SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM 10-Q
[Mark One]
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to __________
Commission File Number: 0-25509
First Federal Bankshares,Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 42-1485449
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
329 Pierce Street, Sioux City, Iowa 51101
(Address of principal executive offices)
Registrant's telephone number, including area code 712-277-0200
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Former name, former address and former fiscal year, if changed
since last report
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 9, 2000
----- -------------------------------
(Common Stock, $.01 par value) 4,732,678
<PAGE>
FIRST FEDERAL BANKSHARES, INC.
INDEX
Part I. Financial Information
Item I. Financial Statements of First Federal Bankshares, Inc. and
Subsidiaries
Consolidated Condensed Balance Sheets at December 31, 1999 and June
30, 1999
Consolidated Condensed Statements of Operations for the three- and
six-month periods ended December 31, 1999 and 1998
Consolidated Condensed Statements of Changes in Stockholders' Equity
for the six-month periods ended December 31, 1999 and 1998
Consolidated Condensed Statements of Comprehensive Income for the
three- and six-month periods ended December 31, 1999 and 1998
Consolidated Condensed Statements of Cash Flows for the six-month
periods ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FIRST FEDERAL BANKSHARES, INC AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, June 30,
1999 1999
------------- -------------
Assets (Unaudited)
- ------
<S> <C> <C>
Cash and interest bearing deposits $ 19,304,560 $ 15,067,956
Securities available for sale 118,991,482 122,047,213
(amortized cost $125,847,438 and $125,558,397)
Securities held to maturity 30,318,090 32,006,095
(fair value of $29,648,942 and $31,756,870)
Loans receivable, net 475,393,944 457,058,054
Real estate owned and in judgement, net 302,582 32,350
Real estate held for development 813,630 599,311
Office property and equipment, net 15,645,527 15,411,818
Federal Home Loan Bank stock, at cost 8,453,900 8,094,300
Accrued interest receivable 4,654,372 4,602,258
Deferred tax asset 2,849,000 1,197,000
Excess of cost over fair value of assets acquired 20,359,781 20,946,396
Other assets 4,399,946 3,608,987
------------- -------------
Total assets $ 701,486,814 $ 680,671,738
============= =============
Liabilities
Deposits $ 457,103,581 $ 464,169,478
Advances from Federal Home Loan Bank 168,972,544 138,617,385
Advance payments by borrowers for
taxes and insurance 2,336,462 2,557,118
Accrued taxes on income 322,264 419,106
Accrued interest payable 3,260,455 4,172,328
Accrued expenses and other liabilities 2,425,115 2,463,316
------------- -------------
Total liabilities 634,420,421 612,398,731
------------- -------------
Stockholders' equity
Common stock, $.01 par value 48,277 48,178
Additional paid-in capital 36,000,819 35,957,560
Treasury stock, at cost - 44,050 shares (397,763) --
Unearned ESOP shares (1,715,350) (1,813,758)
Unearned recognition and retention plan (621,250) --
Retained earnings, substantially restricted 38,050,616 36,283,211
Accumulated other comprehensive income (4,298,956) (2,202,184)
------------- -------------
Total stockholders' equity 67,066,393 68,273,007
------------- -------------
Total liabilities and stockholders' equity $ 701,486,814 $ 680,671,738
============= =============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST FEDERAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the three months For the six months
ended December 31, ended December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income: (Unaudited)
Loans receivable $ 9,022,732 $ 8,146,050 $ 17,876,347 $ 16,225,309
Mortgage-backed securities 579,830 567,756 1,217,630 1,181,396
Investment securities 2,120,430 1,343,987 4,129,137 2,666,343
Other interest-earning assets 41,504 15,791 81,951 56,748
------------ ------------ ------------ ------------
Total interest income 11,764,496 10,073,584 23,305,065 20,129,796
------------ ------------ ------------ ------------
Interest expense:
Deposits 5,009,054 4,392,219 9,954,212 8,966,512
Borrowings 2,204,816 1,720,214 4,282,490 3,428,624
------------ ------------ ------------ ------------
Total interest expense 7,213,870 6,112,433 14,236,702 12,395,136
------------ ------------ ------------ ------------
Net interest income 4,550,626 3,961,151 9,068,363 7,734,660
Provision for loan losses 135,000 75,000 240,000 150,000
------------ ------------ ------------ ------------
Net interest income after provision 4,415,626 3,886,151 8,828,363 7,584,660
------------ ------------ ------------ ------------
Noninterest income:
Service charges and other fees 767,396 510,565 1,461,089 959,312
Gain on sale of branch deposits -- 1,087,884 -- 1,087,884
Gain on sale of loans held for sale 40,246 87,003 125,710 174,411
Gain on sale of real estate owned and held for investment 187,988 -- 361,174 --
Loss on sale of investments available for sale (50,535) -- (50,535) --
Real estate-related activities 302,843 174,846 731,583 355,666
Other income, net 370,345 262,814 733,592 447,496
------------ ------------ ------------ ------------
Total noninterest income 1,618,283 2,123,112 3,362,613 3,024,769
------------ ------------ ------------ ------------
Noninterest expense:
Compensation and employee benefits 2,307,856 1,821,847 4,489,410 3,742,356
Adjusted compensation - stock appreciation rights -- 386,192 -- (82,244)
Office property and equipment 569,445 431,412 1,153,660 878,534
Deposit insurance premiums 69,213 57,448 140,105 118,145
Data processing expense 106,378 100,072 222,350 196,072
Advertising 141,351 168,525 259,838 287,104
Amortization of intangibles 245,949 85,989 494,585 171,978
Other general and administrative 749,911 707,141 1,649,101 1,408,921
------------ ------------ ------------ ------------
Total noninterest expense 4,190,103 3,758,626 8,409,049 6,720,866
------------ ------------ ------------ ------------
Earnings before taxes on income 1,843,806 2,250,637 3,781,927 3,888,563
Taxes on income 578,000 799,076 1,318,000 1,419,000
------------ ------------ ------------ ------------
Net earnings $ 1,265,806 $ 1,451,561 $ 2,463,927 $ 2,469,563
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Per share data: (1)
Basic earnings $ 0.27 $ 0.31 $ 0.53 $ 0.53
============ ============ ============ ============
Diluted earnings $ 0.27 $ 0.31 $ 0.53 $ 0.52
============ ============ ============ ============
Dividends declared $ 0.075 $ 0.073 $ 0.150 $ 0.146
============ ============ ============ ============
</TABLE>
(1) Adjusted for April 1999 second step offering and exchange.
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST FEDERAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Six months ended December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Capital Stock
Beginning of year balance $ 48,178 $ 46,773
Stock options exercised 99 99
------------ ------------
End of period balance 48,277 46,872
------------ ------------
Additional paid-in capital
Beginning of year balance 35,957,560 11,059,966
Stock options exercised 30,429 33,786
Stock depreciation of allocated ESOP shares (5,420) --
Grant of RRP shares at market 18,250 --
------------ ------------
End of period balance 36,000,819 11,093,752
------------ ------------
Treasury stock, at cost
Beginning of year balance -- --
Treasury stock purchased (1,054,763) --
RRP shares granted 657,000 --
------------ ------------
End of period balance (397,763) --
------------ ------------
Unearned ESOP shares
Beginning of year balance (1,813,758) --
Principal payment on ESOP borrowing 98,408 --
------------ ------------
End of period balance (1,715,350) --
------------ ------------
Unearned recognition and retention plan shares
Beginning of year balance -- --
RRP shares granted (675,250) --
Amortization of RRP expense 54,000 --
------------ ------------
End of period balance (621,250) --
------------ ------------
Retained earnings, substantially restricted
Beginning of year balance 36,283,211 30,678,991
Net earnings 2,463,927 2,469,563
Dividends paid on common stock (696,522) (316,616)
------------ ------------
End of period balance 38,050,616 32,831,938
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Accumulated other comprehensive income
Beginning of year balance (2,202,184) 234,353
Net change in unrealized losses on securities available for sale (2,070,718) (149,343)
Less: reclassification adjustment for net realized gains included
in net income (net of tax expense) (26,054) --
------------ ------------
End of period balance (4,298,956) 85,010
------------ ------------
Total stockholders' equity $ 67,066,393 $ 44,057,572
------------ ------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST FEDERAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended Six months ended
December 31, December 31,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net earnings $ 1,265,806 $ 1,451,561 $ 2,463,927 $ 2,469,563
----------- ----------- ----------- -----------
Other comprehensive income:
Unrealized holding losses arising during
the period, net of tax (1,253,941) (407,188) (2,070,718) (149,343)
Plus: reclassification adjustment for net realized
gains included in net income (net of tax expense) (26,054) -- (26,054) --
Other comprehensive income (loss), net of tax (1,279,995) (407,188) (2,096,772) (149,343)
Comprehensive income (loss) ($ 14,189) $ 1,044,373 $ 367,155 $ 2,320,220
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST FEDERAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six months ended December 31,
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $2,463,927 $2,469,563
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Loans originated for sale to investors (9,753,019) (16,349,544)
Proceeds from sale of loans originated for sale 10,564,990 16,510,589
Provision for losses on loans and other assets 240,000 150,000
Depreciation and amortization 1,249,918 606,331
Provision for deferred taxes (437,000) 190,000
Net gain on sale of loans (125,710) (174,411)
Net realized loss on sale of securities available for sale 50,535 -
Net gain on sale of branch deposits - (1,087,884)
Net gain on sales of real estate owned and held for development (361,174) -
Net loan fees deferred 7,300 88,538
Amortization of premiums and discounts on loans,
mortgage-backed securities, and investment securities 355,663 (47,433)
(Increase) decrease in other assets (785,839) 536,227
Decrease in accrued expenses and other liabilities (998,916) (1,884,940)
---------- ----------
Net cash provided by operating activities 2,470,675 1,007,036
---------- ----------
Cash flows from investing activities:
Purchase of securities held to maturity (519,205) (8,977,262)
Proceeds from maturities of securities held to maturity 2,199,586 9,589,668
Purchase of securities available for sale (7,875,000) (37,461,356)
Proceeds from sale of securities available for sale 3,131,067 -
Purchase of Federal Home Loan Bank Stock (359,600) (623,700)
Proceeds from maturities of securities available for sale 4,450,070 34,315,174
Loans purchased (4,547,000) (3,672,000)
(Increase) decrease in loans receivable (16,839,277) 7,652,174
Proceeds from sale of real estate owned and held for development 2,355,736 495,644
Net expenditures on real estate owned and held for development (756,039) -
Proceeds from sale of office property and equipment 49,295 -
Purchase of office property and equipment (868,117) (1,093,978)
---------- ----------
Net cash (used in) provided by investing activities (19,578,484) 224,364
---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from financing activities:
(Decrease) increase in deposits (7,065,897) 10,215,163
Branch deposits transferred due to sale, net - (18,281,111)
Proceeds from advances from FHLB 45,500,000 29,000,000
Repayment of advances from FHLB (15,148,276) (23,281,907)
Issuance of common stock 30,527 33,886
Purchase of treasury stock (1,054,763) -
Cash dividends paid (696,522) (316,616)
Net decrease in advances from borrowers for taxes and insurance (220,656) (303,543)
---------- ----------
Net cash provided by (used in) financing activities 21,344,413 (2,934,128)
---------- ----------
Net increase (decrease) in cash and cash equivalents 4,236,604 (1,702,728)
Cash and cash equivalents at beginning of period 15,067,956 17,225,007
---------- ----------
Cash and cash equivalents at end of period $19,304,560 $15,522,279
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FIRST FEDERAL BANKSHARES, INC. AND SUBSIDIARIES
1. BASIS OF PRESENTATION
The consolidated condensed balance sheet information for June 30, 1999 was
derived from the Company's audited Consolidated Balance Sheets for the fiscal
year ended June 30, 1999. The consolidated condensed financial statements at and
for the three months and six months ended December 31, 1999 and 1998 are
unaudited. The financial statements at and for the three months and six months
ended December 31, 1998 are those of First Federal Savings Bank of Siouxland
(the "Bank" or "First Federal") rather than those of First Federal Bankshares,
Inc. (the "Registrant" or the "Company"). The Registrant was formed as a holding
company to own all of the capital stock of the Bank following its "second-step"
offering in April 1999, in which each share of First Federal's common stock was
exchanged for 1.64696 shares of Company common stock.
In the opinion of management of the Company these financial statements reflect
all adjustments, consisting only of normal recurring accruals necessary to
present fairly these consolidated condensed financial statements. The results of
operations for the interim periods are not necessarily indicative of results
that may be expected for an entire year. Certain information and footnote
disclosure normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted.
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for the purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the
Company's future activities and operating results include, but are not limited
to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, U.S. monetary and fiscal policies, demand for
products and services, deposit flows, competition and accounting policies,
principles and guidelines. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements.
2. REORGANIZATION, CONVERSION AND ACQUISITION
Prior to April 13, 1999, the Bank was owned approximately 53.49% by First
Federal Bankshares, M.H.C. (the "Mutual Holding Company") and 46.51% by public
shareholders. On April 13, 1999, pursuant to a plan of conversion and
reorganization, and after a series of transactions: (1) the Company was formed
to own all of the capital stock of the Bank, (2) the Company sold the ownership
interest in the Bank previously held by the Mutual Holding Company to the public
in a subscription offering (the Offering), (3) previous public shareholders of
the Bank had their shares exchanged (the Exchange) into common shares of the
Company (exchange ratio of 1.64696 to 1) and (4) the Mutual Holding Company
ceased to exist.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
As a result of the reorganization, the consolidated financial statements for
prior periods have been restated to reflect the changes in the par value of
common stock from $1.00 to $.01 per share and in the number of authorized shares
of common stock from 20,000,000 to 12,000,000.
The primary purpose of the Offering was to fund the acquisition of Mid-Iowa
Financial Corp. (Mid-Iowa) and its wholly-owned subsidiary, Mid-Iowa Savings
Bank, FSB. The shareholders of Mid-Iowa received $28.3 million cash for all
outstanding shares on April 13, 1999, the effective date. The acquisition was
accounted for as a purchase; accordingly, Mid-Iowa's results of operations are
included in the financial statements from the acquisition date forward. The
excess of purchase price over the fair value of the net identifiable assets of
$12.6 million was recorded as goodwill and is being amortized on a straight-line
basis over 25 years.
3. EARNINGS PER SHARE
The following information was used in the computation of net earnings per common
share on both a basic and diluted basis for the periods presented. Prior period
information was restated for the Offering and Exchange.
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic earnings per share:
- ------------------------
Net earnings $ 1,265,806 $ 1,451,561 $ 2,463,927 $ 2,469,563
Weighted average shares
outstanding 4,813,395 4,685,881 4,817,352 4,683,559
Less: unearned ESOP shares (175,746) -- (177,922) --
----------- ----------- ----------- -----------
Weighted average common
shares - basic 4,637,649 4,685,881 4,639,430 4,683,559
Basic earnings per share $ .27 $ .31 $ .53 $ .53
=========== =========== =========== ===========
Diluted earnings per share:
- --------------------------
Weighted average common
shares outstanding - basic 4,637,649 4,685,881 4,639,430 4,683,559
Assumed incremental common shares issued upon:
vesting of RRP shares 4,439 -- -- --
exercise of stock options 11,974 35,765 17,646 43,150
----------- ----------- ----------- -----------
Weighted average diluted
shares outstanding 4,654,062 4,721,646 4,657,076 4,726,709
Diluted earnings per share $ .27 $ .31 $ .53 $ .52
=========== =========== =========== ===========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
4. DIVIDENDS
On October 21, 1999 the Company declared a cash dividend on its common stock,
payable on November 30, 1999 to stockholders of record as of November 15, 1999,
equal to $.075 per share.
On January 20, 2000 the Company declared a cash dividend on its common stock,
payable on February 29, 2000 to stockholders of record as of February 15, 2000
equal to $.075 per share.
5. EMPLOYEE BENEFIT PLANS
On October 21, 1999, the First Federal Bankshares, Inc. 1999 Recognition and
Retention Plan (RRP) and the First Federal Bankshares, Inc. 1999 Stock Option
Plan (SOP) were approved by the stockholders of the Company at its 1999 annual
meeting. In December 1999, the Company acquired 79,050 shares of common stock to
be reserved for RRP awards to certain officers and directors. On October 21,
1999, 73,000 shares were awarded under the RRP. Shares awarded under the RRP
vest in five equal annual installments beginning on the first anniversary of the
award. RRP expense for the six months ended December 31, 1999 totaled $54,000.
The SOP permits the board of directors to grant options to certain officers and
directors to purchase up to 263,500 shares of the Company's common stock. The
price at which options may be exercised cannot be less than the fair value of
the shares at the date the options are granted. The options become exercisable
at a rate of 20% each year for five years after the date of the grant and have a
fixed maximum term of ten years.
6. SHARE REPURCHASE PLAN
On December 10, 1999 the Company announced a stock repurchase program to acquire
up to 241,239 shares of the Company's Common Stock, which represents 5% of the
outstanding Common Stock. During the quarter ended December 31, 1999 the Company
purchased 38,000 shares of its common stock at an average cost of $9.03 per
share.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Total assets increased by $20.8 million, or 3.1%, to $701.5 million at December
31, 1999 from $680.7 million at June 30, 1999. The increase in total assets was
largely due to an increase in loans receivable. Loans receivable increased by
$18.3 million, or 4.0%, to $475.4 million at December 31, 1999 from $457.1
million at June 30, 1999. In addition, cash and interest-bearing deposits
increased by $4.2 million, or 28.1%, to $19.3 million at December 31, 1999 from
$15.1 million at June 30, 1999. The increase in cash was largely due to an
increase in cash at the Bank's office locations for potential Year 2000 demand.
Partially offsetting the increase in loan and cash balances were decreases in
the balance of investment securities. The balance of securities available for
sale decreased by $3.0 million, or 2.5%, to $119.0 million at December 31, 1999
from $122.0 million at June 30, 1999. In addition, the balance of securities
held to maturity decreased by $1.7 million, or 5.3%, to $30.3 million at
December 31, 1999 from $32.0 million at June 30, 1999. The balance of real
estate owned increased by $270,000 to $302,000 at December 31, 1999 from $32,000
at June 30, 1999. During the six months ended December 31, 1999 the Company took
possession of one 12-unit apartment building and four 4-unit condominium
properties in Madison, Wisconsin by voluntary deed in lieu of foreclosure. The
related loan balance of the two separate borrowing entities involved was
approximately $1.6 million. The sale of the 12-unit apartment and five of the
condominium units generated proceeds totaling approximately $1.4 million that
reduced the balance in real estate owned. Real estate held for development
increased by $214,000, or 35.8%, to $813,000 at December 31, 1999, from $599,000
at June 30, 1999 due to investment in a new 50-lot development. Twenty-seven of
the newly developed lots were sold in December 1999.
Deposits decreased by $7.1 million, or 1.5%, to $457.1 million at December 31,
1999 from $464.2 million at June 30, 1999. Competition for deposits accelerated
during the six-month period ended December 31, 1999 in the generally higher rate
environment brought on by a series of Federal Reserve Board rate hikes. Advances
from the Federal Home Loan Bank increased by $30.4 million, or 21.9%, to $169.0
million at December 31, 1999 from $138.6 million at June 30, 1999. The increase
in FHLB advances funded the increase in loans receivable and the decrease in
deposits.
Total stockholders' equity decreased by $1.2 million to $67.1 million at
December 31, 1999 from $68.3 million at June 30, 1999. Earnings totaled $2.5
million for the first half of the fiscal year. Largely offsetting the earnings
for the period was a decrease of $2.1 million in other comprehensive income.
This decrease was primarily due to an increase in unrealized losses in the
Company's available-for-sale securities portfolio due to lower valuations in the
generally higher interest rate environment. During the quarter ended December
31, 1999 the Company commenced a share repurchase program to acquire
approximately 241,000 shares, or 5%, of its outstanding common stock. In
December 1999 the Company purchased 38,000 shares of its common stock, pursuant
to the repurchase program, at an average cost of $9.03 per share. In addition,
the Company purchased 79,050 common shares at an average cost of $9.00 per share
for the First Federal Bankshares, Inc. 1999 Recognition and Retention Plan.
Awards under the RRP totaled 73,000 shares during the quarter. The remaining
6,050 RRP shares are held as treasury stock pending award.
<PAGE>
LIQUIDITY
OTS regulations require that thrift institutions such as the Bank maintain an
average daily balance of liquid assets (cash, certain time deposits, banker's
acceptances and specified United States government, state or federal agency
obligations) in each calendar quarter of not less than 4% of the average daily
balance of its liquidity base (net withdrawable deposits plus short term
borrowings) during the preceding quarter. For the quarter ended December 31,
1999 the Company's average liquidity position was $151.4 million, or 30.9% of
its liquidity base for the preceding quarter.
CAPITAL
The Company's total equity decreased by $1.2 million to $67.1 million at
December 31, 1999 from $68.3 million at June 30, 1999. The OTS requires that the
Company meet minimum tangible, leverage (core) and risk-based capital
requirements. As of December 31, 1999 the Company was in compliance with all
regulatory capital requirements. The Company's required, actual and excess
capital levels as of December 31, 1999 were as follows:
Excess of
Actual Over
Required % of Actual % of Regulatory
Amount Assets Amount Assets Requirement
------ ------ ------ ------ -----------
(Dollars in thousands)
Tangible Capital $10,192 1.5% $44,980 6.62% $34,788
Core Capital 20,384 3.0% 44,980 6.62% 24,596
Risk-based Capital 30,073 8.0% 48,193 12.82% 18,120
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999 AND 1998
General. Net earnings decreased by $186,000, or 12.8%, to $1.3 million for the
three months ended December 31, 1999 from $1.5 million for the three months
ended December 31, 1998. Diluted earnings per share totaled $.27 and $.31,
respectively, for the three months ended December 31, 1999 and 1998. The
acquisition of Mid-Iowa Financial Corp. (Mid-Iowa), effective April 13, 1999,
was accounted for using the purchase method of accounting; therefore, the
results of operations for the three months ended December 31, 1998 do not
include Mid-Iowa results.
