<PAGE>
<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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 Subsection 240.14a-11(c) or
Subsection 240.14a-12
FIRST LANCASTER BANCSHARES, INC.
- ----------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
FIRST LANCASTER BANCSHARES, INC.
- ----------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Rules 0-11(c)(1)(iii), 14a-6(i)(1), or
14a-6(i)(2). (NO FEE NOW REQUIRED)
[ ] $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:
_________________________________________________________________
2. Aggregate number of securities to which transaction
applies:
_________________________________________________________________
3. Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11:
_________________________________________________________________
4. Proposed maximum aggregate value of transaction:
_________________________________________________________________
[ ] 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:
____________________________________________<PAGE>
<PAGE>
FIRST LANCASTER BANCSHARES, INC. LETTERHEAD
November 22, 1996
Dear Stockholder:
We invite you to attend the first annual meeting of
stockholders of First Lancaster Bancshares, Inc. to be held at
First Lancaster Federal Savings Bank, 208 Lexington Street,
Lancaster, Kentucky on Thursday, January 9, 1997 at 4:30 p.m.
The accompanying notice and proxy statement describe the
formal business to be transacted at the meeting. During the
meeting, we will also report on the operations of the Company's
wholly owned subsidiary, First Lancaster Federal Savings Bank.
Directors and officers of the Company will be present to respond
to any questions the stockholders may have.
ON BEHALF OF THE BOARD OF DIRECTORS, WE URGE YOU TO SIGN,
DATE AND RETURN THE ACCOMPANYING FORM OF PROXY AS SOON AS
POSSIBLE EVEN IF YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING.
Your vote is important, regardless of the number of shares you
own. This will not prevent you from voting in person but will
assure that your vote is counted if you are unable to attend the
meeting.
Sincerely,
/s/ Virginia R.S. Stump
Virginia R.S. Stump
President<PAGE>
<PAGE>
_________________________________________________________________
FIRST LANCASTER BANCSHARES, INC.
208 Lexington Street
Lancaster, Kentucky 40444-1131
(606) 792-3368
_________________________________________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on January 9, 1997
_________________________________________________________________
NOTICE IS HEREBY GIVEN that the annual meeting of
stockholders (the "Annual Meeting") of First Lancaster
Bancshares, Inc. (the "Company") will be held at First Lancaster
Federal Savings Bank, 208 Lexington Street, Lancaster, Kentucky
on Thursday, January 9, 1997 at 4:30 p.m.
A Proxy Statement and form of proxy for the Annual Meeting
accompany this notice.
The Annual Meeting is for the purpose of considering and
acting upon:
1. The election of two directors of the Company;
2. The approval of the First Lancaster Bancshares, Inc.
1996 Stock Option and Incentive Plan;
3. The approval of the First Lancaster Federal Savings
Bank Management Recognition Plan;
4. The transaction of such other matters as may properly
come before the Annual Meeting or any adjournments
thereof.
The Board of Directors is not aware of any other business to
come before the Annual Meeting.
Any action may be taken on any one of the foregoing pro-
posals at the Annual Meeting on the date specified above or on
any date or dates to which, by original or later adjournment, the
Annual Meeting may be adjourned. Stockholders of record at the
close of business on November 15, 1996 are the stockholders
entitled to vote at the Annual Meeting and any adjournments
thereof.
You are requested to fill in and sign the accompanying form
of proxy which is solicited by the Board of Directors and to mail
it promptly in the accompanying envelope. The proxy will not be
used if you attend and vote at the Annual Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Kathy G. Johnica
KATHY G. JOHNICA
SECRETARY
Lancaster, Kentucky
November 22, 1996
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE
COMPANY THE EXPENSE OF FURTHER REQUESTS FOR PROXIES IN ORDER TO
ENSURE A QUORUM. THE ACCOMPANYING FORM OF PROXY IS ACCOMPANIED
BY A SELF-ADDRESSED ENVELOPE FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.<PAGE>
<PAGE>
_________________________________________________________________
PROXY STATEMENT
OF
FIRST LANCASTER BANCSHARES, INC.
208 Lexington Street
Lancaster, Kentucky 40444-1131
_________________________________________________________________
ANNUAL MEETING OF STOCKHOLDERS
January 9, 1997
_________________________________________________________________
_________________________________________________________________
GENERAL
_________________________________________________________________
This proxy statement is furnished in connection with the
solicitation of proxies by the Board of Directors of First
Lancaster Bancshares, Inc. (the "Company") to be used at the
annual meeting of stockholders (the "Annual Meeting") which will
be held at First Lancaster Federal Savings Bank, 208 Lexington
Street, Lancaster, Kentucky on Thursday, January 9, 1997 at 4:30
p.m. This proxy statement and the accompanying notice and form
of proxy are being first mailed to stockholders on or about
November 22, 1996.
_________________________________________________________________
VOTING AND REVOCABILITY OF PROXIES
_________________________________________________________________
Stockholders who execute proxies retain the right to revoke
them at any time. Unless so revoked, the shares represented by
properly executed proxies will be voted at the Annual Meeting and
all adjournments thereof. Proxies may be revoked by written
notice to Kathy G. Johnica, Secretary of the Company, at the
address shown above, by filing a later dated proxy prior to a
vote being taken on a particular proposal at the Annual Meeting
or by attending the Annual Meeting and voting in person. The
presence of a stockholder at the Annual Meeting will not in
itself revoke such stockholder's proxy.
Proxies solicited by the Board of Directors of the Company
will be voted in accordance with the directions given therein.
Where no instructions are indicated, proxies will be voted for
the nominees for directors set forth below and in favor of each
of the other proposals set forth in this proxy statement for con-
sideration at the Annual Meeting. The proxy confers
discretionary authority on the persons named therein to vote with
respect to the election of any person as a director where the
nominee is unable to serve or for good cause will not serve, and
matters incident to the conduct of the Annual Meeting. If any
other business is presented at the Annual Meeting, proxies will
be voted by those named therein in accordance with the
determination of a majority of the Board of Directors. Proxies
marked as abstentions will not be counted as votes cast. In
addition, shares held in street name which have been designated
by brokers on proxies as not voted will not be counted as votes
cast. Proxies marked as abstentions or as broker non-votes,
however, will be treated as shares present for purposes of
determining whether a quorum is present.
_________________________________________________________________
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
_________________________________________________________________
The securities entitled to vote at the Annual Meeting
consist of the Company's common stock, $.01 par value per share
(the "Common Stock"). Stockholders of record as of the close of
business on November 15, 1996 (the "Record Date") are entitled to
one vote for each share of Common Stock then held. At the Record
Date, the Company had 958,812 shares of Common Stock issued and
outstanding. The presence, in person or by proxy, of at least
one-third of the total number of shares of Common Stock
outstanding and entitled to vote will be necessary to constitute
a quorum at the Annual Meeting.
-1-<PAGE>
<PAGE>
Persons and groups beneficially owning in excess of 5% of
the Common Stock are required to file certain reports regarding
such ownership pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). The following table sets forth,
as of the Record Date, certain information as to the Common Stock
believed by management to be beneficially owned by persons owning
in excess of 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF SHARES OF
NAME AND ADDRESS BENEFICIAL COMMON STOCK
OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING
- ------------------ --------- ------------
<S> <C> <C>
First Lancaster Bancshares, Inc.
Employee Stock Ownership Plan ("ESOP")
208 Lexington Street
Lancaster, Kentucky 21224 76,704 (2) 8.0%
<FN>
______________
(1) In accordance with Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), a
person is deemed to be the beneficial owner, for purposes of
this table, of any shares of Common Stock if he or she has or
shares voting or investment power with respect to such Common
Stock or has a right to acquire beneficial ownership at any
time within 60 days from September 24, 1996. As used herein,
"voting power" is the power to vote or direct the voting of
shares and "investment power" is the power to dispose or
direct the disposition of shares.
(2) These shares are held in a suspense account for future
allocation among participating employees as the loan used to
purchase the shares is repaid. The ESOP trustees, currently
Directors Gay, Sutton and Zanone, vote all allocated shares
in accordance with instructions of the participants.
Unallocated shares and shares for which no instructions have
been received are voted by the ESOP trustees in the same
ratio as participants direct the voting of allocated shares
or, in the absence of such direction, in the ESOP trustees'
best judgment. As of September 24, 1996, no shares had been
allocated.
</FN>
</TABLE>
_________________________________________________________________
PROPOSAL I -- ELECTION OF DIRECTORS
_________________________________________________________________
GENERAL
The Company's Board of Directors consists of seven members.
The Company's Certificate of Incorporation require that directors
be divided into three classes, as nearly equal in number as
possible, with approximately one-third of the directors elected
each year. At the Annual Meeting, two directors will be elected
for a term expiring at the 1999 Annual Meeting. The Board of
Directors has nominated Virginia R.S. Stump and Ronald L. Sutton,
each to serve as directors for a three-year period. All nominees
are currently members of the Board. Under the Company's Bylaws,
directors are elected by a plurality of the votes cast at a
meeting at which a quorum is present.
It is intended that the persons named in the proxies
solicited by the Board of Directors will vote for the election of
the named nominees. If any nominee is unable to serve, the
shares represented by all valid proxies will be voted for the
election of such substitute as the Board of Directors may
recommend or the size of the Board may be reduced to eliminate
the vacancy. At this time, the Board knows of no reason why any
nominee might be unavailable to serve.
The following table sets forth, for each nominee for
director and continuing director of the Company, his or her age,
the year he or she first became a director First Lancaster
Federal Savings Bank (the "Bank"), which is the Company's
principal operating subsidiary, and the expiration of his or her
term as a director. All such persons were appointed as directors
in 1996 in connection with the incorporation and organization of
the Company. Each director of the Company also is a member of
the Board of Directors of the Bank.
-2-<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Year First
Age at Elected as Current
June 30, Director of Term
Name 1996 the Bank to Expire
- ---- --------- ----------- ---------
<S> <C> <C> <C>
BOARD NOMINEES FOR TERMS TO EXPIRE IN 1999
Virginia R.S. Stump 41 1983 1996
Ronald L. Sutton 50 1992 1996
DIRECTORS CONTINUING IN OFFICE
Roger S. Grubbs 79 1979 1997
Tony A. Merida 38 1991 1997
Jack C. Zanone 75 1978 1997
David W. Gay 58 1992 1998
Jane G. Simpson 69 1985 1998
</TABLE>
Set forth below is information concerning the Company's
directors. Unless otherwise stated, all directors have held the
positions indicated for at least the past five years.
VIRGINIA R.S. STUMP is President and Chief Executive Officer
of the Bank, a position in which she has served since 1985, and
has been a member of the Board of Directors since 1983 and
Chairman of the Board since 1993. Ms. Stump also is Chairman of
the Board of Directors, President and Chief Executive Officer of
the Company. Ms. Stump joined the Bank in 1973 and, prior to
assuming her current position, served as Secretary/Treasurer of
the Bank from 1980 to 1985. Prior to 1980, Ms. Stump served in
various other positions in the Bank. Ms. Stump is also an owner
in Garrard County's Bestway, a family-owned grocery store and
flower shop. Ms. Stump is currently a member of the Garrard
County Literacy Council and the Garrard County Community
Education Board, and has previously served on the Housing
Authority of Lancaster and the Garrard County Industrial Board
and has served as co-chair of the Garrard County Tobacco
Festival.
RONALD L. SUTTON has practiced as a pharmacist since 1968
and has been employed in such capacity by Garrard County Memorial
Hospital since 1987. He was a member of the Advisory Board for
the Family Resources Center of Garrard County and has previously
served as its chairman. Mr. Sutton has also participated in the
Drug Education Awareness programs in the Garrard County Middle
School and has served as the pharmacist preceptor and advisor for
two local pharmacy students. In addition to serving as a
pharmacist, he owns and operates a cattle and tobacco farm in
Garrard County.
ROGER S. GRUBBS has been retired since 1980 from Camp Nelson
Stone Company, which he owned and served as its president. He is
a member and past president of the Lancaster Rotary Club and has
previously served as a board member for the Lancaster Baptist
Church, Finance Committee, and the Lancaster/Garrard County
Industrial Board.
TONY A. MERIDA is Executive Vice President of the Bank, a
position in which he has served since February 1995, and has been
a member of the Board of Directors since 1991. Mr. Merida also
is Executive Vice President of the Company. Mr. Merida joined
the Bank in 1980 and served as the Secretary and Treasurer of the
Bank from 1985 to 1995. Mr. Merida serves on the Board of
Directors of the Garrard County Habitat for Humanity and on the
-3-<PAGE>
<PAGE>
Board of Directors of the Institute of Financial Education. In
addition, he also serves on the Board of Directors for the
Bluegrass Area Development District and previously served on the
Lancaster/Garrard County Industrial Board.
JACK C. ZANONE has been self-employed as a residential
appraiser since 1978. Prior to that time, Mr. Zanone was co-
owner of the Lancaster Department Store for over thirty years.
He previously served on the Garrard County Industrial Board and
the Lancaster City Council. Mr. Zanone is an elder of the
Lancaster Christian Church.
DAVID W. GAY has been self-employed since 1993 as a
residential property appraiser certified by the Commonwealth of
Kentucky and in which capacity he performs appraisals at the
request of financial institutions, including the Bank. From 1992
to 1993, Mr. Gay was a systems analyst with Lexmark, a
manufacturer of printers and printer supplies. Mr. Gay retired
in 1992 from IBM Corporation after 35 years of employment and
last served as a systems analyst. Mr. Gay is currently serving
on the Ethics Committee for the City of Lancaster and the Finance
Committee for the Lancaster Christian Church. He has also served
as the past president of the Dix River Country Club.
