SCHEDULE 14-A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
First Federal Bankshares, Inc.
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
|_| $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 transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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4) Proposed maximum aggregate value of transaction:
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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:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed: September ___, 2003
September 24, 2003
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of First Federal
Bankshares, Inc. (the "Company"), I cordially invite you to attend the 2003
Annual Meeting of Stockholders. The meeting will be held at 9:00 a.m., Iowa time
on October 30, 2003 at the Sioux City Convention Center, 801 4th Street, Sioux
City, Iowa.
The enclosed Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted. During the meeting we will also report on the
Company's fiscal 2003 financial and operating performance.
An important aspect of the meeting process is the stockholder vote on
corporate business items. I urge you to exercise your rights as a stockholder to
vote and participate in this process. Stockholders are being asked to consider
and vote upon the proposals to (i) elect three directors of the Company, (ii) to
ratify the appointment of independent auditors of the Company for the fiscal
year ending June 30, 2004, (iii) to amend the Company's 1999 Stock Option Plan
and (iv) to amend the Company's 1999 Recognition and Retention Plan. The Board
has carefully considered these proposals and believes that their approval is in
the best interests of the Company and its stockholders. Accordingly, your Board
of Directors unanimously recommends that you vote for each of these proposals.
I encourage you to attend the meeting in person. Whether or not you attend
the meeting, I hope that you will read the enclosed Proxy Statement and then
complete, sign and date the enclosed proxy card and return it in the postage
prepaid envelope provided. Returning a properly executed and dated proxy card
will save the Company additional expense in soliciting proxies and will ensure
that your shares are represented. Please note that you may vote in person at the
meeting even if you have previously returned the proxy.
Thank you for your attention to this important matter.
Sincerely,
Barry Backhaus
President and Chief Executive Officer
FIRST FEDERAL BANKSHARES, INC.
329 Pierce Street
Sioux City, Iowa 51101
(712) 277-0200
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on October 30, 2003
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of First Federal Bankshares, Inc. will be held at the Sioux City
Convention Center, 801 4th Street, Sioux City, Iowa at 9:00 a.m., Iowa time, on
October 30, 2003.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of three directors of the Company;
2. The ratification of the appointment of McGladrey & Pullen, LLP as
the auditors of the Company for the fiscal year ending June 30,
2004;
3. The amendment of the Company's 1999 Stock Option Plan to revise the
provisions relating to the vesting of options pursuant to such plan;
4. The amendment of the Company's 1999 Recognition and Retention Plan
to revise the provisions relating to the vesting of awards pursuant
to such plan;
and such other matters as may properly come before the Meeting, or any
adjournments thereof. The Board of Directors is not aware of any other business
to come before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on the
date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on September 5, 2003
(the "Record Date") are the stockholders entitled to vote at the Meeting and any
adjournments thereof. A list of stockholders entitled to vote at the Meeting
will be available at 329 Pierce Street, Sioux City, Iowa for a period of ten
days prior to the Meeting and will also be available for inspection at the
Meeting.
You are requested to complete and sign the enclosed form of proxy, which
is solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The proxy will not be used if you attend and vote at the
Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
Suzette F. Hoevet
Secretary
Sioux City, Iowa
September 24, 2003
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
WITHIN THE UNITED STATES.
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PROXY STATEMENT
First Federal Bankshares, Inc.
329 Pierce Street
Sioux City, Iowa 51101
(712) 277-0200
ANNUAL MEETING OF STOCKHOLDERS
To Be Held October 30, 2003
This Proxy Statement is furnished in connection with the solicitation on
behalf of the Board of Directors of First Federal Bankshares, Inc. (the
"Company"), the parent company of First Federal Bank (the "Bank" or "First
Federal"), of proxies to be used at the Annual Meeting of Stockholders of the
Company (the "Meeting") which will be held at the Sioux City Convention Center,
801 4th Street, Sioux City, Iowa on October 30, 2003, at 9:00 a.m., Iowa time,
and all adjournments of the Meeting. The accompanying Notice of Annual Meeting
and this Proxy Statement are first being mailed to stockholders on or about
September 24, 2003.
At the Meeting, stockholders of the Company are being asked to consider
and vote upon the proposals to elect three directors of the Company, to ratify
the appointment of McGladrey & Pullen, LLP as auditors of the Company for the
fiscal year ending June 30, 2004, to amend the Company's 1999 Stock Option Plan
to revise the provisions relating to the vesting of options pursuant to such
plan and to amend the Company's 1999 Recognition and Retention Plan to revise
the provisions relating to the vesting of awards pursuant to such plan.
Vote Required and Proxy Information
All shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock"), represented at the Meeting by properly executed proxies
received prior to or at the Meeting, and not revoked, will be voted at the
Meeting in accordance with the instructions thereon. If no instructions are
indicated, properly executed proxies will be voted for the proposals set forth
in this Proxy Statement. The Company does not know of any matters, other than as
described in the Notice of Annual Meeting, that are to come before the Meeting.
If any other matters are properly presented at the Meeting for action, the
persons named in the enclosed form of proxy and acting thereunder will have the
discretion to vote on such matters in accordance with their best judgment.
The holders of a majority of all of the shares of the Company's Common
Stock entitled to vote at the Meeting, present in person or by proxy, shall
constitute a quorum for all purposes. Abstentions and broker non-votes are
counted for purposes of determining a quorum. In the event there are not
sufficient votes for a quorum, or to approve or ratify any matter being
presented at the Meeting, the Meeting may be adjourned in order to permit the
further solicitation of proxies.
As to the election of directors, the proxy card being provided by the
Board of Directors enables a stockholder to vote FOR the election of the
nominees proposed by the Board, or to WITHHOLD AUTHORITY to vote for one or more
of the nominees being proposed. Under Delaware law and the Company's Certificate
of Incorporation and Bylaws, directors are elected by a plurality of votes cast,
without regard to either broker non-votes or proxies as to which authority to
vote for the nominees being proposed is withheld.
As to the ratification of the appointment of McGladrey & Pullen, LLP as
independent auditors of the Company, by checking the appropriate box, a
stockholder may: (i) vote FOR the item; (ii) vote AGAINST the item; or (iii)
ABSTAIN from voting on the item. Under Delaware law and the Company's
Certificate of Incorporation and Bylaws, the ratification of this matter shall
be determined by a majority of the votes cast without regard to broker non-votes
or proxies marked ABSTAIN.
As to the amendment of the Company's 1999 Stock Option Plan, by checking
the appropriate box, a stockholder may: (i) vote FOR the item; (ii) vote AGAINST
the item; or (iii) ABSTAIN from voting on the item.
Under Delaware law and the Company's Certificate of Incorporation and Bylaws,
the approval of this matter shall be determined by a majority of the votes cast
FOR or AGAINST, without regard to broker non-votes or proxies marked ABSTAIN.
As to the amendment of the Company's 1999 Recognition and Retention Plan,
by checking the appropriate box, a stockholder may: (i) vote FOR the item; (ii)
vote AGAINST the item; or (iii) ABSTAIN from voting on the item. Under Delaware
law and the Company's Certificate of Incorporation and Bylaws, the approval of
this matter shall be determined by a majority of the votes cast FOR or AGAINST,
without regard to broker non-votes or proxies marked ABSTAIN.
Proxies solicited hereby will be returned to the Company and will be
tabulated by Inspectors of Election designated by the Board of Directors.
A proxy given pursuant to the solicitation may be revoked at any time
before it is voted. Proxies may be revoked by: (i) filing with the Secretary of
the Company at or before the Meeting a written notice of revocation bearing a
later date than the proxy; (ii) duly executing a subsequent proxy relating to
the same shares and delivering it to the Secretary of the Company at or before
the Meeting; or (iii) attending the Meeting and voting in person (although
attendance at the Meeting will not in and of itself constitute revocation of a
proxy). Any written notice revoking a proxy should be delivered to Suzette F.
Hoevet, Secretary, First Federal Bankshares, Inc., 329 Pierce Street, Sioux
City, Iowa 51101.
In accordance with the provisions of the Company's Certificate of
Incorporation, record holders of Common Stock who beneficially own in excess of
10% of the outstanding shares of Common Stock (the "Limit") are not entitled to
any vote with respect to the shares held in excess of the Limit. The Company's
Certificate of Incorporation authorizes the Board of Directors (i) to make all
determinations necessary or desirable to implement the Limit, including
determining whether persons or entities are acting in concert, and (ii) to
demand that any person who is reasonably believed to beneficially own stock in
excess of the Limit supply information to the Company to enable the Board of
Directors to implement and apply the Limit.
Voting Securities and Certain Holders Thereof
Stockholders of record as of the close of business on September 5, 2003
will be entitled to one vote for each share of Common Stock then held. As of
that date, the Company had 3,767,691 shares of Common Stock issued and
outstanding. The following table sets forth information as of September 5, 2003
regarding share ownership of those persons or entities known by management to
own beneficially more than five percent of the issued and outstanding Common
Stock and of all directors and executive officers of the Company as a group.
This information is based solely upon information supplied to the Company and
the filings required pursuant to the Securities Exchange Act of 1934.
Shares
Beneficially Percent
Beneficial Owner Owned of Class
- ----------------------------------------------- ------------ --------
First Federal Employee Stock Ownership Plan (1) 279,852 7.43%
329 Pierce Street
Sioux City, Iowa 51101
Tontine Financial Partners, L.P. 387,900 10.30%
Tontine Management, L.L.C.
Jeffrey L. Gendell
55 Railroad Avenue, 3rd Floor
Greenwich, Connecticut 06830
Directors and executive officers of the Company as a group (9 persons) 327,107(2) 8.68%
(footnotes on following page)
2
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(1) The amount reported represents shares held by the Employee Stock Ownership
Plan ("ESOP"), 154,164 shares of which have been allocated to accounts of
participants. First Bankers Trust Company, N.A. of Quincy, Illinois, the
trustee of the ESOP, may be deemed to beneficially own the shares held by
the ESOP that have not been allocated to accounts of participants.
Participants in the ESOP are entitled to instruct the trustee as to the
voting of shares allocated to their accounts under the ESOP. Unallocated
shares held in the ESOP's suspense account are voted by the trustee in the
same proportion as allocated shares voted by participants.
(2) Amount includes shares held directly, as well as shares held jointly with
family members, shares held in retirement accounts, shares held in a
fiduciary capacity or by certain family members, with respect to which
shares the holder may be deemed to have sole or shared voting and/or
investment power. The amount above excludes options that have not vested
and do not vest within 60 days of September 5, 2003.
PROPOSAL I - ELECTION OF DIRECTORS
The Company's Board of Directors is presently composed of eight members,
each of whom is also a director of the Bank. The directors are divided into
three classes. Directors of the Company are generally elected to serve for
three-year terms which are staggered to provide for the election of
approximately one-third of the directors each year. Three directors will be
elected at the Meeting to serve for three-year terms and until their respective
successors shall have been elected and shall qualify.
The following table sets forth certain information regarding the Company's
Board of Directors, including their terms of office and nominees for election as
directors. It is intended that the proxies solicited on behalf of the Board of
Directors (other than proxies in which the vote is withheld as to the nominee)
will be voted at the Meeting for the election of the nominees identified in the
following table. If any nominee is unable to serve, the shares represented by
all such proxies will be voted for the election of such substitute as the Board
of Directors may recommend. At this time, the Board of Directors knows of no
reason why any nominee might be unable to serve, if elected. Except as described
herein, there are no arrangements or understandings between any director or
nominee and any other person pursuant to which such director or nominee was
selected.
Current Shares of Common
Age at Term Stock Beneficially Percent
June 30, Director to Owned at of
Name(1) 2003 Position(s) Held Since(2) Expire September 5, 2003(3) Class
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NOMINEES FOR TERMS TO EXPIRE IN 2006
Jon G. Cleghorn 61 Executive Vice President, 1997 2003 72,154(8) 1.92%
Chief Operating Officer and
Director
Steven L. Opsal 49 Executive Vice President 1998 2003 63,354(9) 1.68%
and Director
David Van Engelenhoven 60 Director 1993 2003 10,302(4) *
DIRECTORS CONTINUING IN OFFICE
Barry E. Backhaus 58 President, Chief Executive 1987 2004 123,927(6) 3.29%
Officer and Chairman of the
Board
David S. Clay 45 Director 1998 2004 16,614(7) *
Arlene T. Curry, J.D. 45 Director 2002 2005 3,000(4) *
Gary L. Evans 64 Director 1989 2005 24,756(5) *
Allen J. Johnson 64 Director 1993 2005 11,000(4) *
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* Less than 1%.
(1) The mailing address for each person listed is 329 Pierce Street, Sioux
City, Iowa 51101.
(2) In certain cases, reflects initial appointment to the Board of Directors
of the Bank or its mutual predecessor, First Federal Savings and Loan
Association of Sioux City, as the case may be.
(footnotes continued on following page)
3
(3) Includes all shares of Common Stock held directly as well as by spouses
and minor children, in trust and other indirect ownership, over which
shares the directors effectively exercise sole or shared voting and/or
investment power. Includes shares granted under the 1999 Recognition and
Retention Plan (a restricted stock plan, described below), which are
subject to future vesting but as to which voting may currently be
directed.
(4) Includes 1,000 shares subject to options under the 1999 Stock Option Plan
that have vested or that vest within 60 days of the Record Date.
(5) Includes 2,000 shares subject to options under the 1999 Stock Option Plan
that have vested or that vest within 60 days of the Record Date.
(6) Includes 32,000 shares subject to options under the 1999 Stock Option Plan
that have vested or that vest within 60 days of the Record Date.
(7) Includes 823 and 4,000 shares subject to options under the 1992 Directors'
Plan and the 1999 Stock Option Plan, respectively, that have vested or
that vest within 60 days of the Record Date.
