[LETTERHEAD]
March 25, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of First Federal Bancshares of Arkansas, Inc. The meeting will be held at the
Comfort Inn located at 1210 Highway 62-65 North, Harrison, Arkansas 72601, on
Wednesday, April 21, 1999 at 10:00 a.m., Central Time. The matters to be
considered by stockholders at the Annual Meeting are described in the
accompanying materials.
It is very important that you be represented at the Annual Meeting
regardless of the number of shares you own or whether you are able to attend the
meeting in person. We urge you to mark, sign, and date your proxy card today and
return it in the envelope provided, even if you plan to attend the Annual
Meeting. This will not prevent you from voting in person, but will ensure that
your vote is counted if you are unable to attend. FOR THE REASONS SET FORTH IN
THE PROXY STATEMENT, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" EACH
MATTER TO BE CONSIDERED.
Your continued support of and interest in First Federal Bancshares of
Arkansas, Inc. are sincerely appreciated.
Sincerely,
/s/ Larry J. Brandt
-----------------------------------
Larry J. Brandt
President
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
200 WEST STEPHENSON
HARRISON, ARKANSAS 72601
(870) 741-7641
--------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 21, 1999
--------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Annual
Meeting") of First Federal Bancshares of Arkansas, Inc. (the "Company") will be
held at the Comfort Inn located at 1210 Highway 62-65 North, Harrison, Arkansas
72601, on Wednesday, April 21, 1999 at 10:00 a.m., Central Time, for the
following purposes, all of which are more completely set forth in the
accompanying Proxy Statement:
(1) To elect two directors for a term of three years and until their
successors are elected and qualified;
(2) To ratify the appointment by the Board of Directors of Deloitte &
Touche LLP as the Company's independent auditors for the year ending December
31, 1999; and
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof. Management is not aware of any other such
business.
The Board of Directors has fixed March 15, 1999 as the voting record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting. Only those stockholders of record as of the close of
business on that date will be entitled to vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Carolyn M. Thomason
--------------------------------------
Carolyn M. Thomason
Secretary
Harrison, Arkansas
March 25, 1999
- --------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING
OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
- --------------------------------------------------------------------------------
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
--------------
PROXY STATEMENT
--------------
ANNUAL MEETING OF STOCKHOLDERS
APRIL 21, 1999
This Proxy Statement is furnished to holders of common stock, $.01 par
value per share ("Common Stock"), of First Federal Bancshares of Arkansas, Inc.
(the "Company"), the holding company of First Federal Bank of Arkansas, FA (the
"Bank"). The Company acquired all of the Bank's common stock issued in
connection with the conversion of the Bank from mutual to stock form in May
1996. Proxies are being solicited on behalf of the Board of Directors of the
Company to be used at the Annual Meeting of Stockholders ("Annual Meeting") to
be held at the Comfort Inn located at 1210 Highway 62-65 North, Harrison,
Arkansas 72601, on April 21, 1999 at 10:00 a.m., Central Time, for the purposes
set forth in the Notice of Annual Meeting of Stockholders. This Proxy Statement
is first being mailed to stockholders on or about March 25, 1999.
The proxy solicited hereby, if properly signed and returned to the
Company and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted FOR the matters described below and, upon the
transaction of such other business as may properly come before the meeting, in
accordance with the best judgment of the persons appointed as proxies. Any
stockholder giving a proxy has the power to revoke it at any time before it is
exercised by (i) filing with the Secretary of the Company written notice thereof
(Carolyn M. Thomason, Secretary, First Federal Bancshares of Arkansas, Inc.,
P.O. Box 550, Harrison, Arkansas 72602); (ii) submitting a duly-executed proxy
bearing a later date; or (iii) appearing at the Annual Meeting and giving the
Secretary notice of his or her intention to vote in person. Proxies solicited
hereby may be exercised only at the Annual Meeting and any adjournment thereof
and will not be used for any other meeting.
