and reviews their reports. The Board meets with the Company's
external auditors annually.
The Compensation Committee consists of Messrs. Hammerschmidt, Heuer and
Smith. The Compensation Committee, which reviews and recommends compensation
and benefits for the Company's employees, met two times in 1996.
The Board of Directors of the Bank met 16 times during 1996. The entire
Board of Directors of the Bank acts in the capacity of an audit committee and
has established a Compensation Committee.
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 executive officers of the Company
and the Bank who do not serve as a director.
Carolyn M. Thomason. Mrs. Thomason is the Executive Vice President and
Secretary. She became Executive Vice President for the Bank in 1989 and its
Secretary in 1969. Mrs. Thomason initially was employed by the Bank in 1963.
Tommy W. Richardson. Mr. Richardson is a Senior Vice President and the
Chief Financial Officer. He became Senior Vice President and Chief Financial
Officer for the Bank in 1993.
Sherri R. Billings. Mrs. Billings is a Senior Vice President and the
Treasurer. She became Senior Vice President for the Bank in 1993 and its
Treasurer in 1986.
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, 1996, the
Company's officers and directors satisfied the reporting requirements
promulgated under Section 16(a) of the 1934 Act.
5
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 1996, and (iv) all directors and executive officers
of the Company and the Bank as a group.
Common Stock
Beneficially Owned as of
Name of Beneficial Owner March 11, 1997(1)
- ------------------------------------------- -------------------------------
No. %
-------------------- --------
First Federal Bancshares of Arkansas, Inc. 412,300(2) 8.4%
Employee Stock Ownership Trust
200 West Stephenson
Harrison, Arkansas 72601
First Manhattan Co. 304,800(3) 6.2
437 Madison Avenue
New York, New York 10002
Directors:
Frank L. Coffman, Jr. 52,500(4) 1.1
Larry J. Brandt 33,399(5) *
John P. Hammerschmidt 22,500(6) *
James D. Heuer 20,014(7) *
William F. Smith 20,000 *
Certain other executive officers:
Carolyn M. Thomason 14,169(8) *
All directors and executive officers of the 173,753(2)(9) 3.5%
Company and the Bank as a group (8 persons)
______________
* 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
_______________
(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. Coffman and Brandt and Mrs. Thomason,
directors and/or officers of the Company and the Bank, who act as trustees
of the plan ("Trustees"). As of the Voting Record Date, 27,465 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) First Manhattan Co. is the general partner of both First Save Associates,
L.P. and Second First Save Associates, L.P. First Manhattan Co. has stated
in its filings under the 1934 Act that there are no other relationships,
contracts, understandings or arrangements between the two partnerships.
(4) Includes 1,500 shares held in trust as to which Mr Coffman is a trustee and
1,399 shares held in Mr. Coffman's account in the ESOP.
(5) Includes 28,999 shares held jointly with Mr. Brandt's spouse and 1,399
shares held in Mr. Brandt's account in the ESOP.
(6) Includes 20,000 shares held jointly with Mr. Hammerschmidt's spouse and
2,500 shares held by a company owned by Mr. Hammerschmidt.
(7) Includes 15,000 shares held jointly with Mr. Heuer's children.
(8) Includes 7,500 shares held jointly with Mrs. Thomason's spouse, 1,399
shares held in Mrs. Thomason's account in the ESOP and 570 shares held
individually by Mrs. Thomason's spouse.
(9) Includes 5,571 shares allocated to the accounts of directors and executive
officers as a group in the ESOP.
7
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, 1996 and 1995 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.
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)
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Frank L. Coffman, Jr.
Chief Executive Officer 1996 $310,200 $12,177 $ -- $ -- -- -- $22,209
1995 $276,000 $30,000 -- -- -- -- --
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Larry J. Brandt 1996 $216,600 $13,394 $ -- $ -- -- -- $22,209
President and Chief 1995 $192,000 $33,000 -- -- -- -- --
Operating Officer
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Carolyn M. Thomason 1996 $182,400 $10,147 $ -- $ -- -- -- $22,209
Executive Vice 1995 $162,000 $25,000 -- -- -- -- --
President
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(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 Bank,
the costs to the Bank 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 during 1996 pursuant to the ESOP based on the
market price per share on the date of allocation.
Directors' Fees
Members of the Board of Directors of the Bank receive $1,000 per month.
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 $150 per month.
Employment Agreements
In connection with the Bank's May 1996 conversion, the Company and the Bank
(the "Employers") entered into employment agreements with each of Messrs.
Coffman and Brandt and Mrs. Thomason (the "Executives"). The Employers have
agreed to employ the Executives for a term of three years, in each case in their
current respective positions. The employment agreements will be reviewed
annually by the Boards of Directors of the Employers, and the term of the
Executives' employment agreements shall be 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.
8
Each of the employment agreements are terminable with or without cause by
the Employers. The officer 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
agreements provide for certain benefits in the event of the Executives' death.
In the event that (i) the officer terminates his employment because of failure
of the Employers to comply with any material provision of the employment
agreement or the Employers change the officers' title or duties or (ii) the
employment agreement is terminated by the Employers other than for cause,
disability, retirement or death or by the officer as a result of certain adverse
actions which are taken with respect to the officer's employment following a
change in control of the Company, as defined below, the employee will be
entitled to a cash severance amount equal to 3.0 times the employee'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 agreements 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.
Each 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 agreements 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.
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 2% of an employee's average annual salary for the five
consecutive years of highest salary during benefit service ("Five Year Average
Compensation") multiplied by his number of years of service. 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, 1996, there was a net pension cost of approximately
$100,000.
9
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.
Five Year
Average 15 Years of 20 Years of 25 Years of 30 Years of 35 Years of
Compensation Service Service Service Service Service
- ------------ ----------- ----------- ----------- ----------- -----------
$ 80,000 $24,000 $32,000 $ 40,000 $ 48,000 $ 56,000
90,000 27,000 36,000 45,000 54,000 63,000
100,000 30,000 40,000 50,000 60,000 70,000
110,000 33,000 44,000 55,000 66,000 77,000
120,000 36,000 48,000 60,000 72,000 84,000
140,000 42,000 56,000 70,000 84,000 98,000
160,000 48,000 64,000 80,000 96,000 112,000
180,000 54,000 72,000 90,000 108,000 126,000
200,000 60,000 80,000 100,000 120,000 140,000
220,000 66,000 88,000 110,000 132,000 154,000
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
$150,000 and the maximum annual benefit permitted under such plans currently is
$109,000.
At December 31, 1996, Messrs. Coffman and Brandt and Mrs. Thomason had
eight, 23 and 33 years, respectively, of credited service under the Retirement
Plan.
Employee Stock Ownership Plan. The Company has established the ESOP for
employees of the Company and the Bank. Employees of the Company and the Bank
who have been credited with at least 1,000 hours of service during a twelve
month period are eligible to participate in the ESOP.
In connection with the mutual to stock conversion of the Bank, the ESOP
borrowed approximately $4.1 million from the Company to purchase Common Stock
issued in the Conversion. The loan to the ESOP is being repaid principally from
the Bank's contributions to the ESOP over a period of 10 years, and the
collateral for the loan is the Common Stock purchased by the ESOP. The interest
rate on the loan is 8.25%. The Bank may, in any plan year, make additional
discretionary contributions for the benefit of plan participants in either cash
or shares of Common Stock, which may be acquired through the purchase of
outstanding shares in the market or from individual stockholders, upon the
original issuance of additional shares by the Company or upon the sale of
treasury shares by the Company. Such purchases, if made, would be funded
through additional borrowing by the ESOP or additional contributions from the
Bank. The timing, amount and manner of future contributions to the ESOP will be
affected by various factors, including prevailing regulatory policies, the
requirements of applicable laws and regulations and market conditions.
Shares purchased by the ESOP with the proceeds of the loan are held in a
suspense account and released on a pro rata basis as debt service payments
are made. Discretionary contributions to the ESOP and shares released from
the suspense account are allocated among participants on the basis of
compensation.
10
Forfeitures will be reallocated among remaining participating employees and may
reduce any amount the Bank might otherwise have contributed to the ESOP.
Participants become vested in their right to receive their account balances
within the ESOP upon completion of their fifth year of service. In the case of
a "change in control," as defined, however, participants will become immediately
fully vested in their account balances, subject to certain tax considerations.
Benefits may be payable upon retirement, early retirement, death, disability or
separation from service. The Bank's contributions to the ESOP are not fixed, so
benefits payable under the ESOP cannot be estimated.
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, 1996, mortgage and
consumer loans to directors and officers aggregated $2.3 million or 2.8% 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 salaries and bonuses of the Bank's three most senior executive officers.
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 1996, the members of the committee
were Messrs. Hammerschmidt (Chairman), Heuer and Smith. 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 two times during 1996. 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, 1996 is set forth below:
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 and other senior executive
officers, 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 successful completion of the Conversion, as well
as the additional responsibilities related thereto. 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. Coffman's 1996
base salary by approximately $15,000 or 5.0% to $311,000 for 1997 and Mr.
Coffman was given a cash bonus of $12,177 for his service during 1996. The
Committee provided for a 5% salary increase for the other senior executive
officers and awarded a cash bonus as well. The cash bonuses for all of the
Bank's employees, including the executive officers, were substantially reduced
compared to the prior year due to the implementation of Company's ESOP and the
contributions thereunder on behalf of all eligible employees.
Following review and approval by the Committee, all issues pertaining to
executive compensation are submitted to the full Board of Directors for their
approval. Messrs. Coffman and Brandt and Mrs. Thomason do not participate in
the review of their compensation.
John P. Hammerschmidt, Chairman
James D. Heuer, Director
William F. Smith, Director
11
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
Company's initial public offering in May 1996.
Period Ending
--------------------------------------
Index 5/3/96 6/30/96 9/30/96 12/31/96
- -----------------------------------------------------------------------------
First Federal Bancshares of Arkansas 100.00 138.75 150.00 158.75
Nasdaq - Total US 100.00 100.36 103.93 109.04
Thrifts ($500M to $1B) 100.00 104.06 112.06 123.60
The above graph represents $100 invested in the Company's initial public
offering of Common Stock on May 3, 1996 at $10.00 per share. The Common Stock
commenced trading on the Nasdaq Stock Market on May 3, 1996. The cumulative
total returns do not include the payment of dividends by the Company.