Interest Income. Interest income increased by $1.7 million, or 16.8%, to $11.8
million for the three months ended December 31, 1999 from $10.1 million for the
three months ended December 31, 1998, largely due to an increase in the average
balance of interest-earning assets. The average balance of interest-earning
assets increased by $115.4 million, or 22.1%, to $637.8 million for the three
months ended December 31, 1999 from $522.4 million for the three months ended
December 31, 1998. The increase in average balances of interest-earning assets
was primarily due to the acquisition of Mid-Iowa. The average yield on
interest-earning assets decreased to 7.38% for the three months ended December
31, 1999 from 7.71% for the three months ended December 31, 1998, primarily due
to lower yields on loans receivable and mortgage-backed securities and to
changes in the mix of interest-earning assets. Investment securities, with
generally lower yields than yields on loans receivable, made up 20.4% of
interest-earning assets for the three months ended December 31, 1999 as compared
to 15.7% of interest-earning assets for the three months ended December 31,
1998. The change in the mix of interest-earning assets was primarily due to the
acquisition of Mid-Iowa. Mid-Iowa's investment portfolio totaled $46.1 million,
or 29.7%, of Mid-Iowa's interest-earning assets on the effective date of the
acquisition.
<PAGE>
Interest income on loans for the three months ended December 31, 1999 increased
by $877,000, or 10.8%, to $9.0 million for the three months ended December 31,
1999 from $8.1 million for the three months ended December 31, 1998. The
increase in interest income on loans was primarily due to an increase of $63.5
million, or 15.7%, in the average balance of loans receivable, to $468.8 million
for the three months ended December 31, 1999 from $405.3 million for the three
months ended December 31, 1998. The average yield on loans decreased to 7.70%
for the three months ended December 31, 1999 from 8.04% for the three months
ended December 31, 1998.
Interest income on mortgage-backed securities for the three months ended
December 31, 1999 increased by $12,000, or 2.1%, when compared to the three
months ended December 31, 1998. The increase was due to an increase of $2.2
million, or 6.6%, in the average balance of mortgage-backed securities to $36.0
million for the three months ended December 31, 1999 from $33.8 million for the
three months ended December 31, 1998. The average yield on mortgage-backed
securities decreased to 6.45% for the three months ended December 31, 1999 from
6.72% for the three months ended December 31, 1998.
Interest income on investment securities increased by $776,000, or 57.8%, as the
average balance of investment securities increased by $47.9 million, or 58.4%,
to $129.9 million at December 31, 1999 from $82.0 million at December 31, 1998.
The average yield on investment securities decreased by only 2 basis points to
6.53% for the three months ended December 31, 1999 from 6.55% for the three
months ended December 31, 1998.
Interest Expense. Interest expense increased by $1.1 million, or 18.0%, to $7.2
million for the three months ended December 31, 1999 from $6.1 million for the
three months ended December 31, 1998. Interest on deposits increased by
$617,000, or 14.0%, to $5.0 million for the three months ended December 31, 1999
from $4.4 million for the three months ended December 31, 1998. The increase in
interest on deposits was primarily due to an increase in the average balance of
deposits as a result of the Mid-Iowa acquisition. The average balance of
deposits increased by $69.0 million, or 18.3%, to $446.0 million at December 31,
1999 from $377.0 million at December 31, 1998. The increase in interest paid on
deposits due to increased average balances was partly offset by a 17 basis point
decrease in the average cost of deposits to 4.49% for the three months ended
December 31, 1999 from 4.66% for the three months ended December 31, 1998.
Interest on borrowings increased by $485,000, or 28.2%, to $2.2 million for the
three months ended December 31, 1999 from $1.7 million for the three months
ended December 31, 1998. The increase in interest on borrowings was primarily
due to an increase in the average balance of advances. Average advance balances
increased by $35.3 million, or 30.6%, to $150.4 million at December 31, 1999
from $115.2 million at December 31, 1998. The increase in interest expense due
to increased advance balances was partly offset by a decrease of 11 basis points
in the average cost of borrowings to 5.86% for the three months ended December
31, 1999 from 5.97% for the three months ended December 31, 1998.
Net Interest Income. Net interest income increased by $589,000, or 14.9%, to
$4.6 million for the three months ended December 31, 1999 from $4.0 million for
the three months ended December 31, 1998. The increase was primarily due to an
increase in the average balance of interest-earning assets net of
interest-bearing liabilities to $41.3 million at December 31,1999 from $30.6
million at December 31, 1998. Partially offsetting the increase in net earning
<PAGE>
assets was a decrease in the Company's interest rate spread. The spread for the
three months ended December 31, 1999 decreased by 21 basis points, or 7.6%, to
2.54% from 2.75% for the quarter ended December 31, 1998. The decrease in the
interest rate spread resulted from a decrease of 33 basis points in the yield on
interest-earning assets that was partly offset by a decrease of only 13 basis
points in the cost of interest-bearing liabilities.
Provision for Loan Loss. Provision for loan loss expense totaled $135,000 and
$75,000, respectively, for the three months ended December 31, 1999 and 1998.
Provision for loan loss expense was increased due to the growing percentage of
commercial real estate and commercial business loans in the loan portfolio. The
allowance for losses on loans is based on management's periodic evaluation of
the loan portfolio and reflects an amount that, in management's opinion, is
adequate to absorb losses in the existing portfolio. In evaluating the
portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, the composition of the
loan portfolio, and management's estimate of anticipated credit losses.
Noninterest Income. Noninterest income decreased by $505,000, or 23.8%, to $1.6
million for the three months ended December 31, 1999 from $2.1 million for the
three months ended December 31, 1998. The decrease in noninterest income was
primarily due to recognition of a $1.1 million gain on sale of the deposits of
three branch offices during the prior year quarter. Partially offsetting the
lack of a similar gain during the current year quarter were increases in several
other noninterest income items. Service charges and other fees increased by
$257,000, or 50.3%, to $767,000 for the three months ended December 31, 1999
from $510,000 for the three months ended December 31, 1998. The increase in
service charges and other fees was largely due to growth related to the Mid-Iowa
acquisition. Additionally, fee schedule changes, which included several service
fee increases, went into effect in June 1999. Gains on the sale of real estate
held for development totaled $188,000 for the three months ended December 31,
1999. No comparable gains on real estate were recorded in the prior year
quarter. Income from other real estate-related activities increased by $128,000,
or 73.2%, to $303,000 for the three months ended December 31, 1999 from $175,000
for the three months ended December 31, 1998. The increase in real
estate-related income was primarily due to earnings from the real estate
brokerage company acquired in the merger with Mid-Iowa. Other income increased
by $107,000, or 40.9%, to $370,000 for the three months ended December 31, 1999
from $263,000 for the three months ended December 31, 1998 largely due to
earnings in the Company's non-bank subsidiaries. During the three months ended
December 31, 1999, gain on sale of loans held for sale decreased by $47,000, or
53.8%, when compared to the same quarter of 1998. During the December 1999
quarter there was some slowdown in mortgage activity due to rising mortgage
interest rates. Contributing to the decrease in noninterest income during the
three months ended December 31, 1999 was a loss totaling $51,000 on the sale of
mortgage-backed investment securities available-for-sale. The proceeds of this
sale, which totaled $3.1 million, were reinvested in higher yielding investment
securities.
Noninterest expense. Noninterest expense increased by $431,000, or 11.5%, to
$4.2 million for the three months ended December 31, 1999 from $3.8 million for
the three months ended December 31, 1998. Compensation and benefits expense
increased by $486,000, or 26.7%, to $2.3 million for the three months ended
December 31, 1999 from $1.8 million for the three months ended December 31,
1998. Staff increased by 26 full-time-equivalent employees, or 13.8%, to 215
employees at December 31, 1999 from 189 employees at December 31, 1998. In
addition, compensation expense related to the 1999 RRP approved in October 1999,
<PAGE>
totaled $54,000 for the three months ended December 31, 1999. During the three
months ended December 31, 1998 the Company recorded a charge to expense totaling
$386,000. The charge related to stock appreciation rights (SAR) which were
required to be periodically re-valued due to fluctuations in the Company's
common stock price during the period. The Company eliminated the SAR and the
potential distortion resulting from stock price changes through cash payouts to
SAR holders in December 1998 and January 1999.
Office property and equipment expense increased by $138,000, or 32.0%, over the
prior year, partially due to the completion of a new office building in
Grinnell, Iowa and to the addition of the seven Mid-Iowa offices. Deposit
insurance premium expense and data processing expense increased by $12,000, or
20.5%, and $6,000, or 6.3%, respectively, for the three months ended December
31, 1999 as compared to the three months ended December 31, 1998. Amortization
of intangibles increased by $160,000 to $246,000 for the three months ended
December 31, 1999 from $86,000 for the three months ended December 31, 1998 due
to amortization of the goodwill related to the Mid-Iowa acquisition that
commenced in April 1999. Other general and administrative expenses increased by
$43,000, or 6.1%, for the three months ended December 31, 1999 as compared to
the three months ended December 31, 1998. Partially offsetting these increases
in noninterest expense was a decrease in advertising expense of $27,000, or
16.1%, for the three months ended December 31, 1999 as compared to the same
period of 1998.
Net earnings and income tax expense. Net earnings before income taxes totaled
$1.8 million for the three months ended December 31, 1999, compared to $2.2
million for the three months ended December 31, 1998. Income tax expense
decreased by $221,000, or 27.7%, to $578,000 for the three months ended December
31, 1999 from $799,000 for the three months ended December 31, 1998.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
DECEMBER 31, 1999 AND 1998
General. Net earnings totaled $2.5 million, or $.53 per diluted share, for each
of the six-month periods ended December 31, 1999 and 1998. The acquisition of
Mid-Iowa was accounted for using the purchase method of accounting; therefore,
the results of operations for the six months ended December 31, 1998 do not
include Mid-Iowa results.
Interest Income. Interest income increased by $3.2 million, or 15.8%, to $23.3
million for the six months ended December 31, 1999 from $20.1 million for the
six months ended December 31, 1998, largely due to an increase in the average
balance of interest-earning assets. The average balance of interest-earning
assets increased by $110.0 million, or 21.0%, to $634.6 million for the six
months ended December 31, 1999 from $524.6 million for the six months ended
December 31, 1998. The increase in average balances of interest-earning assets
was primarily due to the acquisition of Mid-Iowa. The average yield on
interest-earning assets decreased to 7.34% for the six months ended December 31,
1999 from 7.67% for the six months ended December 31, 1998, primarily due to
lower yields on loans receivable and mortgage-backed securities and to changes
in the mix of interest-earning assets. Investment securities, with generally
lower yields than yields on loans receivable, made up 20.1% of interest-earning
assets for the six months ended December 31, 1999 as compared to 15.4% of
interest-earning assets for the six months ended December 31, 1998. The change
in the mix of interest-earning assets was primarily due to the acquisition of
Mid-Iowa.
<PAGE>
Interest income on loans for the six months ended December 31, 1999 increased by
$1.7 million, or 10.2%, to $17.9 million for the six months ended December 31,
1999 from $16.2 million for the six months ended December 31, 1998. The increase
in interest income on loans was primarily due to an increase of $59.2 million,
or 14.6%, in the average balance of loans receivable, to $465.7 million for the
six months ended December 31, 1999 from $406.5 million for the six months ended
December 31, 1998. The average yield on loans decreased to 7.68% for the six
months ended December 31, 1999 from 7.98% for the six months ended December 31,
1998.
Interest income on mortgage-backed securities for the six months ended December
31, 1999 increased by $36,000, or 3.1%, when compared to the six months ended
December 31, 1998. The increase was due to an increase of $2.9 million, or 8.2%,
in the average balance of mortgage-backed securities to $38.0 million for the
six months ended December 31, 1999 from $35.1 million for the six months ended
December 31, 1998. The average yield on mortgage-backed securities decreased to
6.42% for the six months ended December 31, 1999 from 6.73% for the six months
ended December 31, 1998.
Interest income on investment securities increased by $1.5 million, or 54.9%, as
the average balance of investment securities increased by $46.7 million, or
57.7%, to $127.5 million at December 31, 1999 from $80.8 million at December 31,
1998. The average yield on investment securities decreased by 12 basis points to
6.48% for the six months ended December 31, 1999 from 6.60% for the six months
ended December 31, 1998.
Interest Expense. Interest expense increased by $1.8 million, or 14.9%, to $14.2
million for the six months ended December 31, 1999 from $12.4 million for the
six months ended December 31, 1998. Interest on deposits increased by $1.0
million, or 11.0%, to $10.0 million for the six months ended December 31, 1999
from $9.0 million for the six months ended December 31, 1998. The increase in
interest on deposits was primarily due to an increase in the average balance of
deposits as a result of the Mid-Iowa acquisition. The average balance of
deposits increased by $67.1 million, or 17.7%, to $447.4 million at December 31,
1999 from $380.3 million at December 31, 1998. The increase in interest paid on
deposits due to increased average balances was partly offset by a 27 basis point
decrease in the average cost of deposits to 4.45% for the six months ended
December 31, 1999 from 4.72% for the six months ended December 31, 1998.
Interest on borrowings increased by $854,000, or 24.9%, to $4.3 million for the
six months ended December 31, 1999 from $3.4 million for the six months ended
December 31, 1998. The increase in interest on borrowings was primarily due to
an increase in the average balance of advances. Average advance balances
increased by $32.1 million, or 28.1%, to $146.2 million at December 31, 1999
from $114.1 million at December 31, 1998. The increase in interest expense due
to increased advance balances was partly offset by a decrease of 15 basis points
in the average cost of borrowings to 5.86% for the six months ended December 31,
1999 from 9.01% for the six months ended December 31, 1998.
Net Interest Income. Net interest income increased by $1.3 million, or 17.2%, to
$9.0 million for the six months ended December 31, 1999 from $7.7 million for
the six months ended December 31, 1998. The Company's interest rate spread for
the six months ended December 31, 1999 decreased by 11 basis points, or 4.1%, to
2.55% from 2.66% for the six months ended December 31, 1998.
<PAGE>
Provision for Loan Loss. Provision for loan loss expense totaled $240,000 and
$150,000, respectively, for the six months ended December 31, 1999 and 1998.
Noninterest Income. Noninterest income increased by $338,000, or 11.2%, to $3.3
million for the six months ended December 31, 1999 from $3.0 million for the six
months ended December 31, 1998. Service charges and other fees increased by
$502,000, or 52.3%, to $1.5 million for the six months ended December 31, 1999
from $1.0 million for the six months ended December 31, 1998. The increase in
service charges and other fees was largely due to growth related to the Mid-Iowa
acquisition. Gains on the sale of real estate owned and held for development
totaled $361,000 for the six months ended December 31, 1999. No comparable gains
on real estate were recorded in the prior year quarter. Income from other real
estate-related activities increased by $376,000, or 105.7%, to $732,000 for the
six months ended December 31, 1999 from $356,000 for the six months ended
December 31, 1998. The increase in real estate-related income was primarily due
to earnings from the real estate brokerage company acquired in the merger with
Mid-Iowa. Other income increased by $286,000, or 63.9%, to $733,000 for the six
months ended December 31, 1999 from $447,000 for the six months ended December
31, 1998 largely due to earnings in the Company's non-bank subsidiaries. During
the six months ended December 31, 1999, gain on sale of loans held for sale
decreased by $49,000, or 27.9%, when compared to the same period of 1998,
reflecting the slowdown in mortgage activity due to higher mortgage interest
rates. The increases in noninterest income during the six months ended December
31, 1999 when compared to the six months ended December 31, 1998 more than
offset the $1.1 million gain on sale of branch deposits that was recorded in the
December 1998 quarter.
Noninterest expense. Noninterest expense increased by $1.7 million, or 25.1%, to
$8.4 million for the six months ended December 31, 1999 from $6.7 million for
the six months ended December 31, 1998. Compensation and benefits expense
increased by $747,000, or 20.0%, to $4.5 million for the six months ended
December 31, 1999 from $3.7 million for the six months ended December 31, 1998.
During the six months ended December 31, 1998 the charge to expense for the SAR
adjustment totaled $82,000.
Office property and equipment expense increased by $275,000, or 31.3%, over the
prior year. Deposit insurance premium expense and data processing expense
increased by $22,000 and $27,000, respectively, for the six months ended
December 31, 1999 as compared to the six months ended December 31, 1998.
Amortization of intangibles increased by $323,000 to $495,000 for the six months
ended December 31, 1999 from $172,000 for the six months ended December 31, 1998
due to amortization of the goodwill related to the Mid-Iowa acquisition that
commenced in April 1999. Advertising expense decreased by $27,000, or 9.5%, to
$260,000 for the six months ended December 31, 1999 from $287,000 for the six
months ended December 31, 1998. Other general and administrative expenses
increased by $240,000, or 17.1%, for the six months ended December 31, 1999 as
compared to the six months ended December 31, 1998. The increase in other
noninterest expense was primarily due to noninterest expenses of the Mid-Iowa
real estate brokerage firm.
Net earnings and income tax expense. Net earnings before income taxes totaled
$3.8 million for the six months ended December 31, 1999 as compared to $3.9
million for the six months ended December 31, 1998. Income tax expense decreased
by $101,000, or 7.1%, to $1.3 million for the six months ended December 31, 1999
from $1.4 million for the six months ended December 31, 1998. The Company's
effective tax rate decreased to 34.8% for the six months ended December 31, 1999
from 36.5% for the six months ended December 31, 1998 partially due to increased
balances in the Company's tax-exempt investment portfolio during the six months
ended December 31, 1999 as compared to the same period in 1998.
<PAGE>
YEAR 2000 (Y2K)
The Company has devoted significant resources to minimize the risk of potential
disruption due to Y2K issues. The Company has identified its mission-critical
systems including its "core" data processing system for loans, deposits and the
general ledger. In addition, the Company has identified and assessed its
computer operating systems and networking software; applications software; data
processing hardware platforms such as personal computers and automated teller
machines; third party interfaces; and environmental systems, including, but not
limited to, climate control systems, sprinklers, elevators and security systems.
The costs of addressing and correcting Year 2000 issues totaled approximately
$100,000, all of which has been incurred.
It is the intention of the Company to maintain normal business operations during
the Year 2000 transition and beyond; including, for example, potential problems
related to the first leap year of the new millennium: February 29, 2000. The
Company has developed a Year 2000 Business Continuity and Contingency Plan as an
addition to the Company's Disaster Recovery Plan. Together, these plans help
insure the continuity of daily operations in the event of a loss of essential
resources due to Year 2000 induced failures. These plans describe individual
contingency plans concerning specific software and hardware issues, operational
plans for continuing operations, and specific policies and procedures that would
be put in place upon the occurrence of a power outage, computer interruptions,
telecommunications interruptions, natural disaster, etc. Such plans identify
participants, processes and equipment that will be necessary to permit the
Company to resume and continue operations until the problem is resolved.
Based on our assessment of operations through February 6, 2000, we have not
experienced any significant Year 2000 issues. In addition to expenses related to
its own computer systems, the Company is aware of potential Year 2000 risks to
third parties, including vendors, depositors and borrowers and the possible
adverse impact on the Company resulting from failures by these parties to
adequately address the Year 2000 problem. As of February 6, 2000, we are not
aware of any significant Year 2000 issues of vendors, borrowers or depositors of
the Company.
However, the risk exists that some of the Company's commercial borrowers may
fail to correct Year 2000 issues during the Year 2000 transition period and may
suffer financial harm as a result. This, in turn, represents risk to the Company
regarding the repayment of loans from those commercial customers. The Company
has surveyed its commercial customers with aggregate outstanding loan balances
of $250,000 or more regarding their Year 2000 preparedness. Based on the results
of this survey process the overall level of Year 2000 risk in the Company's
commercial loan portfolio is believed to be relatively low. In addition,
repayment sources for the majority of loans in the Company's commercial loan
portfolio are from multi-family real estate projects that tend to be less
computer-dependent than, for example, a manufacturing business. The Company
analyzes Year 2000 risk posed by prospective commercial loan customers prior to
approving their loan requests. Commercial loan customers are asked to sign an
acknowledgement demonstrating their commitment to address Year 2000 problems
inherent in their operations and agreeing to provide the Company with specific
information regarding their Year 2000 status.
<PAGE>
The Company has also analyzed the Year 2000 risk posed by its 20 largest
commercial depositors. The Company currently considers its commercial deposit
portfolio to contain a relatively low level of Year 2000 risk since the majority
of these depositors are small-business customers with limited computer
technology dependence in their core business functions. The Company analyzes
potential Year 2000 risk of prospective commercial deposit customers prior to
accepting their deposits.
The preceding paragraphs include forward-looking statements that involve
inherent risks and uncertainties. The actual costs of Year 2000 compliance and
the impact of Year 2000 issues could differ materially from what is currently
anticipated. Factors that might result in such differences include incomplete
inventory and assessment results, higher than anticipated costs to update
software and hardware and vendors', customers' and other third parties'
inability to effectively address the Year 2000 issue.
<PAGE>
PART II. OTHER INFORMATION
Legal Proceedings.
There are various claims and lawsuits in which the Registrant is periodically
involved incidental to the Registrant's business. In the opinion of management,
no material loss is expected from any of such pending claims or
lawsuits.
Submission of Matters to a Vote of Security Holders.
The Company convened its 1999 Annual Meeting of Stockholders on October 21,
1999. At the meeting, the stockholders of the Company considered and voted on
the following:
Ballot No. 1.
The election of Gary L. Evans, Allen J. Johnson and Harland D. Johnson, each to
serve as directors for terms of three years and until their respective
successors have been elected and qualified. The results of Ballot No. 1 are as
follows:
For Withheld
--------- -------
Gary L. Evans 3,814,062 183,915
Allen J. Johnson 3,783,596 178,059
Harland D. Johnson 3,776,160 185,784
Ballot No. 2.
The ratification of the appointment of KPMG LLP as auditors for the Company for
the fiscal year ending June 30, 2000. The results of Ballot No. 2 are as
follows:
For Against Abstain
---- -------- -------
Number of Votes 3,886,503 61,320 14,121
Percentage of votes present
in person or by proxy 98.1% 1.6% 0.4%
Ballot No. 3.
The approval of the First Federal Bankshares, Inc. 1999 Recognition and
Retention Plan. The results of Ballot No. 3 are as follows:
For Against Abstain
---- -------- -------
Number of Votes 2,682,898 662,077 39,389
Percentage of total votes
eligible to be cast 55.6% 18.7% 0.8%
<PAGE>
Ballot No. 4.