VOTING
Only stockholders of record at the close of business on March 15, 1999
("Voting Record Date") will be entitled to vote at the Annual Meeting. On the
Voting Record Date, there were 4,418,697 shares of Common Stock outstanding and
the Company had no other class of equity securities outstanding. Each share of
Common Stock is entitled to one vote at the Annual Meeting on all matters
properly presented at the meeting. Directors are elected by a plurality of the
votes cast with a quorum present. Abstentions are considered in determining the
presence of a quorum and will not affect the plurality vote required for the
election of directors. The affirmative vote of the holders of a majority of the
total votes present in person or by proxy is required to ratify the appointment
of the independent auditors. Under rules of the New York Stock Exchange, the
proposal for ratification of the auditors is considered a "discretionary" item
upon which brokerage firms may vote in their discretion on behalf of their
clients if such clients have not furnished voting instructions and for which
there will not be "broker non-votes."
- 2 -
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR
AND EXECUTIVE OFFICERS
ELECTION OF DIRECTORS
The Bylaws of the Company presently provide that the Board of Directors
shall consist of five members, and the Articles of Incorporation and Bylaws of
the Company presently provide that the Board of Directors shall be divided into
three classes as nearly equal in number as possible. The members of each class
are to be elected for a term of three years or until their successors are
elected and qualified, with one class of directors to be elected annually. There
are no arrangements or understandings between the Company and any person
pursuant to which such person has been elected a director. Stockholders of the
Company are not permitted to cumulate their votes for the election of directors.
Other than Frank L. Coffman, Jr., who is the father-in-law of Larry J.
Brandt, no director or executive officer of the Company is related to any other
director or executive officer of the Company by blood, marriage or adoption, and
each of the nominees currently serve as a director of the Company.
Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted for the election of the nominees for director listed
below. If the person or persons named as nominee should be unable or unwilling
to stand for election at the time of the Annual Meeting, the proxies will
nominate and vote for one or more replacement nominees recommended by the Board
of Directors. At this time, the Board of Directors knows of no reason why the
nominees listed below may not be able to serve as directors if elected. Ages are
reflected as of December 31, 1998.
NOMINEES FOR DIRECTOR FOR THREE-YEAR TERM EXPIRING IN 2002
Positions Held with Director
Name Age the Company Since
- --------------------- ----------- ----------------------- ------------
James D. Heuer 81 Director 1957
William F. Smith 85 Director 1962
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
ABOVE NOMINEES FOR DIRECTOR.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
DIRECTORS WHOSE TERMS EXPIRE IN 2000
Positions Held with Director
Name Age the Company Since
- --------------------- ----------- ----------------------- ------------
Frank L. Coffman, Jr. 76 Chairman of the Board and Chief 1961
Executive Officer
John P. Hammerschmidt 76 Director 1966
- 3 -
DIRECTOR WHOSE TERM EXPIRES IN 2001
Positions Held with Director
Name Age the Company Since
- --------------------- ----------- ----------------------- ------------
Larry J. Brandt 50 President, Chief Operating Officer and 1979
Director
Set forth below is information with respect to the principal
occupations of the above listed individuals during at least the last five years.
FRANK L. COFFMAN, JR. Mr. Coffman is Chairman of the Board and Chief
Executive Officer of the Company and the Bank. He became Chairman of the Board
of the Bank in 1979 and its Chief Executive Officer in 1968. Mr. Coffman
initially was employed by the Bank in 1961.
LARRY J. BRANDT. Mr. Brandt is President and Chief Operating Officer
and a director of the Company and the Bank. He became President and Managing
Officer of the Bank in 1987 and its Chief Operating Officer in 1984. Mr. Brandt
initially was employed by the Bank in 1973.
JOHN P. HAMMERSCHMIDT. Mr. Hammerschmidt is a director of the Company
and the Bank. He is a former United States Congressman from Arkansas
(1966-1993).
JAMES D. HEUER. Mr. Heuer is a director of the Company and the Bank. He
is engaged in the raising of cattle in Harrison, Arkansas.
WILLIAM F. SMITH. Mr. Smith is a director of the Company and the Bank.
Now retired, he was a pharmacist serving the Harrison, Arkansas area.