12
PROPOSAL TO ADOPT THE STOCK OPTION PLAN
General
The Board of Directors has adopted the Stock Option Plan which is designed
to attract and retain qualified personnel in key positions, provide directors,
officers and key employees with a proprietary interest in the Company as an
incentive to contribute to the success of the Company and reward key employees
for outstanding performance. The Stock Option Plan is also designed to retain
qualified directors for the Company. The Stock Option Plan provides for the
grant of incentive stock options intended to comply with the requirements of
Section 422 of the Code ("incentive stock options"), non-qualified or
compensatory stock options and stock appreciation rights (collectively
"Awards"). Awards will be available for grant to directors and key employees of
the Company and any subsidiaries, except that directors will be eligible to
receive only non-incentive stock options. If stockholder approval is obtained,
options to acquire shares of Common Stock will be awarded to key employees of
the Company and the Bank and directors of the Company with an exercise price
equal to the fair market value of the Common Stock on the date of grant.
Description of the Stock Option Plan
The following description of the Stock Option Plan is a summary of its
terms and is qualified in its entirety by reference to the Stock Option Plan, a
copy of which is attached hereto as Appendix A.
Administration. The Stock Option Plan is administered and interpreted by a
committee of the Board of Directors ("Committee") that is composed solely of two
or more "Non-Employee Directors."
Stock Options. Under the Stock Option Plan, the Board of Directors or the
Committee determines which directors, officers and key employees will be granted
options, whether such options will be incentive or compensatory options, the
number of shares subject to each option, whether such options may be exercised
by delivering other shares of Common Stock and when such options become
exercisable. The per share exercise price of a stock option shall be equal to
the fair market value of a share of Common Stock on the date the option is
granted.
All options granted to participants under the Stock Option Plan shall
become vested and exercisable at the rate determined by the Board of Directors
or the Committee when making an Award. Notwithstanding the foregoing, no vesting
shall occur on or after a participant's employment with the Company is
terminated for any reason other than his death, disability or retirement.
Unless the Committee shall specifically state otherwise at the time an option is
granted, all options granted to participants shall become vested and exercisable
in full on the date an optionee terminates his employment with or service to the
Company or a subsidiary company because of his death, disability or retirement.
In addition, all stock options will become vested and exercisable in full in the
event that there is a change in control of the Company, as defined in the Stock
Option Plan.
Each stock option or portion thereof shall be exercisable at any time on or
after it vests and is exercisable until the earlier of ten years after its date
of grant or three months after the date on which the optionee's employment or
service as a non-employee director terminates, unless extended by the Committee
to a period not to exceed five years from such termination. However, failure to
exercise incentive stock options within three months after the date on which the
optionee's employment terminates may result in adverse tax consequences to the
optionee. If an optionee dies while serving as an employee or a non-employee
director or terminates his service as an employee or a non-employee director as
a result of disability or retirement without having fully exercised his options,
the optionee's executors, administrators, legatees or distributees of his estate
shall have the right to exercise such options during the twelve-month period
following the earlier of his death or termination due to disability or
retirement, provided no option will be exercisable more than ten years from the
date it was granted. Stock options are non-transferable except by will or the
laws of descent and distribution. Notwithstanding the foregoing, an optionee
who holds non-qualified options may transfer such options to his or her spouse,
lineal ascendants, lineal descendants, or to a duly established trust for the
benefit of one or more of these individuals. Options so transferred may
thereafter be transferred only to the optionee who originally received the grant
or to an individual or trust to whom the optionee could have initially
transferred the option. Options which are so transferred shall be exercisable
by the transferee according to the same terms and conditions as applied to the
optionee.
13
Payment for shares purchased upon the exercise of options may be made
either in cash, by certified or cashier's check or, if permitted by the
Committee or the Board of Directors, by delivering shares of Common Stock
(including shares acquired pursuant to the exercise of an option) with a fair
market value equal to the total option price, by withholding some of the shares
of Common Stock which are being purchased upon exercise of an option, or any
combination of the foregoing. To the extent an optionee already owns shares of
Common Stock prior to the exercise of his or her option, such shares could be
used (if permitted by Committee or the Board of Directors) as payment for the
exercise price of the option. If the fair market value of a share of Common
Stock at the time of exercise is greater than the exercise price per share, this
feature would enable the optionee to acquire a number of shares of Common Stock
upon exercise of the option which is greater than the number of shares delivered
as payment for the exercise price. In addition, an optionee can exercise his or
her option in whole or in part and then deliver the shares acquired upon such
exercise (if permitted by the Committee or the Board of Directors) as payment
for the exercise price of all or part of his options. Again, if the fair market
value of a share of Common Stock at the time of exercise is greater than the
exercise price per share, this feature would enable the optionee to either (1)
reduce the amount of cash required to receive a fixed number of shares upon
exercise of the option or (2) receive a greater number of shares upon exercise
of the option for the same amount of cash that would have otherwise been used.
Because options may be exercised in part from time to time, the ability to
deliver Common Stock as payment of the exercise price could enable the optionee
to turn a relatively small number of shares into a large number of shares.
Stock Appreciation Rights. Under the Stock Option Plan, the Board of
Directors or the Committee is authorized to grant stock appreciation rights to
optionees under which an optionee may surrender any exercisable incentive stock
option or compensatory stock option or any portion thereof in return for payment
by the Company to the optionee of cash or Common Stock in an amount equal to the
excess of the fair market value of the shares of Common Stock subject to option,
or portion thereof, at the time over the exercise price of the option with
respect to such shares, or a combination of cash and Common Stock. A stock
appreciation right may be granted concurrently with the stock option to which it
relates or at any time thereafter which is prior to the exercise or expiration
of such option.
Number of Shares Covered by the Stock Option Plan. A total of 515,375
shares of Common Stock has been reserved for issuance pursuant to the Stock
Option Plan, which is 10% of the Common Stock issued in connection with the
Conversion. In the event of a stock split, reverse stock split or stock
dividend, the number of shares of Common Stock under the Stock Option Plan, the
number of shares to which any Award relates and the exercise price per share
under any option or stock appreciation right shall be adjusted to reflect such
increase or decrease in the total number of shares of Common Stock outstanding.
In addition, in the event the Company declares a special cash dividend or return
of capital in an amount per share which exceeds 10% of the fair market value of
a share of Common Stock as of the date of declaration, the per share exercise
price of all previously granted Awards which remain unexercised as of the date
of such declaration shall be proportionately adjusted to give effect to such
special cash dividend or return of capital as of the date of payment of such
special cash dividend or return of capital, subject to certain limitations.
Amendment and Termination of the Stock Option Plan. Unless sooner
terminated, the Stock Option Plan shall continue in effect for a period of ten
years from the date the Stock Option Plan was adopted by the Board and became
effective by its terms. Termination of the Stock Option Plan shall not affect
any previously granted Awards.
Federal Income Tax Consequences. Under current provisions of the Code, the
federal income tax treatment of incentive stock options and compensatory stock
options is different. As regards incentive stock options, an optionee who meets
certain holding period requirements will not recognize income at the time the
option is granted or at the time the option is exercised, and a federal income
tax deduction generally will not be available to the Company at any time as a
result of such grant or exercise. With respect to compensatory stock options,
the difference between the fair market value on the date of exercise and the
option exercise price generally will be treated as compensation income upon
exercise, and the Company will be entitled to a deduction in the amount of
income so recognized by the optionee. Upon the exercise of a stock appreciation
right, the holder will realize income for federal income tax purposes equal to
the amount received by him, whether in cash, shares of stock or both, and the
Company will be entitled to a deduction for federal income tax purposes in the
same amount.
14
Section 162(m) of the Code generally limits the deduction for certain
compensation in excess of $1 million per year paid by a publicly-traded
corporation to its chief executive officer and the four other most highly
compensated executive officers ("Covered Executive"). Certain types of
compensation, including compensation based on performance goals, are excluded
from the $1 million deduction limitation. In order for compensation to qualify
for this exception: (i) it must be paid solely on account of the attainment of
one or more preestablished, objective performance goals; (ii) the performance
goal must be established by a compensation committee consisting solely of two or
more outside directors, as defined; (iii) the material terms under which the
compensation is to be paid, including performance goals, must be disclosed to
and approved by stockholders in a separate vote prior to payment; and (iv) prior
to payment, the compensation committee must certify that the performance goals
and any other material terms were in fact satisfied (the "Certification
Requirement").
Final Treasury regulations issued in December 1995 provide that
compensation attributable to a stock option or stock appreciation right is
deemed to satisfy the requirement that compensation be paid solely on account of
the attainment of one or more performance goals if: (i) the grant is made by a
compensation committee consisting solely of two or more outside directors, as
defined; (ii) the plan under which the option or stock appreciation right is
granted states the maximum number of shares with respect to which options or
stock appreciation rights may be granted during a specified period to any
employee; and (iii) under the terms of the option or stock appreciation right,
the amount of compensation the employee could receive is based solely on an
increase in the value of the stock after the date of grant or award. The
Certification Requirement is not necessary if these other requirements are
satisfied.
The Stock Option Plan has been designed to meet the requirements of Section
162(m) of the Code and, as a result, the Company believes that compensation
attributable to stock options and stock appreciation rights granted under the
Stock Option Plan in accordance with the foregoing requirements will be fully
deductible under Section 162(m) of the Code. If the non-excluded compensation
of a Covered Executive exceeded $1 million, however, compensation attributable
to other awards, such as restricted stock, may not be fully deductible unless
the grant or vesting of the award is contingent on the attainment of a
performance goal determined by a compensation committee meeting specified
requirements and disclosed to and approved by the stockholders of the Company.
The above description of tax consequences under federal law is necessarily
general in nature and does not purport to be complete. Moreover, statutory
provisions are subject to change, as are their interpretations, and their
application may vary in individual circumstances. Finally, the consequences
under applicable state and local income tax laws may not be the same as under
the federal income tax laws.