(8) Includes 20,000 shares subject to options under the 1999 Stock Option Plan
that have vested or that vest within 60 days of the Record Date.
(9) Includes 6,588 and 20,000 shares subject to options under the 1992 and
1999 Stock Option Plans, respectively, that have vested or that vest
within 60 days of the Record Date.
The business experience of each director is set forth below. All directors
have held their present positions for at least the past five years, except as
otherwise indicated.
Board of Directors
Barry E. Backhaus has been President and Chief Executive Officer of the
Bank since 1990 and Chairman of the Board since 1997; he has been affiliated
with the Bank since 1969. Mr. Backhaus has been President, Chief Executive
Officer and Chairman of the Board of the Company since its formation in 1998.
David S. Clay is Vice President and Treasurer of Grinnell College,
Grinnell, Iowa.
Jon G. Cleghorn has been Executive Vice President of the Bank since 1990
and has been affiliated with the Bank in various capacities since 1974. Mr.
Cleghorn has been Executive Vice President and Chief Operating Officer of the
Company since its formation in 1998.
Arlene T. Curry, JD, serves as Executive Director of The Kind World
Foundation, Dakota Dunes, South Dakota, and Senior Counsel for Waitt Media,
Inc., a TV and radio broadcasting network. From 1995 to 1999, Ms. Curry served
as Vice President of Government Relations for the Siouxland Chamber of Commerce.
Gary L. Evans is the retired President and Chief Executive Officer of
Sioux Honey Association.
Allen J. Johnson is the retired President and Chief Executive Officer of
Great West Casualty Company, a property and casualty company located in South
Sioux City, Nebraska.
Steven L. Opsal is Executive Vice President of the Bank. Mr. Opsal was
previously the President and Chief Executive Officer of Grinnell Federal Savings
Bank and GFS Bancorp, Inc. prior to their merger into the Bank. Mr. Opsal has
been Executive Vice President of the Company since its formation in 1998.
David Van Engelenhoven is the President of Van Engelenhoven Agency, Inc.,
an insurance agency located in Orange City, Iowa.
Meetings and Committees of the Board of Directors
The business of the Company's Board of Directors is conducted through
meetings and activities of the Board and its committees. During the fiscal year
ended June 30, 2003, the Board of Directors held eight regular meetings. During
the fiscal year ended June 30, 2003, no directors attended fewer than 75 percent
of the total meetings of the Board of Directors and committees on which such
director served.
The Board of Directors of the Company maintains an Audit Committee and a
Compensation and Benefits Committee.
The Compensation and Benefits Committee consists of Directors David S.
Clay, Gary L. Evans, Arlene T. Curry and David Van Engelenhoven. The Committee
meets to review the performance of officers and employees and determines
compensation and benefits programs and adjustments. The Committee met five times
in fiscal 2003.
4
The Audit Committee of the Company consists of Directors David S. Clay,
Allen J. Johnson and David Van Engelenhoven. The Audit Committee met four times
in fiscal 2003. The Audit Committee of the Board of Directors of the Company
serves as the representative of the Board for general oversight of the Company's
financial accounting and reporting process, systems of internal controls
regarding finance, accounting and legal compliance and monitoring the
independence and performance of the Company's independent auditors and internal
auditing department. The Company's management has primary responsibility for
preparing the Company's financial statements and the Company's financial
reporting process. The Company's independent accountants, KPMG LLP, are
responsible for expressing an opinion on the conformity of the Company's
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America. The Board of Directors adopted a
written Charter for the Audit Committee in May 2000, which was revised in
September 2001.
Audit Committee Report
As part of its responsibilities, the Audit Committee hereby reports the
following:
1. The Audit Committee has reviewed and discussed the audited financial
statements with the Company's management.
2. The Audit Committee has discussed with the independent accountants
the matters required to be discussed by SAS 61 (Codification of
Statements on Auditing Standards, AU 380).
3. The Audit Committee has received the written disclosures and the
letter from independent accountants required by Independence
Standards Board Standard No. 1, Independence Discussions with Audit
Committees, and has discussed with the independent accountants the
independent accountants' independence.
4. Based on review and discussions referred to in paragraph 1 through 3
above, the Audit Committee recommended to the Board of Directors of
the Company, and the Board has approved, that the audited financial
statements be included in the Company's annual report on Form 10-K
for the fiscal year ended June 30, 2003, for filing with the
Securities and Exchange Commission. In addition, the Audit Committee
recommended that the Board of Directors appoint McGladrey & Pullen,
LLP as the Company's independent auditors for the fiscal year ending
June 30, 2004, subject to the ratification of this appointment by
the stockholders.
Each of the members of the Audit Committee is independent as defined under
the listing standards of the National Association of Securities Dealers, Inc.
This report shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporates this information by reference.
This report shall not otherwise be deemed filed under such Acts.
The undersigned members of the Audit Committee have submitted this report.
David S. Clay, Chairman
Allen J. Johnson
David Van Engelenhoven
Ownership Reports by Officers and Directors
The Common Stock of the Company is registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934 (the "Exchange Act"). The officers and
directors of the Company and beneficial owners of greater than 10% of the
Company's Common Stock ("10% beneficial owners") are required to file reports on
Forms 3, 4 and 5 with the Securities and Exchange Commission (the "SEC")
disclosing changes in beneficial ownership of the Common Stock. SEC rules
require disclosure in the Company's proxy statement of the failure of an
officer, director or 10% beneficial owner of the Company's Common Stock to file
a Form 3, 4 or 5 on a timely basis. Based on the
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Company's review of such ownership reports, no officer or director of the
Company failed to file such ownership reports on a timely basis for the fiscal
year ended June 30, 2003.
Directors' Compensation
Each non-employee member of the Board of Directors of First Federal
received fees of $750 for each meeting attended in fiscal 2003. Each
non-employee member of Board committees was paid $250 for each committee meeting
attended during fiscal 2003. During the fiscal year ended June 30, 2003, First
Federal paid a total of $50,250 in directors' and committee fees, which amounts
included fees deferred at the election of directors pursuant to the Deferred
Compensation Plan for Directors. See "Benefits--Deferred Compensation Plan for
Directors."
In addition to the foregoing fees, First Federal pays annual retainer fees
of $6,000 for each non-employee director. Such retainer fees are paid on a
quarterly basis.
No separate compensation was paid to directors for service on the Board of
Directors or Board Committees of the Company.
Benefits
Pension Plan. First Federal enrolls all regular full-time employees who
have attained the age of 21 and completed one year of service of 1000 hours or
more with First Federal, in a defined benefit non-contributory pension plan. The
pension plan provides for monthly payments to or on behalf of each covered
employee upon the employee's retirement. These payments are calculated in
accordance with a formula based on the employee's "average annual compensation,"
which is defined as the highest average of eligible compensation for five
consecutive calendar years of employment.
The formula for determining normal retirement allowance is: 1.5%* X years
of benefit service X high 5 average salary = regular annual allowance.
Under the plan, the Bank makes an annual contribution for the benefit of
eligible employees computed on an actuarial basis. The plan was in a fully
funded status for a significant number of years, but contributions have been
required in fiscal year 2003 and are anticipated to continue in fiscal year
2004. Employee benefits under the plan vest as designated in the schedule below:
Completed Years Vested
of Employment Percentages
--------------- -----------
Fewer than 5 ............................... 0%
5 or more................................... 100%
- ----------
*2% on all accrued benefits through September 1, 1996.
6
The following table illustrates regular annual allowance amounts at age 65
under the regular retirement benefit plan provisions available at various levels
of compensation and years of benefit service (figured on the formula shown
above):
Years of Benefit Service
-----------------------------------------------------------------------
Average Salary 10 15 20 25 30
----------------------------------------------------------------------------------------------
$ 20,000 $ 3,000 $ 4,500 $ 6,000 $ 7,500 $ 9,000
$ 30,000 $ 4,500 $ 6,750 $ 9,000 $11,250 $13,500
$ 50,000 $ 7,500 $11,250 $15,000 $18,750 $22,500
$ 75,000 $11,250 $16,875 $22,500 $28,125 $33,750
$ 100,000 $15,000 $22,500 $30,000 $37,500 $45,000
$ 150,000 $22,500 $33,750 $45,000 $56,250 $67,500
As of June 30, 2003, Mr. Backhaus had 32 years of benefit service, Mr.
Cleghorn had 27 years of benefit service, and Mr. Opsal had 27 years of benefit
service under the pension plan.
Employee Stock Ownership Plan and Trust. The Bank has established the
Employee Stock Ownership Plan (the "ESOP") for eligible employees. The ESOP is a
tax-qualified plan subject to the requirements of the Employee Retirement Income
Security Act of 1974 ("ERISA") and the Internal Revenue Code of 1986, as amended
(the "Code"). Employees with a 12 month period of employment with the Bank
during which they worked at least 1,000 hours and who have attained age 21 are
eligible to participate. Shares purchased by the ESOP are held in a suspense
account for allocation among participants.
Contributions to the ESOP and shares released from the suspense account
are allocated among participants on the basis of compensation in the year of
allocation, up to an annual adjusted maximum level of compensation. Benefits
generally become 100% vested after five years of credited service. Participants
were credited for years of service with the Bank prior to the effective date of
the ESOP. Forfeitures are reallocated among remaining participating employees in
the same proportion as contributions. Benefits may be payable upon death,
retirement, early retirement, disability, or separation from service.
The Compensation and Benefits Committee of the Board of Directors
administers the ESOP. The committee may instruct the trustee of the ESOP
regarding investment of funds contributed to the ESOP. The ESOP trustee must
vote all allocated shares held in the ESOP in accordance with the instructions
of the participating employees. Under the ESOP, unallocated shares and shares
held in the suspense account will be voted in a manner calculated to most
accurately reflect the instructions the ESOP trustee has received from
participants regarding allocated stock, subject to and in accordance with the
fiduciary duties under ERISA owed by the trustee to the ESOP participants.
Stock Option Plans. In 1992, the Board of Directors of the Bank adopted
the First Federal Savings Bank of Siouxland 1992 Incentive Stock Option Plan
(the "1992 Stock Option Plan") and the 1992 Stock Option Plan for Outside
Directors (the "Directors' Plan"). In connection with the formation of the
Company, options under such plans to purchase common stock of the Bank were
converted into options to purchase the Company's Common Stock. All officers and
key employees of the Company, the Bank and its subsidiaries are eligible to
participate in the 1992 Stock Option Plan. Only non-employee directors are
eligible to participate in the Directors' Plan. In 1999, the Board of Directors
of the Company adopted the 1999 Stock Option Plan (the "1999 Stock Option
Plan"), which was approved by Company stockholders in October 1999. Officers,
employees and non-employee directors of the Company, the Bank and its
subsidiaries are all eligible to participate in the 1999 Stock Option Plan.
Pursuant to the 1992 Stock Option Plan, the Directors' Plan and the 1999
Stock Option Plan, stock options for 164,353, 41,088 and 263,500 shares,
respectively, were eligible for issuance to plan participants. Pursuant to these
option plans, grants may be made of (i) options to purchase Common Stock
intended to qualify as incentive stock options under Section 422 of the Code,
(ii) options that do not so qualify ("non-qualified options"), and (iii) reload
options, dividend equivalent rights and "Limited Rights" (described below) that
are exercisable only upon a change in control of the Company. Incentive stock
options may only be granted to employees of the
7
Company, the Bank or an affiliate of the Company or the Bank. Non-employee
directors may be granted non-qualified stock options.
The grant of awards under the 1992 Stock Option Plan was determined by a
committee of the Board of Directors consisting of the four non-employee
directors serving on the Compensation and Benefits Committee. The grant of
awards under the 1999 Stock Option Plan is determined by a committee of the
Board of Directors consisting of (i) at least two non-employee directors of the
Company or (ii) the entire Board of the Company. With respect to the Directors'
Plan, all options were granted at the time of the implementation of the plan.
Each then director was granted non-qualified options to purchase 3,903 shares
and the Chairman of the Board received options for an additional 3,903 shares of
common stock.
In granting options to plan participants, the Compensation and Benefits
Committee considers, among other things, position and years of service, and the
value of the individual's services to the Company and the Bank. Options are
exercisable on a cumulative basis in equal installments at a rate prescribed by
the Committee; provided, however, that all options are 100% exercisable in the
event the optionee terminates his employment due to death or disability. In
addition, options under the 1992 Stock Option Plan also are 100% exercisable in
the event the optionee terminates his employment due to retirement or in the
event of a change-in-control of the Company or the Bank. The exercise price may
be paid in cash or Common Stock. Under the 1992 Stock Option Plan, the Company
may issue replacement options in exchange for previously granted non-statutory
options at exercise prices that may be less than the previous exercise price,
but may not be less than 85% of the fair market value of the Common Stock on the
date such replacement options are granted.
The term of stock options generally does not exceed 10 years from the date
of grant. No incentive stock option granted in connection with the plans is
exercisable more than three months after the date on which the optionee ceases
to perform services for the Bank or the Company for any reason other than death,
disability, retirement, in connection with a change in control, or termination
for cause. In the case of the 1992 Stock Option Plan, incentive stock options
may be exercised for up to one year in the event of death, disability,
retirement or a change-in-control of the Company, and for up to five years in
the case of the 1999 Stock Option Plan. However, in the case of the 1992 Stock
Option Plan, if an optionee ceases to perform services for the Bank or the
Company due to retirement or following a change in control, any incentive stock
options exercised more than three months following the date the optionee ceases
to perform services shall be treated as a non-statutory stock option as
described above. In the case of the 1999 Stock Option Plan, if an optionee
ceases to perform services for the Bank or the Company due to disability, any
incentive stock options exercised more than one year following the date the
optionee ceases to perform services shall be treated as a non-statutory stock
option as described above. Incentive stock options exercised by the heirs or
devisees of a deceased optionee are eligible for incentive option treatment if
the optionee's death occurred while employed or within three months of
termination of employment. Options granted under the Directors' Plan expire upon
the earlier of 10 years following the date of grant or one year following the
date the optionee ceases to be a director.