STOCKHOLDER NOMINATIONS
Article VII.D of the Company's Articles of Incorporation governs
nominations for election to the Board of Directors and requires all such
nominations, other than those made by the Board, to be made at a meeting of
stockholders called for the election of directors, and only by a stockholder who
has complied with the notice provisions in that section. The Articles of
Incorporation set forth specific requirements with respect to stockholder
nominations.
COMMITTEES AND MEETINGS OF THE BOARD OF THE COMPANY AND THE BANK
The Board of Directors of the Company meets on a monthly basis and may
have additional special meetings. During the year ended December 31, 1998, the
Board of Directors of the Company met 14 times. No director attended fewer than
75% of the total number of Board meetings or committee meetings on which he
served that were held during this period.
The Audit Committee consists of Messrs. Hammerschmidt, Heuer and Smith.
The Audit Committee reviews the records and affairs of the Company, meets with
the Bank's internal auditor quarterly, engages the Company's external auditors
and reviews their reports. The Board meets with the Company's external auditors
annually.
The Compensation Committee consists of Messrs. Hammerschmidt, Heuer and
Smith. The Compensation Committee, which reviews and recommends compensation and
benefits for the Company's employees, met once in 1998.
- 4 -
The Board of Directors of the Bank met 14 times during 1998. The Bank
has established an Audit Committee and a Compensation Committee which consist of
Messrs. Hammerschmidt, Heuer and Smith.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Set forth below is information with respect to the principal
occupations during at least the last five years for the executive officers of
the Company and the Bank who do not serve as a director.
CAROLYN M. THOMASON. Mrs. Thomason is the Executive Vice President and
Secretary. She became Executive Vice President for the Bank in 1989 and its
Secretary in 1969. Mrs. Thomason initially was employed by the Bank in 1963.
TOMMY W. RICHARDSON. Mr. Richardson is a Senior Vice President and the
Chief Financial Officer. He became Senior Vice President and Chief Financial
Officer for the Bank in 1993. Mr. Richardson initially was employed by the Bank
in 1984.
SHERRI R. BILLINGS. Mrs. Billings is a Senior Vice President and the
Treasurer. She became Senior Vice President for the Bank in 1993 and its
Treasurer in 1986. Mrs. Billings initially was employed by the Bank in 1979.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), requires the Company's officers and directors, and persons who own
more than 10% of the Company's Common Stock, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC") and the
National Association of Securities Dealers, Inc. Officers, directors and greater
than 10% stockholders are required by regulation to furnish the Company with
copies of all Section 16(a) forms they file. The Company knows of no person who
owns 10% or more of the Company's Common Stock.
Based solely on review of the copies of such forms furnished to the
Company, or written representations from its officers and directors, the Company
believes that during, and with respect to, the year ended December 31, 1998, the
Company's officers and directors satisfied the reporting requirements
promulgated under Section 16(a) of the 1934 Act.
- 5 -
BENEFICIAL OWNERSHIP OF COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Voting Record Date, certain
information as to the Common Stock beneficially owned by (i) each person or
entity, including any "group" as that term is used in Section 13(d)(3) of the
1934 Act, who or which was known to the Company to be the beneficial owner of
more than 5% of the issued and outstanding Common Stock, (ii) the directors of
the Company, (iii) those executive officers of the Company whose salary and
bonus exceeded $100,000 in 1998, and (iv) all directors and executive officers
of the Company and the Bank as a group.
Common Stock
Beneficially Owned as of
Name of Beneficial Owner March 15, 1999(1)
- ------------------------------------------- ---------------------------
No. %
------------- --------
First Federal Bancshares of Arkansas, Inc. 410,138(2) 9.3%
Employee Stock Ownership Trust
200 West Stephenson
Harrison, Arkansas 72601
First Manhattan Co. 323,100(3) 7.3
437 Madison Avenue
New York, New York 10002
Thomson Horstmann & Bryant, Inc. 310,100(3) 7.0
Park 80 West, Plaza Two
Saddle Brook, New Jersey 07663
Directors:
Frank L. Coffman, Jr. 147,273(4) 3.3
Larry J. Brandt 100,472(5) 2.3
John P. Hammerschmidt 28,116(6) *
James D. Heuer 39,730(7) *
William F. Smith 40,616(8) *
Certain other executive officers:
Carolyn M. Thomason 71,442(9) 1.6
All directors and executive officers of the Company
and the Bank as a group (8 persons) 516,006(2)(10) 11.7%
- ---------------
* Represents less than 1% of the outstanding Common Stock.