Accounting Treatment. Stock appreciation rights will, in most cases,
require a charge against the earnings of the Company each year representing
appreciation in the value of such rights over periods in which they become
exercisable. Such charge is based on the difference between the exercise price
specified in the related option and the current market price of the Common
Stock. In the event of a decline in the market price of the Common Stock
subsequent to a charge against earnings related to the estimated costs of stock
appreciation rights, a reversal of prior charges is made in the amount of such
decline (but not to exceed aggregate prior charges).
15
Neither the grant nor the exercise of an incentive stock option or a
non-qualified stock option under the Stock Option Plan currently requires any
charge against earnings under generally accepted accounting principles. In
October 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which is effective for transactions entered into after December
15, 1995. This Statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. This Statement defines a
fair value method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for those plans using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the fair value method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
Under the intrinsic value method, compensation cost is the excess, if any, of
the quoted market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock. The Company
anticipates that it will use the intrinsic value method, in which event pro
forma disclosure will be included in the footnotes to the Company's financial
statements to show what net income and earnings per share would have been if the
fair value method had been utilized. If the Company elects to utilize the fair
value method, its net income and earnings per share may be adversely affected.
Stockholder Approval. No Awards will be granted under the Stock Option
Plan unless the Stock Option Plan is approved by stockholders. Stockholder
ratification of the Stock Option Plan will satisfy certain Nasdaq market listing
and tax requirements.
Awards to be Granted. The Board of Directors of the Company adopted the
Stock Option Plan and the Committee intends to grant options to directors,
executive officers and employees of the Company and the Bank in one or more
series of Awards promptly after the date of stockholder approval of the Stock
Option Plan with a per share exercise price equal to the fair market value of a
share of Common Stock on the date of grant. It is currently anticipated that no
individual officer will receive an award of more than 25% of the shares
available for grant under the Stock Option Plan and that no non-employee
director will receive an award of more than 5% of the shares available for grant
under the Stock Option Plan. The following table sets forth certain information
with respect to the estimated amounts of such grants in the aggregate.
Name of Individual or Estimate of Number of
Group and Number Shares to be Subject
of Persons in Group Title to Stock Options
- ---------------------- ------------------------------ ----------------------
Frank L. Coffman, Jr. Chief Executive Officer 51,538
Larry J. Brandt President and Chief 51,538
Operating Officer
Carolyn M. Thomason Executive Vice President 51,538
All executive officers --- 257,690
as a group (5 persons)
All non-employee
directors as a --- 77,307
group (3 persons)
All employees, not --- 149,076
including executive
officers, as a group
(131 persons)
16
It is currently anticipated that one-fifth of the aggregate number of
options granted to officers and directors will be vested and exercisable on the
date of grant promptly after approval of the Stock Option Plan and that
one-fifth of the aggregate number of options granted will vest and become
exercisable on each of the four annual anniversary dates thereafter.
The Board of Directors recommends that stockholders vote FOR adoption of
the Stock Option Plan.
PROPOSAL TO ADOPT THE RECOGNITION
AND RETENTION PLAN AND TRUST
General
The Board of Directors of the Company has adopted the Recognition Plan, the
objective of which is to retain qualified personnel in key positions, provide
officers, key employees and directors with a proprietary interest in the Company
as an incentive to contribute to its success and reward key employees for
outstanding performance. Officers and key employees of the Company who are
selected by the Board of Directors of the Company or a committee thereof, as
well as non-employee directors of the Company, will be eligible to receive
benefits under the Recognition Plan. If stockholder approval is obtained,
shares will be granted to employees and to non-employee directors as described
below.
Description of the Recognition Plan
The following description of the Recognition Plan is a summary of its terms
and is qualified in its entirety by reference to the Recognition Plan, a copy of
which is attached hereto as Appendix B.
Administration. The Recognition Plan is administered and interpreted by a
committee of the Board of Directors ("Committee") that is composed solely of two
or more "Non-Employee Directors." In addition, Messrs. Coffman and Brandt and
Mrs. Thomason will serve as trustees of the trust established pursuant to the
Recognition Plan ("Trust"). The trustees will have the responsibility to invest
all funds contributed by the Company to the Trust.
Upon stockholder approval of the Recognition Plan, the Company will acquire
Common Stock on behalf of the Recognition Plan, in an amount equal to 4% of the
Common Stock issued in the Conversion, or 206,150 shares. It is anticipated
that the Recognition Plan will be funded through the use of treasury shares or
shares acquired through open market purchases.
Grants. Shares of Common Stock granted pursuant to the Recognition Plan
will be in the form of restricted stock payable over a period as determined by
the Committee or the Board of Directors. A recipient will be entitled to all
voting and other stockholder rights with respect to shares which have been
earned and allocated under the Recognition Plan. However, until such shares
have been earned and allocated, they may not be sold, pledged or otherwise
disposed of and are required to be held in the Recognition Plan Trust. In
addition, any cash dividends or stock dividends declared in respect of unvested
share awards will be held by the Recognition Plan Trust for the benefit of the
recipients and such dividends, including any interest thereon, will be paid out
proportionately by the Recognition Plan Trust to the recipients thereof as soon
as practicable after the share awards become earned. Any cash dividends or
stock dividends declared in respect of each vested share held by the Recognition
Plan Trust will be paid by the Recognition Plan Trust as soon as practicable
after the Trust's receipt thereof to the recipient on whose behalf such share is
then held by the Trust.
If a recipient terminates employment for reasons other than death,
disability or retirement, the recipient will forfeit all rights to the allocated
shares under restriction. All shares subject to an award held by a recipient
whose employment with or service to the Company or any subsidiary terminates due
to death or disability, as defined in the Recognition Plan, shall be deemed
earned as of the recipient's last day of employment with or service to the
Company or any subsidiary and shall be distributed as soon as practicable
thereafter. In addition, in the event that a recipient's employment with or
service to the Company or any subsidiary terminates due to retirement, as
defined in the Recognition Plan, all shares subject to an award held by a
recipient shall be deemed earned as of the recipient's last day of employment
with or service to the Company or any subsidiary and shall be distributed as
soon as practicable thereafter. All shares subject to an award held by a
recipient also shall be deemed to be earned in the event of a change in control
of the Company, as defined in the Recognition Plan.
17
During the lifetime of the recipient, shares subject to an award may only
be earned by and paid to the recipient, provided that shares subject to an award
and rights to such shares shall be transferable by a recipient to his or her
spouse, lineal ascendants, lineal descendants, or to a duly established trust.
Shares subject to an award so transferred may not again be transferred other
than to the recipient who originally received the grant or to an individual or
trust to whom such recipient could have transferred shares subject to an award.
Shares subject to awards which are transferred shall be subject to the same
terms and conditions as would have applied to such shares subject to awards in
the hands of the recipient who originally received the grant.
Federal Income Tax Consequences. Pursuant to Section 83 of the Code,
recipients of Recognition Plan awards will recognize ordinary income in an
amount equal to the fair market value of the shares of Common Stock granted to
them at the time that the shares vest and become transferable. A recipient of a
Recognition Plan award may also elect, however, to accelerate the recognition of
income with respect to his or her grant to the time when shares of Common Stock
are first transferred to him or her, notwithstanding the vesting schedule of
such awards. The Company will be entitled to deduct as a compensation expense
for tax purposes the same amounts recognized as income by recipients of
Recognition Plan awards in the year in which such amounts are included in
income.
Accounting Treatment. For a discussion of SFAS No. 123, see "Proposal to
Adopt the Stock Option Plan - Accounting Treatment." Under the intrinsic value
method, the Company will also recognize a compensation expense as shares of
Common Stock granted pursuant to the Recognition Plan vest. The amount of
compensation expense recognized for accounting purposes is based upon the fair
market value of the Common Stock at the date of grant to recipients, rather than
the fair market value at the time of vesting for tax purposes.
Stockholder Approval. No shares will be granted under the Recognition Plan
unless the Recognition Plan is approved by stockholders. Stockholder
ratification of the Recognition Plan will satisfy certain Nasdaq market listing
and tax requirements.
Shares to be Granted. The Board of Directors of the Company adopted the
Recognition Plan and the Committee intends to grant awards to directors,
executive officers and employees of the Company and the Bank in one or more
series of awards promptly after the date of stockholder approval of the
Recognition Plan. It is currently anticipated that no individual officer will
receive an award of more than 25% of the shares available for grant under the
Recognition Plan and that no non-employee director will receive an award of more
than 5% of the shares available for grant under the Recognition Plan. The
following table sets forth certain information with respect to the estimated
amounts of such grants in the aggregate.
18
Estimate of
Name of Individual or Group and Number of Shares
Number of Persons in Group Title to be Awarded
- ------------------------------- ------------------------------ ----------------------
Frank L. Coffman, Jr. Chief Executive Officer 41,230
Larry J. Brandt President and Chief Operating 41,230
Officer
Carolyn M. Thomason Executive Vice President 41,230
All executive officers as
a group (5 persons) --- 164,920
All non-employeedirectors
as a group (3 persons) --- 30,924
All employees, not including
executive officers as a group
(131 persons) --- ---
It is currently anticipated that one-fifth of the aggregate number of
shares granted to officers and directors will be vested on the date of grant
promptly after approval of the Recognition Plan and that one-fifth of the
aggregate number of shares granted will vest on each of the four annual
anniversary dates thereafter.
The Board of Directors recommends that stockholders vote FOR adoption of
the Recognition and Retention Plan and Trust.
RATIFICATION OF APPOINTMENT OF AUDITORS
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, 1997, 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.
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, 1997.
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 1998, must be received at
the principal executive offices of the Company, P.O. Box 550, Harrison, Arkansas
72602 Attention: Carolyn M. Thomason, Secretary, no later than November 25,
1997. 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.
19
ANNUAL REPORTS
A copy of the Company's Annual Report to Stockholders for the year ended
December 31, 1996 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 1996 required to be filed under the 1934 Act. Such written requests should
be directed to Tommy W. Richardson, Chief Financial Officer, 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 has retained Regan & Associates, Inc., a professional proxy solicitation
firm, to assist in the solicitation of proxies. Such firm will be paid a fee of
$4,500, plus reimbursement for out-of-pocket expenses not to exceed $2,500. 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.