The approval of First Federal Bankshares, Inc. 1999 Stock Option Plan. The
results of Ballot No. 4 are as follows:
For Against Abstain
---- -------- -------
Number of Votes 2,676,972 658,053 48,695
Percentage of total votes
eligible to be cast 55.5% 13.6% 1.0%
Each of the proposals, having received the requisite favorable vote, was
declared to be duly approved by the stockholders of the Company.
Exhibits and Reports on Form 8-K.
(a) Exhibits
10 - Material Contracts
10.1 Employment agreement - First Federal Bank and Barry E. Backhaus
10.2 Employment agreement - First Federal Bank and Jon G. Cleghorn
10.3 Employment agreement - First Federal Bank and Steven L. Opsal
10.4 Employment agreement - First Federal Bank and Sandra Sabel
10.5 First Federal Bankshares, Inc. 1999 Recognition and Retention Plan
10.6 First Federal Bankshares, Inc. 1999 Stock Option Plan
27 - Financial Data Schedule
(b) Reports on Form 8-K
On January 5, 2000 the Registrant filed a current report on Form 8-K
relating to the Company's announcement that it is commencing a share
repurchase program calling for the repurchase of up to 241,239 shares, or
approximately 5% of the shares outstanding, in open market purchases.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
FIRST FEDERAL BANKSHARES, INC.
DATE: February 9, 2000 BY: /s/Barry E. Backhaus
--------------------
Barry E. Backhaus
President and
Chief Executive Officer
DATE: February 9, 2000 BY: /s/Katherine Bousquet
---------------------
Katherine Bousquet
Chief Financial Officer
EXHIBIT 10.1
EMPLOYMENT AGREEMENT BETWEEN FIRST FEDERAL BANK
AND BARRY E BACKHAUS
<PAGE>
FIRST FEDERAL BANK
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the ____ day of Ocotber, 1999 by
and between First Federal Bank (the "Bank"), a federally-chartered stock savings
bank, with its principal administrative office at 329 Pierce Street, Sioux City,
Iowa 51102 and Barry E. Backhaus (the "Executive"). Any reference to "Company"
herein shall mean First Federal Bankshares, Inc., a Delaware stock corporation
or any successor thereto.
WHEREAS, the Bank wishes to assure itself of the continued services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Bank on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES
During the period of his employment hereunder, Executive agrees to
serve as President and Chief Executive Officer of the Bank and the Company.
During said period, Executive also agrees to serve, if elected, as an officer
and director of any subsidiary or affiliate of the Bank. Failure to reelect
Executive as President and Chief Executive Officer without the consent of the
Executive during the term of this Agreement shall constitute a breach of this
Agreement.
2. TERMS AND DUTIES
(a) The period of Executive's employment under this Agreement shall
begin as of the date first above written and shall continue for a period of
thirty-six (36) full calendar months thereafter ("Employment Period").
Commencing on each annual anniversary of the date of this Agreement (the date of
each annual anniversary hereof shall be hereinafter referred to as the
"Anniversary Date"), unless the Employment Period has been previously
terminated, the Board shall, at least 60 days prior to each such Anniversary
Date, conduct a comprehensive performance evaluation and review of the Executive
for purposes of determining whether to extend the Agreement and the results
thereof shall be included in the minutes of the Board meeting. The Board shall
give the Executive notice of its decision whether or not to extend the
Employment Period at least 60 days prior to the Anniversary Date, and if such
notice is that the Employment Period shall not be extended (a "Non-Renewal
Notice"), the Employment Period shall not be extended. In such case, the
Agreement shall terminate in accordance with its terms at the end of twenty-four
(24) months following such Anniversary Date.
(b) Executive's duties as President and Chief Executive Officer of the
Bank are set forth on Exhibit A attached hereto. During the Employment Period,
except for periods of absence occasioned by illness, reasonable vacation
periods, and reasonable leaves of absence, Executive shall faithfully perform
his duties hereunder including activities and services related to the
organization, operation and management of the Bank. For these purposes,
"reasonable" shall be determined by reference to similarly situated financial
institutions or in accordance with industry standards.
<PAGE>
3. COMPENSATION AND REIMBURSEMENT
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Section 2(b). The Bank
shall pay Executive as compensation a salary of not less than $200,000 per year
("Base Salary"). Such Base Salary shall be payable in accordance with the normal
payroll practices of the Bank. During the Employment Period, Executive's Base
Salary shall be reviewed at least annually; the first such review will be made
no later than January 31, 2000. Such review shall be conducted by a Committee
designated by the Board, and the Board may increase, but not decrease,
Executive's Base Salary (any increase in Base Salary shall become the "Base
Salary" for purposes of this Agreement). In addition to the Base Salary provided
in this Section 3(a), the Bank shall provide Executive at no cost to Executive
with all such other benefits as are provided uniformly to permanent full-time
employees of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive's vested rights or
benefits thereunder. Without limiting the generality of the foregoing provisions
of this Subsection (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans including but not limited to,
retirement plans, supplemental retirement plans, pension plans, profit-sharing
plans, stock option plans, stock award plans, health-and-accident plans, medical
coverage or any other employee benefit plan or arrangement made available by the
Bank in the future to its senior executives and key management employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. Executive will be entitled to
incentive compensation and bonuses as provided in any plan of the Bank in which
Executive is eligible to participate (and he shall be entitled to a pro rata
distribution under any incentive compensation or bonus plan as to any year in
which a termination of employment occurs, other than termination for Cause).
Nothing paid to the Executive under any such plan or arrangement will be deemed
to be in lieu of other compensation to which the Executive is entitled under
this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine. The
Bank shall provide the Executive with an automobile, and such automobile may be
used by the Executive in carrying out his duties under this Agreement, including
commuting between his residence and his principal place of employment, and other
personal use.
(d) The Bank shall pay for or reimburse Executive for the costs of fees
associated with membership in a country club in the Bank's market area.
<PAGE>
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 7 and 15.
(a) The provisions of this Section shall apply upon the occurrence of
an Event of Termination (as herein defined) during the Employment Period. As
used in this Agreement, an "Event of Termination" shall mean and include any one
or more of the following:
(i) the termination by the Bank or the Company of Executive's full-time
employment hereunder for any reason other than (A) Disability or Retirement, as
defined in Section 5 below, or (B) Termination for Cause as defined in Section 6
hereof; or
(ii) Executive's resignation from the Bank's employ, upon any
(A) failure to elect or reelect or to appoint or reappoint
Executive as President and Chief Executive Officer or failure
to nominate Executive as a Director of the Bank,
(B) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's
position to become one of lesser responsibility, importance,
or scope from the position and attributes thereof described in
Section 1, above,
(C) a relocation of Executive's principal place of employment
by more than 30 miles from its location at the effective date
of this Agreement, or a material reduction in the benefits and
perquisites to the Executive from those being provided as of
the effective date of this Agreement,
(D) liquidation or dissolution of the Bank or Company other
than liquidations or dissolutions that are caused by
reorganizations that do not affect the status of Executive, or
(E) breach of this Agreement by the Bank.
Upon the occurrence of any event described in clauses (ii) (A), (B), (C), (D) or
(E), above, Executive shall have the right to elect to terminate his employment
under this Agreement by resignation upon sixty (60) days prior written notice
given within a reasonable period of time not to exceed four calendar months
after the initial event giving rise to said right to elect. Notwithstanding the
preceding sentence, in the event of a continuing breach of this Agreement by the
Bank, the Executive, after giving due notice within the prescribed time frame of
an initial event specified above, shall not waive any of his rights solely under
this Agreement and this Section 4 by virtue of the fact that Executive has
submitted his resignation but has remained in the employment of the Bank and is
engaged in good faith discussions to resolve any occurrence of an event
described in clauses (A), (B), (C), (D) and (E) above.
<PAGE>
(iii) Executive's voluntary resignation from the Bank's employ on the
effective date of, or at any time within six (6) months following a Change in
Control. For these purposes, a Change in Control of the Bank or the Company
shall mean a change in control of a nature that: (i) would be required to be
reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Company within the meaning of the Home Owners' Loan
Act and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof; or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (a) any "Person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Bank or the Company representing 25% or more of the Bank's or the Company's
outstanding securities, except for any securities of the Bank purchased by the
Company in connection with the second step conversion of the mutual holding
company parent of the Bank to the stock form and any securities purchased by the
Bank's employee stock ownership plan and trust; or (b) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided, however, that this
sub-section (b) shall not apply if the Incumbent Board is replaced by the
appointment by a Federal banking agency of a conservator or receiver for the
Bank and, provided further that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least two-thirds of the
directors comprising the Incumbent Board or whose nomination for election by the
Company's stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (b), considered
as though he were a member of the Incumbent Board; or (c) a proxy statement
soliciting proxies from stockholders of the Company, by someone other than the
current management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company or Bank or similar
transaction with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Bank or the Company shall be distributed and the requisite number of proxies
approving such plan of reorganization, merger or consolidation of the Company or
Bank are received and voted in favor of such transactions; or (d) a tender offer
is made for 25% or more of the outstanding securities of the Bank or Company and
shareholders owning beneficially or of record 25% or more of the outstanding
securities of the Bank or Company have tendered or offered to sell their shares
pursuant to such tender offer and such tendered shares have been accepted by the
tender offeror.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 7, the Bank shall pay Executive, or, in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, as severance pay or liquidated damages, or both, a sum equal
to 299% of the Executive's "base amount" of compensation, as defined in Section
280G(b)(3) of the Internal Revenue Code ("Code"). At the election of the
Executive, which election is to be made on an annual basis during the month of
January, and which election is irrevocable for the year in which made and upon
the occurrence of an Event of Termination, any payments shall be made in a lump
sum or paid monthly during the remaining term of this Agreement following the
Executive's termination. In the event that no election is made, payment to the
Executive will be made on a monthly basis during the remaining term of this
Agreement. Such payments shall not be reduced in the event the Executive obtains
other employment following termination of employment.
<PAGE>
(c) Upon the occurrence of an Event of Termination, the Bank will cause
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank for Executive prior to his
termination. Such coverage shall continue for 36 months from the Date of
Termination.
(d) Notwithstanding the preceding paragraphs of this Section 4, in the
event that:
(i) the aggregate payments or benefits to be made or
afforded to Executive under said paragraphs (the
"Termination Benefits") would be deemed to include an
"excess parachute payment" under Section 280G of the
Code or any successor thereto, and
(ii) if such Termination Benefits were reduced to an
amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal
to the total amount of payments permissible under
Section 280G of the Code or any successor thereto,
then the Termination Benefits to be paid to Executive
shall be so reduced so as to be a Non-Triggering
Amount.
5. TERMINATION UPON RETIREMENT, DISABILITY OR DEATH
Termination by the Bank of the Executive based on "Retirement" shall
mean termination in accordance with the Bank's retirement policy or in
accordance with any retirement arrangement established with Executive's consent
with respect to him. Upon termination of Executive upon Retirement, Executive
shall be entitled to all benefits under any retirement plan of the Bank and
other plans to which Executive is a party.
In the event Executive is unable to perform his duties under this
Agreement on a full-time basis for a period of six (6) consecutive months by
reason of illness or other physical or mental disability, the Employer may
terminate this Agreement, provided that the Employer shall continue to be
obligated to pay the Executive his Base Salary for the remaining term of the
Agreement, or one year, whichever is the longer period of time, and provided
further that any amounts actually paid to Executive pursuant to any disability
insurance or other similar such program which the Employer has provided or may
provide on behalf of its employees or pursuant to any workman's or social
security disability program shall reduce the compensation to be paid to the
Executive pursuant to this paragraph.
In the event of Executive's death during the term of the Agreement, his
estate, legal representatives or named beneficiaries (as directed by Executive
in writing) shall be paid Executive's Base Salary as defined in Paragraph 3(a)
at the rate in effect at the time Executive's death for a period of one (1) year
from the date of the Executive's death, and the Employers will continue to
provide medical, dental, family and other benefits normally provided for an
Executive's family for one (1) year after the Executive's death.
<PAGE>
6. TERMINATION FOR CAUSE
The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. In determining incompetence, the acts
or omissions shall be measured against standards generally prevailing in the
savings institutions industry. For purposes of this paragraph, no act or failure
to act on the part of Executive shall be considered "willful" unless done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's action or omission was in the best interest of the
Bank. Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the disinterested members of the Board at a meeting of the Board
called and held for that purpose (after reasonable notice to Executive and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the particulars thereof
in detail. For these purposes, reasonable notice shall be deemed to have been
provided if delivered in person or by registered mail, telegram, or courier to
the principal residence of the Executive no less than five (5) business days
prior to such Board meeting. Notwithstanding the above, the Board shall have the
right to place Executive on paid administrative leave until the Board meeting at
which Termination for Cause is determined, if to do so would be in the best
interest of the Bank. If in the good faith opinion of the Board, the Executive
is guilty of conduct justifying Termination for Cause, a Notice of Termination
shall be issued to Executive in accordance with Section 7 hereof. The Executive
shall not have the right to receive compensation or other benefits for any
period after Termination for Cause, except in the event that a dispute
concerning the Termination for Cause is resolved in favor of the Executive, in
accordance with Section 7(c). Any stock options granted to Executive under any
stock option plan of the Bank, the Company or any subsidiary or affiliate
thereof, shall become null and void effective upon Executive's receipt of Notice
of Termination for Cause pursuant to Section 7 hereof, and shall not be
exercisable by Executive at any time subsequent to such Termination for Cause,
except in the event that a dispute concerning the Termination for Cause is
resolved in favor of the Executive, in accordance with Section 7(c) hereof.
7. NOTICE
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated. Notice of Termination must be delivered, in person, by registered
mail, telegram or courier to the principal administrative office of the Bank, in
the case of Notice given by the Executive, and in the case of Notice of
Termination of the Executive, to the Executive's principal place of residence
within 72 hours of the determination of termination.
<PAGE>
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, may be immediate
if, in the sole discretion of the Board of Directors, immediate termination is
in the best interest of the Bank).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination (except upon the voluntary
termination by the Executive or in the event of Termination for Cause, in which
case the Date of Termination shall be the date specified in the Notice), the
Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal having expired and no appeal having
been perfected) and provided further that the Date of Termination shall be
extended by a notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, except
in the case of voluntary termination by the Executive or Termination for Cause,
the Bank will continue to pay Executive his full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue Executive as a participant in all compensation, benefit and
insurance plans in which he was participating, until the dispute is finally
resolved in accordance with this Agreement, provided such dispute is resolved
within the term of this Agreement. In the event of Termination for Cause, no
compensation shall be paid to the Executive during the pendency of any dispute,
provided, however, that in the event such dispute is finally determined (by
mutual written agreement of the parties, binding arbitration or final judgement,
order or decree of a court of competent jurisdiction) in favor of the Executive,
the Executive shall be entitled to all compensation previously withheld
(including Base Salary, incentive compensation, stock options, and contributions
to qualified and nonqualifed benefit plans) and reimbursement for any insurance
coverage purchased by the Executive to replace coverage previously provided by
the Bank pursuant to the terms of this Agreement. If such dispute is not
resolved within the term of this Agreement, the Bank shall not be obligated,
upon final resolution of such dispute, to pay Executive compensation and other
payments accruing beyond the term of this Agreement. Amounts paid under this
Section shall be offset against or reduce any other amounts due under this
Agreement.
8. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to Executive under this Agreement shall
be subject to Executive's compliance with paragraph (b) of this Section 8 during
the term of this Agreement and for one (1) full year after the expiration or
termination hereof.
(b) Executive shall, upon reasonable notice, furnish such information
and assistance to the Bank as may reasonably be required by the Bank in
connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become, a party.
<PAGE>
9. NON-COMPETITION
(a) Upon any termination of Executive's employment hereunder as a
result of which the Bank is paying Executive benefits under Section 4 of this
Agreement, other than a termination coincident to or following a Change in
Control, Executive agrees not to compete with the Bank and/or the Company for a
period of one (1) year following such termination in any city, town or county in
which the Bank and/or the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the effective date
of such termination, except as agreed to pursuant to a resolution duly adopted
by the Board. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the depository, lending or other business activities of the Bank
and/or the Company. The parties hereto, recognizing that irreparable injury will
result to the Bank and/or the Company, its business and property in the event of
Executive's breach of this Subsection 9(a) agree that in the event of any such
breach by Executive, the Bank and/or the Company will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by Executive, Executive's partners, agents, servants,
employers, employees and all persons acting for or with Executive. Executive
represents and admits that Executive's experience and capabilities are such that
Executive can obtain employment in a business engaged in other lines and/or of a
different nature than the Bank and/or the Company, and that the enforcement of a
remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Bank and/or the
Company from pursuing any other remedies available to the Bank and/or the
Company for such breach or threatened breach, including the recovery of damages
from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever (except
for such disclosure as may be required to be provided to any federal banking
agency with jurisdiction over the Bank or Executive). Notwithstanding the
foregoing, Executive may disclose any knowledge of banking, financial and/or
economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Bank, and Executive may
disclose any information regarding the Bank or the Company which is otherwise
publicly available. In the event of a breach or threatened breach by the
Executive of the provisions of this Section 9, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
<PAGE>
10. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Company, however, guarantees
payment and provision of all amounts and benefits due hereunder to Executive
and, if such amounts and benefits due from the Bank are not timely paid or
provided by the Bank, such amounts and benefits shall be paid or provided by the
Company.
11. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
12. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
13. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
14. REQUIRED PROVISIONS
(a) The Bank's Board of Directors may terminate the Executive's
employment at any time, but any termination by the Bank's Board of Directors,
other than Termination for Cause, shall not prejudice Executive's right to
compensation or other benefits under this Agreement. Executive shall not have
the right to receive compensation or other benefits for any period after
Termination for Cause as defined in Section 7 herein above.
<PAGE>
(b) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) (12 U.S.C. ss.ss. 1818(e)(3)) or 8(g) (12 U.S.C.
ss. 1818(g)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, the Bank's
obligations under this contract shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Bank may in its discretion (i) pay the Executive all or part of
the compensation withheld while their contract obligations were suspended and
(ii) reinstate (in whole or in part) any of the obligations which were
suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e) (12 U.S.C. ss.ss. 1818(e)) or 8(g) (12 U.S.C. ss. 1818(g)) of the
Federal Deposit Insurance Act, as amended by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, all obligations of the Bank under this
contract shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x) (12 U.S.C. ss.
1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of
the Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Director,
at the time Federal Deposit Insurance Corporation ("FDIC") or the Resolution
Trust Corporation enters into an agreement to provide assistance to or on behalf
of the Bank; or (ii) by the Office of Thrift Supervision ("OTS") at the time the
OTS or its District Director approves a supervisory merger to resolve problems
related to the operations of the Bank or when the Bank is determined by the OTS
or FDIC to be in an unsafe or unsound condition. Any rights of the parties that
have already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 USC
Section 1828(k) and any regulations promulgated thereunder.
15. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Iowa but
only to the extent not superseded by federal law.
<PAGE>
18. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association ("AAA") applicable to commercial arbitrations
(the "Rules") except as modified by this Section. The Executive shall appoint
one arbitrator, the Bank shall appoint one arbitrator, and the third shall be
appointed by the two arbitrators appointed by the parties. The third arbitrator
shall serve as chairman of the panel. The parties shall appoint their
arbitrators within thirty (30) days after the demand for arbitration is served,
failing which the AAA promptly shall appoint a defaulting party's arbitrator,
and the two arbitrators shall select the third arbitrator within fifteen (15)
days after their appointment, or if they cannot agree or fail to so appoint,
then the AAA promptly shall appoint the third arbitrator. The arbitrators shall
render their decision in writing within thirty (30) days after the close of
evidence or other termination of the proceedings by the panel, and the decision
of a majority of the arbitrators shall be final and binding upon the parties.
The Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement. The costs of arbitration, including the fees of AAA, shall
be borne as directed by decision of the panel.
19. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Bank, provided that the dispute or interpretation has been
settled by Executive and the Bank or resolved in the Executive's favor.
20. INDEMNIFICATION
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
federal law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a trustee, director or officer of the
Bank (whether or not he continues to be a trustee, director or officer at the
time of incurring such expenses or liabilities), such expenses and liabilities
to include, but not be limited to, judgments, court costs and reasonable
attorneys' fees and the cost of reasonable settlements (such settlements must be
approved by the Bank's Board). If such action, suit or proceeding is brought
against Executive in his capacity as an officer, trustee, or director of the
Bank, however, such indemnification shall not extend to matters as to which
Executive is finally adjudged to be liable for willful misconduct in the
performance of his duties.
21. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to perform the Bank's obligations under
this Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement
to be executed and their seals to be affixed hereunto by their duly authorized
officers, and Executives have signed this Agreement, on the day and date first
above written.
ATTEST: FIRST FEDERAL BANK
By:
- ------------- -------------------------
Secretary Name:
Title:
ATTEST: FIRST FEDERAL BANKSHARES, INC.
By:
- ------------- -------------------------
Secretary Name:
itle:
WITNESS: EXECUTIVE:
By:
- ------------- -------------------------
<PAGE>
Exhibit A
---------
Duties of Executive as President and Chief Executive Officer:
The President and Chief Executive Officer is responsible for the
overall management of the Bank and establishment of its objectives, policies and
strategic plans. Provides leadership and direction to all departments. Is the
primary contact between the Board of Directors and the Bank staff.
EXHIBIT 10.2
EMPLOYMENT AGREEMENT BETWEEN FIRST FEDERAL BANK
AND JON G CLEGHORN
<PAGE>
FIRST FEDERAL BANK
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the ____ day of October, 1999 by
and between First Federal Bank (the "Bank"), a federally-chartered stock savings
bank, with its principal administrative office at 329 Pierce Street, Sioux City,
Iowa 51102 and Jon G. Cleghorn (the "Executive"). Any reference to "Company"
herein shall mean First Federal Bankshares, Inc., a Delaware stock corporation
or any successor thereto.
WHEREAS, the Bank wishes to assure itself of the continued services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Bank on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES
During the period of his employment hereunder, Executive agrees to
serve as Executive Vice President and Chief Operating Officer of the Bank and
the Company. During said period, Executive also agrees to serve, if elected, as
an officer and director of any subsidiary or affiliate of the Bank. Failure to
reelect Executive as Executive Vice President and Chief Operating Officer
without the consent of the Executive during the term of this Agreement shall
constitute a breach of this Agreement.