(1) Based upon information provided by the respective beneficial owners and
filings with the SEC made pursuant to the 1934 Act. For purposes of
this table, pursuant to rules promulgated under the 1934 Act, an
individual is considered to beneficially own shares of Common Stock if
he or she directly or indirectly has or shares (1) voting power, which
includes the power to vote or to direct the voting of the shares, or
(2) investment power, which includes the power to dispose or direct the
disposition of the shares. Unless otherwise indicated, an individual
has sole voting power and sole investment power with respect to the
indicated shares.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
- 6 -
- ---------------
(2) The First Federal Bancshares of Arkansas, Inc. Employee Stock Ownership
Trust ("Trust") was established pursuant to the First Federal
Bancshares of Arkansas, Inc. Employee Stock Ownership Plan ("ESOP") by
an agreement between the Bank and Messrs. Coffman and Brandt and Mrs.
Thomason, directors and/or officers of the Company and the Bank, who
act as trustees of the plan ("Trustees"). As of the Voting Record Date,
108,511 shares held in the Trust had been allocated to the accounts of
participating employees. The Trustees must vote the allocated shares
held in the ESOP in accordance with the instructions of the
participating employees. Under the terms of the ESOP, unallocated
shares held in the ESOP will be voted by the ESOP Trustees in the same
proportion for and against proposals to stockholders of the Company as
participating employees actually vote shares of Common Stock which have
been allocated to their accounts. The amount of Common Stock
beneficially owned by directors who serve as trustees of the ESOP and
by all directors and executive officers as a group does not include the
unallocated shares held by the Trust.
(3) Based on filings made with the SEC.
(4) Includes 1,500 shares held in trust as to which Mr. Coffman is a
trustee, 5,328 shares held in Mr. Coffman's account in the ESOP, 24,738
shares held in the Company's Recognition and Retention Plan (the
"Recognition and Retention Plan") granted to Mr. Coffman and not yet
vested which may be voted by Mr. Coffman, and 20,614 shares which may
be acquired pursuant to the exercise of stock options exercisable
within 60 days of the Voting Record Date.
(5) Includes 29,999 shares held jointly with Mr. Brandt's spouse, 300
shares held jointly with Mr. Brandt's son, 5,328 shares held in Mr.
Brandt's account in the ESOP, 24,738 shares held in the Recognition and
Retention Plan granted to Mr. Brandt and not yet vested which may be
voted by Mr. Brandt, and 20,614 shares which may be acquired pursuant
to the exercise of stock options exercisable within 60 days of the
Voting Record Date.
(6) Includes 9,124 shares held jointly with Mr. Hammerschmidt's spouse,
2,500 shares held by a company owned by Mr. Hammerschmidt, 6,184 shares
held in the Recognition and Retention Plan granted to Mr. Hammerschmidt
and not yet vested which may be voted by Mr. Hammerschmidt, and 10,308
shares which may be acquired pursuant to the exercise of stock options
exercisable within 60 days of the Voting Record Date.
(7) Includes 15,000 shares held jointly with Mr. Heuer's children, 6,184
shares held in the Recognition and Retention Plan granted to Mr. Heuer
and not yet vested which may be voted by Mr. Heuer, and 10,308 shares
which may be acquired pursuant to the exercise of stock options
exercisable within 60 days of the Voting Record Date.
(8) Includes 6,184 shares held in the Recognition and Retention Plan
granted to Mr. Smith and not yet vested which may be voted by Mr.
Smith, and 10,308 shares which may be acquired pursuant to the exercise
of stock options exercisable within 60 days of the Voting Record Date.