20
APPENDIX A
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
1997 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
First Federal Bancshares of Arkansas, Inc. (the "Corporation") hereby
establishes this 1997 Stock Option Plan (the "Plan") upon the terms and
conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of the
Corporation and its Subsidiary Companies by providing Employees and Non-Employee
Directors with a proprietary interest in the Corporation as an incentive to
contribute to the success of the Corporation and its Subsidiary Companies, and
rewarding those Employees for outstanding performance. All Incentive Stock
Options issued under this Plan are intended to comply with the requirements of
Section 422 of the Code, and the regulations thereunder, and all provisions
hereunder shall be read, interpreted and applied with that purpose in mind.
ARTICLE III
DEFINITIONS
3.01 "Award" means an Option or Stock Appreciation Right granted pursuant
to the terms of this Plan.
3.02 "Bank" means First Federal Bank of Arkansas, FA, the wholly-owned
subsidiary of the Corporation.
3.03 "Board" means the Board of Directors of the Corporation or of the
Bank.
3.04 "Change in Control of the Corporation" shall be deemed to have
occurred if: (i) any "person" as such term is used in Sections 13(d) and 14(d)
of the Exchange Act (other than the Corporation and any trustee or other
fiduciary holding securities under any employee benefit plan of the
Corporation), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 25% or more of the combined voting power of the
Corporation's then outstanding securities; (ii) during any period of two
consecutive years (not including any period prior to the adoption of the Plan),
individuals who at the beginning of such period constitute the Board of
Directors, and any new director whose election by the Board of Directors or
nomination for election by the Corporation's stockholders was approved by a vote
of at least two-thirds of the directors then still in office who either were
directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority of the Board of Directors; (iii) the stockholders
of the Corporation approve a merger or consolidation of the Corporation with any
other corporation, other than a merger or consolidation that would result in the
voting securities of the Corporation outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Corporation outstanding immediately
after such merger or consolidation; or (iv) the stockholders of the Corporation
approve a plan of complete liquidation of the Corporation or an agreement for
the sale or disposition by the Corporation of all or substantially all of the
Corporation's assets. If any of the events enumerated in clauses (i) through
(iv) occur, the Board shall determine the effective date of the Change in
Control resulting therefrom for purposes of the Plan.
3.05 "Code" means the Internal Revenue Code of 1986, as amended.
3.06 "Committee" means a committee of two or more directors appointed by
the Board pursuant to Article IV hereof, each of whom shall be a Non-Employee
Director as defined in Rule 16b-3(b)(3)(i) of the Exchange Act.
3.07 "Common Stock" means shares of the common stock, $.01 par value per
share, of the Corporation.
3.08 "Disability" means any physical or mental impairment which qualifies
an Employee for disability benefits under the applicable long-term disability
plan maintained by the Corporation or a Subsidiary Company, or, if no such plan
applies, which would qualify such Employee for disability benefits under the
Federal Social Security System.
3.09 "Effective Date" means the day upon which the Board approves this
Plan.
3.10 "Employee" means any person who is employed by the Corporation or a
Subsidiary Company, or is an Officer of the Corporation or a Subsidiary Company,
but not including directors who are not also Officers of or otherwise employed
by the Corporation or a Subsidiary Company.
3.11 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
3.12 "Fair Market Value" shall be equal to the fair market value per
share of the Corporation's Common Stock on the date an Award is granted. For
purposes hereof, the Fair Market Value of a share of Common Stock shall be the
closing sale price of a share of Common Stock on the date in question (or, if
such day is not a trading day in the U.S. markets, on the nearest preceding
trading day), as reported with respect to the principal market (or the composite
of the markets, if more than one) or national quotation system in which such
shares are then traded, or if no such closing prices are reported, the mean
between the high bid and low asked prices that day on the principal market or
national quotation system then in use, or if no such quotations are available,
the price furnished by a professional securities dealer making a market in such
shares selected by the Committee.
3.13 "Incentive Stock Option" means any Option granted under this Plan
which the Board intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code or any successor thereto.
3.14 "Non-Employee Director" means a member of the Board who is not an
Officer or Employee of the Corporation or any Subsidiary Company and shall
include any individual who, at the date of adoption of the Plan or any time
thereafter, serves the Board in an advisory or emeritus capacity.
3.15 "Non-Qualified Option" means any Option granted under this Plan which
is not an Incentive Stock Option.
3.16 "Offering" means the offering of Common Stock to the public pursuant
to the Plan of Conversion adopted by the Bank.
3.17 "Officer" means an Employee whose position in the Corporation or
Subsidiary Company is that of a corporate officer, as determined by the Board.
3.18 "Option" means a right granted under this Plan to purchase Common
Stock.
3.19 "Optionee" means an Employee or Non-Employee Director or former
Employee or Non-Employee Director to whom an Option is granted under the Plan.
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3.20 "Retirement" means a termination of employment upon or after
attainment of age sixty (60) or such earlier age as may be specified in any
applicable plans or policies maintained by the Corporation or a Subsidiary
Company.
3.21 "Stock Appreciation Right" means a right to surrender an Option in
consideration for a payment by the Corporation in cash and/or Common Stock, as
provided in the discretion of the Committee in accordance with Section 8.11.
3.22 "Subsidiary Companies" means those subsidiaries of the Corporation,
including the Bank, which meet the definition of "subsidiary corporations" set
forth in Section 425(f) of the Code, at the time of granting of the Option in
question.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Duties of the Committee. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority to adopt,
amend and rescind such rules, regulations and procedures as, in its opinion, may
be advisable in the administration of the Plan, including, without limitation,
rules, regulations and procedures which (i) deal with satisfaction of an
Optionee's tax withholding obligation pursuant to Section 12.02 hereof, (ii)
include arrangements to facilitate the Optionee's ability to borrow funds for
payment of the exercise or purchase price of an Award, if applicable, from
securities brokers and dealers, and (iii) include arrangements which provide for
the payment of some or all of such exercise or purchase price by delivery of
previously-owned shares of Common Stock or other property and/or by withholding
some of the shares of Common Stock which are being acquired. The interpretation
and construction by the Committee of any provisions of the Plan, any rule,
regulation or procedure adopted by it pursuant thereto or of any Award shall be
final and binding in the absence of action by the Board of Directors.
4.02 Appointment and Operation of the Committee. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the Board.
The Board from time to time may remove members from, or add members to, the
Committee, provided the Committee shall continue to consist of two or more
members of the Board, each of whom shall be a non-employee director as defined
in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor thereto. In
addition, each member of the Committee shall be an "outside director" within the
meaning of Section 162(m) of the Code and regulations thereunder at such times
as is required under such regulations. The Committee shall act by vote or
written consent of a majority of its members. Subject to the express provisions
and limitations of the Plan, the Committee may adopt such rules, regulations and
procedures as it deems appropriate for the conduct of its affairs. It may
appoint one of its members to be chairman and any person, whether or not a
member, to be its secretary or agent. The Committee shall report its actions
and decisions to the Board at appropriate times but in no event less than one
time per calendar year.
4.03 Revocation for Misconduct. The Board of Directors or the Committee
may by resolution immediately revoke, rescind and terminate any Option, or
portion thereof, to the extent not yet vested, or any Stock Appreciation Right,
to the extent not yet exercised, previously granted or awarded under this Plan
to an Employee who is discharged from the employ of the Corporation or a
Subsidiary Company for cause, which, for purposes hereof, shall mean termination
because of the Employee'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 final cease-and-desist order.
Options granted to a Non-Employee Director who is removed for cause pursuant to
the Corporation's Articles of Incorporation shall terminate as of the effective
date of such removal.
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4.04 Limitation on Liability. Neither the members of the Board of
Directors nor any member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan, any rule, regulation
or procedure adopted pursuant thereto or for any Awards granted hereunder. If
any members of the Board of Directors or a member of the Committee is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of anything done or not done by him in such capacity under or with
respect to the Plan, the Corporation shall, subject to the requirements of
applicable laws and regulations, indemnify such member against all liabilities
and expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in the best interests of the Corporation and its
Subsidiary Companies and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
4.05 Compliance with Law and Regulations. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency as
may be required. The Corporation shall not be required to issue or deliver any
certificates for shares of Common Stock prior to the completion of any
registration or qualification of or obtaining of consents or approvals with
respect to such shares under any federal or state law or any rule or
regulation of any government body, which the Corporation shall, in its sole
discretion, determine to be necessary or advisable. Moreover, no Option or
Stock Appreciation Right may be exercised if such exercise would be contrary
to applicable laws and regulations.
4.06 Restrictions on Transfer. The Corporation may place a legend upon any
certificate representing shares acquired pursuant to an Award granted hereunder
noting that the transfer of such shares may be restricted by applicable laws and
regulations.
ARTICLE V
ELIGIBILITY
Awards may be granted to such Employees or Non-Employee Directors of the
Corporation and its Subsidiary Companies as may be designated from time to time
by the Board of Directors or the Committee. Awards may not be granted to
individuals who are not Employees or Non-Employee Directors of either the
Corporation or its Subsidiary Companies. Non-Employee Directors shall be
eligible to receive only Non-Qualified Options.
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 Option Shares. The aggregate number of shares of Common Stock which
may be issued pursuant to this Plan, subject to adjustment as provided in
Article IX, shall be 515,375 shares, which is equal to 10.0% of the shares of
Common Stock issued in the Offering. None of such shares shall be the subject
of more than one Award at any time, but if an Option as to any shares is
surrendered before exercise, or expires or terminates for any reason without
having been exercised in full, or for any other reason ceases to be exercisable,
the number of shares covered thereby shall again become available for grant
under the Plan as if no Awards had been previously granted with respect to such
shares. Notwithstanding the foregoing, if an Option is surrendered in
connection with the exercise of a Stock Appreciation Right, the number of shares
covered thereby shall not be available for grant under the Plan.
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6.02 Source of Shares. The shares of Common Stock issued under the Plan
may be authorized but unissued shares, treasury shares, shares purchased by the
Corporation on the open market or from private sources for use under the Plan,
or, if applicable, shares held in a grantor trust created by the Corporation.
ARTICLE VII
DETERMINATION OF
AWARDS, NUMBER OF SHARES, ETC.