JANE G. SIMPSON has been retired since 1977. Ms. Simpson
was a school teacher for over thirty years in the Boyle, Mercer
and Garrard County School Systems.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Boards of Directors of the Company and the Bank meet
monthly and may have additional special meetings. During the
year ended June 30, 1996, the Board of Directors of the Company
met two times and the Board of Directors of the Bank met 12
times. No director of the Company or the Bank attended fewer
than 75% in the aggregate of the total number of Board meetings
held during the year ended June 30, 1996 and the total number of
meetings held by committees on which he or she served during such
fiscal year. The Bank's Board of Directors has standing Audit,
Compensation, Asset/Liability Management and Loan Review and
Delinquency Committees.
The Board of Directors' Audit Committee consists of
Directors Gay, Grubbs and Simpson. Prior to the Bank's
conversion from mutual to stock form (the "Conversion"), the
Bank's Audit Committee consisted of the entire Board of
Directors. The Audit Committee examines and approves the audit
report prepared by the independent auditors of the Bank, reviews
and recommends the independent auditors to be engaged by the
Bank, reviews the internal audit function and internal accounting
controls, and reviews and approves conflict of interest and audit
policies. The Audit Committee met once during the year ended
June 30, 1996.
The Company's full Board of Directors acts as Nominating
Committee and is responsible for considering potential nominees
to the Board of Directors. The Company's Board of Directors did
not meet as a Nominating Committee during the year ended June 30,
1996. During the year ended June 30, 1996, the Bank's Board of
Directors met once as a nominating committee. In its
deliberations, the Board, functioning as a nominating committee,
considers the candidate's knowledge of the banking business and
involvement in community, business and civic affairs, and also
considers whether the candidate would provide for adequate
representation of its market area.
The Compensation Committee consists of Directors Gay, Grubbs
and Simpson. The Compensation Committee evaluates the
compensation and benefits of the directors, officers and
employees, recommends changes, and monitors and evaluates
employee performance. The Compensation Committee reports its
evaluations and findings to the full Board of Directors and all
compensation decisions are ratified by the full Board of
Directors. Directors of the Bank who also are officers of the
Bank abstain from discussion and voting on matters affecting
their compensation. The Compensation Committee met once during
the fiscal year ended June 30, 1996.
-4-<PAGE>
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash
compensation for the fiscal years indicated awarded to or earned
by the Chief Executive Officer. No executive officer of the
Company earned salary and bonus in fiscal year 1996 exceeding
$100,000 for services rendered in all capacities to the Company
and the Bank.
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------
Other Annual All Other
Name Year Salary Bonus Compensation(1) Compensation (2)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Virginia R.S. Stump 1996 $55,500 $8,100 $ -- $17,300
Chairman of the Board, 1995 51,500 7,400 -- 9,200
President and Chief
Executive Officer of
the Company and the Bank
<FN>
____________________
(1) Executive officers of the Company and the Bank receive
indirect compensation in the form of certain perquisites and
other personal benefits. The amount of such benefits
received by the named executive officer in fiscal 1996 did
not exceed 10% of each of the executive officer's salary and
bonus.
(2) Consists of director's fees, insurance commissions and
nonqualified retirement benefit accruals.
</FN>
</TABLE>
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
In order to secure the continuing services of Ms. Virginia
R.S. Stump (the "Executive"), the Bank has entered into
supplemental executive retirement agreement (the "SERA") with her
effective December 7, 1995. Pursuant to the terms of the SERA,
upon the Executive's termination of employment with the Bank, for
reasons other than death or removal for "just cause," the
Executive will be entitled to receive annual payments from the
Bank in an amount for life equal to (i) the product of the
Executive's "Vested Percentage" and 70% of "Average Annual
Compensation," less (ii) the Executive's "Annual Offset Amount."
Under the SERA, "Vested Percentage" means 10% per full year of an
Executive's service with the Bank following December 31, 1995, up
to a maximum Vested Percentage of 100% (accelerated to 100% upon
termination of employment due to the Executive's death or
disability or upon a change in control of the Bank). "Average
Annual Compensation" means the average of the Executive's highest
annual compensation for three of the five calendar years
preceding her termination of employment. "Annual Offset Amount"
means the sum of (i) the Executive's primary social security
benefits, (ii) the annual benefits which the Executive would
receive under the Bank's Pension Plan in the form of a 50% joint
and survivor annuity, and (iii) the annual amount payable to the
Executive if that portion of her account under the Bank's 401(k)
Plan which would be attributable to the Bank's contributions were
paid to her in the form of a 50% joint and survivor annuity,
commencing upon termination of employment.
In the event the Executive dies before retirement benefit
payments commence, the Executive's surviving spouse will receive
an annual payment for the remainder of the surviving spouse's
life (up to a maximum of 20 years) in an amount equal to 50% of
the annual retirement benefit the Executive would have received
if she had terminated employment on the date of her death and
then had a vested percentage equal to 100%. In the event the
Executive dies after retirement benefits commence, the
Executive's surviving spouse will receive an annual payment for
the remainder of the surviving spouse's life in an amount equal
to 50% of the annual retirement benefits the Executive would have
received had she survived to collect them. Termination for "just
cause" (as defined in the SERA) would result in the Executive's
forfeiture of all retirement benefits under the SERA. The Bank
intends to establish an irrevocable grantor trust to hold assets
in order to provide itself with a source of funds to assist the
Bank in the meeting of its liabilities under the SERA.
-5-<PAGE>
<PAGE>
EMPLOYMENT AGREEMENTS
The Company and the Bank entered into a separate employment
agreement (the "Employment Agreements") pursuant to which Ms.
Virginia R.S. Stump serves as President and Chief Executive
Officer of the Company and the Bank. In such capacities, Ms.
Stump (the "Executive") is responsible for overseeing all
operations of the Bank and the Company and for implementing the
policies adopted by the Boards of Directors. Such Boards believe
that the Employment Agreements assure fair treatment of the
Executive in relation to her career with the Company and the Bank
by assuring her some financial security. In the event that the
Executive prevails over the Company or the Bank in a legal
dispute as to the Employment Agreements she will be reimbursed
for her legal and other expenses.
The Employment Agreements became effective on June 28, 1996
and provide for a term of three years, with an annual base salary
equal to the Executive's existing base salary rate in effect on
the date of Conversion. The Executive's base rate currently is
$57,000. On each anniversary date from the date of commencement
of the Employment Agreements, the term of the Executive's
employment under the Employment Agreements will be extended for
an additional one-year period beyond the then effective
expiration date, upon a determination by the Board of Directors
that the performance of the Executive has met the required
performance standards and that such Employment Agreements should
be extended. The Employment Agreements provide the Executive
with a salary review by the Board of Directors not less often
than annually, as well as with inclusion in any discretionary
bonus plans, retirement and medical plans, customary fringe
benefits, vacation and sick leave. The Employment Agreements
will terminate upon the Executive's death or disability, and are
terminable by the Company or the Bank for "just cause" as defined
in the Employment Agreements. In the event of termination for
just cause, no severance benefits are available. If the Company
or the Bank terminates the Executive without just cause, the
Executive will be entitled to a continuation of her salary and
benefits from the date of termination through the remaining term
of the Employment Agreements, plus an additional 12-month period,
and, at the Executive's election, either cash in an amount equal
to the cost to the Executive of obtaining health, life,
disability, and other benefits which the Executive would have
been eligible to participate in through the Employment
Agreements' expiration date or continued participation in such
benefit plans through the Employment Agreements' expiration date,
provided the Executive continues to qualify for participation
therein. If the Employment Agreements are terminated due to the
Executive's "disability" (as defined in the Employment
Agreements), the Executive will be entitled to a continuation of
her salary and benefits for up to 180 days following such
termination. In the event of the Executive's death during the
term of the Employment Agreement, her estate will be entitled to
receive her salary through the last day of the calendar month in
which the Executive's death occurred. The Executive is able to
voluntarily terminate her Employment Agreement by providing 90
days' written notice to the Boards of Directors of the Bank and
the Company, in which case the Executive is entitled to receive
only her compensation, vested rights and benefits up to the date
of termination.
The Employment Agreements contain provisions stating that in
the event of the Executive's involuntary termination of
employment in connection with, or within one year after, any
change in control of the Bank or the Company, other than for
"just cause," the Executive will be paid within 10 days of such
termination an amount equal to the difference between (i) 2.99
times her "base amount," as defined in Section 280G(b)(3) of the
Internal Revenue Code, and (ii) the sum of any other parachute
payments, as defined under Section 280G(b)(2) of the Internal
Revenue Code, that the Executive receives on account of the
change in control. "Control" generally refers to the
acquisition, by any person or entity, of the ownership or power
to vote more than 25% of the Bank's or Company's voting stock,
the control of the election of a majority of the Bank's or the
Company's directors, or the exercise of a controlling influence
over the management or policies of the Bank or the Company. In
addition, under the Employment Agreements, a change in control
occurs when, during any consecutive two-year period, directors of
the Company or the Bank at the beginning of such period cease to
constitute at least a majority of the Board of Directors of the
Company or the Bank. The same amount would be paid (i) in the
event of an Executive's voluntary termination of employment
within 30 days following a change in control, or (ii) in the
event of the Executive's voluntary termination of employment
within one year following a change in Control, upon the
occurrence, or within 90 days thereafter, of certain specified
events following the change in Control, which have not been
consented to in writing by the Executive. Such events generally
relate to a reduction in the Employee's salary, benefits or
duties. The
-6-<PAGE>
<PAGE>
Employment Agreement with the Bank provides that within five
business days of a change in control, the Bank shall fund, or
cause to be funded, a trust in the amount of 2.99 times the
Executive's base amount, that will be used to pay the Executive
amounts owed to him upon termination, other than for just cause,
within one year of the change in control. The aggregate payments
that would be made to the Executive, assuming that termination of
employment under the foregoing circumstances at June 30, 1996,
would have been approximately $170,000. These provisions may
have an anti-takeover effect by making it more expensive for a
potential acquiror to obtain control of the Company.
DIRECTOR COMPENSATION
GENERAL. The Bank's directors receive fees of $600 per
monthly meeting attended. No fees are paid for serving on
committees of the Board of Directors. Directors also will
participate in the 1996 Stock Option and Incentive Plan and
Management Recognition Plan if such plans are approved by
stockholders at the Annual Meeting. See "Proposal II -- Approval
of 1996 Stock Option and Incentive Plan" and "Proposal III --
Approval of Management Recognition Plan."
DIRECTOR RETIREMENT PLAN. The Bank's Board of Directors has
adopted the First Lancaster Federal Savings Bank Directors'
Retirement Plan (the "Directors' Plan"), effective December 7,
1995, for its directors (i) who are members of the Bank's Board
of Directors (the "Board") at some time on or after the plan's
effective date, and (ii) who are not employees on the date of
being both nominated and elected (or re-elected) to the Board.
Directors who become participants will remain participants even
if they later become employees of the Bank. A participant in the
Directors' Plan will receive, at no cost to the participant, on
each of the ten annual anniversary dates of leaving the Board, an
amount equal to the product of his or her "Benefit Percentage,"
"Vested Percentage," and 75% of the annual fee for service on the
Board during the calendar year preceding retirement. A
participant's "Benefit Percentage" is based on years of service
on the Board as a non-employee director, and increases in
increments of 25%, from 0% for less than five years of service to
25% for five to nine years of service, to 50% for 10 to 14 years
of service, to 75% for 15 to 19 years of service, to 100% for 20
or more years of service. A participant's "Vested Percentage" is
based on years of service on the Board after December 31, 1995
(excluding service as an employee-director) and increases in
increments of 25%, from 50% for less than one year of service, to
75% for one year of service, to 100% for two or more years of
service. However, in the event a participant terminates service
on the Board due to "disability" (as defined in the Directors'
Plan), the participant's Vested Percentage becomes 100%
regardless of his or her years of service.
If a participant dies, his or her beneficiary will receive
an amount equal to the retirement benefits that would have been
paid to the participant under the Directors' Plan if the
participant (i) had terminated service on the Board on the date
of his or her death, and (ii) had a Vested Percentage equal to
100%. If a participant dies after commencing to receive
retirement benefits under the plan, his or her beneficiary will
receive monthly payments for a number of months equal to the
difference between 120 and the number of monthly retirement
benefits payments made under the plan on or before the
participant's death. These payments will equal 100% of the
monthly amount of retirement benefits that the participant had
been collecting under the plan. Any benefits accrued under the
Directors' Plan will be paid from the Bank's general assets. The
Bank expects to establish a trust in order to hold assets with
which to pay benefits. Trust assets will be subject to the
claims of the Bank's general creditors. In the event a
participant prevails over the Bank in a legal dispute as to the
terms or interpretation of the Directors' Plan, he or she will be
reimbursed for his or her legal and other expenses.
TRANSACTIONS WITH MANAGEMENT
The Bank offers loans to its directors and officers. These
loans are made in the ordinary course of business with the same
collateral, interest rates and underwriting criteria as those of
comparable transactions prevailing at the time and do not involve
more than the normal risk of collectibility or present other
unfavorable features. Under law, the Bank's loans to directors
and executive officers are required to be made on substantially
the same terms, including interest rates, as those prevailing for
comparable transactions and must not involve more than the normal
-7-<PAGE>
<PAGE>
risk of repayment or present other unfavorable features.
Furthermore, all loans to such persons must be approved in
advance by a disinterested majority of the Board of Directors.
At June 30, 1996, the Bank did not have any loans outstanding to
directors and executive officers.