2. TERMS AND DUTIES
(a) The period of Executive's employment under this Agreement shall
begin as of the date first above written and shall continue for a period of
thirty-six (36) full calendar months thereafter ("Employment Period").
Commencing on each annual anniversary of the date of this Agreement (the date of
each annual anniversary hereof shall be hereinafter referred to as the
"Anniversary Date"), unless the Employment Period has been previously
terminated, the Board shall, at least 60 days prior to each such Anniversary
Date, conduct a comprehensive performance evaluation and review of the Executive
for purposes of determining whether to extend the Agreement and the results
thereof shall be included in the minutes of the Board meeting. The Board shall
give the Executive notice of its decision whether or not to extend the
Employment Period at least 60 days prior to the Anniversary Date, and if such
notice is that the Employment Period shall not be extended (a "Non-Renewal
Notice"), the Employment Period shall not be extended. In such case, the
Agreement shall terminate in accordance with its terms at the end of twenty-four
(24) months following such Anniversary Date.
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(b) Executive's duties as Executive Vice President and Chief Operating
Officer of the Bank are set forth on Exhibit A attached hereto. During the
Employment Period, except for periods of absence occasioned by illness,
reasonable vacation periods, and reasonable leaves of absence, Executive shall
faithfully perform his duties hereunder including activities and services
related to the organization, operation and management of the Bank. For these
purposes, "reasonable" shall be determined by reference to similarly situated
financial institutions or in accordance with industry standards.
3. COMPENSATION AND REIMBURSEMENT
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Section 2(b). The Bank
shall pay Executive as compensation a salary of not less than $127,000 per year
("Base Salary"). Such Base Salary shall be payable in accordance with the normal
payroll practices of the Bank. During the Employment Period, Executive's Base
Salary shall be reviewed at least annually; the first such review will be made
no later than January 31, 2000. Such review shall be conducted by a Committee
designated by the Board, and the Board may increase, but not decrease,
Executive's Base Salary (any increase in Base Salary shall become the "Base
Salary" for purposes of this Agreement). In addition to the Base Salary provided
in this Section 3(a), the Bank shall provide Executive at no cost to Executive
with all such other benefits as are provided uniformly to permanent full-time
employees of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive's vested rights or
benefits thereunder. Without limiting the generality of the foregoing provisions
of this Subsection (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans including but not limited to,
retirement plans, supplemental retirement plans, pension plans, profit-sharing
plans, stock option plans, stock award plans, health-and-accident plans, medical
coverage or any other employee benefit plan or arrangement made available by the
Bank in the future to its senior executives and key management employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. Executive will be entitled to
incentive compensation and bonuses as provided in any plan of the Bank in which
Executive is eligible to participate (and he shall be entitled to a pro rata
distribution under any incentive compensation or bonus plan as to any year in
which a termination of employment occurs, other than termination for Cause).
Nothing paid to the Executive under any such plan or arrangement will be deemed
to be in lieu of other compensation to which the Executive is entitled under
this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine. The
Bank shall provide the Executive with an automobile, and such automobile may be
used by the Executive in carrying out his duties under this Agreement, including
commuting between his residence and his principal place of employment, and other
personal use.
(d) The Bank shall pay for or reimburse Executive for the costs of fees
associated with membership in a country club in the Bank's market area.
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4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 7 and 15.
(a) The provisions of this Section shall apply upon the occurrence of
an Event of Termination (as herein defined) during the Employment Period. As
used in this Agreement, an "Event of Termination" shall mean and include any one
or more of the following:
(i) the termination by the Bank or the Company of Executive's full-time
employment hereunder for any reason other than (A) Disability or Retirement, as
defined in Section 5 below, or (B) Termination for Cause as defined in Section 6
hereof; or
(ii) Executive's resignation from the Bank's employ, upon any
(A) failure to elect or reelect or to appoint or reappoint
Executive as Executive Vice President and Chief Operating
Officer or failure to nominate Executive as a Director of the
Bank,
(B) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's
position to become one of lesser responsibility, importance,
or scope from the position and attributes thereof described in
Section 1, above,
(C) a relocation of Executive's principal place of employment
by more than 30 miles from its location at the effective date
of this Agreement, or a material reduction in the benefits and
perquisites to the Executive from those being provided as of
the effective date of this Agreement,
(D) liquidation or dissolution of the Bank or Company other
than liquidations or dissolutions that are caused by
reorganizations that do not affect the status of Executive, or
(E) breach of this Agreement by the Bank.
Upon the occurrence of any event described in clauses (ii) (A), (B), (C), (D) or
(E), above, Executive shall have the right to elect to terminate his employment
under this Agreement by resignation upon sixty (60) days prior written notice
given within a reasonable period of time not to exceed four calendar months
after the initial event giving rise to said right to elect. Notwithstanding the
preceding sentence, in the event of a continuing breach of this Agreement by the
Bank, the Executive, after giving due notice within the prescribed time frame of
an initial event specified above, shall not waive any of his rights solely under
this Agreement and this Section 4 by virtue of the fact that Executive has
submitted his resignation but has remained in the employment of the Bank and is
engaged in good faith discussions to resolve any occurrence of an event
described in clauses (A), (B), (C), (D) and (E) above.
<PAGE>
(iii) Executive's voluntary resignation from the Bank's employ on the
effective date of, or at any time within six (6) months following a Change in
Control. For these purposes, a Change in Control of the Bank or the Company
shall mean a change in control of a nature that: (i) would be required to be
reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Company within the meaning of the Home Owners' Loan
Act and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof; or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (a) any "Person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Bank or the Company representing 25% or more of the Bank's or the Company's
outstanding securities, except for any securities of the Bank purchased by the
Company in connection with the second step conversion of the mutual holding
company parent of the Bank to the stock form and any securities purchased by the
Bank's employee stock ownership plan and trust; or (b) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided, however, that this
sub-section (b) shall not apply if the Incumbent Board is replaced by the
appointment by a Federal banking agency of a conservator or receiver for the
Bank and, provided further that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least two-thirds of the
directors comprising the Incumbent Board or whose nomination for election by the
Company's stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (b), considered
as though he were a member of the Incumbent Board; or (c) a proxy statement
soliciting proxies from stockholders of the Company, by someone other than the
current management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company or Bank or similar
transaction with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Bank or the Company shall be distributed and the requisite number of proxies
approving such plan of reorganization, merger or consolidation of the Company or
Bank are received and voted in favor of such transactions; or (d) a tender offer
is made for 25% or more of the outstanding securities of the Bank or Company and
shareholders owning beneficially or of record 25% or more of the outstanding
securities of the Bank or Company have tendered or offered to sell their shares
pursuant to such tender offer and such tendered shares have been accepted by the
tender offeror.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 7, the Bank shall pay Executive, or, in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, as severance pay or liquidated damages, or both, a sum equal
to 299% of the Executive's "base amount" of compensation, as defined in Section
280G(b)(3) of the Internal Revenue Code ("Code"). At the election of the
Executive, which election is to be made on an annual basis during the month of
January, and which election is irrevocable for the year in which made and upon
the occurrence of an Event of Termination, any payments shall be made in a lump
sum or paid monthly during the remaining term of this Agreement following the
Executive's termination. In the event that no election is made, payment to the
Executive will be made on a monthly basis during the remaining term of this
Agreement. Such payments shall not be reduced in the event the Executive obtains
other employment following termination of employment.
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(c) Upon the occurrence of an Event of Termination, the Bank will cause
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank for Executive prior to his
termination. Such coverage shall continue for 36 months from the Date of
Termination.
(d) Notwithstanding the preceding paragraphs of this Section 4, in the
event that:
(i) the aggregate payments or benefits to be made or
afforded to Executive under said paragraphs (the
"Termination Benefits") would be deemed to include an
"excess parachute payment" under Section 280G of the
Code or any successor thereto, and
(ii) if such Termination Benefits were reduced to an
amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal
to the total amount of payments permissible under
Section 280G of the Code or any successor thereto,
then the Termination Benefits to be paid to Executive
shall be so reduced so as to be a Non-Triggering
Amount.
5. TERMINATION UPON RETIREMENT, DISABILITY OR DEATH
Termination by the Bank of the Executive based on "Retirement" shall
mean termination in accordance with the Bank's retirement policy or in
accordance with any retirement arrangement established with Executive's consent
with respect to him. Upon termination of Executive upon Retirement, Executive
shall be entitled to all benefits under any retirement plan of the Bank and
other plans to which Executive is a party.
In the event Executive is unable to perform his duties under this
Agreement on a full-time basis for a period of six (6) consecutive months by
reason of illness or other physical or mental disability, the Employer may
terminate this Agreement, provided that the Employer shall continue to be
obligated to pay the Executive his Base Salary for the remaining term of the
Agreement, or one year, whichever is the longer period of time, and provided
further that any amounts actually paid to Executive pursuant to any disability
insurance or other similar such program which the Employer has provided or may
provide on behalf of its employees or pursuant to any workman's or social
security disability program shall reduce the compensation to be paid to the
Executive pursuant to this paragraph.
In the event of Executive's death during the term of the Agreement, his
estate, legal representatives or named beneficiaries (as directed by Executive
in writing) shall be paid Executive's Base Salary as defined in Paragraph 3(a)
at the rate in effect at the time Executive's death for a period of one (1) year
from the date of the Executive's death, and the Employers will continue to
provide medical, dental, family and other benefits normally provided for an
Executive's family for one (1) year after the Executive's death.
<PAGE>
6. TERMINATION FOR CAUSE
The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. In determining incompetence, the acts
or omissions shall be measured against standards generally prevailing in the
savings institutions industry. For purposes of this paragraph, no act or failure
to act on the part of Executive shall be considered "willful" unless done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's action or omission was in the best interest of the
Bank. Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the disinterested members of the Board at a meeting of the Board
called and held for that purpose (after reasonable notice to Executive and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the particulars thereof
in detail. For these purposes, reasonable notice shall be deemed to have been
provided if delivered in person or by registered mail, telegram, or courier to
the principal residence of the Executive no less than five (5) business days
prior to such Board meeting. Notwithstanding the above, the Board shall have the
right to place Executive on paid administrative leave until the Board meeting at
which Termination for Cause is determined, if to do so would be in the best
interest of the Bank. If in the good faith opinion of the Board, the Executive
is guilty of conduct justifying Termination for Cause, a Notice of Termination
shall be issued to Executive in accordance with Section 7 hereof. The Executive
shall not have the right to receive compensation or other benefits for any
period after Termination for Cause, except in the event that a dispute
concerning the Termination for Cause is resolved in favor of the Executive, in
accordance with Section 7(c). Any stock options granted to Executive under any
stock option plan of the Bank, the Company or any subsidiary or affiliate
thereof, shall become null and void effective upon Executive's receipt of Notice
of Termination for Cause pursuant to Section 7 hereof, and shall not be
exercisable by Executive at any time subsequent to such Termination for Cause,
except in the event that a dispute concerning the Termination for Cause is
resolved in favor of the Executive, in accordance with Section 7(c) hereof.
7. NOTICE
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated. Notice of Termination must be delivered, in person, by registered
mail, telegram or courier to the principal administrative office of the Bank, in
the case of Notice given by the Executive, and in the case of Notice of
Termination of the Executive, to the Executive's principal place of residence
within 72 hours of the determination of termination.
<PAGE>
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, may be immediate
if, in the sole discretion of the Board of Directors, immediate termination is
in the best interest of the Bank).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination (except upon the voluntary
termination by the Executive or in the event of Termination for Cause, in which
case the Date of Termination shall be the date specified in the Notice), the
Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal having expired and no appeal having
been perfected) and provided further that the Date of Termination shall be
extended by a notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, except
in the case of voluntary termination by the Executive or Termination for Cause,
the Bank will continue to pay Executive his full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue Executive as a participant in all compensation, benefit and
insurance plans in which he was participating, until the dispute is finally
resolved in accordance with this Agreement, provided such dispute is resolved
within the term of this Agreement. In the event of Termination for Cause, no
compensation shall be paid to the Executive during the pendency of any dispute,
provided, however, that in the event such dispute is finally determined (by
mutual written agreement of the parties, binding arbitration or final judgement,
order or decree of a court of competent jurisdiction) in favor of the Executive,
the Executive shall be entitled to all compensation previously withheld
(including Base Salary, incentive compensation, stock options, and contributions
to qualified and nonqualifed benefit plans) and reimbursement for any insurance
coverage purchased by the Executive to replace coverage previously provided by
the Bank pursuant to the terms of this Agreement. If such dispute is not
resolved within the term of this Agreement, the Bank shall not be obligated,
upon final resolution of such dispute, to pay Executive compensation and other
payments accruing beyond the term of this Agreement. Amounts paid under this
Section shall be offset against or reduce any other amounts due under this
Agreement.
8. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to Executive under this Agreement shall
be subject to Executive's compliance with paragraph (b) of this Section 8 during
the term of this Agreement and for one (1) full year after the expiration or
termination hereof.
(b) Executive shall, upon reasonable notice, furnish such information
and assistance to the Bank as may reasonably be required by the Bank in
connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become, a party.
<PAGE>
9. NON-COMPETITION
(a) Upon any termination of Executive's employment hereunder as a
result of which the Bank is paying Executive benefits under Section 4 of this
Agreement, other than a termination coincident to or following a Change in
Control, Executive agrees not to compete with the Bank and/or the Company for a
period of one (1) year following such termination in any city, town or county in
which the Bank and/or the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the effective date
of such termination, except as agreed to pursuant to a resolution duly adopted
by the Board. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the depository, lending or other business activities of the Bank
and/or the Company. The parties hereto, recognizing that irreparable injury will
result to the Bank and/or the Company, its business and property in the event of
Executive's breach of this Subsection 9(a) agree that in the event of any such
breach by Executive, the Bank and/or the Company will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by Executive, Executive's partners, agents, servants,
employers, employees and all persons acting for or with Executive. Executive
represents and admits that Executive's experience and capabilities are such that
Executive can obtain employment in a business engaged in other lines and/or of a
different nature than the Bank and/or the Company, and that the enforcement of a
remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Bank and/or the
Company from pursuing any other remedies available to the Bank and/or the
Company for such breach or threatened breach, including the recovery of damages
from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever (except
for such disclosure as may be required to be provided to any federal banking
agency with jurisdiction over the Bank or Executive). Notwithstanding the
foregoing, Executive may disclose any knowledge of banking, financial and/or
economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Bank, and Executive may
disclose any information regarding the Bank or the Company which is otherwise
publicly available. In the event of a breach or threatened breach by the
Executive of the provisions of this Section 9, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
10. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Company, however, guarantees
payment and provision of all amounts and benefits due hereunder to Executive
and, if such amounts and benefits due from the Bank are not timely paid or
provided by the Bank, such amounts and benefits shall be paid or provided by the
Company.
<PAGE>
11. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
12. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
13. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
14. REQUIRED PROVISIONS
(a) The Bank's Board of Directors may terminate the Executive's
employment at any time, but any termination by the Bank's Board of Directors,
other than Termination for Cause, shall not prejudice Executive's right to
compensation or other benefits under this Agreement. Executive shall not have
the right to receive compensation or other benefits for any period after
Termination for Cause as defined in Section 7 herein above.
(b) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) (12 U.S.C. ss.ss. 1818(e)(3)) or 8(g) (12 U.S.C.
ss. 1818(g)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, the Bank's
obligations under this contract shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Bank may in its discretion (i) pay the Executive all or part of
the compensation withheld while their contract obligations were suspended and
(ii) reinstate (in whole or in part) any of the obligations which were
suspended.
<PAGE>
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e) (12 U.S.C. ss.ss. 1818(e)) or 8(g) (12 U.S.C. ss. 1818(g)) of the
Federal Deposit Insurance Act, as amended by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, all obligations of the Bank under this
contract shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x) (12 U.S.C. ss.
1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of
the Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Director,
at the time Federal Deposit Insurance Corporation ("FDIC") or the Resolution
Trust Corporation enters into an agreement to provide assistance to or on behalf
of the Bank; or (ii) by the Office of Thrift Supervision ("OTS") at the time the
OTS or its District Director approves a supervisory merger to resolve problems
related to the operations of the Bank or when the Bank is determined by the OTS
or FDIC to be in an unsafe or unsound condition. Any rights of the parties that
have already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 USC
Section 1828(k) and any regulations promulgated thereunder.
15. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Iowa but
only to the extent not superseded by federal law.
18. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association ("AAA") applicable to commercial arbitrations
<PAGE>
(the "Rules") except as modified by this Section. The Executive shall appoint
one arbitrator, the Bank shall appoint one arbitrator, and the third shall be
appointed by the two arbitrators appointed by the parties. The third arbitrator
shall serve as chairman of the panel. The parties shall appoint their
arbitrators within thirty (30) days after the demand for arbitration is served,
failing which the AAA promptly shall appoint a defaulting party's arbitrator,
and the two arbitrators shall select the third arbitrator within fifteen (15)
days after their appointment, or if they cannot agree or fail to so appoint,
then the AAA promptly shall appoint the third arbitrator. The arbitrators shall
render their decision in writing within thirty (30) days after the close of
evidence or other termination of the proceedings by the panel, and the decision
of a majority of the arbitrators shall be final and binding upon the parties.
The Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement. The costs of arbitration, including the fees of AAA, shall
be borne as directed by decision of the panel.
19. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Bank, provided that the dispute or interpretation has been
settled by Executive and the Bank or resolved in the Executive's favor.
20. INDEMNIFICATION
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
federal law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a trustee, director or officer of the
Bank (whether or not he continues to be a trustee, director or officer at the
time of incurring such expenses or liabilities), such expenses and liabilities
to include, but not be limited to, judgments, court costs and reasonable
attorneys' fees and the cost of reasonable settlements (such settlements must be
approved by the Bank's Board). If such action, suit or proceeding is brought
against Executive in his capacity as an officer, trustee, or director of the
Bank, however, such indemnification shall not extend to matters as to which
Executive is finally adjudged to be liable for willful misconduct in the
performance of his duties.
21. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to perform the Bank's obligations under
this Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement
to be executed and their seals to be affixed hereunto by their duly authorized
officers, and Executives have signed this Agreement, on the day and date first
above written.
ATTEST: FIRST FEDERAL BANK
By:
- ---------------------- ------------------------
Secretary Name:
Title:
ATTEST: FIRST FEDERAL BANKSHARES, INC.
By:
- ---------------------- ------------------------
Secretary Name:
Title:
WITNESS: EXECUTIVE:
By:
- ---------------------- ------------------------
<PAGE>
Exhibit A
Duties of the Executive Vice President and Chief Operating Officer:
Assists the President in the overall administration of the Bank.
Coordinates activities of the institution in accordance with the policies and
objectives established by the Chief Executive Officer and the Board of
Directors. In the absence of the Chief Executive Officer, acts in his place.
EXHIBIT 10.3
EMPLOYMENT AGREEMENT BETWEEN FIRST FEDERAL BANK
AND STEVEN L OPSAL
<PAGE>
FIRST FEDERAL BANK
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the ____ day of October, 1999 by
and between First Federal Bank (the "Bank"), a federally-chartered stock savings
bank, with its principal administrative office at 329 Pierce Street, Sioux City,
Iowa 51102 and Steven L. Opsal (the "Executive"). Any reference to "Company"
herein shall mean First Federal Bankshares, Inc., a Delaware stock corporation
or any successor thereto.
WHEREAS, the Bank wishes to assure itself of the continued services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Bank on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES
During the period of his employment hereunder, Executive agrees to
serve as Executive Vice President of the Bank and the Company. During said
period, Executive also agrees to serve, if elected, as an officer and director
of any subsidiary or affiliate of the Bank. Failure to reelect Executive as
Executive Vice President without the consent of the Executive during the term of
this Agreement shall constitute a breach of this Agreement.
2. TERMS AND DUTIES
(a) The period of Executive's employment under this Agreement shall
begin as of the date first above written and shall continue for a period of
thirty-six (36) full calendar months thereafter ("Employment Period").
Commencing on each annual anniversary of the date of this Agreement (the date of
each annual anniversary hereof shall be hereinafter referred to as the
"Anniversary Date"), unless the Employment Period has been previously
terminated, the Board shall, at least 60 days prior to each such Anniversary
Date, conduct a comprehensive performance evaluation and review of the Executive
for purposes of determining whether to extend the Agreement and the results
thereof shall be included in the minutes of the Board meeting. The Board shall
give the Executive notice of its decision whether or not to extend the
Employment Period at least 60 days prior to the Anniversary Date, and if such
notice is that the Employment Period shall not be extended (a "Non-Renewal
Notice"), the Employment Period shall not be extended. In such case, the
Agreement shall terminate in accordance with its terms at the end of twenty-four
(24) months following such Anniversary Date.
<PAGE>
(b) Executive's duties as Executive Vice President of the Bank are set
forth on Exhibit A attached hereto. During the Employment Period, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall faithfully perform his duties
hereunder including activities and services related to the organization,
operation and management of the Bank. For these purposes, "reasonable" shall be
determined by reference to similarly situated financial institutions or in
accordance with industry standards.
3. COMPENSATION AND REIMBURSEMENT
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Section 2(b). The Bank
shall pay Executive as compensation a salary of not less than $115,000 per year
("Base Salary"). Such Base Salary shall be payable in accordance with the normal
payroll practices of the Bank. During the Employment Period, Executive's Base
Salary shall be reviewed at least annually; the first such review will be made
no later than January 31, 2000. Such review shall be conducted by a Committee
designated by the Board, and the Board may increase, but not decrease,
Executive's Base Salary (any increase in Base Salary shall become the "Base
Salary" for purposes of this Agreement). In addition to the Base Salary provided
in this Section 3(a), the Bank shall provide Executive at no cost to Executive
with all such other benefits as are provided uniformly to permanent full-time
employees of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive's vested rights or
benefits thereunder. Without limiting the generality of the foregoing provisions
of this Subsection (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans including but not limited to,
retirement plans, supplemental retirement plans, pension plans, profit-sharing
plans, stock option plans, stock award plans, health-and-accident plans, medical
coverage or any other employee benefit plan or arrangement made available by the
Bank in the future to its senior executives and key management employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. Executive will be entitled to
incentive compensation and bonuses as provided in any plan of the Bank in which
Executive is eligible to participate (and he shall be entitled to a pro rata
distribution under any incentive compensation or bonus plan as to any year in
which a termination of employment occurs, other than termination for Cause).