7.01 Determination of Awards. The Board of Directors or the Committee
shall, in its discretion, determine from time to time which Employees and
Non-Employee Directors will be granted Awards under the Plan, the number of
shares of Common Stock subject to each Award, whether each Option will be an
Incentive Stock Option or a Non-Qualified Stock Option and the exercise price of
an Option. In making determinations with respect to Employees there shall be
taken into account the duties, responsibilities and performance of each
respective Employee, his present and potential contributions to the growth and
success of the Corporation, his salary and such other factors as the Board of
Directors or the Committee shall deem relevant to accomplishing the purposes of
the Plan.
7.02 Maximum Awards to Employees. Notwithstanding anything contained in
this Plan to the contrary, the maximum number of shares of Common Stock to which
Awards may be granted to any Employee in any calendar year shall be 128,844.
ARTICLE VIII
OPTIONS AND STOCK APPRECIATION RIGHTS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 Stock Option Agreement. The proper Officers on behalf of the
Corporation and each Optionee shall execute a Stock Option Agreement which shall
set forth the total number of shares of Common Stock to which it pertains, the
exercise price, whether it is a Non-Qualified Option or an Incentive Stock
Option, and such other terms, conditions, restrictions and privileges as the
Board of Directors or the Committee in each instance shall deem appropriate,
provided they are not inconsistent with the terms, conditions and provisions of
this Plan. Each Optionee shall receive a copy of his executed Stock Option
Agreement.
8.02 Awards to Employees and Non-Employee Directors. Specific Awards to
Employees and Non-Employee Directors shall be made to such persons and in such
amounts as are determined by the Board of Directors or the Committee.
8.03 Option Exercise Price.
(a) Incentive Stock Options. The per share price at which the
subject Common Stock may be purchased upon exercise of an Incentive Stock Option
shall be no less than one hundred percent (100%) of the Fair Market Value of a
share of Common Stock at the time such Incentive Stock Option is granted, except
as provided in Section 8.10(b), and subject to any applicable adjustment
pursuant to Article IX hereof.
(b) Non-Qualified Options. The per share price at which the subject
Common Stock may be purchased upon exercise of a Non-Qualified Option shall be
no less than one hundred percent (100%) of the Fair Market Value of a share of
Common Stock at the time such Non-Qualified Option is granted, and subject to
any applicable adjustment pursuant to Article IX hereof.
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8.04 Vesting and Exercise of Options.
(a) General Rules. Incentive Stock Options and Non-Qualified Options
granted hereunder shall become vested and exercisable at the rate, to the extent
and subject to such limitation as may be specified by the Board or the
Committee. Notwithstanding the foregoing, no vesting shall occur on or after an
Employee's employment with the Corporation and all Subsidiary Companies is
terminated for any reason other than his death, Disability or Retirement. In
determining the number of shares of Common Stock with respect to which Options
are vested and/or exercisable, fractional shares will be rounded up to the
nearest whole number if the fraction is 0.5 or higher, and down if it is less.
(b) Accelerated Vesting. Unless the Committee shall specifically
state otherwise at the time an Option is granted, all Options granted hereunder
shall become vested and exercisable in full on the date an Optionee terminates
his employment with or service to the Corporation or a Subsidiary Company
because of his death or Disability. In addition, all options hereunder shall
become immediately vested and exercisable in full on the date an Optionee
terminates his employment or service to the Corporation or a Subsidiary Company
due to Retirement. Further, all outstanding options shall become immediately
vested and exercisable in the event that there is a Change in Control of the
Corporation.
8.05 Duration of Options.
(a) General Rule. Except as provided in Sections 8.05(b) and 8.10,
each Option or portion thereof granted to Employees and Non-Employee Directors
shall be exercisable at any time on or after it vests and becomes exercisable
until the earlier of (i) ten (10) years after its date of grant or (ii) three
(3) months after the date on which the Optionee ceases to be employed (or in the
service of the Board of Directors in the case of Non-Employee Directors) by the
Corporation and all Subsidiary Companies, unless the Board of Directors or the
Committee in its discretion decides at the time of grant or thereafter to extend
such period of exercise upon termination of employment or service from three (3)
months to a period not exceeding five (5) years.
(b) Exceptions. If an Employee dies while in the employ of the
Corporation or a Subsidiary Company or terminates employment with the
Corporation or a Subsidiary Company as a result of Disability or Retirement
without having fully exercised his Options, the Optionee or the executors,
administrators, legatees or distributees of his estate shall have the right,
during the twelve-month period following the earlier of his death or termination
due to Disability or Retirement, to exercise such Options. If a Non-Employee
Director dies while serving as a Non-Employee Director or terminates his service
to the Corporation or a Subsidiary Company as a result of Disability or
Retirement without having fully exercised his Options, the Non-Employee Director
or the executors, administrators, legatees or distributees of his estate shall
have the right, during the twelve-month period following the earlier of his
death or termination due to Disability or Retirement, to exercise such Options.
In no event, however, shall any Option be exercisable more than ten (10) years
from the date it was granted.
8.06 Nonassignability. Options shall not be transferable by an Optionee
except by will or the laws of descent or distribution, and during an Optionee's
lifetime shall be exercisable only by such Optionee or the Optionee's guardian
or legal representative. Notwithstanding the foregoing, or any other provision
of this Plan, an Optionee who holds Non-Qualified Options may transfer such
Options to his or her spouse, lineal ascendants, lineal descendants, or to a
duly established trust for the benefit of one or more of these individuals.
Options so transferred may thereafter be transferred only to the Optionee who
originally received the grant or to an individual or trust to whom the Optionee
could have initially transferred the Option pursuant to this Section 8.06.
Options which are transferred pursuant to this Section 8.06 shall be exercisable
by the transferee according to the same terms and conditions as applied to the
Optionee.
8.07 Manner of Exercise. Options may be exercised in part or in whole and
at one time or from time to time. The procedures for exercise shall be set
forth in the written Stock Option Agreement provided pursuant to Section 8.01.
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8.08 Payment for Shares. Payment in full of the purchase price for shares
of Common Stock purchased pursuant to the exercise of any Option shall be made
to the Corporation upon exercise of such Option. All shares sold under the Plan
shall be fully paid and nonassessable. Payment for shares may be made by the
Optionee in cash or, at the discretion of the Board of Directors or the
Committee in the case of Awards to Employees, by delivering shares of Common
Stock (including shares acquired pursuant to the exercise of an Option) or other
property equal in Fair Market Value to the purchase price of the shares to be
acquired pursuant to the Option, by withholding some of the shares of Common
Stock which are being purchased upon exercise of an Option, or any combination
of the foregoing. Notwithstanding the foregoing, payment may also be made by
delivering a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Corporation the amount of
sale or loan proceeds to pay the exercise price.
8.09 Voting and Dividend Rights. No Optionee shall have any voting or
dividend rights or other rights of a stockholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded on
the Corporation's stockholder ledger as the holder of record of such shares
acquired pursuant to an exercise of such Option.
8.10 Additional Terms Applicable to Incentive Stock Options. All Options
issued under the Plan as Incentive Stock Options will be subject, in addition to
the terms detailed in Sections 8.01 to 8.09 above, to those contained in this
Section 8.10.
(a) Notwithstanding any contrary provisions contained elsewhere in
this Plan and as long as required by Section 422 of the Code, the aggregate Fair
Market Value, determined as of the time an Incentive Stock Option is granted, of
the Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Optionee during any calendar year, under this Plan and
stock options that satisfy the requirements of Section 422 of the Code under any
other stock option plan or plans maintained by the Corporation (or any parent or
Subsidiary Company), shall not exceed $100,000.
(b) Limitation on Ten Percent Stockholders. The price at which
shares of Common Stock may be purchased upon exercise of an Incentive Stock
Option granted to an individual who, at the time such Incentive Stock Option is
granted, owns, directly or indirectly, more than ten percent (10%) of the total
combined voting power of all classes of stock issued to stockholders of the
Corporation or any Subsidiary Company, shall be no less than one hundred and ten
percent (110%) of the Fair Market Value of a share of the Common Stock of the
Corporation at the time of grant, and such Incentive Stock Option shall by its
terms not be exercisable after the earlier of the date determined under Section
8.04 or the expiration of five (5) years from the date such Incentive Stock
Option is granted.
(c) Notice of Disposition; Withholding; Escrow. An Optionee shall
immediately notify the Corporation in writing of any sale, transfer, assignment
or other disposition (or action constituting a disqualifying disposition within
the meaning of Section 421 of the Code) of any shares of Common Stock acquired
through exercise of an Incentive Stock Option within two (2) years after the
grant of such Incentive Stock Option or within one (1) year after the
acquisition of such shares, setting forth the date and manner of disposition,
the number of shares disposed of and the price at which such shares were
disposed of. The Corporation shall be entitled to withhold from any
compensation or other payments then or thereafter due to the Optionee such
amounts as may be necessary to satisfy any withholding requirements of federal
or state law or regulation and, further, to collect from the Optionee any
additional amounts which may be required for such purpose. The Committee may,
in its discretion, require shares of Common Stock acquired by an Optionee upon
exercise of an Incentive Stock Option to be held in an escrow arrangement for
the purpose of enabling compliance with the provisions of this Section 8.10(c).
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8.11 Stock Appreciation Rights.
(a) General Terms and Conditions. The Board of Directors or the
Committee may, but shall not be obligated to, authorize the Corporation, on such
terms and conditions as it deems appropriate in each case, to grant rights to
Optionees to surrender an exercisable Option, or any portion thereof, in
consideration for the payment by the Corporation of an amount equal to the
excess of the Fair Market Value of the shares of Common Stock subject to the
Option, or portion thereof, surrendered over the exercise price of the Option
with respect to such shares (any such authorized surrender and payment being
hereinafter referred to as a "Stock Appreciation Right"). Such payment, at the
discretion of the Board of Directors or the Committee, may be made in shares of
Common Stock valued at the then Fair Market Value thereof, or in cash, or partly
in cash and partly in shares of Common Stock.