Pursuant to the 1992 Stock Option Plan and the 1999 Stock Option Plan, the
Compensation and Benefits Committee may grant Limited Rights to employees
simultaneously with the grant of any option. A Limited Right gives the option
holder the right, upon a change in control of the Company or the Bank, to
receive the excess of the market value of the shares represented by the Limited
Rights on the date exercised over the exercise price. Limited Rights generally
will be subject to the same terms and conditions and exercisable to the same
extent as stock options, as described above. Payment upon exercise of a Limited
Right will be in cash. Limited Rights may be granted at the time of, and must be
related to, the grant of a stock option. Upon the exercise of a Limited Right,
the related option will cease to be exercisable. If a Limited Right is granted
with and related to an incentive stock option, the Limited Right must satisfy
all the restrictions and limitations to which the related incentive stock option
is subject.
The 1999 Stock Option Plan provides for dividend equivalent rights, which
may also be granted at the time of the grant of a stock option. Dividend
equivalent rights entitle the option holder to receive an amount of cash at the
time that certain extraordinary dividends are declared equal to the amount of
the extraordinary dividend multiplied by the number of shares of common stock
underlying the unexercised portion of the related options. For these purposes,
an extraordinary dividend is defined as any dividend paid on shares of Common
Stock where the
8
rate of dividend exceeds the Bank's weighted average cost of funds on
interest-bearing liabilities for the current and preceding three quarters.
The 1999 Stock Option Plan also provides for reload options, which may
also be granted at the time of the grant of a stock option. Reload options
entitle the option holder, who has delivered shares that he or she owns as
payment of the exercise price for option stock, to a new option to acquire
additional shares equal in amount to the shares he or she has traded in to
satisfy the option exercise price. Reload options may also be granted to replace
option shares retained by the employer for payment of the option holder's
withholding tax. The option price at which additional shares of stock can be
purchased by the option holder through the exercise of a reload option is equal
to the market value of the previously owned stock at the time it was surrendered
to the employer. The option period during which the reload option may be
exercised expires at the same time as that of the original option that the
holder has exercised.
Shares as to which awards may be granted under the plans, and shares then
subject to awards, will be adjusted by the Compensation and Benefits Committee
in the event of any merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, combination or exchange of shares or other change
in the corporate structure of the Company without receipt of payment or
consideration by the Company.
Shares issued upon the exercise of a stock option may be either authorized
but unissued shares, or reacquired shares held by the Company as treasury stock.
Any shares subject to an award that expires or is terminated unexercised will
again be available for issuance under the respective plan. Generally, in the
discretion of the Compensation and Benefits Committee, all or any non-qualified
stock options granted under a stock option plan may be transferable by the
participant but only to the persons or classes of persons determined by the
Committee. No other award or any other right or interest therein is assignable
or transferable except under limited exceptions set forth in the option plan.
Set forth below is certain information regarding options granted to the
Named Executive Officers during fiscal 2003.
======================================================================================================================
OPTION GRANTS IN LAST FISCAL YEAR
======================================================================================================================
Individual Grants
- ----------------------------------------------------------------------------------------------------------------------
Potential Realized Value at Assumed
Percent of Total Annual Rates of Stock Price
Options Granted Appreciation for Option Term
Options to Employees in Exercise Expiration -----------------------------------
Name Granted FY 2003 Price Date 5%(1) 10%(1)
- ----------------------------------------------------------------------------------------------------------------------
Colin D. Anderson 10,000 50% $14.25 11/04/2012 $89,617 $227,108
======================================================================================================================
(1) The dollar amounts are based on assumed 5% and 10% annual rates of
appreciation in accordance with the proxy statement disclosure
requirements of the Securities and Exchange Commission. These amounts
should not be viewed as, and are not intended to be, a forecast of
possible future appreciation, if any, in the Company's stock price.
The table below sets forth certain information with respect to options
exercised by named executive officers in fiscal 2003.
======================================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
======================================================================================================================
Number of Unexercised Value of Unexercised
Options at In-The-Money Options at
Fiscal Year-End Fiscal Year-End
Shares Acquired Value ------------------------------------------------------
Name Upon Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
Barry E. Backhaus -- $-- 24,000/16,000 $201,360 / $134,240
- ----------------------------------------------------------------------------------------------------------------------
Jon G. Cleghorn -- $-- 15,000/10,000 $125,850 / $83,900
- ----------------------------------------------------------------------------------------------------------------------
Steven L. Opsal -- $-- 21,588/10,000 $125,850 / $83,900
- ----------------------------------------------------------------------------------------------------------------------
Colin D. Anderson -- $-- --/10,000 $--/ $83,900
======================================================================================================================
9
Recognition and Retention Plan. In 1999, the Company established the 1999
Recognition and Retention Plan (the "1999 Recognition Plan"), which was approved
by the Company stockholders in October 1999. The Bank provided sufficient funds
for the 1999 Recognition Plan to acquire 79,050 authorized-but-unissued shares
of Common Stock of the Company.
Key employees and non-employee directors of the Company and the Bank are
eligible to participate in the 1999 Recognition Plan. The plan is intended to
provide plan participants with a proprietary interest in the Company in a manner
designed to encourage such persons to remain with these entities and to provide
further incentives to achieve corporate objectives.
The non-employee directors of the Company's Compensation and Benefits
Committee administer the plan and make awards under the plan. Awards are granted
in the form of shares of Common Stock held by the plan. Awards are
nontransferable and nonassignable and the shares awarded are earned (i.e.,
become vested) at a rate or rates determined by the Committee. The Committee
members may provide for a less or more rapid earnings rate with respect to
awards granted under the plan. Awards become fully vested upon termination of
employment due to death or disability. Where an officer terminates employment
with the Company or the Bank for any other reason, the officer's nonvested
awards will be forfeited.
When shares become vested, the participants will recognize income equal to
the fair market value of the Common Stock at that time. The amount of income
recognized by a participant will be a deductible expense for federal income tax
purposes for the Company. Under the 1999 Recognition Plan, unvested shares are
held by the Company in escrow. Dividends on unvested shares are distributed to
participants when paid. In addition, participants have the right to vote the
shares awarded to them, whether or not vested.
Restricted stock awarded under this plan will be adjusted by the Committee
in the event of a reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or other change in
corporate structure.
Equity Compensation Plan Disclosure. Set forth below is information as of
June 30, 2003 regarding compensation plans under which equity securities of the
Company are authorized for issuance.
===================================================================================================================
Number of Securities to be
Issued upon Exercise of Number of Securities
Outstanding Options and Weighted Average Remaining Available for
Plan Rights Exercise Price Issuance under Plans
- -------------------------------------------------------------------------------------------------------------------
Equity compensation plans 211,130 $ 10.28 32,050(1)
approved by stockholders
- -------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by stockholders -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total 211,130 $ 10.28 32,050(1)
===================================================================================================================
(1) Shares available for future issuance pursuant to the 1999 Recognition and
Retention Plan and the 1999 Stock Option Plan.
Deferred Compensation Plan for Directors. In March 1995, the Board of
Directors of the Bank adopted a Deferred Compensation Plan for Directors (the
"Deferred Plan"), which became effective on January 1, 1995. Pursuant to the
Deferred Plan, directors of the Bank may elect to defer all or one-half of their
fees received for service on the Board of Directors and on committees of the
Board of Directors. The Bank shall credit to a special memorandum account the
amounts of any such deferred fees as of the last day of each month. Interest
will be paid on such amounts at a rate equal to the average weighted cost of
certificates of deposit of the Bank for the previous month. Deferred fees will
be paid out upon the death, disability or termination of a director as a
director of the Bank. At the election of the director, the distribution may be
paid out in a lump sum or in equal monthly installments over a period of ten
years, or such shorter period as shall be approved by the Board of Directors.
Discretionary Profit-Sharing Bonus Plan. In December 1994, the Board of
Directors of the Bank established the Bank's Performance Pay Plan pursuant to
which substantially all employees of the Bank are eligible for cash payments. In
April 1997, the plan was changed to the Bank's Incentive Pay Plan. In January
1999, the plan
10
was changed to a Discretionary Profit-Sharing Bonus Plan with payouts made
annually to eligible employees. The total amount available to be disbursed to
employees is based upon the profits of the Bank and is calculated using a
formula based upon the Bank's return on average assets. The amount each employee
can receive is calculated as a percentage of his base salary, with 15% of the
eligible amount based upon the employee's tenure and 85% based upon his
individual performance as evaluated upon a variety of performance factors.
Employees in sales positions participate in the Plan on a limited basis since
they also have the opportunity to earn additional income through commissions.
For fiscal year 2003, executive management is expected to receive incentive
payouts equal to 25.88% of the amount available for all employees, distributed
based upon compensation. For fiscal year 2004, a new incentive plan is being
implemented that will compensate employees based upon attainment of Bank-wide,
department and personal performance goals.
Certain Transactions with the Bank
Under federal law, all loans or extensions of credit to executive officers
and directors must be made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with the general public and must not involve more than the normal
risk of repayment or present other unfavorable features. However, regulations
now permit executive officers and directors to receive the same terms through
benefit or compensation plans that are widely available to other employees, as
long as the director or executive officer is not given preferential treatment
compared to the other participating employees. In addition, loans made to a
director or executive officer in excess of the greater of $25,000 or 5% of the
Bank's capital and surplus (up to a maximum of $500,000) must be approved in
advance by a majority of the disinterested members of the Board of Directors.
All loans made by First Federal to its officers, directors, and executive
officers were made in the ordinary course of business, were made on the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and did not involve more than the
normal risk of collectibility or present other unfavorable features.
As of June 30, 2003, the aggregate principal balance of loans outstanding
for all Company executive officers and directors, and family members was
$923,498.
11
Executive Compensation
The following table sets forth for the fiscal years ended June 30, 2003,
2002, and 2001, certain information as to the total remuneration paid by the
Bank to the Chief Executive Officer of the Bank and the Company, and each of the
other executive officers of the Company who received salary and bonuses that in
the aggregate exceeded $100,000 for fiscal year 2003.
===============================================================================================================================
Annual Compensation (1) Long-Term Compensation
- -------------------------------------------------------------------------------------------------------------------------------
Awards Payouts
Other -------------------------------
Year Annual Restricted Options/ All
Name and Ended Bonus Compensation Stock SARS LTIP Other
principal position June 30, Salary (3) (2) Awards (4) (#) Payouts Compensation
- -------------------------------------------------------------------------------------------------------------------------------
Barry E. Backhaus, 2003 $220,712 $48,257 $ -- $ -- -- $ -- $ --
President and Chief 2002 212,333 13,318 -- -- -- -- --
Executive Officer 2001 204,333 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Jon G. Cleghorn, 2003 $141,033 $30,835 $ -- $ -- -- $ -- $ --
Executive Vice 2002 135,287 8,485 -- -- -- -- --
President and Chief 2001 129,752 -- -- -- -- -- --
Operating Officer
- -------------------------------------------------------------------------------------------------------------------------------
Steven L. Opsal, 2003 $127,708 $27,922 $ -- $ -- -- $ -- $ --
Executive Vice 2002 122,525 7,684 -- -- -- -- --
President 2001 117,492 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Colin D. Anderson,
Senior Vice President 2003 $ 99,615 $16,340 $ -- $ -- 10,000 -- $29,400(5)
and Chief Financial 2002 -- -- -- -- -- -- --
Officer 2001 -- -- -- -- -- -- --
===============================================================================================================================
- ----------
(1) The Company does not maintain a deferred compensation plan for employees.
Amounts do not include benefits pursuant to the Bank's Pension Plan. See
"Benefits."
(2) The Company also provides certain members of senior management with the
use of an automobile, membership dues and other personal benefits. The
aggregate amount of such other benefits provided to each of the named
executive officers did not exceed the lesser of $50,000 or 10% of his cash
compensation.
(3) Amounts represent bonuses earned by the executive and accrued as
compensation expense by the Company in the fiscal year shown. Amounts are
actually paid in the following fiscal year.
(4) Represents the fair value of the restricted stock awards at the date of
grant. Awards generally vest over a five-year period. Dividends paid with
respect to all shares awarded are paid to the recipient of the award.
(5) Includes a $25,000 hiring bonus.
Employment Agreements
The continued success of First Federal depends to a significant degree on
the skills and competence of its officers. First Federal has entered into
employment agreements with certain of its executive officers, including Barry E.
Backhaus, President and Chief Executive Officer; Jon G. Cleghorn, Executive Vice
President and Chief Operating Officer; and Steven L. Opsal, Executive Vice
President. The employment agreements are intended to assist First Federal in
maintaining a stable and competent management base by enabling First Federal to
offer protections to designated employees in the event of termination without
cause in connection with a change in control, as defined in the employment
agreements.
The employment agreement for each executive officer has a term of 36
months. On each anniversary date, the agreement may be extended for an
additional 12 months, so that the remaining term shall be 36 months. If the
agreement is not renewed, the agreement will expire 24 months following the
anniversary date. Under the agreement, the current Base Salary for Mr. Backhaus
(as defined in the agreement) is $224,700; for Mr. Cleghorn - $143,600; and for
Mr. Opsal - $130,000. The Base Salary may be increased but not decreased. In
addition to the Base Salary, the agreement provides for, among other things,
participation in retirement plans and other employee and fringe benefits
applicable to executive personnel. The agreement provides for termination by the
Bank for cause
12
at any time. In the event the Bank terminates the executive's employment for
reasons other than disability, retirement, or for cause, or in the event of the
executive's resignation from the Bank (such resignation to occur within the
period or periods set forth in the employment agreement) upon (i) failure to
re-elect the executive to his or her current offices, (ii) a material change in
the executive's functions, duties or responsibilities, or relocation of his or
her principal place of employment by more than 30 miles (with respect to Mr.