_________________________________________________________________
SECURITY OWNERSHIP OF MANAGEMENT
_________________________________________________________________
The following table sets forth, as of the Record Date, the
beneficial ownership of the Company's Common Stock by each of the
Company's directors and nominees, the sole executive officer
named in the Summary Compensation Table and by all directors and
executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL COMMON STOCK
NAME OWNERSHIP(1) OUTSTANDING
- ---- ------------ ------------
<S> <C> <C>
Virginia R.S. Stump 10,036 (2) 1.0%
Tony A. Merida 11,000 1.1
David W. Gay 15,000 (3) 1.6
Roger S. Grubbs 15,000 1.6
Jane G. Simpson 15,000 1.6
Ronald L. Sutton 7,735 *
Jack C. Zanone 2,400 *
All directors and executive
officers as a group (7 persons) 76,171 7.9
<FN>
____________
(1) For the definition of beneficial ownership, see footnote 1
to the table in "Securities Ownership of Certain Beneficial
Owners." Unless otherwise indicated, ownership is direct
and the named individuals and group exercise sole voting and
investment power over the shares listed as beneficially
owned by such persons or group. The amounts shown do not
include 76,704 unallocated shares held by the ESOP, the
voting of which is directed by the ESOP trustees, consisting
of Directors Gay, Sutton and Zanone, in the same ratio as
ESOP participants direct the voting of allocated shares or,
in the absence of such direction, in the ESOP trustees' best
judgment.
(2) The amount shown includes 1,032 shares of Common Stock owned
by Ms. Stump's husband.
(3) The amount shown includes 100 shares of Common Stock owned
by Mr. Gay's son and 549 shares of Common Stock owned by Mr.
Gay's wife.
* The percentage owned is less than 1% of the outstanding
Common Stock.
</FN>
</TABLE>
_________________________________________________________________
PROPOSAL II -- APPROVAL OF 1996 STOCK OPTION AND INCENTIVE PLAN
_________________________________________________________________
GENERAL
The Board of Directors of the Company has adopted the First
Lancaster Bancshares, Inc. 1996 Stock Option and Incentive Plan
(the "Option Plan"), subject to its approval by the Company's
stockholders. The initial grant of stock options under the
Option Plan will occur upon the Option Plan's receipt of
stockholder approval (the "Effective Date"). The Option Plan is
attached hereto as Exhibit A and should be consulted for
additional information. All statements made herein regarding the
Option Plan, which are only intended to summarize the Option
Plan, are qualified in their entirety by reference to the Option
Plan. The Option Plan complies with the Office of Thrift
supervision ("OTS") regulations, although the OTS in no way
endorses or approves the Option Plan and no written or oral
representations to the contrary have been or shall be made.
-8-<PAGE>
<PAGE>
PURPOSE OF THE OPTION PLAN
The purpose of the Option Plan is to advance the interests
of the Company by providing directors and selected employees of
the Company and its affiliates, including the Bank, with the
opportunity to acquire shares of Common Stock. By encouraging
such stock ownership, the Company seeks to attract, retain, and
motivate the best available personnel for positions of
substantial responsibility and to provide additional incentive to
directors and employees of the Company and its affiliates to
promote the success of the business of the Company.
DESCRIPTION OF THE OPTION PLAN
Effective Date. The Option Plan will become effective on
the date of its approval by the Company's stockholders and prior
thereto no awards may be made.
Administration. The Option Plan is administered by a
committee (the "Committee"), appointed by the Board of Directors,
consisting of at least two directors of the Company who are "Non-
employee Directors" within the meaning of the federal securities
laws. The Committee has discretionary authority to select
participants and grant awards, to determine the form and content
of any awards made under the Option Plan, to interpret the Option
Plan, and to make other decisions necessary or advisable in
connection with administering the Option Plan. All decisions,
determinations, and interpretations of the Committee are final
and conclusive on all persons affected thereby. Members of the
Committee will be indemnified to the full extent permissible
under the Company's governing instruments in connection with any
claims or other actions relating to any action taken under the
Option Plan. It is expected that the Committee will initially
consist of Directors Gay, Sutton, and Zanone.
Eligible Persons; Types of Awards. Under the Option Plan,
the Committee may grant stock options ("Options") and stock
appreciation rights ("SARs") (collectively, "Awards") to such
employees as the Committee shall designate. A director who is
not an employee will receive the automatic grant described below
(see "Automatic Grants"), but is otherwise ineligible to receive
Awards under the Option Plan. As of the Record Date, the Company
and its subsidiaries had approximately eight employees and five
non-employee directors who were eligible to participate in the
Option Plan.
Shares Available for Grants. The Option Plan reserves
95,881 shares of Common Stock for issuance upon the exercise of
Options or SARs. Such shares may be (i) authorized but unissued
shares, (ii) shares held in treasury, or (iii) shares held in a
grantor trust. In the event of any merger, consolidation,
recapitalization, reorganization, reclassification, stock
dividend, split-up, combination of shares, return of capital or
similar event in which the number or kind of shares is changed
without receipt or payment of consideration by the Company, the
Committee will adjust the number and kind of shares reserved for
issuance under the Option Plan, and the number and kind of shares
subject to outstanding Awards, and the exercise prices of such
Awards. Generally, the number of shares as to which SARs are
granted are charged against the aggregate number of shares
available for grant under the Option Plan, provided that, in the
case of an SAR granted in conjunction with an Option, under
circumstances in which the exercise of the SAR results in
termination of the Option and vice versa, only the number of
shares of Common Stock subject to the Option shall be charged
against the aggregate number of shares of Common Stock remaining
available under the Option Plan. If Awards should expire, become
unexercisable or be forfeited for any reason without having been
exercised, the shares of Common Stock subject to such Awards
shall, unless the Option Plan shall have been terminated, be
available for the grant of additional Awards under the Option
Plan.
Options. Options may be either incentive stock options
("ISOs") as defined in Section 422 of the Code, or options that
are not ISOs ("Non-ISOs"). The exercise price as to any Option
may not be less than the fair market value (determined under the
Option Plan) of the optioned shares on the date of grant. In the
case of a participant who owns more than 10% of the outstanding
Common Stock on the date of grant, the option price for an ISO
may not be less than 110% of fair market value of the shares. As
required by federal tax laws, to the extent that the aggregate
fair market value (determined when an ISO is granted) of the
Common Stock with respect to which ISOs are exercisable by an
optionee for the first time during any calendar year (under all
plans of the Company and of
-9-<PAGE>
<PAGE>
any subsidiary) exceeds $100,000, the Options granted in excess
of $100,000 will be treated as Non-ISOs, and not as ISOs.
Automatic Grants. On the Effective Date, certain employees
and each director of the Company or the Bank who is not an
employee but is a director on the Effective Date will receive a
one-time grant of an Option to purchase shares of Common Stock at
an exercise price per share equal to its fair market value on the
Effective Date (see " --Stock Options Granted" and "New Plan
Benefits" below). With respect to each Option granted on the
Effective Date, the exercise price per share will equal its fair
market value on the Effective Date. In addition, each non-
employee director who joins the Board of Directors of the Company
or an affiliate (including the Bank) after the Effective Date
will receive, on the date of joining the Board, Non-ISOs to
purchase 1,917 shares of Common Stock at an exercise price per
share equal to the fair market value of the Common Stock on the
date of grant. Options granted to non-employee directors will
have a term of ten years, and expire one year after a director
terminates service on the Board for any reason (two years in the
event of the director's death), but in no event later than the
date on which such Options would otherwise expire.
SARs. An SAR may be granted in tandem with all or part of
any Option granted under the Option Plan, or without any
relationship to any Option. An SAR granted in tandem with an ISO
must expire no later than the ISO, must have the same exercise
price as the ISO and may be exercised only when the ISO is
exercisable and when the fair market value of the shares subject
to the ISO exceeds the exercise price of the ISO. For SARs
granted in tandem with Options, the optionee's exercise of the
SAR cancels his or her right to exercise the Option, and vice
versa. Regardless of whether an SAR is granted in tandem with an
Option, exercise of the SAR will entitle the optionee to receive,
as the Committee prescribes in the grant, all or a percentage of
the difference between (i) the fair market value of the shares of
Common Stock subject to the SAR at the time of its exercise, and
(ii) the fair market value of such shares at the time the SAR was
granted (or, in the case of SARs granted in tandem with Options,
the exercise price). The exercise price as to any particular SAR
may not be less than the fair market value of the optioned shares
on the date of grant.
Exercise of Options and SARs. The exercise of Options and
SARs will be subject to such terms and conditions as are
established by the Committee in a written agreement between the
Committee and the optionee, provided that each Option, including
all Options granted on the Effective Date, shall become
exercisable with respect to 20% of the underlying shares on each
of the five annual anniversary dates of the date on which the
Award occurred. Such vesting shall accelerate to 100% upon an
optionee's termination of service as an employee or director due
to death or disability (as defined in the Option Plan). In the
absence of Committee action to the contrary, an otherwise
unexpired Option shall cease to be exercisable upon (i) an
optionee's termination of employment for "just cause" (as defined
in the Option Plan), (ii) the date three months after an optionee
terminates service for a reason other than just cause, death, or
disability, (iii) the date one year after an optionee terminates
service due to disability, or (iv) the date two years after an
optionee terminates service due to death. Upon an optionee's
exercise of an Option, the Company may, in the Committee's
discretion, pay the optionee a cash amount up to any dividends
declared on the underlying shares between the date of grant and
the date of exercise of the Option.
An optionee may exercise Options or SARs, subject to provi-
sions relative to their termination and limitations on their
exercise, only by (i) written notice of intent to exercise the
Option or SAR with respect to a specified number of shares of
Common Stock, and (ii) in the case of Options, payment to the
Company (contemporaneously with delivery of such notice) in cash,
in Common Stock, or a combination of cash and Common Stock, of
the amount of the exercise price for the number of shares with
respect to which the Option is then being exercised. Common
Stock utilized in full or partial payment of the exercise price
for Options shall be valued at its market value at the date of
exercise, and may consist of shares subject to the Option being
exercised.
Conditions on Issuance of Shares. The Committee will have
the discretionary authority to impose, in agreements, such
restrictions on shares of Common Stock issued pursuant to the
Option Plan as it may deem appropriate or desirable, including
but not limited to the authority to impose a right of first
refusal or to establish
-10-<PAGE>
<PAGE>
repurchase rights or both of these restrictions. In addition,
the Committee may not issue shares unless the issuance complies
with applicable securities laws, and to that end may require that
a participant make certain representations or warranties.
Nontransferability. Optionees may transfer their Awards to
family members or trusts under specified circumstances. Awards
may otherwise not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by
the laws of descent and distribution.
Effect of Dissolution and Related Transactions. In the
event of (i) the liquidation or dissolution of the Company, (ii)
a merger or consolidation in which the Company is not the
surviving entity, or (iii) the sale or disposition of all or
substantially all of the Company's assets (any of the foregoing
to be referred to herein as a "Transaction"), all outstanding
Awards, together with the exercise prices thereof, will be
equitably adjusted for any change or exchange of shares for a
different number or kind of shares which results from the
Transaction. However, any such adjustment will be made in such a
manner as to not constitute a modification, within the meaning of
Section 424(h) of the Code, of outstanding ISOs.
Duration of the Option Plan and Grants. The Option Plan has
a term of 10 years from the Effective Date, after which date no
Awards may be granted. The maximum term for an Award is 10 years
from the date of grant, except that the maximum term of an ISO
(and an SAR granted in tandem with an ISO) may not exceed five
years if the optionee owns more than 10% of the Common Stock on
the date of grant. The expiration of the Option Plan, or its
termination by the Committee, will not affect any Award then
outstanding.
Amendment and Termination of the Option Plan. The Board of
Directors of the Company may from time to time amend the terms of
the Option Plan and, with respect to any shares at the time not
subject to Awards, suspend or terminate the Option Plan. No
amendment, suspension, or termination of the Option Plan will,
without the consent of any affected optionee, alter or impair any
rights or obligations under any Award previously granted.
Financial Effects of Awards. The Company will receive no
monetary consideration for the granting of Awards under the
Option Plan. It will receive no monetary consideration other
than the exercise price for shares of Common Stock issued to
optionees upon the exercise of their Options, and will receive no
monetary consideration upon the exercise of SARs. Under current
accounting standards, recognition of compensation expense is not
required when Options are granted at an exercise price equal to
or exceeding the fair market value of the Common Stock on the
date the Option is granted.
The granting of SARs will require charges to the income of
the Company based on the amount of the appreciation, if any, in
the average market price of the Common Stock to which the SARs
relate over the exercise price of those shares. If the average
market price of the Common Stock declines subsequent to a charge
against earnings due to estimated appreciation in the Common
Stock subject to SARs, the amount of the decline will reverse
such prior charges against earnings (but not by more than the
aggregate of such prior charges).
Proposed Stock Option Grants. For information relating to
grants to be made under the Option Plan at the Effective Date,
see "New Plan Benefits" below.
FEDERAL INCOME TAX CONSEQUENCES
ISOs. An optionee recognizes no taxable income upon the
grant of ISOs. If the optionee holds the shares purchased upon
exercise of an ISO for at least two years from the date the ISO
is granted, and for at least one year from the date the ISO is
exercised, any gain realized on the sale of the shares received
upon exercise of the ISO is taxed as long-term capital gain.
However, the difference between the fair market value of the
Common Stock on the date of exercise and the exercise price of
the ISO will be treated by the optionee as an item of tax
preference in the year of exercise for purposes of the
alternative minimum tax. If an optionee disposes of the shares
before the
-11-<PAGE>
<PAGE>
expiration of either of the two special holding periods noted
above, the disposition is a "disqualifying disposition." In this
event, the optionee will be required, at the time of the
disposition of the Common Stock, to treat the lesser of the gain
realized or the difference between the exercise price and the
fair market value of the Common Stock at the date of exercise as
ordinary income and the excess, if any, as capital gain.
The Company will not be entitled to any deduction for
federal income tax purposes as the result of the grant or
exercise of an ISO, regardless of whether or not the exercise of
the ISO results in liability to the optionee for alternative
minimum tax. However, if an optionee has ordinary income taxable
as compensation as a result of a disqualifying disposition, the
Company will be entitled to deduct an equivalent amount.