The terms and conditions set with respect to a Stock Appreciation Right may
include (without limitation), subject to other provisions of this Section 8.11
and the Plan, the period during which, date by which or event upon which the
Stock Appreciation Right may be exercised (which shall be on the same terms as
the Option to which it relates pursuant to Section 8.04 hereunder); the method
for valuing shares of Common Stock for purposes of this Section 8.11; a ceiling
on the amount of consideration which the Corporation may pay in connection with
exercise and cancellation of the Stock Appreciation Right; and arrangements for
income tax withholding. The Board of Directors or the Committee shall have
complete discretion to determine whether, when and to whom Stock Appreciation
Rights may be granted.
(b) Time Limitations. If a holder of a Stock Appreciation Right
terminates service with the Corporation, the Stock Appreciation Right may be
exercised only within the period, if any, within which the Option to which it
relates may be exercised. Notwithstanding the foregoing, any election by an
Optionee to exercise the Stock Appreciation Rights provided in this Plan shall
be made during the period beginning on the third business day following the
release for publication of quarterly or annual financial information required to
be prepared and disseminated by the Corporation pursuant to the requirements of
the Exchange Act and ending on the twelfth business day following such date.
The required release of information shall be deemed to have been satisfied when
the specified financial data appears on or in a wire service, financial news
service or newspaper of general circulation or is otherwise first made publicly
available.
(c) Effects of Exercise of Stock Appreciation Rights or Options.
Upon the exercise of a Stock Appreciation Right, the number of shares of Common
Stock available under the Option to which it relates shall decrease by a number
equal to the number of shares for which the Stock Appreciation Right was
exercised. Upon the exercise of an Option, any related Stock Appreciation Right
shall terminate as to any number of shares of Common Stock subject to the Stock
Appreciation Right that exceeds the total number of shares for which the Option
remains unexercised.
(d) Time of Grant. A Stock Appreciation Right granted in connection
with an Incentive Stock Option must be granted concurrently with the Option to
which it relates, while a Stock Appreciation Right granted in connection with a
Non-Qualified Option may be granted concurrently with the Option to which it
relates or at any time thereafter prior to the exercise or expiration of such
Option.
(e) Non-Transferable. The holder of a Stock Appreciation Right may
not transfer or assign the Stock Appreciation Right otherwise than by will or in
accordance with the laws of descent and distribution, and during a holder's
lifetime a Stock Appreciation Right may be exercisable only by the holder.
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ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance under
this Plan, the number of shares to which any outstanding Award relates, the
maximum number of shares that can be covered by Awards to each Employee and each
Non-Employee Director and the exercise price per share of Common Stock under any
outstanding Option shall be proportionately adjusted for any increase or
decrease in the total number of outstanding shares of Common Stock issued
subsequent to the effective date of this Plan resulting from a split,
subdivision or consolidation of shares or any other capital adjustment, the
payment of a stock dividend, or other increase or decrease in such shares
effected without receipt or payment of consideration by the Corporation. If,
upon a merger, consolidation, reorganization, liquidation, recapitalization or
the like of the Corporation, the shares of the Corporation's Common Stock shall
be exchanged for other securities of the Corporation or of another corporation,
each recipient of an Award shall be entitled, subject to the conditions herein
stated, to purchase or acquire such number of shares of Common Stock or amount
of other securities of the Corporation or such other corporation as were
exchangeable for the number of shares of Common Stock of the Corporation which
such optionees would have been entitled to purchase or acquire except for such
action, and appropriate adjustments shall be made to the per share exercise
price of outstanding Options. In the event the Corporation declares a special
cash dividend or return of capital in an amount per share which exceeds 10% of
the fair market value of a share of Common Stock as of the date of declaration,
the per share exercise price of all previously granted Awards which remain
unexercised as of the date of such declaration shall be proportionately adjusted
to give effect to such special cash dividend or return of capital as of the date
of payment of such special cash dividend or return of capital; provided that the
adjustments to the per shares exercise price shall satisfy the criteria set
forth in Emerging Issues Task Force 90-9 (or any successor thereto) so that the
adjustments do not result in compensation expense, and provided further that if
such adjustment with respect to incentive stock options would be treated as a
modification of the outstanding incentive stock options with the effect that,
for purposes of Section 422 and 425(h) of the Code, and the rules and
regulations thereunder, new incentive stock options would be deemed to be
granted, then no adjustment to the per share exercise price of outstanding
incentive stock options shall be made.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan with
respect to any shares of Common Stock as to which Awards have not been granted,
subject to any applicable regulatory requirements and any required stockholder
approval or any stockholder approval which the Board may deem to be advisable
for any reason, such as for the purpose of obtaining or retaining any statutory
or regulatory benefits under tax, securities or other laws or satisfying any
applicable stock exchange listing requirements. The Board may not, without the
consent of the holder of an Award, alter or impair any Award previously granted
or awarded under this Plan as specifically authorized herein.
ARTICLE XI
EMPLOYMENT RIGHTS
Neither the Plan nor the grant of any Awards hereunder nor any action taken
by the Committee or the Board in connection with the Plan shall create any right
on the part of any Employee or Non-Employee Director of the Corporation or a
Subsidiary Company to continue in such capacity.
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ARTICLE XII
WITHHOLDING
12.01 Tax Withholding. The Corporation may withhold from any cash
payment made under this Plan sufficient amounts to cover any applicable
withholding and employment taxes, and if the amount of such cash payment is
insufficient, the Corporation may require the Optionee to pay to the Corporation
the amount required to be withheld as a condition to delivering the shares
acquired pursuant to an Award. The Corporation also may withhold or collect
amounts with respect to a disqualifying disposition of shares of Common Stock
acquired pursuant to the exercise of an Incentive Stock Option, as provided in
Section 8.10(c).
12.02 Methods of Tax Withholding. The Board of Directors or the
Committee is authorized to adopt rules, regulations or procedures which provide
for the satisfaction of an Optionee's tax withholding obligation by the
retention of shares of Common Stock to which the Employee would otherwise be
entitled pursuant to an Award and/or by the Optionee's delivery of
previously-owned shares of Common Stock or other property.
ARTICLE XIII
EFFECTIVE DATE OF THE PLAN; TERM
13.01 Effective Date of the Plan. This Plan shall become effective on
the Effective Date, and Awards may be granted hereunder as of or after the
Effective Date and prior to the termination of the Plan, provided that no
Incentive Stock Option issued pursuant to this Plan shall qualify as such unless
this Plan is approved by the requisite vote of the holders of the outstanding
voting shares of the Corporation at a meeting of stockholders of the Corporation
held within twelve (12) months of the Effective Date.
13.02 Term of Plan. Unless sooner terminated, this Plan shall remain
in effect for a period of ten (10) years ending on the tenth anniversary of the
Effective Date. Termination of the Plan shall not affect any Awards previously
granted and such Awards shall remain valid and in effect until they have been
fully exercised or earned, are surrendered or by their terms expire or are
forfeited.
ARTICLE XIV
MISCELLANEOUS
14.01 Governing Law. To the extent not governed by federal law, this
Plan shall be construed under the laws of the State of Arkansas.
14.02 Pronouns. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun, and the singular shall include the plural.
A-10
APPENDIX B
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
RECOGNITION AND RETENTION PLAN AND TRUST AGREEMENT
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 First Federal Bancshares of Arkansas, Inc. (the "Corporation") hereby
establishes a Recognition and Retention Plan (the "Plan") and Trust (the
"Trust") upon the terms and conditions hereinafter stated in this Recognition
and Retention Plan and Trust Agreement (the "Agreement").
1.02 The Trustee hereby accepts this Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to retain personnel of experience and
ability in key positions by providing Employees and Non-Employee Directors of
the Corporation and of First Federal Bank of Arkansas, FA (the "Bank") with a
proprietary interest in the Corporation as compensation for their contributions
to the Corporation, the Bank, and any other Subsidiaries and as an incentive to
make such contributions in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Agreement with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronouns shall
include the feminine pronouns and the singular shall include the plural.
3.01 "Beneficiary" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
3.02 "Board" means the Board of Directors of the Corporation or of the
Bank.
3.03 "Change of Control of the Corporation" shall be deemed to have
occurred if: (i) any "person" as such term is used in Sections 13(d) and 14(d)
of the Exchange Act (other than the Corporation and any trustee or other
fiduciary holding securities under any employee benefit plan of the
Corporation), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 25% or more of the combined voting power of the
Corporation's then outstanding securities; (ii) during any period of two
consecutive years (not including any period prior to the adoption of the
Plan), individuals who at the beginning of such period constitute the Board of
Directors, and any new director whose election by the Board of Directors or
nomination for election by the Corporation's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who either
were directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority of the Board of Directors; (iii) the
stockholders of the Corporation approve a merger or consolidation of the
Corporation with any other corporation, other than a merger or consolidation
that would result in the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities
of the surviving entity) more than 50% of the combined voting power of the
voting securities of the Corporation outstanding immediately after such merger
or consolidation; or (iv) the stockholders of the Corporation approve a plan
of complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of the
Corporation's assets. If any of the events enumerated in clauses (i) through
(iv) occur, the Board shall determine the effective date of the Change in
Control resulting therefrom for purposes of the Plan.
3.04 "Code" means the Internal Revenue Code of 1986, as amended.
3.05 "Committee" means the committee appointed by the Board pursuant to
Article IV hereof.
3.06 "Common Stock" means shares of the common stock, $.01 par value per
share, of the Corporation.
3.07 "Disability" means any physical or mental impairment which qualifies
an Employee for disability benefits under the applicable long-term disability
plan maintained by the Corporation or any Subsidiary or, if no such plan
applies, which would qualify such Employee for disability benefits under the
Federal Social Security System.
3.08 "Effective Date" means the day upon which the Board approves this
Plan.
3.09 "Employee" means any person who is employed by the Corporation, the
Bank, or any Subsidiary, or is an officer of the Corporation, the Bank, or any
Subsidiary, including officers or other employees who may be directors of the
Corporation.
3.10 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
3.11 "Non-Employee Director" means a member of the Board who is not an
Employee, and shall include any individual who, at the date of adoption of the
Plan or any time thereafter, serves the Board in an advisory or emeritus
capacity.