Opsal, this restriction applied only through September 1, 2001), (iii)
liquidation or dissolution of the Bank or the Company, (iv) a breach of the
agreement by the Bank, or (v) following a change in control of the Bank or the
Company, the executive or, in the event of death, his or her beneficiary would
be entitled to a cash severance payment equal to 299% of the average of the last
five years' compensation. Messrs. Backhaus, Cleghorn and Opsal would receive an
aggregate of $723,942, $462,589 and $560,827, respectively, pursuant to the
respective employment agreement upon a change in control of the Bank or the
Company, based upon current level of compensation. The Bank would also continue
the executive's life, health, dental and disability coverage for 36 months from
the date of termination. In the event the payments to the executive would
include an "excess parachute payment" as defined by the Internal Revenue Code of
1986, as amended (relating to payments made in connection with a change in
control), the payments would be reduced in order to avoid having an excess
parachute payment.
Under the agreement, the executive's employment may be terminated upon
retirement in accordance with any retirement policy established on behalf of the
executive and with his or her consent. Upon the executive's retirement, he or
she will be entitled to all benefits available to him or her under any
retirement or other benefit plan maintained by the Bank. In the event of the
executive's disability for a period of six months, the Bank may terminate the
agreement provided that the Bank will be obligated to pay Base Salary for the
remaining term of the agreement or one year, whichever is longer, reduced by any
benefits paid to the executive pursuant to any disability insurance policy or
similar arrangement maintained by the Bank. In the event of the executive's
death, the Bank will pay Base Salary to named beneficiaries for one year
following death, and will also continue medical, dental, and other benefits to
his or her family for one year. The employment agreement provides that,
following termination of employment, the executive will not compete with the
Bank for a period of one year.
Report of the Compensation and Benefits Committee on Executive Compensation
Under rules established by the SEC, the Company is required to provide
certain data and information in regard to the compensation and benefits provided
to its Chief Executive Officer and other executive officers. The Chief Executive
Officer and other executive officers did not receive compensation from the
Company in fiscal year 2003. Consequently, the compensation discussed in this
Compensation Committee Report relates to that provided by the Bank.
The Compensation and Benefits Committee each December reviews the
performance of senior management and approves changes to base compensation,
bonuses and benefits for senior management. It is intended that the executive
compensation program will enable the Company and the Bank to attract, develop
and retain strong executive officers who are capable of maximizing the Company's
performance for the benefit of the stockholders. The Committee has adopted a
compensation strategy that seeks to provide competitive compensation strongly
aligned with the financial performance of the Company and the Bank.
The Committee uses a peer comparison employing at least two published
compensation surveys in determining the salary, bonuses and benefits of senior
management. While the Committee weighs a variety of different factors in its
deliberations, it has emphasized and will continue to emphasize profitability,
return on average assets and earnings per share as factors in setting the
compensation of the Chief Executive Officer. In fiscal year 2003, a bonus was
earned by executive officers based on those factors. Other non-quantitative
factors considered by the Committee in fiscal 2003 included general management
oversight of the Company and the Bank, the quality of communication with the
Board of Directors, and the productivity of employees. Finally, the Committee
considered the standing of the Bank with customers and the community, as
evidenced by the level of customer/community complaints and compliments. While
each of the quantitative and non-quantitative factors described was considered
by the Committee, such factors were not assigned a specific weighting in
evaluating the performance of the Chief Executive Officer.
13
After evaluating the foregoing factors, the Committee granted a 4.03%
increase in the base salary of the Chief Executive Officer for calendar year
2003.
This report has been provided by the Compensation and Benefits Committee.
David S. Clay Arlene T. Curry
Gary L. Evans, Chairman David Van Engelenhoven
Stock Performance Graph
Set forth below is a stock performance graph comparing the yearly
cumulative total return on the Company's Common Stock with (a) the yearly
cumulative total return on stocks included in the Nasdaq National Market Index,
and (b) the yearly cumulative total return on stocks included in the SNL Bank
Index. The cumulative total return on the Company's common stock was computed
assuming the reinvestment of dividends at the frequency rate with which
dividends were paid during the period shown, and reflects the exchange of
1.64696 shares of Company Common Stock for each share of Bank common stock in
April 1999. The information presented below is for the period beginning on June
30, 1998 and ending on June 30, 2003.
There can be no assurance that the Company's stock performance will
continue in the future with the same or similar trend depicted in the graph. The
Company will not make or endorse any predictions as to future stock performance.
[LINE CHART]
- ----------------------------------------------------------------------------------------------------------------
6/30/98 6/30/99 6/30/00 6/30/01 6/30/02 6/30/03
- ----------------------------------------------------------------------------------------------------------------
First Federal Bankshares, Inc. 100.00 45.03 38.13 63.24 68.99 92.34
Nasdaq National Market 100.00 141.77 209.33 114.03 77.23 85.65
SNL Bank Index 100.00 104.72 84.64 107.87 102.45 104.02
- ----------------------------------------------------------------------------------------------------------------
14
PROPOSAL II - RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended June 30, 2003
were KPMG LLP. The Company's Board of Directors has appointed McGladrey &
Pullen, LLP to serve as independent auditors for the Company for the fiscal year
ending June 30, 2004, subject to ratification of such appointment by the
stockholders. Representatives of KPMG LLP are expected to attend the Meeting.
They will be given the opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions from stockholders
present at the Meeting. Representatives of McGladrey & Pullen, LLP are not
expected to attend the Meeting.
Set forth below is certain information concerning aggregate fees billed
for professional services rendered by KPMG LLP during fiscal year 2003:
Audit Fees $108,200
Audit-related Fees 17,500
Tax Fees 34,630
All Other Fees --
The Audit Committee has considered whether the provision of non-audit
services, which relate primarily to tax services rendered, was compatible with
maintaining KPMG LLP's independence. The Audit Committee concluded that
performing such services did not affect KPMG LLP's independence in performing
its function as auditor of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF MCGLADREY & PULLEN, LLP AS THE INDEPENDENT AUDITORS OF THE
COMPANY FOR THE FISCAL YEAR ENDING JUNE 30, 2004.
PROPOSAL III--AMENDMENT OF THE 1999 STOCK OPTION PLAN
The Board of Directors of the Company adopted the 1999 Stock Option Plan
(the "Option Plan"), which was approved by stockholders of the Company at the
Annual Meeting of Stockholders held on October 21, 1999. The Company was formed
in connection with the mutual-to-stock conversion of the Bank's mutual holding
company, which was completed in April 1999. Under the then applicable
regulations of the Office of Thrift Supervision (the "OTS"), stock benefit plans
such as the Option Plan established or implemented within one year following the
completion of such a mutual-to-stock conversion and stock offering were required
to contain certain restrictions and limitations. Specifically, the OTS
regulations provided, among other provisions, that awards granted pursuant to
such plans begin vesting no earlier than one year from the date the plans were
approved by stockholders, not vest at a rate in excess of 20% per year, and not
provide for accelerated vesting except in the case of disability or death,
unless then authorized by regulation or not otherwise prohibited by law or
regulation. The Option Plan provides that in the event of a change in control of
the Company or retirement of the recipient (as defined), vesting of awards would
accelerate if, as of such date, such treatment is either authorized or not
prohibited by applicable law and regulations. The then applicable OTS
regulations authorized the elimination of these provisions more than one year
after a conversion, provided that stockholder approval of such amendments to the
Option Plan is obtained. OTS regulations currently in effect are substantially
similar to those in effect when the Option Plan was adopted except current OTS
regulations would also permit accelerated vesting on a change in control if a
plan is adopted within one year of a mutual-to-stock conversion and stock
offering.
The Board of Directors of the Company has adopted amendments to the Option
Plan, subject to approval by the stockholders, in order to remove the
restrictions described above and to provide that new awards shall vest at the
rate determined by the Board or the administering committee and that both
existing and new awards shall accelerate and vest upon a change in control of
the Company or upon retirement, as defined in the Option Plan. These amendments
are consistent with the Company's intentions when it originally adopted the
Option Plan. OTS policy requires that these amendments be presented to
stockholders more than one year after a mutual-to-stock conversion. These
amendments do not increase the number of shares reserved for issuance under the
Option Plan or
15
change the vesting schedule or terms of outstanding awards under the Option Plan
other than to accelerate the vesting upon a change in control or retirement. In
the event these amendments to the Option Plan are not approved by stockholders,
the vesting of existing awards will not accelerate in the event of a change in
control or retirement (unless authorized at such time or not prohibited by
applicable laws or regulations), and the other provisions of the Option Plan
will remain in effect as originally adopted. Although management has in the past
and may in the future engage in discussions concerning potential mergers with
other financial institutions, there are currently no understandings or
agreements with third parties that would result in a change of control of the
Company.
The Option Plan was adopted by the Company to attract and retain qualified
personnel in key positions, provide officers and 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 Option Plan is
also designed to retain qualified directors for the Company. The Option Plan
provides for the grant of incentive stock options intended to comply with the
requirements of Section 422 of the Code, non-statutory stock options, reload
options, dividend equivalent rights and limited stock appreciation rights.
Awards are available for grant to non-employee directors and key employees of
the Company and any subsidiaries, except that non-employee directors are
eligible to receive only awards of non-statutory stock options, dividend
equivalent rights and reload options.
The Option Plan is administered and interpreted by a committee of the
Board of Directors ("Committee") consisting of either (i) at least two
non-employee directors of the Company, or (ii) the entire Board of Directors of
the Company.
Under the Option Plan, the Board of Directors or the Committee determines
which officers, key employees and non-employee directors will be granted
options, reload options, dividend equivalent rights and limited stock
appreciation rights, whether such options will be incentive or non-statutory
options (in the case of options granted to employees), the number of shares
subject to each option, the exercise price of 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 at least equal to the fair market value of a share of Common Stock on the
date the option is granted.
As of June 30, 2003, options to purchase 211,130 shares of Common Stock
have been granted and are outstanding under the Option Plan and 25,600 shares
remain available for future grant under the Option Plan. Previously granted
awards under the Option Plan will vest at the rate of 20% per year over five
years unless accelerated pursuant to the terms of the amended and restated
Option Plan. The proposed amendment to the Option Plan will not affect the
number of options previously granted nor change the vesting schedule of
outstanding awards under the Option Plan but will provide that outstanding
awards as well as newly granted awards will accelerate in certain circumstances
as described above.
A copy of the Amended and Restated 1999 Stock Option Plan is attached
hereto as Appendix A.
The Board of Directors recommends that stockholders vote "FOR" adoption of
the amendment to the 1999 Stock Option Plan to provide that any future awards
granted thereunder may vest at the rate determined by the Board of Directors or
the Committee and that both existing and future awards will accelerate under
certain circumstances.
PROPOSAL IV--AMENDMENT OF THE 1999 RECOGNITION AND RETENTION PLAN
The Board of Directors of the Company adopted the 1999 Recognition and
Retention Plan (the "Recognition Plan"), which was approved by stockholders of
the Company at the Annual Meeting of Stockholders held on October 21, 1999. The
Company was formed in connection with the mutual-to-stock conversion of the
Bank's mutual holding company, which was completed in April 1999. Under the then
applicable regulations of the OTS, stock benefit plans such as the Recognition
Plan established or implemented within one year following the completion of such
a mutual-to-stock conversion and stock offering were required to contain certain
restrictions and limitations. Specifically, the OTS regulations provided, among
other provisions, that awards granted pursuant to such plans begin vesting no
earlier than one year from the date the plans were approved by stockholders, not
vest at a rate in excess of 20% per year, and not provide for accelerated
vesting except in the case of disability or death, unless then authorized by
regulation or not otherwise prohibited by law or regulation. The Recognition
Plan
16
provides that in the event of a change in control of the Company or retirement
of the recipient (as defined), vesting of awards would accelerate if, as of such
date, such treatment is either authorized or not prohibited by applicable law
and regulations. The then applicable OTS regulations authorized the elimination
of these provisions more than one year after a conversion, provided that
stockholder approval of such amendments to the Recognition Plan is obtained. OTS
regulations currently in effect are substantially similar to those in effect
when the Recognition Plan was adopted except current OTS regulations would also
permit accelerated vesting on a change in control if a plan is adopted within
one year of a mutual-to-stock conversion and stock offering.
The Board of Directors of the Company has adopted amendments to the
Recognition Plan, subject to approval by the stockholders, in order to remove
the restrictions described above and to provide that new awards shall vest at
the rate determined by the Board or the administering committee and that both
existing and new awards shall accelerate and vest upon a change in control of
the Company or upon retirement, as defined in the Recognition Plan. These
amendments are consistent with the Company's intentions when it originally
adopted the Recognition Plan. OTS policy requires that these amendments be
presented to stockholders more than one year after a mutual-to-stock conversion.
These amendments do not increase the number of shares reserved for issuance
under the Recognition Plan or change the vesting schedule or terms of
outstanding awards under the Recognition Plan other than to accelerate the
vesting upon a change in control or retirement. In the event these amendments to
the Recognition Plan are not approved by stockholders, the vesting of existing
awards will not accelerate in the event of a change in control or retirement
(unless authorized at such time or not prohibited by applicable laws or
regulations), and the other provisions of the Recognition Plan will remain in
effect as originally adopted. Although management has in the past and may in the
future engage in discussions concerning potential mergers with other financial
institutions, there are currently no understandings or agreements with third
parties that would result in a change of control of the Company.
The Recognition Plan was adopted by the Company to attract and retain
qualified personnel in key positions, provide officers and 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
Recognition Plan is also designed to retain qualified directors for the Company.
Officers, key employees and non-employee directors of the Company and its
subsidiaries who are selected by the Board of Directors of the Company or
members of the administering committee appointed by the Board are eligible to
receive restricted stock awards under the Recognition Plan.