Non-ISOs. In the case of a Non-ISO, an optionee will
recognize ordinary income upon the exercise of the Non-ISO in an
amount equal to the difference between the fair market value of
the shares on the date of exercise and the option price (or, if
the optionee is subject to certain restrictions imposed by the
federal securities laws, upon the lapse of those restrictions
unless the optionee makes a special tax election within 30 days
after the date of exercise to have the general rule apply). Upon
a subsequent disposition of such shares, any amount received by
the optionee in excess of the fair market value of the shares as
of the exercise will be taxed as capital gain. The Company will
be entitled to a deduction for federal income tax purposes at the
same time and in the same amount as the ordinary income
recognized by the optionee in connection with the exercise of a
Non-ISO.
SARs. The grant of an SAR has no tax effect on the optionee
or the Company. Upon exercise of the SARs, however, any cash or
Common Stock received by the optionee in connection with the
surrender of his or her SAR will be treated as compensation
income to the optionee, and the Company will be entitled to a
business expense deduction for the amounts treated as
compensation income.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors has determined that the Option Plan
is desirable, cost effective, and produces incentives which will
benefit the Company and its stockholders. The Board of Directors
is seeking stockholder approval of the Option Plan pursuant to
the requirements of the OTS, in order to satisfy the requirements
of the Code for favorable tax treatment of ISOs, and to exempt
certain option transactions from the short-swing trading rules of
the Securities and Exchange Commission ("SEC").
Stockholder approval of the Option Plan requires the
affirmative vote of the holders of a majority of the votes
eligible to be cast at the Annual Meeting. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE OPTION PLAN.
-12-<PAGE>
<PAGE>
_________________________________________________________________
PROPOSAL III -- APPROVAL OF MANAGEMENT RECOGNITION PLAN
_________________________________________________________________
GENERAL
The Board of Directors of the Bank has adopted the First
Lancaster Federal Savings Bank Management Recognition Plan (the
"MRP"), subject to its approval by the Company's stockholders.
The initial grant of MRP awards will occur upon the MRP's receipt
of stockholder approval. A copy of the MRP is attached hereto as
Exhibit B, and should be consulted for additional information.
All statements made herein regarding the MRP, which are only
intended to summarize the MRP, are qualified in their entirety by
reference to the MRP. The MRP complies with OTS regulations,
although the OTS in no way endorses or approves the MRP and no
oral or written representations to the contrary have been or
shall be made.
PURPOSE OF THE MRP
The purpose of the MRP is to reward and retain personnel of
experience and ability in key positions of responsibility by
providing such persons with a proprietary interest in the
Company, with compensation for their past contributions to the
Bank and the Company and their subsidiaries, and with an
incentive to make such contributions in the future.
DESCRIPTION OF THE MRP
Effective Date. The MRP will become effective immediately
upon its approval by the Company's stockholders (the "Effective
Date"), and prior thereto no awards may be made.
Administration. The MRP will be administered by an MRP
Committee consisting of not less than two members of the Bank's
Board of Directors who are "Non-employee Directors" within the
meaning of the federal securities laws. Except as limited by the
express provisions of the MRP or by resolutions adopted by the
Bank's Board of Directors, the MRP Committee has sole and
complete authority and discretion (1) to select and grant MRP
awards to employees, (2) to determine the form and content of MRP
awards to be issued under the MRP, (3) to interpret the MRP, (4)
to prescribe, amend, and rescind rules and regulations relating
to the MRP, and (5) to make other determinations necessary or
advisable for the administration of the MRP. The MRP provides
that members of the MRP Committee shall be indemnified and held
harmless for actions taken under the MRP in good faith and in the
best interests of the Company and its subsidiaries. As of the
Record Date, the MRP Committee consists of Directors Gay, Sutton,
and Zanone.
MRP Trust; Purchase Limitations. The assets of the MRP will
be held in a trust (the "MRP Trust"), as to which Directors Gay,
Sutton, and Zanone will act as trustees ("MRP Trustees") and
thereby have the responsibility to invest all funds contributed
to the MRP Trust by the Company or the Bank. With funds
contributed by the Company or the Bank, the MRP Trust will
purchase, in the aggregate, 38,352 shares of the Company's Common
Stock on the Effective Date. Common Stock purchased by the MRP
Trust may be acquired on the open market or in the form of shares
newly issued by the Company. The number of shares is the maximum
that the MRP Trust may purchase, in the aggregate, pursuant to
the MRP. In the event an MRP award is forfeited for any reason
or additional shares are purchased by the MRP Trust associated
with an MRP, the MRP Committee may make awards with respect to
such shares.
Types of Awards; Eligible Persons. The MRP Committee has
the discretion to select employees of the Company and/or of the
Bank who will receive discretionary MRP awards. In selecting
those employees to whom MRP awards will be granted and the number
of shares covered by such awards, the MRP Committee will consider
the position, duties and responsibilities of the eligible
employees, the value of their services to the Company and its
affiliates (including the Bank), and any other factors the MRP
Committee may deem relevant. In addition, the MRP
-13-<PAGE>
<PAGE>
specifically provides for certain automatic awards to certain
employees and all non-employee directors (see "Automatic Awards"
below).
Automatic Awards. Certain employees and each director of
the Company and the Bank who is not an employee on the Effective
Date will receive one-time awards on the Effective Date (see "New
Plan Benefits" below). In addition, each non-employee director
who joins the Board of Directors of the Bank subsequent to the
Effective Date will receive on the date of joining the Board a
one-time award of 767 shares (or such lesser number of shares as
are available under the MRP).
Vesting. Pursuant to the MRP, freely transferable shares
of Common Stock will be transferred to participants as they
become vested in their MRP awards. MRP awards will become 20%
vested on each of the five anniversary dates of the award,
provided, with respect to each vesting date, that the participant
is an employee or a director of the Company or a subsidiary on
such date. All shares of Common Stock subject to outstanding
awards will be immediately 100% earned and nonforfeitable upon a
participant's death or disability (as defined in the MRP). If a
participant terminates employment for reasons other than death or
disability, the participant forfeits all rights to the shares
then under restriction.
Distributions of Shares; Voting; Dividends. All unvested
shares of Common Stock held by the MRP Trust (whether or not
subject to an MRP award) shall be voted by the MRP Trustees in
the same proportion as the trustee of the Company's Employee
Stock Ownership Plan trust votes Common Stock held therein. The
MRP Trustees shall distribute all shares, together with any
shares representing stock dividends, in the form of Common Stock.
One share of Common Stock shall be given for each share earned.
Payments representing cash dividends (and earnings thereon) will
be made in cash.
No Plan Shares may be distributed from the MRP Trust prior
to the date which is five years from the date of the Conversion
to the extent the recipient would after receipt of such shares
own in excess of ten percent of the issued and outstanding shares
of Common Stock, unless such action is approved in advance by a
majority vote of the Non-employee Directors of the Bank's Board
of Directors. Any shares remaining undistributed solely by
reason of the operation of this rule shall be distributed to the
recipient on the date which is five years from the date of the
Bank's conversion to stock form.
Nontransferability. Participants may transfer their MRP
awards to family members or trusts under specified circumstances.
MRP awards and rights to shares held in the MRP Trust are not
otherwise transferable by participants in the MRP, and during the
lifetime of a participant, shares held in the MRP Trust may only
be earned by and paid to the participant.
Taxation. Participants will recognize compensation income
when their interest vests, or at an earlier date pursuant to a
participant's election to accelerate recognition pursuant to
Section 83(b) of the Internal Revenue Code. Whenever
participants recognize compensation income, the Bank or the
Company will be entitled to a corresponding compensation expense
deduction.
Financial Effects of Awards. Neither the Company nor the
Bank will receive any monetary consideration for the granting of
awards under the MRP. Under current accounting standards, when
MRP awards are granted, the Company must recognize compensation
expense based on the fair market value of the Common Stock on the
date the awards are granted, with such amount being amortized
over the expected vesting period for the award.
Adjustments for Capital Changes. In the event of any
merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of
shares, return of capital or similar event in which the number or
kind of shares is changed without receipt or payment of
consideration by the Company, the MRP Committee will adjust both
the number and kind of shares of stock as to which awards may be
granted under the MRP, and the number and kind of shares of stock
subject to outstanding MRP awards. In the event of (i) the
liquidation or
-14-<PAGE>
<PAGE>
dissolution of the Company, (ii) a merger or consolidation in
which the Company is not the surviving entity, or (iii) the sale
or disposition of all or substantially all of the Company's
assets, all outstanding MRP awards shall be equitably adjusted
for any change or exchange of shares of Common Stock for a
different number or kind of shares or other securities, which
results from the transaction.
Amendment and Termination of the MRP. The Bank's Board of
Directors may, by resolution, at any time amend or terminate the
MRP, provided that no amendment or termination of the MRP will,
without the written consent of any affected holders of an MRP
award, impair any rights or obligations under any MRP award
previously granted.
The power to amend or terminate includes the power to direct
the MRP Trustees to return to the Bank all or any part of the
assets of the MRP Trust, including shares of Common Stock held in
the plan share reserve of the MRP. However, the termination of
the MRP Trust may not affect a participant's right to earn
outstanding MRP awards and to receive Common Stock relating
thereto, including earnings thereon, in accordance with the terms
of the MRP and the particular MRP award made to the participant.
Duration of the MRP. The MRP and MRP Trust will remain in
effect until the earlier of (i) termination by the Bank's Board
of Directors, or (2) the distribution of all assets of the MRP
Trust. Termination of the MRP will not affect any MRP awards
previously granted, and such MRP awards will remain valid and in
effect until they have been earned and distributed from the MRP
Trust, or by their terms expire or are forfeited.
Proposed MRP Awards. For information relating to proposed
MRP awards, to be made at the Effective Date, see "New Plan
Benefits" below.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors of the Company has determined that
the MRP is desirable, cost effective, and produces incentives
which will benefit the Company and its stockholders. The Board
of Directors is seeking stockholder approval of the MRP in order
to satisfy the requirements of the OTS, and to exempt certain
transactions from the short-swing trading rules of the SEC.
Approval of the MRP requires the affirmative vote of the
holders of a majority of the votes eligible to be cast at the
Annual Meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE MRP.
-15-<PAGE>
<PAGE>
_________________________________________________________________
NEW PLAN BENEFITS
_________________________________________________________________
The following table sets forth certain information regarding
the benefits to be received under the Option Plan and the MRP on
the Effective Dates of such plans.
<TABLE>
<CAPTION>
Option Plan (1) MRP
----------------------- -----------------------
Dollar Number Dollar Number
Value ($)(2) of Units Value($)(3) of Units
------------ -------- ---------- ---------
<S> <C> <C> <C> <C>
Virginia R.S. Stump, President $ -- 23,970 $151,011 9,588
and Chief Executive Officer
Tony A. Merida, Executive -- 23,970 151,011 9,588
Vice President
David W. Gay, Director -- 4,794 30,193 1,917
Roger S. Grubbs, Director -- 4,794 30,193 1,917
Jane G. Simpson, Director -- 4,794 30,193 1,917
Ronald L. Sutton, Director -- 4,794 30,193 1,917
Jack C. Zanone, Director -- 4,794 30,193 1,917
All executive officers as a -- 47,940 302,022 19,176
group (2 persons)
All directors who are not -- 23,970 150,963 9,585
executive officers as a
group (5 persons)
All employees who are not -- -- -- --
executive officers as a
group (0 persons)
<FN>
____________
(1) All Options (i) will be subject to the terms and conditions
described above and are contingent on, and not exercisable
until, the Option Plan receives stockholder approval, and
(ii) will automatically expire ten years after the date of
their grant. The exercise price for these Options will
equal the fair market value of the Common Stock on the date
of grant. The closing sale price of the Common Stock on
November 15, 1996, as reported on the Nasdaq Small Cap
Market, was $15.75 per share.
(2) Based on the fair market value of the Common Stock on the
date of grant less the exercise price. All Options will be
granted at an exercise price equal to the fair market value
of the underlying shares of Common Stock on the date of the
grant, which will occur upon receipt of stockholder approval
at this Annual Meeting.
(3) Based on the closing price of the underlying Common Stock of
$15.75 per share as quoted on the NASDAQ Small Cap Market on
November 15, 1996.
</FN>
</TABLE>
-16-<PAGE>
<PAGE>
_________________________________________________________________
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
_________________________________________________________________
Coopers & Lybrand L.L.P., which was the Company's
independent certified public accounting firm for the 1996 fiscal
year, has been retained by the Board of Directors to be the
Company's auditors for the 1997 fiscal year. A representative of
Coopers & Lybrand L.L.P. is expected to be present at the Annual
Meeting and will have the opportunity to make a statement if he
or she so desires.
_________________________________________________________________
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
_________________________________________________________________
Pursuant to regulations promulgated under the Securities
Exchange Act of 1934, as amended, the Company's officers,
directors and persons who own more than 10 percent of the
outstanding Common Stock ("Insiders") are required to file
reports detailing their ownership and changes of ownership in
such Common Stock, and to furnish the Company with copies of all
such reports. Based solely on its review of the copies of such
reports or written representations that no such reports were
necessary that the Company received during the past fiscal year
or with respect to the last fiscal year, management believes that
during the fiscal year ended June 30, 1996, all of the Company's
Insiders complied with these reporting requirements.
_________________________________________________________________
OTHER MATTERS
_________________________________________________________________
The Board of Directors is not aware of any business to come
before the Annual Meeting other than those matters described
above in this proxy statement and matters incident to the conduct
of the Annual Meeting. However, if any other matters should pro-
perly come before the Annual Meeting, it is intended that proxies
in the accompanying form will be voted in respect thereof in
accordance with the determination of a majority of the Board of
Directors.
_________________________________________________________________
MISCELLANEOUS
_________________________________________________________________
The cost of soliciting 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 solicitations by mail, directors, officers
and regular employees of the Company may solicit proxies
personally or by telegraph or telephone without additional
compensation. The Company has retained Kissel-Blake, a proxy
soliciting firm, to assist in the solicitation of proxies, for
which Kissel-Blake will receive a fee of $2,500, plus
reimbursement of certain out-of-pocket expenses.