Nothing paid to the Executive under any such plan or arrangement will be deemed
to be in lieu of other compensation to which the Executive is entitled under
this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine. The
Bank shall provide the Executive with an automobile, and such automobile may be
used by the Executive in carrying out his duties under this Agreement, including
commuting between his residence and his principal place of employment, and other
personal use.
(d) The Bank shall pay for or reimburse Executive for the costs of fees
associated with membership in a country club in the Bank's market area.
<PAGE>
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 7 and 15.
(a) The provisions of this Section shall apply upon the occurrence of
an Event of Termination (as herein defined) during the Employment Period. As
used in this Agreement, an "Event of Termination" shall mean and include any one
or more of the following:
(i) the termination by the Bank or the Company of Executive's full-time
employment hereunder for any reason other than (A) Disability or Retirement, as
defined in Section 5 below, or (B) Termination for Cause as defined in Section 6
hereof; or
(ii) Executive's resignation from the Bank's employ, upon any
(A) failure to elect or reelect or to appoint or reappoint
Executive as Executive Vice President or failure to nominate
Executive as a Director of the Bank,
(B) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's
position to become one of lesser responsibility, importance,
or scope from the position and attributes thereof described in
Section 1, above,
(C) prior to September 1, 2001, a relocation of Executive's
principal place of employment by more than 30 miles from its
location at the effective date of this Agreement, and
thereafter, a relocation of Executive's principal place of
employment by more than 30 miles from either (i) its location
at the effective date of the Agreement or (ii) the principal
administrative office of the Bank, or a material reduction in
the benefits and perquisites to the Executive from those being
provided as of the effective date of this Agreement,
(D) liquidation or dissolution of the Bank or Company other
than liquidations or dissolutions that are caused by
reorganizations that do not affect the status of Executive, or
(E) breach of this Agreement by the Bank.
Upon the occurrence of any event described in clauses (ii) (A), (B), (C), (D) or
(E), above, Executive shall have the right to elect to terminate his employment
under this Agreement by resignation upon sixty (60) days prior written notice
given within a reasonable period of time not to exceed four calendar months
after the initial event giving rise to said right to elect. Notwithstanding the
preceding sentence, in the event of a continuing breach of this Agreement by the
Bank, the Executive, after giving due notice within the prescribed time frame of
an initial event specified above, shall not waive any of his rights solely under
this Agreement and this Section 4 by virtue of the fact that Executive has
submitted his resignation but has remained in the employment of the Bank and is
engaged in good faith discussions to resolve any occurrence of an event
described in clauses (A), (B), (C), (D) and (E) above.
<PAGE>
(iii) Executive's voluntary resignation from the Bank's employ on the
effective date of, or at any time within six (6) months following a Change in
Control. For these purposes, a Change in Control of the Bank or the Company
shall mean a change in control of a nature that: (i) would be required to be
reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Company within the meaning of the Home Owners' Loan
Act and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof; or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (a) any "Person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Bank or the Company representing 25% or more of the Bank's or the Company's
outstanding securities, except for any securities of the Bank purchased by the
Company in connection with the second step conversion of the mutual holding
company parent of the Bank to the stock form and any securities purchased by the
Bank's employee stock ownership plan and trust; or (b) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided, however, that this
sub-section (b) shall not apply if the Incumbent Board is replaced by the
appointment by a Federal banking agency of a conservator or receiver for the
Bank and, provided further that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least two-thirds of the
directors comprising the Incumbent Board or whose nomination for election by the
Company's stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (b), considered
as though he were a member of the Incumbent Board; or (c) a proxy statement
soliciting proxies from stockholders of the Company, by someone other than the
current management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company or Bank or similar
transaction with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Bank or the Company shall be distributed and the requisite number of proxies
approving such plan of reorganization, merger or consolidation of the Company or
Bank are received and voted in favor of such transactions; or (d) a tender offer
is made for 25% or more of the outstanding securities of the Bank or Company and
shareholders owning beneficially or of record 25% or more of the outstanding
securities of the Bank or Company have tendered or offered to sell their shares
pursuant to such tender offer and such tendered shares have been accepted by the
tender offeror.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 7, the Bank shall pay Executive, or, in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, as severance pay or liquidated damages, or both, a sum equal
to 299% of the Executive's "base amount" of compensation, as defined in Section
280G(b)(3) of the Internal Revenue Code ("Code"). At the election of the
Executive, which election is to be made on an annual basis during the month of
January, and which election is irrevocable for the year in which made and upon
the occurrence of an Event of Termination, any payments shall be made in a lump
sum or paid monthly during the remaining term of this Agreement following the
Executive's termination. In the event that no election is made, payment to the
Executive will be made on a monthly basis during the remaining term of this
Agreement. Such payments shall not be reduced in the event the Executive obtains
other employment following termination of employment.
<PAGE>
(c) Upon the occurrence of an Event of Termination, the Bank will cause
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank for Executive prior to his
termination. Such coverage shall continue for 36 months from the Date of
Termination.
(d) Notwithstanding the preceding paragraphs of this Section 4, in the
event that:
(i) the aggregate payments or benefits to be made or
afforded to Executive under said paragraphs (the
"Termination Benefits") would be deemed to include an
"excess parachute payment" under Section 280G of the
Code or any successor thereto, and
(ii) if such Termination Benefits were reduced to an
amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal
to the total amount of payments permissible under
Section 280G of the Code or any successor thereto,
then the Termination Benefits to be paid to Executive
shall be so reduced so as to be a Non-Triggering
Amount.
5. TERMINATION UPON RETIREMENT, DISABILITY OR DEATH
Termination by the Bank of the Executive based on "Retirement" shall
mean termination in accordance with the Bank's retirement policy or in
accordance with any retirement arrangement established with Executive's consent
with respect to him. Upon termination of Executive upon Retirement, Executive
shall be entitled to all benefits under any retirement plan of the Bank and
other plans to which Executive is a party.
In the event Executive is unable to perform his duties under this
Agreement on a full-time basis for a period of six (6) consecutive months by
reason of illness or other physical or mental disability, the Employer may
terminate this Agreement, provided that the Employer shall continue to be
obligated to pay the Executive his Base Salary for the remaining term of the
Agreement, or one year, whichever is the longer period of time, and provided
further that any amounts actually paid to Executive pursuant to any disability
insurance or other similar such program which the Employer has provided or may
provide on behalf of its employees or pursuant to any workman's or social
security disability program shall reduce the compensation to be paid to the
Executive pursuant to this paragraph.
In the event of Executive's death during the term of the Agreement, his
estate, legal representatives or named beneficiaries (as directed by Executive
in writing) shall be paid Executive's Base Salary as defined in Paragraph 3(a)
at the rate in effect at the time Executive's death for a period of one (1) year
from the date of the Executive's death, and the Employers will continue to
provide medical, dental, family and other benefits normally provided for an
Executive's family for one (1) year after the Executive's death.
<PAGE>
6. TERMINATION FOR CAUSE
The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. In determining incompetence, the acts
or omissions shall be measured against standards generally prevailing in the
savings institutions industry. For purposes of this paragraph, no act or failure
to act on the part of Executive shall be considered "willful" unless done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's action or omission was in the best interest of the
Bank. Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the disinterested members of the Board at a meeting of the Board
called and held for that purpose (after reasonable notice to Executive and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the particulars thereof
in detail. For these purposes, reasonable notice shall be deemed to have been
provided if delivered in person or by registered mail, telegram, or courier to
the principal residence of the Executive no less than five (5) business days
prior to such Board meeting. Notwithstanding the above, the Board shall have the
right to place Executive on paid administrative leave until the Board meeting at
which Termination for Cause is determined, if to do so would be in the best
interest of the Bank. If in the good faith opinion of the Board, the Executive
is guilty of conduct justifying Termination for Cause, a Notice of Termination
shall be issued to Executive in accordance with Section 7 hereof. The Executive
shall not have the right to receive compensation or other benefits for any
period after Termination for Cause, except in the event that a dispute
concerning the Termination for Cause is resolved in favor of the Executive, in
accordance with Section 7(c). Any stock options granted to Executive under any
stock option plan of the Bank, the Company or any subsidiary or affiliate
thereof, shall become null and void effective upon Executive's receipt of Notice
of Termination for Cause pursuant to Section 7 hereof, and shall not be
exercisable by Executive at any time subsequent to such Termination for Cause,
except in the event that a dispute concerning the Termination for Cause is
resolved in favor of the Executive, in accordance with Section 7(c) hereof.
7. NOTICE
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated. Notice of Termination may be delivered, in person, by registered
mail, telegram or courier to the principal administrative office of the Bank, in
the case of Notice given by the Executive, and in the case of Notice of
Termination of the Executive, to the Executive's principal place of residence
within 72 hours of the determination of termination.
<PAGE>
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, may be immediate
if, in the sole discretion of the Board of Directors, immediate termination is
in the best interest of the Bank).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination (except upon the voluntary
termination by the Executive or in the event of Termination for Cause, in which
case the Date of Termination shall be the date specified in the Notice), the
Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award, or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal having expired and no appeal having
been perfected) and provided further that the Date of Termination shall be
extended by a notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, except
in the case of voluntary termination by the Executive or Termination for Cause,
the Bank will continue to pay Executive his full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue Executive as a participant in all compensation, benefit and
insurance plans in which he was participating, until the dispute is finally
resolved in accordance with this Agreement, provided such dispute is resolved
within the term of this Agreement. In the event of Termination for Cause, no
compensation shall be paid to the Executive during the pendency of any dispute,
provided, however, that in the event such dispute is finally determined (by
mutual written agreement of the parties, binding arbitration or final judgement,
order or decree of a court of competent jurisdiction) in favor of the Executive,
the Executive shall be entitled to all compensation previously withheld
(including Base Salary, incentive compensation, stock options, and contributions
to qualified and nonqualifed benefit plans) and reimbursement for any insurance
coverage purchased by the Executive to replace coverage previously provided by
the Bank pursuant to the terms of this Agreement. If such dispute is not
resolved within the term of this Agreement, the Bank shall not be obligated,
upon final resolution of such dispute, to pay Executive compensation and other
payments accruing beyond the term of this Agreement. Amounts paid under this
Section shall be offset against or reduce any other amounts due under this
Agreement.
8. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to Executive under this Agreement shall
be subject to Executive's compliance with paragraph (b) of this Section 8 during
the term of this Agreement and for one (1) full year after the expiration or
termination hereof.
(b) Executive shall, upon reasonable notice, furnish such information
and assistance to the Bank as may reasonably be required by the Bank in
connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become, a party.
<PAGE>
9. NON-COMPETITION
(a) Upon any termination of Executive's employment hereunder as a
result of which the Bank is paying Executive benefits under Section 4 of this
Agreement, other than a termination coincident to or following a Change in
Control, Executive agrees not to compete with the Bank and/or the Company for a
period of one (1) year following such termination in any city, town or county in
which the Bank and/or the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the effective date
of such termination, except as agreed to pursuant to a resolution duly adopted
by the Board. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the depository, lending or other business activities of the Bank
and/or the Company. The parties hereto, recognizing that irreparable injury will
result to the Bank and/or the Company, its business and property in the event of
Executive's breach of this Subsection 9(a) agree that in the event of any such
breach by Executive, the Bank and/or the Company will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by Executive, Executive's partners, agents, servants,
employers, employees and all persons acting for or with Executive. Executive
represents and admits that Executive's experience and capabilities are such that
Executive can obtain employment in a business engaged in other lines and/or of a
different nature than the Bank and/or the Company, and that the enforcement of a
remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Bank and/or the
Company from pursuing any other remedies available to the Bank and/or the
Company for such breach or threatened breach, including the recovery of damages
from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever (except
for such disclosure as may be required to be provided to any federal banking
agency with jurisdiction over the Bank or Executive). Notwithstanding the
foregoing, Executive may disclose any knowledge of banking, financial and/or
economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Bank, and Executive may
disclose any information regarding the Bank or the Company which is otherwise
publicly available. In the event of a breach or threatened breach by the
Executive of the provisions of this Section 9, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
<PAGE>
10. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Company, however, guarantees
payment and provision of all amounts and benefits due hereunder to Executive
and, if such amounts and benefits due from the Bank are not timely paid or
provided by the Bank, such amounts and benefits shall be paid or provided by the
Company.
11. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
12. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
13. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
14. REQUIRED PROVISIONS
(a) The Bank's Board of Directors may terminate the Executive's
employment at any time, but any termination by the Bank's Board of Directors,
other than Termination for Cause, shall not prejudice Executive's right to
compensation or other benefits under this Agreement. Executive shall not have
the right to receive compensation or other benefits for any period after
Termination for Cause as defined in Section 7 herein above.
<PAGE>
(b) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) (12 U.S.C. ss.ss. 1818(e)(3)) or 8(g) (12 U.S.C.
ss. 1818(g)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, the Bank's
obligations under this contract shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Bank may in its discretion (i) pay the Executive all or part of
the compensation withheld while their contract obligations were suspended and
(ii) reinstate (in whole or in part) any of the obligations which were
suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e) (12 U.S.C. ss.ss. 1818(e)) or 8(g) (12 U.S.C. ss. 1818(g)) of the
Federal Deposit Insurance Act, as amended by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, all obligations of the Bank under this
contract shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x) (12 U.S.C. ss.
1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of
the Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Director,
at the time Federal Deposit Insurance Corporation ("FDIC") or the Resolution
Trust Corporation enters into an agreement to provide assistance to or on behalf
of the Bank; or (ii) by the Office of Thrift Supervision ("OTS") at the time the
OTS or its District Director approves a supervisory merger to resolve problems
related to the operations of the Bank or when the Bank is determined by the OTS
or FDIC to be in an unsafe or unsound condition. Any rights of the parties that
have already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 USC
Section 1828(k) and any regulations promulgated thereunder.
15. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Iowa but
only to the extent not superseded by federal law.
<PAGE>
18. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association ("AAA") applicable to commercial arbitrations
(the "Rules") except as modified by this Section. The Executive shall appoint
one arbitrator, the Bank shall appoint one arbitrator, and the third shall be
appointed by the two arbitrators appointed by the parties. The third arbitrator
shall serve as chairman of the panel. The parties shall appoint their
arbitrators within thirty (30) days after the demand for arbitration is served,
failing which the AAA promptly shall appoint a defaulting party's arbitrator,
and the two arbitrators shall select the third arbitrator within fifteen (15)
days after their appointment, or if they cannot agree or fail to so appoint,
then the AAA promptly shall appoint the third arbitrator. The arbitrators shall
render their decision in writing within thirty (30) days after the close of
evidence or other termination of the proceedings by the panel, and the decision
of a majority of the arbitrators shall be final and binding upon the parties.
The Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement. The costs of arbitration, including the fees of AAA, shall
be borne as directed by decision of the panel.
19. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Bank, provided that the dispute or interpretation has been
settled by Executive and the Bank or resolved in the Executive's favor.
20. INDEMNIFICATION
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
federal law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a trustee, director or officer of the
Bank (whether or not he continues to be a trustee, director or officer at the
time of incurring such expenses or liabilities), such expenses and liabilities
to include, but not be limited to, judgments, court costs and reasonable
attorneys' fees and the cost of reasonable settlements (such settlements must be
approved by the Bank's Board). If such action, suit or proceeding is brought
against Executive in his capacity as an officer, trustee, or director of the
Bank, however, such indemnification shall not extend to matters as to which
Executive is finally adjudged to be liable for willful misconduct in the
performance of his duties.
21. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to perform the Bank's obligations under
this Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement
to be executed and their seals to be affixed hereunto by their duly authorized
officers, and Executives have signed this Agreement, on the day and date first
above written.
ATTEST: FIRST FEDERAL BANK
By:
- -------------- -------------------------
Secretary Name:
Title:
ATTEST: FIRST FEDERAL BANKSHARES, INC.
By:
- -------------- -------------------------
Secretary Name:
Title:
WITNESS: EXECUTIVE:
By:
- -------------- -------------------------
Exhibit A
Duties of the Executive Vice President:
Assists in the overall administration of the Bank through frequent
contact with the President, the other Executive Vice President, and the Board of
Directors. Responsible for the leadership and management of various divisions of
the Bank.
EXHIBIT 10.4
EMPLOYMENT AGREEMENT BETWEEN FIRST FEDERAL BANK
AND SANDRA SABEL
<PAGE>
FIRST FEDERAL BANK
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the ____ day of October, 1999 by
and between First Federal Bank (the "Bank"), a federally-chartered stock savings
bank, with its principal administrative office at 329 Pierce Street, Sioux City,
Iowa 51102 and Sandra Sabel (the "Executive"). Any reference to "Company" herein
shall mean First Federal Bankshares, Inc., a Delaware stock corporation or any
successor thereto.
WHEREAS, the Bank wishes to assure itself of the continued services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Bank on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES
During the period of her employment hereunder, Executive agrees to
serve as Senior Vice President of the Bank and the Company. During said period,
Executive also agrees to serve, if elected, as an officer and director of any
subsidiary or affiliate of the Bank. Failure to reelect Executive as Senior Vice
President without the consent of the Executive during the term of this Agreement
shall constitute a breach of this Agreement.
2. TERMS AND DUTIES
(a) The period of Executive's employment under this Agreement shall
begin as of the date first above written and shall continue for a period of
thirty-six (36) full calendar months thereafter ("Employment Period").
Commencing on each annual anniversary of the date of this Agreement (the date of
each annual anniversary hereof shall be hereinafter referred to as the
"Anniversary Date"), unless the Employment Period has been previously
terminated, the Board shall, at least 60 days prior to each such Anniversary
Date, conduct a comprehensive performance evaluation and review of the Executive
for purposes of determining whether to extend the Agreement and the results
thereof shall be included in the minutes of the Board meeting. The Board shall
give the Executive notice of its decision whether or not to extend the
Employment Period at least 60 days prior to the Anniversary Date, and if such
notice is that the Employment Period shall not be extended (a "Non-Renewal
Notice"), the Employment Period shall not be extended. In such case, the
Agreement shall terminate in accordance with its terms at the end of twenty-four
(24) months following such Anniversary Date.
(b) Executive's duties as Senior Vice President of the Bank are set
forth on Exhibit A attached hereto. During the Employment Period, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall faithfully perform her duties
hereunder including activities and services related to the organization,
operation and management of the Bank. For these purposes, "reasonable" shall be
determined by reference to similarly situated financial institutions or in
accordance with industry standards.
<PAGE>
3. COMPENSATION AND REIMBURSEMENT
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Section 2(b). The Bank
shall pay Executive as compensation a salary of not less than $82,000 per year
("Base Salary"). Such Base Salary shall be payable in accordance with the normal
payroll practices of the Bank. During the Employment Period, Executive's Base
Salary shall be reviewed at least annually; the first such review will be made
no later than January 31, 2000. Such review shall be conducted by a Committee
designated by the Board, and the Board may increase, but not decrease,
Executive's Base Salary (any increase in Base Salary shall become the "Base
Salary" for purposes of this Agreement). In addition to the Base Salary provided
in this Section 3(a), the Bank shall provide Executive at no cost to Executive
with all such other benefits as are provided uniformly to permanent full-time
employees of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive's vested rights or
benefits thereunder. Without limiting the generality of the foregoing provisions
of this Subsection (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans including but not limited to,
retirement plans, supplemental retirement plans, pension plans, profit-sharing
plans, stock option plans, stock award plans, health-and-accident plans, medical
coverage or any other employee benefit plan or arrangement made available by the
Bank in the future to its senior executives and key management employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. Executive will be entitled to
incentive compensation and bonuses as provided in any plan of the Bank in which
Executive is eligible to participate (and she shall be entitled to a pro rata
distribution under any incentive compensation or bonus plan as to any year in
which a termination of employment occurs, other than termination for Cause).
Nothing paid to the Executive under any such plan or arrangement will be deemed
to be in lieu of other compensation to which the Executive is entitled under
this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing her
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 7 and 15.
(a) The provisions of this Section shall apply upon the occurrence of
an Event of Termination (as herein defined) during the Employment Period. As
used in this Agreement, an "Event of Termination" shall mean and include any one
or more of the following:
(i) the termination by the Bank or the Company of Executive's full-time
employment hereunder for any reason other than (A) Disability or Retirement, as
defined in Section 5 below, or (B) Termination for Cause as defined in Section 6
hereof; or
<PAGE>
(ii) Executive's resignation from the Bank's employ, upon any
(A) failure to elect or reelect or to appoint or reappoint
Executive as Senior Vice President or failure to nominate
Executive as a Director of the Bank,
(B) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's
position to become one of lesser responsibility, importance,
or scope from the position and attributes thereof described in
Section 1, above,
(C) a relocation of Executive's principal place of employment
by more than 30 miles from its location at the effective date
of this Agreement, or a material reduction in the benefits and
perquisites to the Executive from those being provided as of
the effective date of this Agreement,
(D) liquidation or dissolution of the Bank or Company other
than liquidations or dissolutions that are caused by
reorganizations that do not affect the status of Executive, or
(E) breach of this Agreement by the Bank.
Upon the occurrence of any event described in clauses (ii) (A), (B), (C), (D) or
(E), above, Executive shall have the right to elect to terminate her employment
under this Agreement by resignation upon sixty (60) days prior written notice
given within a reasonable period of time not to exceed four calendar months
after the initial event giving rise to said right to elect. Notwithstanding the
preceding sentence, in the event of a continuing breach of this Agreement by the
Bank, the Executive, after giving due notice within the prescribed time frame of
an initial event specified above, shall not waive any of her rights solely under
this Agreement and this Section 4 by virtue of the fact that Executive has
submitted her resignation but has remained in the employment of the Bank and is
engaged in good faith discussions to resolve any occurrence of an event
described in clauses (A), (B), (C), (D) and (E) above.