The Recognition Plan is administered and interpreted by a committee of the
Board of Directors ("Committee") consisting of either (i) at least two
non-employee directors of the Company, or (ii) the entire Board of Directors of
the Company.
Under the Recognition Plan, the Board of Directors or the Committee
determines which officers, key employees and non-employee directors will be
granted restricted stock awards, the number of shares subject to each award and
the vesting schedule of such awards.
As of June 30, 2003, restricted stock awards for 72,600 shares have been
granted under the Recognition Plan and 6,450 shares are available for future
grant under the Recognition Plan. Previously granted awards under the
Recognition Plan will vest at the rate of 20% per year over five years. The
proposed amendments to the Recognition Plan will not affect the number of shares
previously granted nor change the vesting schedule of outstanding awards under
the Recognition Plan but will provide that outstanding awards as well as newly
granted awards will accelerate in certain circumstances as described above.
A copy of the Amended and Restated 1999 Recognition and Retention Plan is
attached hereto as Appendix B.
The Board of Directors recommends that stockholders vote "FOR" adoption of
the amendments to the 1999 Recognition and Retention Plan to provide that any
future awards granted thereunder may vest at the rate determined by the Board of
Directors or the Committee and that both existing and future awards will
accelerate under certain circumstances.
17
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials for
the next annual meeting of stockholders, any stockholder proposal to take action
at such meeting must be received at the Company's office located at 329 Pierce
Street, Sioux City, Iowa 51101 no later than May 27, 2004. Any such proposal
shall be subject to the requirements of the proxy rules adopted under the
Securities Exchange Act of 1934.
ADVANCE NOTICE OF BUSINESS TO BE BROUGHT BEFORE
AN ANNUAL MEETING
The Bylaws of the Company provide an advance notice procedure for certain
business, or nominations to the Board of Directors, to be brought before an
annual meeting. In order for a stockholder to properly bring business before an
annual meeting, or to propose a nominee to the Board, the stockholder must give
written notice to the Secretary of the Company not less than ninety (90) days
before the date fixed for such meeting; provided, however, that in the event
that less than one hundred (100) days notice or prior public disclosure of the
date of the meeting is given or made, notice by the stockholder to be timely
must be received not later than the close of business on the tenth day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. The notice must include the stockholder's name,
record address, and number of shares owned by the stockholder, describe briefly
the proposed business, the reasons for bringing the business before the annual
meeting, and any material interest of the stockholder in the proposed business.
In the case of nominations to the Board, certain information regarding the
nominee must be provided. Nothing in this paragraph shall be deemed to require
the Company to include in its proxy statement and proxy relating to an annual
meeting any stockholder proposal that does not meet all of the requirements for
inclusion established by the SEC in effect at the time such proposal is
received.
The date on which next year's annual meeting of stockholders is expected
to be held is October 28, 2004. Accordingly, advance written notice for certain
business, or nominations to the Board of Directors, to be brought before the
next Annual Meeting must be given to the Company by July 30, 2004. If notice is
received after July 30, 2004, it will be considered untimely, and the Company
will not be required to present the matter at the stockholders meeting.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matter should properly come before the Meeting, it is
intended that holders of the proxies will act in accordance with their best
judgment.
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitation by mail,
directors, officers and regular employees of the Company and the Bank may
solicit proxies personally or by telegraph or telephone without additional
compensation.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE
30, 2003, WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE
UPON WRITTEN OR TELEPHONIC REQUEST TO SUZETTE F. HOEVET, SECRETARY, FIRST
FEDERAL BANKSHARES, INC., 329 PIERCE STREET, SIOUX CITY, IOWA 51101 OR CALL
(712) 277-0200.
Sioux City, Iowa
September 24, 2003
18
Appendix A
FIRST FEDERAL BANKSHARES, INC.
AMENDED AND RESTATED
1999 STOCK OPTION PLAN
1. Purpose
The purpose of the First Federal Bankshares, Inc. Amended and Restated
1999 Stock Option Plan (the "Plan") is to advance the interests of the Company
and its stockholders by providing Key Employees and Outside Directors of First
Federal Bankshares, Inc. (the "Company") and its Affiliates, including First
Federal Bank, upon whose judgment, initiative and efforts the successful conduct
of the business of the Company and its Affiliates largely depends, with an
additional incentive to perform in a superior manner as well as to attract
people of experience and ability.
2. Definitions
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
"Affiliate" means any "parent corporation" or "subsidiary corporation" of
the Company or the Bank, as such terms are defined in Section 424(e) or 424(f),
respectively, of the Code, or a successor to a parent corporation or subsidiary
corporation.
"Award" means an Award of Non-Statutory Stock Options, Incentive Stock
Options, Limited Rights, Reload Options and/or Dividend Equivalent Rights
granted under the provisions of the Plan.
"Bank" means First Federal Bank, or a successor corporation.
"Beneficiary" means the person or persons designated by a Participant to
receive any benefits payable under the Plan in the event of such Participant'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 Participant's surviving spouse, if
any, or if none, his estate.
"Board" or "Board of Directors" means the board of directors of the
Company or its Affiliate, as applicable.
"Cause" means personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or a final cease-and-desist order, any
of which results in a material loss to the Company or an Affiliate.
"Change in Control" of the Bank or the Company means a change in control
of a nature that: (i) would be required to be reported in response to Item 1(a)
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) results in a Change in Control of the Bank or the Company within the
meaning of the Home Owners Loan Act, as amended ("HOLA"), and applicable rules
and regulations promulgated thereunder, as in effect at the time of the Change
in Control; or (iii) without limitation such a Change in Control shall be deemed
to have occurred at such time as (a) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of Company's outstanding securities except for any
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securities purchased by the Bank's employee stock ownership plan or trust; or
(b) individuals who constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (b), considered as though
he were a member of the Incumbent Board; or (c) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Company or similar transaction in which the Bank or Company is not the
surviving institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the Plan are to be exchanged for or converted into
cash or property or securities not issued by the Company; or (e) a tender offer
is made for 25% or more of the voting securities of the Company and the
shareholders owning beneficially or of record 25% or more of the outstanding
securities of the Company have tendered or offered to sell their shares pursuant
to such tender offer and such tendered shares have been accepted by the tender
offeror.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a Committee of the Board consisting of either (i) at
least two Non-Employee Directors of the Company, or (ii) the entire Board of the
Company.
"Common Stock" means shares of the common stock of the Company, par value
$0.01 per share.
"Company" means First Federal Bankshares, Inc. or a successor corporation.
"Continuous Service" means employment as a Key Employee and/or service as
an Outside Director without any interruption or termination of such employment
and/or service. Continuous Service shall also mean a continuation as a member of
the Board of Directors following a cessation of employment as a Key Employee. In
the case of a Key Employee, employment shall not be considered interrupted in
the case of sick leave, military leave or any other leave of absence approved by
the Bank or in the case of transfers between payroll locations of the Bank or
between the Bank, its parent, its subsidiaries or its successor.
"Date of Grant" means the actual date on which an Award is granted by the
Committee.
"Director" means a member of the Board.
"Disability" means the permanent and total inability by reason of mental
or physical infirmity, or both, of an employee to perform the work customarily
assigned to him, or of a Director to serve as such. Additionally, in the case of
an employee, a medical doctor selected or approved by the Board must advise the
Committee that it is either not possible to determine when such Disability will
terminate or that it appears probable that such Disability will be permanent
during the remainder of said employee's lifetime.
"Dividend Equivalent Rights" means the right to receive an amount of cash
based upon the terms set forth in Section 10 hereof.
"Effective Date" means initially October 21, 1999, the date the Plan was
initially approved by the Company's stockholders. The Effective Date of the
amended and restated Plan shall be the date on which this amendment and
restatement is approved by the Company's stockholders.
"Fair Market Value" means, when used in connection with the Common Stock
on a certain date, the reported closing price of the Common Stock as reported by
the Nasdaq stock market (as published by the Wall Street Journal, if published)
on the day prior to such date, or if the Common Stock was not traded on the day
prior to such date, on the next preceding day on which the Common Stock was
traded; provided, however, that if the Common Stock is not reported on the
Nasdaq stock market, Fair Market Value shall mean the average sale price of all
shares
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of Common Stock sold during the 30-day period immediately preceding the date on
which such stock option was granted, and if no shares of stock have been sold
within such 30-day period, the average sale price of the last three sales of
Common Stock sold during the 90-day period immediately preceding the date on
which such stock option was granted. In the event Fair Market Value cannot be
determined in the manner described above, then Fair Market Value shall be
determined by the Committee. The Committee is authorized, but is not required,
to obtain an independent appraisal to determine the Fair Market Value of the
Common Stock.
"Incentive Stock Option" means an Option granted by the Committee to a
Participant, which Option is designated as an Incentive Stock Option pursuant to
Section 9.
"Key Employee" means any person who is currently employed by the Company
or an Affiliate who is chosen by the Committee to participate in the Plan.
"Limited Right" means the right to receive an amount of cash based upon
the terms set forth in Section 10.
"Non-Statutory Stock Option" means an Option granted by the Committee to
(i) an Outside Director or (ii) to any other Participant and such Option is
either (A) not designated by the Committee as an Incentive Stock Option, or (B)
fails to satisfy the requirements of an Incentive Stock Option as set forth in
Section 422 of the Code and the regulations thereunder.
"Non-Employee Director" means, for purposes of the Plan, a Director who
(a) is not employed by the Company or an Affiliate; (b) does not receive
compensation directly or indirectly as a consultant (or in any other capacity
than as a Director) greater than $60,000; (c) does not have an interest in a
transaction requiring disclosure under Item 404(a) of Regulation S-K; or (d) is
not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(b) of Regulation S-K.
"Normal Retirement" means for a Key Employee, retirement at the normal or
early retirement date set forth in the Bank's Employee Stock Ownership Plan, or
any successor plan. Normal Retirement for an Outside Director means a cessation
of service on the Board of Directors for any reason other than removal for
Cause, after reaching 60 years of age and maintaining at least 10 years of
Continuous Service.
"Outside Director" means a Director of the Company or an Affiliate who is
not an employee of the Company or an Affiliate.
"Option" means an Award granted under Section 8 or Section 9.
"Participant" means a Key Employee or Outside Director of the Company or
its Affiliates who receives or has received an award under the Plan.
"Reload Option" means an option to acquire shares of Common Stock
equivalent to the shares (i) used by a Participant to pay for an Option, or (ii)
deducted from any distribution in order to satisfy income tax required to be
withheld, based upon the terms set forth in Section 20.
"Right" means a Limited Right or a Dividend Equivalent Right.
"Termination for Cause" means the termination of employment or termination
of service on the Board caused by the individual's personal dishonesty, willful
misconduct, any breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, or the willful violation of any law, rule or
regulation (other than traffic violations or similar offenses), or a final
cease-and-desist order, any of which results in material loss to the Company or
one of its Affiliates.
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3. Plan Administration Restrictions
The Plan shall be administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to establish such rules and
regulations as it deems necessary for the proper administration of the Plan and
to make whatever determinations and interpretations in connection with the Plan
it deems necessary or advisable. All determinations and interpretations made by
the Committee shall be binding and conclusive on all Participants in the Plan
and on their legal representatives and beneficiaries.
All transactions involving a grant, award or other acquisition from the
Company shall:
(a) be approved by the Company's full Board or by the Committee;
(b) be approved, or ratified, in compliance with Section 14 of the
Exchange Act, by either: the affirmative vote of the holders of a majority of
the securities present, or represented and entitled to vote at a meeting duly
held in accordance with the laws of the state in which the Company is
incorporated; or the written consent of the holders of a majority of the
securities of the issuer entitled to vote provided that such ratification occurs
no later than the date of the next annual meeting of shareholders; or
(c) result in the acquisition of an Option or Limited Right that is held
by the Participant for a period of six months following the date of such
acquisition.
4. Types of Awards
Awards under the Plan may be granted in any one or a combination of: (a)
Incentive Stock Options; (b) Non-Statutory Stock Options; (c) Limited Rights;
(d) Dividend Equivalent Rights; and (e) Reload Options.
5. Stock Subject to the Plan
Subject to adjustment as provided in Section 18, the maximum number of
shares reserved for issuance under the Plan is 263,500 shares. To the extent
that Options or Rights granted under the Plan are exercised, the shares covered
will be unavailable for future grants under the Plan; to the extent that Options
together with any related Rights granted under the Plan terminate, expire or are
canceled without having been exercised or, in the case of Limited Rights
exercised for cash, new Awards may be made with respect to these shares.
6. Eligibility
Key Employees of the Company and its Affiliates shall be eligible to
receive Incentive Stock Options, Non-Statutory Stock Options, Limited Rights,
Reload Options and/or Dividend Equivalent Rights under the Plan. Outside
Directors shall be eligible to receive Non-Statutory Stock Options, Dividend
Equivalent Rights and Reload Options under the Plan.
7. General Terms and Conditions of Options and Rights
The Committee shall have full and complete authority and discretion,
except as expressly limited by the Plan, to grant Options and/or Rights and to
provide the terms and conditions (which need not be identical among
Participants) thereof. In particular, the Committee shall prescribe the
following terms and conditions: (i) the Exercise Price of any Option or Right,
which shall not be less than the Fair Market Value per share on the Date of
Grant, (ii) the number of shares of Common Stock subject to, and the expiration
date of, any Option or Right, which expiration date shall not exceed ten years
from the Date of Grant, (iii) the manner, time and rate (cumulative or
otherwise) of exercise of such Option or Right, and (iv) the restrictions, if
any, to be placed upon such Option or Right or upon shares of Common Stock which
may be issued upon exercise of such Option or Right.