The Company's 1996 Annual Report to Stockholders, including
financial statements, is being mailed to all stockholders of
record as of the close of business on the Record Date. Any
stockholder who has not received a copy of the Annual Report may
obtain a copy by writing to the Secretary of the Company. Such
Annual Report is not to be treated as a part of the proxy
solicitation material or as having been incorporated herein by
reference.
-17-<PAGE>
<PAGE>
_________________________________________________________________
STOCKHOLDER PROPOSALS
_________________________________________________________________
In order to be eligible for inclusion in the Company's proxy
materials for next year's Annual Meeting of Stockholders, any
stockholder proposal to take action at such meeting must be
received at the Company's main office at 208 Lexington Street,
Lancaster, Kentucky 40444-1131, no later than May 19, 1997. Any
such proposal shall be subject to the requirements of the proxy
rules adopted under the Exchange Act.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Kathy G. Johnica
KATHY G. JOHNICA
SECRETARY
Lancaster, Kentucky
November 22, 1996
_________________________________________________________________
ANNUAL REPORT ON FORM 10-KSB
_________________________________________________________________
_________________________________________________________________
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE
FISCAL YEAR ENDED JUNE 30, 1996 AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO EACH
STOCKHOLDER AS OF THE RECORD DATE UPON WRITTEN REQUEST TO
CORPORATE SECRETARY, FIRST LANCASTER BANCSHARES, INC., 208
LEXINGTON STREET, LANCASTER, KENTUCKY 40444-1131.
_________________________________________________________________
-18-<PAGE>
<PAGE>
Exhibit A
FIRST LANCASTER BANCSHARES, INC.
1996 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE OF THE PLAN.
The purpose of this Plan (the "Plan") is to advance the
interests of the Company through providing select key Employees
and Directors of the Bank, the Company, and their Affiliates with
the opportunity to acquire Shares. By encouraging such stock
ownership, the Company seeks to attract, retain and motivate the
best available personnel for positions of substantial respon-
sibility and to provide additional incentives to Directors and
key Employees of the Company or any Affiliate to promote the
success of the business.
2. DEFINITIONS.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or
"subsidiary corporation" of the Company, as such terms are
defined in Section 424(e) and (f), respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered
into in accordance with Paragraph 5(c).
(c) "Awards" shall mean, collectively, Options and SARs,
unless the context clearly indicates a different meaning.
(d) "Bank" shall mean First Lancaster Federal Savings
Bank.
(e) "Board" shall mean the Board of Directors of the
Company.
(f) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(g) "Committee" shall mean the Stock Option Committee
appointed by the Board in accordance with Paragraph 5(a) hereof.
(h) "Common Stock" shall mean the common stock of the
Company.
(i) "Company" shall mean First Lancaster Bancshares,
Inc.
(j) "Continuous Service" shall mean the absence of any
interruption or termination of service as an Employee or Director
of the Company or an Affiliate. Continuous Service shall not be
considered interrupted in the case of sick leave, military leave
or any other leave of absence approved by the Company, in the
case of transfers between payroll locations of the Company or
between the Company, an Affiliate or a successor, or in the case
of a Director's performance of services in an emeritus or
advisory capacity.
(k) "Director" shall mean any member of the Board, and
any member of the board of directors of any Affiliate that the
Board has by resolution designated as being eligible for
participation in this Plan.
(l) Disability" means a physical or mental condition of
a Participant resulting from bodily injury, disease, or mental
disorder which renders him incapable of continuing any gainful
occupation and which condition constitutes total disability under
the Federal Social Security Acts.
A-1<PAGE>
<PAGE>
(m) "Effective Date" shall mean the date specified in
Paragraph 14 hereof.
(n) "Employee" shall mean any person employed by the
Company, the Bank, or an Affiliate.
(o) "Exercise Price" shall mean the price per Optioned
Share at which an Option or SAR may be exercised.
(p) "ISO" means an option to purchase Common Stock which
meets the requirements set forth in the Plan, and which is
intended to be and is identified as an "incentive stock option"
within the meaning of Section 422 of the Code.
(q) "Market Value" shall mean the fair market value of
the Common Stock, as determined under Paragraph 7(b) hereof.
(r) "Non-employee Director" shall have the meaning
provided in Rule 16b-3.
(s) "Non-ISO" means an option to purchase Common Stock
which meets the requirements set forth in the Plan but which is
not intended to be and is not identified as an ISO.
(t) "OTS" means the Office of Thrift Supervision of the
United States Department of the Treasury.
(u) "Option" means an ISO and/or a Non-ISO.
(v) "Optioned Shares" shall mean Shares subject to an
Award granted pursuant to this Plan.
(w) "Participant" shall mean any person who receives an
Award pursuant to the Plan.
(x) "Plan" shall mean this First Lancaster Bancshares,
Inc. 1996 Stock Option and Incentive Plan.
(y) "Rule 16b-3" shall mean Rule 16b-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934,
as amended.
(z) "Share" shall mean one share of Common Stock.
(aa) "SAR" (or "Stock Appreciation Right") means a right
to receive the appreciation in value, or a portion of the
appreciation in value, of a specified number of shares of Common
Stock.
(bb) "Year of Service" shall mean a full twelve-month
period, measured from the date of an Award and each annual
anniversary of that date, during which a Participant has not
terminated Continuous Service for any reason.
3. TERM OF THE PLAN AND AWARDS.
(a) Term of the Plan. The Plan shall continue in effect
for a term of ten years from the Effective Date, unless sooner
terminated pursuant to Paragraph 16 hereof. No Award shall be
granted under the Plan after ten years from the Effective Date.
(b) Term of Awards. The term of each Award granted
under the Plan shall be established by the Committee, but shall
not exceed 10 years; provided, however, that in the case of an
Employee who owns Shares representing more than 10% of the
outstanding Common Stock at the time an ISO is granted, the term
of such ISO
A-2<PAGE>
<PAGE>
shall not exceed five years. This subsection 3(b) shall not be
construed to cause the acceleration of the vesting of Awards.
4. SHARES SUBJECT TO THE PLAN.
(a) General Rule. Except as otherwise required by the
provisions of Paragraph 11 hereof, the aggregate number of Shares
deliverable pursuant to Awards shall not exceed 95,881 Shares,
which equals 10% of the Shares issued by the Company in
connection with the Bank's conversion from mutual to stock form.
Such Shares may either be (i) authorized but unissued Shares,
(ii) Shares held in treasury, or (iii) Shares held in a grantor
trust maintained by the Company. If any Awards should expire,
become unexercisable, or be forfeited for any reason without
having been exercised, the Optioned Shares shall, unless the Plan
shall have been terminated, be available for the grant of
additional Awards under the Plan.
(b) Special Rule for SARs. The number of Shares with
respect to which an SAR is granted, but not the number of Shares
which the Company delivers or could deliver to an Employee or
individual upon exercise of an SAR, shall be charged against the
aggregate number of Shares remaining available under the Plan;
provided, however, that in the case of an SAR granted in
conjunction with an Option, under circumstances in which the
exercise of the SAR results in termination of the Option and vice
versa, only the number of Shares subject to the Option shall be
charged against the aggregate number of Shares remaining
available under the Plan. The Shares involved in an Option as to
which option rights have terminated by reason of the exercise of
a related SAR, as provided in Paragraph 10 hereof, shall not be
available for the grant of further Options under the Plan.
5. ADMINISTRATION OF THE PLAN.
(a) Composition of the Committee. The Plan shall be
administered by the Committee, which shall consist of not less
than two (2) members of the Board who are Non-employee Directors.
Members of the Committee shall serve at the pleasure of the
Board. In the absence at any time of a duly appointed Committee,
the Plan shall be administered by those members of the Board who
are Non-employee Directors.
(b) Powers of the Committee. Except as limited by the
express provisions of the Plan or by resolutions adopted by the
Board, the Committee shall have sole and complete authority and
discretion, subject to applicable OTS regulations (i) to select
Participants and grant Awards, (ii) to determine the form and
content of Awards to be issued in the form of Agreements under
the Plan, (iii) to interpret the Plan, (iv) to prescribe, amend
and rescind rules and regulations relating to the Plan, and (v)
to make other determinations necessary or advisable for the
administration of the Plan. The Committee shall have and may
exercise such other power and authority as may be delegated to it
by the Board from time to time. A majority of the entire
Committee shall constitute a quorum and the action of a majority
of the members present at any meeting at which a quorum is
present, or acts approved in writing by a majority of the
Committee without a meeting, shall be deemed the action of the
Committee.
(c) Agreement. Each Award shall be evidenced by a written
agreement containing such provisions as may be approved by the
Committee. Each such Agreement shall constitute a binding
contract between the Company and the Participant, and every
Participant, upon acceptance of such Agreement, shall be bound by
the terms and restrictions of the Plan and of such Agreement.
The terms of each such Agreement shall be in accordance with the
Plan, but each Agreement may include such additional provisions
and restrictions determined by the Committee, in its discretion,
provided that such additional provisions and restrictions are not
inconsistent with the terms of the Plan. In particular, the
Committee shall set forth in each Agreement (i) the Exercise
Price of an Option or SAR, (ii) the number of Shares subject to,
and the expiration date of, the Award, (iii) the manner, time and
rate (cumulative or otherwise) of exercise or vesting of such
Award, and (iv) the restrictions, if any, to be placed upon such
Award, or upon Shares which may be issued upon exercise of such
Award.
A-3<PAGE>
<PAGE>
The Chairman of the Committee and such other Directors and
officers as shall be designated by the Committee are hereby
authorized to execute Agreements on behalf of the Company and to
cause them to be delivered to the recipients of Awards.
(d) Effect of the Committee's Decisions. All decisions,
determinations and interpretations of the Committee shall be
final and conclusive on all persons affected thereby.
(e) Indemnification. In addition to such other rights
of indemnification as they may have, the members of the Committee
shall be indemnified by the Company in connection with any claim,
action, suit or proceeding relating to any action taken or
failure to act under or in connection with the Plan or any Award,
granted hereunder to the full extent provided for under the
Company's governing instruments with respect to the
indemnification of Directors.
6. GRANT OF OPTIONS.
(a) General Rule. Only Employees shall be eligible to
receive discretionary Awards. In selecting those Employees to
whom Awards will be granted and the number of shares covered by
such Awards, the Committee shall consider the position, duties
and responsibilities of the eligible Employees, the value of
their services to the Company and its Affiliates, and any other
factors the Committee may deem relevant. Notwithstanding the
foregoing, the Committee shall automatically make the Awards
specified in Sections 6(b) and 9 hereof, and (ii) no Employee
shall receive Options to purchase more than 25% of the Shares
reserved under Paragraph 4(a), and no non-Employee Director shall
receive Options to purchase more than 5% of the Shares reserved
under Paragraph 4(a), with all non-Employee Directors as a group
receiving Options to purchase no more than 30% of the Shares
reserved under Paragraph 4(a).
(b) Automatic Grants to Employees. On the Effective Date,
each of the following Employees shall receive an Option (in the
form of an ISO, to the extent permissible under the Code) to
purchase the number of Shares listed below, at an Exercise Price
per Share equal to the Market Value of a Share on the Effective
Date; provided that such grant shall not be made to an Employee
whose Continuous Service terminates on or before the Effective
Date:
Percentage of Shares
Participant Reserved under Paragraph 4(a)
- ----------- -----------------------------
Virginia Stump 25%
Tony Merida 25%
With respect to each of the above-named Participants, the
Option granted to the Participant hereunder (i) shall vest in
accordance with the general rule set forth in Paragraph 8(a) of
the Plan, (ii) shall have a term of ten years from the Effective
Date, and (iii) shall be subject to the general rule set forth in
Paragraph 8(c) with respect to the effect of a Participant's
termination of Continuous Service on the Participant's right to
exercise his Options.
(c) Special Rules for ISOs. The aggregate Market Value, as
of the date the Option is granted, of the Shares with respect to
which ISOs are exercisable for the first time by an Employee
during any calendar year (under all incentive stock option plans,
as defined in Section 422 of the Code, of the Company or any
present or future Affiliate of the Company) shall not exceed
$100,000. Notwithstanding the foregoing, the Committee may grant
Options in excess of the foregoing limitations, in which case
such Options granted in excess of such limitation shall be
Options which are Non-ISOs.
A-4<PAGE>
<PAGE>
7. EXERCISE PRICE FOR OPTIONS.
(a) Limits on Committee Discretion. The Exercise Price
as to any particular Option shall not be less than 100% of the
Market Value of the Optioned Shares on the date of grant. In the
case of an Employee who owns Shares representing more than 10% of
the Company's outstanding Shares of Common Stock at the time an
ISO is granted, the Exercise Price shall not be less than 110% of
the Market Value of the Optioned Shares at the time the ISO is
granted.
(b) Standards for Determining Exercise Price. If the
Common Stock is listed on a national securities exchange
(including the NASDAQ National Market System) on the date in
question, then the Market Value per Share shall be the average of
the highest and lowest selling price on such exchange on such
date, or if there were no sales on such date, then the Exercise
Price shall be the mean between the bid and asked price on such
date. If the Common Stock is traded otherwise than on a national
securities exchange on the date in question, then the Market
Value per Share shall be the mean between the bid and asked price
on such date, or, if there is no bid and asked price on such
date, then on the next prior business day on which there was a
bid and asked price. If no such bid and asked price is
available, then the Market Value per Share shall be its fair
market value as determined by the Committee, in its sole and
absolute discretion.
8. EXERCISE OF OPTIONS.
(a) Generally. Each Option shall become exercisable with
respect to twenty percent (20%) of the Optioned Shares upon the
Participant's completion of each of five Years of Service,
provided that an Option shall become fully (100%) exercisable
immediately upon termination of the Participant's Continuous
Service due to the Participant's Disability or death. An Option
may not be exercised for a fractional Share.