3.12 "Plan Shares" or "Shares" means shares of Common Stock held in the
Trust which may be distributed to a Recipient pursuant to the Plan.
3.13 "Plan Share Award" or "Award" means a right granted under this Plan to
receive a distribution of Plan Shares upon completion of the service
requirements described in Article VII.
3.14 "Recipient" means an Employee or Non-Employee Director who receives a
Plan Share Award under the Plan.
3.15 "Retirement" means a termination of employment upon or after
attainment of age sixty (60) or such earlier age as may be specified in
applicable plans or policies of the Corporation, a Subsidiary or in a
Recipient's Plan Share Award.
3.16 "Subsidiary" means First Federal Bank of Arkansas, FA and any other
subsidiaries of the Corporation or the Bank which, with the consent of the
Board, agree to participate in this Plan.
3.17 "Trustee" means such firm, entity or persons approved by the Board of
Directors to hold legal title to the Plan for the purposes set forth herein.
B-2
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and interpreted
by the Committee, which shall consist of two or more members of the Board, each
of whom shall be a Non-Employee Director as defined in Rule 16b-3(b)(3)(i) of
the Exchange Act. The Committee shall have all of the powers allocated to it in
this and other Sections of the Plan. The interpretation and construction by the
Committee of any provisions of the Plan or of any Plan Share Award granted
hereunder shall be final and binding in the absence of action by the Board of
Directors. The Committee shall act by vote or written consent of a majority of
its members. Subject to the express provisions and limitations of the Plan, the
Committee may adopt such rules, regulations and procedures as it deems
appropriate for the conduct of its affairs. The Committee shall report its
actions and decisions with respect to the Plan to the Board at appropriate
times, but in no event less than one time per calendar year.
4.02 Role of the Board. The members of the Committee and the Trustee shall
be appointed or approved by, and will serve at the pleasure of, the Board. The
Board may in its discretion from time to time remove members from, or add
members to, the Committee, and may remove or replace the Trustee, provided that
any directors who are selected as members of the Committee shall be Non-Employee
Directors.
4.03 Limitation on Liability. No member of the Board or the Committee
shall be liable for any determination made in good faith with respect to the
Plan or any Plan Shares or Plan Share Awards granted under it. If a member of
the Board or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Corporation
shall, subject to the requirements of applicable laws and regulations, indemnify
such member against all liabilities and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Corporation and any Subsidiaries and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
4.04 Compliance with Laws and Regulations. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
ARTICLE V
CONTRIBUTIONS
5.01 Amount and Timing of Contributions. The Board shall determine the
amount (or the method of computing the amount) and timing of any contributions
by the Corporation and any Subsidiaries to the Trust established under this
Plan. Such amounts may be paid in cash or in shares of Common Stock and shall
be paid to the Trust at the designated time of contribution. No contributions
by Employees or Directors shall be permitted.
5.02 Investment of Trust Assets; Number of Plan Shares. Subject to Section
8.02 hereof, the Trustee shall invest all of the Trust's assets primarily in
Common Stock. The aggregate number of Plan Shares available for distribution
pursuant to this Plan shall be 206,150 shares of Common Stock, which shares
shall be purchased from the Corporation and/or from stockholders thereof by the
Trust with funds contributed by the Corporation. In the event that the Trust
receives cash pursuant to receipt of dividends on Common Stock held by the Trust
and unallocated to participants, then such funds may be used by the Trust to
purchase additional shares of Common Stock available for future award under this
Plan or the Committee or Board may distribute such
B-3
cash received by the Trust along with the Common Stock upon which it was
earned upon the award of such previously unallocated shares.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Awards to Non-Employee Directors. Plan Share Awards to Non-Employee
Directors shall be made to such persons and in such amounts as determined by the
Board of Directors of the Committee.
6.02 Awards to Employees. Plan Share Awards may be made to such Employees
as may be selected by the Board of Directors or the Committee. In selecting
those Employees to whom Plan Share Awards may be granted and the number of
Shares covered by such Awards, the Committee or the Board shall consider the
duties, responsibilities and performance of each respective Employee, his
present and potential contributions to the growth and success of the
Corporation, his salary and such other factors as shall be deemed relevant to
accomplishing the purposes of the Plan. The Board of Directors or the Committee
may but shall not be required to request the written recommendation of the Chief
Executive Officer and/or the President of the Corporation other than with
respect to Plan Share Awards to be granted to him or them, as the case may be.
6.03 Form of Allocation. As promptly as practicable after a determination
is made pursuant to Sections 6.01 or 6.02 that a Plan Share Award is to be
issued, the Board of Directors or the Committee shall notify the Recipient in
writing of the grant of the Award, the number of Plan Shares covered by the
Award, and the terms upon which the Plan Shares subject to the Award shall be
distributed to the Recipient. The date on which the Board of Directors or the
Committee makes the determination with respect to Plan Share Awards shall be
considered the date of grant of the Plan Share Award. The Board of Directors or
the Committee shall maintain records as to all grants of Plan Share Awards under
the Plan.
6.04 Allocations Not Required to any Specific Employee. Notwithstanding
anything to the contrary in Section 6.02 hereof, no Employee shall have any
right or entitlement to receive a Plan Share Award hereunder, such Awards being
at the total discretion of the Board of Directors or the Committee.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earning Plan Shares; Forfeitures.
(a) General Rules. Subject to the terms hereof, Plan Share Awards
shall be earned by a Recipient at the rate as determined by the Board or the
Committee pursuant to Article VI hereof. If the employment of an Employee or
service as a Non-Employee Director is terminated prior to the date such awards
are vested for any reason (except as specifically provided in subsections (b),
(c) and (d) below), the Recipient shall forfeit the right to any Shares subject
to the Award which have not theretofore been earned. In the event of a
forfeiture of the right to any Shares subject to an Award by an Employee, such
forfeited Shares shall become available for allocation pursuant to this Plan as
if no Award had been previously granted with respect to such Shares. No
fractional shares shall be distributed pursuant to this Plan.
(b) Exception for Terminations Due to Death, Disability or
Retirement. Notwithstanding the general rule contained in Section 7.01(a), all
Plan Shares subject to a Plan Share Award held by a Recipient whose employment
with or service to the Corporation or any Subsidiary terminates due to death,
Disability or Retirement shall be deemed earned as of the Recipient's last day
of employment with or service to the Corporation or any Subsidiary and shall be
distributed as soon as practicable thereafter.
B-4
(c) Exception for Terminations after a Change in Control of the
Corporation. Notwithstanding the general rule contained in Section 7.01(a), all
Plan Shares subject to a Plan Share Award held by a Recipient shall be deemed to
be earned in the event of a Change in Control of the Corporation.
(d) Revocation for Misconduct. Notwithstanding anything hereinafter
to the contrary, the Board may by resolution immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously awarded under
this Plan, to the extent Plan Shares have not been distributed hereunder,
whether or not yet earned, in the case of an Employee who is discharged from the
employ of the Corporation or any Subsidiary for cause (as hereinafter defined).
Termination for cause shall mean termination because of the Employee'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 final cease-and-desist order. Plan Share Awards granted to a
Non-Employee Director who is removed for cause pursuant to the Corporation's
Articles of Incorporation shall terminate as of the effective date of such
removal.
7.02 Distribution of Dividends. Any cash dividends or stock dividends
declared in respect of each unvested Plan Share Award will be held by the Trust
for the benefit of the Recipient on whose behalf such Plan Share Award is then
held by the Trust and such dividends, including any interest thereon, will be
paid out proportionately by the Trust to the Recipient thereof as soon as
practicable after the Plan Share Awards become earned. Any cash dividends or
stock dividends declared in respect of each vested Plan Share held by the Trust
will be paid by the Trust, as soon as practicable after the Trust's receipt
thereof, to the Recipient on whose behalf such Plan Share is then held by the
Trust. In the event that the Trust receives cash pursuant to receipt of
dividends on Common Stock held by the Trust and unallocated to participants then
such funds may be used by the Trust to purchase additional shares of Common
Stock available for future award under this Plan or the Committee or Board may
distribute such cash received by the Trust along with the Common Stock upon
which it was earned upon the award of such previously unallocated shares.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Plan Shares shall be
distributed to the Recipient or his Beneficiary, as the case may be, as soon as
practicable after they have been earned.
(b) Form of Distributions. All Plan Shares, together with any Shares
representing stock dividends, shall be distributed in the form of Common Stock.
One share of Common Stock shall be given for each Plan Share earned and
distributable. Payments representing cash dividends shall be made in cash.
(c) Withholding. The Trustee may withhold from any cash payment or
Common Stock distribution made under this Plan sufficient amounts to cover any
applicable withholding and employment taxes, and if the amount of a cash payment
is insufficient, the Trustee may require the Recipient or Beneficiary to pay to
the Trustee the amount required to be withheld as a condition of delivering the
Plan Shares. The Trustee shall pay over to the Corporation or any Subsidiary
which employs or employed such Recipient any such amount withheld from or paid
by the Recipient or Beneficiary.
(d) Restrictions on Selling of Plan Shares. Plan Share Awards may
not be sold, assigned, pledged or otherwise disposed of prior to the time that
they are earned and distributed pursuant to the terms of this Plan. Following
distribution, the Board of Directors or the Committee may require the Recipient
or his Beneficiary, as the case may be, to agree not to sell or otherwise
dispose of his distributed Plan Shares except in accordance with all then
applicable federal and state securities laws, and the Board of Directors or the
Committee may cause a legend to be placed on the stock certificate(s)
representing the distributed Plan Shares in order to restrict the transfer of
the distributed Plan Shares for such period of time or under such circumstances
as the Board of Directors or the Committee, upon the advice of counsel, may deem
appropriate.
B-5
7.04 Voting of Plan Shares. After a Plan Share Award has been made, the
Recipient shall be entitled to direct the Trustee as to the voting of the Plan
Shares which are covered by the Plan Share Award and which have not yet been
earned and distributed to him, subject to rules and procedures adopted by the
Committee for this purpose. All shares of Common Stock held by the Trust which
have not been awarded under a Plan Share Award and shares which have been
awarded as to which Recipients have not directed the voting shall be voted by
the Trustee in the same proportion as voted by the Trustee for shares allocated
and which the Trustee receives directions for such vote by Recipients.
