<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 Rule 14a-1(c) or Rule
14a-12
[ ] Confidential, For Use of the Commission Only (as permitted
by Rule 14a-6(c)(2))
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] NO FEE REQUIRED
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(1) 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 (set
forth the amount on which the filing fee is calculated and state
how it was determined):
________________________________________________________________
4. Proposed maximum aggregate value of transaction:
________________________________________________________________
5. Total fee paid:
________________________________________________________________
[ ] Fee paid previously with preliminary materials:
________________________________________________________________
[ ] 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.
208 Lexington Street
Lancaster, Kentucky
October 10, 1997
Dear Stockholder:
We invite you to attend the annual meeting of stockholders
of First Lancaster Bancshares, Inc. to be held at First
Lancaster Federal Savings Bank, 208 Lexington Street, Lancaster,
Kentucky on Monday, November 10, 1997 at 4:00 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 NOVEMBER 10, 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 Monday, November 10, 1997 at 4:00 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; and
2. 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
proposals 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 September 26, 1997 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
October 10, 1997
________________________________________________________________
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
NOVEMBER 10, 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 Meet ing") which
will be held at First Lancaster Federal Savings Bank, 208
Lexington Street, Lancaster, Kentucky on Monday, November 10,
1997 at 4:00 p.m. This proxy statement and the accompanying
notice and form of proxy are being first mailed to stockholders
on or about October 10, 1997.
________________________________________________________________
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. 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 September 26, 1997 (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.
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").
1
<PAGE>
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 26, 1997. 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
26, 1997, 5,650 shares had been allocated.
</FN>
</TABLE>
________________________________________________________________
PROPOSAL I -- ELECTION OF DIRECTORS
________________________________________________________________
GENERAL
The Company's Board of Directors consists of six 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 2000 Annual
Meeting. The Board of Directors has nominated Tony A. Merida
and Jack C. Zanone, 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.
2<PAGE>
<PAGE>
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.
<TABLE>
<CAPTION>
Year First
Age at Elected as Current
June 30, Director of Term
Name 1997 the Bank to Expire
- ---- --------- ----------- ---------
<S> <C> <C> <C>
BOARD NOMINEES FOR TERMS TO EXPIRE IN 2000
Tony A. Merida 39 1991 1997
Jack C. Zanone 76 1978 1997
DIRECTORS CONTINUING IN OFFICE
David W. Gay 59 1992 1998
Jane G. Simpson 70 1985 1998
Virginia R.S. Stump 42 1983 1999
Ronald L. Sutton 51 1992 1999
</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.
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 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. Mr. Zanone retired from doing appraisals
in June 1997. Prior to 1978, 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. 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.
3<PAGE>
<PAGE>
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 Ephraim McDowell
Regional County Memorial Hospital since 1996. 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.
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, 1997, 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, 1997 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 and Sutton. 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 one
time during the year ended June 30, 1997.
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 met
one time as a Nominating Committee during the year ended June
30, 1997. 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,
Sutton and Zanone. 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 one time
during the fiscal year ended June 30, 1997.
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 1997 exceeding
$100,000 for services rendered in all capacities to the Company
and the Bank.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------
AWARDS
ANNUAL COMPENSATION -----------------------
-------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
Name YEAR SALARY BONUS COMPENSATION(1) AWARDS OPTIONS(#) COMPENSATION(3)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Virginia R.S. Stump 1997 $61,000 $9,200 $ -- $140,225 (2) 23,970 $29,131
Chairman of the Board, 1996 55,500 8,100 -- -- -- 17,300
President and Chief 1995 51,500 7,400 -- -- -- 9,200
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 1997 did not exceed 10% of each of the executive officer's salary
and bonus.
(2) Value shown in the table is based on the closing price of the Common Stock of $14.625 as quoted on the
Nasdaq SmallCap Market on the date of grant, January 9, 1997. The restricted Common Stock was awarded
pursuant to the Company's Management Recognition Plan ("MRP") and vests at the rate of 20% per year
following the date of grant, with the first 20% vesting on January 9, 1998. As of June 30, 1997,
based on the closing sale price of the Common Stock of $15.25, as reported on the Nasdaq Small-Cap
Market, the aggregate value of the restricted Common Stock held by Ms. Stump was $146,217. In the
event the Company pays dividends with respect to its Common Stock, when shares of restricted stock vest
and/or are distributed, the holder will be entitled to receive any cash dividends and a number of
shares of Common Stock equal to any stock dividends, declared and paid with respect to a share of
restricted Common Stock between the date the restricted stock was awarded and the date the restricted
is distributed, plus interest on cash dividends, provided that dividends paid with respect to unvested
restricted stock must be repaid to the Company in the event the restricted stock is forfeited prior to
vesting.