(b) Procedure for Exercise. A Participant may exercise
Options, subject to provisions relative to its termination and
limitations on its exercise, only by (1) written notice of intent
to exercise the Option with respect to a specified number of
Shares, and (2) payment to the Company (contemporaneously with
delivery of such notice) in cash, in Common Stock, or a
combination of cash and Common Stock, of the amount of the
Exercise Price for the number of Shares with respect to which the
Option is then being exercised. Each such notice (and payment
where required) shall be delivered, or mailed by prepaid
registered or certified mail, addressed to the Treasurer of the
Company at the Company's executive offices. Common Stock
utilized in full or partial payment of the Exercise Price for
Options shall be valued at its Market Value at the date of
exercise, and may consist of Shares subject to the Option being
exercised. Upon a Participant's exercise of an Option, the
Company may, in the discretion of the Committee, pay to the
Participant a cash amount up to but not exceeding the amount of
dividends, if any, declared on the underlying Shares between the
date of grant and the date of exercise of the Option.
(c) Period of Exercisability. Except to the extent
otherwise provided in the terms of an Agreement, an Option may be
exercised by a Participant only while he is an Employee and has
maintained Continuous Service from the date of the grant of the
Option, or within three months after termination of such
Continuous Service (but not later than the date on which the
Option would otherwise expire), except if the Employee's
Continuous Service terminates by reason of --
(1) "Just Cause" which for purposes hereof shall have
the meaning set forth in any unexpired employment or
severance agreement between the Participant and the Bank
and/or the Company (and, in the absence of any such
agreement, shall mean termination because of the Employee's
personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease-and-
desist order, then the Participant's rights to exercise
such Option shall expire on the date of such termination;
A-5<PAGE>
<PAGE>
(2) death, then to the extent that the Participant
would have been entitled to exercise the Option immediately
prior to his death, such Option of the deceased Participant
may be exercised within two years from the date of his
death (but not later than the date on which the Option
would otherwise expire) by the personal representatives of
his estate or person or persons to whom his rights under
such Option shall have passed by will or by laws of descent
and distribution;
(3) Disability, then to the extent that the
Participant would have been entitled to exercise the Option
immediately prior to his or her Disability, such Option may
be exercised within one year from the date of termination
of employment due to Disability, but not later than the
date on which the Option would otherwise expire.
(d) Effect of the Committee's Decisions. The Committee's
determination whether a Participant's Continuous Service has
ceased, and the effective date thereof, shall be final and
conclusive on all persons affected thereby.
(e) Six-Month Holding Period. Notwithstanding any other
provision of this Plan to the contrary, common stock of the
Company that is purchased upon exercise of an Option or SAR may
not be sold within the six-month period following the grant date
of that Option or SAR, except in the event of the Participant's
death or Disability.
9. GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS.
(a) Automatic Grants. Notwithstanding any other
provisions of this Plan, each Director who is not an Employee but
is a Director on the Effective Date shall receive, on said date,
Non-ISOs to purchase a number of Shares equal to the lesser of
five percent (5%) of the number of Shares reserved under
Paragraph 4(a) hereof, and the quotient obtained by dividing --
(i) 30 percent (30%) of the number of Shares reserved
under Paragraph 4(a) hereof, by
(ii) the number of Directors entitled to receive an
Option on the Effective Date, pursuant to this
Paragraph 9(a).
Such Non-ISOs shall have an Exercise Price per Share equal
to the Market Value of a Share on the date of grant. Each
Director who joins the Board after the Effective Date and who is
not then an Employee shall receive, on the date of joining the
Board, Non-ISOs to purchase 2% of the Shares reserved under
Paragraph 4(a) of the Plan (or such lesser number of Shares as
are available hereunder), at an Exercise Price per Share equal to
its Market Value on the date of grant. Notwithstanding the
foregoing, in no event shall an Option be granted pursuant to
this Paragraph 9(a) to the extent that it would result in all
non-Employee Directors as a group receiving more than 30% of the
Shares reserved pursuant to Paragraph 4(a).
(b) Terms of Exercise. Options received under the
provisions of this Paragraph may be exercised from time to time
by (a) written notice of intent to exercise the Option with
respect to all or a specified number of the Optioned Shares, and
(b) payment to the Company (contemporaneously with the delivery
of such notice), in cash, in Common Stock, or a combination of
cash and Common Stock, of the amount of the Exercise Price for
the number of the Optioned Shares with respect to which the
Option is then being exercised. Each such notice and payment
shall be delivered, or mailed by prepaid registered or certified
mail, addressed to the Treasurer of the Company at the Company's
executive offices. Upon a Director's exercise of an Option, the
Company may, in the discretion of the Committee (which may not be
utilized to pay out such dividends unless the Plan would maintain
conformity with Rule 16b-3), pay to the Director a cash amount up
to but not exceeding the amount of dividends, if any, declared on
the underlying Shares between the date of grant and the date of
exercise of the Option. A Director who exercises Options
pursuant to this Paragraph may satisfy all applicable federal,
state and local income and employment tax withholding
obligations, in whole or in part, by irrevocably electing to have
the Company
A-6<PAGE>
<PAGE>
withhold shares of Common Stock, or to deliver to the Company
shares of Common Stock that he already owns, having a value equal
to the amount required to be withheld; provided that to the
extent not inconsistent herewith, such election otherwise
complies with those requirements of Paragraphs 8 and 19 hereof.
Options granted under this Paragraph shall have a term of
ten years; provided that Options granted under this Paragraph
shall (i) become exercisable in accordance with paragraph 8(a) of
the Plan, and (ii) expire one year after the date on which a
Director terminates Continuous Service on the Board, but in no
event later than the date on which such Options would otherwise
expire. In the event of such Director's death during the term of
his directorship, Options granted under this Paragraph shall
become immediately exercisable, and may be exercised within two
years from the date of his death by the personal representatives
of his estate or person or persons to whom his rights under such
Option shall have passed by will or by laws of descent and
distribution, but in no event later than the date on which such
Options would otherwise expire. In the event of such Director's
Disability during his or her directorship, the Director's Option
shall become immediately exercisable, and such Option may be
exercised within one year of the termination of directorship due
to Disability, but not later than the date that the Option would
otherwise expire. Unless otherwise inapplicable or inconsistent
with the provisions of this Paragraph, the Options to be granted
to Directors hereunder shall be subject to all other provisions
of this Plan.
(c) Effect of the Committee's Decisions. The
Committee's determination whether a Participant's Continuous
Service has ceased, and the effective date thereof, shall be
final and conclusive on all persons affected thereby.
10. SARS (STOCK APPRECIATION RIGHTS).
(a) Granting of SARs. In its sole discretion, the Committee
may from time to time grant SARs to Employees either in
conjunction with, or independently of, any Options granted under
the Plan. An SAR granted in conjunction with an Option may be an
alternative right wherein the exercise of the Option terminates
the SAR to the extent of the number of shares purchased upon
exercise of the Option and, correspondingly, the exercise of the
SAR terminates the Option to the extent of the number of Shares
with respect to which the SAR is exercised. Alternatively, an
SAR granted in conjunction with an Option may be an additional
right wherein both the SAR and the Option may be exercised. An
SAR may not be granted in conjunction with an ISO under
circumstances in which the exercise of the SAR affects the right
to exercise the ISO or vice versa, unless the SAR, by its terms,
meets all of the following requirements:
(1) The SAR will expire no later than the ISO;
(2) The SAR may be for no more than the difference
between the Exercise Price of the ISO and the Market
Value of the Shares subject to the ISO at the time
the SAR is exercised;
(3) The SAR is transferable only when the ISO is
transferable, and under the same conditions;
(4) The SAR may be exercised only when the ISO may be
exercised; and
(5) The SAR may be exercised only when the Market Value
of the Shares subject to the ISO exceeds the
Exercise Price of the ISO.
(b) Exercise Price. The Exercise Price as to any
particular SAR shall not be less than the Market Value of the
Optioned Shares on the date of grant.
(c) Timing of Exercise. Any election by a Participant
to exercise SARs shall be made during the period beginning on the
third business day following the release for publication of
quarterly or annual financial information and ending on the 12th
business day following such date. This condition shall be deemed
to be satisfied
A-7<PAGE>
<PAGE>
when the specified financial data is first made publicly
available. In no event, however, may an SAR be exercised within
the six-month period following the date of its grant.
The provisions of Paragraph 8 regarding vesting and the
period of exercisability of Options are incorporated by reference
herein, and shall determine the vesting and the period of
exercisability of SARs.
(d) Exercise of SARs. An SAR granted hereunder shall be
exercisable at such times and under such conditions as shall be
permissible under the terms of the Plan and of the Agreement
granted to a Participant, provided that an SAR may not be
exercised for a fractional Share. Upon exercise of an SAR, the
Participant shall be entitled to receive, without payment to the
Company except for applicable withholding taxes, an amount equal
to the excess of (or, in the discretion of the Committee if
provided in the Agreement, a portion of) the excess of the then
aggregate Market Value of the number of Optioned Shares with
respect to which the Participant exercises the SAR, over the
aggregate Exercise Price of such number of Optioned Shares. This
amount shall be payable by the Company, in the discretion of the
Committee, in cash or in Shares valued at the then Market Value
thereof, or any combination thereof.
(e) Procedure for Exercising SARs. To the extent not
inconsistent herewith, the provisions of Paragraph 8(b) as to the
procedure for exercising Options are incorporated by reference,
and shall determine the procedure for exercising SARs.
11. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE PLAN.
(a) Recapitalizations; Stock Splits, Etc. The number
and kind of shares reserved for issuance under the Plan, and the
number and kind of shares subject to outstanding Awards, and the
Exercise Price thereof, shall be proportionately adjusted for any
increase, decrease, change or exchange of Shares for a different
number or kind of shares or other securities of the Company which
results from a merger, consolidation, recapitalization,
reorganization, reclassification, stock dividend, split-up,
combination of shares, or similar event in which the number or
kind of shares is changed without the receipt or payment of
consideration by the Company.
(b) Transactions in which the Company is Not the Surviving
Entity. In the event of (i) the liquidation or dissolution of
the Company, (ii) a merger or consolidation in which the Company
is not the surviving entity, or (iii) the sale or disposition of
all or substantially all of the Company's assets (any of the
foregoing to be referred to herein as a "Transaction"), all
outstanding Awards, together with the Exercise Prices thereof,
shall be equitably adjusted for any change or exchange of Shares
for a different number or kind of shares or other securities
which results from the Transaction.
(c) Special Rule for ISOs. Any adjustment made pursuant
to subparagraphs (a) or (b) hereof shall be made in such a manner
as not to constitute a modification, within the meaning of
Section 424(h) of the Code, of outstanding ISOs.
(d) Conditions and Restrictions on New, Additional, or
Different Shares or Securities. If, by reason of any adjustment
made pursuant to this Paragraph, a Participant becomes entitled
to new, additional, or different shares of stock or securities,
such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and
restrictions which were applicable to the Shares pursuant to the
Award before the adjustment was made.
(e) Other Issuances. Except as expressly provided in
this Paragraph, the issuance by the Company or an Affiliate of
shares of stock of any class, or of securities convertible into
Shares or stock of another class, for cash or property or for
labor or services either upon direct sale or upon the exercise of
rights or warrants to subscribe therefor, shall not affect, and
no adjustment shall be made with respect to, the number, class,
or Exercise Price of Shares then subject to Awards or reserved
for issuance under the Plan.
A-8<PAGE>
<PAGE>
(f) Certain Special Dividends. The Exercise Price of
shares subject to outstanding Awards shall be proportionately
adjusted upon the payment of a special large and nonrecurring
dividend that has the effect of a return of capital to the
stockholders, except that this subparagraph (f) shall not apply
to any dividend which is paid to the Participant pursuant to
Paragraph 8(b) or 9(b) hereof.
12. NON-TRANSFERABILITY OF AWARDS.
Awards may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by
the laws of descent and distribution. Notwithstanding the
foregoing, or any other provision of this Plan, a Participant who
holds Awards may transfer such Awards (but not ISOs) to his or
her spouse, lineal ascendants, lineal descendants, or to a duly
established trust for the benefit of one or more of these
individuals. Awards so transferred may thereafter be transferred
only to the Participant who originally received the grant or to
an individual or trust to whom the Participant could have
initially transferred the Awards pursuant to this Paragraph 12.
Awards which are transferred pursuant to this Paragraph 12 shall
be exercisable by the transferee according to the same terms and
conditions as applied to the Participant.
13. TIME OF GRANTING AWARDS.
The date of grant of an Award shall, for all purposes, be
the later of the date on which the Committee makes the determina-
tion of granting such Award, and the Effective Date. Notice of
the determination shall be given to each Participant to whom an
Award is so granted within a reasonable time after the date of
such grant.
14. EFFECTIVE DATE.
The Plan shall become effective immediately upon its
approval by a favorable vote of stockholders owning at least a
majority of the total votes eligible to be cast at a duly called
meeting of the Company's stockholders held in accordance with
applicable laws, provided that the Plan shall not be submitted
for such approval within the six-month period after the Bank
completes its mutual-to-stock conversion. No Awards may be made
prior to approval of the Plan by the stockholders of the Company.
15. MODIFICATION OF AWARDS.
At any time, and from time to time, subject to OTS
regulations, the Board may authorize the Committee to direct
execution of an instrument providing for the modification of any
outstanding Award, provided no such modification shall confer on
the holder of said Award any right or benefit which could not be
conferred on him by the grant of a new Award at such time, or
impair the Award without the consent of the holder of the Award.
16. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may from time to time amend the terms of the Plan
and, with respect to any Shares at the time not subject to
Awards, suspend or terminate the Plan.
No amendment, suspension or termination of the Plan shall,
without the consent of any affected holders of an Award, alter or
impair any rights or obligations under any Award theretofore
granted.
17. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Compliance with Securities Laws. Shares of Common
Stock shall not be issued with respect to any Award unless the
issuance and delivery of such Shares shall comply with all
relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the rules and regulations
promulgated
A-9<PAGE>
<PAGE>
thereunder, any applicable state securities law, and the
requirements of any stock exchange upon which the Shares may then
be listed.