(iii) Executive's voluntary resignation from the Bank's employ on the
effective date of, or at any time within six (6) months following a Change in
Control. For these purposes, a Change in Control of the Bank or the Company
shall mean a change in control of a nature that: (i) would be required to be
reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Company within the meaning of the Home Owners' Loan
Act and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof; or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (a) any "Person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Bank or the Company representing 25% or more of the Bank's or the Company's
outstanding securities, except for any securities of the Bank purchased by the
Company in connection with the second step conversion of the mutual holding
company parent of the Bank to the stock form and any securities purchased by the
<PAGE>
Bank's employee stock ownership plan and trust; or (b) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided, however, that this
sub-section (b) shall not apply if the Incumbent Board is replaced by the
appointment by a Federal banking agency of a conservator or receiver for the
Bank and, provided further that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least two-thirds of the
directors comprising the Incumbent Board or whose nomination for election by the
Company's stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (b), considered
as though she were a member of the Incumbent Board; or (c) a proxy statement
soliciting proxies from stockholders of the Company, by someone other than the
current management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company or Bank or similar
transaction with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Bank or the Company shall be distributed and the requisite number of proxies
approving such plan of reorganization, merger or consolidation of the Company or
Bank are received and voted in favor of such transactions; or (d) a tender offer
is made for 25% or more of the outstanding securities of the Bank or Company and
shareholders owning beneficially or of record 25% or more of the outstanding
securities of the Bank or Company have tendered or offered to sell their shares
pursuant to such tender offer and such tendered shares have been accepted by the
tender offeror.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 7, the Bank shall pay Executive, or, in the
event of her subsequent death, her beneficiary or beneficiaries, or her estate,
as the case may be, as severance pay or liquidated damages, or both, a sum equal
to 299% of the Executive's "base amount" of compensation, as defined in Section
280G(b)(3) of the Internal Revenue Code ("Code"). At the election of the
Executive, which election is to be made on an annual basis during the month of
January, and which election is irrevocable for the year in which made and upon
the occurrence of an Event of Termination, any payments shall be made in a lump
sum or paid monthly during the remaining term of this Agreement following the
Executive's termination. In the event that no election is made, payment to the
Executive will be made on a monthly basis during the remaining term of this
Agreement. Such payments shall not be reduced in the event the Executive obtains
other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank for Executive prior to her
termination. Such coverage shall continue for 36 months from the Date of
Termination.
(d) Notwithstanding the preceding paragraphs of this Section 4, in the
event that:
(i) the aggregate payments or benefits to be made or
afforded to Executive under said paragraphs (the
"Termination Benefits") would be deemed to include an
"excess parachute payment" under Section 280G of the
Code or any successor thereto, and
<PAGE>
(ii) if such Termination Benefits were reduced to an
amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal
to the total amount of payments permissible under
Section 280G of the Code or any successor thereto,
then the Termination Benefits to be paid to Executive
shall be so reduced so as to be a Non-Triggering
Amount.
5. TERMINATION UPON RETIREMENT, DISABILITY OR DEATH
Termination by the Bank of the Executive based on "Retirement" shall
mean termination in accordance with the Bank's retirement policy or in
accordance with any retirement arrangement established with Executive's consent
with respect to him. Upon termination of Executive upon Retirement, Executive
shall be entitled to all benefits under any retirement plan of the Bank and
other plans to which Executive is a party.
In the event Executive is unable to perform her duties under this
Agreement on a full-time basis for a period of six (6) consecutive months by
reason of illness or other physical or mental disability, the Employer may
terminate this Agreement, provided that the Employer shall continue to be
obligated to pay the Executive her Base Salary for the remaining term of the
Agreement, or one year, whichever is the longer period of time, and provided
further that any amounts actually paid to Executive pursuant to any disability
insurance or other similar such program which the Employer has provided or may
provide on behalf of its employees or pursuant to any workman's or social
security disability program shall reduce the compensation to be paid to the
Executive pursuant to this paragraph.
In the event of Executive's death during the term of the Agreement, her
estate, legal representatives or named beneficiaries (as directed by Executive
in writing) shall be paid Executive's Base Salary as defined in Paragraph 3(a)
at the rate in effect at the time Executive's death for a period of one (1) year
from the date of the Executive's death, and the Employers will continue to
provide medical, dental, family and other benefits normally provided for an
Executive's family for one (1) year after the Executive's death.
6. TERMINATION FOR CAUSE
The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. In determining incompetence, the acts
or omissions shall be measured against standards generally prevailing in the
savings institutions industry. For purposes of this paragraph, no act or failure
to act on the part of Executive shall be considered "willful" unless done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's action or omission was in the best interest of the
Bank. Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to her a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the disinterested members of the Board at a meeting of the Board
<PAGE>
called and held for that purpose (after reasonable notice to Executive and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the particulars thereof
in detail. For these purposes, reasonable notice shall be deemed to have been
provided if delivered in person or by registered mail, telegram, or courier to
the principal residence of the Executive no less than five (5) business days
prior to such Board meeting. Notwithstanding the above, the Board shall have the
right to place Executive on paid administrative leave until the Board meeting at
which Termination for Cause is determined, if to do so would be in the best
interest of the Bank. If in the good faith opinion of the Board, the Executive
is guilty of conduct justifying Termination for Cause, a Notice of Termination
shall be issued to Executive in accordance with Section 7 hereof. The Executive
shall not have the right to receive compensation or other benefits for any
period after Termination for Cause, except in the event that a dispute
concerning the Termination for Cause is resolved in favor of the Executive, in
accordance with Section 7(c). Any stock options granted to Executive under any
stock option plan of the Bank, the Company or any subsidiary or affiliate
thereof, shall become null and void effective upon Executive's receipt of Notice
of Termination for Cause pursuant to Section 7 hereof, and shall not be
exercisable by Executive at any time subsequent to such Termination for Cause,
except in the event that a dispute concerning the Termination for Cause is
resolved in favor of the Executive, in accordance with Section 7(c) hereof.
7. NOTICE
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated. Notice of Termination must be delivered, in person, by registered
mail, telegram or courier to the principal administrative office of the Bank, in
the case of Notice given by the Executive, and in the case of Notice of
Termination of the Executive, to the Executive's principal place of residence
within 72 hours of the determination of termination.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that she shall not have returned to the performance of her
duties on a full-time basis during such thirty (30) day period), and (B) if her
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, may be immediate
if, in the sole discretion of the Board of Directors, immediate termination is
in the best interest of the Bank).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination (except upon the voluntary
termination by the Executive or in the event of Termination for Cause, in which
case the Date of Termination shall be the date specified in the Notice), the
Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award, or by a final judgment, order or decree of a court of
<PAGE>
competent jurisdiction (the time for appeal having expired and no appeal having
been perfected) and provided further that the Date of Termination shall be
extended by a notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, except
in the case of voluntary termination by the Executive or Termination for Cause,
the Bank will continue to pay Executive her full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue Executive as a participant in all compensation, benefit and
insurance plans in which she was participating, until the dispute is finally
resolved in accordance with this Agreement, provided such dispute is resolved
within the term of this Agreement. In the event of Termination for Cause, no
compensation shall be paid to the Executive during the pendency of any dispute,
provided, however, that in the event such dispute is finally determined (by
mutual written agreement of the parties, binding arbitration or final judgement,
order or decree of a court of competent jurisdiction) in favor of the Executive,
the Executive shall be entitled to all compensation previously withheld
(including Base Salary, incentive compensation, stock options, and contributions
to qualified and nonqualifed benefit plans) and reimbursement for any insurance
coverage purchased by the Executive to replace coverage previously provided by
the Bank pursuant to the terms of this Agreement. If such dispute is not
resolved within the term of this Agreement, the Bank shall not be obligated,
upon final resolution of such dispute, to pay Executive compensation and other
payments accruing beyond the term of this Agreement. Amounts paid under this
Section shall be offset against or reduce any other amounts due under this
Agreement.
8. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to Executive under this Agreement shall
be subject to Executive's compliance with paragraph (b) of this Section 8 during
the term of this Agreement and for one (1) full year after the expiration or
termination hereof.
(b) Executive shall, upon reasonable notice, furnish such information
and assistance to the Bank as may reasonably be required by the Bank in
connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become, a party.
9. NON-COMPETITION
(a) Upon any termination of Executive's employment hereunder as a
result of which the Bank is paying Executive benefits under Section 4 of this
Agreement, other than a termination coincident to or following a Change in
Control, Executive agrees not to compete with the Bank and/or the Company for a
period of one (1) year following such termination in any city, town or county in
which the Bank and/or the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the effective date
of such termination, except as agreed to pursuant to a resolution duly adopted
by the Board. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the depository, lending or other business activities of the Bank
and/or the Company. The parties hereto, recognizing that irreparable injury will
result to the Bank and/or the Company, its business and property in the event of
<PAGE>
Executive's breach of this Subsection 9(a) agree that in the event of any such
breach by Executive, the Bank and/or the Company will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by Executive, Executive's partners, agents, servants,
employers, employees and all persons acting for or with Executive. Executive
represents and admits that Executive's experience and capabilities are such that
Executive can obtain employment in a business engaged in other lines and/or of a
different nature than the Bank and/or the Company, and that the enforcement of a
remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Bank and/or the
Company from pursuing any other remedies available to the Bank and/or the
Company for such breach or threatened breach, including the recovery of damages
from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of her employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever (except
for such disclosure as may be required to be provided to any federal banking
agency with jurisdiction over the Bank or Executive). Notwithstanding the
foregoing, Executive may disclose any knowledge of banking, financial and/or
economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Bank, and Executive may
disclose any information regarding the Bank or the Company which is otherwise
publicly available. In the event of a breach or threatened breach by the
Executive of the provisions of this Section 9, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
10. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Company, however, guarantees
payment and provision of all amounts and benefits due hereunder to Executive
and, if such amounts and benefits due from the Bank are not timely paid or
provided by the Bank, such amounts and benefits shall be paid or provided by the
Company.
11. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to her without reference to this Agreement.
<PAGE>
12. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
13. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
14. REQUIRED PROVISIONS
(a) The Bank's Board of Directors may terminate the Executive's
employment at any time, but any termination by the Bank's Board of Directors,
other than Termination for Cause, shall not prejudice Executive's right to
compensation or other benefits under this Agreement. Executive shall not have
the right to receive compensation or other benefits for any period after
Termination for Cause as defined in Section 7 herein above.
(b) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) (12 U.S.C. ss.ss. 1818(e)(3)) or 8(g) (12 U.S.C.
ss. 1818(g)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, the Bank's
obligations under this contract shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Bank may in its discretion (i) pay the Executive all or part of
the compensation withheld while their contract obligations were suspended and
(ii) reinstate (in whole or in part) any of the obligations which were
suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e) (12 U.S.C. ss.ss. 1818(e)) or 8(g) (12 U.S.C. ss. 1818(g)) of the
Federal Deposit Insurance Act, as amended by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, all obligations of the Bank under this
contract shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
<PAGE>
(d) If the Bank is in default as defined in Section 3(x) (12 U.S.C. ss.
1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of
the Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Director,
at the time Federal Deposit Insurance Corporation ("FDIC") or the Resolution
Trust Corporation enters into an agreement to provide assistance to or on behalf
of the Bank; or (ii) by the Office of Thrift Supervision ("OTS") at the time the
OTS or its District Director approves a supervisory merger to resolve problems
related to the operations of the Bank or when the Bank is determined by the OTS
or FDIC to be in an unsafe or unsound condition. Any rights of the parties that
have already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 USC
Section 1828(k) and any regulations promulgated thereunder.
15. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Iowa but
only to the extent not superseded by federal law.
18. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association ("AAA") applicable to commercial arbitrations
(the "Rules") except as modified by this Section. The Executive shall appoint
one arbitrator, the Bank shall appoint one arbitrator, and the third shall be
appointed by the two arbitrators appointed by the parties. The third arbitrator
shall serve as chairman of the panel. The parties shall appoint their
arbitrators within thirty (30) days after the demand for arbitration is served,
failing which the AAA promptly shall appoint a defaulting party's arbitrator,
and the two arbitrators shall select the third arbitrator within fifteen (15)
days after their appointment, or if they cannot agree or fail to so appoint,
then the AAA promptly shall appoint the third arbitrator. The arbitrators shall
render their decision in writing within thirty (30) days after the close of
<PAGE>
evidence or other termination of the proceedings by the panel, and the decision
of a majority of the arbitrators shall be final and binding upon the parties.
The Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of her right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement. The costs of arbitration, including the fees of AAA, shall
be borne as directed by decision of the panel.
19. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Bank, provided that the dispute or interpretation has been
settled by Executive and the Bank or resolved in the Executive's favor.
20. INDEMNIFICATION
The Bank shall provide Executive (including her heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
her heirs, executors and administrators) to the fullest extent permitted under
federal law against all expenses and liabilities reasonably incurred by her in
connection with or arising out of any action, suit or proceeding in which she
may be involved by reason of her having been a trustee, director or officer of
the Bank (whether or not she continues to be a trustee, director or officer at
the time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgments, court costs and
reasonable attorneys' fees and the cost of reasonable settlements (such
settlements must be approved by the Bank's Board). If such action, suit or
proceeding is brought against Executive in her capacity as an officer, trustee,
or director of the Bank, however, such indemnification shall not extend to
matters as to which Executive is finally adjudged to be liable for willful
misconduct in the performance of her duties.
21. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to perform the Bank's obligations under
this Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement
to be executed and their seals to be affixed hereunto by their duly authorized
officers, and Executives have signed this Agreement, on the day and date first
above written.
ATTEST: FIRST FEDERAL BANK
By:
- ----------- ----------------------------
Secretary Name:
Title:
ATTEST: FIRST FEDERAL BANKSHARES, INC.
By:
- ----------- ----------------------------
Secretary Name:
Title:
WITNESS: EXECUTIVE:
By:
- ----------- ----------------------------
<PAGE>
Exhibit A
Duties of the Senior Vice President:
Conducts and supervises broad activities involved in promotion and
handling of savings accounts. Supervises work of savings officers and, in
general, the handling of all account holders. May coordinate branch savings
operations and many supervise other departments.
EXHIBIT 10.5
FIRST FEDERAL BANKSHARES, INC.
1999 RECOGNITION AND RETENTION PLAN
<PAGE>
APPENDIX A
FIRST FEDERAL BANKSHARES, INC.
1999 RECOGNITION AND RETENTION PLAN
1. Establishment of the Plan
First Federal Bankshares, Inc. hereby establishes the First Federal
Bankshares, Inc. 1999 Recognition and Retention Plan (the "Plan") upon the terms
and conditions hereinafter stated in the Plan.
2. Purpose of the Plan
The purpose of the Plan is to advance the interests of the Company and
its stockholders by providing Key Employees and Outside Directors of the Company
and its Affiliates, including First Federal Bank, upon whose judgment,
initiative and efforts the successful conduct of the business of the Company and
its Affiliates largely depends, with compensation for their contributions to the
Company and its Affiliates and an additional incentive to perform in a superior
manner, as well as to attract people of experience and ability.
3. Definitions
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural:
"Affiliate" means any "parent corporation" or "subsidiary corporation"
of the Company or the Bank, as such terms are defined in Section 424(e) and (f),
respectively, of the Code, or a successor to a parent corporation or subsidiary
corporation.
"Award" means the grant by the Committee of Restricted Stock, as
provided in the Plan.
"Bank" means First Federal Bank, or a successor corporation.
"Beneficiary" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
"Board" or "Board of Directors" means the Board of Directors of the
Company or an Affiliate, as applicable. For purposes of Section 4 of the Plan,
"Board" shall refer solely to the Board of the Company.
"Cause" means personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or a final cease-and-desist order, any
of which results in a material loss to the Company or an Affiliate.
<PAGE>
"Change in Control" of the Bank or the Company means a change in
control of a nature that: (i) would be required to be reported in response to
Item 1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Company within
the meaning of the Home Owners Loan Act, as amended ("HOLA"), and applicable
rules and regulations promulgated thereunder, as in effect at the time of the
Change in Control; or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (a) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's outstanding securities except for any
securities purchased by the Bank's employee stock ownership plan or trust; or
(b) individuals who constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (b), considered as though
he were a member of the Incumbent Board; or (c) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Company or similar transaction in which the Bank or the Company is not
the surviving institution occurs; or (d) a proxy statement soliciting proxies
from stockholders of the Company, by someone other than the current management
of the Company, seeking stockholder approval of a plan of reorganization, merger
or consolidation of the Company or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the Plan are to be exchanged for or converted into
cash or property or securities not issued by the Company; or (e) a tender offer
is made for 25% or more of the voting securities of the Company and the
shareholders owning beneficially or of record 25% or more of the outstanding
securities of the Company have tendered or offered to sell their shares pursuant
to such tender offer and such tendered shares have been accepted by the tender
offeror.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a Committee of the Board consisting of either (i) at
least two Non-Employee Directors of the Company, or (ii) the entire Board of the
Company.
"Common Stock" means shares of the common stock of the Company, par
value $0.01 per share.
"Company" means First Federal Bankshares, Inc., the stock holding
company of the Bank, or a successor
corporation.
"Continuous Service" means employment as a Key Employee and/or service
as an Outside Director without any interruption or termination of such
employment and/or service. Continuous Service shall also mean a continuation as
a member of the Board of Directors following a cessation of employment as a Key
Employee. In the case of a Key Employee, employment shall not be considered
interrupted in the case of sick leave, military leave or any other leave of
absence approved by the Bank or in the case of transfers between payroll
locations of the Bank or between the Bank, its parent, its subsidiaries or its
successor.
<PAGE>
"Director" means a member of the Board.
"Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him, or of a Director to serve as such. Additionally, in
the case of an employee, a medical doctor selected or approved by the Board must
advise the Committee that it is either not possible to determine when such
Disability will terminate or that it appears probable that such Disability will
be permanent during the remainder of such employee's lifetime.
"Effective Date" means the date of, or a date determined by the Board
of Directors following, approval of the Plan by the Company's stockholders.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Key Employee" means any person who is currently employed by the
Company or an Affiliate who is chosen by the Committee to participate in the
Plan.
"Non-Employee Director" means, for purposes of the Plan, a Director who
(a) is not employed by the Company or an Affiliate; (b) does not receive
compensation directly or indirectly as a consultant (or in any other capacity
than as a Director) greater than $60,000; (c) does not have an interest in a
transaction requiring disclosure under Item 404(a) of Regulation S-K; or (d) is
not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(b) of Regulation S-K.
"Normal Retirement" means for a Key Employee, retirement at the normal
or early retirement date set forth in the Bank's Employee Stock Ownership Plan,
or any successor plan. Normal Retirement for an Outside Director means a
cessation of service on the Board of Directors for any reason other than removal
for Cause, after reaching 60 years of age and maintaining at least 10 years of
Continuous Service.
"OTS" means the Office of Thrift Supervision.
"Outside Director" means a Director of the Company or an Affiliate who
is not an employee of the Company or an Affiliate.
"Recipient" means a Key Employee or Outside Director of the Company or
its Affiliates who receives or has received an Award under the Plan.
"Restricted Period" means the period of time selected by the Committee
for the purpose of determining when restrictions are in effect under Section 6
with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" means shares of Common Stock that have been
contingently awarded to a Recipient by the Committee subject to the restrictions
referred to in Section 6, so long as such restrictions are in effect.
4. Administration of the Plan.
(a) Role of the Committee. The Plan shall be administered and
interpreted by the Committee, which shall have all of the powers allocated to it
in the Plan, subject to OTS regulations and policy. The interpretation and
construction by the Committee of any provisions of the Plan or of any Award
<PAGE>
granted hereunder shall be final and binding. The Committee shall act by vote or
written consent of a majority of its members. Subject to the express provisions
and limitations of the Plan and subject to OTS regulations and policy, the
Committee may adopt such rules and procedures as it deems appropriate for the
conduct of its affairs. The Committee shall report its actions and decisions
with respect to the Plan to the Board at appropriate times, but in no event less
than one time per calendar year.
(b) Role of the Board. The members of the Committee shall be appointed
or approved by, and will serve at the pleasure of, the Board. The Board may in
its discretion from time to time remove members from, or add members to, the
Committee. The Board shall have all of the powers allocated to it in the Plan,
may take any action under or with respect to the Plan that the Committee is
authorized to take, and may reverse or override any action taken or decision
made by the Committee under or with respect to the Plan, provided, however, that
except as provided in Section 6(b), the Board may not revoke any Award except in
the event of revocation for Cause or with respect to unearned Awards in the
event the Recipient of an Award voluntarily terminates employment with the Bank
prior to Normal Retirement.
(c) Plan Administration Restrictions. All transactions involving a
grant, award or other acquisitions from the Company shall:
(i) be approved by the Company's full Board or by the Committee;
(ii) be approved, or ratified, in compliance with Section 14 of the
Exchange Act, by either: the affirmative vote of the holders of a majority of
the shares present, or represented and entitled to vote at a meeting duly held
in accordance with the laws under which the Company is incorporated; or the
written consent of the holders of a majority of the securities of the issuer
entitled to vote provided that such ratification occurs no later than the date
of the next annual meeting of shareholders; or
(iii) result in the acquisition of Common Stock that is held by the
Recipient for a period of six months following the date of such acquisition.
(d) Limitation on Liability. No member of the Board or the Committee
shall be liable for any determination made in good faith with respect to the
Plan or any Awards granted under it. If a member of the Board or the Committee
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of anything done or not done by him in such capacity
under or with respect to the Plan, the Bank or the Company shall indemnify such
member against expense (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in the best interests of the Bank and the Company and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
5. Eligibility; Awards
(a) Eligibility. Key Employees and Outside Directors are eligible to
receive Awards.
<PAGE>
(b) Awards to Key Employees and Outside Directors. The Committee may
determine which of the Key Employees and Outside Directors referenced in Section
5(a) will be granted Awards and the number of shares covered by each Award;
provided, however, that in no event shall any Awards be made that will violate
the Bank's Charter and Bylaws, the Company's Certificate of Incorporation and
Bylaws, or any applicable federal or state law or regulation. Shares of
Restricted Stock that are awarded by the Committee shall, on the date of the
Award, be registered in the name of the Recipient and transferred to the
Recipient, in accordance with the terms and conditions established under the
Plan. The aggregate number of shares that shall be issued under the Plan is
79,050.