(3) Consists of director's fees, insurance commissions and nonqualified retirement benefit accruals.
</FN>
</TABLE>
Option Grants in Fiscal Year 1997. The following table
contains information concerning the grant of stock options
during the year ended June 30, 1997 to the executive officer
named in the Summary Compensation Table set forth above.
<TABLE>
<CAPTION>
Percent Potential Realizable
of Total Value at Assumed
Number of Options Annual Rate of Stock
Securities Granted to Price Appreciation
Underlying Employees for Option Term (2)
Options in Fiscal Exercise Expiration --------------------
Name Granted(1) Year Price Date 5% 10%
- ---- ------------ --------- -------- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Virginia R.S. Stump 23,970 33.3% $14.625 1/9/2007 $220,404 $558,621
<FN>
_________________
(1) All options become exercisable at the rate of 20% per year
following the date of grant, with the first 20% becoming
exercisable on January 9, 1998.
(2) Represents the difference between the aggregate exercise
price of the options and the aggregate value of the underlying
Common Stock at the end of the expiration date assuming the
indicated annual rate of appreciation in the value of the
Common Stock as of the date of grant, January 9, 1997, based
on the closing sale price of the Common Stock as quoted
on the Nasdaq Small-Cap Market.
</FN>
</TABLE>
5<PAGE>
<PAGE>
Year-End Option Values. The following table sets forth
information concerning the value as of June 30, 1997
of options held by the executive officer named in the Summary
Compensation Table set forth above.
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year-End at Fiscal Year-End (1)
-------------------------- -------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- -------------------------- -------------------------
<S> <C> <C>
Virginia R. S. Stump --/23,970 $--/$14,981
<FN>
___________
(1) Based on the difference between the fair market value of the
underlying Common Stock of $15.25 as quoted on the Nasdaq
Small-Cap Market on June 30, 1997 and the exercise price of
$14.625 per share.
</FN>
</TABLE>
No options were exercised during fiscal year 1997, and no
options held by any executive officer of the Company repriced
during the past ten full fiscal years.
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.
6<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,
the date of completion of the Bank's conversion from mutual to
stock form (the "Conversion") and provide for a term of three
years. 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 Executive's base salary
rate currently is $65,000. 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 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
7<PAGE>
<PAGE>
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, 1997, would have been approximately
$194,000. 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 $700 per
monthly meeting attended. No fees are paid for serving
on committees of the Board of Directors.
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 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, 1997, the Bank did not have any loans
outstanding to directors and executive officers.
8<PAGE>
<PAGE>
________________________________________________________________
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
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 (6 persons) 61,171 6.4
<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. Amounts shown include 9,588,
9,588, 1,917, 1,917, 1,917 and 1,917 shares of restricted Common Stock
which are beneficially owned by Directors Stump, Merida, Gay, Simpson,
Sutton and Zanone, respectively, which have been awarded pursuant to the
MRP but have not vested. Does not include shares with respect to which
Directors Gay, Sutton and Zanone have "voting power" by virtue of their
positions as trustees of the trusts holding 76,704 shares under the
Company's ESOP and 7,550 shares under the MRP. Shares held by the ESOP
trust and allocated to the accounts of participants are voted in
accordance with the participants' instructions, and unallocated shares are
voted 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. The shares held by the MRP trust are voted in
the same proportion as the ESOP trustees vote the shares held in the ESOP
trust.
(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>
________________________________________________________________
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
________________________________________________________________
Coopers & Lybrand L.L.P., which was the Company's
independent certified public accounting firm for the 1997 fiscal
year, has been retained by the Board of Directors to be the
Company's auditors for the 1998 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
9<PAGE>
<PAGE>
to the last fiscal year, management believes that during the
fiscal year ended June 30, 1997, 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 properly 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's 1997 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.
________________________________________________________________
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 June 12, 1998.
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
October 10, 1997
________________________________________________________________
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, 1997 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.
________________________________________________________________
10<PAGE>
<PAGE>
REVOCABLE PROXY
________________________________________________________________
FIRST LANCASTER BANCSHARES, INC.
Lancaster, Kentucky
________________________________________________________________
ANNUAL MEETING OF STOCKHOLDERS
November 10, 1997
The undersigned hereby appoints David W. Gay, Ronald L.
Sutton and Virginia R.S. Stump, 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 Monday, November 10, 1997 at 4:00
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). [ ] [ ]
Tony A. Merida
Jack C. Zanone
INSTRUCTION: TO WITHHOLD YOUR VOTE FOR ANY INDIVIDUAL
NOMINEE, INSERT THAT NOMINEE'S NAME ON THE LINE PROVIDED
BELOW.
__________________________
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE LISTED
PROPOSITION.
________________________________________________________________
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE NOMINEES FOR
DIRECTOR. 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
notification 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 October 10, 1997 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.
