<PAGE>
<PAGE>
SCHEDULE 14A INFORMATION
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
FIRST LANCASTER BANCSHARES, INC.
- ----------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- ----------------------------------------------------------------
(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
September 25, 1998
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, October 26, 1998 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 OCTOBER 26, 1998
________________________________________________________________
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, October 26, 1998 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 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 September 16, 1998 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
September 25, 1998
________________________________________________________________
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
OCTOBER 26, 1998
________________________________________________________________
________________________________________________________________
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 Monday, October 26, 1998 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
September 25, 1998.
________________________________________________________________
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 16, 1998 (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 16, 1998. 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 16,
1998, 13,119 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 requires 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 2001 Annual
Meeting. The Board of Directors has nominated David W. Gay and
Jane G. Simpson to serve as directors for a three-year period.
Both 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 1998 the Bank to Expire
- ---- --------- ----------- ---------
<S> <C> <C> <C>
BOARD NOMINEES FOR TERMS TO EXPIRE IN 2001
David W. Gay 60 1992 1998
Jane G. Simpson 71 1985 1998
DIRECTORS CONTINUING IN OFFICE
Virginia R.S. Stump 43 1983 1999
Ronald L. Sutton 52 1992 1999
Tony A. Merida 40 1991 2000
Jack C. Zanone 77 1978 2000
</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.
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.
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 small
family-owned 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.
3<PAGE>
<PAGE>
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.
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.
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, 1998, the Board of Directors of the Company
met ten 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, 1998 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 four
time(s) during the year ended June 30, 1998.
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
once as a Nominating Committee during the year ended June 30,
1998. 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
Nominating Committee does not evaluate nominations by
shareholders. The Company's Articles of Incorporation set forth
procedures that must be followed by stockholders seeking to make
nominations for directors. In order for a stockholder of the
Company to make any nominations, he or she must give written
notice thereof to the Secretary of the Company not less than
thirty days nor more than sixty days prior to the date of any
such meeting; provided, however, that if less than forty days'
notice of the meeting is given to stockholders, such written
notice shall be delivered or mailed, as prescribed, to the
Secretary of the Company not later than the close of business on
the tenth day following the day on which notice of the meeting
was mailed to stockholders. Each such notice given by a
stockholder with respect to nominations for the election of
directors must set forth (i) the name, age, business address
and, if known, residence address of each nominee proposed in
such notice; (ii) the principal occupation or employment of each
such nominee; and (iii) the number of shares of stock of the
Company which are beneficially owned by each such nominee. In
addition, the stockholder making such nomination must promptly
provide any other information reasonably requested by the
Company.
4<PAGE>
<PAGE>
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 two time(s)
during the fiscal year ended June 30, 1998.
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 1998 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
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Virginia R.S. Stump 1998 $65,626 $6,000 $ -- $ -- -- $47,716 (2)
Chairman of the Board, 1997 61,000 9,200 -- 140,225 (3) 23,970 30,688
President and Chief 1996 55,500 8,100 -- -- -- 17,300
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 1998 did not exceed 10% of each of the executive
officer's salary and bonus.
(2) Consists of $8,700 in director's fees, $33,637 of Common Stock allocated to Ms. Stump
under the ESOP, $2,189 in insurance commissions, $48 in life insurance premiums, $517 in
disability insurance premiums and $2,625 in matching contributions under the Company's
401(k) Plan.
(3) 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. As of June
30, 1998, Ms. Stump held 7,671 shares of restricted Common Stock with an aggregate value
of $111,230 based on the closing sale price of the Common Stock of $14.50, as reported on
the Nasdaq Small-Cap Market. Of such shares, 1,917 shares will vest on each of January 9,
1999, 2000 and 2001, and the remaining 1,920 shares will vest on January 9, 2002. 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.
</FN>
</TABLE>
Year-End Option Values. The following table sets forth
information concerning the value as of June 30, 1998 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 4,794/19,176 $ --/$ --
<FN>
___________
(1) At June 30, 1998, the fair market value of the underlying Common Stock of
$14.50 as quoted on the Nasdaq Small-Cap Market was less than the exercise
price of $14.625 per share.
</FN>
</TABLE>
5<PAGE>
<PAGE>
No options were granted to or exercised by the named
executive officer during fiscal year 1998, 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.