Notwithstanding the foregoing and subject to compliance with applicable
OTS regulations and policy, no Outside Director shall be granted Awards with
respect to more than 5% of the total shares subject to the Plan, all Outside
Directors of the Company, in the aggregate, may not be granted Awards with
respect to more than 30% of the total shares subject to the Plan and no
individual shall be granted Awards with respect to more than 25% of the total
shares subject to the Plan. No Awards shall begin vesting earlier than one year
from the date the Plan is ratified by stockholders of the Company and no Awards
shall vest at a rate in excess of 20% per year beginning one year from the Date
of Grant. In the event OTS regulations are amended (the "Amended Regulations")
to permit shorter vesting periods or to permit accelerated vesting in the event
of Normal Retirement or a Change in Control of the Company, or in the event OTS
policy would permit shorter vesting periods or accelerated vesting irrespective
of the adoption of Amended Regulations, any Awards made pursuant to this Plan
may vest, at the sole discretion of the Committee, in accordance with such
Amended Regulations or OTS policy. Subject to compliance with OTS regulations
and policy, the Committee shall have the authority, in its discretion, to
accelerate the time at which any or all of the restrictions shall lapse with
respect thereto, or to remove any or all of such restrictions, whenever it may
determine that such action is appropriate by reason of changes in applicable tax
or other laws or other changes in circumstances occurring after the commencement
of such Restricted Period.
In the event Restricted Stock is forfeited for any reason, the
Committee, from time to time, may determine which of the Key Employees and
Outside Directors will be granted additional Awards to be awarded from forfeited
Restricted Stock.
In selecting those Key Employees and Outside Directors to whom Awards
will be granted and the amount of Restricted Stock covered by such Awards, the
Committee shall consider such factors as it deems relevant, which factors may
include, among others, the position and responsibilities of the Key Employees
and Outside Directors, the length and value of their services to the Bank and
its Affiliates, the compensation paid to the Key Employees or fees paid to the
Outside Directors, and the Committee may request the written recommendation of
the Chief Executive Officer and other senior executive officers of the Bank, the
Company and its Affiliates or the recommendation of the full Board. All
allocations by the Committee shall be subject to review, and approval or
rejection, by the Board.
No Restricted Stock shall vest unless the Recipient maintains
Continuous Service with the Bank or an Affiliate until the restrictions lapse.
(c) Manner of Award. As promptly as practicable after a determination
is made pursuant to Section 5(b) to grant an Award, the Committee shall notify
the Recipient in writing of the grant of the Award, the number of shares of
<PAGE>
Restricted Stock covered by the Award, and the terms upon which the Restricted
Stock subject to the Award may be earned. Upon notification of an Award of
Restricted Stock, the Recipient shall execute and return to the Company a
restricted stock agreement (the "Restricted Stock Agreement") setting forth the
terms and conditions under which the Recipient shall earn the Restricted Stock,
together with a stock power or stock powers endorsed in blank. Thereafter, the
Recipient's Restricted Stock and stock power shall be deposited with an escrow
agent specified by the Company ("Escrow Agent") who shall hold such Restricted
Stock under the terms and conditions set forth in the Restricted Stock
Agreement. Each certificate in respect of shares of Restricted Stock Awarded
under the Plan shall be registered in the name of the Recipient.
(d) Treatment of Forfeited Shares. In the event shares of Restricted
Stock are forfeited by a Recipient, such shares shall be returned to the Company
and shall be held and accounted for pursuant to the terms of the Plan until such
time as the Restricted Stock is re-awarded to another Recipient, in accordance
with the terms of the Plan and the applicable state and federal laws, rules and
regulations.
6. Terms and Conditions of Restricted Stock
The Committee shall have full and complete authority, subject to the
limitations of the Plan, to grant awards of Restricted Stock to Key Employees
and Outside Directors and, in addition to the terms and conditions contained in
Sections 6(a) through 6(h), to provide such other terms and conditions (which
need not be identical among Recipients) in respect of such Awards, and the
vesting thereof, as the Committee shall determine.
(a) General Rules. Restricted Stock shall vest in a Recipient at the
rate or rates determined by the Committee; provided, however, that Restricted
Stock shall vest at a rate not in excess of 20% of the initially awarded amount
per year commencing with the first installment being earned on the first
anniversary of the Date of Grant. No shares shall vest in any year in which the
Bank is not meeting all of its fully phased-in capital requirements. Subject to
any such other terms and conditions as the Committee shall provide with respect
to Awards, shares of Restricted Stock may not be sold, assigned, transferred
(within the meaning of Code Section 83), pledged or otherwise encumbered by the
Recipient, except as hereinafter provided, during the Restricted Period.
(b) Continuous Service; Forfeiture. Except as provided in Section 6(c),
if a Recipient ceases to maintain Continuous Service for any reason (other than
death or Disability), unless the Committee shall otherwise determine, all shares
of Restricted Stock theretofore awarded to such Recipient and which at the time
of such termination of Continuous Service are subject to the restrictions
imposed by Section 6(a) shall upon such termination of Continuous Service be
forfeited. Any stock dividends or declared but unpaid cash dividends
attributable to such shares of Restricted Stock shall also be forfeited.
(c) Exception for Termination Due to Death or Disability.
Notwithstanding the general rule contained in Section 6(a), Restricted Stock
awarded to a Recipient whose employment with the Company or an Affiliate or
service on the Board terminates due to death or Disability shall be deemed to
vest as of the Recipient's last day of employment with the Company or an
Affiliate, or last day of service on the Board of the Company or an Affiliate;
provided that Restricted Stock awarded to a Key Employee who at any time also
serves as a Director, shall not be deemed to vest until both employment and
service as a Director have been terminated.
<PAGE>
(d) Revocation for Cause. Notwithstanding anything hereinafter to the
contrary, the Board may by resolution immediately revoke, rescind and terminate
any Award, or portion thereof, previously awarded under the Plan, to the extent
Restricted Stock has not been redelivered by the Escrow Agent to the Recipient,
whether or not yet vested, in the case of a Key Employee whose employment is
terminated by the Company or an Affiliate or an Outside Director whose service
is terminated by the Company or an Affiliate for Cause or who is discovered
after termination of employment or service on the Board to have engaged in
conduct that would have justified termination for Cause.
(e) Restricted Stock Legend. Each certificate in respect of shares of
Restricted Stock awarded under the Plan shall be registered in the name of the
Recipient and deposited by the Recipient, together with a stock power endorsed
in blank, with the Escrow Agent and shall bear the following (or a similar)
legend:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and conditions
(including forfeiture) contained in the First Federal Bankshares,
Inc. 1999 Recognition and Retention Plan. Copies of such Plan are
on file in the offices of the Secretary of First Federal
Bankshares, Inc., 329 Pierce Street, Sioux City, Iowa 51102."
(f) Payment of Dividends and Return of Capital. After an Award has been
granted but before such Award has vested, the Recipient shall receive any cash
dividends paid with respect to such shares, or shall share in any pro-rata
return of capital to all shareholders with respect to the Common Stock. Stock
dividends declared by the Company and paid on Awards that have not yet vested
shall be subject to the same restrictions as the Restricted Stock and the
certificate(s) or other instruments representing or evidencing such shares shall
be legended in the manner provided in Section 6(e) and shall be delivered to the
Escrow Agent for distribution to the Recipient when the Restricted Stock upon
which such dividends were paid are vested. Unless the Recipient has made an
election under Section 83(b) of the Code, cash dividends or other amounts so
paid on shares that have not yet vested shall be treated as compensation income
to the Recipient when paid. If dividends are paid with respect to shares of
Restricted Stock under the Plan that have been issued but not awarded, or that
have been forfeited and returned to the Company or to a trust established to
hold issued and unawarded or forfeited shares, the Committee can determine to
award such dividends to any Recipient or Recipients under the Plan, to any other
employee or director of the Company or the Bank, or can return such dividends to
the Company.
(g) Voting of Restricted Shares. After an Award has been granted, the
Recipient as conditional owner of the Restricted Stock shall have the right to
vote such shares.
(h) Delivery of Earned Shares. At the expiration of the restrictions
imposed by Section 6(a), the Escrow Agent shall redeliver to the Recipient (or
where the relevant provision of Section 6(b) applies in the case of a deceased
Recipient, to his Beneficiary) the certificate(s) and any remaining stock power
deposited with it pursuant to Section 5(c) and the shares represented by such
certificate(s) shall be free of the restrictions referred to Section 6(a).
<PAGE>
7. Adjustments upon Changes in Capitalization
In the event of any change in the outstanding shares subsequent to the
Effective Date by reason of any reorganization, recapitalization, stock split,
stock dividend, combination or exchange of shares, or any merger, consolidation
or any change in the corporate structure or shares of the Company, without
receipt or payment of consideration by the Company, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan shall be
appropriately adjusted by the Committee, whose determination shall be
conclusive. Any shares of stock or other securities received, as a result of any
of the foregoing, by a Recipient with respect to Restricted Stock shall be
subject to the same restrictions and the certificate(s) or other instruments
representing or evidencing such shares or securities shall be legended and
deposited with the Escrow Agent in the manner provided in Section 6(e).
8. Assignments and Transfers
No Award nor any right or interest of a Recipient under the Plan in any
instrument evidencing any Award under the Plan may be assigned, encumbered or
transferred (within the meaning of Code Section 83) except, in the event of the
death of a Recipient, by will or the laws of descent and distribution until such
Award is earned.
9. Key Employee Rights under the Plan
No Key Employee shall have a right to be selected as a Recipient nor,
having been so selected, to be selected again as a Recipient and no Key Employee
or other person shall have any claim or right to be granted an Award under the
Plan or under any other incentive or similar plan of the Bank or any Affiliate.
Neither the Plan nor any action taken thereunder shall be construed as giving
any Key Employee any right to be retained in the employ of the Bank or any
Affiliate.
10. Outside Director Rights under the Plan
Neither the Plan nor any action taken thereunder shall be construed as
giving any Outside Director any right to be retained in the service of the Bank
or any Affiliate.
11. Withholding Tax
Upon the termination of the Restricted Period with respect to any
shares of Restricted Stock (or at any such earlier time, if any, that an
election is made by the Recipient under Section 83(b) of the Code, or any
successor provision thereto, to include the value of such shares in taxable
income), the Bank or the Company shall have the right to require the Recipient
or other person receiving such shares to pay the Bank or the Company the minimum
amount of any federal or state taxes, including payroll taxes, that are
applicable to such supplemental income and that the Bank or the Company is
required to withhold with respect to such shares, or, in lieu thereof, to retain
or sell without notice, a sufficient number of shares held by it to cover the
amount required to be withheld. The Bank or the Company shall have the right to
deduct from all dividends paid with respect to shares of Restricted Stock the
amount of any taxes which the Bank or the Company is required to withhold with
respect to such dividend payments.
<PAGE>
12. Amendment or Termination
The Board of the Company may amend, suspend or terminate the Plan or
any portion thereof at any time, subject to OTS regulations and policy,
provided, however, that no such amendment, suspension or termination shall
impair the rights of any Recipient, without his consent, in any Award
theretofore made pursuant to the Plan. Any amendment or modification of the Plan
or an outstanding Award under the Plan shall be approved by the Committee, or
the full Board of the Company.
13. Governing Law
The Plan shall be governed by the laws of the State of Delaware.
14. Term of Plan
The Plan shall become effective on the date of, or a date determined by
the Board of Directors following, approval of the Plan by the Company's
stockholders. It shall continue in effect until the earlier of (i) ten years
from the Effective Date unless sooner terminated under Section 12 hereof, or
(ii) the date on which all shares of Common Stock available for award hereunder,
have vested in the Recipients of such Awards.
<PAGE>
IN WITNESS WHEREOF, the Company has caused the Plan to be executed by
its duly authorized officers and the corporate seal to be affixed and duly
attested, as of the ____ day of ________________, 1999.
Date Approved by Shareholders: _______________________
Effective Date: _______________________
ATTEST: FIRST FEDERAL BANKSHARES, INC.
- ---------------- ------------------
Secretary Barry E. Backhaus,
President and Chief Executive
Officer
APPENDIX B
FIRST FEDERAL BANKSHARES, INC.
1999 STOCK OPTION PLAN
1. Purpose
The purpose of the First Federal Bankshares, Inc. 1999 Stock Option
Plan (the "Plan") is to advance the interests of the Company and its
stockholders by providing Key Employees and Outside Directors of First Federal
Bankshares, Inc. (the "Company") and its Affiliates, including First Federal
Bank, upon whose judgment, initiative and efforts the successful conduct of the
business of the Company and its Affiliates largely depends, with an additional
incentive to perform in a superior manner as well as to attract people of
experience and ability.
2. Definitions
"Affiliate" means any "parent corporation" or "subsidiary corporation"
of the Company or the Bank, as such terms are defined in Section 424(e) or
424(f), respectively, of the Code, or a successor to a parent corporation or
subsidiary corporation.
"Award" means an Award of Non-Statutory Stock Options, Incentive Stock
Options, Limited Rights, Reload Options and/or Dividend Equivalent Rights
granted under the provisions of the Plan.
"Bank" means First Federal Bank, or a successor corporation.
"Beneficiary" means the person or persons designated by a Participant
to receive any benefits payable under the Plan in the event of such
Participant's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if
any, or if none, his estate.
"Board" or "Board of Directors" means the board of directors of the
Company or its Affiliate, as applicable.
"Cause" means personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or a final cease-and-desist order, any
of which results in a material loss to the Company or an Affiliate.
"Change in Control" of the Bank or the Company means a change in
control of a nature that: (i) would be required to be reported in response to
Item 1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Company within the meaning of the Home Owners Loan Act, as amended ("HOLA"), and
applicable rules and regulations promulgated thereunder, as in effect at the
time of the Change in Control; or (iii) without limitation such a Change in
<PAGE>
Control shall be deemed to have occurred at such time as (a) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or more of
the combined voting power of Company's outstanding securities except for any
securities purchased by the Bank's employee stock ownership plan or trust; or
(b) individuals who constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (b), considered as though
he were a member of the Incumbent Board; or (c) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Company or similar transaction in which the Bank or Company is not the
surviving institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the Plan are to be exchanged for or converted into
cash or property or securities not issued by the Company; or (e) a tender offer
is made for 25% or more of the voting securities of the Company and the
shareholders owning beneficially or of record 25% or more of the outstanding
securities of the Company have tendered or offered to sell their shares pursuant
to such tender offer and such tendered shares have been accepted by the tender
offeror. Notwithstanding the foregoing, a "change in control" shall not be
deemed to have occurred in the event of a conversion of the Company's mutual
holding company to stock form or in connection with any reorganization or action
used to effect such a conversion.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a Committee of the Board consisting of either (i) at
least two Non-Employee Directors of the Company, or (ii) the entire Board of the
Company.
"Common Stock" means shares of the common stock of the Company, par
value $0.01 per share.
"Company" means First Federal Bankshares, Inc. or a successor
corporation.
"Continuous Service" means employment as a Key Employee and/or service
as an Outside Director without any interruption or termination of such
employment and/or service. Continuous Service shall also mean a continuation as
a member of the Board of Directors following a cessation of employment as a Key
Employee. In the case of a Key Employee, employment shall not be considered
interrupted in the case of sick leave, military leave or any other leave of
absence approved by the Bank or in the case of transfers between payroll
locations of the Bank or between the Bank, its parent, its subsidiaries or its
successor.
"Date of Grant" means the actual date on which an Award is granted by
the Committee.
<PAGE>
"Director" means a member of the Board.
"Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him, or of a Director to serve as such. Additionally, in
the case of an employee, a medical doctor selected or approved by the Board must
advise the Committee that it is either not possible to determine when such
Disability will terminate or that it appears probable that such Disability will
be permanent during the remainder of said employee's lifetime.
"Dividend Equivalent Rights" means the right to receive an amount of
cash based upon the terms set forth in Section 10 hereof.
"Effective Date" means the date of, or a date determined by the Board
of Directors following, approval of the Plan by the Company's stockholders.
"Fair Market Value" means, when used in connection with the Common
Stock on a certain date, the reported closing price of the Common Stock as
reported by the Nasdaq stock market (as published by the Wall Street Journal, if
published) on the day prior to such date, or if the Common Stock was not traded
on the day prior to such date, on the next preceding day on which the Common
Stock was traded; provided, however, that if the Common Stock is not reported on
the Nasdaq stock market, Fair Market Value shall mean the average sale price of
all shares of Common Stock sold during the 30-day period immediately preceding
the date on which such stock option was granted, and if no shares of stock have
been sold within such 30-day period, the average sale price of the last three
sales of Common Stock sold during the 90-day period immediately preceding the
date on which such stock option was granted. In the event Fair Market Value
cannot be determined in the manner described above, then Fair Market Value shall
be determined by the Committee. The Committee is authorized, but is not
required, to obtain an independent appraisal to determine the Fair Market Value
of the Common Stock.
"Incentive Stock Option" means an Option granted by the Committee to a
Participant, which Option is designated as an Incentive Stock Option pursuant to
Section 9.
"Key Employee" means any person who is currently employed by the
Company or an Affiliate who is chosen by the Committee to participate in the
Plan.
"Limited Right" means the right to receive an amount of cash based upon
the terms set forth in Section 10.
"Non-Statutory Stock Option" means an Option granted by the Committee
to (i) an Outside Director or (ii) to any other Participant and such Option is
either (A) not designated by the Committee as an Incentive Stock Option, or (B)
fails to satisfy the requirements of an Incentive Stock Option as set forth in
Section 422 of the Code and the regulations thereunder.
"Non-Employee Director" means, for purposes of the Plan, a Director who
(a) is not employed by the Company or an Affiliate; (b) does not receive
compensation directly or indirectly as a consultant (or in any other capacity
than as a Director) greater than $60,000; (c) does not have an interest in a
transaction requiring disclosure under Item 404(a) of Regulation S-K; or (d) is
not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(b) of Regulation S-K.
<PAGE>
"Normal Retirement" means for a Key Employee, retirement at the normal
or early retirement date set forth in the Bank's Employee Stock Ownership Plan,
or any successor plan. Normal Retirement for an Outside Director means a
cessation of service on the Board of Directors for any reason other than removal
for Cause, after reaching 60 years of age and maintaining at least 10 years of
Continuous Service.
"Outside Director" means a Director of the Company or an Affiliate who
is not an employee of the Company or an Affiliate.
"Option" means an Award granted under Section 8 or Section 9.
"OTS" means the Office of Thrift Supervision.
"Participant" means a Key Employee or Outside Director of the Company
or its Affiliates who receives or has received an award under the Plan.
"Reload Option" means an option to acquire shares of Common Stock
equivalent to the shares (i) used by a Participant to pay for an Option, or (ii)
deducted from any distribution in order to satisfy income tax required to be
withheld, based upon the terms set forth in Section 20.
"Right" means a Limited Right or a Dividend Equivalent Right.
"Termination for Cause" means the termination of employment or
termination of service on the Board caused by the individual's personal
dishonesty, willful misconduct, any breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, or the willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses), or a final cease-and-desist order, any of which results in material
loss to the Company or one of its Affiliates.
3. Plan Administration Restrictions
The Plan shall be administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan and OTS regulations and
policy, to establish such rules and regulations as it deems necessary for the
proper administration of the Plan and to make whatever determinations and
interpretations in connection with the Plan it deems necessary or advisable. All
determinations and interpretations made by the Committee shall be binding and
conclusive on all Participants in the Plan and on their legal representatives
and beneficiaries.
All transactions involving a grant, award or other acquisition from the
Company shall:
(a) be approved by the Company's full Board or by the Committee;
(b) be approved, or ratified, in compliance with Section 14 of the
Exchange Act, by either: the affirmative vote of the holders of a majority of
the securities present, or represented and entitled to vote at a meeting duly
held in accordance with the laws of the state in which the Company is
incorporated; or the written consent of the holders of a majority of the
securities of the issuer entitled to vote provided that such ratification occurs
no later than the date of the next annual meeting of shareholders; or
(c) result in the acquisition of an Option or Limited Right that is
held by the Participant for a period of six months following the date of such
acquisition.
<PAGE>
4. Types of Awards
Awards under the Plan may be granted in any one or a combination of:
(a) Incentive Stock Options; (b) Non-Statutory Stock Options; (c) Limited
Rights; (d) Dividend Equivalent Rights; and (e) Reload Options.
5. Stock Subject to the Plan
Subject to adjustment as provided in Section 18, the maximum number of
shares reserved for issuance under the Plan is 263,500 shares. To the extent
that Options or Rights granted under the Plan are exercised, the shares covered
will be unavailable for future grants under the Plan; to the extent that Options
together with any related Rights granted under the Plan terminate, expire or are
canceled without having been exercised or, in the case of Limited Rights
exercised for cash, new Awards may be made with respect to these shares.
6. Eligibility
Key Employees of the Company and its Affiliates shall be eligible to
receive Incentive Stock Options, Non-Statutory Stock Options, Limited Rights,
Reload Options and/or Dividend Equivalent Rights under the Plan. Outside
Directors shall be eligible to receive Non-Statutory Stock Options, Dividend
Equivalent Rights and Reload Options under the Plan.
7. General Terms and Conditions of Options and Rights
The Committee shall have full and complete authority and discretion,
subject to OTS regulations and policy and except as expressly limited by the
Plan, to grant Options and/or Rights and to provide the terms and conditions
(which need not be identical among Participants) thereof. In particular, the
Committee shall prescribe the following terms and conditions: (i) the Exercise
Price of any Option or Right, which shall not be less than the Fair Market Value
per share on the Date of Grant, (ii) the number of shares of Common Stock
subject to, and the expiration date of, any Option or Right, which expiration
date shall not exceed ten years from the Date of Grant, (iii) the manner, time
and rate (cumulative or otherwise) of exercise of such Option or Right, and (iv)
the restrictions, if any, to be placed upon such Option or Right or upon shares
of Common Stock which may be issued upon exercise of such Option or Right.
Notwithstanding the foregoing and subject to compliance with applicable
OTS regulations and policy, no individual shall be granted Awards with respect
to more than 25% of the total shares subject to the Plan; no Outside Director
shall be granted Awards with respect to more than 5% of the total shares of
Common Stock subject to the Plan; all Outside Directors in the aggregate may not
be granted Awards with respect to more than 30% of the total shares of Common
Stock subject to the Plan; no Awards shall begin vesting earlier than one year
from the date the Plan is approved by stockholders of the Company and no Awards
shall vest at a rate in excess of 20% per year beginning from the Date of Grant.