8. Non-Statutory Stock Options
The Committee may, from time to time, grant Non-Statutory Stock Options to
eligible Key Employees and Outside Directors, and, upon such terms and
conditions as the Committee may determine, grant Non-Statutory Stock
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Options in exchange for and upon surrender of previously granted Awards under
the Plan. Non-Statutory Stock Options granted under the Plan, including
Non-Statutory Stock Options granted in exchange for and upon surrender of
previously granted Awards, are subject to the terms and conditions set forth in
this Section 8.
(a) Option Agreement. Each Option shall be evidenced by a written option
agreement between the Company and the Participant specifying the number of
shares of Common Stock that may be acquired through its exercise and containing
such other terms and conditions that are not inconsistent with the terms of the
Plan.
(b) Price. The purchase price per share of Common Stock deliverable upon
the exercise of each Non-Statutory Stock Option shall be the Fair Market Value
of the Common Stock of the Company on the Date of Grant. Shares may be purchased
only upon full payment of the purchase price in one or more of the manners set
forth in Section 14 hereof, as determined by the Committee.
(c) Vesting. A Non-Statutory Stock Option granted under the Plan shall
vest in a Participant at the rate or rates determined by the Committee. No
Options shall become vested in a Participant unless the Participant maintains
Continuous Service until the vesting date of such Option, except as set forth
herein.
(d) Exercise of Options. A vested Option may be exercised from time to
time, in whole or in part, by delivering a written notice of exercise to the
President or Chief Executive Officer of the Company, or his designee. Such
notice shall be irrevocable and must be accompanied by full payment of the
purchase price in cash or shares of Common Stock at the Fair Market Value of
such shares, determined on the exercise date in the manner described in Section
2 hereof. If previously acquired shares of Common Stock are tendered in payment
of all or part of the exercise price, the value of such shares shall be
determined as of the date of such exercise.
(e) Term of Options. The term during which each Non-Statutory Stock Option
may be exercised shall be determined by the Committee, but in no event shall a
Non-Statutory Stock Option be exercisable in whole or in part more than 10 years
and one day from the Date of Grant.
(f) Amount of Awards. Non-Statutory Stock Options may be granted to any
Key Employee or Outside Director in such amounts as determined by the Committee.
In granting Non-Statutory Stock Options, the Committee shall consider such
factors as it deems relevant, which factors may include, among others, the
position and responsibility of the Key Employee or Outside Director, the length
and value of his service to the Bank, the Company or the Affiliate, the
compensation paid to the Key Employee or Outside Director, and the Committee's
evaluation of the performance of the Bank, the Company or the Affiliate,
according to measurements that may include, among others, key financial ratios,
level of classified assets and independent audit findings.
(g) Termination of Employment or Service. Upon the termination of a Key
Employee's employment or upon termination of an Outside Director's service for
any reason other than death, Disability, Termination for Cause, Normal
Retirement or in connection with a Change in Control, the Participant's
Non-Statutory Stock Options shall be exercisable only as to those shares that
were immediately purchasable on the date of termination and only for one year
following termination. In the event of Termination for Cause, all rights under a
Participant's Non-Statutory Stock Options shall expire upon termination. In the
event of the Participant's termination of service or employment due to death,
Disability, Normal Retirement or in connection with a Change in Control, all
Non-Statutory Stock Options held by the Participant, whether or not exercisable
at such time, shall be exercisable by the Participant or his legal
representative or beneficiaries for five years following the date of such
termination of employment or cessation of service, provided that in no event
shall the period extend beyond the expiration of the Non-Statutory Stock Option
term.
(h) Transferability. In the discretion of the Board, all or any
Non-Statutory Stock Option granted hereunder may be transferable by the
Participant once the Option has vested in the Participant, provided, however,
that the Board may limit the transferability of such Option or Options to a
designated class or classes of persons.
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9. Incentive Stock Options
The Committee may, from time to time, grant Incentive Stock Options to Key
Employees. Incentive Stock Options granted pursuant to the Plan shall be subject
to the following terms and conditions:
(a) Option Agreement. Each Option shall be evidenced by a written option
agreement between the Company and the Key Employee specifying the number of
shares of Common Stock that may be acquired through its exercise and containing
such other terms and conditions that are not inconsistent with the terms of the
Plan.
(b) Price. Subject to Section 18 of the Plan and Section 422 of the Code,
the purchase price per share of Common Stock deliverable upon the exercise of
each Incentive Stock Option shall be not less than 100% of the Fair Market Value
of the Company's Common Stock on the date the Incentive Stock Option is granted.
However, if a Key Employee owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or its Affiliates
(or under Section 424(d) of the Code is deemed to own stock representing more
than 10% of the total combined voting power of all classes of stock of the
Company or its Affiliates by reason of the ownership of such classes of stock,
directly or indirectly, by or for any brother, sister, spouse, ancestor or
lineal descendent of such Key Employee, or by or for any corporation,
partnership, estate or trust of which such Key Employee is a shareholder,
partner or Beneficiary), the purchase price per share of Common Stock
deliverable upon the exercise of each Incentive Stock Option shall not be less
than 110% of the Fair Market Value of the Company's Common Stock on the date the
Incentive Stock Option is granted. Shares may be purchased only upon payment of
the full purchase price in one or more of the manners set forth in Section 14
hereof, as determined by the Committee.
(c) Vesting. Incentive Stock Options granted under the Plan shall vest in
a Participant at the rate or rates determined by the Committee. No Option shall
become vested in a Participant unless the Participant maintains continuous
service until the vesting date of such Option, except as set forth herein.
(d) Exercise of Options. Vested Options may be exercised from time to
time, in whole or in part, by delivering a written notice of exercise to the
President or Chief Executive Officer of the Company or his designee. Such notice
is irrevocable and must be accompanied by full payment of the exercise price in
cash or shares of Common Stock at the Fair Market Value of such shares
determined on the exercise date by the manner described in Section 2.
The Option comprising each installment may be exercised in whole or in
part at any time after such installment becomes vested, provided that the amount
able to be first exercised in a given year is consistent with the terms of
Section 422 of the Code. To the extent required by Section 422 of the Code, the
aggregate Fair Market Value (determined at the time the Option is granted) of
the Common Stock for which Incentive Stock Options are exercisable for the first
time by a Participant during any calendar year (under all plans of the Company
and its Affiliates) shall not exceed $100,000.
(e) Amount of Awards. Incentive Stock Options may be granted to any
eligible Key Employee in such amounts as determined by the Committee; provided
that the amount granted is consistent with the terms of Section 422 of the Code.
In granting Incentive Stock Options, the Committee shall consider such factors
as it deems relevant, which factors may include, among others, the position and
responsibilities of the Key Employee, the length and value of his or her service
to the Bank, the Company, or the Affiliate, the compensation paid to the Key
Employee and the Committee's evaluation of the performance of the Bank, the
Company, or the Affiliate, according to measurements that may include, among
others, key financial ratios, levels of classified assets, and independent audit
findings.
(f) Terms of Options. The term during which each Incentive Stock Option
may be exercised shall be determined by the Committee, but in no event shall an
Incentive Stock Option be exercisable in whole or in part more than 10 years
from the Date of Grant. If any Key Employee, at the time an Incentive Stock
Option is granted to him, owns stock representing more than 10% of the total
combined voting power of all classes of stock of the Company or its Affiliate
(or, under Section 424(d) of the Code, is deemed to own stock representing more
than 10% of the total combined voting power of all classes of stock, by reason
of the ownership of such classes of stock, directly or indirectly, by or for any
brother, sister, spouse, ancestor or lineal descendent of such Key Employee, or
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by or for any corporation, partnership, estate or trust of which such Key
Employee is a shareholder, partner or Beneficiary), the Incentive Stock Option
granted to him shall not be exercisable after the expiration of five years from
the Date of Grant.
(g) Termination of Employment. Upon the termination of a Key Employee's
service for any reason other than Disability, death, Termination for Cause,
Normal Retirement or in connection with a Change in Control, the Key Employee's
Incentive Stock Options shall be exercisable only as to those shares that were
immediately purchasable by such Key Employee at the date of termination and only
for a period of three months following termination. In the event of Termination
for Cause all rights under the Incentive Stock Options shall expire upon
termination.
Upon termination of a Key Employee's employment due to death, Disability,
Normal Retirement or in connection with a Change in Control, all Incentive Stock
Options held by such Key Employee, whether or not exercisable at such time,
shall be exercisable for a period of five years following the date of his
cessation of employment, provided however, that any such Option shall not be
eligible for treatment as an Incentive Stock Option in the event such Option is
exercised more than one year following termination of employment due to
Disability; and provided further, in order to obtain Incentive Stock Option
treatment for Options exercised by heirs or devisees of an Optionee, the
Optionee's death must have occurred while employed or within three (3) months of
termination of employment. In no event shall the exercise period extend beyond
the expiration of the Incentive Stock Option term.
(h) Transferability. No Incentive Stock Option granted under the Plan is
transferable except by will or the laws of descent and distribution and is
exercisable during his lifetime only by the Key Employee to which it is granted.
(i) Compliance with Code. The options granted under this Section 9 are
intended to qualify as Incentive Stock Options within the meaning of Section 422
of the Code, but the Company makes no warranty as to the qualification of any
Option as an Incentive Stock Option within the meaning of Section 422 of the
Code. If an Option granted hereunder fails for whatever reason to comply with
the provisions of Section 422 of the Code, and such failure is not or cannot be
cured, such Option shall be a Non-Statutory Stock Option.
10. Limited Rights
The Committee may grant a Limited Right simultaneously with the grant of
any Option to any Key Employee of the Bank, with respect to all or some of the
shares covered by such Option. Limited Rights granted under the Plan are subject
to the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable in
whole or in part before the expiration of six months from the date of grant of
the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control of the Company.
The Limited Right may be exercised only when the underlying Option is
eligible to be exercised, provided that the Fair Market Value of the underlying
shares on the day of exercise is greater than the exercise price of the related
Option.
Upon exercise of a Limited Right, the related Option shall cease to be
exercisable. Upon exercise or termination of an Option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of the
difference between the exercise price and the Fair Market Value of the Common
Stock subject to the underlying Option. The Limited Right is transferable only
when the underlying Option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall promptly
receive from the Company an amount of cash equal to the difference between the
Fair Market Value on the Date of Grant of the related Option and the Fair Market
Value of the underlying shares on the date the Limited Right is exercised,
multiplied by the number of shares with respect to which such Limited Right is
being exercised.
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11. Dividend Equivalent Rights
Simultaneously with the grant of any Option to a Participant, the
Committee may grant a Dividend Equivalent Right with respect to all or some of
the shares covered by such Option. Dividend Equivalent Rights granted under this
Plan are subject to the following terms and conditions:
(a) Terms of Rights. The Dividend Equivalent Right provides the
Participant with a cash benefit per share for each share underlying the
unexercised portion of the related Option equal to the amount of any
extraordinary dividend (as defined in Section 11(c)) per share of Common Stock
declared by the Company. The terms and conditions of any Dividend Equivalent
Right shall be evidenced in the Option agreement entered into with the
Participant and shall be subject to the terms and conditions of the Plan. The
Dividend Equivalent Right is transferable only when the related Option is
transferable and under the same conditions.
(b) Payment. Upon the payment of an extraordinary dividend, the
Participant holding a Dividend Equivalent Right with respect to Options or
portions thereof which have vested shall promptly receive from the Company or
the Bank the amount of cash equal to the amount of the extraordinary dividend
per share of Common Stock, multiplied by the number of shares of Common Stock
underlying the unexercised portion of the related Option. With respect to
Options or portions thereof which have not vested, the amount that would have
been received pursuant to the Dividend Equivalent Right with respect to the
shares underlying such unvested Option or portion thereof shall be paid to the
Participant holding such Dividend Equivalent Right together with earnings
thereon, on such date as the Option or portion thereof becomes vested. Payments
shall be decreased by the amount of any applicable tax withholding prior to
distribution to the Participant as set forth in Section 20.
(c) Extraordinary Dividend. For purposes of this Section 11, an
extraordinary dividend is any dividend paid on shares of Common Stock where the
rate of the dividend exceeds the Company's weighted average cost of funds on
interest-bearing liabilities for the current and preceding three quarters.
12. Reload Option
Simultaneously with the grant of any Option to a Participant, the
Committee may grant a Reload Option with respect to all or some of the shares
covered by such Option. A Reload Option may be granted to a Participant who
satisfies all or part of the exercise price of the Option with shares of Common
Stock (as described in Section 14(c) below). The Reload Option represents an
additional Option to acquire the same number of shares of Common Stock as is
used by the Participant to pay for the original Option. Reload Options may also
be granted to replace Common Stock withheld by the Company for payment of a
Participant's withholding tax under Section 20. A Reload Option is subject to
all of the same terms and conditions as the original Option except that (i) the
exercise price of the shares of Common Stock subject to the Reload Option will
be determined at the time the original Option is exercised and (ii) such Reload
Option will conform to all provisions of the Plan at the time the original
Option is exercised.
13. Surrender of Option
In the event of a Participant's termination of employment or termination
of service as a result of death, Disability, Normal Retirement or in connection
with a Change in Control, the Participant (or his or her personal
representative(s), heir(s), or devisee(s)) may, in a form acceptable to the
Committee make application to surrender all or part of the Options held by such
Participant in exchange for a cash payment from the Company of an amount equal
to the difference between the Fair Market Value of the Common Stock on the date
of termination of employment or the date of termination of service on the Board
and the exercise price per share of the Option. Whether the Company accepts such
application or determines to make payment, in whole or part, is within its
absolute and sole discretion, it being expressly understood that the Company is
under no obligation to any Participant whatsoever to make such payments. In the
event that the Company accepts such application and determines to make payment,
such payment shall be in lieu of the exercise of the underlying Option and such
Option shall cease to be exercisable.
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14. Alternate Option Payment Mechanism
The Committee has sole discretion to determine what form of payment it
will accept for the exercise of an Option. The Committee may indicate acceptable
forms in the agreement with the Participant covering such Options or may reserve
its decision to the time of exercise. No Option is to be considered exercised
until payment in full is accepted by the Committee or its agent.