(b) Special Circumstances. The inability of the Company
to obtain approval from any regulatory body or authority deemed
by the Company's counsel to be necessary to the lawful issuance
and sale of any Shares hereunder shall relieve the Company of any
liability in respect of the non-issuance or sale of such Shares.
As a condition to the exercise of an Option or SAR, the Company
may require the person exercising the Option or SAR to make such
representations and warranties as may be necessary to assure the
availability of an exemption from the registration requirements
of federal or state securities law.
(c) Committee Discretion. Subject to OTS regulations,
the Committee shall have the discretionary authority to impose in
Agreements such restrictions on Shares as it may deem appropriate
or desirable, including but not limited to the authority to
impose a right of first refusal or to establish repurchase rights
or both of these restrictions.
18. RESERVATION OF SHARES.
The Company, during the term of the Plan, will reserve and
keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
19. WITHHOLDING TAX.
The Company's obligation to deliver Shares upon exercise of
Options and/or SARs shall be subject to the Participant's
satisfaction of all applicable federal, state and local income
and employment tax withholding obligations. The Committee, in
its discretion, may permit the Participant to satisfy the
obligation, in whole or in part, by irrevocably electing to have
the Company withhold Shares, or to deliver to the Company Shares
that he already owns, having a value equal to the amount required
to be withheld. The value of the Shares to be withheld, or
delivered to the Company, shall be based on the Market Value of
the Shares on the date the amount of tax to be withheld is to be
determined. As an alternative, the Company may retain, or sell
without notice, a number of such Shares sufficient to cover the
amount required to be withheld.
20. NO EMPLOYMENT OR OTHER RIGHTS.
In no event shall an Employee's or Director's eligibility to
participate or participation in the Plan create or be deemed to
create any legal or equitable right of the Employee, Director, or
any other party to continue service with the Company, the Bank,
or any Affiliate of such corporations. Except to the extent
provided in Paragraphs 6(b) and 9(a), no Employee or Director
shall have a right to be granted an Award or, having received an
Award, the right to again be granted an Award. However, an
Employee or Director who has been granted an Award may, if
otherwise eligible, be granted an additional Award or Awards.
21. GOVERNING LAW.
The Plan shall be governed by and construed in accordance
with the laws of the Commonwealth of Kentucky, except to the
extent that federal law shall be deemed to apply.
A-10<PAGE>
<PAGE>
Exhibit B
FIRST LANCASTER FEDERAL SAVINGS BANK
MANAGEMENT RECOGNITION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.01 The Bank hereby establishes this Plan upon the
terms and conditions hereinafter stated.
1.02 Through acceptance of their appointment to the
Committee, each member of the Committee hereby accepts his or her
appointment hereunder upon the terms and conditions hereinafter
stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and retain
personnel of experience and ability in key positions of
responsibility by providing Employees and Directors of the
Company, the Bank, and their Affiliates with a proprietary
interest in the Company, and as compensation for their past
contributions to the Bank, and as an incentive to make such
contributions in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with
an initial capital letter, shall have the meanings set forth
below unless the context clearly indicates otherwise. Wherever
appropriate, the masculine pronoun shall include the feminine
pronoun and the singular shall include the plural.
3.01 "Affiliate" shall mean any "parent corporation" or
"subsidiary corporation" of the Bank, as such terms are defined
in Section 424(e) and (f), respectively, of the Internal Revenue
Code of 1986, as amended.
3.02 "Bank" means First Lancaster Federal Savings Bank.
3.03 "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.
3.04 "Board" means the Board of Directors of the Bank.
3.05 "Committee" means the Management Recognition Plan
Committee appointed by the Board pursuant to Article IV hereof.
3.06 "Common Stock" means shares of the common stock of
the Company.
3.07 "Company" means First Lancaster Bancshares, Inc.
3.08 "Continuous Service" shall mean the absence of any
interruption or termination of service as an Employee or Director
of the Bank or an Affiliate. Continuous Service shall not be
considered interrupted in the case of sick leave, military leave
or any other leave of absence approved by the Bank in the case of
transfers between
B-1<PAGE>
<PAGE>
payroll locations of the Bank or between the Bank, an Affiliate
or a successor, or in the case of a Director's performance of
services in an emeritus or advisory capacity.
3.09 "Date of Conversion" means the date of the
conversion of the Bank from mutual to stock form.
3.10 "Director" means a member of the Board.
3.11 "Disability" means a physical or mental condition
of a Participant resulting from bodily injury, disease, or mental
disorder which renders him incapable of continuing any gainful
occupation and which condition constitutes total disability under
the Federal Social Security Acts.
3.12 "Effective Date" means the date on which the Plan
first becomes effective, as determined under Section 8.07 hereof.
3.13 "Employee" means any person who is employed by the
Bank or an Affiliate.
3.14 "Non-employee Director" shall have the meaning
provided in Rule 16b-3 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended.
3.15 "OTS" shall mean the Office of Thrift Supervision
of the United States Department of the Treasury.
3.16 "Participant" means an Employee or Director who
holds a Plan Share Award.
3.17 "Plan" means this First Lancaster Federal Savings
Bank Management Recognition Plan.
3.18 "Plan Shares" means shares of Common Stock held in
the Trust which are awarded or issuable to a Participant pursuant
to the Plan.
3.19 "Plan Share Award" means a right granted under this
Plan to receive Plan Shares.
3.20 "Plan Share Reserve" means the shares of Common
Stock held by the Trustee pursuant to Sections 5.02 and 5.03.
3.21 "Trust" and "Trust Agreement" mean that agreement
entered into pursuant to the terms hereof between the Bank and
the Trustee, and "Trust" means the trust created thereunder.
3.22 "Trustee" means that person(s) or entity appointed
by the Board pursuant to the Trust Agreement to hold legal title
to the Plan assets for the purposes set forth herein.
3.23 "Year of Service" shall mean a full twelve-month
period, measured from the date of a Plan Share Award and each
annual anniversary of that date, throughout which the
Participant's continuous service has not terminated for any
reason.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role and Powers of the Committee. The Plan shall
be administered and interpreted by the Committee, which shall
consist of not less than two members of the Board who are Non-
employee Directors. In the absence at any time of a duly
appointed Committee, the Plan shall be administered by those
members of the Board who are Non-employee Directors and by the
Board if there are less than two Non-employee Directors.
B-2<PAGE>
<PAGE>
The Committee shall have all of the powers allocated to it
in this and other Sections of the Plan. Except as limited by the
express provisions of the Plan or by resolutions adopted by the
Board, the Committee shall have sole and complete authority and
discretion, subject to applicable OTS regulations (i) to make
Plan Share Awards to such Employees as the Committee may select,
(ii) to determine the form and content of Plan Share Awards to be
issued under the Plan, (iii) to interpret the Plan, (iv) to
prescribe, amend and rescind rules and regulations relating to
the Plan, and (v) to make other determinations necessary or
advisable for the administration of the Plan. The Committee
shall have and may exercise such other power and authority as may
be delegated to it by the Board from time to time. Subject to
Section 4.02, the interpretation and construction by the
Committee of any provisions of the Plan or of any Plan Share
Award granted hereunder shall be final and binding. The
Committee shall act by vote or written consent of a majority of
its members, and 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. The Committee may
recommend to the Board one or more persons or entity to act as
Trustee(s) in accordance with the provisions of this Plan and the
Trust.
4.02 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 this and other
Sections of the Plan, may take any action under or with respect
to the Plan which 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 the Board may not take any action that would constitute a
violation of OTS regulations or revoke any Plan Share Award
already made or impair a participant's vested rights under a Plan
Share Award except as provided in Section 8.02 herein. Members
of the Board who are eligible for or who have been granted Plan
Share Awards (other than pursuant to Section 6.04) may not vote
on any matters affecting the administration of the Plan or the
grant of Plan Shares or Plan Share Awards (although such members
may be counted in determining the existence of a quorum at any
meeting of the Board during which actions with regard thereto are
taken). Further, with respect to all actions taken by the Board
in regard to the Plan, such action shall be taken by a majority
of the Board where such a majority of the directors acting in the
matter are Non-employee Directors.
4.03 LIMITATION ON LIABILITY. No member of the Board or
the Committee or the Trustee(s) shall be liable for any
determination made in good faith with respect to the Plan or any
Plan Shares or Plan Share Awards granted under it. If a member
of the Board or the Committee or any Trustee is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of anything done or
not done by him in such capacity under or with respect to the
Plan, the Bank shall, subject to the indemnification provisions
of 12 C.F.R. Section 545.121, indemnify such member against
expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
him or her in connection with such action, suit or proceeding if
he or she acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the Bank and
its Affiliates and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board
shall determine the amounts (or the method of computing the
amounts) to be contributed by the Bank to the Trust. Such
amounts shall be paid to the Trustee at the time of contribution
and shall not exceed amounts permitted under OTS regulations. No
contributions to the Trust by Employees shall be permitted.
5.02 INVESTMENT OF TRUST ASSETS. The Trustee shall
invest Trust assets only in accordance with the Trust Agreement;
provided that the Trust shall not purchase more than four percent
(4%) of the number of shares of Common Stock issued on the Date
of Conversion. Common Stock purchased by the Trust may be
acquired on the open market or in the form of shares newly issued
by the Company.
B-3<PAGE>
<PAGE>
5.03 EFFECT OF ALLOCATIONS, RETURNS AND FORFEITURES UPON
PLAN SHARE RESERVES. Upon the allocation of Plan Share Awards
under Section 6.02, the Plan Share Reserve shall be reduced by
the number of Shares subject to the Awards so allocated. Any
Shares subject or attributable to an Award which may not be
earned because of a forfeiture by the Participant pursuant to
Section 7.01 shall be added to the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 ELIGIBILITY. Only Employees shall be eligible to
receive discretionary Plan Share Awards. In selecting those
Employees to whom Plan Share Awards will be granted and the
number of shares covered by such Awards, the Committee shall
consider the position, duties and responsibilities of the
eligible Employees, the value of their services to the Bank and
its Affiliates, and any other factors the Committee may deem
relevant. Notwithstanding the foregoing, (i) the Committee shall
automatically make the Plan Share Awards specified in Sections
6.04 and 6.05 hereof; and (ii) no Employee shall receive Plan
Share Awards relating to more than 25% of the Plan Shares
reserved under Section 5.02, and no non-employee Director shall
receive Plan Share Awards relating to more than 5% of the Plan
Shares reserved under Section 5.02, with all non-employee
Directors as a group receiving Plan Share Awards relating to no
more than 30% of the Plan Shares reserved under Section 5.02.
6.02 ALLOCATIONS. The Committee will determine which
Employees will be granted discretionary Plan Share Awards, and
the number of Shares covered by each Plan Share Award, provided
that in no event shall any Awards be made which will violate the
governing instruments of the Bank or its Affiliates or any
applicable federal or state law or regulation. In the event Plan
Shares are forfeited for any reason or additional shares of
Common Stock are purchased by the Trustee, the Committee may,
from time to time, determine which of the Employees referenced in
Section 6.01 above will be granted additional Plan Share Awards
to be awarded from the forfeited or acquired Plan Shares.
6.03 FORM OF ALLOCATION. As promptly as practicable
after a determination is made pursuant to Section 6.02 that a
Plan Share Award is to be made, the Committee shall notify the
Participant in writing of the grant of the Award, the number of
Plan Shares covered by the Award, and the terms upon which the
Plan Shares subject to the Award may be earned. The date on
which the Committee so notifies the Participant shall be
considered the date of grant of the Plan Share Awards. The
Committee shall maintain records as to all grants of Plan Share
Awards under the Plan.
6.04 AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS.
Notwithstanding any other provisions of this Plan, each Director
who is not an Employee but is a Director on the Effective Date
shall receive, on said date, a Plan Share Award for a number of
Shares equal to the lesser of five (5%) of the number of Plan
Shares which the Trust is authorized to purchase pursuant to
Section 5.02 of the Plan and the quotient obtained by dividing --
(i) Thirty percent (30%) of the number of Plan Shares
which the Trust is authorized to purchase pursuant to
Section 5.02 of the Plan, by
(ii) the number of Directors entitled to receive Plan
Share Awards on the Effective Date, pursuant to this
Section 6.04.
Each Director who joins the Board after the Effective Date
shall receive, on said date, a Plan Share Award of two percent
(2%) of the number of Plan Shares which the Trust is authorized
to purchase pursuant to Section 5.02 of the Plan (or such lesser
number as are available hereunder for Plan Share Awards).
Notwithstanding the foregoing, in no event shall a Plan Share
Award be granted pursuant to this Section 6.04 to the extent that
it would result in non-Employee Directors as a group receiving
more than 30% of the Plan Shares reserved under Section 5.02.
B-4<PAGE>
<PAGE>
Plan Share Awards received under the provisions of this
Section shall become vested and nonforfeitable according to the
general rules set forth in subsections (a), and (b) of Section
7.01, and the Committee shall have no discretion to alter or
accelerate said vesting requirements. Unless otherwise
inapplicable or inconsistent with the provisions of this Section,
the Plan Share Awards to be granted hereunder shall be subject to
all other provisions of this Plan.
6.05 AUTOMATIC GRANTS TO EMPLOYEES. On the Effective
Date, each of the following individuals shall receive a Plan
Share Award as to the number of Plan Shares listed below,
provided that such award shall not be made to an individual who
is not an Employee on the Effective Date:
Percentage of Plan Shares Authorized
Employee for Purchase under Plan Subsection 5.02
- -------- ----------------------------------------
Virginia Stump 25%
Tony Merida 25%
Plan Share Awards received under the provisions of this
Section shall become vested and nonforfeitable according to the
general rules set forth in subsections (a) and (b) of Section
7.01, and the Committee shall have no discretion to alter said
vesting requirements. Unless otherwise inapplicable or
inconsistent with the provisions of this Section, the Plan Share
Awards to be granted hereunder shall be subject to all other
provisions of this Plan.