(9) Includes 15,491 shares held jointly with Mrs. Thomason's spouse, 5,328
shares held in Mrs. Thomason's account in the ESOP, 570 shares held
individually by Mrs. Thomason's spouse, 24,738 shares held in the
Recognition and Retention Plan granted to Mrs. Thomason and not yet
vested which may be voted by Mrs. Thomason and 20,614 shares which may
be acquired pursuant to the exercise of stock options exercisable
within 60 days of the Voting Record Date.
(10) Includes 24,710 shares allocated to the accounts of executive officers
as a group in the ESOP, 133,994 shares which may be acquired by all
directors and executive officers as a group upon the exercise of stock
options exercisable within 60 days of the Voting Record Date, and
117,504 shares held in the Recognition and Retention Plan on behalf of
all directors and executive officers as a group. The shares held in the
Recognition and Retention Plan are not yet vested.
- 7 -
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of certain information
concerning the compensation paid by the Bank for services rendered in all
capacities during the years ended December 31, 1998, 1997 and 1996 to the Chief
Executive Officer of the Bank and the other executive officers of the Bank whose
total compensation during the year exceeded $100,000.
Annual Compensation Long Term Compensation
----------------------------------- ---------------------------
Awards Payouts
-------------------- ---------
Name and Other Annual Stock Number of LTIP All Other
Principal Position Year Salary(1) Bonus Compensation(2) Grants(3) Options Payouts Compensation(4)
- --------------------------------------------------------------------------------------------------------------------
Frank L. Coffman, Jr. 1998 $339,860 $14,074 $ -- -- -- -- $35,556
Chief Executive Officer 1997 $325,420 $13,150 -- $793,678 51,538 -- $47,968
1996 $310,200 $12,177 -- -- -- -- $22,209
- --------------------------------------------------------------------------------------------------------------------
Larry J. Brandt 1998 $237,140 $15,485 $ -- -- -- -- $35,556
President and Chief 1997 $227,140 $14,470 -- $793,678 51,538 - $47,968
Operating Officer 1996 $216,600 $13,394 -- -- -- -- $22,209
- --------------------------------------------------------------------------------------------------------------------
Carolyn M. Thomason 1998 $199,460 $11,730 $ -- -- -- -- $35,556
Executive Vice 1997 $191,040 $10,960 -- $793,678 51,538 -- $47,968
President 1996 $182,400 $10,147 -- -- -- -- $22,209
- --------------------------------------------------------------------------------------------------------------------
(1) Includes director's fees from the Company and the Bank with respect to
Messrs. Coffman and Brandt. Also includes fees for Mrs. Thomason for
acting as Secretary.
(2) Does not include amounts attributable to miscellaneous benefits
received by the named executive officers. In the opinion of management
of the Company, the costs to the Company of providing such benefits to
the named executive officer during the indicated periods did not exceed
the lesser of $50,000 or 10% of the total of annual salary and bonus
reported for the individual.
(3) Represents the grant of shares of restricted Common Stock pursuant to
the Recognition and Retention Plan, which had the indicated value at
the date of grant and had a fair market value of $767,909 for each of
Messrs. Coffman and Brandt and Mrs. Thomason, at December 31, 1998.
Twenty percent of the shares awarded vested immediately upon grant and
20% vest each year over four years commencing one year from May 20,
1997.
(4) Consists of amounts allocated pursuant to the ESOP based on the market
price per share on the allocation date of December 31, 1998, 1997 and
1996.
DIRECTORS' FEES
Members of the Board of Directors of the Bank receive $1,100 per month.
Directors receive the normal monthly payment regardless of attendance. Members
of the Board serving on committees do not receive any additional compensation
for serving on such committees. Members of the Board of Directors of the Company
receive $200 per month.
- 8 -
EMPLOYMENT AGREEMENTS
In connection with the Bank's May 1996 conversion, the Company and the
Bank (the "Employers") entered into employment agreements with each of Messrs.