(a) Cash Payment. The exercise price may be paid in cash or by certified
check. To the extent permitted by law, the Committee may permit all or a portion
of the exercise price of an Option to be paid through borrowed funds.
(b) Cashless Exercise. Subject to vesting requirements, if applicable, a
Participant may engage in a "cashless exercise" of the Option. Upon a cashless
exercise, the Participant shall give the Company written notice of the exercise
of the Option together with an order to a registered broker-dealer or equivalent
third party, to sell part or all of the Common Stock subject to the Option and
to deliver enough of the proceeds to the Company to pay the Option exercise
price and any applicable withholding taxes. If the Participant does not sell the
Common Stock subject to the Option through a registered broker-dealer or
equivalent third party, the Participant can give the Company written notice of
the exercise of the Option and the third party purchaser of the Common Stock
subject to the Option shall pay the Option exercise price plus applicable
withholding taxes to the Company.
(c) Exchange of Common Stock. The Committee may permit payment of the
Option exercise price by the tendering of previously acquired shares of Common
Stock. All shares of Common Stock tendered in payment of the exercise price of
an Option shall be valued at the Fair Market Value of the Common Stock on the
date prior to the date of exercise. No tendered shares of Common Stock which
were acquired by the Participant upon the previous exercise of an Option or as
awards under a stock award plan (such as the Company's Recognition and Retention
Plan) shall be accepted for exchange unless the Participant has held such shares
(without restrictions imposed by said plan or award) for at least six months
prior to the exchange.
15. Rights of a Stockholder
A Participant shall have no rights as a stockholder with respect to any
shares covered by a Non-Statutory and/or Incentive Stock Option until the date
of issuance of a stock certificate for such shares. Nothing in the Plan or in
any Award granted confers on any person any right to continue in the employ of
the Company or its Affiliates or to continue to perform services for the Company
or its Affiliates or interferes in any way with the right of the Company or its
Affiliates to terminate his services as an officer, director or employee at any
time.
16. Agreement with Participants
Each Award of Options, Reload Options, Limited Rights and/or Dividend
Equivalent Rights will be evidenced by a written agreement, executed by the
Participant and the Company or its Affiliates that describes the conditions for
receiving the Awards, including the date of Award, the purchase price,
applicable periods, and any other terms and conditions as may be required by the
Board or applicable securities laws.
17. Designation of Beneficiary
A Participant may, with the consent of the Committee, designate a person
or persons to receive, in the event of death, any Option, Reload Options,
Limited Rights or Dividend Equivalent Rights to which he would then be entitled.
Such designation will be made upon forms supplied by and delivered to the
Company and may be revoked in writing. If a Participant fails effectively to
designate a Beneficiary, then his estate will be deemed to be the Beneficiary.
18. Dilution and Other Adjustments
In the event of any change in the outstanding shares of Common Stock of
the Company by reason of any stock dividend or split, pro rata return of capital
to all shareholders, recapitalization, or any merger, consolidation, spin-off,
reorganization, combination or exchange of shares, or other similar corporate
change, or other increase or
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decrease in such shares without receipt or payment of consideration by the
Company, the Committee will make such adjustments to previously granted Awards,
to prevent dilution or enlargement of the rights of the Participant, including
any or all of the following:
(a) adjustments in the aggregate number or kind of shares of Common Stock
that may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common Stock
covered by Awards already made under the Plan; or
(c) adjustments in the purchase price of outstanding Incentive and/or
Non-Statutory Stock Options, or any Limited Rights attached to such Options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. With respect to
Incentive Stock Options, no such adjustment shall be made if it would be deemed
a "modification" of the Award under Section 424 of the Code.
19. Effect of a Change in Control on Option Awards
In the event of a Change in Control, the Committee and the Board of
Directors will take one or more of the following actions to be effective as of
the date of such Change in Control:
(a) provide that such Options shall be assumed, or equivalent options
shall be substituted, ("Substitute Options") by the acquiring or succeeding
corporation (or an affiliate thereof), provided that: (A) any such Substitute
Options exchanged for Incentive Stock Options shall meet the requirements of
Section 424(a) of the Code, and (B) the shares of stock issuable upon the
exercise of such Substitute Options shall constitute securities registered in
accordance with the Securities Act of 1933, as amended ("1933 Act") or such
securities shall be exempt from such registration in accordance with Sections
3(a)(2) or 3(a)(5) of the 1933 Act, (collectively, "Registered Securities"), or
in the alternative, if the securities issuable upon the exercise of such
Substitute Options shall not constitute Registered Securities, then the
Participant will receive upon consummation of the Change in Control a cash
payment for each Option surrendered equal to the difference between the (1) Fair
Market Value of the consideration to be received for each share of Common Stock
in the Change in Control times the number of shares of Common Stock subject to
such surrendered Options, and (2) the aggregate exercise price of all such
surrendered Options; or
(b) in the event of a transaction under the terms of which the holders of
Common Stock will receive upon consummation thereof a cash payment (the "Merger
Price") for each share of Common Stock exchanged in the Change in Control
transaction, make or to provide for a cash payment to the Participants equal to
the difference between (1) the Merger Price times the number of shares of Common
Stock subject to such Options held by each Participant (to the extent then
exercisable at prices not in excess of the Merger Price) and (2) the aggregate
exercise price of all such surrendered Options.
20. Withholding
There may be deducted from each distribution of cash and/or Common Stock
under the Plan the minimum amount of any federal or state taxes, including
payroll taxes, that are required by any governmental authority to be withheld.
Shares of Common Stock will be withheld where required from any distribution of
Common Stock.
21. Amendment of the Plan
The Board may at any time, and from time to time, modify or amend the Plan
in any respect, or modify or amend an Award received by Key Employees and/or
Outside Directors; provided, however, that no such termination, modification or
amendment may affect the rights of a Participant, without his consent, under an
outstanding Award. Any amendment or modification of the Plan or an outstanding
Award under the Plan shall be approved by the Committee or the full Board of the
Company.
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22. Effective Date of Plan
The Plan shall become effective upon the date of, or a date determined by
the Board of Directors following, approval of the Plan by the Company's
stockholders.
23. Termination of the Plan
The right to grant Awards under the Plan will terminate upon the earlier
of (i) 10 years after the Effective Date, or (ii) the date on which the exercise
of Options or related rights equaling the maximum number of shares reserved
under the Plan occurs, as set forth in Section 5. The Board may suspend or
terminate the Plan at any time, provided that no such action will, without the
consent of a Participant, adversely affect his rights under a previously granted
Award.
24. Applicable Law
The Plan will be administered in accordance with the laws of the State of
Delaware.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed by its
duly authorized officers and the corporate seal to be affixed and duly attested,
as of the ____ day of ________________, 2003.
Date Approved by Stockholders:______________________________
Effective Date:_____________________________________________
ATTEST: FIRST FEDERAL BANKSHARES, INC.
__________________________ _____________________________________
Secretary Barry E. Backhaus
President and Chief Executive Officer
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Appendix B
FIRST FEDERAL BANKSHARES, INC.
AMENDED AND RESTATED
1999 RECOGNITION AND RETENTION PLAN
1. Establishment of the Plan
First Federal Bankshares, Inc. (the "Company") hereby establishes the
First Federal Bankshares, Inc. Amended and Restated 1999 Recognition and
Retention Plan (the "Plan") upon the terms and conditions hereinafter stated in
the Plan.
2. Purpose of the Plan
The purpose of the Plan is to advance the interests of the Company and its
stockholders by providing Key Employees and Outside Directors of the Company and
its Affiliates, including First Federal Bank, upon whose judgment, initiative
and efforts the successful conduct of the business of the Company and its
Affiliates largely depends, with compensation for their contributions to the
Company and its Affiliates and an additional incentive to perform in a superior
manner, as well as to attract people of experience and ability.
3. Definitions
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural:
"Affiliate" means any "parent corporation" or "subsidiary corporation" of
the Company or the Bank, as such terms are defined in Section 424(e) and (f),
respectively, of the Code, or a successor to a parent corporation or subsidiary
corporation.
"Award" means the grant by the Committee of Restricted Stock, as provided
in the Plan.
"Bank" means First Federal Bank, or a successor corporation.
"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.
"Board" or "Board of Directors" means the Board of Directors of the
Company or an Affiliate, as applicable. For purposes of Section 4 of the Plan,
"Board" shall refer solely to the Board of the Company.
"Cause" means personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or a final cease-and-desist order, any
of which results in a material loss to the Company or an Affiliate.
"Change in Control" of the Bank or the Company means a change in control
of a nature that: (i) would be required to be reported in response to Item 1(a)
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) results in a Change in Control of the Company within the meaning of the
Home Owners Loan Act, as amended ("HOLA"), and applicable rules and regulations
promulgated thereunder, as in effect at the time of the Change in Control; or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (a) any "person"
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(as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's outstanding securities except
for any securities purchased by the Bank's employee stock ownership plan or
trust; or (b) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Company's stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (b), considered
as though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Company or similar transaction in which the Bank or
the Company is not the surviving institution occurs; or (d) a proxy statement
soliciting proxies from stockholders of the Company, by someone other than the
current management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company or similar transaction
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the Plan are to be exchanged for or
converted into cash or property or securities not issued by the Company; or (e)
a tender offer is made for 25% or more of the voting securities of the Company
and the shareholders owning beneficially or of record 25% or more of the
outstanding securities of the Company have tendered or offered to sell their
shares pursuant to such tender offer and such tendered shares have been accepted
by the tender offeror.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a Committee of the Board consisting of either (i) at
least two Non-Employee Directors of the Company, or (ii) the entire Board of the
Company.
"Common Stock" means shares of the common stock of the Company, par value
$0.01 per share.
"Company" means First Federal Bankshares, Inc., the stock holding company
of the Bank, or a successor corporation.
"Continuous Service" means employment as a Key Employee and/or service as
an Outside Director without any interruption or termination of such employment
and/or service. Continuous Service shall also mean a continuation as a member of
the Board of Directors following a cessation of employment as a Key Employee. In
the case of a Key Employee, employment shall not be considered interrupted in
the case of sick leave, military leave or any other leave of absence approved by
the Bank or in the case of transfers between payroll locations of the Bank or
between the Bank, its parent, its subsidiaries or its successor.
"Director" means a member of the Board.
"Disability" means the permanent and total inability by reason of mental
or physical infirmity, or both, of an employee to perform the work customarily
assigned to him, or of a Director to serve as such. Additionally, in the case of
an employee, a medical doctor selected or approved by the Board must advise the
Committee that it is either not possible to determine when such Disability will
terminate or that it appears probable that such Disability will be permanent
during the remainder of such employee's lifetime.
"Effective Date" means initially October 21, 1999, the date the Plan was
initially approved by the Company's stockholders. The Effective Date of the
amended and restated Plan shall be the date on which this amendment and
restatement is approved by the Company's stockholders.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Key Employee" means any person who is currently employed by the Company
or an Affiliate who is chosen by the Committee to participate in the Plan.
"Non-Employee Director" means, for purposes of the Plan, a Director who
(a) is not employed by the Company or an Affiliate; (b) does not receive
compensation directly or indirectly as a consultant (or in any other
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capacity than as a Director) greater than $60,000; (c) does not have an interest
in a transaction requiring disclosure under Item 404(a) of Regulation S-K; or
(d) is not engaged in a business relationship for which disclosure would be
required pursuant to Item 404(b) of Regulation S-K.
"Normal Retirement" means for a Key Employee, retirement at the normal or
early retirement date set forth in the Bank's Employee Stock Ownership Plan, or
any successor plan. Normal Retirement for an Outside Director means a cessation
of service on the Board of Directors for any reason other than removal for
Cause, after reaching 60 years of age and maintaining at least 10 years of
Continuous Service.
"Outside Director" means a Director of the Company or an Affiliate who is
not an employee of the Company or an Affiliate.
"Recipient" means a Key Employee or Outside Director of the Company or its
Affiliates who receives or has received an Award under the Plan.
"Restricted Period" means the period of time selected by the Committee for
the purpose of determining when restrictions are in effect under Section 6 with
respect to Restricted Stock awarded under the Plan.
"Restricted Stock" means shares of Common Stock that have been
contingently awarded to a Recipient by the Committee subject to the restrictions
referred to in Section 6, so long as such restrictions are in effect.
4. Administration of the Plan
(a) Role of the Committee. The Plan shall be administered and interpreted
by the Committee, which shall have all of the powers allocated to it in the
Plan. The interpretation and construction by the Committee of any provisions of
the Plan or of any Award granted hereunder shall be final and binding. 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 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.
(b) Role of the Board. The members of the Committee 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. The Board shall have all of the powers allocated to it in the Plan,
may take any action under or with respect to the Plan that the Committee is
authorized to take, and may reverse or override any action taken or decision
made by the Committee under or with respect to the Plan, provided, however, that
except as provided in Section 6(b), the Board may not revoke any Award except in
the event of revocation for Cause.
(c) Plan Administration Restrictions. All transactions involving a grant,
award or other acquisitions from the Company shall:
(i) be approved by the Company's full Board or by the Committee;
(ii) be approved, or ratified, in compliance with Section 14 of the
Exchange Act, by either: the affirmative vote of the holders of a majority of
the shares present, or represented and entitled to vote at a meeting duly held
in accordance with the laws under which the Company is incorporated; or the
written consent of the holders of a majority of the securities of the issuer
entitled to vote provided that such ratification occurs no later than the date
of the next annual meeting of shareholders; or
(iii) result in the acquisition of Common Stock that is held by the
Recipient for a period of six months following the date of such acquisition.
(d) 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 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
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him in such capacity under or with respect to the Plan, the Bank or the Company
shall indemnify such member against expense (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
Bank and the Company and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
5. Eligibility; Awards
(a) Eligibility. Key Employees and Outside Directors are eligible to
receive Awards.