In the event OTS regulations are amended (the "Amended Regulations") to permit,
or OTS policy would permit, shorter vesting periods, any Award made pursuant to
this Plan which Award is subject to the requirements of such Amended Regulations
or OTS policy, may vest, at the sole discretion of the Committee, in accordance
with such Amended Regulations or OTS policy.
<PAGE>
8. Non-Statutory Stock Options
The Committee may, from time to time, grant Non-Statutory Stock
Options to eligible Key Employees and Outside Directors, and, upon such terms
and conditions as the Committee may determine, grant Non-Statutory Stock Options
in exchange for and upon surrender of previously granted Awards under the Plan.
Non-Statutory Stock Options granted under the Plan, including Non-Statutory
Stock Options granted in exchange for and upon surrender of previously granted
Awards, are subject to the terms and conditions set forth in this Section 8. The
maximum number of shares subject to a Non-Statutory Option that may be awarded
under the Plan to any Key Employee shall be 65,875, subject to OTS regulations
and policy, as set forth in Section 7, above, to the extent applicable.
(a) Option Agreement. Each Option shall be evidenced by a written
option agreement between the Company and the Participant specifying the number
of shares of Common Stock that may be acquired through its exercise and
containing such other terms and conditions that are not inconsistent with the
terms of the Plan.
(b) Price. The purchase price per share of Common Stock deliverable
upon the exercise of each Non-Statutory Stock Option shall be the Fair Market
Value of the Common Stock of the Company on the Date of Grant. Shares may be
purchased only upon full payment of the purchase price in one or more of the
manners set forth in Section 14 hereof, as determined by the Committee.
(c) Vesting. A Non-Statutory Stock Option granted under the Plan shall
vest in a Participant at the rate or rates determined by the Committee;
provided, however, that no such option shall vest at a rate in excess of 20% of
the initially awarded amount per year commencing with the vesting of the first
installment one year from the Date of Grant. No Options shall become vested in a
Participant unless the Participant maintains Continuous Service until the
vesting date of such Option, except as set forth herein.
(d) Exercise of Options. A vested Option may be exercised from time to
time, in whole or in part, by delivering a written notice of exercise to the
President or Chief Executive Officer of the Company, or his designee. Such
notice shall be irrevocable and must be accompanied by full payment of the
purchase price in cash or shares of Common Stock at the Fair Market Value of
such shares, determined on the exercise date in the manner described in Section
2 hereof. If previously acquired shares of Common Stock are tendered in payment
of all or part of the exercise price, the value of such shares shall be
determined as of the date of such exercise.
(e) Term of Options. The term during which each Non-Statutory Stock
Option may be exercised shall be determined by the Committee, but in no event
shall a Non-Statutory Stock Option be exercisable in whole or in part more than
10 years and one day from the Date of Grant.
(f) Amount of Awards. Subject to OTS regulations and policy,
Non-Statutory Stock Options may be granted to any Key Employee or Outside
Director in such amounts as determined by the Committee. In granting
Non-Statutory Stock Options, the Committee shall consider such factors as it
deems relevant, which factors may include, among others, the position and
responsibility of the Key Employee or Outside Director, the length and value of
his service to the Bank, the Company or the Affiliate, the compensation paid to
the Key Employee or Outside Director, and the Committee's evaluation of the
performance of the Bank, the Company or the Affiliate, according to measurements
that may include, among others, key financial ratios, level of classified assets
and independent audit findings.
<PAGE>
(g) Termination of Employment or Service. Upon the termination of a Key
Employee's employment or upon termination of an Outside Director's service for
any reason other than death, Disability or Termination for Cause, the
Participant's Non-Statutory Stock Options shall be exercisable only as to those
shares that were immediately purchasable on the date of termination and only for
one year following termination. In the event of Termination for Cause, all
rights under a Participant's Non-Statutory Stock Options shall expire upon
termination. In the event of the Participant's termination of service or
employment due to death or Disability, all Non-Statutory Stock Options held by
the Participant, whether or not exercisable at such time, shall be exercisable
by the Participant or his legal representative or beneficiaries for five years
following the date of such termination of employment or cessation of service,
provided that in no event shall the period extend beyond the expiration of the
Non-Statutory Stock Option term.
(h) Transferability. In the discretion of the Board, all or any
Non-Statutory Stock Option granted hereunder may be transferable by the
Participant once the Option has vested in the Participant, provided, however,
that the Board may limit the transferability of such Option or Options to a
designated class or classes of persons.
9. Incentive Stock Options
The Committee may, from time to time, grant Incentive Stock Options to
Key Employees. Incentive Stock Options granted pursuant to the Plan shall be
subject to the following terms and conditions:
(a) Option Agreement. Each Option shall be evidenced by a written
option agreement between the Company and the Key Employee specifying the number
of shares of Common Stock that may be acquired through its exercise and
containing such other terms and conditions that are not inconsistent with the
terms of the Plan.
(b) Price. Subject to Section 18 of the Plan and Section 422 of the
Code, the purchase price per share of Common Stock deliverable upon the exercise
of each Incentive Stock Option shall be not less than 100% of the Fair Market
Value of the Company's Common Stock on the date the Incentive Stock Option is
granted. However, if a Key Employee owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or its
Affiliates (or under Section 424(d) of the Code is deemed to own stock
representing more than 10% of the total combined voting power of all classes of
stock of the Company or its Affiliates by reason of the ownership of such
classes of stock, directly or indirectly, by or for any brother, sister, spouse,
ancestor or lineal descendent of such Key Employee, or by or for any
corporation, partnership, estate or trust of which such Key Employee is a
shareholder, partner or Beneficiary), the purchase price per share of Common
Stock deliverable upon the exercise of each Incentive Stock Option shall not be
less than 110% of the Fair Market Value of the Company's Common Stock on the
date the Incentive Stock Option is granted. Shares may be purchased only upon
payment of the full purchase price in one or more of the manners set forth in
Section 14 hereof, as determined by the Committee.
(c) Vesting. Incentive Stock Options granted under the Plan shall vest
in a Participant at the rate or rates determined by the Committee; provided,
however, that no such option shall vest at a rate in excess of 20% of the
initially awarded amount per year commencing with the vesting of the first
installment one year from the Date of Grant.
<PAGE>
(d) Exercise of Options. Vested Options may be exercised from time to
time, in whole or in part, by delivering a written notice of exercise to the
President or Chief Executive Officer of the Company or his designee. Such notice
is irrevocable and must be accompanied by full payment of the exercise price in
cash or shares of Common Stock at the Fair Market Value of such shares
determined on the exercise date by the manner described in Section 2.
The Option comprising each installment may be exercised in whole or in
part at any time after such installment becomes vested, provided that the amount
able to be first exercised in a given year is consistent with the terms of
Section 422 of the Code. To the extent required by Section 422 of the Code, the
aggregate Fair Market Value (determined at the time the Option is granted) of
the Common Stock for which Incentive Stock Options are exercisable for the first
time by a Participant during any calendar year (under all plans of the Company
and its Affiliates) shall not exceed $100,000.
(e) Amount of Awards. Incentive Stock Options may be granted to any
eligible Key Employee in such amounts as determined by the Committee; provided
that the amount granted is consistent with OTS regulations and policy and with
the terms of Section 422 of the Code. Notwithstanding the above, the maximum
number of shares that may be subject to an Incentive Stock Option awarded under
the Plan to any Key Employee shall be 65,875, subject to OTS regulations and
policy, as set forth in Section 7, above. In granting Incentive Stock Options,
the Committee shall consider such factors as it deems relevant, which factors
may include, among others, the position and responsibilities of the Key
Employee, the length and value of his or her service to the Bank, the Company,
or the Affiliate, the compensation paid to the Key Employee and the Committee's
evaluation of the performance of the Bank, the Company, or the Affiliate,
according to measurements that may include, among others, key financial ratios,
levels of classified assets, and independent audit findings.
(f) Terms of Options. The term during which each Incentive Stock Option
may be exercised shall be determined by the Committee, but in no event shall an
Incentive Stock Option be exercisable in whole or in part more than 10 years
from the Date of Grant. If any Key Employee, at the time an Incentive Stock
Option is granted to him, owns stock representing more than 10% of the total
combined voting power of all classes of stock of the Company or its Affiliate
(or, under Section 424(d) of the Code, is deemed to own stock representing more
than 10% of the total combined voting power of all classes of stock, by reason
of the ownership of such classes of stock, directly or indirectly, by or for any
brother, sister, spouse, ancestor or lineal descendent of such Key Employee, or
by or for any corporation, partnership, estate or trust of which such Key
Employee is a shareholder, partner or Beneficiary), the Incentive Stock Option
granted to him shall not be exercisable after the expiration of five years from
the Date of Grant.
(g) Termination of Employment. Upon the termination of a Key Employee's
service for any reason other than Disability, death or Termination for Cause,
the Key Employee's Incentive Stock Options shall be exercisable only as to those
shares that were immediately purchasable by such Key Employee at the date of
termination and only for a period of three months following termination. In the
event of Termination for Cause all rights under the Incentive Stock Options
shall expire upon termination.
<PAGE>
Upon termination of a Key Employee's employment due to death or
Disability, all Incentive Stock Options held by such Key Employee, whether or
not exercisable at such time, shall be exercisable for a period of five years
following the date of his cessation of employment, provided however, that any
such Option shall not be eligible for treatment as an Incentive Stock Option in
the event such Option is exercised more than one year following termination of
employment due to Disability; and provided further, in order to obtain Incentive
Stock Option treatment for Options exercised by heirs or devisees of an
Optionee, the Optionee's death must have occurred while employed or within three
(3) months of termination of employment. In no event shall the exercise period
extend beyond the expiration of the Incentive Stock Option term.
(h) Transferability. No Incentive Stock Option granted under the Plan
is transferable except by will or the laws of descent and distribution and is
exercisable during his lifetime only by the Key Employee to which it is granted.
(i) Compliance with Code. The options granted under this Section 9 are
intended to qualify as Incentive Stock Options within the meaning of Section 422
of the Code, but the Company makes no warranty as to the qualification of any
Option as an Incentive Stock Option within the meaning of Section 422 of the
Code. If an Option granted hereunder fails for whatever reason to comply with
the provisions of Section 422 of the Code, and such failure is not or cannot be
cured, such Option shall be a Non-Statutory Stock Option.
10. Limited Rights
The Committee may grant a Limited Right simultaneously with the grant
of any Option to any Key Employee of the Bank, with respect to all or some of
the shares covered by such Option. Limited Rights granted under the Plan are
subject to the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable
in whole or in part before the expiration of six months from the date of grant
of the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control of the Company.
The Limited Right may be exercised only when the underlying Option is
eligible to be exercised, provided that the Fair Market Value of the underlying
shares on the day of exercise is greater than the exercise price of the related
Option.
Upon exercise of a Limited Right, the related Option shall cease to be
exercisable. Upon exercise or termination of an Option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of the
difference between the exercise price and the Fair Market Value of the Common
Stock subject to the underlying Option. The Limited Right is transferable only
when the underlying Option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall
promptly receive from the Company an amount of cash equal to the difference
between the Fair Market Value on the Date of Grant of the related Option and the
Fair Market Value of the underlying shares on the date the Limited Right is
exercised, multiplied by the number of shares with respect to which such Limited
Right is being exercised. In the event of a Change in Control in which pooling
of interest accounting treatment is a condition to the transaction, the Limited
Right shall be exercisable solely for shares of stock of the Company, or in the
<PAGE>
event of a merger transaction, for shares of the acquiring corporation or its
parent, as applicable. The number of shares to be received on the exercise of
such Limited Right shall be determined by dividing the amount of cash that would
have been available under the first sentence above by the Fair Market Value at
the time of exercise of the shares underlying the Option subject to the Limited
Right.
11. Dividend Equivalent Rights
Simultaneously with the grant of any Option to a Participant, the
Committee may grant a Dividend Equivalent Right with respect to all or some of
the shares covered by such Option. Dividend Equivalent Rights granted under this
Plan are subject to the following terms and conditions:
(a) Terms of Rights. The Dividend Equivalent Right provides the
Participant with a cash benefit per share for each share underlying the
unexercised portion of the related Option equal to the amount of any
extraordinary dividend (as defined in Section 11(c)) per share of Common Stock
declared by the Company. The terms and conditions of any Dividend Equivalent
Right shall be evidenced in the Option agreement entered into with the
Participant and shall be subject to the terms and conditions of the Plan. The
Dividend Equivalent Right is transferable only when the related Option is
transferable and under the same conditions.
(b) Payment. Upon the payment of an extraordinary dividend, the
Participant holding a Dividend Equivalent Right with respect to Options or
portions thereof which have vested shall promptly receive from the Company or
the Bank the amount of cash equal to the amount of the extraordinary dividend
per share of Common Stock, multiplied by the number of shares of Common Stock
underlying the unexercised portion of the related Option. With respect to
Options or portions thereof which have not vested, the amount that would have
been received pursuant to the Dividend Equivalent Right with respect to the
shares underlying such unvested Option or portion thereof shall be paid to the
Participant holding such Dividend Equivalent Right together with earnings
thereon, on such date as the Option or portion thereof becomes vested. Payments
shall be decreased by the amount of any applicable tax withholding prior to
distribution to the Participant as set forth in Section 20.
(c) Extraordinary Dividend. For purposes of this Section 11, an
extraordinary dividend is any dividend paid on shares of Common Stock where the
rate of the dividend exceeds the Company's weighted average cost of funds on
interest-bearing liabilities for the current and preceding three quarters.
12. Reload Option
Simultaneously with the grant of any Option to a Participant, the
Committee may grant a Reload Option with respect to all or some of the shares
covered by such Option. A Reload Option may be granted to a Participant who
satisfies all or part of the exercise price of the Option with shares of Common
Stock (as described in Section 14(c) below). The Reload Option represents an
additional Option to acquire the same number of shares of Common Stock as is
used by the Participant to pay for the original Option. Reload Options may also
be granted to replace Common Stock withheld by the Company for payment of a
Participant's withholding tax under Section 20. A Reload Option is subject to
all of the same terms and conditions as the original Option except that (i) the
exercise price of the shares of Common Stock subject to the Reload Option will
be determined at the time the original Option is exercised and (ii) such Reload
Option will conform to all provisions of the Plan at the time the original
Option is exercised.
<PAGE>
13. Surrender of Option
In the event of a Participant's termination of employment or
termination of service as a result of death or Disability, the Participant (or
his or her personal representative(s), heir(s), or devisee(s)) may, in a form
acceptable to the Committee make application to surrender all or part of the
Options held by such Participant in exchange for a cash payment from the Company
of an amount equal to the difference between the Fair Market Value of the Common
Stock on the date of termination of employment or the date of termination of
service on the Board and the exercise price per share of the Option. Whether the
Company accepts such application or determines to make payment, in whole or
part, is within its absolute and sole discretion, it being expressly understood
that the Company is under no obligation to any Participant whatsoever to make
such payments. In the event that the Company accepts such application and
determines to make payment, such payment shall be in lieu of the exercise of the
underlying Option and such Option shall cease to be exercisable.
14. Alternate Option Payment Mechanism
The Committee has sole discretion to determine what form of payment it
will accept for the exercise of an Option. The Committee may indicate acceptable
forms in the agreement with the Participant covering such Options or may reserve
its decision to the time of exercise. No Option is to be considered exercised
until payment in full is accepted by the Committee or its agent.
(a) Cash Payment. The exercise price may be paid in cash or by
certified check. To the extent permitted by law, the Committee may permit all or
a portion of the exercise price of an Option to be paid through borrowed funds.
(b) Cashless Exercise. Subject to vesting requirements, if applicable,
a Participant may engage in a "cashless exercise" of the Option. Upon a cashless
exercise, the Participant shall give the Company written notice of the exercise
of the Option together with an order to a registered broker-dealer or equivalent
third party, to sell part or all of the Common Stock subject to the Option and
to deliver enough of the proceeds to the Company to pay the Option exercise
price and any applicable withholding taxes. If the Participant does not sell the
Common Stock subject to the Option through a registered broker-dealer or
equivalent third party, the Participant can give the Company written notice of
the exercise of the Option and the third party purchaser of the Common Stock
subject to the Option shall pay the Option exercise price plus applicable
withholding taxes to the Company.
(c) Exchange of Common Stock. The Committee may permit payment of the
Option exercise price by the tendering of previously acquired shares of Common
Stock. All shares of Common Stock tendered in payment of the exercise price of
an Option shall be valued at the Fair Market Value of the Common Stock on the
date prior to the date of exercise. No tendered shares of Common Stock which
were acquired by the Participant upon the previous exercise of an Option or as
awards under a stock award plan (such as the Company's Recognition and Retention
Plan) shall be accepted for exchange unless the Participant has held such shares
(without restrictions imposed by said plan or award) for at least six months
prior to the exchange.
<PAGE>
15. Rights of a Stockholder
A Participant shall have no rights as a stockholder with respect to any
shares covered by a Non-Statutory and/or Incentive Stock Option until the date
of issuance of a stock certificate for such shares. Nothing in the Plan or in
any Award granted confers on any person any right to continue in the employ of
the Company or its Affiliates or to continue to perform services for the Company
or its Affiliates or interferes in any way with the right of the Company or its
Affiliates to terminate his services as an officer, director or employee at any
time.
16. Agreement with Participants
Each Award of Options, Reload Options, Limited Rights and/or Dividend
Equivalent Rights will be evidenced by a written agreement, executed by the
Participant and the Company or its Affiliates that describes the conditions for
receiving the Awards, including the date of Award, the purchase price,
applicable periods, and any other terms and conditions as may be required by the
Board or applicable securities laws.
17. Designation of Beneficiary
A Participant may, with the consent of the Committee, designate a
person or persons to receive, in the event of death, any Option, Reload Options,
Limited Rights or Dividend Equivalent Rights to which he would then be entitled.
Such designation will be made upon forms supplied by and delivered to the
Company and may be revoked in writing. If a Participant fails effectively to
designate a Beneficiary, then his estate will be deemed to be the Beneficiary.
18. Dilution and Other Adjustments
In the event of any change in the outstanding shares of Common Stock of
the Company by reason of any stock dividend or split, pro rata return of capital
to all shareholders, recapitalization, or any merger, consolidation, spin-off,
reorganization, combination or exchange of shares, or other similar corporate
change, or other increase or decrease in such shares without receipt or payment
of consideration by the Company, the Committee will make such adjustments to
previously granted Awards, to prevent dilution or enlargement of the rights of
the Participant, including any or all of the following:
(a) adjustments in the aggregate number or kind of shares of
Common Stock that may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares of
Common Stock covered by Awards already made under the Plan; or
(c) adjustments in the purchase price of outstanding Incentive
and/or Non-Statutory Stock Options, or any Limited Rights
attached to such Options.
No such adjustments may, however, materially change the value of
benefits available to a Participant under a previously granted Award. With
respect to Incentive Stock Options, no such adjustment shall be made if it would
be deemed a "modification" of the Award under Section 424 of the Code.
19. Effect of a Change in Control on Option Awards
In the event of a Change in Control, the Committee and the Board of
Directors will take one or more of the following actions to be effective as of
the date of such Change in Control:
<PAGE>
(a) provide that such Options shall be assumed, or equivalent options
shall be substituted, ("Substitute Options") by the acquiring or succeeding
corporation (or an affiliate thereof), provided that: (A) any such Substitute
Options exchanged for Incentive Stock Options shall meet the requirements of
Section 424(a) of the Code, and (B) the shares of stock issuable upon the
exercise of such Substitute Options shall constitute securities registered in
accordance with the Securities Act of 1933, as amended ("1933 Act") or such
securities shall be exempt from such registration in accordance with Sections
3(a)(2) or 3(a)(5) of the 1933 Act, (collectively, "Registered Securities"), or
in the alternative, if the securities issuable upon the exercise of such
Substitute Options shall not constitute Registered Securities, then the
Participant will receive upon consummation of the Change in Control a cash
payment for each Option surrendered equal to the difference between the (1) Fair
Market Value of the consideration to be received for each share of Common Stock
in the Change in Control times the number of shares of Common Stock subject to
such surrendered Options, and (2) the aggregate exercise price of all such
surrendered Options; or
(b) in the event of a transaction under the terms of which the holders
of Common Stock will receive upon consummation thereof a cash payment (the
"Merger Price") for each share of Common Stock exchanged in the Change in
Control transaction, make or to provide for a cash payment to the Participants
equal to the difference between (1) the Merger Price times the number of shares
of Common Stock subject to such Options held by each Participant (to the extent
then exercisable at prices not in excess of the Merger Price) and (2) the
aggregate exercise price of all such surrendered Options.
20. Withholding
There may be deducted from each distribution of cash and/or Common
Stock under the Plan the minimum amount of any federal or state taxes, including
payroll taxes, that are applicable to such supplemental taxable income and that
are required by any governmental authority to be withheld. Shares of Common
Stock will be withheld where required from any distribution of Common Stock.
21. Amendment of the Plan
The Board may at any time, and from time to time, modify or amend the
Plan in any respect, or modify or amend an Award received by Key Employees
and/or Outside Directors subject to OTS regulations; provided, however, that no
such termination, modification or amendment may affect the rights of a
Participant, without his consent, under an outstanding Award. Any amendment or
modification of the Plan or an outstanding Award under the Plan shall be
approved by the Committee or the full Board of the Company.
22. Effective Date of Plan
The Plan shall become effective upon the date of, or a date determined
by the Board of Directors following, approval of the Plan by the Company's
stockholders.
23. Termination of the Plan
The right to grant Awards under the Plan will terminate upon the
earlier of (i) 10 years after the Effective Date, or (ii) the date on which the
<PAGE>
exercise of Options or related rights equaling the maximum number of shares
reserved under the Plan occurs, as set forth in Section 5. The Board may suspend
or terminate the Plan at any time, provided that no such action will, without
the consent of a Participant, adversely affect his rights under a previously
granted Award.
24. Applicable Law
The Plan will be administered in accordance with the laws of the State
of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Company has caused the Plan to be executed by
its duly authorized officers and the corporate seal to be affixed and duly
attested, as of the ____ day of ________________, 1999.
Date Approved by Stockholders: ___________________
Effective Date: __________________________________
ATTEST: FIRST FEDERAL BANKSHARES, INC.
Secretary Barry E. Backhaus
President and Chief Executive Officer
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