Coffman and Brandt and Mrs. Thomason (the "Executives"). The Employers have
agreed to employ the Executives for a term of three years, in each case in their
current respective positions. The employment agreements are reviewed annually by
the Boards of Directors of the Employers, and the term of the Executives'
employment agreements are extended each year for a successive additional
one-year period upon approval of the Employers' Board of Directors, unless
either party elects, not less than 30 days prior to the annual anniversary date,
not to extend the employment term.
Each of the employment agreements are terminable with or without cause
by the Employers. The officer has no right to compensation or other benefits
pursuant to the employment agreement for any period after voluntary termination
or termination by the Employers for cause, disability or retirement. The
agreements provide for certain benefits in the event of the Executives' death.
In the event that (i) the officer terminates his employment because of failure
of the Employers to comply with any material provision of the employment
agreement or the Employers change the officers' title or duties or (ii) the
employment agreement is terminated by the Employers other than for cause,
disability, retirement or death or by the officer as a result of certain adverse
actions which are taken with respect to the officer's employment following a
change in control of the Company, as defined below, the employee will be
entitled to a cash severance amount equal to 3.0 times the employee's average
annual compensation, as defined in the Agreement, over the most recent five
taxable years.
A change in control is generally defined in the employment agreements
to include any change in control of the Company required to be reported under
the federal securities laws, as well as (i) the acquisition by any person of 25%
or more of the Company's outstanding voting securities and (ii) a change in a
majority of the directors of the Company during any two-year period without the
approval of at least two-thirds of the persons who were directors of the Company
at the beginning of such period.
Each employment agreement provides that in the event that any of the
payments to be made thereunder or otherwise upon termination of employment are
deemed to constitute "excess parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), then such
payments and benefits received thereunder shall be reduced, in the manner
determined by the Executive, by the amount, if any, which is the minimum
necessary to result in no portion of the payments and benefits being
non-deductible by the Employers for federal income tax purposes. Excess
parachute payments generally are payments in excess of three times the
recipient's average annual compensation from the employer includable in the
recipient's gross income during the most recent five taxable years ending before
the date on which a change in control of the employer occurred. Recipients of
excess parachute payments are subject to a 20% excise tax on the amount by which
such payments exceed the base amount, in addition to regular income taxes, and
payments in excess of the base amount are not deductible by the employer as
compensation expense for federal income tax purposes.
Although the above-described employment agreements could increase the
cost of any acquisition of control of the Company, management of the Company
does not believe that the terms thereof would have a significant anti-takeover
effect.
BENEFITS
RETIREMENT PLAN. The Bank has a defined benefit pension plan
("Retirement Plan") for all full time employees who have attained the age of 21
years and have completed one year of service with the Bank. In general, the
Retirement Plan provides for annual benefits payable monthly upon retirement at
age 65 in an amount equal to 2% of an employee's average annual salary for the
five consecutive years of highest salary during benefit service ("Five Year
Average Compensation") multiplied by his number of years of service. Under the
Retirement Plan, an employee's benefits are
- 9 -
fully vested after five years of service. A year of service is any year in which
an employee works a minimum of 1,000 hours. Members who have reached age 65 are
automatically 100% vested, regardless of completed years of employment. The
Retirement Plan also provides for an early retirement option with reduced
benefits. The Retirement Plan also provides for death benefits depending on the
age of the participant and the years of service. Death benefits are paid in a
lump sum distribution. For the year ended December 31, 1998, there was no net
pension cost due to the Retirement Plan being currently fully funded.
The following table illustrates annual pension benefits for retirement
at age 65 under various levels of compensation and years of service. The figures
in the table assume that the Retirement Plan continues in its present form and
that the participants elect a straight life annuity form of benefit with a
twelve year certain death benefit.