(b) Awards to Key Employees and Outside Directors. The Committee may
determine which of the Key Employees and Outside Directors referenced in Section
5(a) will be granted Awards and the number of shares covered by each Award;
provided, however, that in no event shall any Awards be made that will violate
the Bank's Charter and Bylaws, the Company's Certificate of Incorporation and
Bylaws, or any applicable federal or state law or regulation. Shares of
Restricted Stock that are awarded by the Committee shall, on the date of the
Award, be registered in the name of the Recipient and transferred to the
Recipient, in accordance with the terms and conditions established under the
Plan. The aggregate number of shares that shall be issued under the Plan is
79,050. The shares with respect to which Awards may be made under the Plan may
be either authorized but unissued shares or issued shares reacquired and held as
treasury shares.
In the event Restricted Stock is forfeited for any reason, the Committee,
from time to time, may determine which of the Key Employees and Outside
Directors will be granted additional Awards to be awarded from forfeited
Restricted Stock.
In selecting those Key Employees and Outside Directors to whom Awards will
be granted and the amount of Restricted Stock covered by such Awards, the
Committee shall consider such factors as it deems relevant, which factors may
include, among others, the position and responsibilities of the Key Employees
and Outside Directors, the length and value of their services to the Bank and
its Affiliates, the compensation paid to the Key Employees or fees paid to the
Outside Directors, and the Committee may request the written recommendation of
the Chief Executive Officer and other senior executive officers of the Bank, the
Company and its Affiliates or the recommendation of the full Board. All
allocations by the Committee shall be subject to review, and approval or
rejection, by the Board.
No Restricted Stock shall vest unless the Recipient maintains Continuous
Service with the Bank or an Affiliate until the restrictions lapse.
(c) Manner of Award. As promptly as practicable after a determination is
made pursuant to Section 5(b) to grant an Award, the Committee shall notify the
Recipient in writing of the grant of the Award, the number of shares of
Restricted Stock covered by the Award, and the terms upon which the Restricted
Stock subject to the Award may be earned. Upon notification of an Award of
Restricted Stock, the Recipient shall execute and return to the Company a
restricted stock agreement (the "Restricted Stock Agreement") setting forth the
terms and conditions under which the Recipient shall earn the Restricted Stock,
together with a stock power or stock powers endorsed in blank. Thereafter, the
Recipient's Restricted Stock and stock power shall be deposited with an escrow
agent specified by the Company ("Escrow Agent") who shall hold such Restricted
Stock under the terms and conditions set forth in the Restricted Stock
Agreement. Each certificate in respect of shares of Restricted Stock Awarded
under the Plan shall be registered in the name of the Recipient.
(d) Treatment of Forfeited Shares. In the event shares of Restricted Stock
are forfeited by a Recipient, such shares shall be returned to the Company and
shall be held and accounted for pursuant to the terms of the Plan until such
time as the Restricted Stock is re-awarded to another Recipient, in accordance
with the terms of the Plan and the applicable state and federal laws, rules and
regulations.
6. Terms and Conditions of Restricted Stock
The Committee shall have full and complete authority, subject to the
limitations of the Plan, to grant awards of Restricted Stock to Key Employees
and Outside Directors and, in addition to the terms and conditions
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contained in Sections 6(a) through 6(h), to provide such other terms and
conditions (which need not be identical among Recipients) in respect of such
Awards, and the vesting thereof, as the Committee shall determine.
(a) General Rules. Restricted Stock shall vest in a Recipient at the rate
or rates determined by the Committee. No shares shall vest in any year in which
the Bank is not meeting all of its fully phased-in capital requirements. Subject
to any such other terms and conditions as the Committee shall provide with
respect to Awards, shares of Restricted Stock may not be sold, assigned,
transferred (within the meaning of Code Section 83), pledged or otherwise
encumbered by the Recipient, except as hereinafter provided, during the
Restricted Period.
(b) Continuous Service; Forfeiture. Except as provided in Section 6(c), if
a Recipient ceases to maintain Continuous Service for any reason (other than
death, Disability, Normal Retirement or Change in Control), unless the Committee
shall otherwise determine, all shares of Restricted Stock theretofore awarded to
such Recipient and which at the time of such termination of Continuous Service
are subject to the restrictions imposed by Section 6(a) shall upon such
termination of Continuous Service be forfeited. Any stock dividends or declared
but unpaid cash dividends attributable to such shares of Restricted Stock shall
also be forfeited.
(c) Exception for Termination Due to Death, Disability, Normal Retirement
or Change in Control. Notwithstanding the general rule contained in Section
6(a), Restricted Stock awarded to a Recipient whose employment with the Company
or an Affiliate or service on the Board terminates due to death, Disability,
Normal Retirement or Change in Control shall be deemed to vest as of the
Recipient's last day of employment with the Company or an Affiliate, or last day
of service on the Board of the Company or an Affiliate; provided that Restricted
Stock awarded to a Key Employee who at any time also serves as a Director, shall
not be deemed to vest until both employment and service as a Director have been
terminated.
(d) Revocation for Cause. Notwithstanding anything hereinafter to the
contrary, the Board may by resolution immediately revoke, rescind and terminate
any Award, or portion thereof, previously awarded under the Plan, to the extent
Restricted Stock has not been redelivered by the Escrow Agent to the Recipient,
whether or not yet vested, in the case of a Key Employee whose employment is
terminated by the Company or an Affiliate or an Outside Director whose service
is terminated by the Company or an Affiliate for Cause or who is discovered
after termination of employment or service on the Board to have engaged in
conduct that would have justified termination for Cause.
(e) Restricted Stock Legend. Each certificate in respect of shares of
Restricted Stock awarded under the Plan shall be registered in the name of the
Recipient and deposited by the Recipient, together with a stock power endorsed
in blank, with the Escrow Agent and shall bear the following (or a similar)
legend:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and conditions
(including forfeiture) contained in the First Federal Bankshares,
Inc. Amended and Restated 1999 Recognition and Retention Plan.
Copies of such Plan are on file in the offices of the Secretary of
First Federal Bankshares, Inc., 329 Pierce Street, Sioux City, Iowa
51102."
(f) Payment of Dividends and Return of Capital. After an Award has been
granted but before such Award has vested, the Recipient shall receive any cash
dividends paid with respect to such shares, or shall share in any pro-rata
return of capital to all shareholders with respect to the Common Stock. Stock
dividends declared by the Company and paid on Awards that have not yet vested
shall be subject to the same restrictions as the Restricted Stock and the
certificate(s) or other instruments representing or evidencing such shares shall
be legended in the manner provided in Section 6(e) and shall be delivered to the
Escrow Agent for distribution to the Recipient when the Restricted Stock upon
which such dividends were paid are vested. Unless the Recipient has made an
election under Section 83(b) of the Code, cash dividends or other amounts so
paid on shares that have not yet vested shall be treated as compensation income
to the Recipient when paid. If dividends are paid with respect to shares of
Restricted Stock under the Plan that have been issued but not awarded, or that
have been forfeited and returned to the Company or to a trust established to
hold issued and unawarded or forfeited shares, the Committee can determine to
award such dividends to any Recipient or Recipients under the Plan, to any other
employee or director of the Company or the Bank, or can return such dividends to
the Company.
B-5
(g) Voting of Restricted Shares. After an Award has been granted, the
Recipient as conditional owner of the Restricted Stock shall have the right to
vote such shares.
(h) Delivery of Earned Shares. At the expiration of the restrictions
imposed by Section 6(a), the Escrow Agent shall redeliver to the Recipient (or
where the relevant provision of Section 6(b) applies in the case of a deceased
Recipient, to his Beneficiary) the certificate(s) and any remaining stock power
deposited with it pursuant to Section 5(c) and the shares represented by such
certificate(s) shall be free of the restrictions referred to Section 6(a).
7. Adjustments upon Changes in Capitalization
In the event of any change in the outstanding shares subsequent to the
Effective Date by reason of any reorganization, recapitalization, stock split,
stock dividend, combination or exchange of shares, or any merger, consolidation
or any change in the corporate structure or shares of the Company, without
receipt or payment of consideration by the Company, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan shall be
appropriately adjusted by the Committee, whose determination shall be
conclusive. Any shares of stock or other securities received, as a result of any
of the foregoing, by a Recipient with respect to Restricted Stock shall be
subject to the same restrictions and the certificate(s) or other instruments
representing or evidencing such shares or securities shall be legended and
deposited with the Escrow Agent in the manner provided in Section 6(e).
8. Assignments and Transfers
No Award nor any right or interest of a Recipient under the Plan in any
instrument evidencing any Award under the Plan may be assigned, encumbered or
transferred (within the meaning of Code Section 83) except, in the event of the
death of a Recipient, by will or the laws of descent and distribution until such
Award is earned.
9. Key Employee Rights under the Plan
No Key Employee shall have a right to be selected as a Recipient nor,
having been so selected, to be selected again as a Recipient and no Key Employee
or other person shall have any claim or right to be granted an Award under the
Plan or under any other incentive or similar plan of the Bank or any Affiliate.
Neither the Plan nor any action taken thereunder shall be construed as giving
any Key Employee any right to be retained in the employ of the Bank or any
Affiliate.
10. Outside Director Rights under the Plan
Neither the Plan nor any action taken thereunder shall be construed as
giving any Outside Director any right to be retained in the service of the Bank
or any Affiliate.
11. Withholding Tax
Upon the termination of the Restricted Period with respect to any shares
of Restricted Stock (or at any such earlier time, if any, that an election is
made by the Recipient under Section 83(b) of the Code, or any successor
provision thereto, to include the value of such shares in taxable income), the
Bank or the Company shall have the right to require the Recipient or other
person receiving such shares to pay the Bank or the Company the minimum amount
of any federal or state taxes, including payroll taxes, that are applicable to
such supplemental income and that the Bank or the Company is required to
withhold with respect to such shares, or, in lieu thereof, to retain or sell
without notice, a sufficient number of shares held by it to cover the amount
required to be withheld. The Bank or the Company shall have the right to deduct
from all dividends paid with respect to shares of Restricted Stock the amount of
any taxes which the Bank or the Company is required to withhold with respect to
such dividend payments.
B-6
12. Amendment or Termination
The Board of the Company may amend, suspend or terminate the Plan or any
portion thereof at any time, provided, however, that no such amendment,
suspension or termination shall impair the rights of any Recipient, without his
consent, in any Award theretofore made pursuant to the Plan. Any amendment or
modification of the Plan or an outstanding Award under the Plan shall be
approved by the Committee, or the full Board of the Company.
13. Governing Law
The Plan shall be governed by the laws of the State of Delaware.
14. Term of Plan
The Plan shall become effective on the date of, or a date determined by
the Board of Directors following, approval of the Plan by the Company's
stockholders. It shall continue in effect until the earlier of (i) ten years
from the Effective Date unless sooner terminated under Section 12 hereof, or
(ii) the date on which all shares of Common Stock available for award hereunder,
have vested in the Recipients of such Awards.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed by its
duly authorized officers and the corporate seal to be affixed and duly attested,
as of the ____ day of ________________, 2003.
Date Approved by Shareholders:_________________________
Effective Date:________________________________________
ATTEST: FIRST FEDERAL BANKSHARES, INC.
_____________________________ _____________________________________
Secretary Barry E. Backhaus
President and Chief Executive Officer
B-7
REVOCABLE PROXY
FIRST FEDERAL BANKSHARES, INC.
ANNUAL MEETING OF STOCKHOLDERS
October 30, 2003
The undersigned hereby appoints the official proxy committee consisting of
the members of the Board of Directors of First Federal Bankshares, Inc. (the
"Company") who are not named as nominees below, with full powers of substitution
to act as attorneys and proxies for the undersigned to vote all shares of Common
Stock of the Company that the undersigned is entitled to vote at the 2003 Annual
Meeting of Stockholders ("Meeting") to be held at the Sioux City Convention
Center, 801 4th Street, Sioux City, Iowa, at 9:00 a.m. (Iowa time) on October
30, 2003. The official proxy committee is authorized to cast all votes to which
the undersigned is entitled as follows:
VOTE
FOR WITHHELD
--- --------
1. The election as directors of all nominees |_| |_|
listed below (except as marked to the
contrary below) for the respective terms
specified in the proxy statement:
Jon G. Cleghorn
Steven L. Opsal
David Van Engelenhoven
INSTRUCTION: To withhold your vote for one or more
nominees, write the name of the nominee(s) on the line(s) below.
_______________________________
_______________________________
_______________________________
FOR AGAINST ABSTAIN
--- ------- -------
2. The ratification of the appointment of
McGladrey & Pullen, LLP as auditors for the
fiscal year ending June 30, 2004. |_| |_| |_|
3. The approval of the amendment of the 1999
Stock Option Plan. |_| |_| |_|
4. The approval of the amendment of the 1999
Recognition and Retention Plan. |_| |_| |_|
The Board of Directors recommends a vote "FOR" Proposals 1, 2, 3 and 4.
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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE MAJORITY
OF THE BOARD OF DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF
NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or at
any adjournment thereof and after notification to the Secretary of the Company
at the Meeting of the stockholder's decision to terminate this proxy, then the
power of said attorneys and proxies shall be deemed terminated and of no further
force and effect. This proxy may also be revoked by sending written notice to
the Secretary of the Company at the address set forth on the Notice of Annual
Meeting of Stockholders, or by the filing of a later dated proxy prior to a vote
being taken on a particular proposal at the Meeting.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of notice of the Meeting, a proxy statement dated
September 24, 2003, and audited financial statements.
Dated:__________________________ |_| Check Box if You Plan to Attend
Annual Meeting
_____________________________________ ___________________________________
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
_____________________________________ ___________________________________
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder should sign.
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Please complete and date this proxy and return it promptly
in the enclosed postage-prepaid envelope.
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