EMPLOYMENT AGREEMENTS
The Company and the Bank entered into separate employment
agreements (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.
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 $66,250.
6<PAGE>
<PAGE>
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 aggregate payments that would be made to the
Executive, assuming that termination of employment under the
foregoing circumstances at June 30, 1998, would have been
approximately $198,000. 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 $750 per
monthly meeting attended. No fees are paid for serving on
committees of the Board of Directors. Directors are eligible to
participate in the Company's stock option plan and the MRP. No
awards were made to directors under the stock option plan or the
MRP during the fiscal year ended June 30, 1998.
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
7<PAGE>
<PAGE>
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, 1998, 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 Percent of
Nature of Beneficial Common Stock
Name Ownership (1) Outstanding
- ---- --------------------- ------------
<S> <C> <C>
Virginia R.S. Stump 27,484 (2) 2.9%
Tony A. Merida 43,210 4.5
David W. Gay 17,875 (3) 1.9
Jane G. Simpson 17,875 1.9
Ronald L. Sutton 12,875 1.3
Jack C. Zanone 5,275 .5
All directors and executive
officers as a group (6 persons) 124,594 12.8
<FN>
__________
(1) For the definition of beneficial ownership, see footnote 1 to the table
in "Voting Securities and Principal Holders Thereof." 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
4,794, 4,794, 958, 958, 958, 958 and 13,420 shares which may be acquired
by Directors Stump, Merida, Gay, Simpson, Sutton and Zanone all directors
and executive officers as a group, respectively, upon the exercise of
options exercisable within 60 days of the Record Date. Amounts shown
also include 7,671, 7,671, 1,534, 1,534, 1,534, 1,534 and 21,478 shares
of restricted Common Stock which have been awarded to Directors Stump,
Merida, Gay, Simpson, Sutton and Zanone and all directors and executive
officers as a group, respectively, but which have not vested. Amounts
shown also include 3,066, 2,828 and 5,894 shares owned by the ESOP and
allocated to the accounts of Ms. Stump, Mr. Merida and all directors and
executive officers as a group, respectively. 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 23,267 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>
9<PAGE>
<PAGE>
________________________________________________________________
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
________________________________________________________________
PricewaterhouseCoopers LLP, which was the Company's
independent certified public accounting firm for the 1998 fiscal
year, has been retained by the Board of Directors to be the
Company's auditors for the 1999 fiscal year. A representative
of PricewaterhouseCoopers LLP is expected to be present at the
Annual Meeting to respond to questions 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, 1998, all of the
Company's Insiders complied with these reporting requirements.
However, for the fiscal year ended June 30, 1997, Directors
Stump, Merida, Gay, Simpson, Sutton and Zanone failed to file
Form 5's reporting the awarding of stock options and restricted
Common Stock. The directors reported such grants on Form 5's
filed on August 14, 1998.
________________________________________________________________
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 1998 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.
10<PAGE>
<PAGE>
________________________________________________________________
STOCKHOLDER PROPOSALS
________________________________________________________________
Under the Company's Certificate of Incorporation,
stockholder proposals must be submitted in writing to the
Secretary of the Company at the address stated in the following
sentence no less than 30 days nor more than 60 days prior to the
date of such meeting; provided, however, that if less than forty
days' notice of the meeting is given to stockholders, such
written notice shall be delivered or mailed, as prescribed, to
the Secretary of the Company not later than the close of
business on the tenth day following the day on which notice of
the meeting was mailed to stockholders. For consideration at
the Annual Meeting, a stockholder proposal must be delivered or
mailed to the Company's Secretary no later than October 5, 1998.
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 28, 1999. 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
September 25, 1998
________________________________________________________________
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, 1998 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.
________________________________________________________________
11<PAGE>
<PAGE>
REVOCABLE PROXY
________________________________________________________________
FIRST LANCASTER BANCSHARES, INC.
LANCASTER, KENTUCKY
________________________________________________________________
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 26, 1998
The undersigned hereby appoints Ronald L. Sutton, Jack C.
Zanone and Tony A. Merida, 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, October 26, 1998 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). [ ] [ ]
David W. Gay
Jane G. Simpson
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 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 September 25, 1998 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.