6.06 ALLOCATIONS NOT REQUIRED. Notwithstanding anything
to the contrary in Sections 6.01 and 6.02, but subject to
Sections 6.04 and 6.05, no Employee or Director shall have any
right or entitlement to receive a Plan Share Award hereunder,
such Awards being at the total discretion of the Committee, nor
shall any Employees or Directors as a group have such a right.
The Committee may, with the approval of the Board (or, if so
directed by the Board) return all Common Stock in the Plan Share
Reserve to the Bank at any time, and cease issuing Plan Share
Awards.
ARTICLE VII
EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
(a) GENERAL RULES. Twenty percent (20%) of the
Plan Shares subject to a Plan Share Award shall be earned and
become non-forfeitable by a Participant upon his or her
completion of each of five Years of Service.
(b) EXCEPTION FOR TERMINATIONS DUE TO DEATH OR
DISABILITY. Notwithstanding the general rule contained in
Section 7.01(a) above, all Plan Shares subject to a Plan Share
Award held by a Participant whose service with the Bank or an
Affiliate terminates due to the Participant's death or
Disability, shall be deemed earned as of the Participant's last
day of service with the Bank or an Affiliate and shall be
distributed as soon as practicable thereafter.
(c) SIX-MONTH HOLDING PERIOD. In no event may Plan
Shares be sold within the six-month period following the date of
the underlying Plan Share Award, except in the event of the
Participant's death or Disability, or such other event as the
Board may specifically deem appropriate.
7.02 ACCRUAL OF DIVIDENDS. Whenever Plan Shares are
paid to a Participant or Beneficiary under Section 7.03, such
Participant or Beneficiary shall also be entitled to receive,
with respect to each Plan Share paid, an amount equal to any cash
dividends (including special large and nonrecurring dividends,
including one that has the effect of a return of capital to the
Company's stockholders) and a number of shares of Common Stock
equal to any stock dividends, declared and paid with respect to a
share of Common Stock between the date the relevant Plan
B-5<PAGE>
<PAGE>
Share Award was initially granted to such Participant and the
date the Plan Shares are being distributed. There shall also be
distributed an appropriate amount of net earnings, if any, of the
Trust with respect to any cash dividends so paid out.
7.03 DISTRIBUTION OF PLAN SHARES.
(a) TIMING OF DISTRIBUTIONS: General Rule. Except
as provided in Subsections (c), and (d) below, the Trustee shall
distribute Plan Shares and accumulated cash from dividends and
interest to the Participant or his Beneficiary, as the case may
be, as soon as practicable after they have been earned. No
fractional shares shall be distributed.
(b) FORM OF DISTRIBUTION. The Trustee shall
distribute all Plan Shares, together with any shares representing
stock dividends, in the form of Common Stock. One share of
Common Stock shall be given for each Plan Share earned. Payments
representing cash dividends (and earnings thereon) shall be made
in cash.
(c) WITHHOLDING. The Trustee shall withhold from
any cash payment made under this Plan sufficient amounts to cover
any applicable withholding and employment taxes, and if the
amount of such cash payment is not sufficient, the Trustee shall
require the Participant or Beneficiary to pay to the Trustee the
amount required to be withheld as a condition of delivering the
Plan Shares. The Trustee shall pay over to the Bank or Affiliate
which employs or employed such Participant any such amount
withheld from or paid by the Participant or Beneficiary.
(d) TIMING: EXCEPTION FOR 10% SHAREHOLDERS.
Notwithstanding Subsections (a) and (b) above, no Plan Shares may
be distributed prior to the date which is five (5) years from the
Date of Conversion to the extent the Participant or Beneficiary,
as the case may be, would after receipt of such Shares own in
excess of ten percent (10%) of the issued and outstanding shares
of Common Stock unless such action is approved in advance by a
majority vote of Non-employee Directors of the Board. To the
extent this limitation would delay the date on which a
Participant receives Plan Shares, the Participant may elect to
receive from the Trust, in lieu of such Plan Shares, the cash
equivalent thereof. Any Plan Shares remaining undistributed
solely by reason of the operation of this Subsection (d) shall be
distributed to the Participant or his Beneficiary on the date
which is five years from the Date of Conversion, provided that
the Participant is vested as to those Plan Shares pursuant to
Section 7.01(a) hereof.
(e) REGULATORY EXCEPTIONS. No Plan Shares shall be
distributed unless and until all of the requirements of all
applicable law and regulation shall have been fully complied
with, including the receipt of approval of the Plan by the
stockholders of the Bank by such vote, if any, as may be required
by applicable law and regulations.
7.04 VOTING OF PLAN SHARES. All shares of Common Stock
held by the Trust (whether or not subject to a Plan Share Award)
shall be voted by the Trustee in the same proportion as the
trustee of the Company's Employee Stock Ownership Plan votes
Common Stock held in the trust associated therewith, and in the
absence of any such voting, shall be voted in the manner directed
by the Board.
ARTICLE VIII
MISCELLANEOUS
8.01 ADJUSTMENTS FOR CAPITAL CHANGES.
(a) RECAPITALIZATIONS; STOCK SPLITS, ETC. The
number and kind of shares which may be purchased under the Plan,
and the number and kind of shares subject to outstanding Plan
Share Awards, shall be proportionately adjusted for any increase,
decrease, change or exchange of shares of Common Stock for a
different number or kind of shares or other securities of the
Company which results from a merger, consolidation, recapitaliza
B-6<PAGE>
<PAGE>
tion, reorganization, reclassification, stock dividend, split-up,
combination of shares, or similar event in which the number or
kind of shares is changed without the receipt or payment of
consideration by the Company.
(b) TRANSACTIONS IN WHICH THE COMPANY IS NOT THE
SURVIVING ENTITY. In the event of (i) the liquidation or
dissolution of the Company, (ii) a merger or consolidation in
which the Company is not the surviving entity, or (iii) the sale
or disposition of all or substantially all of the Company's
assets (any of the foregoing to be referred to herein as a
"Transaction"), all outstanding Plan Share Awards shall be
adjusted for any change or exchange of shares of Common Stock for
a different number or kind of shares or other securities which
results from the Transaction.
(c) CONDITIONS AND RESTRICTIONS ON NEW, ADDITIONAL,
OR DIFFERENT SHARES OR SECURITIES. If, by reason of any
adjustment made pursuant to this Section, a Participant becomes
entitled to new, additional, or different shares of stock or
securities, such new, additional, or different shares of stock or
securities shall thereupon be subject to all of the conditions
and restrictions which were applicable to the shares pursuant to
the Plan Share Award before the adjustment was made. In
addition, the Committee shall have the discretionary authority to
impose on the Shares subject to Plan Share Awards such
restrictions as the Committee may deem appropriate or desirable,
including but not limited to a right of first refusal, or
repurchase option, or both of these restrictions.
(d) OTHER ISSUANCES. Except as expressly provided
in this Section, the issuance by the Bank or an Affiliate of
shares of stock of any class, or of securities convertible into
shares of Common Stock or stock of another class, for cash or
property or for labor or services either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, shall
not affect, and no adjustment shall be made with respect to, the
number or class of shares of Common Stock then subject to Plan
Share Awards or reserved for issuance under the Plan.
8.02 AMENDMENT AND TERMINATION OF PLAN. The Board may,
by resolution, at any time amend or terminate the Plan; provided
that no amendment or termination of the Plan shall, without the
written consent of a Participant, impair any rights or
obligations under a Plan Share Award theretofore granted to the
Participant.
The power to amend or terminate the Plan in accordance with
this Section 8.02 shall include the power to direct the Trustee
to return to the Bank all or any part of the assets of the Trust,
including shares of Common Stock held in the Plan Share Reserve.
However, the termination of the Trust shall not affect a
Participant's right to earn Plan Share Awards and to receive a
distribution of Common Stock relating thereto, including earnings
thereon, in accordance with the terms of this Plan and the grant
by the Committee or the Board.
8.03 NONTRANSFERABILITY. Plan Share Awards may not be
sold, pledged, assigned, hypothecated, transferred or disposed of
in any manner other than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, or any other
provision of this Plan, a Participant who holds Plan Share Awards
may transfer such Awards to his or her spouse, lineal ascendants,
lineal descendants, or to a duly established trust for the
benefit of one or more of these individuals. Plan Share Awards
so transferred may thereafter be transferred only to the
Participant who originally received the grant or to an individual
or trust to whom the Participant could have initially transferred
the Awards pursuant to this Section 8.03. Plan Share Awards
which are transferred pursuant to this Section 8.03 shall be
exercisable by the transferee according to the same terms and
conditions as applied to the Participant.
8.04 NO EMPLOYMENT OR OTHER RIGHTS. Neither the Plan
nor any grant of a Plan Share Award or Plan Shares hereunder nor
any action taken by the Trustee, the Committee or the Board in
connection with the Plan shall create any right, either express
or implied, on the part of any Employee or Director to continue
in the service of the Company, the Bank, or an Affiliate thereof.
8.05 VOTING AND DIVIDEND RIGHTS. No Participant shall
have any voting or dividend rights or other rights of a
stockholder in respect of any Plan Shares covered by a Plan Share
Award, except as expressly provided in Section 7.03 above, prior
to the time said Plan Shares are actually distributed to him.
B-7<PAGE>
<PAGE>
8.06 GOVERNING LAW. The Plan and Trust shall be
governed and construed under the laws of the Commonwealth of
Kentucky to the extent not preempted by Federal law.
8.07 EFFECTIVE DATE. The Plan shall become effective
immediately upon its approval by a favorable vote of stockholders
of the Company who own at least a majority of the total votes
eligible to be cast at a duly called meeting of the Company's
stockholders held in accordance with applicable laws, provided
that the Plan shall not be submitted for such approval within the
six-month period after the Date of Conversion. In no event shall
Plan Share Awards be made prior to the Effective Date.
8.08 TERM OF PLAN. This Plan shall remain in effect
until the earlier of (i) termination by the Board, or (ii) the
distribution of all assets of the Trust. Termination of the Plan
shall not affect any Plan Share Awards previously granted, and
such Awards shall remain valid and in effect until they have been
earned and paid, or by their terms expire or are forfeited.
8.09 TAX STATUS OF TRUST. It is intended that (i) the
Trust associated with the Plan be treated as a grantor trust of
the Bank under the provisions of Section 671 et seq. of the Code,
as the same may be amended from time to time, and (ii) that in
accordance with Revenue Procedure 92-65 (as the same may be
amended from time to time), Participants have the status of
general unsecured creditors of the Bank, the Plan constitutes a
mere unfunded promise to make benefit payments in the future, the
Plan is unfunded for tax purposes and for purposes of Title I of
the Employee Retirement Income Security Act of 1974, as amended,
and the Trust has been and will continue to be maintained in
conformity with Revenue Procedure 92-64 (as the same may be
amended from time to time).
B-8<PAGE>
<PAGE>
REVOCABLE PROXY
_________________________________________________________________
FIRST LANCASTER BANCSHARES, INC.
Lancaster, Kentucky
_________________________________________________________________
ANNUAL MEETING OF STOCKHOLDERS
January 9, 1997
The undersigned hereby appoints Tony A. Merida, Jack C.
Zanone and Roger S. Grubbs, with full powers of substitution, to
act as proxies for the undersigned, to vote all shares of Common
Stock of First Lancaster Bancshares, Inc. (the "Company") which
the undersigned is entitled to vote at the Annual Meeting of
Stockholders, to be held at the office of First Lancaster Federal
Savings Bank, 208 Lexington Street, Lancaster, Kentucky on
Thursday, January 9, 1997 at 4:30 p.m., and at any and all
adjournments thereof, as follows:
VOTE
FOR WITHHELD
--- --------
1. The election as directors of all
nominees listed below (except as
marked to the contrary below). [ ] [ ]
Virginia R.S. Stump
Ronald L. Sutton
INSTRUCTION: To withhold your vote for any individual
nominee, insert that nominee's name on the line
provided below.
_______________________________
[CAPTION]
<TABLE>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
2. The approval of the First Lancaster
Bancshares, Inc. 1996 Stock Option
and Incentive Plan [ ] [ ] [ ]
3. The approval of the First Lancaster
Federal Savings Bank Management Recognition
Plan [ ] [ ] [ ]
</TABLE>
The Board of Directors recommends a vote "FOR" each of the
listed propositions.
_________________________________________________________________
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR
AND FOR EACH OF THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS
IS PRESENTED AT THE ANNUAL MEETING, THIS PROXY WILL BE VOTED BY
THOSE NAMED IN THIS PROXY IN ACCORDANCE WITH THE DETERMINATION OF
A MAJORITY OF THE BOARD OF DIRECTORS. AT THE PRESENT TIME, THE
BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT
THE ANNUAL MEETING. THIS PROXY CONFERS DISCRETIONARY AUTHORITY
ON THE HOLDERS THEREOF TO VOTE WITH RESPECT TO THE ELECTION OF
ANY PERSON AS DIRECTOR WHERE THE NOMINEE IS UNABLE TO SERVE OR
FOR GOOD CAUSE WILL NOT SERVE AND MATTERS INCIDENT TO THE CONDUCT
OF THE ANNUAL MEETING.
_________________________________________________________________<PAGE>
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the
Annual Meeting or at any adjournment thereof and after notifica-
tion to the Secretary of the Company at the Annual 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.
The undersigned acknowledges receipt from the Company prior
to the execution of this proxy of notice of the annual meeting, a
Proxy Statement dated November 22, 1996 and an Annual Report to
Stockholders.
Dated: _______________________, 1996
__________________________ __________________________
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
__________________________ __________________________
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on the envelope in
which this form of proxy was mailed. When signing as attorney,
executor, administrator, trustee or guardian, please give your
full title. If shares are held jointly, each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN
THE ACCOMPANYING POSTAGE-PREPAID ENVELOPE.