ARTICLE VIII
TRUST
8.01 Trust. The Trustee shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the provisions
of the Plan and Trust and the applicable directions, rules, regulations,
procedures and policies established by the Board of Directors or the Committee
pursuant to the Plan.
8.02 Management of Trust. It is the intent of this Plan and Trust that the
Trustee shall have complete authority and discretion with respect to the
arrangement, control and investment of the Trust, and that the Trustee shall
invest all assets of the Trust in Common Stock to the fullest extent
practicable, except to the extent that the Trustee determine that the holding of
monies in cash or cash equivalents is necessary to meet the obligations of the
Trust. In performing their duties, the Trustee shall have the power to do all
things and execute such instruments as may be deemed necessary or proper,
including the following powers:
(a) To invest up to one hundred percent (100%) of all Trust assets in
Common Stock without regard to any law now or hereafter in force limiting
investments for trustees or other fiduciaries. The investment authorized herein
may constitute the only investment of the Trust, and in making such investment,
the Trustee is authorized to purchase Common Stock from the Corporation or from
any other source, and such Common Stock so purchased may be outstanding, newly
issued, or treasury shares.
(b) To invest any Trust assets not otherwise invested in accordance
with (a) above, in such deposit accounts, and certificates of deposit,
obligations of the United States Government or its agencies or such other
investments as shall be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any
time held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in
the name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be maintained
showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may in the
opinion of the Trustee be reasonable for the proper operation of the Plan and
Trust.
(f) To employ brokers, agents, custodians, consultants and
accountants.
(g) To hire counsel to render advice with respect to their rights,
duties and obligations hereunder, and such other legal services or
representation as the Trustee deems desirable.
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a dispute as
to the disposition thereof, whether in a segregated account or held in common
with other assets of the Trust.
B-6
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
8.03 Records and Accounts. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Board of Directors or the Committee.
8.04 Expenses. All costs and expenses incurred in the operation and
administration of this Plan shall be borne by the Corporation, or in the
discretion of the Corporation, the Trust.
8.05 Indemnification. Subject to the requirements of applicable laws and
regulations, the Corporation shall indemnify, defend and hold the Trustee
harmless against all claims, expenses and liabilities arising out of or related
to the exercise of the Trustee's powers and the discharge of its duties
hereunder, unless the same shall be due to the Trustee's gross negligence or
willful misconduct.
ARTICLE IX
MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number of Plan Shares
available for distribution pursuant to the Plan Share Awards and the number of
Shares to which any Plan Share Award relates shall be proportionately adjusted
for any increase or decrease in the total number of outstanding shares of Common
Stock issued subsequent to the effective date of the Plan resulting from any
split, subdivision or consolidation of shares or other capital adjustment, or
other increase or decrease in such shares effected without receipt or payment of
consideration by the Corporation.
9.02 Amendment and Termination of Plan. The Board may, by resolution, at
any time amend or terminate the Plan and the Trust (including amendments which
may result in the merger of the Plan or the Trust with and into other plans or
trusts of the Corporation or successor thereto), subject to any applicable
regulatory requirements and any required stockholder approval or any
stockholder approval which the Board may deem to be advisable for any reason,
such as for the purpose of obtaining or retaining any statutory or regulatory
benefits under tax, securities or other laws or satisfying any applicable
stock exchange listing requirements. The Board may not, without the consent
of the Recipient, alter or impair his Plan Share Award except as specifically
authorized herein. Upon termination of the Plan, the Recipient's Plan Share
Awards shall be distributed to the Recipient in accordance with the terms of
Article VII hereof.
9.03 Nontransferable. During the lifetime of the Recipient, Plan Shares
may only be earned by and paid to the Recipient who was notified in writing of
the Award pursuant to Section 6.03, provided that Plan Share Awards and rights
to Plan Shares shall be transferable by a Recipient to his or her spouse, lineal
ascendants, lineal descendants, or to a duly established trust. Plan Share
Awards so transferred may not again be transferred other than to the Recipient
who originally received the grant of Plan Share Awards or to an individual or
trust to whom such Recipient could have transferred Plan Share Awards pursuant
to this Section 9.03. Plan Share Awards which are transferred pursuant to this
Section 9.03 shall be subject to the same terms and conditions as would have
applied to such Plan Share Awards in the hands of the Recipient who originally
received the grant of such Plan Share Award. No Recipient or Beneficiary shall
have any right in or claim to any assets of the Plan or Trust, nor shall the
Corporation or any Subsidiary be subject to any claim for benefits hereunder.
9.04 Employment or Service Rights. Neither the Plan nor any grant of a
Plan Share Award or Plan Shares hereunder nor any action taken by the Trustee,
the Committee or the Board in connection with the Plan shall create any right on
the part of any Employee or Non-Employee Director to continue in such capacity.
B-7
9.05 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share Award, except as expressly provided in Sections 7.02 and
7.04 above, prior to the time said Plan Shares are actually earned and
distributed to him.
9.06 Governing Law. To the extent not governed by federal law, the Plan
and Trust shall be governed by the laws of the State of Arkansas.
9.07 Effective Date. This Plan shall be effective as of the Effective
Date, and Awards may be granted hereunder as of or after the Effective Date and
as long as the Plan remains in effect. Notwithstanding the foregoing or
anything to the contrary in this Plan, the implementation of this Plan and any
Awards granted pursuant hereto are subject to the receipt of any applicable
regulatory approvals or non-objections and approval of the Corporation's
stockholders.
9.08 Term of Plan. This Plan shall remain in effect until the earlier of
(1) ten (10) years from the Effective Date, (2) termination by the Board, or (3)
the distribution to Recipients and Beneficiaries of all assets of the Trust.
9.09 Tax Status of Trust. It is intended that the trust established hereby
be treated as a Grantor Trust of the Corporation under the provisions of Section
671 et seq. of the Code, as the same may be amended from time to time.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers and the corporate seal to be affixed
and duly attested, and the initial Trustees established pursuant hereto have
duly and validly executed this Agreement, all on this 12th day of March 1997.
FIRST FEDERAL BANCSHARES
OF ARKANSAS, INC.
By: /s/ Larry J. Brandt
--------------------------------------
Larry J. Brandt
President and Chief Operating Officer
ATTEST:
By: /s/ Carolyn M. Thomason
------------------------
Carolyn M. Thomason
Secretary
TRUSTEES
By: /s/ Frank L. Coffman, Jr.
--------------------------------------
Frank L. Coffman, Jr.
Trustee
By: /s/ Larry J. Brandt
--------------------------------------
Larry J. Brandt
Trustee
By: /s/ Carolyn M. Thomason
--------------------------------------
Carolyn M. Thomason
Trustee
B-8
VOTING INSTRUCTION BALLOT
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
The undersigned hereby instructs the Trustees of the Employee Stock
Ownership Plan and Trust ("ESOP") of First Federal Bancshares of Arkansas,
Inc. (the "Company") to vote, as designated below, all the shares of Common
Stock of the Company granted pursuant to the ESOP to the undersigned as of
March 11, 1997, at the Annual Meeting of Stockholders to be held at the
Comfort Inn located at 1210 Highway 62-65 North, Harrison, Arkansas on
Wednesday, May 7, 1997 at 10:00 a.m., Central Time, and any adjournment
thereof.
1. ELECTION OF DIRECTORS
Nominee for a one-year term: Larry J. Brandt
Nominees for a two-year term: James D. Heuer and
William F. Smith
Nominees for a three-year term: Frank L. Coffman, Jr.
and John P. Hammerschmidt
[ ] FOR [ ] WITHHOLD
AUTHORITY
NOTE: To withhold authority to vote for an individual nominee, strike a
line through that nominee's name. Unless authority to vote for
all of the foregoing nominees is withheld, this Proxy will be
deemed to confer authority to vote for each nominee whose name is
not struck.
2. PROPOSAL to adopt the Company's 1997 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL to adopt the Company's Recognition and Retention Plan and Trust.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL 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, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the Trustees are authorized to vote upon such other
business as may properly come before the meeting.
The Company's Board of Directors recommends a vote FOR the Election of
the Nominees for Director and for Proposals 2, 3 and 4. Such votes are
hereby solicited by the Company's Board of Directors.
Dated: , 1997
------------------------
-------------------------------------
Signature
If you return this voting instruction ballot properly signed but you do not
otherwise specify, shares will be voted for the Election of the Nominees for
Director and for Proposals 2, 3 and 4. If you do not return this card, your
shares will not be voted.
First Federal letterhead
March 24, 1997
TO: Participants in the Employee Stock Ownership Plan of First Federal
Bancshares of Arkansas, Inc.
As described in the attached materials, your proxy as a stockholder of First
Federal Bancshares of Arkansas, Inc. (the "Company") is being solicited in
connection with the proposals to be considered at the Company's upcoming
Annual Meeting of Stockholders. We hope you will take advantage of the
opportunity to direct the manner in which shares of Common Stock of the
Company allocated to your account under the Company's Employee Stock
Ownership Plan (the "Plan") will be voted.
Enclosed with this letter is the Proxy Statement, which describes the matters
to be voted upon, and a voting instruction ballot, which will permit you to
vote the shares allocated to your account. After you have reviewed the Proxy
Statement, we urge you to vote your shares held pursuant to the Plan by
marking, dating, signing and returning the enclosed voting instruction ballot
to the Plan Trustees, First Federal Bancshares of Arkansas, Inc. Employee
Stock Ownership Plan Trust, 200 West Stephenson, P.O. Box 550, Harrison,
Arkansas 72602 who will tabulate the votes. The Trustees will certify the
totals to the Company for the purpose of having those shares voted.
We urge each of you to vote, as a means of participating in the governance of
the affairs of the Company. If your voting instructions for the Plan are not
received, the shares allocated to your account will not be voted. While I
hope that you will vote in the manner recommended by the Board of Directors,
the most important thing is that you vote in whatever manner you deem
appropriate. Please take a moment to do so.
Please note the enclosed material relates only to those shares which have
been allocated to your account under the Plan. You will receive other voting
material for those shares owned by you individually and not under the Plan.
Sincerely,
Larry J. Brandt
President