Five Year Average 15 Years of 20 Years of 25 Years of 30 Years of 35 Years of
Compensation Service Service Service Service Service
- ------------------- ----------------- ----------------- ----------------- ----------- -------------
$ 80,000 $24,000 $32,000 $40,000 $48,000 $56,000
90,000 27,000 36,000 45,000 54,000 63,000
100,000 30,000 40,000 50,000 60,000 70,000
110,000 33,000 44,000 55,000 66,000 77,000
120,000 36,000 48,000 60,000 72,000 84,000
140,000 42,000 56,000 70,000 84,000 98,000
160,000 48,000 64,000 80,000 96,000 112,000
180,000 54,000 72,000 90,000 108,000 126,000
200,000 60,000 80,000 100,000 120,000 140,000
220,000 66,000 88,000 110,000 132,000 154,000
The maximum annual compensation which may be taken into account under
the Code (as adjusted from time to time by the Internal Revenue Service) for
calculating contributions under qualified defined benefit plans currently is
$160,000 and the maximum annual benefit permitted under such plans currently is
$118,000.
At December 31, 1998, Messrs. Coffman and Brandt and Mrs. Thomason had
10, 25 and 35 years, respectively, of credited service under the Retirement
Plan.
STOCK OPTIONS
The following table sets forth certain information concerning exercises
of stock options by the named executive officers during the year ended December
31, 1998 and stock options held at December 31, 1998.
AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR
AND YEAR END OPTION VALUES
Value of
Number of Unexercised
Unexercised Options at
Shares Options at Year End Year End(1)
Acquired on Value ----------------------------------------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------------
Frank L. Coffman, Jr. -- -- 20,614 30,924 $0 $0
Larry J. Brandt -- -- 20,614 30,924 $0 $0
Carolyn M. Thomason -- -- 20,614 30,924 $0 $0
- --------------
(1) Based on a per share market price of $18.625 at December 31, 1998 and
an exercise price of $19.25.
- 10 -
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Bank's policy provides that all loans made by the Bank to its
directors and officers are made in the ordinary course of business, on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons. The
Bank's policy provides that such loans may not involve more than the normal risk
of collectibility or present other unfavorable features. As of December 31,
1998, mortgage and consumer loans to directors and officers aggregated $2.6
million or 3.2% of the Company's stockholders' equity as of such date. All such
loans were made by the Bank in accordance with the aforementioned policy.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Bank
determines the salaries and bonuses of the Bank's three most senior executive
officers. The Committee also reviews and approves the salaries and bonuses for
the Bank's other officers and employees as prepared and submitted to the
Committee by the Bank's senior executive officers. During 1998, the members of
the committee were Messrs. Hammerschmidt (Chairman), Heuer and Smith. No member
of the Committee was a former or current full-time officer or employee of the
Bank or the Company. The Compensation Committee met once during 1998. The report
of the Compensation Committee with respect to compensation for the Chief
Executive Officer and all other Bank officers and employees for the year ended
December 31, 1998 is set forth below:
REPORT OF THE COMPENSATION COMMITTEE
The purpose of the Committee is to assist the Bank in attracting and
retaining qualified management, motivating executives to achieve performance
goals as outlined in the Bank's business plan and to ensure that executive
compensation is related to and supports the Bank's overall objective of
enhancing stockholder value.
In order to establish base salary levels and to determine an annual
cash bonus for the Bank's Chief Executive Officer and other senior executive
officers, the Compensation Committee considered the financial performance of the
Bank, including net income of the Bank and various financial ratios. The
Committee also considered the responsibilities related to being a public
company. Further, with respect to the Bank's other officers and employees, the
Committee reviewed and approved the salary increases and bonuses as submitted by
the Bank's senior executive officers.
Based upon the above factors, the Committee increased Mr. Coffman's
base salary by approximately $13,000 or 4.0% to $338,000 for 1999 and Mr.
Coffman was given a cash bonus of $14,074 for his service during 1998. The
Committee provided for a 4.0% salary increase for the other senior executive
officers and awarded a cash bonus as well.
Following review and approval by the Committee, all issues pertaining
to executive compensation are submitted to the full Board of Directors for their
approval. Messrs. Coffman and Brandt and Mrs. Thomason do not participate in the
review of their compensation.
John P. Hammerschmidt, Chairman
James D. Heuer, Director
William F. Smith, Director
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PERFORMANCE GRAPH
The following graph demonstrates comparison of the cumulative total
returns for the Common Stock of the Company, the SNL Securities $500 million to
$1 Billion Thrift Asset Size Index and the Nasdaq Stock Market Index since the
close of trading of the Company's Common Stock on May 3, 1996.
[GRAPH]
Period Ending
--------------------------------------------------------------------------
Index 5/3/96 6/30/96 12/31/96 6/30/97 12/31/97 6/30/98 12/31/98
- ---------------------------------------------------------------------------------------------------------------------
First Federal Bancshares of Arkansas, Inc. 100.00 106.73 122.12 155.60 184.67 206.17 146.62
NASDAQ - Total US 100.00 100.36 109.02 122.01 133.75 161.03 188.02
SNL $500M-$1B Thrift Index 100.00 104.06 123.60 156.31 208.78 211.42 191.54
The above graph represents $100 invested in the Company's Common Stock
at $13.00 per share, the closing price per share as of May 3, 1996. The Common
Stock commenced trading on the Nasdaq Stock Market on May 3, 1996. The
cumulative total returns do include the payment of dividends by the Company.
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RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors of the Company has appointed Deloitte & Touche
LLP, independent certified public accountants, to perform the audit of the
Company's financial statements for the year ending December 31, 1998, and
further directed that the selection of auditors be submitted for ratification by
the stockholders at the Annual Meeting.
The Company has been advised by Deloitte & Touche LLP that neither that
firm nor any of its associates has any relationship with the Company or its
subsidiaries other than the usual relationship that exists between independent
certified public accountants and clients. Deloitte & Touche LLP will have one or
more representatives at the Annual Meeting who will have an opportunity to make
a statement, if they so desire, and who will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF
THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR THE YEAR
ENDING DECEMBER 31, 1999.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have included in the proxy
materials of the Company relating to the next annual meeting of stockholders of
the Company, which is scheduled to be held in April 2000, must be received at
the principal executive offices of the Company, P.O. Box 550, Harrison, Arkansas
72602 Attention: Carolyn M. Thomason, Secretary, no later than November 25,
1999. If such proposal is in compliance with all of the requirements of Rule
14a-8 under the 1934 Act, it will be included in the proxy statement and set
forth on the form of proxy issued for such annual meeting of stockholders. It is
urged that any such proposals be sent by certified mail, return receipt
requested.
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ANNUAL REPORTS
A copy of the Company's Annual Report to Stockholders for the year
ended December 31, 1998 accompanies this Proxy Statement. Such annual report is
not part of the proxy solicitation materials.
UPON RECEIPT OF A WRITTEN REQUEST, THE COMPANY WILL FURNISH TO ANY
STOCKHOLDER WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR 1998 REQUIRED TO BE FILED UNDER THE 1934 ACT. SUCH WRITTEN REQUESTS SHOULD
BE DIRECTED TO TOMMY W. RICHARDSON, CHIEF FINANCIAL OFFICER, FIRST FEDERAL
BANCSHARES OF ARKANSAS, INC., P.O. BOX 550, HARRISON, ARKANSAS 72602. THE FORM
10-K IS NOT PART OF THE PROXY SOLICITATION MATERIALS.
OTHER MATTERS
Each proxy solicited hereby also confers discretionary authority on the
Board of Directors of the Company to vote the proxy with respect to the election
of any person as a director if the nominee is unable to serve or for good cause
will not serve, matters incident to the conduct of the meeting, and upon such
other matters as may properly come before the Annual Meeting. Management is not
aware of any business that may properly come before the Annual Meeting other
than the matters described above in this Proxy Statement. However, if any other
matters should properly come before the meeting, it is intended that the proxies
solicited hereby will be voted with respect to those other matters in accordance
with the judgment of the persons voting the proxies.
The cost of the solicitation of proxies will be borne by the Company.
The Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending the proxy
materials to the beneficial owners of the Company's Common Stock. In addition to
solicitations by mail, directors, officers and employees of the Company may
solicit proxies personally or by telephone without additional compensation.
YOUR VOTE IS IMPORTANT! WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY
CARD AND RETURN IT TODAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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